UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWASHINGTON D.C. 20549

FORM 10-QSB

 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES     EXCHANGE ACT OF 1934

For the quarterly period ended:
March 31 2004
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(509) 735-9092

 

 

 

 

 

 

 

 

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

 

The number of shares outstanding of common stock as of March 31, 2004was 5,098,667. 

 
** 

 

 

 

PART IFINANCIAL INFORMATION

Item 1. Financial Statements.**
ELECTRONIC SYSTEMS TECHNOLOGY, INC.SELECTED FINANCIAL DATA(as prepared by Management)(Unaudited)
Three Months Ended
Mar. 31, 2004
Mar. 31, 2003Sales
$ 619,569
$ 569,453Other Revenues
$ 30,388
$ 48,373Gross Profit
$ 366,810
$ 323,952 Net Income (Loss) Before Taxes 
$ 104,844
$ 62,150Net Income (Loss) 
$ 69,112
$ 41,019 Earnings (Loss) Per Share Before TaxesBasic
$ 0.02
$ 0.01Diluted
$ 0.02
$ 0.01 Earnings (Loss) Per Share Basic
$ 0.01
$ 0.01Diluted
$ 0.01
$ 0.01 Weighted Average Shares Outstanding (Basic)Primary
5,641,704
5,627,571Diluted
5,653,667
5,628,667 Total Assets
$ 2,815,144
$ 2,780,177 Long-Term Debt and Capital Lease    Obligations
$ 0
$ 0 Shareholders' Equity
$ 2,633,900
$ 2,562,153 Shareholders' Equity Per Share
$ 0.52
$ 0.50 Working Capital
$ 2,384,184
$ 2,357,940 Current Ratio
21.1:1
13.8:1 Equity To Total Assets
94 %
92 %
 

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ELECTRONIC SYSTEMS TECHNOLOGY, INC.BALANCE SHEET(as prepared by Management)(Unaudited)
 
Mar. 31, 2004
Dec. 31 ,2003ASSETSCURRENT ASSETS Cash and cash equivalents
$ 441,294
$ 378,103 Available for sale marketable    securities
1,350,187
1,341,491Accounts Receivable, net of    allowance for uncollectibles
265,240
284,972 Inventory
495,514
511,972 Prepaid Expenses
13,193
11,958Prepaid Federal Income Taxes
--
29,433Total Current Assets
$ 2,565,428
$ 2,557,929 PROPERTY & EQUIPMENT net of    Depreciation of $434,893 at Mar. 31, 2004 and    $420,337 at Dec. 31, 2003
208,694
222,674 OTHER ASSETS
26,422
27,486Deferred Income Tax Benefit
14,600
14,600TOTAL ASSETS
$ 2,815,144
$ 2,822,689 LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable
$ 70,105
$ 44,848Refundable Deposits 
4,447
80,372Federal Income Taxes Payable
8,236
--Accrued Liabilities
39,056
52,203 Deferred Income
--
25,088Total Current Liabilities 
121,844
202,511 Deferred Income Taxes 
59,400
59,400 STOCKHOLDERS' EQUITYCommon Stock, $.001 Par Value    50,000,000 Shares Authorized 5,098,667 Shares Issued And Outstanding
$ 5,099
$ 5,099 Additional Paid-in Capital
945,734
945,734 Retained Earnings
1,688,781
1,619,419 Accumulated other comprehensive loss
(5,714)
(9,474) 
$ 2,633,900
$ 2,560,778 TOTAL LIABILITIES AND    STOCKHOLDERS' EQUITY
$ 2,815,144
$ 2,822,689 
(See "Notes To Financial Statements")

2

 

 

ELECTRONIC SYSTEMS TECHNOLOGY, INC.STATEMENTS OF INCOME (LOSS)(as prepared by Management)(Unaudited)
Three Months Ended
Mar. 31, 2004
Mar. 31, 2003 SALES
$ 619,569
$ 569,453COST OF SALESBeginning Inventory
511,972
569,424Purchases and Allocated Costs
236,301
247,465 
$ 748,273 
$ 816,889 Ending Inventory
495,514
571,388Total Cost of Sales
$ 252,759
$ 245,501Gross Profit
$ 366,810
$ 323,952 OPERATING EXPENSESFinance/Administration
$ 62,417
$ 91,500Research & Development
71,454
54,080Marketing
104,555
116,034Customer Service
34,428
18,175Total Operating Expense
$ 272,854
$ 279,789OPERATING INCOME (LOSS)
$       93,956
$   44,163 Other Income (expenses)Interest/Investment Income
$ 3,239
$ 7,748Uncollectible Accounts Recovered
2,178
--Realized Loss on Marketable Securities
--
(2,334)Management Fee, Marketable Securities
(2,320)
(2,052)Loss on Asset Disposal
(4)
(1,245)Engineering Services
24,971
40,625Engineering Support
(17,176)
(24,755)Net Other Income (expense)
$ 10,888
$ 17,987 NET INCOME (LOSS) BEFORE TAX
$ 104,844
$ 62,150Provision For Income Tax
( 35,732)
( 21,131)NET INCOME (LOSS)
$ 69,112
$ 41,019 Basic Earnings (Loss)    Per Share Before Tax
$ 0.02
$ 0.01Basic Earnings (Loss)    Per Share After Tax
$ 0.01
$ 0.01 Diluted Earnings    (Loss) Per Share Before Tax
$ 0.02
$ 0.01Diluted Earnings    (Loss) Per Share After Tax
$ 0.01
$ 0.01
 

(See "Notes To Financial Statements")

3

 

ELECTRONIC SYSTEMS TECHNOLOGY, INC.STATEMENTS OF COMPREHENSIVE INCOME (LOSS)(as prepared by Management)(Unaudited)

 
Three Months Ended
Mar. 31, 2004
Mar. 31, 2003NET INCOME (LOSS)
$ 69,112
$ 41,019 OTHER COMPREHENSIVE LOSS:Unrealized gain on securities arising during    period (net of tax effect)
4,010
1,417COMPREHENSIVE INCOME (LOSS)
$ 73,122
$42,436
 

 

 

 

 

 

 

 

 

 

 

 

(See "Notes To Financial Statements")

4

 

 

ELECTRONIC SYSTEMS TECHNOLOGY, INC.STATEMENT OF CASH FLOWS(as prepared by Management)(Unaudited)
Three Months Ended
Mar. 31, 2004
Mar. 31, 2003 CASH FLOWS PROVIDED (USED) IN OPERATING    ACTIVITIES:Net Income (Loss)
$ 69,112
$ 41,019Noncash items included in income:
Depreciation

14,552
9,681
Amortization

1,064
1,101
Loss on Disposition of Assets

4
1,245
Loss on Marketable Securities

--
2,334
Provision for Federal Income Taxes

29,433
-- DECREASE (INCREASE) IN CURRENT ASSETS:Accounts Receivable Net
19,732
( 14,984)Marketable Securities Investments Purchased
( 2,749)
( 802,000)Marketable Securities Investments Sold
--
803,666Inventory
16,458
( 1,964)Prepaid Expenses
( 1,235)
( 546) INCREASE (DECREASE) IN CURRENT LIABILITIES:Accounts Payable and Accrued Expenses 
12,110
93,403Refundable Deposits
( 75,925)
( 15,356)Accrued Federal Income Taxes
6,299
( 83,463)Deferred Income
( 25,088)
-- 
$ 63,767 
$ 34,136 CASH FLOWS PROVIDED (USED) IN INVESTING    ACTIVITIES:Deposits applied to Property and    Equipment
--
17,122Additions To Property And    Equipment
$ ( 576)
$ ( 34,660) 
$ ( 576)
$ ( 17,538)CASH FLOWS PROVIDED (USED) IN FINANCING    ACTIVITIES:No Financing Activities Recorded
$ --
$ -- NET INCREASE (DECREASE) IN CASH    AND EQUIVALENTS
$ 63,191
$ 16,598Cash and Equivalents At Beginning    Of Period
378,103
322,997Cash and Equivalents At Ending of Period 
$ 441,294
$ 339,595 SUPPLEMENTAL DISCLOSURES OF CASH FLOWS    INFORMATION:Cash Paid Year To Date:Interest
0
0Federal Income Taxes
$ 0
$ 104,594 Cash and Equivalents:Cash
$ 11,100
$ 10,136Money Market Accounts
430,194
329,459 
$ 441,294
$ 339,595
(See "Notes To Financial Statements")

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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 10QSB are unaudited and reflect, in theopinion of Management, a fair presentation of operations for the three month periods endedMarch 31, 2004 and March 31, 2003. Certain information and footnote disclosure normallyincluded in financial statements prepared in accordance with generally accepted accountingprincipals have been condensed or omitted pursuant to the applicable rules and regulationsof the Securities and Exchange Commission. In preparation of the financial statements,certain amounts and balances have been restated from previously filed reports to conformto the format of this quarterly presentation. These financial statements should be read inconjunction with the audited financial statements and notes thereto included in theCompany's Form 10K for the year ended December 31, 2003 as filed with Securities andExchange Commission.

The results of operation for the three-month periods ended March 31, 2004 and March 31,2003 are not necessarily indicative of the results expected for the full fiscal year orfor any other fiscal period.
**NOTE 2 - INVENTORIES**
Inventories are stated at lower of cost or market with cost determined using the FIFO(first in, first out) method. Inventories consist of the following:
 
March 31 2004
December 31 

2003Parts
$ 302,956
$ 232,801Work in progress
0
86,928Finished goods
192,558
192,243
$ 495,514
$ 511,972**NOTE 3 - EARNINGS PER SHARE**
Basic EPS excludes dilution and is computed by dividing incomeavailable to common stockholders by the weighted-average number of common sharesoutstanding for the period. Diluted EPS reflects potential dilution occurring ifsecurities or other contracts to issue common stock were exercised or converted intocommon stock or resulted in the issuance of common stock that then shared in the earningsof the Company. The primary weighted average number of common shares outstanding was5,641,704 and 5,627,571 for the quarters ended March 31, 2004 and 2003 respectively.

For the    Quarter Ended March 31, 2004 
Income (Numerator)
Shares (Denominator)
Per Share Amount
Basic EPS

Income available to common stockholders
    $69,362
    5,641,704
    $0.01
Diluted EPS

Income available to common stockholders + assumed conversions
    $69,362
    5,653,667
 

$0.01
 

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**NOTE 4 - STOCK OPTIONS**
As of March 31, 2004, the Company had outstanding stock options whichhave been granted periodically to individual employees and directors with no less thanthree years of continuous tenure with Company. On February 20, 2004, 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 20, 2004 totaled 195,000 shares under option and have an exerciseprice of $0.80 per share. The options granted on February 20, 2004 may be exercised anytime during the period from February 20, 2004 through February 19, 2007. The Company'sForm 8-K dated February 20, 2004, as filed with the Securities and Exchange Commission isincluded herein by reference. All outstanding stock options must be exercised within 90days after termination of employment. 

During the 12 month period from March 31, 2003 to March 31, 2004,170,000 shares under option expired, no shares under option were exercised, and 195,000shares under option were granted. At March 31, 2004 there were 555,000 shares under optionreserved 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 - OTHER COMPREHENSIVE INCOME (LOSS)**
For the quarter ended March 31, 2004, the Company’s only item ofother comprehensive income (loss) was unrealized gains on marketable securitiesinvestments, net of tax in the amount $4,010. During the quarter ended March 31, 2003, theonly item of other comprehensive income (loss) was unrealized gains on marketablesecurities investments, net of tax in the amount of $1,417. 
**NOTE 6 - RELATED PARTY TRANSACTIONS**
For the quarter ended March 31, 2004, services in the amount of $48,841were contracted with Manufacturing Services, Inc., of which the owner/president is amember of the Board of Directors of EST.

 

 

 

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** 

ITEM II**
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION 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 March 31, 2004. 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 EST products and servicesincreased to $644,540 for the first quarter of 2004 as compared to $610,078 in the firstquarter of 2003, an increase of 5%. Gross revenues increased to $649,956 for the quarterending March 31, 2004, from $617,826 for the same quarter of 2003. In Management’sopinion, the increased product and service revenues is a continuation of strong domesticindustrial automation sales, as the Company experienced throughout 2003. Managementbelieves the increased sales revenues are the result of increased marketing efforts on thepart of the Company during the last two years, particularly increased regional tradeshowattendance and salesperson activity. Management intends to sustain the increased marketingeffort during 2004, but remains cautious that 2004 sales revenues may be impacted bypotentially tenuous economic factors negatively effecting industrial automation projectsinvolving the Company’s products and services.

The Company's revenues have historically fluctuated from quarter toquarter due to timing factors such as product shipments to customers, customer orderplacement, customer buying trends, and changes in the general economic environment. Theprocurement process regarding plant and project automation, or project development, whichusually surrounds the decision to purchase ESTeem products can be lengthy. Thisprocurement process may involve bid activities unrelated to the ESTeem products, such asadditional systems and subcontract work, as well as capital budget considerations on thepart of the customer. Because of the complexity of this procurement process, forecasts inregard to the Company's revenues are difficult to predict. 

The Company's revenues fall into three major customer categories,Domestic, Export and U.S. Government sales. Domestic commercial sales increased to$560,666 in the first quarter of 2004 as compared to $484,017 for the first quarter of2003. The foreign export sales decreased for the first quarter of 2004 to $83,712 ascompared to the $126,061 in foreign sales in the same quarter of 2003. The decrease inforeign sales reflects a comparative decrease from the first quarter of 2003, a quarterwhich included sales for large industrial automation projects in India, Israel and Peru.The Company had U.S. Government sales of $162 for the first quarter of 2004 compared withno recorded sales in the first quarter of 2003.

Engineering services billed in the first quarter of 2004 decreased to$24,971 as compared with $40,625 for the same quarter of 2003. The decrease in engineeringservice revenues for the first quarter of 2004, is the result of a decreased number andsize of engineering services undertaken by the Company during the first quarter of 2004,when compared with the same quarter of 2003. Management believes the reduction experiencedin engineering support revenues is the result of increased sales of Ethernet basedwireless modems, which have been requiring less preinstall, installation and projectcommissioning services, when compared with the Company’s licensed frequency radiomodems. In Management’s opinion, this downward trend for engineering services maycontinue or accelerate as sales of the Company’s Ethernet based wireless modemsincrease. During the quarter ended March 31, 2004 sales to Consolidated ElectricalDistributors (CED), a national distributor of the Company’s products consisted of 17%of the Company's sales and service revenues. No other sales to a single customer comprised10% or more of the Company's product sales.

 

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A percentage breakdown of EST's major customer categories of Domestic,Export and U.S. Government Sales, for the first quarter of 2004 and 2003 are as follows: 

For the first quarter of
2004
2003
Domestic Sales
87%
79%
U.S. Government Sales
Nil
--
Export Sales
13%**