`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 March 31,September 30, 2023
OR
☐ | 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 |
(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)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. Yes ☒ NO ☐x 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).
Yes ☒ NO ☐xNo ¨
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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ Yes NO¨ ☒No x
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of April, 19October 26, 2023, the number of the Company's shares of common stockCommon Stock par value $0.001, outstanding was .
|
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.Statements
ELECTRONIC SYSTEMS TECHNOLOGY, INC. CONDENSED BALANCE SHEETS (Unaudited) | ||||||||
September 30, | December 31, | |||||||
2023 | 2022 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 421,493 | $ | 751,118 | ||||
Certificates of deposit | 400,000 | 251,699 | ||||||
Accounts receivable, net | 96,178 | 141,394 | ||||||
Inventories | 809,877 | 725,478 | ||||||
Prepaid expenses | 32,436 | 42,627 | ||||||
Employee retention tax credit receivable (NOTE 7) | — | 63,000 | ||||||
Accrued interest receivable | 2,274 | 808 | ||||||
Total current assets | 1,762,258 | 1,976,124 | ||||||
Property and equipment, net of depreciation | 19,260 | 914 | ||||||
Right to use – Lease, net of amortization (NOTE 6) | 40,821 | 69,419 | ||||||
Total assets | $ | 1,822,339 | $ | 2,046,457 | ||||
LIABILITIES and STOCKHOLDERS' EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 32,582 | $ | 138,996 | ||||
Accrued wages and bonus | 4,465 | 24,777 | ||||||
Accrued vacation pay | 24,382 | 16,846 | ||||||
Lease liability, current (NOTE 6) | 41,453 | 39,120 | ||||||
Other accrued liabilities | 7,175 | 8,913 | ||||||
Total current liabilities | 110,057 | 228,652 | ||||||
Long-Term Liabilities | ||||||||
Operating lease liability (NOTE 6) | — | 30,457 | ||||||
Total liabilities | 110,057 | 259,109 | ||||||
Stockholder equity | ||||||||
Common stock, $ | par value shares authorized and shares issued and outstanding respectively4,947 | 4,947 | ||||||
Additional paid-in capital | 933,105 | 932,412 | ||||||
Retained earnings | 774,230 | 849,989 | ||||||
Total stockholders' equity | 1,712,282 | 1,787,348 | ||||||
Total liabilities and stockholders' equity | $ | 1,822,339 | $ | 2,046,457 |
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
See Notes to Condensed Financial Statements.
March 31, | December 31, | |||||||
2023 | 2022 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 592,417 | $ | 751,118 | ||||
Certificates of deposit | 251,699 | 251,699 | ||||||
Accounts receivable, net | 107,770 | 141,394 | ||||||
Inventories | 729,308 | 725,478 | ||||||
Prepaid expenses | 36,896 | 42,627 | ||||||
Employee retention tax credit receivable (NOTE 7) | 63,000 | 63,000 | ||||||
Accrued interest receivable | 682 | 808 | ||||||
Total current assets | 1,781,772 | 1,976,124 | ||||||
Property and equipment, net of depreciation | 9,876 | 914 | ||||||
Right to use – Lease, net of amortization (NOTE 6) | 59,984 | 69,419 | ||||||
Total assets | $ | 1,851,632 | $ | 2,046,457 | ||||
LIABILITIES and STOCKHOLDERS' EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 64,084 | $ | 138,996 | ||||
Accrued wages | 2,904 | 24,777 | ||||||
Operating lease liability, current portion (NOTE 6) | 40,100 | 39,120 | ||||||
Accrued vacation pay | 22,220 | 16,846 | ||||||
Other accrued liabilities | 6,900 | 8,913 | ||||||
Total current liabilities | 136,208 | 228,652 | ||||||
Long-Term Liabilities | ||||||||
Operating lease liability (NOTE 6) | 20,200 | 30,457 | ||||||
Total liabilities | 156,408 | 259,109 | ||||||
Stockholders' equity | ||||||||
Common stock, $ | par value shares authorized and shares issued and outstanding respectively4,947 | 4,947 | ||||||
Additional paid-in capital | 932,412 | 932,412 | ||||||
Retained earnings | 757,865 | 849,989 | ||||||
Total stockholders' equity | 1,695,224 | 1,787,348 | ||||||
Total liabilities and stockholders' equity | $ | 1,851,632 | $ | 2,046,457 |
ELECTRONIC SYSTEMS TECHNOLOGY, INC. CONDENSED STATEMENTS OF OPERATIONS (Unaudited) | ||||||||||||||||
Three Months Ended September 30, 2023 | Three Months Ended September 30, 2022 | Nine Months Ended September 30, 2023 | Nine Months Ended September 30, 2022 | |||||||||||||
SALES - NET | $ | 342,721 | $ | 487,160 | $ | 1,233,016 | $ | 1,376,195 | ||||||||
COST OF SALES | (178,435 | ) | (210,056 | ) | (586,631 | ) | (611,376 | ) | ||||||||
GROSS PROFIT | 164,286 | 277,104 | 646,385 | 764,819 | ||||||||||||
Operating Expenses | ||||||||||||||||
General and administrative | 55,829 | 60,784 | 202,086 | 212,308 | ||||||||||||
Research and development | 26,114 | 40,029 | 82,798 | 131,662 | ||||||||||||
Marketing and sales | 133,223 | 104,293 | 454,819 | 373,694 | ||||||||||||
TOTAL OPERATING EXPENSE | 215,166 | 205,106 | 739,703 | 717,664 | ||||||||||||
OPERATING INCOME (LOSS) | (50,880 | ) | 71,998 | (93,318 | ) | 47,155 | ||||||||||
OTHER INCOME | ||||||||||||||||
Interest income | 8,375 | 1,373 | 17,559 | 2,459 | ||||||||||||
TOTAL OTHER INCOME | 8,375 | 1,373 | 17,559 | 2,459 | ||||||||||||
NET INCOME (LOSS) BEFORE INCOME TAX | (42,505 | ) | 73,371 | (75,759 | ) | 49,614 | ||||||||||
Benefit (provision) for income tax | — | — | — | — | ||||||||||||
NET INCOME (LOSS) | $ | (42,505 | ) | $ | 73,371 | $ | (75,759 | ) | $ | 49,614 | ||||||
Basic and diluted earnings per share | $ | ) | $ | $ | ) | $ | ||||||||||
Basic and diluted weighted average shares used in computing income (loss) per share: |
See Notes to Condensed Financial Statements.
ELECTRONIC SYSTEMS TECHNOLOGY, INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) | ||||||||
Nine Months Ended | ||||||||
September 30, | September 30, | |||||||
2023 | 2022 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income (loss) | $ | (75,759 | ) | $ | 49,614 | |||
Noncash items included in net loss: | ||||||||
Depreciation and amortization | 1,423 | 333 | ||||||
Stock based compensation | 693 | — | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable, net | 45,216 | 3,644 | ||||||
Inventories | (84,399 | ) | (56,601 | ) | ||||
Accrued interest receivable | (1,466 | ) | (794 | ) | ||||
Prepaid expenses | 10,191 | (53,377 | ) | |||||
Employee retention tax credit receivable | 63,000 | — | ||||||
Accounts payable | (106,414 | ) | (44,803 | ) | ||||
Other accrued liabilities | (14,040 | ) | 14,525 | |||||
NET CASH USED IN OPERATING ACTIVITIES | (161,555 | ) | (87,459 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of fixed assets | (19,769 | ) | — | |||||
Certificates of deposit redeemed | 1,001,699 | 850,000 | ||||||
Certificates of deposit purchased | (1,150,000 | ) | (850,584 | ) | ||||
NET CASH USED IN INVESTING ACTIVITIES | (168,070 | ) | (584 | ) | ||||
CASH FLOWS FROM 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 | (329,625 | ) | (94,011 | ) | ||||
Cash and cash equivalents at beginning of period | 751,118 | 655,616 | ||||||
Cash and cash equivalents at end of period | $ | 421,493 | $ | 561,605 | ||||
See Notes to Condensed Financial Statements.
ELECTRONIC SYSTEMS TECHNOLOGY, INC. DBA ESTEEM WIRELESS MODEMS CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited) | ||||||||||||||||||||
Common Stock | Additional Paid-In | Retained | ||||||||||||||||||
Shares | Amount | Capital | Earnings | Total | ||||||||||||||||
Balance, 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 | |||||||||||
Balance, 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 | |||||||||||||||
Net income (loss) | — | — | — | (42,505 | ) | (42,505 | ) | |||||||||||||
Balance at September 30, 2023 | 4,946,502 | $ | 4,947 | $ | 933,105 | $ | 774,230 | $ | 1,712,282 |
See Notes to Condensed Financial Statements.
4 |
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended | ||||||||
March 31, | March 31, | |||||||
2023 | 2022 | |||||||
SALES - NET | $ | 305,089 | $ | 472,143 | ||||
COST OF SALES | (139,560 | ) | (209,883 | ) | ||||
GROSS PROFIT | 165,529 | 262,260 | ||||||
OPERATING EXPENSES | ||||||||
General and administrative | 84,765 | 84,776 | ||||||
Research and development | 28,663 | 45,777 | ||||||
Marketing and sales | 148,227 | 137,159 | ||||||
Total operating expenses | 261,655 | 267,712 | ||||||
OPERATING LOSS | (96,126 | ) | (5,452 | ) | ||||
OTHER INCOME | ||||||||
Interest income | 4,002 | 491 | ||||||
Total other income | 4,002 | 491 | ||||||
NET LOSS BEFORE INCOME TAX | (92,124 | ) | (4,961 | ) | ||||
Benefit (provision) for income tax | — | — | ||||||
NET LOSS | $ | (92,124 | ) | $ | (4,961 | ) | ||
Earnings (loss) per share – basic and diluted | $ | ) | $ | |||||
Weighted average shares – basic and diluted |
See Notes to Financial Statements.
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended | ||||||||
March 31, | March 31, | |||||||
2023 | 2022 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (92,124 | ) | $ | (4,961 | ) | ||
Noncash items included in net loss: | ||||||||
Depreciation | 38 | 111 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable, net | 33,624 | 24,977 | ||||||
Inventories | (3,830 | ) | 66,997 | |||||
Accrued interest receivable | 126 | (270 | ) | |||||
Prepaid expenses | 5,731 | (16,508 | ) | |||||
Accounts payable | (74,912 | ) | (20,983 | ) | ||||
Other accrued liabilities, accrued wages and accrued vacation pay | (18,354 | ) | 1,653 | |||||
NET CASH PROVIDED (USED) IN OPERATING ACTIVITIES | (149,701 | ) | 51,016 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Certificates of deposit redeemed | 300,000 | 150,000 | ||||||
Certificates of deposit purchases | (300,000 | ) | — | |||||
Purchase of equipment | (9,000 | ) | — | |||||
NET CASH PROVIDED (USED) FROM INVESTING ACTIVITIES | (9,000 | ) | 150,000 | |||||
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 INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS | (158,701 | ) | 195,048 | |||||
Cash and cash equivalents at beginning of period | 751,118 | 655,616 | ||||||
Cash and cash equivalents at end of period | $ | 592,417 | $ | 850,664 |
See Notes to Financial Statements.
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
DBA ESTEEM WIRELESS MODEMS
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
Shares | Amount | Additional Paid-In Capital | Retained 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 | ) | |||||||||||||
BALANCES AT March 31, 2022 | 4,946,502 | $ | 4,947 | $ | 932,412 | $ | 698,497 | $ | 1,635,856 | |||||||||||
Balances, January 1, 2023 | 4,946,502 | $ | 4,947 | $ | 932,412 | $ | 849,989 | $ | 1,787,348 | |||||||||||
Net income (loss) | — | — | — | (92,124 | ) | (92,124 | ) | |||||||||||||
BALANCES AT MARCH 31, 2023 | 4,946,502 | $ | 4,947 | $ | 932,412 | $ | 757,865 | $ | 1,695,224 |
See Notes to Financial Statements.
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited 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 March 31,September 30, 2023 and its results of operations, cash flows, and changes in stockholders’ equity for the three and nine months ended March 31,September 30, 2023, and 2022. The balance sheet at December 31, 2022 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, 2022.
The results of operations for the three-monththree and nine-month period ended March 31,September 30, 2023 are not necessarily indicative of the results expected for the full fiscal year or for any other fiscal period. The Company estimates that for 2023 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 | ||||||||||||||||
March 31, 2023 | December 31, 2022 | September 30, 2023 | December 31, 2022 | |||||||||||||
Parts | $ | 146,628 | $ | 172,190 | $ | 125,555 | $ | 172,190 | ||||||||
Work in progress | 247,223 | 336,298 | 366,887 | 336,298 | ||||||||||||
Finished goods | 335,457 | 216,990 | 317,435 | 216,990 | ||||||||||||
Total inventory | $ | 729,308 | $ | 725,478 | ||||||||||||
Total inventories | $ | 809,877 | $ | 725,478 |
5 |
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 sharesstock outstanding for the period. Diluted earnings (loss) per share reflects potential dilution occurring if securities or other contracts to issue common stock were exercised or converted into common stockCommon Stock or resulted in the issuance of common stock that then shared in the earnings of the Company. At March 31,September 30, 2023 and 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.
On June 9, 2023, the Board of Directors granted Company has outstandingnew 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, which have been granted periodically to individual employeesprice of $ , volatility of %, expected term of years with a forfeiture rate of %, and directors. No shareda discount factor of %. Share based compensation of $ ($ in marketing and sales and $ in general and administrative in the condensed statement of operations) was recognized during the three-month periodsnine-month period ended March 31, 2023 and 2022.September 30, 2023. options to employees. The
As of March 31,September 30, 2023, and 2022, there were and options outstanding respectively with a weighted average exercise price of $ per share, a weighted average remaining life of and years respectively and had intrinsic value.value of nil.
NOTE 5 – REVENUE
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 periodperiods ended March 31,September 30, 2023 and 2022, the Company’s revenue from products sales was $297,589336,621 and $461,843480,260, respectively. Revenue from site support and engineering services was $7,5006,100 and $10,3006,900 respectively, over the same periods.
During the nine-month periods ended September 30, 2023 and 2022, the Company’s revenue from products sales was $1,209,516 and $1,351,495, respectively. Revenue from site support and engineering services was $23,500 and $24,700 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 March 31,September 30, 2023 and March 31,September 30, 2022 were $293,908338,948 and $436,670419,164, respectively. Sales to foreign customers for the three-month period ended March 31,September 30, 2023 and March 31,September 30, 2022 were $11,1813,773 and $35,47367,996, respectively.
Domestic sales for the nine-month period ended September 30, 2023 and September 30, 2022 were $1,208,539 and $1,234,793, respectively. Sales to foreign customers for the nine-month period ended September 30, 2023 and September 30, 2022 were $24,477 and $141,402, respectively.
6 |
For the three-month period ended March 31,September 30, 2023, and 2022, sales to individualthree customers representingrepresented more than 10% of total revenue, were as follows:three customers represented more than 10% of total revenue for the same period in 2022.
Schedule of revenue | ||||||||||||||||||||||||||||||||
For the three-month period ended March 31, | ||||||||||||||||||||||||||||||||
2023 | 2022 | |||||||||||||||||||||||||||||||
Sales | %age of Total Sales | Sales | %age of Total Sales | 2023 Sales | 2023 %age of Total Sales | 2022 Sales | 2022%age of Total Sales | |||||||||||||||||||||||||
Domestic customer A | $ | 70,090 | 23 | % | $ | 75,505 | 16 | % | $ | 64,698 | 19 | % | $ | 60,130 | 12 | % | ||||||||||||||||
Domestic customer B | — | — | 72,683 | 15 | % | 57,456 | 17 | % | 58,167 | 12 | % | |||||||||||||||||||||
Domestic customer C | — | — | 53,625 | 11 | % | 33,119 | 10 | % | 46,703 | 10 | % |
For the nine-month period ended September 30, 2023, sales to one customer represented more than 10% of total revenue, two 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 | $ | 262,149 | 21 | % | $ | 165,621 | 12 | % | ||||||||
Domestic customer B | — | — | 137,346 | 10 | % | |||||||||||
Domestic customer C | — | — | — | — |
As of March 31, 2023 Domestic customer A’s accounts receivable balance was $43,019.
As of March 31,September 30, 2023 and 2022, the Company had a sales order backlog of $162,396124,125 and $116,461141,066, respectively.
NOTE 6 - LEASES
On September 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%. At March 31,September 30, 2023, the remaining lease term is 1812 months. As of March 31,September 30, 2023, future payments on this lease of $30,67110,435 and $31,304 will be paid in 2023 and 2024 respectively.
7 |
For the three-monththree and nine-month periods ended March 31,September 30, 2023 and 2022, lease expenseexpenses of $11,576 and $10,90311,616 and $34,727 and $34,849, respectively, are included in the following expense classifications on the statementsstatement of operations:
Schedule of lease expense | ||||||||||||||||||||||||||||||||||||||||||||||||
For the three-month period ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||||||||
Cost of sales | Operating expenses | Total | Cost of sales | Operating expenses | Total | 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 | $ | 4,247 | $ | 9,644 | $ | 5,751 | $ | 4,526 | $ | 10,277 | $ | 5,751 | $ | 4,526 | $ | 10,277 | ||||||||||||||||||||||||
Variable lease costs | 727 | 572 | 1,299 | 704 | 555 | 1,259 | 727 | 572 | 1,299 | 749 | 590 | 1,339 | ||||||||||||||||||||||||||||||||||||
Total lease costs | $ | 6,478 | $ | 5,098 | $ | 11,576 | $ | 6,101 | $ | 4,802 | $ | 10,903 | $ | 6,478 | $ | 5,098 | $ | 11,576 | $ | 6,500 | $ | 5,116 | $ | 11,616 |
For the nine-month period ended September 30, | ||||||||||||||||||||||||
2023 | 2022 | |||||||||||||||||||||||
Cost of sales | Operating expenses | Total | Cost of sales | Operating expenses | Total | |||||||||||||||||||
Base rent pursuant to lease agreement | $ | 17,252 | $ | 13,578 | $ | 30,830 | $ | 17,252 | $ | 13,578 | $ | 30,830 | ||||||||||||
Variable lease costs | 2,181 | 1,716 | 3,897 | 2,249 | 1,770 | 4,019 | ||||||||||||||||||
Total lease costs | $ | 19,433 | $ | 15,294 | $ | 34,727 | $ | 19,501 | $ | 15,348 | $ | 34,849 |
NOTE 7 - Cares Act Retention CreditCARES ACT RETENTION CREDIT
As atof December 31, 2022, and March 31, 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 Company expects to receive the credit was received in July 2023.
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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 March 31,September 30, 2023. 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 sales decreased to $305,089$342,721 for the firstthird quarter of 2023 as compared to $472,143$487,160 in the firstthird quarter of 2022, reflecting a decrease of 35.4%29.6%. Management believes the decrease in sales revenues is due to the decrease in customer demand. Year to date total revenues from sales decreased product demandto $1,233,016 in 2023 as compared to $1,376,195 in 2022, reflecting a decrease of 10.4%. Management believes the decrease in sales revenues is due to a decrease in customer demand and the ability to ship orders in a timely manner. Although the inventory levels have increased compared to last year, ancillary goods are being impacted by delays in the supply chain issues for the Domestic market during the first quarter of 2023 when compared with the same quarter of 2022.resulting in a $124K backlog.
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 first quarter ofthree- and nine-month periods ended September 30, 2023 and 2022 are as follows:
2023 | 2022 | Three Months ended September 30, 2023 | Three Months ended September 30, 2022 | Nine Months ended September 30, 2023 | Nine Months ended September 30, 2022 | |||||||||||||
Domestic Sales | 96% | 93% | 99 | % | 86 | % | 98 | % | 90 | % | ||||||||
Export Sales | 4% | 7% | 1 | % | 14 | % | 2 | % | 10 | % |
BACKLOG:
As of March 31,September 30, 2023, the Company had a sales order backlog of $162,396.$124,125. 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:
Cost of sales percentages for the firstthird quarters of 2023 and 2022 were 46%52.1% and 44%43.1% of respective net sales. Cost of sales percentages for the nine-month periods ended September 30, 2023 and are calculated excluding site support expenses of $4,5412022 were 47.6% and $6,31244.4%, respectively. The cost of sales percentage increase infor the first quarter ofnine-month period ended September 30, 2023 is the result of the product mix sold during the same quarterperiod of 2022.
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OPERATING EXPENSES:
Operating expenses for the first quarter of 2023 decreased $6,057 from first quarter of 2022 levels. The following is a delineation of operating expenses:
Three Months Ended | Nine Month Ended | |||||||||||||||||||||||||||||||||||
March 31, 2023 | March 31, 2022 | Increase (Decrease) | September 30, 2023 | September 30, 2022 | Increase (Decrease) | September 30, 2023 | September 30, 2022 | Increase (Decrease) | ||||||||||||||||||||||||||||
General and administrative | $ | 84,765 | $ | 84,776 | $ | (11 | ) | $ | 55,829 | $ | 60,784 | $ | (4,955 | ) | $ | 202,086 | $ | 212,308 | $ | (10,222 | ) | |||||||||||||||
Research and development | 28,663 | 45,777 | (17,114 | ) | 26,114 | 40,029 | (13,915 | ) | 82,798 | 131,662 | (48,864 | ) | ||||||||||||||||||||||||
Marketing and sales | 148,227 | 137,159 | 11,068 | 133,223 | 104,293 | 28,930 | 454,819 | 373,694 | 81,125 | |||||||||||||||||||||||||||
Total operating expenses | $ | 261,655 | $ | 267,712 | $ | (6,057 | ) | $ | 215,166 | $ | 205,106 | $ | 10,060 | $ | 739,703 | $ | 717,664 | $ | 22,039 |
General and administrative: For the firstthird quarter of 2023, general and administrative expenses decreased $11$4,955 to $84,765,$55,829, due to decreased payroll related expenses and were offset by increased purchased serviceswages when compared with the same quarter of 2022. For the nine-month period ended September 30, 2023, general and administrative expenses decreased by $10,222, to $202,086, due to decreased payroll and increased services purchased. General and administrative expenses were 16.3% compared to 12.5% of sales revenue for the third quarter of 2023 and 2022 respectively and 16.4% compared to 15.4% of sales revenue for nine-month period ended September 30, 2023 and 2022 respectively.
Research and development: Research and development expenses decreased $17,114$13,915 to $28,663$26,114 during the firstthird quarter of 2023 due to decreased services purchased expenses related to engineering services when compared with the same quarter of 2022. For the nine-month period, research and development expenses decreased by $48,864 to $82,798, due to decreased services purchased. Research and development expense was 7.6% compared to 8.2% of sales revenue for the third quarter of 2023 and 2022 respectively and 6.7% compared to 9.6% of sales revenue for nine-month period ended September 30, 2023 and 2022 respectively.
Marketing and sales: During the firstthird quarter of 2023, marketing and sales expenses increased $11,068$28,930 to $148,227$133,223 when compared with the same period of 2022, due to increased payroll, taxesbenefits expense, and travel. For the nine-month period, marketing and sales expenses increased by $81,125 to $454,819, due to increased payroll, benefits, duringand travel expenses. Marketing and sales expenses were 38.9% compared to 21.4% of sales revenue for the firstthird quarter of 2023.2023 and 2022 respectively and 36.9% compared to 27.3 % of sales revenue for the nine-month period ended September 30, 2023 2022 respectively.
INTERESTOTHER INCOME:
The Company earned $4,002$8,375 in interest income during the quarter ended March 31,September 30, 2023 compared to $491 duringand $17,559 for the same period in 2022.nine-month period. Sources of this income were money market accounts, and certificates of deposit.deposit, and interest from the U.S. Treasury. The interest from the U.S. Treasury was for the delay in issuing the check for the tax credit.
NET INCOME (LOSS):LOSS:
The Company had a net loss of ($92,124)$42,505 for the firstthird quarter of 2023 compared to a net lossincome of ($4,961)$73,371 for the same quarter of 2022. For the nine-month period ended September 30, 2023, the Company recorded a net loss of $75,759 compared with net income of $49,614 for the same period of 2022. The increasedecrease in net lossincome during 2023 is the result of decreasedincreased operating expenses and lower sales.
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B. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company'sCorporation's current asset to current liabilities ratio at March 31,September 30, 2023 was 13.1:116.0 compared to 8.6:18.6 at December 31, 2022. The increase in current ratio is due to the decrease inof accounts payable liabilityand increase in inventory at March 31,September 30, 2023 as compared to December 31, 2022.
At March 31,September 30, 2023, the Company had cash and cash equivalents including certificates of $592,417deposit of $821,493 as compared to cash and cash equivalent of $751,118$1,002,817 at December 31, 2022, primarily reflecting decreases in Accounts Payable and2022.
Cash used from operating activities decreased by $74,096 for the increase in net loss.
For the three-monthnine-month period ended March 31,September 30, 2023 cash used by operating activities was $149,701when compared to cash provided of $51,016 for the same period in 2022. This change was driven by a net loss of $92,124 during the three months ended March 31, 2023 comparedThe decrease is attributable to a decrease in net of $4,961income for the period being $125,373 less than the same period in 2022. The increase in the three months ended March 31, 2022. Changechange in operating assetsaccounts receivable, accounts payable, and liabilities was $57,615 during the three-month period ended March 31, 2023 compared to $55,866 in 2022.inventory balances contributed $41,572, $(61,611) and $(27,798) respectively.
Cash used for investing was $9,000 due to the purchase of a new website design for an E-Commerce interface during the first quarter of 2023 with the expectations that the website will be completed in April.
In management's opinion, the Company's cash and cash equivalents and other working capital at March 31,September 30, 2023 is sufficient to satisfy requirements for operations, capital expenditures, and other expenditures as may arise during 2023.2023 and 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.OFF-BALANCE SHEET ARRANGEMENTS
There isThe Company has no established market for trading the common stocksignificant 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 the Company. The market for the Company’s common stock is limited, and as such shareholders may have difficulty reselling their shares when desiredoperations, liquidity, capital expenditures 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 dealerscapital resources that 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 continuedmaterial 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.its stockholders.
Item 4.1. Controls and Procedures
An evaluation has been performed under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Accounting Officer, of the effectiveness of the design and the operation of our "disclosure controls and procedures" (as such term is defined in Rules 13a-15(e) under the Securities Exchange Act of 1934) as of March 31,September 30, 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 March 31,September 30, 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
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.
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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
NoneNone.
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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 |
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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.
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) |
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