UNITED STATES SECURITIES AND EXCHANGE COMMISSIONSWASHINGTON D.C. 20549FORM 10-QSB 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934. 

| For the quarterly period ended:
June 30 2001
Commission File Number:
000-27793
 

 
**ELECTRONIC SYSTEMS TECHNOLOGY, INC.(A Washington Corporation)****
I.R.S. Employer    Identification no.
91-1238077
 

415 N. Quay St., #4Kennewick WA 99336
Registrant’s telephone number, including area code:(509) 735-9092
 

Check whether the issuer (1) has filed all reports required to be filed by Section 13or 15(d) of the Exchange Act during the past 12 months (or for such shorter period thatthe registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes [ X ] No [ ] 

The number of shares outstanding of common stock as of June 30, 2001 was 5,098,667. 
**PART I - FINANCIAL INFORMATION**Item 1. FINANCIAL STATEMENTS. 

ELECTRONIC SYSTEMS TECHNOLOGY, INC.(as prepared by Management) 
(Unaudited) 
Six Months Ended
June 30, 2001
June 30, 2000Sales
$ 421,728
$ 588,926Other Revenues
108,010
109,165Gross Profit
179,617
265,435 Net Income (Loss) Before Taxes 
(122,352)
(29,398)Net Income (Loss) After Taxes
(80,548)
(19,402) Earnings (Loss) Per Share Before TaxesBasic
$ ( 0.02)
$ ( 0.005)Diluted
( 0.02)
( 0.004) Earnings (Loss) Per Share After TaxesBasic
$ ( 0.015)
$ ( 0.005)Diluted
( 0.015)
( 0.004) Weighted Average Shares Outstanding (Basic)Primary
5,654,530
5,679,996Diluted
5,654,530
5,679,996 Total Assets
$ 2,326,467
$ 2,438,646 Long-Term Debt and Capital Lease    Obligations
$ 0
$ 0 Shareholders' Equity
$ 2,239,898
$ 2,264,800 Shareholders' Equity Per Share
$ 0.44
$ 0.44 Working Capital
$ 2,051,135
$ 2,081,185 Current Ratio
24.7:1
13:1 Equity To Total Assets
96%
93%
 

 

 

 
**ELECTRONIC SYSTEMS TECHNOLOGY, INC. BALANCE SHEET (as prepared by Management) (Unaudited) **** 
June 30, 2001
Dec. 31, 2000ASSETSCURRENT ASSETS Cash and cash equivalents
$ 1,313,565
$ 1,452,287 Accounts Receivable, net of    allowance    for uncollectibles
118,887
183,627 Inventory
641,778
561,946 Accrued Interest
3,282
9,522 Prepaid Expenses
11,755
11,121Provision for Federal Income Taxes
48,437
6,633Total Current Assets
$ 2,137,704
$ 2,225,136 PROPERTY & EQUIPMENT net of    Depreciation of $336,918 at    June 30, 2001 and $316,765    at Dec. 31, 2000
180,455
175,722 OTHER ASSETS
8,308
7,013TOTAL ASSETS
$ 2,326,467
$ 2,407,871 LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIESAccounts Payable
$ 54,818
$ 78,103Refundable Deposits
11,759
--Deferred Tax Liability 
915
915Accrued Liabilities
19,077
20,707Total Current Liabilities 
86,569
99,725 STOCKHOLDERS' EQUITY    Common Stock, $.001 Par Value    50,000,000 Shares Authorized    5,098,667 Shares Issued And Outstanding 
$ 5,099
$ 5,069 Additional Paid-in Capital
945,734
933,464 Retained Earnings
1,289,065
1,369,613 
$ 2,239,898
$ 2,308,146 TOTAL LIABILITIES AND    STOCKHOLDERS' EQUITY
$ 2,326,467
$ 2,407,871 
(See "Notes to Financial Statements")

 

 

 
**ELECTRONIC SYSTEMS TECHNOLOGY, INC. STATEMENT OF OPERATIONS(as prepared by Management) (Unaudited) **** 
Three Months    Ended
Six Months Ended
June 30, 2001
June 30, 2000
June 30, 2001
June 30, 2000 SALES
$211,007
$360,513
$421,728
$588,926COST OF SALESBeginning Inventory
$ 615,992
$ 470,842
$ 561,946
$ 357,490Purchases and Allocated Costs
148,774
228,057
321,943
465,203 
764,766
698,899
883,889
822,693Ending Inventory
641,778
499,202
641,778
499,202Total Cost of Sales
$ 122,988
$ 199,697
$ 242,111
$ 323,491Gross Profit
$ 88,019
$ 160,816
$ 179,617
$ 265,435 OPERATING EXPENSESFinance/Administration
$ 39,974
$ 44,312
$ 86,771
$ 91,796Research & Development
45,707
40,470
83,250
90,382Marketing
68,506
58,888
125,869
114,448Customer Service
32,428
27,895
$ 56,168
$ 50,790Total Operating Expense
$ 185,558
$ 171,565
$ 350,999
$ 347,416OPERATING INCOME (LOSS)
$ (97,539)
$ (10,749)
$ (171,382)
$ (81,981) Other Income (expenses)Interest Income
$ 14,380
$ 19,992
$ 33,270
$ 38,576Loss on Asset Disposal
(1,056)
--
( 1,059)
--Engineering Services
40,799
28,467
74,740
70,589Engineering Support
(32,305)
(21,112)
(57,920)
(56,582)Net Other Income (expense)
$ 21,817
$ 27,346
$ 49,030
$ 52,583 NET INCOME (LOSS) BEFORE TAX
$ (75,722)
$ 16,597
(122,352)
(29,398)Provision For Income Tax
25,745
(5,643)
41,804
9,996 NET INCOME (LOSS)
$ (49,977)
$ 10,955
$ (80,548)
$ (19,402) Basic Earnings (Loss) Per Share    Before Tax
$ ( 0.015)
$ 0.003
$ ( 0.02)
$ ( 0.005)Basic Earnings (Loss) Per Share     After Tax
$( 0.009)
$ 0.002
$ ( 0.015)
$ ( 0.004) Diluted Earnings (Loss) Per Share    Before Tax
$( 0.015)
$ 0.003
$ ( 0.02)
$ ( 0.005)Diluted Earnings (Loss) Per Share    After Tax
$( 0.009)
$ 0.002
$ ( 0.015)
$ ( 0.004)
(See "Notes to Financial Statements") 
**ELECTRONIC SYSTEMS TECHNOLOGY, INC. STATEMENT OF CASH FLOWS(as prepared by Management) (Unaudited) ****Six Months Ended
June 30, 2001
June 30, 2000 CASH FLOWS PROVIDED (USED) IN    OPERATING ACTIVITIES:Net Income (Loss)
$(80,548)
$(19,402)Noncash items included in income:Depreciation
20,153
18,774Loss on Disposition of Assets
1,059
--Amortization
830
1,231Provision for Federal Income Taxes
(41,804)
(10,951) DECREASE (INCREASE) IN CURRENT ASSETS:Accounts Receivable Net
64,740
6,723Inventory
(79,832)
(141,712)Prepaid Expenses
(634)
(4,023)Accrued Interest
6,240
(3,168) INCREASE (DECREASE) IN CURRENT LIABILITIES:Accounts Payable and Accrued Expenses 
(24,915)
10,433Refundable Deposits
11,759
100,450 
$(122,952)
$(41,645)CASH FLOWS PROVIDED (USED) IN INVESTING    ACTIVITIES:Additions To Property And Equipment
$(25,945)
$(49,023)Deposits for Property and    Equipment to be delivered at later date
( 2,125)
-- 
$(28,070)
$(49,023)CASH FLOWS PROVIDED (USED) IN FINANCING    ACTIVITIES:Common Stock Issued through exercised stock    options
$ 30
$ 115Additional Paid In Capital from exercised    stock options
12,270
39,335 
$ 12,300
$ 39,450NET INCREASE (DECREASE) IN CASH    AND    CASH EQUIVALENTS
$ (138,722)
$ (51,218)Cash And Cash Equivalents At    Beginning Of Period
1,452,287
1,624,728Cash And Cash Equivalents At Ending of Period 
$1,313,565
$1,573,510 SUPPLEMENTAL DISCLOSURES OF CASH FLOWS    INFORMATION:Cash Paid Year To Date:Interest
$ 0
$ 0Federal Income Taxes
$ 0
$ 955 Cash And Cash Equivalents:Cash
$6,100
$6,659Money Market Accounts
335,516
543,796Certificates Of Deposit
971,949
1,023,055 
$ 1,313,565
$ 1,573,509
(See "Notes to Financial Statements")
**ELECTRONIC SYSTEMS TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS(as prepared by Management)(Unaudited)

**NOTE 1 - BASIS OF PRESENTATION**
The financial statements of Electronic Systems Technology, Inc. (the"Company"), presented in this Form 10Q are unaudited and reflect, in the opinionof Management, a fair presentation of operations for the three and six month periodsending June 30, 2001 and June 30, 2000. Certain information and footnote disclosurenormally included in financial statements prepared in accordance with generally acceptedaccounting principals have been condensed or omitted pursuant to the applicable rules andregulations of the Securities and Exchange Commission. These financial statements shouldbe read in conjunction with the audited financial statements and notes thereto included inthe Company's Form 10K for the year ended December 31, 2000 as filed with Securities andExchange Commission.

The results of operation for the three and six month periods ended June30, 2001 and June 30, 2000, are not necessarily indicative of the results expected for thefull fiscal year or for any other fiscal period.
**NOTE 2 - INVENTORIES**
Inventories are stated at lower of cost or market with cost determinedusing the FIFO (first in, first out) method. Inventories consist of the following:
 
June 30, 2001 
December 312000Parts
$345,165
$ 415,673Work in progress
61,281
43,110Finished goods
235,332
103,163 
$641,778
$ 561,946**NOTE 3 – EARNINGS (LOSS) PER SHARE**
Basic and diluted loss per share for the six month period ended June30, 2001, is computed by dividing loss by the number of common shares outstanding for theperiod, excluding equivalent shares from possible stock option exercises, the effect ofwhich would be anti-dilutive. The number of common shares outstanding used for calculationof basic and diluted loss per share was 5,098,667 for the six month period ended June 30,2001.
**NOTE 4 - STOCK OPTIONS**
As of June 30, 2001, the Company had outstanding stock options thathave been granted periodically to individual employees and directors with no less thanthree years of continuous tenure with Company. On February 9, 2001, additional stockoptions to purchase shares of the Company's common stock were granted to individualemployees and directors with no less than three years continuous tenure. The optionsgranted on February 9, 2001 totaled 195,000 shares under option and have an exercise priceof $0.44 per share. The options granted on February 9, 2001 may be exercised any timeduring the period from February 9, 2001 through February 9, 2004. The Company's Form 8-Kdated February 9, 2001, as filed with the Securities and Exchange Commission is includedherein by reference. All outstanding stock options must be exercised within 90 days aftertermination of employment. During the 12 month period from June 30, 2000 to June 30, 2001,250,000 shares under option expired, 30,000 shares under option were exercised, and195,000 shares under option were granted. At June 30, 2001 there were 515,000 shares underoption reserved for future exercises.

The Company has adopted the disclosure-only provisions of Statement ofFinancial Accounting Standards (SFAS) No. 123, "Accounting for Stock-BasedCompensation." The Company undertakes to make disclosures and calculations pursuantto SFAS 123 on an annual basis coinciding with the issuance of the Company's AnnualFinancial Statements. Accordingly, no compensation cost has been recognized for the stockoption plan. 
**NOTE 5 - RELATED PARTY TRANSACTIONS
For the six month period ended June 30, 2001, services in the amount of$41,648, were contracted with Manufacturing Services, Inc., of which the owner/presidentis a member of the Board of Directors of the Company. 
** **
 
**ITEM II

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION 
*Management’s discussion and analysis is intended to be read inconjunction with the Company’s unaudited financial statements and the integral notesthereto for the quarter ending June 30, 2001. The following statements may be forwardlooking in nature and actual results may differ materially.*
A. Results of Operations**REVENUES:
Total revenues from the sale of the Company’s ESTeem wireless modem systems, accessories, and services decreased to$251,806 for the second quarter of 2001 compared to $388,980 for the second quarter of2000. Gross revenues decreased to $266,186 for the quarter ended June 30, 2001, from$408,972 for the same quarter of 2000. In the opinion of Management, the decreased productand service revenues are the result of lower than anticipated sales of Mobile DataComputer Systems for public safety entities and Industrial Automation projects. Managementbelieves reduced revenues for the Mobile Data Computer Systems market segment may continuein the near term due to continuing market and economic conditions, including public safetyentity purchases being linked to uncertain government funding. Management believes thereduction in Industrial Automation revenues may continue in the near term and is primarilythe result of current economic conditions effecting Industrial Automation projects, andcomparison of 2 Quarter 2000 relatively strong Industrial Automation salesrevenues.

The Company's revenues have historically fluctuated from quarter toquarter due to timing factors such as customer order placement and product shipments tocustomers, as well as customer buying trends, and changes in the general economicenvironment. The procurement process regarding plant and project automation, or projectdevelopment, which usually surrounds the decision to purchase ESTeem products can belengthy. This procurement process may involve bid activities unrelated to the ESTeemproducts, such as additional systems and subcontract work, as well as capital budgetconsiderations on the part of the customer. Because of the complexity of this procurementprocess, forecasts in regard to the Company's revenues become difficult to predict. 

The Company's revenues fall into three major customer categories,Domestic, Export and U.S. Government sales. Domestic commercial sales decreased to$212,241 in the second quarter of 2001, as compared to $355,321 for the second quarter of2000, due to decreased product sales for industrial automation projects and Mobile DateComputer for public entity sales. Foreign export sales for the second quarter of 2001increased to $34,285 as compared to the $29,232 in the same quarter of 2000, due to salesfor a water treatment applications in Jordan and Peru. U.S. Government sales increased to$5,280 in the second quarter of 2001 when compared with second quarter 2000 U.S.Government sales of $4,426. 

During the quarter ended June 30, 2001 material and services providedto Consolidated Electrical Distributors (CED), a nationwide distributor of theCompany’s products, accounted for 12% of the Company’s sales and servicerevenues, respectively. No other sales to a single customer comprised 10% or more of theCompany’s product sales for the quarter ended June 30, 2001. 

A percentage breakdown of EST's major customer categories of Domestic,Export and U.S. Government Sales, for the second quarter of 2001 and 2000 are as follows:******************** |
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