UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly
period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
From ________________ to ________________
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(
(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 |
| 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.
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).
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 ☐ |
|
|
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 ¨
No
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of July 23, 2024, the number of the Company's shares of Common Stock par value $0.001, outstanding was .
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Certificates of deposit | ||||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Prepaid expenses | ||||||||
| Accrued interest receivable | ||||||||
| Total current assets | ||||||||
| Property and equipment, net of depreciation | ||||||||
| Right to use – Lease, net of amortization | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES and STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued wages | ||||||||
| Operating lease liability, current portion | ||||||||
| Accrued vacation pay | ||||||||
| Other accrued liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders' equity | ||||||||
| Common stock, $ par value shares authorized and shares issued and outstanding, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Total stockholders' equity | ||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
See Notes to Condensed Financial Statements.
| 1 |
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |||||||||||||
| SALES - NET | $ | $ | $ | $ | ||||||||||||
| COST OF SALES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| GROSS PROFIT | ||||||||||||||||
| Operating Expenses | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| Marketing and sales | ||||||||||||||||
| TOTAL OPERATING EXPENSE | ||||||||||||||||
| OPERATING INCOME (LOSS) | ( | ) | ( | ) | ( | ) | ||||||||||
| OTHER INCOME | ||||||||||||||||
| Interest income | ||||||||||||||||
| TOTAL OTHER INCOME | ||||||||||||||||
NET INCOME (LOSS) BEFORE INCOME TAX | ( | ) | ( | ) | ( | ) | ||||||||||
| Benefit (provision) for income tax | ||||||||||||||||
| NET INCOME (LOSS) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| 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.
| 2 |
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six Months Ended | ||||||||
| June 30, | June 30, | |||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Noncash items included in net loss: | ||||||||
| Depreciation and amortization | ||||||||
| Stock based compensation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ( | ) | ||||
| Accrued interest receivable | ||||||||
| Prepaid expenses | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Other accrued liabilities | ||||||||
| NET CASH USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of fixed assets | ( | ) | ( | ) | ||||
| Certificates of deposit redeemed | ||||||||
| Certificates of deposit purchased | ( | ) | ( | ) | ||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ) | ( | ) | ||||
| NET DECREASE IN CASH AND CASH EQUIVALENTS | ( | ) | ( | ) | ||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
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 | ||||||||||||||||
| Balances, January 1, 2023 | $ | $ | $ | |||||||||||||||||
| Net income (loss) | — | ( | ) | ( | ) | |||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | ||||||||||||||||
| Net income (loss) | — | |||||||||||||||||||
| Stock based compensation | — | |||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | ||||||||||||||||
| Balances, January 1, 2024 | $ | $ | $ | $ | ||||||||||||||||
| Net income (loss) | — | ( | ) | ( | ) | |||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | ||||||||||||||||
| Net income (loss) | — | ( | ) | ( | ) | |||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | ||||||||||||||||
See Notes to Condensed Financial Statements.
| 4 |
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, 2024, and its results of operations, cash flows, and changes in stockholders’ equity for the three and six months ended June 30, 2024 and 2023. The balance sheet at December 31, 2023 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, 2023.
The results of operations for the three and six-month periods ended June 30, 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 2024 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:
| June 30, 2024 | December 31, 2023 | |||||||
| Parts | $ | $ | ||||||
| Work in progress | ||||||||
| Finished goods | ||||||||
| Total inventories | $ | $ | ||||||
| 5 |
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
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 June 30, 2024 and 2023, 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 options to employees. The new 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 price of $, volatility of %, expected term of years with a forfeiture rate of %, and a 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 and six-month periods ended June 30, 2023.
As of June 30, 2024, there were options outstanding with a weighted average exercise price of $ per share, a weighted average remaining life of years and had intrinsic value of $.
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 June 30, 2024 and 2023, the Company’s
revenue from products sales was $
During the six-month periods ended June 30, 2024 and
2023, the Company’s revenue from products sales was $
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, 2024 and June 30, 2023 were $
Domestic sales for the six-month period ended June
30, 2024 and June 30, 2023 were $
For the three-month period ended June 30, 2024, 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 2023.
| 2024 Sales | 2024 %age of Total Sales | 2023 Sales | 2023 %age of Total Sales | |||||||||||||
| Customer A | $ | % | $ | % | ||||||||||||
| Customer B | % | % | ||||||||||||||
| Customer C | % | |||||||||||||||
For the six-month period ended June 30, 2024, sales to two customers represented more than 10% of total revenue, two customers represented more than 10% of total revenue for the same period in 2023.
| 2024 Sales | 2024 %age of Total Sales | 2023 Sales | 2023 %age of Total Sales | |||||||||||||
| Customer A | $ | % | $ | % | ||||||||||||
| Customer B | % | % | ||||||||||||||
| 6 |
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 three-month period ended June 30, 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 decreased to $333,569 for the three-month period ending June 30, 2024 as compared to $585,206 in the second quarter of 2023, reflecting a decrease of 22.5%. Management believes the decrease in sales revenues is due to the decrease in customer demand. Year to date total revenues from sales decreased to $689,630 in 2024 as compared to $890,295 in 2023, reflecting a decrease of 22.5%. Management believes the decrease in sales revenues is due to customer demand slowing to higher interest rates.
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 six-month periods ended June 30, 2024 and 2023 are as follows:
| Three Months ended June 30, 2024 | Three Months ended June 30, 2023 | Six Months ended June 30, 2024 | Six Months ended June 30, 2023 | |||||||||||||
| Domestic Sales | 81 | % | 98 | % | 84 | % | 98 | % | ||||||||
| Export Sales | 19 | % | 2 | % | 16 | % | 2 | % | ||||||||
BACKLOG:
As of June 30, 2024, the Company had a sales order backlog of nil. 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 second quarters of 2024 and 2023 were 46.7% and 45.9% of respective net sales. Cost of sales percentages for the six-month periods ended June 30, 2024 and 2023 were 45.9% and 45.8%, respectively. The cost of sales percentage increase for the six month period ended June 3, 2024 is the result of the product mix sold during the same period of 2023.
| 7 |
OPERATING EXPENSES:
The following is a delineation of operating expenses:
| Three Months Ended | Six Month Ended | |||||||||||||||||||||||
| June 30, 2024 |
June 30, 2023 |
Increase (Decrease) |
June 30, 2024 |
June 30, 2023 |
Increase (Decrease) |
|||||||||||||||||||
| General and administrative | $ | 62,670 | $ | 61,492 | $ | 1,178 | $ | 151,448 | $ | 146,257 | $ | 5,191 | ||||||||||||
| Research and development | 35,080 | 28,021 | 7,059 | 64,027 | 56,684 | 7,343 | ||||||||||||||||||
| Marketing and sales | 156,462 | 173,368 | (16,906) | 325,127 | 321,595 | 3,532 | ||||||||||||||||||
| Total operating expenses | $ | 254,212 | $ | 262,881 | $ | (8,669) | $ | 540,602 | $ | 524,536 | $ | 16,066 | ||||||||||||
General and administrative: For the second quarter of 2024, general and administrative expenses increased $1,178 to $62,670, due to increased wages when compared with the same quarter of 2023. For the six-month period ended June 30, 2024, general and administrative expenses increased by $5,191, to $151,448, due to increased payroll and increased services purchased. General and administrative expenses were 18.8% compared to 10.5% of sales revenue for the second quarter of 2024 and 22.0% compared to 16.4% of sales revenue for six-month period ended June 30, 2024.
Research and development: Research and development expenses increased $7,059 to $35,080 during the second quarter of 2024 due to increased prototype expenses when compared with the same quarter of 2023. For the six-month period, research and development expenses increased by $7,343 to $64,027, due to increased prototype expenses. Research and development expenses were 10.5% compared to 4.8% of sales revenue for the second quarter of 2024 and 9.3% compared to 6.4% of sales revenue for six-month period ended June 30, 2024.
Marketing and sales: During the second quarter of 2024, marketing and sales expenses decreased $16,906 to $156,462 when compared with the same period of 2023, due to decreased payroll, benefits expense, and travel. For the six-month period, marketing and sales expenses increased by $3,532 to $325,127, due to increased advertising. Marketing and sales expenses were 46.9% compared to 29.6% of sales revenue for the second quarter of 2024 and 47.1% compared to 36.1% of sales revenue for the six-month period ended June 30, 2024.
OTHER INCOME:
The Company earned $5,592 in interest income during the quarter ended June 30, 2024 and $11,062 for the six-month period. Sources of this income were money market accounts and certificates of deposit.
NET LOSS:
The Company had a net loss of $70,860 for the second quarter of 2024 compared to a net income of $58,870 for the same quarter of 2023. For the six-month period ended June 30, 2024, the Company recorded a net loss of $156,434 compared with a net loss of $33,254 for the same period of 2023. The increase in the net loss during 2024 is the result of decreased sales.
| 8 |
B. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Corporation's current asset to current liabilities ratio at June 30, 2024 was 12.4 compared to 16.2 at December 31, 2023. The decrease in current ratio is due to the increase of accounts receivable, inventory, and accounts payable at June 30, 2024 as compared to December 31, 2023.
At June 30, 2024, the Company had cash and cash equivalents of $722,634 as compared to cash and cash equivalent of $886,252 at December 31, 2023.
Cash used from operating activities decreased by $38,639 for the six-month period ended June 30, 2024 when compared to the same period in 2023. Although the net loss increased when compared to last year there was an improvement in cash flow.. A decreased change to inventory of $89,208 and an increased change to accounts payable of $81,969, had a positive impact to cash flows.
In management's opinion, the Company's cash and cash equivalents and other working capital at June 30, 2024 is sufficient to satisfy requirements for operations, capital expenditures, and other expenditures as may arise during 2024 and into the first half of 2025.
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 June 30, 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, 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.
| 9 |
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 June 30, 2024, no director or officer of the Company
| 10 |
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 |
| 11 |
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: July 23, 2024 | Name: Daniel M. Tolley |
| Title: President | |
| (Principal Executive Officer) |
| By: /s/ Michael W. Eller | |
| Date: July 23, 2024 | Name: Michael W. Eller |
| Title: Vice President Administration | |
| (Principal Accounting Officer) |
| 12 |