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 |
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20172022
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.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)
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 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
| 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¨ ☐ Nox☒
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of September 30, 2017,July 20, 2022, the number of the Company's shares of common stockCommon Stock par value $0.001, outstanding was 4,986,048. .
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
FORM 10-Q
September 30, 2017
Index
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.Statements
ELECTRONIC SYSTEMS TECHNOLOGY, INC. CONDENSED BALANCE SHEETS (Unaudited) | ||||||||
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 579,021 | $ | 655,616 | ||||
Certificates of deposit | 400,000 | 400,000 | ||||||
Accounts receivable, net | 159,468 | 166,303 | ||||||
Inventories | 529,085 | 501,833 | ||||||
Prepaid expenses | 18,083 | 24,387 | ||||||
Accrued interest receivable | 676 | 35 | ||||||
Total current assets | 1,686,333 | 1,748,174 | ||||||
Property and equipment, net of depreciation | 1,136 | 1,358 | ||||||
Right to use – Lease, net of amortization (NOTE 6) | 9,737 | 28,922 | ||||||
Total assets | $ | 1,697,206 | $ | 1,778,454 | ||||
LIABILITIES and STOCKHOLDERS' EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 39,535 | $ | 71,645 | ||||
Accrued wages and bonus | 5,818 | 9,114 | ||||||
Accrued vacation pay | 17,845 | 28,438 | ||||||
Lease liability, current (NOTE 6) | 9,895 | 13,613 | ||||||
Other accrued liabilities | 7,053 | 14,827 | ||||||
Total current liabilities | 80,146 | 137,637 | ||||||
Stockholders' equity | ||||||||
Common stock, $ par value shares authorized and shares issued and outstanding respectively | 4,947 | 4,947 | ||||||
Additional paid-in capital | 932,412 | 932,412 | ||||||
Retained earnings | 679,701 | 703,458 | ||||||
Total stockholders' equity | 1,617,060 | 1,640,817 | ||||||
Total liabilities and stockholders' equity | $ | 1,697,206 | $ | 1,778,454 |
(See "NotesNotes to Financial Statements")Statements.
2 |
ELECTRONIC SYSTEMS TECHNOLOGY, INC. CONDENSED STATEMENTS OF OPERATIONS (Unaudited) | ||||||||||||||||
Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |||||||||||||
SALES - NET | $ | 416,892 | $ | 457,003 | $ | 889,035 | $ | 881,779 | ||||||||
COST OF SALES | (191,437 | ) | (213,197 | ) | (401,321 | ) | (393,734 | ) | ||||||||
GROSS PROFIT | 225,455 | 243,806 | 487,714 | 488,045 | ||||||||||||
Operating Expenses | ||||||||||||||||
General and administrative | 66,747 | 66,452 | 151,522 | 159,955 | ||||||||||||
Research and development | 45,856 | 54,249 | 91,633 | 106,949 | ||||||||||||
Marketing and sales | 132,242 | 127,419 | 269,401 | 221,634 | ||||||||||||
TOTAL OPERATING EXPENSE | 244,845 | 248,120 | 512,556 | 488,538 | ||||||||||||
OPERATING INCOME (LOSS) | (19,390 | ) | (4,314 | ) | (24,842 | ) | (493 | ) | ||||||||
OTHER INCOME | ||||||||||||||||
Gain on forgiveness of CARES Act loan | 0 | 150,118 | 0 | 150,118 | ||||||||||||
Interest income | 594 | 566 | 1,085 | 1,427 | ||||||||||||
TOTAL OTHER INCOME | 594 | 150,684 | 1,085 | 151,545 | ||||||||||||
NET INCOME (LOSS) BEFORE INCOME TAX | (18,796 | ) | 146,370 | (23,757 | ) | 151,052 | ||||||||||
Benefit (provision) for income tax | 0 | 0 | 0 | 0 | ||||||||||||
NET INCOME (LOSS) | $ | (18,796 | ) | $ | 146,370 | $ | (23,757 | ) | $ | 151,052 | ||||||
Basic and diluted earnings per share | ($ | 0.00 | ) | $ | 0.03 | ($ | 0.00 | ) | $ | 0.03 | ||||||
Basic and diluted weighted average shares used in computing income (loss) per share: | 4,946,502 | 4,946,502 | 4,946,502 | 4,946,502 |
(See "NotesNotes to Financial Statements")Statements.
3 |
ELECTRONIC SYSTEMS TECHNOLOGY, INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
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Six Months Ended | ||||||||
June 30, | June 30, | |||||||
2022 | 2021 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income (loss) | $ | (23,757 | ) | $ | 151,052 | |||
Noncash items included in net loss: | ||||||||
Depreciation | 222 | 2,578 | ||||||
Gain on forgiveness of CARES Act loan | 0 | (150,118 | ) | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable, net | 6,835 | 127,588 | ||||||
Inventories | (27,252 | ) | 139,934 | |||||
Accrued interest receivable | (641 | ) | 3,845 | |||||
Prepaid expenses | 6,304 | 4,745 | ||||||
Accounts payable | (31,151 | ) | 5,146 | |||||
Other accrued liabilities | (1,187 | ) | 64,152 | |||||
NET CASH PROVIDED (USED) IN OPERATING ACTIVITIES | (70,627 | ) | 348,922 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Certificates of deposit redeemed | 300,000 | 249,999 | ||||||
Certificates of deposit purchased | (300,000 | ) | 0 | |||||
NET CASH PROVIDED FROM INVESTING ACTIVITIES | 0 | 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 (rounds 1 and 2) | 0 | 130,255 | ||||||
NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES | (5,968 | ) | 128,280 | |||||
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS | (76,595 | ) | 727,201 | |||||
Cash and cash equivalents at beginning of period | 655,616 | 308,110 | ||||||
Cash and cash equivalents at end of period | $ | 579,021 | $ | 1,035,311 |
(See "NotesNotes to Financial Statements")Statements.
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ELECTRONIC SYSTEMS TECHNOLOGY, INC.
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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 | $ | 1,551,540 | |||||||||||
Net income (loss) | — | — | — | 146,370 | 146,370 | |||||||||||||||
Balance at June 30, 2021 | 4,946,502 | $ | 4,947 | $ | 931,442 | $ | 761,521 | $ | 1,697,910 | |||||||||||
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 |
5
See Notes to Financial Statements.
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ELECTRONIC SYSTEMS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The 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 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 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 June 30, 2021, and its results of operations, cash flows, and changes in stockholders’ equity for the three months and six months ended June 30, 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 month and nine monthssix-month period ended SeptemberJune 30, 2017 and September 30, 2016,2022 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:
Schedule of Inventories | ||||||||||
| September 30, 2017 | December 31, 2016 | June 30, 2022 | December 31, 2021 | ||||||
Parts | $ 147,379 | $ 185,911 | $ | 107,986 | $ | 92,751 | ||||
Work in progress | 240,557 | 216,859 | 182,753 | 171,705 | ||||||
Finished goods | 426,034 | 300,377 | 238,346 | 237,377 | ||||||
| $ 813,970 | $ 703,147 | ||||||||
Total inventories | $ | 529,085 | $ | 501,833 |
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ELECTRONIC SYSTEMS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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 of Common Stock outstanding for the period. Diluted incomeearnings (loss) per share reflects potential dilution occurring if securities or other contracts to issue common stockCommon Stock were exercised or converted into common stockCommon Stock or resulted in the issuance of common stockCommon Stock that then shared in the earnings of the Company. At SeptemberJune 30, 2017,2022 and 2021, the Company had 150,000and 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 for either period as they were anti-dilutive. outstanding stock options, respectively, that could have a dilutive effect on future
No stock options were issued, exercised, or expired during the six month periods ended June 30, 2022 and 2021. During the same periods, and nil options were forfeited in 2022 and 2021 respectively. As of June 30, 2022, there were options outstanding with a weighted average shares outstanding. exercise price of $ per share, a weighted average remaining life of years and intrinsic value.
NOTE 5 – REVENUE
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The Company 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 periods ended June 30, 2022 and 2021, the Company’s revenue from products sales was $409,392 and $448,403, respectively. Revenue from site support and engineering services was $7,500 and $8,600 respectively, over the same periods.
During the six month periods ended June 30, 2022 and 2021, the Company’s revenue from products sales was $871,235 and $870,079, respectively. Revenue from site support and engineering services was $17,800 and $11,700 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 for the three month period ended June 30, 2022 and June 30, 2021 were $378,959 and $432,215, respectively. Sales to foreign customers for the three month period ended June 30, 2022 and June 30, 2021 were $37,933 and $24,788, respectively.
Domestic sales for the six month period ended June 30, 2022 and June 30, 2021 were $815,629 and $794,330, respectively. Sales to foreign customers for the six month period ended June 30, 2022 and June 30, 2021 were $73,406 and $87,449, respectively.
For the three-month period ended June 30, 2022, sales to three customers represented more than 10% of total revenue, three customers represented more than 10% of total revenue for the same period in 2021.
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ELECTRONIC SYSTEMS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Revenue | ||||||||||||||||
2022 Sales | 2022 %age of Total Sales | 2021 Sales | 2021%age of Total Sales | |||||||||||||
Domestic customer A | $ | 54,436 | 13 | % | $ | 76,947 | 17 | % | ||||||||
Domestic customer B | 53,880 | 13 | % | 64,968 | 14 | % | ||||||||||
Domestic customer C | 49,031 | 12 | % | 62,080 | 14 | % |
For the six-month period ended June 30, 2022, sales to three customers represented more than 10% of total revenue, two customers represented more than 10% of total revenue for the same period in 2021.
NOTE 4 - STOCK OPTIONS
2022 Sales | 2022 %age of Total Sales | 2021 Sales | 2021 %age of Total Sales | |||||||||||||
Domestic customer A | $ | 121,715 | 14 | % | $ | 133,118 | 15 | % | ||||||||
Domestic customer B | 107,505 | 12 | % | 129,798 | 15 | % | ||||||||||
Domestic customer C | 100,693 | 11 | % |
As of SeptemberJune 30, 2017,2022 and 2021, the Company had outstanding stock options, which have been granted periodically to individual employeesa sales order backlog of $24,857 and directors with no less than three years of continuous tenure with the Company. The Board of Directors has not awarded stock options during the nine months ended September 30, 2017. The Board 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 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, 2015 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.$17,143, respectively.
The fair value of each option award is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2015 and approved by the Shareholders in 2016.
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The Company uses historical data to estimate option exercise rates. The option exercise rate for option grants in 2005 through 2016 was 5.2%.
A summary of option activity during 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 TRANSACTIONS
During the quarter ended September 30, 2017, the Company accrued total directors’ fees of $1,200, or $300 per director for board meetings attended. For the nine-month period ending September 30, 2017, the Company paid or accrued a total of $3,600 for directors’ fees.
NOTE 6 - COMMITMENTSLEASES
On September 23, 2020, the Company signed a new two-year lease for its facilities. The Company leases its facilities from a port authority for $5,445base 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 use asset of $74,005 based on the two-year payment stream discounted using an estimated incremental borrowing rate of 4.0%. At June 30, 2022, the remaining lease term is three years, expiring in September 2020, with annual increases based upon the Consumer Price Index.months over which payments of $9,737 will be paid.
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ELECTRONIC SYSTEMS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 7 - SEGMENT REPORTING
Segment information is prepared
For the three month and six-month periods ended June 30, 2022 and 2021, lease expenses of $10,903 and $10,862, and $21,805 and $21,724, respectively, are included in the following expense classifications on the same basis that the Company's management reviews financial information for operational decision-making purposes. statement of operations:
During the quarter 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, sales to one customer comprised more than 10% of the Company’s sales revenues. Revenues from foreign countries during the third quarter of 2017 consist primarily of revenues from product sales to Mexico, Peru, India.
Leases | ||||||||||||||||||||||||
For the three-month period ending June 30, | ||||||||||||||||||||||||
2022 | 2021 | |||||||||||||||||||||||
Cost of sales | Operating expenses | Total | Cost of sales | Operating expenses | Total | |||||||||||||||||||
Base rent pursuant to lease agreement | $ | 5,397 | $ | 4,248 | $ | 9,645 | $ | 5,396 | $ | 4,248 | $ | 9,644 | ||||||||||||
Variable lease costs | 704 | 554 | 1,258 | 682 | 536 | 1,218 | ||||||||||||||||||
Total lease costs | $ | 6,101 | $ | 4,802 | $ | 10,903 | $ | 6,078 | $ | 4,784 | $ | 10,862 |
For the six-month period ending June 30, | ||||||||||||||||||||||||
2022 | 2021 | |||||||||||||||||||||||
Cost of sales | Operating expenses | Total | Cost of sales | Operating expenses | Total | |||||||||||||||||||
Base rent pursuant to lease agreement | $ | 10,793 | $ | 8,495 | $ | 19,288 | $ | 10,793 | $ | 8,495 | $ | 19,288 | ||||||||||||
Variable lease costs | 1,408 | 1,109 | 2,517 | 1,363 | 1,073 | 2,436 | ||||||||||||||||||
Total lease costs | $ | 12,201 | $ | 9,604 | $ | 21,805 | $ | 12,156 | $ | 9,568 | $ | 21,724 |
NOTE 8 – Stock Repurchase
On January 13, 2016, the Company’s Board of Directors approved a resolution authorizing the repurchase of up to $100,000 of 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. As of September 30, 2017, $184,405 remains 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 will be zero.
The Deferred Tax asset that is recognized on the Balance Sheets consists primarily 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.
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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 SeptemberJune 30, 2016.2020. The following statements may be forward looking in nature and actual results may differ materially.
A. | RESULTS OF OPERATIONS |
A. Results of Operations
REVENUES:
Total revenues from the sale of the Company’s ESTeem wireless modem products and services increasedsales decreased to $322,763$416,892 for the thirdsecond quarter of 2017,2022 as compared to $321,468 for$457,003 in the thirdsecond quarter of 2016. Gross2021, reflecting a decrease of 8.8%. Management believes the decrease in sales revenues including interest income, increasedis due to $325,721 for the quarter ended September 30, 2017, from $324,514 for the same quarterimpact of 2016.supply chain delays to materials needed by our customers to compete projects. Year to date total revenues from sales decreasedincreased to $1,082,161 as of September 30, 2017,$889,035 in 2022 as compared to $1,250,238 as$881,779 in 2021, reflecting an increase of September 30, 2016. Year to date gross revenues, including interest income, decreased to $1,090,657 as of September 30, 2017, compared to $1,259,155 as of September 30, 2016.0.8%. Management believes the increase in quarterly sales revenues is due the company increased inventory level and the ability to increased demand for the new products introduced at the beginning of 2017.ship orders in a timely manner.
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.
A percentage breakdown of EST'sthe Company’s market segments of Domestic and Export Sales, for the third quarter of 2017 and 2016 are as follows:
| For the third quarter | |
| 2017 | 2016 |
Domestic Sales | 88% | 86% |
Export Sales | 12% | 14% |
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 productExport sales for the quarterthree and six month periods ended SeptemberJune 30, 2017. Products purchased by foreign customers were used primarily in industrial automation applications. We believe2022 and 2021 are as follows:
Three Months ended June 30, 2022 | Three Months ended June 30, 2021 | Six Months ended June 30, 2022 | Six Months ended June 30, 2021 | |||||||||||||
Domestic Sales | 91% | 95% | 92% | 90% | ||||||||||||
Export Sales | 9% | 5% | 8% | 10% |
BACKLOG:
As of June 30, 2022, 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 Corporation had a sales order backlog of approximately $22,707 as of September 30, 2017.$24,857. 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 quartersecond quarters of 20172022 and 2016 was 40%2021 were 46% and 36%, respectively.47% of respective net sales. The cost of sales increase forpercentage decreased in the thirdsecond quarter of 20172022 is the result of the product mix for items sold during the period.
OPERATING EXPENSES:
Operating expensessame quarter of 2021. Cost of sales percentages for the thirdsix month periods ended June 30, 2022 and 2021 were 45.1% and 44.7%, respectively. The cost of sales percentage increase in the second quarter of 2017 decreased $10,857 from2022 is the third quarterresult of 2016. the product mix sold during the same period of 2021.
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OPERATING EXPENSES:
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) |
Three Months Ended | Six Month Ended | |||||||||||||||||||||||
June 30, 2022 | June 30, 2021 | Increase (Decrease) | June 30, 2022 | June 30, 2021 | Increase (Decrease) | |||||||||||||||||||
General and administrative | $ | 66,747 | $ | 66,452 | $ | 295 | $ | 151,522 | $ | 159,955 | $ | (8,433 | ) | |||||||||||
Research and development | 45,856 | 54,249 | (8,393 | ) | 91,633 | 106,949 | (15,316 | ) | ||||||||||||||||
Marketing and sales | 132,242 | 127,419 | 4,823 | 269,401 | 221,634 | 47,767 | ||||||||||||||||||
Total operating expenses | $ | 244,845 | $ | 248,120 | $ | (3,275 | ) | $ | 512,556 | $ | 488,538 | $ | 24,018 |
GENERAL AND ADMINISTRATIVE:
DuringGeneral and administrative: For the thirdsecond quarter of 2017,2022, general and administrative expenses increased $295 to $66,747, due to increased wages when compared with the same quarter of 2021. For the six-month period, general and administrative expenses decreased $8,425by $8,433 to $59,367 from the same quarter of 2016,$151,522, due to decreased professional services purchased. General and bank fees.administrative expense was 16.0% compared to 14.5% of sales revenue for the second quarter of 2022 and 17.0% compared to 18.1% of sales revenue for six month period ended June 30, 2022.
RESEARCH AND DEVELOPMENT:
Research and development: Research and development expenses decreased $4,113$8,393 to $55,511$45,856 during the thirdsecond quarter of 20172022 due to decreased payroll expenses when compared with the same quarter of 2021. For the six-month period, research and development expenses decreased by $15,316 to $91,633, due to decreased payroll expenses. Research and development expense was 11.0% compared to 11.9% of sales revenue for the second quarter of 2022 and 10.3% compared to 12.1% of sales revenue for six month period ending June 30, 2022.
Marketing and sales: During the second quarter of 2022, marketing and sales expenses increased $4,823 to $132,242 when compared with the same period in 2016of 2021, due to fees paid for type acceptanceincreased benefits expenses and prototype builds of new product.
MARKETING AND SALES:
Duringtravel. For the third quarter of 2017,six-month period, marketing and sales expenses increased $1,681by $47,767 to $114,092 from the same period in 2016,$269,401, due to increased services purchased.payroll. Marketing and sales expense was 31.7% compared to 27.9% of sales revenue for the second quarter of 2022 and 30.3% compared to 25.1% of sales revenue for six month period ended June 30, 2022.
INTEREST AND DIVIDEND
OTHER INCOME:
The CorporationCompany earned $2,958$594 in interest and dividend income during the quarter ended SeptemberJune 30, 2017.2022 and $1,085 for the six-month period. Sources of this income were money market accounts and certificates of deposit. In 2021, the Company recognized a gain on forgiveness of debt in the amount of $150,118 for the first CARES Act loan (PPP round 1).
NET LOSS:
NET INCOME (LOSS):
The Company had a net loss of $37,78118,796 for the thirdsecond quarter of 2017,2022 compared to a net lossincome of $42,497$146,370 for the same quarter of 2016.2021. For the nine-monthsix-month period ended SeptemberJune 30, 2017,2022, the Company recorded a net loss of $133,992,$23,757 compared with a net lossincome of $55,114$151,052 for the same period of 2016.2021. The decrease in the Company’s net lossincome during 2022 is the result of increased sales revenues, decreased gross margins and reduced operating expenses during the third quarter of 2017.and no CARES Act forgiveness.
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B. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
B. Financial Condition, Liquidity and Capital Resources
The Corporation's current asset to current liabilities ratio at SeptemberJune 30, 20172022 was 24.6:121.0 compared to 54:112.7 at December 31, 2016. 2021. The increase in current ratio is due to the decrease of accounts payable and short-term leases payable at June 30, 2022 as compared to December 31, 2021.
At SeptemberJune 30, 2017,2022, the Company had cash and cash equivalents of $257,112;$579,021 as compared to cash and cash equivalent holdings of $502,971$655,616 at December 31, 2016.2021.
Cash provided from operating activities decreased by $419,549 for the six-month period ended June 30, 2022 when compared to the same period in 2021. The Company had certificates of deposit investmentsdecrease is attributable to a decrease in net income for the period being $174,809 less than the same period in 2021. The reduction in the amount of $1,000,000 at September 30, 2017change in accounts receivable and $1,000,000 at December 31, 2016.inventory balances contributed $120,753 and $167,186 respectively.
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 third quarter of 2017 and year-end 2016. Inventories increased to $813,970 as 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.
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
In Management'smanagement's opinion, the Company's cash and cash equivalent reserves,equivalents and other working capital at SeptemberJune 30, 20172022 is sufficient to satisfy requirements for operations, capital expenditures, and other expenditures as may arise during 2022 and into the next 12 months.first half of 2023.
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.
OFF-BALANCE SHEET ARRANGEMENTS
Not applicable
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 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 June 30, 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 it of June 30, 2022.
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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.
PART II - II—OTHER INFORMATION
Item 11. Legal Proceedings
The Company is not involved in any material current of pending legal proceedingsNone.
Item 22. Unregistered Sales of Equity Securities and Use of Proceeds
NoneNone.
Item 33. Defaults Upon Senior Securities
NoneNone.
Item 44. Mine Safety DisclosureDisclosures
Not Applicable
Item 55. Other Information
NoneNone.
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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
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: August 9, 2022 | Name: Daniel M. Tolley |
Title: President | |
(Principal Executive Officer) |
By: /s/ Michael W. Eller | |
Date: |
|
| Title: Vice President Administration |
| |
|
|
| |
(Principal Accounting Officer) |
15 |
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