UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
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)
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 ¨ |
(Do not check if a smaller reporting company) | 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
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of April, 19 2021, the number of the Company's shares of common stock par value $0.001, outstanding was
1
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
ELECTRONIC SYSTEMS TECHNOLOGY, INC. BALANCE SHEETS (Unaudited) | |||
| March 31, |
| December 31, |
2021 |
| 2020 | |
ASSETS |
|
|
|
Current assets |
|
|
|
Cash and cash equivalents | $ |
| $ |
Certificates of deposit |
| ||
Accounts receivable - net |
| ||
Inventories - net |
| ||
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 |
| ||
Lease liability, current portion ( |
| ||
Accrued vacation pay |
| ||
Other accrued liabilities |
| ||
Total current liabilities |
| ||
|
|
|
|
Long-term liabilities |
|
|
|
|
|
|
|
CARES act loan payable ( |
| ||
Operating lease liability ( |
| ||
Total Long-term liabilities |
| ||
|
|
|
|
Total liabilities |
| ||
|
|
|
|
Stockholders' equity |
|
|
|
Common stock, $ |
| ||
Additional paid-in capital |
| ||
Retained earnings |
| ||
Total stockholders' equity |
| ||
Total liabilities and stockholders' equity | $ |
| $ |
See Notes to Financial Statements.
2
ELECTRONIC SYSTEMS TECHNOLOGY, INC. STATEMENTS OF OPERATIONS (Unaudited)
| |||
| Three Months Ended | ||
| March 31, |
| March 31, |
2021 |
| 2020 | |
|
|
|
|
SALES - NET | $ |
| $ |
COST OF SALES |
| ||
GROSS PROFIT |
| ||
|
|
|
|
OPERATING EXPENSES |
|
|
|
General and administrative |
| ||
Research and development |
| ||
Marketing and sales |
| ||
Total operating expenses |
| ||
OPERATING INCOME (LOSS) |
| ( | |
|
|
|
|
OTHER INCOME |
|
|
|
Interest income |
| ||
Total other income |
| ||
|
|
|
|
NET INCOME (LOSS) BEFORE INCOME TAX |
| ( | |
Benefit (provision) for income tax |
| ||
NET INCOME (LOSS ) | $ |
| $ ( |
|
|
|
|
Earnings (loss) per share – basic and diluted | $ |
| $ ( |
|
|
|
|
Weighted average shares – basic and diluted |
| ||
See Notes to Financial Statements.
3
ELECTRONIC SYSTEMS TECHNOLOGY, INC. STATEMENTS OF CASH FLOWS (Unaudited)
| |||
| Three Months Ended | ||
| March 31, |
| March 31, |
2021 |
| 2020 | |
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
Net income (loss) | $ |
| $ ( |
|
|
|
|
Noncash items included in net income (loss): |
|
|
|
Depreciation |
| ||
Share based compensation |
| ||
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
Accounts receivable, net | ( |
| |
Inventories |
| ||
Accrued interest receivable |
| ||
Prepaid expenses |
| ( | |
Accounts payable |
| ( | |
Other accrued liabilities |
| ||
NET CASH PROVIDED (USED) IN OPERATING ACTIVITIES |
| ( | |
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
Certificates of deposit redeemed |
| ||
NET CASH PROVIDED FROM INVESTING ACTIVITIES |
| ||
|
|
|
|
CASH FLOWS USED IN FINANCING ACTIVITIES: |
|
|
|
Proceeds from CARES Act loan payable |
| ||
NET CASH USED IN FINANCING ACTIVITIES |
| ||
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS |
| ||
Cash and cash equivalents at beginning of period |
| ||
Cash and cash equivalents at end of period | $ |
| $ |
See Notes to Financial Statements.
4
ELECTRONIC SYSTEMS TECHNOLOGY, INC. DBA ESTEEM WIRELESS MODEMS
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited) | |||||
| Shares | Amount | Additional Paid-In Capital | Retained Earnings | Total |
Balances, January 1, 2020 | $ | $ | $ | $ | |
|
|
|
|
|
|
Net income (loss) | ( | ( | |||
|
|
|
|
|
|
Common stock options |
|
| |||
|
|
|
|
|
|
BALANCES AT March 31, 2020 | $ | $ | $ | $ | |
|
|
|
|
|
|
Balances, January 1, 2021 | $ | $ | $ | $ | |
|
|
|
|
|
|
Net income (loss) | |||||
|
|
|
|
|
|
BALANCES AT MARCH 31, 2021 | $ | $ | $ | $ | |
See Notes to Financial Statements.
5
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The 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 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 financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its financial position as of March 31, 2021, and its results of operations, cash flows, and changes in stockholders’ equity for the three months ended March 31, 2021 and 2020. The balance sheet at December 31, 2020 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, 2020.
The results of operations for the three-month period ended March 31, 2021 are not necessarily indicative of the results expected for the full fiscal year or for any other fiscal period. The Company estimates that for 2021 the anticipated effective annual federal income tax rate will be 0%.
New Accounting Pronouncements
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:
March 31, 2021 | December 31, 2020 | |
Parts | $ | $ |
Work in progress | ||
Finished goods | ||
Total inventory | $ |
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, 2021 and 2020, the Company had
6
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - STOCK OPTIONS
The Company has outstanding stock options, which have been granted periodically to individual employees and directors with no less than three years of continuous tenure with the Company. On March 13, 2020, the Board of Directors canceled all 120,000 outstanding stock options that were granted on August 7, 2017 and due to expire on August 6, 2020. In addition, on that date, the Board of Directors granted
As of March 31, 2021, there were
NOTE 5 – REVENUE
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, 2021 and March 31, 2020 were $
For the three month period ended March 31, 2021 and 2020, sales to three customers representing more than 10% of total revenue were as follows:
| For the three month period ended March 31, | |||
| 2021 | 2020 | ||
Sales | %age of Total Sales | Sales | %age of Total Sales | |
Domestic customer A | $ | $ | ||
Domestic customer B | ||||
Domestic customer D | ||||
Foreign customer C | ||||
As of March 31, 2021 and 2020, the Company had a sales order backlog of $
7
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 - LEASES
On September 23, 2020, the Company signed a new two-year lease for its facilities. The base lease is $
Prior to the new lease in September 23, 2020, the Company’s lease for its facilities was for $
For the three month periods ended March 31, 2021 and 2020, lease expense of $10,862 and $16,918, respectively, are included in the following expense classifications on the statements of operations:
| 2021 |
| 2020 | ||||
Cost of sales | Operating expenses | Total |
| Cost of sales | Operating expenses | Total | |
Base rent pursuant to lease agreement | $ | $ | $ |
| $ | $ | $ |
Variable lease costs |
| ||||||
Total lease costs | $ | $ | $ |
| $ | $ | $ |
As of March 31, 2021, total future lease payments are as follows:
For the 12 months ended March 31, 2022 and 2023 | ||
2022 | $ | |
2023 |
| |
Total |
| |
Less imputed interest |
| ( |
Net lease liability |
| |
Current portion |
| |
Long-term portion | $ | |
NOTE 7 – STOCK REPURCHASE
8
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 – CARES ACT LOANS PAYABLE
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (the “CARES Act”) Act was signed into United States law.
In April 2020, the Company received a loan of $
In February 2021, the Company received a second loan of $
Under the terms of the PPP, certain amounts of the loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. Qualifying expenses include payroll costs, costs used to continue group health care benefits, mortgage payments, rent, and utilities. As of March 31, 2021, the Company has used funds from the loan to pay qualifying expenses. The Company has applied for forgiveness of the first loan and is awaiting notification from the Small Business administration at which time a gain on forgiveness of debt of $171,712 will be recognized. As of March 31, 2021, $
.
9
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, 2021. 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 $424,775 for the first quarter of 2021 as compared to $273,968 in the first quarter of 2020, reflecting an increase of 55.0%. Management believes the increase in sales revenues is due to increased product demand from both the Domestic and Foreign markets first quarter of 2021 when compared with the same quarter of 2020.
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.
The COVID-19 situation represented a significant disruption to operations in most of 2020. During the three month period ending March 31, 2021, we have seen orders for projects that we believe were delayed due to the impact of the restrictions related to preventing the spread of 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 2021 and 2020 are as follows:
For the first quarter | 2021 | 2020 |
Domestic Sales | 85% | 88% |
Export Sales | 15% | 12% |
BACKLOG:
As of March 31, 2021, the Company had a sales order backlog of $91,064. 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 2021 and 2020 were 42% and 53% of respective net sales and are calculated excluding site support expenses of $2,079 and $15,080 respectively. The cost of sales percentage decrease in the first quarter of 2021 is the result of the product mix sold during the same quarter of 2020.
10
OPERATING EXPENSES:
Operating expenses for the first quarter of 2021 increased $1,912 from first quarter of 2020 levels. The following is a delineation of operating expenses:
| March 31, 2021 | March 31, 2020 | Increase (Decrease) |
General and administrative | $ 93,503 | $ 95,713 | $ (2,210) |
Research and development | 52,700 | 54,897 | (2,197) |
Marketing and sales | 94,215 | 87,896 | 6,319 |
Total operating expenses | $ 240,418 | $ 238,506 | $ 1,912 |
General and administrative: For the first quarter of 2021, general and administrative expenses decreased $2,210 to $93,503, due to decreased wages, taxes and benefits when compared with the same quarter of 2020.
Research and development: Research and development expenses decreased $2,197 to $52,700 during the first quarter of 2021 due to decreased expenses related to prototype build costs when compared with the same quarter of 2020.
Marketing and sales: During the first quarter of 2021, marketing and sales expenses increased $6,319 to $94,215 when compared with the same period of 2020, due to increased payroll, taxes and benefits during the first quarter of 2021.
INTEREST INCOME:
The Company earned $861 in interest income during the quarter ended March 31, 2021 compared to $3,463 during the same period in 2020. Sources of this income were money market accounts and certificates of deposit.
NET INCOME (LOSS):
The Company had net income of $4,682 for the first quarter of 2021 compared to a net loss of $110,306 for the same quarter of 2020. The increase in net profits during 2021 is the result of increased sales revenues, gross margins and management of variable expenses.
B.FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Corporation's current asset to current liabilities ratio at March 31, 2021 was 14.7 compared to 20.7 at December 31, 2020. The decrease in current ratio is due to the increase in accounts payable and accrued wages liability at March 31, 2021 as compared to December 31, 2020.
At March 31, 2021, the Company had cash and cash equivalents of $794,734 as compared to cash and cash equivalent of $308,110 at December 31, 2020, primarily reflecting redemption of certificates of deposits that were held at December 31, 2020, proceeds from the second PPP loan and the reduction of inventory on hand.
For the three-month period ended March 31, 2021, cash provided by operating activities was $106,401 compared to cash used of $127,031for the same period in 2020. This change was driven by net income of $4,682 during the three months ended March 31, 2021 compared to net loss of $110,306 in the three months ended March 31, 2020. Change in operating assets and liabilities was $100,430 during the three month period ended March 31, 2021 compared to ($20,745) in 2020.
Cash provided from investing was $249,999 due to the redemption of a CD during the first quarter of 2021. With 12 month yields currently at a rate comparable to rates offered by Money Market accounts, maturing CDs are being deposited in these type accounts.
11
In management's opinion, the Company's cash and cash equivalents and other working capital at March 31, 2021 is sufficient to satisfy requirements for operations, capital expenditures, and other expenditures as may arise during 2021.
FORWARD LOOKING STATEMENTS: The above discussion may contain forward looking statements that involve a number of risks and uncertainties. In addition to the factors discussed above, among other factors that could cause actual results to differ materially are the following: competitive factors such as rival wireless architectures and price pressures; availability of third party component products at reasonable prices; inventory risks due to shifts in market demand and/or price erosion of purchased components; change in product mix, and risk factors that are listed in the Company's reports and registration statements filed with the Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There is no established market for trading the common stock of the Company. The market 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 continued to trade in low volumes and at low prices. Some investors view low-priced stocks as unduly speculative and therefore not appropriate candidates for investment. Many institutional investors have internal policies prohibiting the purchase or maintenance of positions in low-priced stocks.
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, 2021. 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, 2021.
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.
12
PART II—OTHER INFORMATION
Item 5. Other Information
None
Item 6. Exhibits
EXHIBIT NUMBER | DESCRIPTION |
31.1 | |
31.2 | |
32.1 | |
32.2 | |
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/ Michael W. Eller
|
Date: April 23, 2021 | Name: Michael W. Eller |
| Title: President |
(Principal Executive Officer) |
| By: /s/ Michael W. Eller
|
Date: April 23, 2021 | Name: Michael W. Eller |
| Title: President |
(Principal Accounting Officer) |
14