Item 1. Financial Statements.
| | |
| | |
| |
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
CONDENSED BALANCE SHEETS
(Unaudited) |
| | |
March 31, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| ASSETS | |
| | |
| |
| Current assets | |
| | | |
| | |
| Cash and cash equivalents | |
$ | 850,664 | | |
$ | 655,616 | |
| Certificates of deposit | |
| 250,000 | | |
| 400,000 | |
| Accounts receivable, net | |
| 141,326 | | |
| 166,303 | |
| Inventories | |
| 434,836 | | |
| 501,833 | |
| Prepaid expenses | |
| 40,896 | | |
| 24,387 | |
| Accrued interest receivable | |
| 305 | | |
| 35 | |
| Total current assets | |
| 1,718,027 | | |
| 1,748,174 | |
| | |
| | | |
| | |
| Property and equipment, net of depreciation | |
| 1,247 | | |
| 1,358 | |
| | |
| | | |
| | |
| Right to use – Lease, net of amortization (NOTE 6) | |
| 19,378 | | |
| 28,922 | |
| | |
| | | |
| | |
| Total assets | |
$ | 17,38,652 | | |
$ | 1,778,454 | |
| | |
| | | |
| | |
| LIABILITIES and STOCKHOLDERS' EQUITY | |
| | | |
| | |
| Current liabilities | |
| | | |
| | |
| Accounts payable | |
$ | 49,704 | | |
$ | 71,645 | |
| Accrued wages | |
| 5,480 | | |
| 9,114 | |
| Lease liability, current portion (NOTE 6) | |
| 19,694 | | |
| 28,438 | |
| Accrued vacation pay | |
| 18,630 | | |
| 13,613 | |
| Other accrued liabilities | |
| 9,288 | | |
| 14,827 | |
| Total current liabilities | |
| 102,796 | | |
| 137,637 | |
| | |
| | | |
| | |
| Total liabilities | |
| 102,796 | | |
| 137,637 | |
| | |
| | | |
| | |
| Stockholders' equity | |
| | | |
| | |
| Common stock, $0.001 par value 50,000,000 shares authorized 4,946,502 and 4,946,502 shares issued and outstanding respectively | |
| 4,947 | | |
| 4,947 | |
| Additional paid-in capital | |
| 932,412 | | |
| 932,412 | |
| Retained earnings | |
| 698,497 | | |
| 703,458 | |
| Total stockholders' equity | |
| 1,635,856 | | |
| 1,640,817 | |
| Total liabilities and stockholders' equity | |
$ | 1,738,652 | | |
$ | 1,778,454 | |
See Notes to Financial Statements.
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| | |
| |
ELECTRONIC SYSTEMS TECHNOLOGY,
INC. CONDENSED
STATEMENTS OF OPERATIONS (Unaudited) |
| | |
Three Months Ended | |
| | |
March 31, | | |
March 31, | |
| | |
2022 | | |
2021 | |
| | |
| | |
| |
| SALES - NET | |
$ | 472,143 | | |
$ | 424,775 | |
| COST OF SALES | |
| (209,883 | ) | |
| (180,536 | ) |
| GROSS PROFIT | |
| 262,260 | | |
| 244,239 | |
| | |
| | | |
| | |
| OPERATING EXPENSES | |
| | | |
| | |
| General and administrative | |
| 84,776 | | |
| 93,503 | |
| Research and development | |
| 45,777 | | |
| 52,700 | |
| Marketing and sales | |
| 137,159 | | |
| 94,215 | |
| Total operating expenses | |
| 267,712 | | |
| 240,418 | |
| OPERATING INCOME (LOSS) | |
| (5,452 | ) | |
| 3,821 | |
| | |
| | | |
| | |
| OTHER INCOME | |
| | | |
| | |
| Interest income | |
| 491 | | |
| 861 | |
| Total other income | |
| 491 | | |
| 861 | |
| | |
| | | |
| | |
| NET INCOME (LOSS) BEFORE INCOME TAX | |
| (4,961 | ) | |
| 4,682 | |
| Benefit (provision) for income tax | |
| — | | |
| — | |
| NET INCOME (LOSS) | |
$ | (4,961 | ) | |
$ | 4,682 | |
| | |
| | | |
| | |
| Earnings (loss) per share – basic and diluted | |
$ | 0.00 | | |
$ | 0.00 | |
| | |
| | | |
| | |
| Weighted average shares – basic and diluted | |
| 4,946,502 | | |
| 4,946,502 | |
See Notes to Financial Statements.
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ELECTRONIC SYSTEMS TECHNOLOGY, INC.
CONDENSED
STATEMENTS OF CASH FLOWS
(Unaudited) |
| | |
Three Months Ended | |
| | |
March 31, | | |
March 31, | |
| | |
2022 | | |
2021 | |
| | |
| | |
| |
| CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | | |
| | |
| | |
| | | |
| | |
| Net income (loss) | |
$ | (4,961 | ) | |
$ | 4,682 | |
| | |
| | | |
| | |
| Noncash items included in net income (loss): | |
| | | |
| | |
| Depreciation | |
| 111 | | |
| 1,288 | |
| | |
| | | |
| | |
| Changes in operating assets and liabilities: | |
| | | |
| | |
| Accounts receivable, net | |
| 24,977 | | |
| (33,510 | ) |
| Inventories | |
| 66,997 | | |
| 74,479 | |
| Accrued interest receivable | |
| (270 | ) | |
| 4,219 | |
| Prepaid expenses | |
| (16,508 | ) | |
| 8,738 | |
| Accounts payable | |
| (20,983 | ) | |
| 18,301 | |
| Other accrued liabilities | |
| 1,653 | | |
| 28,173 | |
| NET CASH PROVIDED IN OPERATING ACTIVITIES | |
| 51,016 | | |
| 106,370 | |
| | |
| | | |
| | |
| | |
| | | |
| | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
| Certificates of deposit redeemed | |
| 150,000 | | |
| 249,999 | |
| NET CASH PROVIDED FROM INVESTING ACTIVITIES | |
| 150,000 | | |
| 249,999 | |
| | |
| | | |
| | |
| CASH FLOWS USED IN FINANCING ACTIVITIES: | |
| | | |
| | |
| Principal payments on CARES Act loan payable (round 1) | |
| (5,968 | ) | |
| — | |
| Proceeds from CARES Act loan payable | |
| — | | |
| 130,255 | |
| NET CASH USED IN FINANCING ACTIVITIES | |
| (5,968 | ) | |
| 130,255 | |
| | |
| | | |
| | |
| NET INCREASE IN CASH AND CASH EQUIVALENTS | |
| 195,048 | | |
| 486,624 | |
| Cash and cash equivalents at beginning of period | |
| 655,616 | | |
| 308,110 | |
| Cash and cash equivalents at end of period | |
$ | 850,664 | | |
$ | 794,734 | |
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| | | |
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See Notes to Financial Statements.
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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, 2021 | |
| 4,946,502 | | |
$ | 4,947 | | |
$ | 931,442 | | |
$ | 610,469 | | |
$ | 1,546,858 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net income (loss) | |
| — | | |
| — | | |
| — | | |
| 4,682 | | |
| 4,682 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| BALANCES AT March 31, 2021 | |
| 4,946,502 | | |
$ | 4,947 | | |
$ | 931,442 | | |
$ | 615,151 | | |
$ | 1,551,540 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balances, January 1, 2022 | |
| 4,946,502 | | |
$ | 4,947 | | |
$ | 932,412 | | |
$ | 703,458 | | |
$ | 1,640,817 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net income (loss) | |
| — | | |
| — | | |
| — | | |
| (4,961 | ) | |
| (4,961 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| BALANCES AT MARCH 31, 2022 | |
| 4,946,502 | | |
$ | 4,947 | | |
$ | 932,412 | | |
$ | 698,497 | | |
$ | 1,635,856 | |
| | |
| | | |
| | | |
| | | |
| | | |
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See Notes to 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 March 31, 2022, and its results of operations, cash flows, and changes in stockholders’ equity for the three months ended March
31, 2022 and 2021. The balance sheet at December 31, 2021 was derived from audited annual financial statements but does not contain all
of the 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, 2021.
The results of operations for the three-month period
ended March 31, 2022 are not necessarily indicative of the results expected for the full fiscal year or for any other fiscal period. The
Company estimates that for 2022 the anticipated effective annual federal income tax rate will be 0%.
New Accounting Pronouncements
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:
| Inventories | |
| | | |
| | |
| | |
March 31,
2022 | | |
December 31,
2021 | |
| Parts | |
$ | 87,795 | | |
$ | 92,751 | |
| Work in progress | |
| 136,326 | | |
| 171,705 | |
| Finished goods | |
| 210,715 | | |
| 237,377 | |
| Total inventory | |
$ | 434,836 | | |
$ | 501,833 | |
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 common shares 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 March 31, 2022 and 2021, the Company had 240,000 and 180,000 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
The Company has outstanding stock options, which have
been granted periodically to individual employees and directors. On September 2, 2021, the Board of Directors granted 60,000 options to
employees. The new options have an exercise price of $0.40, a term of 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 $0.40, volatility of 107.7%, expected term of 5
years with a forfeiture rate of 95%, and a discount factor of 0.77%. Share based compensation of $970 was recognized during the year ended
December 31, 2021. No shared based compensation was recognized during the three month periods ended March 31, 2022 and 2021.
As of March 31, 2022, there were 240,000 options outstanding
with a weighted average exercise price of $0.40 per share, a weighted average remaining life of 3.4 years and no intrinsic value.
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 period ended March 31, 2022 and 2021, the Company’s
revenue from products sales was $461,843 and $421,675, respectively. Revenue from site support and engineering services was $10,300 and
$3,100 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, 2022 and March 31, 2021 were $436,670 and $362,115, respectively. Sales to foreign customers for the three month
period ended March 31, 2022 and March 31, 2021 were $35,473 and $62,660, respectively.
For the three month period ended March 31, 2022 and
2021, sales to three customers representing more than 10% of total revenue were as follows:
| Revenue | |
| | | |
| | | |
| | | |
| | |
| | |
For the three month period ended March 31, | |
| | |
2022 | | |
2021 | |
| | |
Sales | | |
%age of Total Sales | | |
Sales | | |
%age of Total Sales | |
| Domestic customer A | |
$ | 75,505 | | |
| 16 | % | |
$ | 71,038 | | |
| 17 | % |
| Domestic customer B | |
| 72,683 | | |
| 15 | % | |
| 52,851 | | |
| 12 | % |
| Domestic customer C | |
| 53,625 | | |
| 11 | % | |
| 51,368 | | |
| 12 | % |
As of March 31, 2022 and 2021, the Company had a sales order backlog of
$116,461 and $91,064, respectively.
NOTE 6 - LEASES
On September 23, 2020, the Company signed a new two-year
lease for its facilities. The base lease is $3,162 and $3,267 per month for years one and two, respectively. There is a leasehold tax
applied to the base lease at 12.84%. The Company has the right to terminate the lease with 90 days’ notice. There is no renewal
clause contained in the current lease. Upon signing the lease, the Company recognized a lease liability and right of use asset of $74,005
based on the two-year payment stream discounted using an estimated incremental borrowing rate of 4.0%. At March 31, 2022, the remaining
lease term is six months. As of March 31, 2022, future payments on this lease of $19,604 will be paid in 2022.
For the three month periods ended March 31, 2022 and
2021, lease expense of $10,903 and $10,861, respectively, are included in the following expense classifications on the statements of operations:
| Leases | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
2022 | | |
2021 | |
| | |
Cost of sales | | |
Operating expenses | | |
Total | | |
Cost of sales | | |
Operating expenses | | |
Total | |
| Base rent pursuant to lease agreement | |
$ | 5,397 | | |
$ | 4,247 | | |
$ | 9,644 | | |
$ | 5,396 | | |
$ | 4,247 | | |
$ | 9,643 | |
| Variable lease costs | |
| 704 | | |
| 555 | | |
| 1,259 | | |
| 682 | | |
| 536 | | |
| 1,218 | |
| Total lease costs | |
$ | 6,101 | | |
$ | 4,802 | | |
$ | 10,903 | | |
$ | 6,078 | | |
$ | 4,783 | | |
$ | 10,861 | |
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, 2022. 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
$472,143 for the first quarter of 2022 as compared to $424,775 in the first quarter of 2021, reflecting an increase of 11.2%.
Management believes the increase in sales revenues is due to increased product demand from the Domestic market during the first
quarter of 2022 when compared with the same quarter of 2021.
The Company's revenues have historically fluctuated
from quarter to quarter due to timing factors such as 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.
During the three month period ending March 31, 2022,
orders have not been impacted by COVID-19. We are experiencing some disruptions in the supply chain, but at this point do not see it having
a material impact on sales.
A percentage breakdown of the Company’s market
segments of Domestic and Foreign Export sales for the first quarter of 2022 and 2021 are as follows:
| |
2022 |
2021 |
| Domestic Sales |
93% |
85% |
| Export Sales |
7% |
15% |
BACKLOG:
As of March 31, 2022, the Company had a sales order
backlog of $116,461. The Company’s customers generally place orders on an "as needed basis". Shipment for most of the
Company’s products is generally made within 1 to 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 first quarters of
2022 and 2021 were 44% and 42% of respective net sales and are calculated excluding site support expenses of $6,312 and $2,079 respectively.
The cost of sales percentage increase in the first quarter of 2022 is the result of the product mix sold during the same quarter of 2021.
OPERATING EXPENSES:
Operating expenses for the first quarter of 2022 increased
$27,294 from first quarter of 2021 levels. The following is a delineation of operating expenses:
| | |
March 31,
2022 | | |
March 31,
2021 | | |
Increase
(Decrease) | |
| General and administrative | |
$ | 84,776 | | |
$ | 93,503 | | |
$ | (8,727 | ) |
| Research and development | |
| 45,777 | | |
| 52,700 | | |
| (6,923 | ) |
| Marketing and sales | |
| 137,159 | | |
| 94,215 | | |
| 42,944 | |
| Total operating expenses | |
$ | 267,712 | | |
$ | 240,418 | | |
$ | 27,294 | |
General and administrative: For the first quarter
of 2022, general and administrative expenses decreased $8,727 to $84,776, due to decreased professional services and purchased services
when compared with the same quarter of 2021.
Research and development: Research and development
expenses decreased $6,923 to $45,777 during the first quarter of 2022 due to decreased expenses related to prototype build costs when
compared with the same quarter of 2021.
Marketing and sales: During the first quarter
of 2022, marketing and sales expenses increased $42,944 to $137,159 when compared with the same period of 2021, due to increased payroll,
taxes and benefits during the first quarter of 2022.
INTEREST INCOME:
The Company earned $491 in interest income during
the quarter ended March 31, 2022 compared to $861during the same period in 2021. Sources of this income were money market accounts and
certificates of deposit.
NET INCOME (LOSS):
The Company had a net loss of ($4,961) for the first
quarter of 2022 compared to net income of $4,682 for the same quarter of 2021. The decrease in net profits during 2022 is the result of
increased payroll in Marketing and Sales due to adding one additional person.
B. FINANCIAL
CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's current asset to current liabilities
ratio at March 31, 2022 was 16.7 compared to 12.7 at December 31, 2021. The increase in current ratio is due to the decrease in accounts
payable liability at March 31, 2022 as compared to December 31, 2021.
At March 31, 2022, the Company had cash and cash equivalents
of $850,664 as compared to cash and cash equivalent of $655,616 at December 31, 2021, primarily reflecting decreases in Accounts Receivable,
Certificates of Deposit, and Inventory.
For the three-month period ended March 31, 2022, cash
provided by operating activities was $51,016 compared to cash provided of $106,370 for the same period in 2021. This change was driven
by a net loss of $4,961 during the three months ended March 31, 2022 compared to net income of $4,682 in the three months ended March
31, 2021. Change in operating assets and liabilities was $55,866 during the three month period ended March 31, 2022 compared to 100,400
in 2021.
Cash provided from
investing was $150,000 due to the redemption of a Certificate of deposit during the first quarter of 2022. With 12 month yields currently
at a rate comparable to rates offered by Money Market accounts, maturing CDs are being deposited in these type of accounts.
In management's opinion, the Company's cash and cash
equivalents and other working capital at March 31, 2022 is sufficient to satisfy requirements for operations, capital expenditures, and
other expenditures as may arise during 2022.
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 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 March 31, 2022. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer
have determined that there was a material weakness affecting our internal control over financial reporting and, as a result of that weakness,
our disclosure controls and procedures were not effective as of March 31, 2022.
The material weakness is as follows:
We did not maintain effective controls to
ensure appropriate segregation of duties as the same officer and employee was responsible for the initiating and recording of transactions,
thereby creating segregation of duties weaknesses. Due to the (1) significance of segregation of duties to the preparation of reliable
financial statements; (2) the significance of potential misstatement that could have resulted due to the deficient controls; and, (3)
the absence of sufficient other mitigating controls; we determined that this control deficiency resulted in more than a remote likelihood
that a material misstatement or lack of disclosure within the annual or interim financial statements will not be prevented or detected.
Changes in Internal Control Over Financial Reporting
There have not been any changes in our internal control
over financial reporting (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.