UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended June 30, 2023March 31, 2024

OR

From ________________ to ________________

ELECTRONIC SYSTEMS TECHNOLOGY, INCINC.

(Exact name of registrant as specified in its charter)

((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:

Indicate by check mark whether the registrant (1) has filed all documents and reports required to be filed by Sections 13 or☐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 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 x☒No ¨☐

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:

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 ¨☐  No No☒x

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of July 26, 2023,April, 18 2024, the number of the Company's shares of Common Stockcommon stock par value $0.001, outstanding was 4,946,502.

PART I

FINANCIAL INFORMATION

Item 1. Financial StatementsStatements.

ELECTRONIC SYSTEMS TECHNOLOGY, INC.
CONDENSED BALANCE SHEETS
(Unaudited)

See Notes to Condensed Financial Statements.

ELECTRONIC SYSTEMS TECHNOLOGY, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

See Notes to Financial Statements.

ELECTRONIC SYSTEMS TECHNOLOGY, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

See Notes to Financial Statements.

ELECTRONIC SYSTEMS TECHNOLOGY, INC.

DBA ESTEEM WIRELESS MODEMS

CONDENSED STATEMENTS OF OPERATIONSCHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

See Notes to Condensed Financial Statements.

ELECTRONIC SYSTEMS TECHNOLOGY, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)

See Notes to Condensed Financial Statements.

ELECTRONIC SYSTEMS TECHNOLOGY, INC.
DBA ESTEEM WIRELESS MODEMS
 
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)

See Notes to Condensed Financial Statements.

ELECTRONIC SYSTEMS TECHNOLOGY, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - BASIS OF PRESENTATION

The condensed financial statements, including notes, of Electronic Systems Technology, Inc. (the "Company") are representations of the Company’s management, which is responsible for their integrity and objectivity. The accompanying unaudited condensed financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, as well as the instructions to Form 10-Q. Accordingly, the financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its financial position as of June 30, 2023,March 31, 2024, and its results of operations, cash flows, and changes in stockholders’ equity for the sixthree months ended June 30, 2023,March 31, 2024 and 2022.2023. The balance sheet at December 31, 20222023 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, 2022.2023.

The results of operations for the three month and six-monththree-month period ended June 30, 2023March 31, 2024 are not necessarily indicative of the results expected for the full fiscal year or for any other fiscal period. The Company estimates that for 20232024 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:

ELECTRONIC SYSTEMS TECHNOLOGY, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 - EARNINGS (LOSS) PER SHARE

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 stockshares 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 June 30,March 31, 2024 and 2023, and 2022, the Company had 225,000 and 210,000180,000 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.

NOTE 4 - STOCK OPTIONS

On June 9, 2023, the Board of DirectorsThe Company has outstanding stock options, which have been granted 45,000 optionsperiodically to employees. The new options have an exercise price of $0.40, a term of 5 years,individual employees and vest immediately. The fair value of the options was determined using the Black-Scholes model using the following variables: stock price of $0.24, volatility of 104.1%, expected term of 5 years with a forfeiture rate of 95%, and a discount factor of 3.92%. Sharedirectors. No shared based compensation of $693 ($534 in marketing and sales and $159 in general and administrative in the condensed statement of operations) was recognized during the three and six-monththree-month periods ended June 30,March 31, 2024 and 2023.

As of June 30,March 31, 2024 and December 31, 2023, there were 225,000 and 180,000options outstanding respectively with a weighted average exercise price of $0.40 per share, a weighted average remaining life of 2.21.5 years and hadno intrinsic value of 0 nil.value.

NOTE 5 – REVENUE

The CompanyCompany’s 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 periodsperiod ended June 30,March 31, 2024 and 2023, and 2022, the Company’s revenue from products sales was $575,306345,161 and $409,392297,589, respectively. Revenue from site support and engineering services was $9,90010,900 and $7,500 respectively, over the same periods.

During the six-month periods ended June 30, 2023 and 2022, the Company’s revenue from products sales was $872,895 and $871,235, respectively. Revenue from site support and engineering services was $17,400 and $17,800 respectively, over the same periods.

The Company’s customers, to which trade credit terms are extended, consist of United States and local governments and foreign and domestic companies. Domestic sales for the three-month period ended June 30,March 31, 2024 and March 31, 2023 and June 30, 2022 were $575,683313,240 and $378,959293,908, respectively. Sales to foreign customers for the three-month period ended June 30,March 31, 2024 and March 31, 2023 and June 30, 2022 were $9,52342,821 and $37,93311,181, respectively.

Domestic sales for the six-month period ended June 30, 2023 and June 30, 2022 were $869,591 and $815,629, respectively. Sales to foreign customers for the six-month period ended June 30, 2023 and June 30, 2022 were $20,704 and $73,406, respectively.

For the three-month period ended June 30,March 31, 2024 and 2023, sales to threeindividual customers representedrepresenting more than 10% of total revenue three customers represented more than 10% of total revenue for the same period in 2022.were as follows:

ELECTRONIC SYSTEMS TECHNOLOGY, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

For the six-month period ended June 30, 2023, sales to two customers represented more than 10% of total revenue, three customers represented more than 10% of total revenue for the same period in 2022.

As of June 30,March 31, 2024 the amounts outstanding for these customer are listed below.

As of March 31, 2024 and 2023, and 2022, the Company had a sales order backlog of $109,84410,346 and $24,857162,396, 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 June 30, 2023, the remaining lease term is 15 months. As of June 30, 2023, future payments on this lease of $19,679 and $30,772 will be paid in 2023 and 2024 respectively.

For the three month and six-month periods ended June 30, 2023 and 2022, lease expenses of $11,576 and $10,903 and $23,151 and $21,805, respectively, are included in the following expense classifications on the statement of operations:

NOTE 7 - CARES ACT RETENTION CREDIT

As at December 31, 2022 and June 30, 2023, the Company has an employee retention tax credit due of $63,000. The amount to be received is a refund of qualified payroll taxes the Company paid in connection with employee payroll during the COVID 19 pandemic. The credit was received in July 2023.

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 June 30, 2023.March 31, 2024. The following statements may be forward looking in nature and actual results may differ materially.

A.       RESULTS OF OPERATIONS

REVENUES: Total revenues from sales increased to $585,206$356,061 for the first six-monthsquarter of 20232024 as compared to $416,892$305,089 in the secondfirst quarter of 2022,2023, reflecting an increase of 40.4%16.7%. Management believes the increase in sales revenues is due to increased product demand from foreign customers and a reduction in the increase in customer demand. Year to date total revenues from sales increased to $890,295 in 2023 as compared to $889,035 in 2022, reflecting an increase of 0.1%. Management believes the increase in sales revenues is due to the Company’s increased inventory level and the ability to ship orders in a timely manner.order 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 three-first quarter of 2024 and six-month periods ended June 30, 2023 and 2022 are as follows:

BACKLOG:

BACKLOG:

As of June 30, 2023,March 31, 2024, the Company had a sales order backlog of $109,844.$10,346. 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 secondfirst quarters of 2024 and 2023 were 43.3 % and 2022 were 45.9% and 45.9%44.3% of respective net sales. Costsales and are calculated excluding site support expenses of sales percentages for the six-month periods ended June 30, 2023$6,677 and 2022 were 45.8% and 45.1%,$4,541 respectively. The cost of sales percentage increase fordecrease in the six month period ended June 3, 2023first quarter of 2024 is the result of the product mix sold during the same periodquarter of 2022.2023.

OPERATING EXPENSES:

Operating expenses for the first quarter of 2024 increased $24,736 from the first quarter of 2023 levels. The following is a delineation of operating expenses:

General and administrative: For the secondfirst quarter of 2023,2024, general and administrative expenses decreased $5,255increased $4,013 to $61,492,$88,778, due to decreased wagesincreased payroll related expenses and purchased services when compared with the same quarter of 2022. For the six-month period ended June 30, 2023, general and administrative expenses decreased by $5,265, to $146,257, due to decreased payroll and increased services purchased. General and administrative expenses were 10.5% compared to 16.0% of sales revenue for the second quarter of 2023 and 16.4% compared to 17.0% of sales revenue for six-month period ended June 30, 2023.

Research and development: Research and development expenses decreased $17,835increased $284 to $28,021$28,947 during the secondfirst quarter of 20232024 due to decreased services purchasedincreased payroll expenses when compared with the same quarter of 2022. For the six-month period, research and development expenses decreased by $34,949 to $56,684, due to decreased services purchased. Research and development expense was 4.8% compared to 11.0% of sales revenue for the second quarter of 2023 and 6.4% compared to 10.3% of sales revenue for six-month period ended June 30, 2023.

Marketing and sales: During the secondfirst quarter of 2023,2024, marketing and sales expenses increased $41,126$20,438 to $173,368$168,665 when compared with the same period of 2022,2023, due to increased payroll, taxes, benefits, expense,advertising, and travel. Fortrade shows during the six-month period, marketing and sales expenses increased by $52,194 to $321,595, due to increased payroll, benefits, and travel expenses. Marketing and sales expenses were 29.6% compared to 31.7% of sales revenue for the secondfirst quarter of 2023 and 36.1% compared to 30.3% of sales revenue for the six-month period ended June 30, 2023.2024.

INTEREST INCOME:

OTHER INCOME:

The Company earned $5,181$5,470 in interest income during the quarter ended June 30, 2023 and $9,183 forMarch 31, 2024 compared to $4,002 during the six-month period.same period in 2023. Sources of this income were money market accounts and certificates of deposit.

NET LOSS:INCOME (LOSS):

The Company had a net incomeloss of $58,870$85,574 for the secondfirst quarter of 20232024 compared to a net loss of $18,976$92,124 for the same quarter of 2022. For the six-month period ended June 30, 2023, the Company recorded a net loss of $33,254 compared with a net loss of $23,757 for the same period of 2022.2023. The decrease in net incomeloss during 20232024 is the result of increased sales and operating expenses.

B.       FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

The Corporation'sCompany's current asset to current liabilities ratio at June 30, 2023March 31, 2024 was 9.917.4:1 compared to 8.616.2:1 at December 31, 2022.2023. The increase in current ratio is due to the decrease ofin accounts payable and increase in inventoryliability at June 30, 2023March 31, 2024 as compared to December 31, 2022.2023.

At June 30, 2023,March 31, 2024, the Company had cash and cash equivalents of $782,095$435,181 as compared to cash and cash equivalent of $1,002,817$486,252 at December 31, 2022.2023, primarily reflecting a decrease in accounts payable and the decrease in net loss.

CashFor the three-month period ended March 31, 2024, cash used fromby operating activities decreased by $130,326 for the six-month period ended June 30, 2023 whenwas $51,071 compared to $149,701 for the same period in 2022. The decrease is attributable2023. This change was driven by a net loss of $85,574 during the three months ended March 31, 2024 compared to a net loss of $92,124 in the three months ended March 31, 2023 and the decrease in net income for the period being $9,497 less than the same period in 2022. The increase in the change in accounts receivable and inventory balances contributed $43,309 and $87,843 respectively.of $92,851.

In management's opinion, the Company's cash and cash equivalents and other working capital at June 30, 2023March 31, 2024 is sufficient to satisfy requirements for operations, capital expenditures, and other expenditures as may arise during 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.

OFF-BALANCE SHEET ARRANGEMENTS

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There is no established market for trading the common stock of the Company. The Companymarket 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 no significant off-balance sheet arrangements thatcontinued 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 are reasonably likely to have a current or future effect on our financial condition, changesmaintenance of positions in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to its stockholders.low-priced stocks.

Item 1.4. 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 June 30, 2023.March 31, 2024. 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 June 30, 2023.March 31, 2024.

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.

Changes in Internal Control Over Financial Reporting

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 2. Unregistered Sales of Securities

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable

Item 5. Other Information

During the three months ended December 31, 2023, no director or officer of the Company None.adopted, modified, or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act or any “non-Rule 10b5-1 arrangement” as defined in Item 408(c) of Regulation S-K.

Item 6. Exhibits