EXHIBIT 1 - Report of IndependentCertified Public Accountant and Financial Statements
 

 

 

 

 

 

 

 

 

 

 

ELECTRONICSYSTEMS TECHNOLOGY, INC.
FINANCIAL STATEMENTSANDINDEPENDENT AUDITOR'S REPORT

DECEMBER 31, 2001

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ELECTRONIC SYSTEMS TECHNOLOGY, INC.

 

INDEX TO FINANCIAL STATEMENTS
ACCOUNTANTS' REPORT ON THE FINANCIAL STATEMENTS1 BALANCE SHEETS 2-3STATEMENT OF OPERATIONS4-5STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY6STATEMENT OF CASH FLOWS7-8NOTES TO FINANCIAL STATEMENTS9-19SELECTED FINANCIAL DATA21
 

 

 

 

 

 

 

 

 

 

 

 

 

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of DirectorsElectronic Systems Technology, Inc.415 N. Quay - Suite 4Kennewick, WA 99336

We have audited the accompanying balance sheets of ELECTRONIC SYSTEMSTECHNOLOGY, INC. as of December 31, 2001 and 2000, and the related statements ofoperations, stockholders' equity and cash flows for each of the three years in the periodended December 31, 2001. These financial statements are the responsibility of theCompany's management. Our responsibility is to express an opinion on these financialstatements based on our audits.

We conducted our audits in accordance with auditing standards generallyaccepted in the United States of America. Those standards require that we plan and performthe audit to obtain reasonable assurance about whether the financial statements are freeof material misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believe that ouraudits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above presentfairly, in all material respects, the financial position of ELECTRONIC SYSTEMS TECHNOLOGY,INC. as of December 31, 2001 and 2000, and the results of its operations and its cashflows for each of the three years in the period ended December 31, 2001, in conformitywith accounting principles generally accepted in the United States of America.

 

 

MOE O'SHAUGHNESSY & ASSOCIATES, P.S. 

 

Spokane, WashingtonFebruary 8, 2002

 

 

 

 

1
**ELECTRONIC SYSTEMS TECHNOLOGY, INC.
BALANCE SHEETS
December 31, 2001 and 2000
ASSETS   
2001
2000CURRENT ASSETSCash
$ 6,100 
$ 9,166 Money market investment
516,334 
388,024 Certificate of deposit
991,158 
1,055,097 Accounts receivable, net of allowance    for uncollectible of $1,284 - 2001 and 2000
158,674 
183,627 Inventory
531,599 
561,946 Accrued interest
1,243 
9,522 Prepaid insurance
7,252 
8,221 Prepaid expenses
- 
2,900 Prepaid federal income taxes
6,633 
6,633 Total    current assets
2,218,993 
2,225,136 PROPERTY & EQUIPMENTLeasehold improvements
13,544 
13,544 Laboratory equipment
417,323 
385,449 Furniture & fixtures
15,744 
16,098 Dies & molds
77,396 
77,396 
524,007 
492,487 Less accumulated depreciation
359,018 
316,765 
164,989 
175,722 OTHER COSTSPatent costs, net of amortization of     $1,353 - 2001 and $1,244 - 2000
497 
606 Deposits
340 
340 Capitalized software costs of $86,330 -    2001 net of amortization of $69,477;     $72,620 - 2000 net of amortization of $66,553
16,853 
6,067 
17,690 
7,013 TOTAL ASSETS
$ 2,401,672      ========== 
$2,407,871     ===========**The accompanying notes arean integral part of this statement

2
**ELECTRONIC SYSTEMS TECHNOLOGY, INC.
BALANCE SHEETS
December 31, 2001 and 2000
LIABILITIES AND STOCKHOLDERS' EQUITY
2001
2000CURRENT LIABILITIESAccounts payable
$ 53,384
$ 78,103Accrued payroll
2,260
2,332Accrued payroll taxes
1,458
1,415Accrued vacation pay
17,137
16,960Deferred taxes payable
17,283
915Total    current liabilities
91,522
99,725STOCKHOLDERS' EQUITYCommon stock $.001 par value 50,000,000    shares authorized, 5,098,667 - 2001,    and 5,068,667 - 2000 shares issued and outstanding
5,099
5,069Additional paid-in capital
945,734
933,464Retained earnings
1,359,317
1,369,613
2,310,150
2,308,146TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$2,401,672    =========
$ 2,407,871    ==========**The accompanying notes arean integral part of this statement

3
**ELECTRONIC SYSTEMS TECHNOLOGY, INC.
STATEMENT OF OPERATIONS
For the years ended December 31, 2001, 2000, and 1999
2001
2000
1999SALES
$ 1,303,811
$ 1,310,524
$ 1,239,390COST OF SALESBeginning    inventory
561,946 
357,490 
385,365 Purchases    and allocated costs
664,047 
936,383 
605,240 
1,225,993 
1,293,873 
990,605 Ending    inventory
531,599 
561,946 
357,490 
694,394 
731,927 
633,115 GROSS PROFIT
609,417 
578,597 
606,275 OPERATING EXPENSESAdvertising
20,774 
30,810 
10,970 Amortization
3,034 
2,461 
3,124 Bad    debt
3,187 
117 
1,155 Commissions-    sales
1,284 
972 
1,712 Dues    & subscriptions
1,639 
659 
1,122 Depreciation
42,978 
40,604 
32,699 Insurance
9,158 
9,751 
10,582 Materials    & supplies
20,411 
20,336 
21,875 Office    & administration
10,720 
12,517 
12,734 Printing
10,238 
5,396 
15,220 Professional    services
71,122 
84,297 
69,785 Rent    & utilities
34,686 
33,692 
32,027 Repair    & maintenance
16,384 
16,108 
12,826 Salaries
520,726 
540,800 
503,156 Taxes
98,815 
91,692 
98,314 Telephone
10,404 
10,846 
9,976 Trade    shows
23,357 
19,873 
14,384 Travel    expenses
71,802 
72,351 
56,292 
970,719 
993,282 
907,953 Expenses    allocated to     cost of sales
(289,345)
(322,508)
(278,005)
681,374 
670,774 
629,948 OPERATING INCOME (LOSS)
(71,957)
(92,177)
(23,673)**The accompanying notes are anintegral part of this statement

4** 

 ****ELECTRONIC SYSTEMS TECHNOLOGY, INC.
STATEMENT OF OPERATIONS
For the years ended December 31, 2001, 2000, and 1999      
2001
2000
1999OTHER INCOMEInterest    income
$ 54,970 
$ 79,144 
$ 60,482 Site    support reimbursement net of allocated costs 
23,757 
40,531 
28,750 Loss    on disposition of assets
(1,059)
(120)
- Recovery    from marketable securities litigation 
361 
2,032 
- 
78,029 
121,587 
89,232 INCOME BEFORE PROVISION FOR FEDERAL INCOME    TAXES
6,072 
29,410 
65,559    PROVISION FOR FEDERAL INCOME TAXES
(16,368)
(5,466)
(13,258)   NET INCOME (LOSS)
$ (10,296)    ==========
$ 23,944    ========= 
$ 52,301    ========   BASIC EARNINGS PER SHARE
$ - 
$ - 
$ 0.01    DILUTED EARNINGS PER SHARE
$ - 
$ - 
$ 0.01 **The accompanying notes are anintegral part of this statement

5******ELECTRONIC SYSTEMS TECHNOLOGY, INC.   
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
January 1,1999 through December 31, 2001      
 

Amount    Paid-InCapital      
Common Stock
    RetainedEarnings 
TOTAL
Shares
AmountBALANCE AT
January 1, 1999
4,953,667
$ 4,954 
$ 894,129
$ 1,342,905 
$ 2,241,988    CASH DISTRIBUTION    DECLARED    $0.01 per share 
-  
-  
-  
(49,537) 
(49,537)       NET INCOME    December 31, 1999 
       -  
          -  
          -  
       52,301  
      52,301    
4,953,667
4,954
894,129 
1,345,669 
2,244,752     STOCK    OPTIONS    EXERCISED
115,000 
115 
39,335 
- 
39,450 NET    INCOME    December 31, 2000
        - 
        - 
         - 
      23,944
     23,944
5,068,667 
5,069 
933,464 
1,369,613 
2,308,146 STOCK    OPTIONS    EXERCISED
30,000 
30 
12,270 
- 
12,300 NET    LOSS     December 31, 2001
        - 
       - 
        - 
     (10,296)
    (10,296)BALANCE    AT    December 31, 2001
5,098,667    =========
5,099    ==========
945,734    =========
1,359,317    ==========
2,310,150    ===========**The accompanying notes are anintegral part of this statement

6
** 
 

 

 

 

 ****ELECTRONIC SYSTEMS TECHNOLOGY,    INC.  
STATEMENT OF CASH FLOWS
For the years ended December    31, 2001, 2000, and 1999     
2001
2000
1999CASH FLOWS PROVIDED (USED) IN OPERATING    ACTIVITIES:Net income (loss)
$ (10,296)
$ 23,944 
$ 52,301 Noncash expenses included in income:Depreciation
42,978 
40,604 
32,699 Amortization
3,034 
2,461 
3,123 Deferred    income taxes
16,368 
99 
1,303 Loss    on disposition of assets
1,059 
120 
- Decrease (increase) in current assets:  Accounts receivable, net
24,953 
(28,839)
226,598   Inventory
30,347 
(204,456)
27,875 Other current assets
12,148 
(11,164)
(3,022)  Increase (decrease) in current liabilities:  Accounts payable, accrued expenses    and other current liabilities
(24,571)
36,663 
(10,483)Deferred income
- 
- 
(25,017)Federal income taxes payable
        - 
         - 
(14,510)Net    cash (used) provided by operating activities 
96,020 
(140,568)
290,867 CASH FLOWS PROVIDED (USED) IN INVESTING    ACTIVITIES:Deposit
- 
- 
26,250 Capitalized software
(13,709)
- 
(3,725)Additions to property & equipment
(33,306)
(71,323)
(65,508)Net    cash used in investing activities
(47,015)
(71,323)
(42,983)CASH FLOWS PROVIDED (USED) IN FINANCING    ACTIVITIES:Distributions paid
- 
- 
(49,537)Stock options exercised
12,300 
39,450 
        - Net    cash provided by financing activities
12,300 
39,450
        - NET INCREASE (DECREASE) IN CASH AND CASH    EQUIVALENTS
61,305 
(172,441)
198,347 CASH AND CASH EQUIVALENTS AT BEGINNING OF    PERIOD
1,452,287
1,624,728
1,426,381CASH AND CASH EQUIVALENTS AT END OF PERIOD
$1,513,592    =========
$1,452,287     ===========
$1,624,728     ==========** 

The accompanying notes are anintegral part of this statement

7** ****ELECTRONIC SYSTEMS TECHNOLOGY, INC.  
STATEMENT OF CASH FLOWS
For the years ended December 31, 2001, 2000, and 1999  
2001
2000
1999  SUPPLEMENTAL DISCLOSURES OF CASH FLOWS    INFORMATION:  Cash paid during the year for:  Income taxes
$ -     ==========
$ 6,955     ==========
$ 30,510    ========Cash and cash equivalents:Cash 
$ 6,100 
$ 9,166 
$ 6,650 Money market
516,334 
388,024 
643,642 Certificate of deposit (initial    maturity = 3 months or less)
991,158 
1,055,097 
974,436 
$ 1,513,592    ==========
$ 1,452,287    ==========
$ 1,624,728    ============** 

The accompanying notes are anintegral part of this statement

8** 

ELECTRONIC SYSTEMS TECHNOLOGY, INC.**
NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.

Business Organization: The Company was incorporated under the lawsof the State of Washington on February 10, 1984, primarily to develop, produce, sell anddistribute wireless modems that will allow communication between peripherals via radiofrequency waves.

Accounting Estimates: The preparation of financial statements inconformity with generally accepted accounting principles requires management to makeestimates and assumptions that affect the reported amounts of assets and liabilities anddisclosures of contingent assets and liabilities at the date of the financial statementsand the reported amount of revenues and expenses during the reporting period. Actualresults could differ from those estimates.

Revenue Recognition: The Company recognizes revenue from productsales upon shipment to the customer. Revenues from site support are recognized as theCompany performs the services in accordance with agreement terms.

Allowance for Uncollectible Accounts: The Company uses the reservemethod for recording allowance for uncollectible accounts. The amount included inAllowance for Uncollectible Accounts consists of $1,284 as of December 31, 2001 and 2000.

Inventory: Inventories are stated at lower of cost or market withcost determined using the FIFO (first in, first out) method. Inventories consisted of thefollowing:
 200120001999Parts$357,884$415,673$256,334Work in progress94,03643,11052,279Finished goods79,679103,16348,877 $531,599    ========$561,946    ========$357,490    ========
Property and Equipment: Property and equipment are carried atcost. Depreciation is computed using the straight-line method over the estimated usefullives of the assets. The useful life of property and equipment for purposes of computingdepreciation is five to seven years. The useful life for leasehold improvements isthirty-one and one-half years. Depreciation expense for the years ended December 31, 2001,2000, and 1999 was $42,978, $40,604, and $32,699, respectively. The Company periodicallyreviews its long-lived assets for impairment and, upon indication that the carrying valueof such assets may not be recoverable, recognizes an impairment loss by a charge againstcurrent operations.

 

 

 

9
** 

 

ELECTRONIC SYSTEMS TECHNOLOGY, INC.**
NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

(Continued)

Patent Costs: Expenses incurred in connection with the patent  have been capitalized and are being amortized over 17 years. Patent amortization expense  was $109 for the years ended December 31, 2001, 2000, and 1999.

Research and Development: Research and development costs are  expensed as incurred. Research and development expenditures for new product development  and improvements of existing products by the Company for 2001, 2000, and 1999 were  $146,245, $181,571, and $171,658 respectively.

Earnings (Loss) Per Common Share: Basic EPS excludes dilution  and is computed by dividing income available to common stockholders by the  weighted-average number of common shares outstanding for the period. Diluted EPS reflects  the potential dilution that could occur 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 entity. The primary weighted average number  of common shares outstanding was 5,598,146, 5,636,064, and 5,593,667 for the years ended  December 31, 2001, 2000, and 1999 respectively.

For the Year Ended 2001  Income      (Numerator)Shares      (Denominator)Per-Share      Amount
Basic EPS       Income available to       common stockholders $(10,296)      ========5,083,146      =========$ -       ======
Diluted EPS      Income available to       common stockholders + assumed conversion $(10,296)      ========5,598,146      =========$ -       ======
Capitalized Software Costs: In August, 1985, the Statement ofFinancial Accounting Standards No. 86, was issued by the Financial Accounting StandardsBoard "FASB", directing that the costs of creating a computer software productto be sold, leased, or otherwise marketed, and which are incurred after the product'stechnological feasibility has been established, be capitalized. During 1986 the Companyadopted this statement and, accordingly, capitalized all costs subsequent to 1985. Costsincurred prior to 1986 are not permitted to be capitalized and the Company has notcapitalized such costs. All costs capitalized are to be amortized over their estimatedrevenue-producing lives, not to exceed five years, beginning on the date the product isavailable for distribution to customers.

 

10

 

 
**ELECTRONIC SYSTEMS TECHNOLOGY, INC.**
NOTES TO FINANCIAL STATEMENTS

 

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued)

Amortization of capitalized software costs charged to expenses forperiods presented is as follows:
1998 and Prior61,18719993,01420002,35220012,924  $69,477    ========
Cash and Cash Equivalents: Cash and cash equivalents consist ofcash, certificates of deposit, time deposits, commercial paper and other money marketinstruments. The Company invests its excess cash in deposits with major banks, andcommercial paper of investment grade companies and, therefore bears minimal risk. Thesesecurities have original maturity dates not exceeding three months. Such investments arestated at cost, which approximates fair value, and are considered cash equivalents forpurposes of reporting cash flows.

Advertising Costs: Costs incurred for producing and communicatingadvertising are expensed when incurred. Advertising costs for the years ended December 31,2001, 2000, and 1999 were $20,774, $30,810, and $10,970, respectively. 

Other Comprehensive Income: The Company does not have otherrevenues, expenses, gains, and losses that require disclosure as other comprehensiveincome.

 

 

11

 
** 

ELECTRONIC SYSTEMS TECHNOLOGY, INC.**
NOTES TO FINANCIAL STATEMENTS

2. FEDERAL INCOME TAXES

The Company uses the asset and liability approach in accounting forincome taxes.

The provision for Federal income taxes consisted of:
  200120001999Current payable$ 0$ 5,367$ 11,955Deferred16,368991,303
Provision for Federal Income Taxes$ 16,368    ========  $ 5,466    =======$ 13,258    ========
The components of the net deferred tax (assets) liability at December31, were as follows:
  20012000  1999Depreciation$ 24,203$ 19,464  $ 19,189Section 179 carry forward(384)--Accrued vacation payable(5,827)(5,766)(4,900)
Allowance for uncollectible    accounts receivable(437)(437)(437)Contribution carry forward(272)-   -
Unused capital loss carry forward       -(12,346)(13,036)  $ 17,283    ========$ 915    =========$ 816    =========
The differences between the provision for income taxes and income taxescomputed using the U.S. Federal income tax rate were as follows:
  200120001999
Amount computed using the statutory rate$ 0  $ 5,367$ 11,955Increase (reduction):---
Deferred tax (assets) liabilities(16,368)  991,303
Provision for Federal Income Tax $ 16,368$ 5,466$ 13,258
3. PUBLIC OFFERING OF COMMON STOCK

The Company sold 3,000,000 shares of its unissued common stock to thepublic on November 12, 1984. An offering price of $.30 per share was arbitrarilydetermined by the underwriter.

 

12
** 

ELECTRONIC SYSTEMS TECHNOLOGY, INC.**
NOTES TO FINANCIAL STATEMENTS

4. COMPENSATED ABSENCES

The Company accrues a liability for employees' compensation for certainfuture absences. Liabilities for vacation pay in the amounts of $17,137 and $16,960 havebeen accrued as of December 31, 2001 and 2000, respectively.

5. LEASES

The Company has no obligation under capital lease arrangements.

The Company rents its facility under a three (3) year operating leasecommencing on the 1st day of December 1999. The Company leases the facilityfrom a port authority, with the assistance of federal economic development funds (EDA),has constructed a building for the purpose of leasing space to new or expanding hightechnology and electronic companies. The Company will pay as rental for 6,275 square feetof building space the sum of $28,784 per year, payable monthly in advance at the rate of$2,197 per month. A leasehold tax of $282 per month is due in addition to the $2,197monthly rent. For the second and any following years of the renewed term, the partiesagree that any rental amounts be increased by the Consumer Price Index - Pacific Citiesand U.S. City Average-All Items Indexes using the U.S. City Average for the 12 monthperiod preceding. The rental expenses for the years ended December 31, 2001, 2000 and1999, were $29,954, $28,956, and $27,332, respectively.

The following is a schedule of estimated future minimum rental paymentsrequired under the above operating leases over the next five (5) succeeding fiscal years:
Year Ending December 31,
Amount2002$27,8602003-2004-2005-2006-
6. FOREIGN SALES

The Company's revenues fall into three major customer categories,Domestic, Export, and U.S. Government sales. A percentage breakdown of the Company's majorcustomer categories for the years of 2001, 2000 and 1999, are as follows:
  200120001999Domestic Sales77%91%   87%Export Sales21%02%  10%U.S. Government Sales02%07%  03%** 

13** 

 

ELECTRONIC SYSTEMS TECHNOLOGY, INC.**
NOTES TO FINANCIAL STATEMENTS

6. FOREIGN SALES (continued)

The geographic distribution of foreign sales for 2001, 2000, and 1999 areas follows:
  200120001999%%%Australia0140Brazil121324Canada18277Croatia28010Ecuador015India930Indonesia328Israel033Kuwait002Mexico1821South Korea122110Taiwan036Thailand004Turkey050Jordan1100Peru300Philippines100Colombia100Puerto Rico100
7. PROFIT SHARING SALARY DEFERRAL 401-K PLAN

The Company sponsors a Profit Sharing Plan and Salary Deferral 401-Kplan and trust. All employees over the age of twenty-one (21) are eligible. The Company isnot making contributions under the current plan agreement.

 

 

14
** 

ELECTRONIC SYSTEMS TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

8. STOCK OPTIONS

On February 6, 1998 stock options to purchase shares of the Company'scommon stock were granted to individual employees and directors with no less than threeyears continuous tenure. The options have an exercise price of $0.41 per share. Optionsmay be exercised any time during the period from February 6, 1998 through February 5,2001. Following is a summary of transactions:
  
Shares under optionOutstanding, beginning of year185,000Granted during year-Canceled during year(155,000)Exercised during year(30,000)Outstanding, end of year-     ========
 
On February 12, 1999, stock options to purchase shares of the Company's common stockwere granted to individual employees and directors with no less than three yearscontinuous tenure. The options have an exercise price of $0.44 per share. Options may beexercised any time during the period from February 12, 1999 through February 11, 2002.Following is a summary of transactions: 
  
Shares under optionOutstanding, beginning of year185,000Granted during year-Canceled during year(25,000)Exercised during year-Outstanding, end of year160,000    =========
 

15

 

 

 

 **ELECTRONIC SYSTEMS TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

8. STOCK OPTIONS (continued)

On February 11, 2000 stock options to purchase shares of the Company'scommon stock were granted to individual employees and directors with no less than threeyears continuous tenure. The options have an exercise price of $2.81 per share. Optionsmay be exercised any time during the period from February 11, 2000 through February 10,2003. Following is a summary of transactions:
   
Shares under optionOutstanding, beginning of year210,000Granted during year-Canceled during year(25,000)Exercised during year-Outstanding, end of year185,000    =========
On February 9, 2001 stock options to purchase shares of the Company'scommon stock were granted to individual employees and directors with no less than threeyears continuous tenure. The options have an exercise price of $0.44 per share. Optionsmay be exercised any time during the period from February 9, 2001 through February 9,2004. Following is a summary of transactions. 

 
   
Shares under optionOutstanding, beginning of year-Granted during year195,000Canceled during year(25,000)Exercised during year-Outstanding, end of year170,000    =========
 
 200120001999
Option price range at end of year$0.44 to $0.44$0.41 to $2.81$0.28 to $0.44
Option range for exercised shares$0.41 to $0.44$0.28 to $2.81None exercised
Weighted average fair value of options granted during    the year$0.44  $2.81$0.44
 

 

16

 
  
** 

 

ELECTRONIC SYSTEMS TECHNOLOGY, INC.

NOTES TO  FINANCIAL STATEMENTS

 

8. STOCK OPTIONS (continued)

The following table summarizes information about fixed-price stock options outstanding  at December 31, 2001: 
Range of exercisePricesNumber exercisableand outstandingWeighted averageremaining contractual
Weighted average excercise
$ 0.44160,0001 year  $0.44$ 2.81185,0002 years$2.81$ 0.44170,0003 years$0.44
After termination of employment, stock options may be exercised within  90 days. During the 12 months ended December 31, 2001, 230,000 shares under option expired  and 30,000 shares under option were exercised. At December 31, 2001 there are 515,000  shares reserved for future exercises.

The Company has adopted the disclosure-only provisions of Statement of  Financial Accounting Standards No. 123, "Accounting for Stock-Based  Compensation." Accordingly, no compensation cost has been recognized for the stock  option plan. Had compensation cost for the Company's stock option plan been determined  based on the fair value at the grant date for awards consistent with the provisions of  SFAS No. 123, the Company's net earnings and earnings per share would have been reduced to  the pro forma amounts indicated below: 
  200120001999Net earnings (loss) as reported$ (10,296)  $ 23,944
$52,301Net earnings (loss) pro forma$(105,881)$(126,919)$ 7,401Earnings per share – as reported--
  0.01Earnings per share – pro forma--  0.01
  
The fair value of each option grant is estimated on the date of grant  using the Black-Scholes option-pricing model with the following weighted-average  assumptions used for grants in 2001; dividend yield equaled 0; expected volatility of 145%  risk-free interest rate of 5%; and expected lives of 3 years.

 

17

 
** 

ELECTRONIC SYSTEMS TECHNOLOGY, INC.**
NOTES TO FINANCIAL STATEMENTS

9. EMPLOYEE PROFIT SHARING BONUS PROGRAM (NON-QUALIFIED)

On December 11, 1992 the Board of Directors revised the Employee ProfitSharing Bonus Program as follows. The Company makes contributions to the Program inaccordance with the following formula: After the Company's "net profit beforetax" reaches $100,000; the Company sets aside $10,000 for the Program. Thereafter,the Company adds 8% of the "net profit before tax" to the Program.
NET PROFITCOMPENSATION TO FUND$100,000$10,000 + 8% OF AMOUNT OVER     $100,000 NET PROFIT 
10. CONCENTRATIONS OF CREDIT RISK

Financial instruments that potentially subject the Company tosignificant concentrations of credit risk consist principally of cash investments andtrade accounts receivable. As of December 31, 2001; the Company had cash and cashequivalents with Bank of America with a combined balance of $926,194 which is $826,194 inexcess of the FDIC insured amount. At December 31, 2001 the Company had cash deposits withPacific Northwest Bank with a balance of $138,021 which is $38,021 in excess of the FDICinsured amount. Additionally, at December 31, 2001 the Company had cash deposits withCommunity First Bank with a balance of $303,323 which is $203,323 in excess of the FDICinsured amount. At December 31, 2001 the Company had cash deposits with Piper Jaffray witha balance of $145,183 which is not FDIC insured.

Concentrations of credit risk with respect to trade accounts receivableare generally diversified due to the geographic dispersion of the Company's customer base.

11. RELATED PARTY TRANSACTIONS

For the years ended December 31, 2001, 2000, and 1999; services in theamount of $79,570, $96,853, and $51,563, respectively were contracted with a manufacturingprocess company of which the owner/president is a member of the Board of Directors andAudit Committee Chairman of Electronic Systems Technology, Inc.

The Company purchases certain key components necessary for theproduction of its products from a sole supplier. The components provided by the suppliercould be replaced or substituted by other products, if it became necessary to do so. It ispossible that if this action became necessary, a material interruption of productionand/or material cost expenditures could take place. 

 

18

 
** 

ELECTRONIC SYSTEMS TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

12. MARKETABLE SECURITIES

The Company was included in the class action suit settlement againstthe manager of the Company's marketable securities investments, Piper Jaffray. The Companyreceived settlement payments of $11,288 during 1996, and $1,633 during 1997, and $2,211during 1998, $0 during 1999, $2,032 during 2000, and $361 during 2001.

13. NOTE - CASH DISTRIBUTION

On June 11, 1999 the Company declared a one-time, non-cumulative, cashdistribution to shareholders of record as of June 25, 1999 of $0.01 per share of commonstock, with payable date of July 9, 1999. The payment of the cash distribution wascompleted by July 9, 1999 for a total dollar value of $49,537.

14. RECLASSIFICATIONS 

Certain prior period amounts may have been reclassified to conform tothe current year presentation. 

 

 

 

 

19

 

 

 

 

 

 

 

 

 

 

 
**ELECTRONIC SYSTEMS TECHNOLOGY, INC.

SELECTED FINANCIAL DATA

 

 

 

 

 

 

 

 

 

 
**ELECTRONIC SYSTEMS TECHNOLOGY,    INC. 
For the five years ended December 31, 
2001
2000
1999
1998
1997Sales
$ 1,303,811 
$1,310,524 
$1,239,390 
$1,485,381 
$1,337,303 Gross    Profit
609,417 
578,597 
606,275 
792,749 
762,140 Income    before provision for income taxes
6,072 
29,410 
65,559 
242,779 
247,760 Provision    for income taxes
16,368 
5,466 
13,258 
79,852 
81,559 Net    income (loss)
(10,296)
23,944 
52,301 
162,927 
166,201 Net    income per share
- 
- 
0.01 
0.03 
0.03 Weighted    average number of shares outstanding
5,083,146 
5,056,064 
4,953,667 
4,953,667 
6,953,667 Total    assets
2,401,672 
2,407,871 
2,307,715 
2,354,145 
2,205,811 Long-term    debt and capital    lease obligations
- 
- 
- 
- 
- Stockholders'    equity
2,310,150 
2,308,146 
2,244,752 
2,241,988 
2,128,598 Stockholders'    equity per share
0.45 
0.46 
0.45 
0.45 
0.43 Working    capital
2,127,471 
2,125,411 
2,090,155 
2,119,569 
1,988,266 Current    ratio
24.2:1 
22.3:1 
34.2:1 
25.3:1 
26.7:1 Equity    to total assets
96%
96%
97%
95%
96%
 

21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 ******************************************