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Electronic Systems Technology Inc. – ‘10-Q’ for 9/30/23

On:  Wednesday, 10/25/23, at 10:26am ET   ·   For:  9/30/23   ·   Accession #:  1079973-23-1482   ·   File #:  0-27793

Previous ‘10-Q’:  ‘10-Q’ on 7/27/23 for 6/30/23   ·   Next & Latest:  ‘10-Q’ on 4/22/24 for 3/31/24

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

10/25/23  Elec Systems Technology Inc.      10-Q        9/30/23   40:2M                                     Edgar Tech & Bus… Inc/FA

Quarterly Report   —   Form 10-Q

Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML    400K 
 2: EX-31.1     Certification -- §302 - SOA'02                      HTML     17K 
 3: EX-31.2     Certification -- §302 - SOA'02                      HTML     17K 
 4: EX-32.1     Certification -- §906 - SOA'02                      HTML     13K 
 5: EX-32.2     Certification -- §906 - SOA'02                      HTML     13K 
11: R1          Cover                                               HTML     65K 
12: R2          Condensed Balance Sheets (Unaudited)                HTML    104K 
13: R3          Condensed Balance Sheets (Unaudited)                HTML     23K 
                (Parenthetical)                                                  
14: R4          Condensed Statements of Operations (Unaudited)      HTML     74K 
15: R5          Condensed Statements of Operations (Unaudited)      HTML     31K 
                (Parenthetical)                                                  
16: R6          Condensed Statements of Cash Flows (Unaudited)      HTML     73K 
17: R7          Condensed Statements of Changes in Stockholders'    HTML     48K 
                Equity (Unaudited)                                               
18: R8          Basis of Presentation                               HTML     18K 
19: R9          Inventories                                         HTML     20K 
20: R10         Earnings (Loss) Per Share                           HTML     17K 
21: R11         Stock Options                                       HTML     24K 
22: R12         Revenue                                             HTML     54K 
23: R13         Leases                                              HTML     43K 
24: R14         Cares Act Retention Credit                          HTML     19K 
25: R15         Inventories (Tables)                                HTML     20K 
26: R16         Revenue (Tables)                                    HTML     41K 
27: R17         Leases (Tables)                                     HTML     38K 
28: R18         Inventories (Details)                               HTML     21K 
29: R19         Earnings (Loss) Per Share (Details Narrative)       HTML     15K 
30: R20         Stock Options (Details Narrative)                   HTML     52K 
31: R21         Revenue (Details)                                   HTML     39K 
32: R22         Revenue (Details Narrative)                         HTML     34K 
33: R23         Leases (Details)                                    HTML     23K 
34: R24         Leases (Details Narrative)                          HTML     32K 
35: R25         Cares Act Retention Credit (Details Narrative)      HTML     14K 
38: XML         IDEA XML File -- Filing Summary                      XML     60K 
36: XML         XBRL Instance -- elst_10q_htm                        XML    445K 
37: EXCEL       IDEA Workbook of Financial Report Info              XLSX     44K 
 7: EX-101.CAL  XBRL Calculations -- elst-20230930_cal               XML     92K 
 8: EX-101.DEF  XBRL Definitions -- elst-20230930_def                XML    132K 
 9: EX-101.LAB  XBRL Labels -- elst-20230930_lab                     XML    387K 
10: EX-101.PRE  XBRL Presentations -- elst-20230930_pre              XML    292K 
 6: EX-101.SCH  XBRL Schema -- elst-20230930                         XSD     53K 
39: JSON        XBRL Instance as JSON Data -- MetaLinks              208±   283K 
40: ZIP         XBRL Zipped Folder -- 0001079973-23-001482-xbrl      Zip     91K

‘10-Q’   —   Quarterly Report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM  i 10-Q

 

 i ☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended  i September 30, 2023

 

OR

 

 i ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

From ________________ to ________________

 

 

 i ELECTRONIC SYSTEMS TECHNOLOGY INC

(Exact name of registrant as specified in its charter)

 

 i Washington  i 000-27793  i 91-1238077
(State or other jurisdiction of incorporation) (Commission File Number) (IRS Employer Identification No.)

 

 i 415 N. Roosevelt St.  i STE B1  i Kennewick  i WA    i 99336
(Address of principal executive offices)   (Zip Code)

 

( i 509)  i 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
 i Common Stock, $0.001 par value  i 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.  i 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).

 i 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:

 

Large Accelerated Filer   ☐ Accelerated Filer  ☐

 i Non-Accelerated Filer ☒

 

Small Reporting Company  i ☒

Emerging Growth Company  i ☐

 

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  i ¨ No x

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of October 26, 2023, the number of the Company's shares of Common Stock par value $0.001, outstanding was  i 4,946,502.

 

 
 

PART I

FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

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

 

           
   September 30,   December 31, 
   2023   2022 
         
ASSETS          
Current assets          
Cash and cash equivalents  $ i 421,493   $ i 751,118 
Certificates of deposit    i 400,000     i 251,699 
Accounts receivable, net    i 96,178     i 141,394 
Inventories    i 809,877     i 725,478 
Prepaid expenses    i 32,436     i 42,627 
Employee retention tax credit receivable (NOTE 7)   —       i 63,000 
Accrued interest receivable    i 2,274     i 808 
Total current assets    i 1,762,258     i 1,976,124 
           
Property and equipment, net of depreciation    i 19,260     i 914 
           
Right to use – Lease, net of amortization (NOTE 6)    i 40,821     i 69,419 
   Total assets  $ i 1,822,339   $ i 2,046,457 
           
LIABILITIES and STOCKHOLDERS' EQUITY          
Current liabilities          
Accounts payable  $ i 32,582   $ i 138,996 
Accrued wages and bonus    i 4,465     i 24,777 
Accrued vacation pay    i 24,382     i 16,846 
Lease liability, current (NOTE 6)    i 41,453     i 39,120 
Other accrued liabilities    i 7,175     i 8,913 
Total current liabilities    i 110,057     i 228,652 
           
Long-Term Liabilities          
         Operating lease liability (NOTE 6)   —       i 30,457 
   Total liabilities    i 110,057     i 259,109 
 Stockholder equity          
Common stock, $ i  i 0.001 /  par value  i  i 50,000,000 /  shares authorized  i  i 4,946,502 /  and  i  i 4,946,502 /  shares issued and outstanding respectively    i 4,947     i 4,947 
Additional paid-in capital    i 933,105     i 932,412 
Retained earnings    i 774,230     i 849,989 
Total stockholders' equity    i 1,712,282     i 1,787,348 
   Total liabilities and stockholders' equity  $ i 1,822,339   $ i 2,046,457 

 

 

See Notes to Condensed Financial Statements.

 

 

 

1 
 

 

 

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  $ i 342,721   $ i 487,160   $ i 1,233,016   $ i 1,376,195 
COST OF SALES   ( i 178,435)   ( i 210,056)   ( i 586,631)   ( i 611,376)
GROSS PROFIT    i 164,286     i 277,104     i 646,385     i 764,819 
                     
Operating Expenses                    
     General and administrative    i 55,829     i 60,784     i 202,086     i 212,308 
     Research and development    i 26,114     i 40,029     i 82,798     i 131,662 
     Marketing and sales    i 133,223     i 104,293     i 454,819     i 373,694 
TOTAL OPERATING EXPENSE    i 215,166     i 205,106     i 739,703     i 717,664 
                     
OPERATING INCOME (LOSS)   ( i 50,880)    i 71,998    ( i 93,318)    i 47,155 
                     
OTHER INCOME                    
     Interest income    i 8,375     i 1,373     i 17,559     i 2,459 
TOTAL OTHER INCOME    i 8,375     i 1,373     i 17,559     i 2,459 
                     

NET INCOME (LOSS) BEFORE

INCOME TAX

   ( i 42,505)    i 73,371    ( i 75,759)    i 49,614 
     Benefit (provision) for income tax   —      —      —      —   
NET INCOME (LOSS)  $( i 42,505)  $ i 73,371   $( i 75,759)  $ i 49,614 
                     
Basic and diluted earnings per share  $( i  i 0.01 / )  $ i  i 0.01 /    $( i  i 0.02 / )  $ i  i 0.01 /  
                     
Basic and diluted weighted average shares used in computing income (loss) per share:    i  i 4,946,502 /      i  i 4,946,502 /      i  i 4,946,502 /      i  i 4,946,502 /  

   

 

See Notes to Condensed Financial Statements.

 

 

2 
 

 

 

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)  $( i 75,759)  $ i 49,614 
           
Noncash items included in net loss:          
     Depreciation and amortization    i 1,423     i 333 
     Stock based compensation    i 693    —   
Changes in operating assets and liabilities:          
     Accounts receivable, net    i 45,216     i 3,644 
     Inventories   ( i 84,399)   ( i 56,601)
     Accrued interest receivable   ( i 1,466)   ( i 794)
     Prepaid expenses    i 10,191    ( i 53,377)
     Employee retention tax credit receivable    i 63,000    —   
     Accounts payable   ( i 106,414)   ( i 44,803)
     Other accrued liabilities   ( i 14,040)    i 14,525 
NET CASH USED IN OPERATING ACTIVITIES   ( i 161,555)   ( i 87,459)
           
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
    Purchase of fixed assets   ( i 19,769)   —   
    Certificates of deposit redeemed    i 1,001,699     i 850,000 
    Certificates of deposit purchased   ( i 1,150,000)   ( i 850,584)
NET CASH USED IN INVESTING ACTIVITIES   ( i 168,070)   ( i 584)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
    Principal payments on CARES Act loan payable (round 1)   —      ( i 5,968)
NET CASH USED IN FINANCING ACTIVITIES   —      ( i 5,968)
           
NET DECREASE IN CASH AND CASH EQUIVALENTS   ( i 329,625)   ( i 94,011)
Cash and cash equivalents at beginning of period    i 751,118     i 655,616 
Cash and cash equivalents at end of period  $ i 421,493   $ i 561,605 
           

 

See Notes to Condensed Financial Statements.

 

3 
 

 

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    i 4,946,502   $ i 4,947   $ i 932,412   $ i 703,458   $ i 1,640,817 
                          
   Net income (loss)   —      —      —      ( i 4,961)   ( i 4,961)
                          
Balance at March 31, 2022    i 4,946,502     i 4,947     i 932,412     i 698,497     i 1,635,856 
                          
  Net income (loss)   —      —      —      ( i 18,796)   ( i 18,796)
                          
Balance at June 30, 2022    i 4,946,502     i 4,947     i 932,412     i 679,701     i 1,617,060 
                          
  Net income (loss)   —      —      —       i 73,371     i 73,371 
                          
Balance at September 30, 2022    i 4,946,502   $ i 4,947   $ i 932,412   $ i 753,072   $ i 1,690,431 
                          
Balance, January 1, 2023    i 4,946,502   $ i 4,947   $ i 932,412     i 849,989   $ i 1,787,348 
                          
   Net income (loss)   —      —      —      ( i 92,124)   ( i 92,124)
                          
Balance at March 31, 2023    i 4,946,502     i 4,947     i 932,412     i 757,865     i 1,695,224 
                          
   Net income (loss)   —      —      —       i 58,870     i 58,870 
                          
   Stock based compensation              i 693    —       i 693 
                          
Balance at June 30, 2023    i 4,946,502     i 4,947     i 933,105     i 816,735     i 1,754,787 

  

Net income (loss)

   —      —      —      ( i 42,505)   ( i 42,505)
                          
Balance at September 30, 2023    i 4,946,502   $ i 4,947   $ i 933,105   $ i 774,230   $ i 1,712,282 

  

See Notes to Condensed Financial Statements.

 

4 
 

 

ELECTRONIC SYSTEMS TECHNOLOGY, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

 i 

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 September 30, 2023 and its results of operations, cash flows, and changes in stockholders’ equity for the three and nine months ended 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 and nine-month period ended 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.

 

 i 

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:

 

 i 
Schedule of inventories          
  

September 30,

2023

  

December 31,

2022

 
Parts  $ i 125,555   $ i 172,190 
Work in progress    i 366,887     i 336,298 
Finished goods    i 317,435     i 216,990 
Total inventories  $ i 809,877   $ i 725,478 
 / 

 

 

5 
 

 

 /  i 

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 stock 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 Stock or resulted in the issuance of common stock that then shared in the earnings of the Company. At September 30, 2023 and 2022, the Company had  i 225,000 and  i 210,000 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.

 

 /  i 

NOTE 4 - STOCK OPTIONS

 

On June 9, 2023, the Board of Directors granted  i 45,000 options to employees. The new options have an exercise price of $ i 0.40, a term of  i 5 years, and vest immediately. The fair value of the options was determined using the Black-Scholes model using the following variables: stock price of $ i 0.24, volatility of  i 104.1%, expected term of  i 5 years with a forfeiture rate of  i 95%, and a discount factor of  i 3.92%. Share based compensation of $ i 693 ($ i 534 in marketing and sales and $ i 159 in general and administrative in the condensed statement of operations) was recognized during the nine-month period ended September 30, 2023.

 

As of September 30, 2023, there were  i 225,000 options outstanding with a weighted average exercise price of $ i 0.40 per share, a weighted average remaining life of  i 2.0 years and had intrinsic value of nil.

 

 /  i 

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 periods ended September 30, 2023 and 2022, the Company’s revenue from products sales was $ i 336,621 and $ i 480,260, respectively. Revenue from site support and engineering services was $ i 6,100 and $ i 6,900 respectively, over the same periods.

 

During the nine-month periods ended September 30, 2023 and 2022, the Company’s revenue from products sales was $ i 1,209,516 and $ i 1,351,495, respectively. Revenue from site support and engineering services was $ i 23,500 and $ i 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 September 30, 2023 and September 30, 2022 were $ i 338,948 and $ i 419,164, respectively. Sales to foreign customers for the three-month period ended September 30, 2023 and September 30, 2022 were $ i 3,773 and $ i 67,996, respectively.

 

Domestic sales for the nine-month period ended September 30, 2023 and September 30, 2022 were $ i 1,208,539 and $ i 1,234,793, respectively. Sales to foreign customers for the nine-month period ended September 30, 2023 and September 30, 2022 were $ i 24,477 and $ i 141,402, respectively.

 

6 
 

 

For the three-month period ended September 30, 2023, 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 2022.

 

 i 
Schedule of revenue                    
   2023 Sales   2023 %age of Total Sales   2022 Sales   2022%age of Total Sales 
Domestic customer A  $ i 64,698     i 19%  $ i 60,130     i 12%
Domestic customer B    i 57,456     i 17%    i 58,167     i 12%
Domestic customer C    i 33,119     i 10%    i 46,703     i 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  $ i 262,149     i 21%  $ i 165,621     i 12%
Domestic customer B   —      —       i 137,346     i 10%
Domestic customer C   —      —      —      —   
 / 

 

As of September 30, 2023 and 2022, the Company had a sales order backlog of $ i 124,125 and $ i 141,066, respectively.

 

 /  i 

NOTE 6 - LEASES

 

On September 23, 2022, the Company signed a new two-year lease for its facilities. The base lease is $ i 3,373 and $ i 3,478 per month for years one and two, respectively. There is a leasehold tax applied to the base lease at  i 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 $ i 78,757 based on the two-year payment stream discounted using an estimated incremental borrowing rate of  i 4.125%. At September 30, 2023, the remaining lease term is  i 12 months. As of September 30, 2023, future payments on this lease of $ i 10,435 and $ i 31,304 will be paid in 2023 and 2024 respectively.

 

7 
 

 

For the three and nine-month periods ended September 30, 2023 and 2022, lease expenses of $ i 11,576 and $ i 11,616 and $ i 34,727 and $ i 34,849, respectively, are included in the following expense classifications on the statement of operations:

  

 i 
Schedule of lease expense                              
   For the three-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  $ i 5,751   $ i 4,526   $ i 10,277   $ i 5,751   $ i 4,526   $ i 10,277 
Variable lease costs    i 727     i 572     i 1,299     i 749     i 590     i 1,339 
Total lease costs  $ i 6,478   $ i 5,098   $ i 11,576   $ i 6,500   $ i 5,116   $ i 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  $ i 17,252   $ i 13,578   $ i 30,830   $ i 17,252   $ i 13,578   $ i 30,830 
Variable lease costs    i 2,181     i 1,716     i 3,897     i 2,249     i 1,770     i 4,019 
Total lease costs  $ i 19,433   $ i 15,294   $ i 34,727   $ i 19,501   $ i 15,348   $ i 34,849 
 / 

  

 /  i 

NOTE 7 - CARES ACT RETENTION CREDIT

 

As of December 31, 2022, the Company has an employee retention tax credit due of $ i 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.

 

 / 

 

8 
 

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 September 30, 2023. The following statements may be forward looking in nature and actual results may differ materially.

 

A.RESULTS OF OPERATIONS

 

REVENUES: Total revenues from sales decreased to $342,721 for the third quarter of 2023 as compared to $487,160 in the third quarter of 2022, reflecting a decrease of 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 to $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 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 three- and nine-month periods ended September 30, 2023 and 2022 are as follows:

 

   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   99%   86%   98%   90%
Export Sales   1%   14%   2%   10%

 

BACKLOG:

 

As of September 30, 2023, the Company had a sales order backlog of $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 percentages for the third quarters of 2023 and 2022 were 52.1% and 43.1% of respective net sales. Cost of sales percentages for the nine-month periods ended September 30, 2023 and 2022 were 47.6% and 44.4%, respectively. The cost of sales percentage increase for the nine-month period ended September 30, 2023 is the result of the product mix sold during the same period of 2022.

 

9 
 

 

OPERATING EXPENSES:

 

The following is a delineation of operating expenses:

 

   Three Months Ended       Nine Month Ended     
  

September 30,

2023

  

September 30,

2022

  

Increase

(Decrease)

  

September 30,

2023

  

September 30,

2022

  

Increase

(Decrease)

 
General and administrative  $55,829   $60,784   $(4,955)  $202,086   $212,308   $(10,222)
Research and development   26,114    40,029    (13,915)   82,798    131,662    (48,864)
Marketing and sales   133,223    104,293    28,930    454,819    373,694    81,125 
Total operating expenses  $215,166   $205,106   $10,060   $739,703   $717,664   $22,039 

 

General and administrative: For the third quarter of 2023, general and administrative expenses decreased $4,955 to $55,829, due to decreased wages 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 $13,915 to $26,114 during the third quarter of 2023 due to decreased services purchased expenses 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 third quarter of 2023, marketing and sales expenses increased $28,930 to $133,223 when compared with the same period of 2022, due to increased payroll, benefits expense, and travel. For the nine-month period, marketing and sales expenses increased by $81,125 to $454,819, due to increased payroll, benefits, and travel expenses. Marketing and sales expenses were 38.9% compared to 21.4% of sales revenue for the third quarter of 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.

  

OTHER INCOME:

 

The Company earned $8,375 in interest income during the quarter ended September 30, 2023 and $17,559 for the nine-month period. Sources of this income were money market accounts, certificates of 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 LOSS:

 

The Company had a net loss of $42,505 for the third quarter of 2023 compared to net income of $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 decrease in net income during 2023 is the result of increased operating expenses and lower sales.

 

10 
 

 

B.       FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

 

The Corporation's current asset to current liabilities ratio at September 30, 2023 was 16.0 compared to 8.6 at December 31, 2022. The increase in current ratio is due to the decrease of accounts payable and increase in inventory at September 30, 2023 as compared to December 31, 2022.

 

At September 30, 2023, the Company had cash and cash equivalents including certificates of deposit of $821,493 as compared to cash and cash equivalent of $1,002,817 at December 31, 2022.

 

Cash used from operating activities decreased by $74,096 for the nine-month period ended September 30, 2023 when compared to the same period in 2022. The decrease is attributable to a decrease in net income for the period being $125,373 less than the same period in 2022. The increase in the change in accounts receivable, accounts payable, and inventory balances contributed $41,572, $(61,611) and $(27,798) respectively.

 

In management's opinion, the Company's cash and cash equivalents and other working capital at September 30, 2023 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

 

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 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 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 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.

 

 

11 
 

PART II—OTHER INFORMATION

 

Item 1. Legal Proceedings

 

None.

 

Item 2. Unregistered Sales of Securities

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not Applicable

 

Item 5. Other Information

 

None.

 

 

12 
 

 

 

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

 

 

 

13 
 

 

 

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:  October 25, 2023 Name:  Daniel M. Tolley
  Title:  President
(Principal Executive Officer)

 

 

 

 

By: /s/ Michael W. Eller

Date:  October 25, 2023 Name:  Michael W. Eller
  Title:  Vice President Administration
(Principal Accounting Officer)

 

 

14 
 

 

 

Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10-Q’ Filing    Date    Other Filings
12/31/23
10/26/23
Filed on:10/25/23
For Period end:9/30/23
6/30/2310-Q
6/9/23
3/31/2310-Q
1/1/23
12/31/2210-K
9/30/2210-Q
9/23/22
6/30/2210-Q
3/31/2210-Q
1/1/22
 List all Filings 
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