U.S. Securities and Exchange CommissionWashington, D.C. 20549FORM 10-KSB

(Mark One)[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) of the SECURITIESEXCHANGE ACT OF 1934For the fiscal year ended **December 31, 2001**

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES ACT OF 1934

For the transition period to _____ to ________
Commission file number **000-27793****ELECTRONIC    SYSTEMS TECHNOLOGY, INC.
(Name    of small business issuer in its charter)**Washington**91-1238077
(State    or other jurisdiction of incorporation or organization)
(I.R.S. Employer    Identification No.)**415    N. Quay St., Kennewick , Washington **99336
(Address    of principal executive offices)
(Zip Code)
Issuer's    telephone number **(509)    735-9092
Securities registered under Section 12(b) of the  Exchange Act:  None

Securities registered under Section 12(g) of the  Exchange Act:  Common

Check whether the issuer (1) filed all reports required  by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter  period that the registrant was required to file such reports), and (2) has been subject to  such filing requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in  response to Item 405 of Regulations S-B is met contained in this form, and no disclosure  will be contained, to the best of the registrant's knowledge, in definitive proxy or  information statements incorporated by reference in Part III of this Form 10-KSB or any  amendment to this Form 10-KSB. [X ] Not applicable [  ]
State issuer's revenues for its most recent fiscal year.$1,509,545
On February 15, 2002 the aggregate  market value, based on the asked price, of the voting stock held by nonaffiliates of the  registrant was $2,304,526.
The number of shares outstanding of the registrant's  common stock as of February 15, 2002: 5,093,667 shares.

DOCUMENTS INCORPORATED BY REFERENCE

The following documents are incorporated by reference  into Parts I, II, III, and IV of this report:  (1) Form S-18, effective Nov. 5,  1984, Commission File No. 2-92949-S; (2) Form 8-K, filed March 15, 1985, Commission  File No. 2-92949-S; Form 8-A, Commission File No. 000-27793, dated October 25, 1999;  Forms 8-K dated July 12, 1991, December 14, 1992, December 10, 1993, June 4, 1998,  February 12, 1999, June 11, 1999, February 11, 2000, February 9, 2001 and February 15,  2002. 

Transitional Small Business Disclosure Format: Yes [  ] No [X]
 

 

PART I

ITEM 1.

FORWARD LOOKING STATEMENTS:
***When used in this Annual Report and the documents incorporated hereinby reference, the terms "anticipates", "believes", "expects"and similar expressions are intended to identify in certain circumstances, forward-lookingstatements. Such statements are subject to a number of risks and uncertainties that couldcause actual results to differ materially from those projected, including the risksdescribed in this Annual Report. Given these uncertainties, readers are cautioned not toplace undue reliance on such statements. The Company also undertakes no obligation toupdate those forward-looking statements.***
BUSINESS  

Electronic Systems Technology, Inc. ("EST" or the"Company") specializes in the manufacturing and development of wireless modemproducts. The Company uses research and development, manufacturing, and marketing effortsto produce and market the Company's line of ESTeem (TM) Wireless Modem products andaccessories. The Company offers products providing innovative communication solutions forapplications not served by existing conventional communication systems. The Company'sproducts are offered in markets for process automation in commercial, industrial, andgovernment arenas both domestically and internationally, as well as domestic markets forpublic safety communications infrastructure, primarily used by police and firedepartments. The Company's products are marketed through direct sales, salesrepresentatives, and domestic and foreign resellers. 

The Company was incorporated in the State of Washington in February1984, and was granted a U.S. Patent for the "Wireless Computer Modem" in May1987, and Canadian patent in October 1988. In the past three years, the Company hascontinued improvement of its products to incorporate the latest technology and respond tocustomer needs and market opportunities.During 2001, the Company's development effortswere concentrated on the development and bringing to market of the ESTeem 192E productline of spread spectrum, non-licensed radio frequency modems using Ethernet basedcommunication protocols, which was granted Federal Communication Commission type approvalin October 2001. In an effort to continually expand its customer base, particularly in theindustrial control arena, the Company continues efforts to team with all majorprogrammable logic controller (PLC) hardware vendors. The Company has also been involvedfrom time to time as a hardware provider for Government programs, where the Company'sproducts were used in automated aircraft maintenance, airfield lighting and assetidentification applications. During 2001, the Company continued to market ESTeem productsfor use in mobile data terminal applications by public safety entities, and continued toparticipate in foreign and domestic Supervisory Control and Data Acquisition (SCADA),Industrial Automation, and Government marketplaces. 

PRODUCTS AND MARKETS

EST's products provide communication links between computers,peripherals, and instrumentation controls using radio frequency waves. The Company'sproducts are packet burst, VHF & UHF FM radio modems, operating in radio frequencybands of 72 to 76 Megahertz (MHz), 150 to 174 MHz, 400 to 420 MHz, 450 to 470 MHz, and 2.4Gigahertz (GHz).

The proliferation of computer applications in business, industry andpublic service has created a constantly changing environment of automation and networking,requiring an ever-increasing amount of data transfer. Prior to the invention of the ESTeemmodem, the majority of data transfers used telephone modems or direct cable connections,both of which have costly side effects. Telephone modems have a potentially expensivemonthly charge for the use of telephone lines, and direct cable connections can haveinstallation costs as much or more than the cost of the communication system. ESTeemwireless modem products provide a "Wireless Solution" by eliminating the needfor conventional hardwiring and leased phone lines. 

All of the ESTeem models ("ESTeems") come with industrystandard asynchronous communications ports, giving users new dimensions to "LocalArea Networking". As many as 253 devices can be interfaced on a single frequency.ESTeem wireless modems have over one hundred internal software commands, which are savedin non-volatile memory, allowing user-friendly configuration for any application. 

ESTeem Modems work on a packet burst communications concept. Packetsystems, whether hardwired or radio, share the same principle of operation: data is takenfrom a standard RS-232C, RS-422 or RS-485 asynchronous port and is transmitted in"Electronic Packets". The size of the packet can be user defined from 1 to 2000bytes of information, depending on model. Once a packet of data is formed, the packet istransmitted in a "burst," from one ESTeem modem to another ESTeem modem, hencethe term "packet burst communications." ESTeem Modems provide data accuracy ofgreater than one part in 100 million. Internal Digi-Repeater features allow the user toincrease operating range by relaying transmission through a maximum of three ESTeems toreach a destination ESTeem. An ESTeem can operate as an operating node, a repeater node,or both simultaneously, for added flexibility. Secure data communication is provided inthe ESTeem products through use of proprietary technology and techniques, providing usersof the products four definable security codes. If higher security is required, the ESTeemis compatible with asynchronous Data Encryption Standard (DES) encryption devices.

PRODUCT APPLICATIONS

Some of the major applications and/or industries for which the ESTeemproducts are being utilized are as follows:

Water and Waste Water    Industry 
Overhead Crane ControlIndustrial Automation 
Shop Floor Manufacturing
Remote Data Acquisition    (SCADA) 
Intra-Office/Building    Computer Networking
Law Enforcement/Public    Safety    
Power Utility 
FederalOil/Gas Pipeline 
Ground Mobile    Communications
Material Handling 
Ship to Shore    Communications 
Flight Line Maintenance
PRODUCT LINES
**Model 192C. A licensed narrow band packet burst transceiver forcommercial, industrial, and public safety applications operating in the 450 to 470 MHzspectrum. The digitally synthesized transceiver is field tunable over the operating bandin 6.25 KHz increments. Typical indoor and outdoor fixed base and mobile applicationsinclude point to point as well as point to multi-point digital data networking fordistances to approximately 15 miles line-of-sight without the use of the digi-repeateroption. Typical application uses for the ESTeem 192C are: 

Domestic: Industrial Automation, inventory control, public safety.  International: Telephone by-pass, and industrial automation.
**Model 192F. A licensed narrow band packet burst transceiver forforeign market commercial, industrial automation, public safety and Federal (USA only)applications operating in the 400 to 420 MHz spectrum. The digitally synthesizedtransceiver is field tunable over the operating band in 6.25 KHz increments. Typicalindoor and outdoor fixed base and mobile applications include point to point and point tomulti-point digital data networking for distances to approximately 15 miles line-of-sightwithout the use of the digi-repeater option. Typical application uses for the ESTeem 192Fare: 

International: Telephone by-pass, industrial automation and inventory  control.  Federal: Inventory and command control.
**Model 192M. A licensed narrow band packet burst transceiver forforeign and domestic commercial, industrial automation, and public safety applicationsoperating in the 150 to 174 MHz spectrum. The digitally synthesized transceiver is fieldtunable over the operating band in 6.25 KHz increments. Typical indoor and outdoor fixedbase and mobile applications include point to point and point to multi-point digital datanetworking for distances to approximately 15 miles line-of-sight without the use of thedigi-repeater option. Typical application uses for the ESTeem 192M are:

Domestic: Industrial automation, inventory control, and public safety.  International: Telephone by-pass, industrial automation and SCADA.
**Model 192V. A licensed narrow band packetburst transceiver for foreign and domestic commercial and industrial applicationsoperating in the 72 to 73 MHz spectrum. The digitally synthesized transceiver is fieldtunable over the operating band in 20 KHz increments. Typical indoor and outdoor fixedbase and mobile applications include point to point and point to multi-point digital datanetworking for distances to approximately 5 miles line-of-sight without the use of thedigi-repeater option. Typical application uses for the ESTeem 192V are:
Domestic: Industrial automation and inventory control.  International: Telephone by-pass and industrial automation.
**Model 192S. A low cost unlicensed direct sequence spread spectrumtransceiver for foreign, domestic, and federal applications operating in the 2.4 GHzspectrum. Typical indoor and outdoor fixed base and mobile applications include point topoint and point to multi-point digital data networking for distances to approximately 10miles line-of-sight without the use of the digi-repeater option. Typical application usesfor the ESTeem 192S are as follows:

Domestic: Industrial automation and inventory control.  International: Telephone by-pass and industrial automation.  Federal: Inventory and command control.
**Model 192E. A high performance, direct sequence spread spectrumtransceiver employing industry standard, 10baseT, 802.11b Ethernet connectivity for bothforeign and domestic, commercial and industrial, applications operating in the unlicensed2.4 GHz spectrum. Data transfer rates of up to 11 Mega bits per second (Mbps). Typicalapplications include data rate critical, point to point, point to multi-point, and"last-mile" bridge digital data networking for distances to approximately 5miles line-of-sight without the use of the digi-repeater option. Typical application usesfor the ESTeem 192E are:

Domestic: Industrial automation, process control and interoffice  networking.  International: Telephone by-pass, industrial automation and interoffice networking.
**Model 95. A low cost licensed narrow band packet burst transceiverfor foreign, domestic and federal applications operating in the 72 to 73 MHz spectrum. Thedigitally synthesized transceiver is field tunable over the operating band in 20 KHzincrements. Typical indoor and outdoor fixed base and mobile applications include point topoint and point to multi-point digital data networking for distances to approximately 5miles line-of-sight without the use of the digi-repeater option. Typical application usesfor the ESTeem 95 are:

Domestic: Industrial automation and inventory control.  International: Telephone by-pass and industrial automation.  Federal: Inventory and command control.

ADDITIONAL PRODUCTS AND SERVICES
The Company offers various accessories to support the ESTeem products.Accessories are purchased from other manufacturers and resold by EST to support theapplication of ESTeem modems. Antennas, power supplies and cable assemblies are examplesof such items. The Company also provides direct services to customers, such as repair andupgrade of ESTeem products, also to assist in the application of ESTeem wireless modems,the Company provides professional services, site survey testing, system start-up, andcustom engineering services.

RESEARCH AND DEVELOPMENT AND NEW PRODUCTS

The Company's products compete in the rapidly changing technologyenvironment of the communications industry, where standards and technologies are subjectto rapid and unexpected changes. This environment results in the necessity of the Companyto be continually updating and enhancing existing products, as well as developing newproducts in order to remain competitive. Research and Development expenditures for newproduct development and improvements of existing products by the Company for 2001 and 2000were $146,245 and $181,571, respectively. None of the Company's research and developmentexpenses were directly paid for by any of the Company's customers. During 2001, theCompany continued to contract with independent, nonaffiliated, engineering companiesspecializing in radio design, when such expertise was required. 

During 2001, the Company's development resources were used primarilyfor the development and marketing of the ESTeem 192E, a spread spectrum, non-licensed,wireless, modem using the networking standard, Ethernet interface protocol. The ESTeem192E received Federal Communication Commission type approval in October 2001. The ESTeem192E is intended to augment the Company's existing products through the use of Ethernetbased, open network architecture, allowing the product to be used in broader variety ofapplications, such as "last mile" and building network applications. The Companyplans on continued research and development expenditures and to undertake new developmentand improvement projects, as they become necessary. 

MARKETING, CUSTOMERS AND SUPPORT

The majority of the Company's products sold during 2001 were throughthe reselling efforts of non-exclusive, non-stocking distributors of the Company'sproducts. The remainder of the Company's sales were distributed directly from theCompany's facility through direct sales to end-users of the ESTeem products. During 2001,approximately sixty percent of the Company's products were distributed through resellersand forty percent through direct sales. Customers generally place orders on an "asneeded basis". Shipping dates for most products are generally 5 to 10 working daysafter receipt of a customer order, with the exception of ongoing, scheduled projects, andcustom designed equipment for specific customer applications. As of December 31, 2001, theCompany had a backlog of $201,777 in sales orders.

During 2001, the Company continued to advertise in trade publicationsspecifically targeted at users of control, instrumentation, and automation systemsworldwide, and public safety entities domestically. The Company's advertising targetedpotential customers using Programmable Logic Controllers (PLCs). There are approximatelytwenty-five major PLC manufacturers worldwide. The Company also attends tradeshows eachyear specifically targeted toward the customers and markets in which it sells products.For 2002, the Company intends to continue marketing strategies targeted at existingmarkets of industrial controls and Mobile Data Computers for public safety networks. TheCompany maintains an Internet web site to provide easy access to product and technicalinformation for both present and potential customers of the Company's products. Due to thevariable configuration possibilities of the Company's products, and existing distributorrelationships, the Company has not implemented an electronic commerce internet website.The Company provides technical support and service for ESTeem products through phonesupport, field technicians, and internet sources. The Company believes high qualitycustomer and technical support is necessary and vital to its business and the markets inwhich it competes. To maintain this high level of customer support the Company has in thepast, and will continue in the future, to make investments and expenditures in support ofits customer service programs. 

The Company is continuing marketing activities directed towards allbranches of the U.S. Government, including United States Armed Services. In the past, theCompany's products have been included projects for flight-line maintenance, airfieldlighting, and asset and inventory control for various branches of the United States ArmedServices. 

For the year ended December 31, 2001, the largest sales concentrationfor the Company was to Rockwell Automation, primarily for automotive manufacturing plantautomation projects employing the Company's products, for approximately 15% of theCompany's product and services revenues. No other sales to a single customer comprised 10%or more of total product sales as of December 31, 2001. See "Management's Discussionand Analysis of Financial Condition and Results of Operations", and "FinancialStatements".

The Company has a General Services Administration (GSA) contract tosell goods to the U.S. Government. This contract is a fixed price, indefinite quantity anddelivery agreement. The current contract runs through February 2004. 

COMPETITION

The Company's competition varies according to the market in which theCompany's products are competing. All of the markets in which the Company's products aresold are highly competitive. Listed below are the markets the Company's products competein and major competitors in those markets:

Major Market
Major    Competitors
Industrial Automation,    Remote Data Acquisition, Shop Floor Manufacturing, Overhead Crane Control
Control Chief, Data-Linc,    Freewave and Microwave Data Systems 
Computer Networking, inter    and intra building
Adaptive Broadband, Aironet    Wireless Communications, Cylink, Digital Wireless, and Proxim
Radio Area    Networking of hand held data collection terminals and bar coding
Intermec, LXE,    Norand, Symbol Technologies, and Telxon 
Mobile Data    Computer systems for public safety applications
Data Radio,    Motorola, various cellular service providers using CDPD architectures. 
Federal applications
Adaptive Broadband, Data    Radio, Datron Technology, Freewave, Harris Computer Systems, Lockheed Martin, Magnavox,    Motorola, and Watkins-Johnson.
Management believes the ESTeem products compete favorably in the marketbecause of performance, price, and adaptability of the products to a wide range ofapplications. The Company's major limitation in competing with other manufacturers is itslimited marketing budget, which currently limits the Company's nationwide advertising andsales force presence.

PATENTS, TRADEMARKS, AND PROPRIETARY INFORMATION

EST was granted a United States patent in 1987 for a "WirelessComputer Modem". In 1988, EST was granted a Canadian Patent for a "WirelessComputer Modem". Both patents have lives of 17 years. The Company's ESTeem WirelessModem trademark, in use since 1985, is protected under common-law trademark protection,and the Company has applied for trademark protection with the United States Department ofCommerce. 

To protect the Company against unauthorized disclosure of proprietaryinformation belonging to the Company, all employees, dealers, distributors, originalequipment manufacturers, sales representatives and other persons having access toconfidential information regarding Company products or technology are bound bynon-disclosure agreements.

GOVERNMENT REGULATION

For operation in the United States, the ESTeem Radio Modems requireFederal Communications Commission (FCC) Type Acceptance. The FCC Type Acceptance isgranted for devices, which demonstrate operation within mandated, observed, and testedperformance criteria. All of the Company's products requiring FCC Type Acceptance havebeen granted such acceptance. 

For operation in Canada, the ESTeem RF Modems require Industry CanadaType Acceptance. Industry Canada grants the Type Acceptance for devices demonstratingoperation within performance criteria mandated, observed, and tested. Of the Company'scurrent production line, the ESTeem 192E, 192F, 192C, 192V, 192M and 192S have beengranted type acceptance in Canada. 

All ESTeem radio modem products, with the exception of the ESTeem 192Sand 192E products, which are nonlicensed, spread spectrum wireless modems, requireconsumer licensing under Part 90 of the FCC Rules and Regulations, which must be appliedfor by the end user of the Company's products. The Company cannot guarantee customers willreceive FCC consumer licenses in the VHF or UHF frequency spectrum for any particularapplication. The Company provides information to customers to assist in the applicationfor FCC consumer licenses.

At the time of this filing the Company is unaware of any existing orproposed FCC regulation that would have an materially adverse effect on the Company'soperations, but there can be no assurance that future FCC regulations will not havematerially adverse effects on the operations of the Company.

SOURCE OF SUPPLY AND MANUFACTURING

The Company purchases certain components necessary for the productionof its products from sole suppliers. Motorola Corporation, Mitsubishi, Murata Corporation,and Toko America Inc., as purchased through a number of distributors, supply keycomponents for the Company's products. The components provided by Motorola, MurataCorporation and Toko America could be replaced or substituted by other products, if itbecame necessary to do so. If this action became necessary, a material interruption ofproduction and/or material cost expenditures, for example involved with locating andqualifying replacement components, could take place. 

Approximately 25% of the Company's inventory at December 31, 2001consisted of parts having lead times ranging from 12 to 28 weeks. Some parts aremaintained at high levels to assure availability to meet production requirements, andaccordingly, account for a significant portion of the Company's inventory value. Based onpast experience with component availability, distributor relationships, and inventorylevels, the Company does not foresee shortages of materials used in production. However,developments in the electronic component marketplace, involving components used by theCompany which are also used in cellular phones and paging devices, have the potential ofcreating negative component availability and delivery issues for the Company in thefuture. The Company has been able to procure parts on a timely basis as of the date ofthis report, however this cannot be guaranteed in the future and if shortages were tooccur material interruption of production and consequently product delivery to customerscould occur. 

The Company contracts with Manufacturing Services, Inc., in Kennewick,Washington, for assembly of the Company's products, using material purchased by theCompany. By contracting with Manufacturing Services, Inc., the Company is able to avoidstaff fluctuations associated with operating its own manufacturing operation. ThePresident of Manufacturing Services, Melvin H. Brown, is a Director of the Company.Management believes all prices for services, provided by Manufacturing Services, Inc.,were as favorable as could be obtained from comparable manufacturing services companies.See "Management's Discussion and Analysis of Financial Condition and Results ofOperations", and "Financial Statements".

EMPLOYEES

As of December 31, 2001, the Company employed a staff of10 persons on afull time basis, 3 in marketing, 2 in technical support, 4 in engineering/manufacturing,and 1 in Finance and Administration. The Company's operations are dependent upon keymembers of its Engineering and Management personnel. In the event services of these keyindividuals were lost to the Company, adverse effects on the Company's operations may berealized. The Company employs part-time labor on an "as needed" basis, usuallyin engineering/manufacturing. At year-end 2001 the Company employed 5 part-time employees.None of the Company's employees are represented by a labor union and the Company believesit has good relations with its employees.

ITEM 2.PROPERTIES

EST does not own any real property, plants, mines, or any othermaterially important physical properties. The Company's administrative offices, inventoryand laboratories are located in leased facilities at 415 N. Quay Street, Kennewick,Washington. The Company leases its office and laboratory space in a lease agreement withThe Port of Kennewick in Kennewick, Washington for approximately 6,275 square feet ofoffice and laboratory space. As of January 2, 2002, the total monthly lease cost is$2,529.13, including a leasehold tax of $287.79. The lease covers a period of three years,expiring November 30, 2002. 

The Company also owns miscellaneous assets, such as computer equipment,laboratory equipment, and furnishings. The Company does not have any real estate holdings,nor investments in real estate. The Company maintains insurance in such amounts andcovering such losses, contingencies and occurrences that the Company deems adequate toprotect its property. Insurance coverage includes a comprehensive liability policycovering legal liability for bodily injury or death of persons, and for property owned by,or under the control of the Company, as well as damage to the property of others. TheCompany maintains key man life insurance protecting the Company in the event of the deathof the Company President. The Company also maintains fidelity insurance which providescoverage to the Company in the event of employee dishonesty.

ITEM 3. LEGAL PROCEEDINGS

No proceedings are identified to which involve a claim for damages,exclusive of interest and costs, that exceed 10% of the current assets of the Company. 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company did not submit any matters for shareholder approval duringthe fourth quarter of the 2001 fiscal year. 

 

 

 

 

PART II

ITEM 5.MARKET INFORMATION FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

There is no established market for trading the Common Stock of theCompany. The Common Stock is not regularly quoted in the automated quotation system of aregistered securities system or association. The Common Stock of the Company is traded onthe "over-the-counter" market and is listed on the electronic bulletin boardunder the symbol of "ELST". The following table illustrates the average high/lowprice of the Common Stock for the last two (2) fiscal years. The"over-the-counter" quotations do not reflect inter-dealer prices, retailmark-ups, commissions or actual transactions.

Bid 
Ask
High
Low
High
Low
Fiscal year ended December    31, 2001
First Quarter
0.6563
0.375
0.8125
0.3125 
Second Quarter
0.42
0.30
0.45
0.34
Third Quarter
0.44
0.37
0.47
0.37
Fourth Quarter
0.48
0.36
0.60
0.36Fiscal year ended December 31, 2000
First Quarter
3.50
0.35
3.625
0.40 
Second Quarter
1.75
0.4688
2.00
0.625
Third Quarter
0.7188
0.375
0.9375
0.50
Fourth Quarter
0.5313
0.375
0.6875
0.4063
The above data was compiled from information obtained from the PinkSheets LLC, OTC Market Report daily quotation service.

The approximate number of record holders of common stock of theRegistrant as of February 15, 2002 was 600 persons/entities.

Electronic Systems Technology Inc. paid non-cumulative, cashdistributions on July 9, 1999, July 9, 1998 and July 11, 1997, respectively, eachequivalent to $0.01 per outstanding share. The Company's Forms 8-K dated June 11, 1999,June 4, 1998 and June 5, 1997, as filed with the Securities and Exchange Commission areincluded herein by reference. Dividends undertaken by the Company will be solely at thediscretion of the Board of Directors. 

 

 

 

 

ITEM 6.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
**Management's discussion and analysis is intended to be read inconjunction the Company's audited financial statements the integral notes thereto. Thefollowing statements may be forward-looking in nature and actual results may differmaterially.**
RESULTS OF OPERATIONS

GENERAL: The Company specializes in themanufacturing and development of wireless modem products. The Company offers a productline which provide innovative communication solutions for applications not served byexisting conventional communication systems. The Company offers product lines in marketsfor process automation in commercial, industrial and government arenas domestically, aswell as internationally, and domestically to public safety entities for mobile datacomputer terminal applications. The Company markets its products through direct sales,sales representatives, and domestic, as well as foreign, resellers. Operations of theCompany are sustained solely from revenues received through sales of its products andservices. 
FISCAL YEAR 2001 vs. FISCAL YEAR 2000

GROSS REVENUES: Total revenues for the fiscalyear 2001 were $1,509,545 reflecting a 5% decrease from $1,584,665 gross revenues forfiscal year 2000. The decrease total revenues is attributable to decreased EngineeringServices and interest revenues, as well decreased product sales during 2001 when comparedwith 2000. Interest revenue decreased from 2000 levels of $79,144, to 2001 levels of$54,970 due to decreased rates of return received on the Company's short term investments.Engineering Services revenues during 2001 decreased to $150,404 from 2000 levels of$192,965 due to decreased Engineering Service projects performed by the Company during2001, primarily due to a smaller than expected number of Public Safety Mobile DataComputer (MDC) projects involving the Company's products and services when compared with2000. Sales of the Company's products were lower than anticipated during 2001 for MDCapplications due to, in Management's opinion, the public safety market being affected byreduced federal funding during 2001. Management believes future federal funding of MDCproject cannot be guaranteed and therefore MDC projects involving the Company's productsbecome very difficult to predict. Overall, product sales decreased slightly to $1,303,811in 2001, as compared to 2000 sales of $1,310,524. Offsetting the decrease in MDC segmentsales were increased foreign sales during 2001. Management believes sales revenues for2002 may be negatively impacted by existing economic factors negatively effectingindustrial automation projects involving the Company's products and services.
In 2001, a majority of the Company's domestic sales were for industrialautomation applications. An example of an industrial automation application is a city'swater treatment operation. It is the opinion of Management that industrial automationapplications will continue to provide the largest portion of the Company's revenues in theforeseeable future. The Company's domestic sales were augmented by sales of the Company'sproducts for mobile data computer systems to public entities, which accounted for 4% ofthe Company's domestic sales during 2001. The sales of the Company's products were lowerthan anticipated during 2001. Management believes the decrease was due to the publicsafety market being affected by reduced federal funding during 2001. Management believesfuture purchases are difficult to predict due to the uncertain nature of federal funding.An example of a mobile data computer system for a public entity is a local area network(LAN), between police department computer dispatch centers and individual police vehicles.

During 2001, the Company had $302,324 in foreign export sales,amounting to 21% of gross product and service revenues for the year. For year-end 2000,foreign export sales were $109,292 or 7% of gross product and service revenues for theyear. The increase in foreign sales was due to increased sales volumes for projects inCroatia, Jordan and India. Products purchased by foreign customers were used primarily foruse in industrial automation projects. Management believes the majority of foreign exportsales are due to EST distributor efforts and the Company's Internet website presence. Thegeographic compositions of the Company's foreign export sales for 2001 and 2000 are shownin Note 6 to the Financial Statements. 

In 2001, products purchased by U.S. Government agencies or by U.S.Government contractors amounted to $29,343 or 2%, of gross product and service revenues ascompared with 2000 levels of $23,062 or 2%, of gross product and service revenues. During2001, products purchased by the U.S. Government were utilized primarily in powermonitoring and water control applications. Management believes the decrease in U.S.Government sales revenues was the result of lack of U.S. Government funding for, ordiscontinuance of, programs using the Company's products. The uncertain nature of U.S.Government purchasing, makes prediction and planning of revenues to be received from U.S.Government difficult to predict. 

As of December 31, 2001, the Company had a backlog of $201,777 in salesorders. The Company's customers generally place orders on an "as needed basis".Shipment for most of the Company's products is generally made within 5 to 10 working daysafter receipt of customer orders, with the exception of ongoing, scheduled projects, andcustom designed equipment for specific customer applications. 

COST OF SALES: Cost of Sales, as a percentage of gross sales, for theyears of 2001 and 2000 was 53% and 56%, respectively. The cost of sales variation for 2001is the result of the product mix of the items sold during 2001 having a reduced cost whencompared with items sold during 2000. 

INVENTORY: The Company's year-end inventoryvalues for 2001 and 2000 were as follows: 
2001
2000
Parts 
$357,884 
$415,673
Work in Progress 
94,036 
43,110
Finished goods
79,679 
103,163
TOTAL 
$531,599    ====== 
$561,946    =======
The Company's objective is to maintain inventory levels as low aspossible to provide maximum cash liquidity, while at the same time, meet production anddelivery requirements. Approximately 25% of the Company's inventory at December 31, 2001consisted of parts having lead times ranging from 12 to 28 weeks. Some parts aremaintained at high levels to assure availability to meet production requirements, andaccordingly, account for a significant portion of the Company's inventory value. Based onpast experience with component availability, distributor relationships, and inventorylevels, the Company does not foresee shortages of materials used in production. However,developments in the electronic component marketplace, involving components used by theCompany which are also used in cellular phones and paging devices, have the potential ofcreating negative component availability and delivery issues for the Company in thefuture. The Company has been able to procure parts on a timely basis as of the date ofthis report, however this cannot be guaranteed in the future and if shortages were tooccur material interruption of production and consequently product delivery to customerscould occur. Inventory levels decreased between year end 2000 and year end 2001 due toreduced purchases by the Company, as existing inventory resources were used, and timingdifferences in sales and production schedules when compared with year end 2000. 

For year-end 2001, purchases and costs allocated to cost of goods soldwere $664,047 as compared to $936,383 in 2000. The decrease in purchases and allocatedcosts is a result of decreased purchases and use of existing inventory by the Companyduring 2001. 

OPERATING EXPENSES: Operating expenses, prior toallocation of expenses to Cost of Sales and Engineering Services, decreased to $970,719 in2001, from 2000 levels of $993,282. Material changes in expenses are comprised of thefollowing components: Advertising expenses decreased to $20,774 in 2001 from 2000 levelsof $30,810 due to reduced frequency of advertising by the Company during 2000.Depreciation expense increased during 2001 to $42,978 from 2000 levels of $40,604 dueincreased depreciable assets owned by the Company. Printing expenses increased from 2000levels of $5,396 to $10,238 for 2001 due to increased printing of marketing relatedmaterial required by the Company during 2001. Professional services decreased to $71,122from 2000 levels of $84,297 due to decreased subcontracted engineering services requiredfor Research and Development projects when compared with 2000. Trade show expensesincreased during 2001 to $23,357, from 2000 levels of $19,873 due to both increases inshows attended by the Company, and fees paid for those shows. 
Salaries decreased to $520,726 in 2001, from 2000 levels of $540,800,primarily due to decreased wages paid to engineering services employees who werecompensated on a commission basis for engineering services. The Company incurred bad debtexpense of $3,187 during 2001 as compared with $117 during 2000. 

FISCAL YEAR 2000 vs. FISCAL YEAR 1999

Total revenues for the fiscal year 2000 were $1,584,665 reflecting a10% increase from $1,434,393 gross revenues for fiscal year 1999. The increase wasattributable primarily to increased product sales in 2000, of $1,310,524 as compared to1999 sales of $1,239,390, reflecting an increase of 5%, as well as increases inEngineering Services and interest revenues received by the Company. Engineering Servicesduring 2000 increased to $192,965 from 1999 levels of $134,521 due to an increase in thenumber and size of Engineering Service projects performed by the Company during 2000.Product sales increased during 2000 primarily from increased domestic sales to IndustrialAutomation and Public Safety Mobile Data Computer (MDC) projects. Management believed theincreased sales and service revenues were a short-term result during 2000, which may notcontinue during 2001. Economic factors may cause reduced revenues from industrialautomation customers having a negative impact on projects involving the Company revenuesreceived from products and services. 

In 2000, a majority of the Company's domestic sales were for industrialautomation applications. It is the opinion of Management that industrial automationapplications will continue to provide the largest portion of the Company's revenues in theforeseeable future. The Company's domestic sales continue to be augmented by sales of theCompany's products for mobile data computer systems to public entities, which accountedfor 39% of the Company's domestic sales during 2000. An example of a mobile data computersystem for a public entity is a local area network (LAN), between police departmentcomputer dispatch centers and individual police vehicles. 

During 2000, the Company had $109,292 in foreign export sales,amounting to 7% of gross product and service revenues for the year. For year-end 1999,foreign export sales were $133,025 or 14% of gross product and service revenues for theyear. In the opinion of Management, the continued decrease in foreign sales is due to theresult of increased competition in foreign industrial automation markets. Productspurchased by foreign customers were used primarily for use in industrial automationprojects. 

In 2000, products purchased by U.S. Government agencies or by U.S.Government contractors amounted to $23,062 or 2%, of gross product and service revenues ascompared with 1999 levels of $46,739, or 3% of gross product and service revenues. During2000, products purchased by the U.S. Government were utilized primarily in airfieldlighting control applications. Management believes the decrease in U.S. Government salesrevenues was the result of lack of U.S. Government funding for, or discontinuance of,programs using the Company's products. The uncertain nature of U.S. Government purchasing,makes prediction and planning of revenues to be received from U.S. Government difficult topredict. 

Cost of Sales, as a percentage of gross sales, for the years of 2000and 1999 was 56% and 51%, respectively. The cost of sales variation for 2000 was theresult of both increased cost of the Company's products due to increased prices paid forhigh demand components purchased during the first half of 2000, and a the product mix ofthe items sold during 2000 having a higher cost when compared with items sold during 1999.

For year-end 2000, purchases and costs allocated to cost of goods soldwere $936,383 as compared to $605,240 in 1999. The increase in purchases and allocatedcosts was a result of increased purchases by the Company during 2000 due to increasedinventory and component requirements. 

Operating expenses, prior to allocation of expenses to Cost of Salesand Engineering Services, increased to $993,282 in 2000, from 1999 levels of $907,953.Material changes in expenses were comprised of the following components: Advertisingexpenses increased to $30,810 in 2000 from 1999 levels of $10,970 due to increasedadvertising frequency by the Company during 2000. Depreciation expense increased during2000 to $40,604 from 1999 levels of $32,699 due to the Company acquiring additionaldepreciable assets late in 1999 and during 2000. Printing expenses decreased from 1999levels of $15,220 to 2000 levels of $5,396 due to reduced printing services of marketingrelated material required by the Company during 2000. Professional services increased to$84,297 from 1999 levels of $69,785 due to increased subcontracted engineering servicesrequired for Research and Development projects. Repair and maintenance expenses increasedin 2000 to $16,108 as compared to $12,826 in 1999, due to increased equipment and computernetwork repairs. 

Salaries increased to $540,800 in 2000, from 1999 levels of $503,156,due to increased wages paid to engineering services employees based on a commission basisfor engineering service revenues during 2000. Tradeshow expenses increased during 2000 to$19,873 from 1999 levels of $14,384, due to increased cost and frequency of tradeshowsattended by the Company during 2000. Travel expenses for the Company increased to $72,351during 2000 from 1999 levels of $56,292 due to increased travel expenses related toengineering services and increased marketing trips by the Company. The Company incurredbad debt expense of $ 117 during 2000 as compared with $1,155 during 1999. 

LIQUIDITY AND CAPITAL RESOURCES

The Company's revenues and expenses resulted in a net loss of $10,296for 2001, decreased from a net income of $23,944 for 2000. The reduction in net income isa result of decreased interest revenue and Engineering Services revenues when comparedwith 2000. Also, net loss was increased by the expiration of a capital loss carry forwardduring 2001, which increased the tax effect applied against income for 2001 to $16,368. AtDecember 31, 2001, the Company's working capital was $2,127,471 compared with $2,125,411at December 31, 2000. The Company's operations rely solely on the income generated fromsales. The Company's major capital resource requirements are maintaining inventory levelsadequate for production and payment of employee salaries. Extended availability forcomponents critical for production of the Company's products, ranging from 12 to 28 weeks,require the Company to maintain high inventory levels. It is Management's opinion that theCompany's working capital as of December 31, 2001 is adequate for expected resourcerequirements for the next twelve months. 

The Company's current asset to current liability ratio at December 31,2001 was 24.2:1 compared to 22.3:1 at December 31, 2000. The current asset ratio increaseis the result of decreased trade accounts payable levels at the end of 2001 when comparedwith year-end 2000. 

The Company's cash resources at December 31, 2001, including cash andcash equivalent liquid assets, were $1,513,592, decreased from cash resources of$1,452,287 at year end 2000. The increase in cash resources at year end is the result oftiming differences in accounts receivable collection cycles, and reduced purchases forinventory and capital equipment, when compared with year-end 2000. Cash flows wereincreased by additional paid in capital received from exercise of Company stock options inthe amount of $12,300. Cash flows were offset by additions to property plant and equipmentof $33,306, capitalized software of $13,709, decrease in current liabilities of $24,571and the net loss of $10,296 when compared with 2000.

The Company's trade accounts receivable, adjusted for allowance foruncollectible accounts, at December 31, 2001, were $158,674, compared to $183,627 atyear-end 2000. The decrease is the result of timing differences in collection accountsreceivable cycles between December 31, 2001 and December 31, 2000. Management believesthat all of the Company's accounts receivable as of December 31, 2001, are collectible.

The Company believes the level of risk associated with customer receipts on exportsales is minimal. Foreign shipments are made only after payment has been received,irrevocable letter of credit terms have been pre-arranged, or on Net 30 terms to foreignoffices of domestic companies with which the Company has an existing relationship. Foreignorders are generally filled as soon as they are received, therefore, foreign exchange ratefluctuations do not impact the Company. 

Inventory level as of December 31, 2001, was $531,599, reflecting adecrease from December 31, 2000, levels of $561,946. The inventory level decrease is theresult of the Company decreasing purchases as existing inventory resources were used, andtiming differences in sales and production schedules when compared with year end 2000. 

The Company had capital expenditures during year 2001 of $33,306,primarily for equipment used for research/development, manufacturing and upgrades to theCompany's computer network. The Company intends on investing in additional capitalequipment as it is deemed necessary to support development and manufacture of the ESTeemModem. As of December 31, 2001, the Company's current liabilities were $91,522, decreasedfrom 2000 year-end levels of $99,725. The decrease is due to decreased levels of tradeaccounts payable at year-end 2001. 

The Company has a General Services Administration (GSA) contract tosell goods to the U.S. Government. This contract is a fixed price, indefinite quantity anddelivery agreement. The current contract runs through February 2004. Projections regardingliquidity, profitability, and material purchases are based on past history of annualpurchases. Due to the uncertain nature of Federal Government purchasing, procurement ofmaterial and production planning is adjusted quarterly based on demand. It is Management'sopinion that the majority of Federal Government purchases in 2002 will be pursuant to theCompany's GSA contract. 

The Company's operations were not adversely effected by inflationduring 2001. No adverse affect is anticipated during 2002.
**FORWARD LOOKING STATEMENTS: The above discussion may containforward-looking statements that involve a number of risks and uncertainties. In additionto the factors discussed above, among other factors that could cause actual results todiffer materially are the following: competitive factors such as rival wirelessarchitectures and price pressures; availability of third party component products atreasonable prices; inventory risks due to shifts in market demand and/or price erosion ofpurchased components; change in product mix, and risk factors that are listed in theCompany's reports and registrations statements filed with the Securities and ExchangeCommission.**
ITEM 7. FINANCIAL STATEMENTS

See Exhibit 1, Financial Statements and Financial Statement Schedules.Such Financial Statements and Schedules are incorporated herein by reference.

ITEM 8.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

IDENTIFICATION OF DIRECTORS:

The following table sets forth the names and ages of all directors ofthe Company as of December 31, 2001; as well as term in office and principal occupation ofeach director. 
Name of Director
Term in Office
AgePrincipal OccupationT.L. Kirchner 
06/11/99 - 06/10/02
53President of the CompanyMelvin H. Brown
06/02/00 - 06/02/03
71President of Manufacturing Services, Inc.Robert Southworth
06/02/00 - 06/02/03
58Patent Attorney for U.S. Dept. of EnergyJon Correio*
06/02/00 - 06/02/03
34Vice President of Finance of the CompanyJohn L. Schooley 
06/01/01 - 06/01/04
63President of Remtron, Inc.
* Arthur Leighton died on January 15, 2001. Mr. Leighton's position onthe Board of Directors was filled by Board of Director action, by Jon Correio, theCompany's Vice President of Finance & Administration on February 9, 2001. TheCompany's Forms 8K dated January 15, 2001 and February 9, 2001, respectively as filed withthe Securities and Exchange Commission are included herein by reference.

Management believes that there are no agreements or understandingbetween the directors and suppliers or contractors of the Company, except the agreementwith Manufacturing Services, Inc. as described elsewhere in this report.

IDENTIFICATION OF EXECUTIVE OFFICERS

The following table sets forth the names and ages of all executiveofficers of the Company as of December 31, 2001; all positions by such persons; term ofoffice and the period during which he has served as such; and any arrangement orunderstanding between him and any other person(s) pursuant to which he was elected as anofficer:

Name of Officer
Age
Position
Term of Office
Period of Service
T. L. Kirchner
52
President
3 Years
02/10/84- Present
Jon Correio
34
Sec/Treas
3 Years
02/9/01- Present
There are no family relationships, whether by blood, marriage, oradoption, between any of the Directors or Executive Officers of the Company.

The following is a brief description of the business experience duringthe last five years of each director and/or executive officer of the Company.

T.L. KIRCHNER. Mr. Kirchner is founder, Presidentand a Director of the Company. During the last five years Mr. Kirchner devoted 100% of histime to the Management of the Company. His primary duties are to oversee the Managementand Marketing functions of the Company. Mr. Kirchner does not serve as a director for anyother company registered under the Securities Exchange Act.
MELVIN H. BROWN. Mr. Brown is a Director of theCompany. During the last five years Mr. Brown has been the owner and president ofManufacturing Services, Inc. Manufacturing Services provides services in packaging design,printed circuit board layout, prototyping, verification of documentation, testing,burn-in, quality control, and repetitive volume production. Manufacturing Servicesprovides electronic manufacturing and quality control testing services for ElectronicSystems Technology. Mr. Brown does not serve as a director for any other companyregistered under the Securities Exchange Act.
ROBERT SOUTHWORTH. Mr. Southworth is a Directorand the Secretary/Treasurer of the Company. Since 1980, Mr. Southworth has been employedwith the U. S. Department of Energy as a Senior Patent Attorney in Richland, Washington.His primary duties with the Department of Energy include the preparation and prosecutionof domestic and foreign patent applications in such fields as nuclear reactors, fuelreprocessing, waste management and energy related fields of solar, wind, and fossil fuels.Mr. Southworth does not serve as a director of any other company that is registered underthe Securities Exchange Act. (Mr. Southworth resigned as the Company's Secretary/Treasureron February 9, 2001, and was replaced by Jon Correio, the Company's Manager of Finance& Administration. Mr. Southworth retained his position as a Director of the Company.The Company's Form 8K dated February 9, 2001 as filed with the Securities and ExchangeCommission is included herein by reference.)
JON CORREIO. Mr. Correio is the Vice President ofFinance and Administration, Secretary/Treasurer and a Director of the Company. During thelast five years Mr. Correio has been a full time employee of the Company, whose primaryduties are to oversee the Finance and Administration functions of the Company. Mr. Correiodoes not serve as a director for any other company registered under the SecuritiesExchange Act. 
JOHN L. SCHOOLEY. Mr. Schooley is a Director ofthe Company. During the past five years, Mr. Schooley has been the owner and President ofRemtron, Inc. in San Diego, California. Remtron, Inc. manufactures advanced radio controland telemetry systems for the industrial marketplace. Remtron, Inc. has previouslyprovided research and development services for Electronic Systems Technology. Mr. Schooleydoes not serve as director of any other company that is registered under the SecuritiesAct.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

The following person(s) who, at any time during the fiscal year, was adirector, officer, beneficial owner or more than 10% any class of equity securities of theregistrant, failed to file on a timely basis the required disclosure Form as noted: None.

 

ITEM 10.EXECUTIVE COMPENSATION

The Company's named compensated executive officer is T.L. Kirchner,President and CEO. The Company had no other compensated executive officers as of December31, 2001. 

The information specified concerning the compensation of the namedexecutive officers for each of the Registrant's last three completed fiscal years isprovided in the following Summary Compensation Table:

SUMMARY COMPENSATION TABLE Long Term Compensation
Annual    Compensation
Awards
Payouts 
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)Name and Principal Position     Year
    Salary    ($)    Bonus    ($)(1)
    Other Annual Compensation ($)(2)
Restricted Stock Awards    ($)
Securities Options    Underlying SARs    (#)
    LTIP    Payouts    ($)
All    Other    Compensation    ($)(3)(4)
T. L. Kirchner,    President &    CEO
2001
90,000
0
2,267
0
25,000
0
7,150 
2000
90,000
0
3,545
0
25,000
0
7,401 
1999
87,430
4,087
1,881
0
25,000
0
5,845
(1) Includes amounts paid under the Non-qualified Employee Profit Sharing Bonus(2) Other Annual Compensation includes Accrued Vacation Pay(3) All Other Compensation consists of premiums paid for Group Health Insurance and KeyMan Insurance (4)Amounts do not reflect proceeds of $0.01 per share cash distribution received during1999 totaling $4035. Receipt of cash distribution was based solely on capacity as ashareholder. 

The information specified concerning the stock options of the named executive officersduring the fiscal year ended December 31, 2001 is provided in the following Option/SARGrants in the Last Fiscal Year Table:

OPTION/SAR GRANTS IN LAST    FISCAL YEAR
Individual Grants (5)
(a)
(b)
(c)
(d)
(e)
Name
Number of Securities    Underlying    Options/SARs    Granted # (5)
% of Total Options/SARs    Granted to Employees in Fiscal Year
Exercise or base price    ($/Share)
Expiration Date
T.L. Kirchner
25,000
12.8%
0.44
2/9/04
(5) This table does not include Stock Options granted previously. Forms8-K dated 2/12/99, 2/11/00 respectively, are incorporated herein by reference.

The information specified concerning the stock options of the namedexecutive officers during the fiscal year ended December 31, 2001 is provided in thefollowing Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-EndOptions/SAR Values Table:

AGGREGATED OPTION/SAR    EXERCISES IN LAST FISCAL YEAR

AND FISCAL YEAR END OPTION/SAR VALUES
(a)
(b)
(c)
(d)
(e)
Name
Number of Shares Acquired on    Exercise
Value Realized ($)
Number of Securities    Underlying    Unexercised    Options/SARs at    FY-End (#)    Excercisable/    Unexercisable
Value of Unexercised    In-the-money    Options/SARs    At FY-End ($)Excercisable/    Unexercisable
T.L. Kirchner
0
0
75,000
0
The Company does not currently have a Long-Term Incentive Plan("LTIP").

Compensation to outside directors is limited to reimbursement ofout-of-pocket expenses that are incurred in connection with the directors dutiesassociated with the Company's business. Directors with no less than three years continuoustenure are eligible for stock option awards, as governed by the Company stock option plan.There is currently no other compensation arrangements for the Company's directors. (See"Security Ownership of Certain Beneficial Owners and Management" for StockOptions granted in previous years.)

The Company currently does not hold any Employment Contracts or Changeof Control Arrangements with any parties.

ITEM 11.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table sets forth, as of December 31, 2001, the amount andpercentage of the Common Stock of the Company, which according to information supplied bythe Company, is beneficially owned by each person who, to the best knowledge of theCompany, is the beneficial owner (as defined below) of more than five (5%) of theoutstanding common stock.

Title of Class
Name & Address    Of    Beneficial Owner (1)
Amount & Nature of    Beneficial Ownership
Percent of Class
Common
Gerald R Hewitt    2046 Harris Ave    Richland WA 99352
456,000 
8.9%
Common
T.L. Kirchner    415 N. Quay St.    Kennewick WA 99336
403,488 (2)(3)
8.1%
Common
EDCO Partners    LLLP    4605 Denice Drive    Englewood CO 80111
304,715
6.00%
(1) Under Rule 13d-3, issued by the Securities    and Exchange Commission, a person is, in general, deemed to "Beneficially own"    any shares if such person directly or indirectly, through any contract, arrangement,    understanding, relationship or otherwise, has or shares (a) voting power, which includes    the power to vote or to direct the voting of those shares and/or (b) investment power,    which included the power to dispose, or to direct the disposition of those securities. The    foregoing table gives effect to shares deemed beneficially owned under Rule 13d-3 based on    the information supplied to the Company.  The persons named in the table have sole    voting power and investment power with respect to all shares of Common Stock beneficially    owned by them.

(2) The beneficial owner    listed above has stock options giving the right to acquire 75,000 shares of Electronic    Systems Technology, Inc. Common Stock: Options for 25,000 granted February 12, 1999,    Options for 25,000 granted February 11, 2000, and Options for 25,000 granted February 9,    2001. Forms 8-K, dated February 12, 1999, February 11, 2000 and February 9, 2001,    respectively, are incorporated herein by reference.
(3) Does not include    options granted. See footnote (1) above.
SECURITY OWNERSHIP OF MANAGEMENT

The following table sets forth, as of February 15, 2002, amount andpercentage of the Common Stock of the Company, which according to information supplied bythe Company, is beneficially owned by Management, including officers and directors of theCompany.

Title     OfClass
Name     OfBeneficial Owner
Amount & Nature    OfBeneficial Ownership
Percent of Class
Common
T.L. Kirchner    (Officer & Director)
403,488 (1)
7.9%
Common
Robert Southworth    (Director)
0 (1)
0.0%
Common
Melvin H. Brown (Director)
76,500 (1)
1.5%
CommonJon Correio (Officer &Director)
0 (1)
0.0%
Common
John Schooley (Director)
85,000 (1)
1.7%
(1) Does not include stock options. See below.

On various dates, the Company's Board of Directors has approved StockOption Bonuses for Directors and Employees. The following is a summary of the Stock Optionbonuses currently outstanding: Options are exercisable at fixed prices. Options may not beexercised in blocks of less than 5,000 shares. Options not exercised expire three yearsafter approval date or 90 days following termination of employment/board membership,whichever occurs first. In the event of acquisition, merger, recapitalization or similarevents of the Company, the optionee will receive equivalent shares or will have a 10-daywindow in which to exercise the options. Option grants are not transferable or assignableexcept to the optionee's estate in the event of the optionee's death. 

The information below does not include stock options granted inFebruary 2002.

Recipients of Stock Options currently unexpired as of 12/31/01 were asfollows:
NameOption Shares
Exercise Price      per Share ($) 
APPROVAL DATE: 2-9-2001
David B. Strecker
15,000
0.44
Eric P. Marske
15,000
0.44
Jon A. Correio
15,000
0.44
Alan B. Cook
15,000
0.44
George Stoltz
5,000
0.44
Gary L. Schmitz
5,000
0.44
Melvin Brown
25,000
0.44
Tom Kirchner
25,000
0.44
Robert Southworth
25,000
0.44
John L. Schooley
25,000
0.44
APPROVAL DATE: 2-11-2000
David B. Strecker
15,000
2.81
Eric P. Marske
15,000
2.81
Jon A. Correio
15,000
2.81
Alan B. Cook
15,000
2.81
Melvin Brown
25,000
2.81
Tom Kirchner
25,000
2.81
Arthur Leighton (estate)
25,000
2.81
Robert Southworth
25,000
2.81
John L. Schooley
25,000
2.81
APPROVAL DATE: 2-12-99

David B. Strecker
15,000
0.44
Eric P. Marske
15,000
0.44
Jon A. Correio
15,000
0.44
Alan B. Cook
15,000
0.44
Melvin Brown
25,000
0.44
Tom Kirchner
25,000
0.44
Arthur Leighton (estate)
25,000
0.44
Robert Southworth
25,000
0.44
Stock options must be exercised within 90 days after termination ofemployment/board membership. During 2001, 230,000 options expired, and 30,000 shares underoption were exercised. At December 31, 2001 there were 515,000 shares reserved for futureexercise.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

TRANSACTIONS WITH MANAGEMENT AND OTHERS

During fiscal year 2001, the Company contractedfor services from Manufacturing Services, Inc. in the amount of $79,570. ManufacturingServices, Inc. is owned and operated by Melvin H. Brown, who is a Director of ElectronicSystems Technology, Inc. Management believes all prices for services, provided byManufacturing Services, Inc., were as favorable as could be obtained from comparablemanufacturing services companies.
 

 

 

 

PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

Exhibits filed as part of the Company's 10KSB report for 2001 are listed below. Certainexhibits have been previously filed with the Securities and Exchange Commission and areincorporated by reference.

EXHIBIT NUMBER
DESCRIPTION 
1
Report of Independent    Certified Public Accountant    Financial Statements/Financial Statement Schedules     Balance Sheets    Statement of Operations    Statement of Changes in Stockholders Equity    Statement of Cash Flows    Notes to Financial Statements 
2
Reports on Form 8-K 

 Form 8-K, dated February 15, 2002 
3
Articles of Incorporation    and By-Laws filed as Exhibit 2.1 to Form S-18, Registration Statement No. 2-92949-S,    Exhibit (c) to Form 8-K, filed March 15, 1985, and Amendments to By-Laws adopted by    Shareholders on January 14, 1985 are incorporated herein by reference. 
4Instrument defining the rights of security    holders including indentures. Exhibit II Form S-18 Registration Statement    No. 2-92949-S is incorporated herein by reference. Form 8A Registration Statement,    000-27793, dated October 25, 1999, is incorporated herein by reference. Forms 8-K dated    February 7, 1997, February 6, 1998, February 12, 1999 and February 11, 2000 are    incorporated by reference. 
11
Statement re-computation of    per share earnings. 
13
Annual report to security    holders, Form 10-Q or quarterly report to security holders.
N/A
22
Published report regarding    matters submitted to vote of security holders.
N/A
24
Consents of experts and    counsel 
99
Additional Exhibits  
99.1 Report of Audit    Committee 
 

 

 

 

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, theRegistrant has caused this Report to be signed on its behalf by the undersigned, thereuntoduly authorized.

ELECTRONIC SYSTEMS TECHNOLOGY, INC.

By: /s/ TOM L. KIRCHNER

T.L. Kirchner, Director/President(Principal Executive Officer)

Date: March 26, 2002

In accordance with the Exchange Act, this Report has been signed belowby the following persons on behalf of the Registrant and in the capacities and on thedates indicated.

Signature
Title
Date/s/ TOM L. KIRCHNER
Director/PresidentMarch 26, 2002
T.L. Kirchner  /s/ JON CORREIO
DirectorMarch 26, 2002
Jon Correio  /s/ MELVIN BROWN
DirectorMarch 26, 2002
Melvin H. Brown  /s/ ROBERT SOUTHWORTH
DirectorMarch 26, 2002
Robert Southworth  /s/ JOHN SCHOOLEY
DirectorMarch 26, 2002
John L. Schooley  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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