ELECTRONIC SYSTEMS TECHNOLOGY, INC.

FINANCIAL STATEMENTS

AND

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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| TABLE OF CONTENTS
Page     Report    of Independent Registered Public Accounting Firm1 Financial Statements: 
Balance    Sheets2 Statements    of Income3 Statements    of Comprehensive Income4 Statements    of Changes in Stockholders’ Equity5 Statements    of Cash Flows6-7 Notes    to Financial Statements8-23 Supplemental    Schedules of Operating Expenses24 Supplemental    Schedules of Selected Financial Data25
 

 

 

 

 

 

 

 

 

 

**Moe O'Shaughnessy & Associates, P.S.**Certified Public Accountants

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM

 

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

Kennewick, WA 99336

We have audited the accompanying balance sheets ofElectronic Systems Technology, Inc., as of December 31, 2006 and 2005, and the relatedstatements of income, comprehensive income, stockholders’ equity and cash flows foreach of the three years in the period ended December 31, 2006. These financial statementsare the responsibility of the Company’s management. Our responsibility is to expressan opinion on these financial statements based on our audits.

We conducted our audits in accordance withstandards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. The Company is notrequired to have, nor were we engaged to perform, an audit of its internal control overfinancial reporting. Our audit included consideration of internal control over financialreporting as a basis for designing audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on the effectiveness ofinternal control over financial reporting. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements. An audit alsoincludes assessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referredto above present fairly, in all material respects, the financial position of ElectronicSystems Technology, Inc., as of December 31, 2006 and 2005, and the results of itsoperations and its cash flows for each of the three years in the period ended December 31,2006, in conformity with accounting principles generally accepted in the United States ofAmerica.

Our audits were conducted for the purpose offorming an opinion on the basic financial statements taken as a whole. The supplementalschedules of operating expenses and selected financial data are presented for purposes ofadditional analyses and are not a required part of the basic financial statements. Suchsupplemental schedules have been subjected to the auditing procedures applied in theexamination of the basic financial statements and, in our opinion, are fairly stated inall material respects when considered in relation to the basic financial statements takenas a whole.

/s/ MOE O’SHAUGHNESSY & ASSOCIATES, P.S.

February 16, 2007

 

427 W. Sinto Avenue, Ste. 200, Spokane, Washington99201Phone (509) 325-4900 Fax (509) 325-9345 E-Mail moaps@qwest.net

 

 

ELECTRONIC SYSTEMS TECHNOLOGY, INC.

BALANCE SHEETS

DECEMBER 31, 2006 AND 2005

ASSETS
 
2006
2005CURRENT ASSETSCash
$ 55,665
$ 11,100Money Market investment
1,432,183
640,165Certificates of deposit
630,000
449,613Available-for-sale investments
-
921,029Accounts Receivable, net of            Allowance for doubtful accounts            of $3,059 at 2006 and $1,685 at            2005 
401,127
222,982Inventory
582,915
485,257Prepaid insurance
8,376
9,281Prepaid expenses
20,228
22,704Accrued interest
4,650
2,758 Total Current Assets
3,135,144
2,764,889 PROPERTY AND EQUIPMENT - NET
152,655
184,025 OTHER ASSETS - NET
5,852
25,067 DEFERRED INCOME TAX BENEFIT
26,200
20,600  
$3,319,851
$2,994,581
 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

2006
2005CURRENT    LIABILITIESAccounts payable
$ 93,051
$ 41,377Refundable deposits
67
72Accrued payroll and bonus
37,706
22,855Accrued payroll and other    taxes
10,527
7,569Accrued vacation pay
28,910
23,685Income tax payable
140,090
80,579
Total    Current Liabilities
310,351
176,137DEFERRED INCOME TAXES
50,500
59,300COMMITMENTS AND    CONTINGENCIES
               -
                  -STOCKHOLDERS'    EQUITYCommon stock - $.001 par    value 50,000,000 shares authorized, 5,153,667 and 5,148,667 issued    and outstanding at 2006 and 2005, respectively
5,154
5,149Additional paid-in capital
974,466
966,184Retained earnings
1,979,380
1,804,828Accumulated other    comprehensive loss
                      -
(17,017)
2,959,000
2,759,144
$3,319,851
$2,994,581
 

See Notes to Financial Statements.

2

 

ELECTRONIC SYSTEMS TECHNOLOGY, INC.

STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2006, 2005, AND2004

 
2006
2005
2004SALES - NET
$2,617,810 
$2,417,700 
$2,416,625  COST OF SALES
1,018,798
1,112,683
1,083,848 GROSS PROFIT
1,599,012
1,305,017
1,332,777 OPERATING EXPENSES
1,282,761
1,140,174
1,089,396 OPERATING INCOME
316,251
164,843
243,381 OTHER INCOME          Interest income
48,310 
42,806 
23,508       Other    income (expense)
(21,547)
(32,892)
(6,763) 
26,763
9,914
16,745 INCOME BEFORE INCOME TAXES
343,014 
174,757 
260,126 PROVISION FOR FEDERAL INCOME            TAXES
116,925
61,694
85,306NET INCOME
$ 226,089 
$ 113,063 
$ 174,820  BASIC EARNINGS PER SHARE
$ 0.04
$ 0.02
$ 0.03DILUTED EARNINGS PER SHARE
$ 0.04
$ 0.02
$ 0.03
 

See Notes to Financial Statements.

3

 

ELECTRONIC SYSTEMS TECHNOLOGY, INC.

STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2006, 2005, AND2004
 
2006
2005
2004NET INCOME
$226,089
$113,063
$174,820 OTHER COMPREHENSIVE LOSS:
Unrealized loss on    securities arising during the period
-
(8,948)
(9,622)Income tax benefit related to other    comprehensive loss
                    -
3,043
3,272Other comprehensive loss, net
                   -
(5,905)
(6,350)COMPREHENSIVE INCOME
$226,089 
$107,158 
$168,470 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Financial Statements.

4

ELECTRONIC SYSTEMS TECHNOLOGY, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2006, 2005, AND2004

Common Stock
Paid-InCapital
Retained Earnings
Accumulated Other Comprehensive Loss
 

Total
SharesAmountBALANCE AT    JANUARY 1, 2004
5,098,667
$ 5,099
$945,734
$1,619,419
$ (9,474) 
$2,560,778STOCK OPTIONS    EXERCISED
50,000
50
20,450
-
-
20,500COMPREHENSIVE    INCOME:
Net income December 31, 2004

-
-
-
174,820
- 
174,820
Unrealized loss on securities-net

-
-
-
-
(6,350)
(6,350)CASH DIVIDEND 
                  -
                 -
            -
(50,987)
                  -
(50,987)
5,148,667
5,149
966,184
1,743,252 
(15,824)
2,698,761 COMPREHENSIVE    INCOME:                       Net income December 31, 2005
-
-
-
113,063
-
113,063
Unrealized loss on securities-net

-
-
-
-
(5,905)
(5,905)
Less reclassification adjustment included in income

-
-
-
-
4,712 
4,712 CASH DIVIDEND
                 -
            -
            -
(51,487)
                  -
(51,487)
5,148,667
5,149
966,184
1,804,828 
(17,017)
2,759,144 STOCK OPTIONS    EXERCISED
5,000
5
1,995
-
-
2,000COMPREHENSIVE    INCOME:
Net income

-
-
-
226,089
- 
226,089
Less reclassification adjustment included in net        income

-
-
-
17,017 
-
17,017 SHARE-BASED    COMPENSATION
-
-
6,287
-
-
6,287CASH DIVIDEND
                 -
            -
            -
(51,537)
                 -
(51,537)BALANCE AT    DECEMBER 31, 2006
5,153,667
$ 5,154
$974,466
$1,979,380
$            -
$2,959,000
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Financial Statements.

5

 

ELECTRONIC SYSTEMS TECHNOLOGY, INC.

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2006, 2005, AND2004

2006
2005
2004CASH    FLOWS FROM OPERATING ACTIVITIES:        Net income
$    226,089
$    113,063
$    174,820
Non-cash expenses included in income:

Depreciation

59,401
71,031
65,370
Amortization

1,433    
2,851    
4,257    
Allowance for doubtful accounts

1,374    
(199)
(269)
Deferred income taxes

(14,400)
(19,500)
13,400    
Loss on disposition of assets

94    
16,468    
3    
Realized loss on sale of investments

19,343    
7,140    
-
Share-based compensation

6,287
-
-        Decrease (increase) in current assets:
Accounts receivable, net

(179,519)
34,297    
28,161    
Inventory

(97,658)
119,902    
(93,187)
Other current assets

1,489    
(22,165)
(620)
Prepaid federal income tax

-
-
29,433        Increase (decrease) in current liabilities:
Accounts payable and other current liabilities

74,703    
(74,276)
(32,677)
Federal income taxes payable

50,746
41,993
42,473                    Net    Cash From Operating Activities
149,382
290,605
231,164CASH    FLOWS FROM INVESTING ACTIVITIES:
Deposits and long term prepaids

17,782    
(23,294)
18,605    
Purchase of investments and certificates of deposit (CD)

(1,572,000)
(990,000)
(12,750)
Proceeds from sale of investments and CD

2,319,081    
955,028    
-
Additions to property and equipment

(28,125)
(18,067)
(96,155)
Net Cash From Investing Activities

736,738
(76,333)
(90,300)CASH    FLOWS FROM FINANCING ACTIVITIES
Stock options exercised

2,000
-
20,500
Cash dividend

(51,537)
(51,487)
(50,987)Net Cash From    Financing Activities
$    (49,537)
$    (51,487)
$    (30,487)
(continued)
 

 

See Notes to Financial Statements.

6

 

ELECTRONIC SYSTEMS TECHNOLOGY, INC.

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2006, 2005, AND2004

2006
2005
2004NET INCREASE IN    CASH AND EQUIVALENTS
$    836,583 
$    162,785 
$    110,377 CASH AND CASH    EQUIVALENTS AT BEGINNING OF YEAR
651,265
488,480
378,103CASH AND CASH    EQUIVALENTS AT END OF YEAR
$1,487,848 
$ 651,265 
$ 488,480 SUPPLEMENTAL    DISCLOSURES OF CASH FLOW INFORMATION:        Cash paid during the year for:        Income taxes
$ 80,798
$ 39,201 |
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