UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON 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:
June 30 2003
 

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, 2003 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, 2003
June 30, 2002Sales
$ 910,912
$ 999,700Other Revenues
83,127
86,365Gross Profit
507,439
562,975 Net Income (Loss) Before Taxes 
15,696
211,668Net Income (Loss) After Taxes
10,359
141,275 Earnings (Loss) Per Share Before TaxesBasic
$ 0.003
$ 0.037Diluted
0.003
0.037 Earnings (Loss) Per Share After TaxesBasic
$ 0.002
$ 0.025Diluted
0.002
0.025 Weighted Average Shares Outstanding (Basic)Primary
5,626,325
5,619,311Diluted
5,628,667
5,633,667 Total Assets
$ 2,660,728
$ 2,687,092 Long-Term Debt and Capital Lease    Obligations
$ 0
$ 0 Shareholders' Equity
$ 2,457,950
$ 2,451,425 Shareholders' Equity Per Share
$ 0.48
$ 0.48 Working Capital
$ 2,260,368
$ 2,274,650 Current Ratio
12:1
10.7:1 Equity To Total Assets
92%
91%
 

 

 

 
**ELECTRONIC SYSTEMS TECHNOLOGY, INC. BALANCE SHEETS(as prepared by Management) (Unaudited) 

 
 
June 30, 2003
Dec. 31, 2002ASSETSCURRENT ASSETS Cash and Cash Equivalents
$ 312,408
$ 322,997 Available for Sale Marketable    Securities
1,339,008
1,337,668Accounts Receivable, net of    allowance    for uncollectibles
169,399
302,269Inventory
583,420
569,424 Prepaid Expenses
10,248
11,023Prepaid Federal Income Taxes
        48,663
                --Total Current Assets
2,463,146
2,543,381 PROPERTY & EQUIPMENT net of    Depreciation of $391,680 at    June 30, 2003 and $395,366    At Dec. 31, 2002
       177,386
      159,182 OTHER ASSETS
    11,083
    30,407Deferred Income Tax Benefit
         9,113
         9,200TOTAL ASSETS
$ 2,660,728
$ 2,742,170 LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIESAccounts Payable
52,600
38,855Refundable Deposits
8,271
21,758Deferred Tax Liability 
31,127
30,400Accrued Liabilities
34,300
27,019 Distributions Payable
76,480
--Federal Income Taxes Payable
             --
104,594Total Current Liabilities 
202,778
222,626 STOCKHOLDERS' EQUITY    Common 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
1,506,772
1,572,893 Accumulated other Comprehensive Gain (Loss)
             345
   (4,182) 
2,457,950
2,519,544 TOTAL LIABILITIES AND    STOCKHOLDERS' EQUITY
$ 2,660,728
$ 2,742,170 
 

(See "Notes to Financial Statements")

 

 

 
**ELECTRONIC SYSTEMS TECHNOLOGY, INC. STATEMENTS OF OPERATIONS (as prepared by Management) (Unaudited) 

 
 
Three Months    Ended
Six Months Ended
June 30, 2003
June 30, 2002
June 30, 2003
June 30, 2002 SALES
$ 341,460
$ 513,952
$ 910,912
$ 999,700COST OF SALESBeginning Inventory
571,388
578,671
531,599
531,599Purchases and Allocated Costs
170,004
242,433
455,294
481,728 
741,392
821,104
986,893
1,013,327Ending Inventory
583,420
576,602
583,420
576,602Total Cost of Sales
157,972
244,502
403,473
436,725Gross Profit
183,488
269,450
507,439
562,975 OPERATING EXPENSESFinance/Administration
47,296
52,608
138,797
104,188Research & Development
52,394
44,556
106,473
84,287Marketing
107,258
77,340
223,292
139,033Customer Service
30,425
22,487
48,600
46,097Total Operating Expense
237,373
196,991
517,162
373,605OPERATING INCOME (LOSS)
(53,885)
72,459
(9,723)
189,370 Other Income (expenses)Interest/Investment Income
5,889
7,082
13,637
13,693Realized Loss on Marketable Securities
--
--
(2,334)
--Management Fee, Marketable Securities
(2,057)
--
(4,110)
--Loss on Asset Disposal
--
--
(1,245)
--Engineering Services
28,865
23,745
69,490
72,672Engineering Support
(25,266)
(21,465)
(50,020)
(64,067)Net Other Income (Expense)
7,431
9,362
25,418
22,298 NET INCOME (LOSS) BEFORE TAX
(46,454)
81,821
15,696
211,668Provision For Income Tax
15,794
(26,245)
(5,337)
(70,393) NET INCOME (LOSS)
$ (30,660)
$ 55,576
$ 10,359
$ 141,275 Basic Earnings (Loss) Per Share    Before Tax
$ ( 0.009)
$ 0.015
$ 0.003
$ 0.037Basic Earnings (Loss) Per Share     After Tax
$ ( 0.006)
$ 0.01
$ 0.002
$ 0.025Diluted Earnings (Loss) Per Share    Before Tax
$ ( 0.009)
$ 0.015
$ 0.003
$ 0.037Diluted Earnings (Loss) Per Share    After Tax
$ ( 0.006)
$ 0.01
$ 0.002
$ 0.025
(See "Notes to Financial Statements") 

 
**STATEMENTS OF COMPREHENSIVE INCOME (LOSS)(as prepared by Management)(Unaudited)

 
 
Three Months Ended
Six Months Ended
June    30, 2003
June    30, 2002
June    30, 2003
June    30, 2002NET INCOME (LOSS)
$    (30,660)
$    55,576
$    10,359
$    141,275 OTHER    COMPREHENSIVE GAIN (LOSS):Unrealized gain (loss)    on securities arising during period (net of tax effect)
1,938
--
2,874
--COMPREHENSIVE INCOME    (LOSS)
$    (28,722)
$    55,576
$    13,233
$    141,275
 

 

 

 

 

 

 

(See "Notes To Financial Statements")
** 

 

ELECTRONIC SYSTEMS TECHNOLOGY, INC. STATEMENTS OF CASH FLOWS(as prepared by Management) (Unaudited) 

 
Six Months Ended
June 30, 2003
June 30, 2002CASH FLOWS PROVIDED (USED) IN OPERATING    ACTIVITIES:Net Income (Loss)
$10,359
$141,275Noncash items included in income:  Depreciation
20,550
18,992Amortization
2,202
2,203Loss on Disposition of Assets
1,245
--Loss on Marketable Securities
2,334
-- DECREASE (INCREASE) IN CURRENT ASSETS:Accounts Receivable Net
132,870
42,612Marketable Securities Investments Purchased
(804,058)
--Marketable Securities Investments Sold
803,666
--Inventory
(13,996)
(45,003)Prepaid Expenses
775
(5,385)Accrued Interest
--
(545)Prepaid Federal Income Taxes
(48,663)
6,633Deferred Tax Asset
87
-- INCREASE (DECREASE) IN CURRENT LIABILITIES:Accounts Payable and Accrued Expenses 
21,026
25,065Refundable Deposits
(13,487)
55,320Deferred Tax Liability
727
--Accrued Federal Income Taxes 
(104,594)
63,760 
11,043
304,927CASH FLOWS PROVIDED (USED) IN INVESTING    ACTIVITIES:Deposits applied to Property and Equipment
17,122
--Additions To Property And Equipment
(38,754)
(15,291) 
(21,632)
(15,291)CASH FLOWS PROVIDED (USED) IN FINANCING    ACTIVITIES:No Financing Activities Recorded
--
--   NET INCREASE (DECREASE) IN CASH    AND
CASH EQUIVALENTS
 

(10,589)
 

289,636Cash And Cash Equivalents At    Beginning Of Period
322,997
1,513,592Cash And Cash Equivalents At Ending of Period 
$ 312,408
$ 1,803,228 SUPPLEMENTAL DISCLOSURES OF CASH FLOWS    INFORMATION:Cash Paid Year To Date:Interest
$ 0
$ 0Federal Income Taxes
$ 131,594
$ 0   Cash allocated for Cash Distribution
$ 76,480
$ 0 Cash And Cash Equivalents:Cash
$ 11,090
$ 11,022Money Market Accounts
301,318
791,722Certificates Of Deposit
--
1,000,484 
$ 312,408
$ 1,803,228
(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 10QSB are unaudited and reflect, in theopinion of Management, a fair presentation of operations for the three and six monthperiods ending June 30, 2003 and June 30, 2002. Certain information and footnotedisclosure normally included in financial statements prepared in accordance with generallyaccepted accounting principals have been condensed or omitted pursuant to the applicablerules and regulations of the Securities and Exchange Commission. These financialstatements should be read in conjunction with the audited financial statements and notesthereto included in the Company's Form 10KSB for the year ended December 31, 2002 as filedwith Securities and Exchange Commission.

The results of operations for the three and six month periods endedJune 30, 2003 and June 30, 2002, are not necessarily indicative of the results expectedfor the full 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 302003
December 31 2002Parts
$250,325
$ 359,915Work in progress
121,378
--Finished goods
211,717
209,569 
$583,420
$ 569,424**NOTE 3 – EARNINGS (LOSS) 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 was5,626,325 and 5,619,331 for the six-month period ended June 30, 2003 and 2002respectively. For net loss per share calculations, the nondiluted outstanding shares as ofJune 30, 2003, 5,098,667 shares, is used as a denominator, so as to avoid decreasing thenet loss per share amount.

For the six months ended June 30, 2003
 
Income (Numerator)
Shares (Denominator)
Per Share Amount
Basic EPS

Income available to common stockholders
$10,359
5,626,325
$0.002
Diluted EPS

Income available to common stockholders + assumed conversions
$10,359
5,628,667
$0.002**NOTE 4 - STOCK OPTIONS**
As of June 30, 2003, 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 21, 2003, 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 21, 2003 totaled 180,000 shares under option and have an exerciseprice of $0.40 per share. The options granted on February 21, 2003 may be exercised anytime during the period from February 21, 2003 through February 20, 2006. The Company'sForm 8-K dated February 21, 2003, 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 June 30, 2003 to June 30, 2002, 185,000shares under option expired, no shares under option were exercised, and 180,000 sharesunder option were granted. At June 30, 2003 there were 530,000 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 June 30, 2003, the Company’s only item ofother comprehensive income (loss) was unrealized gains on marketable securitiesinvestments, net of tax in the amount $1,938. There was no comprehensive income (loss)during the second quarter of 2002. 
**NOTE 6 - RELATED PARTY TRANSACTIONS

For the six-month period ended June 30, 2003, services in the amount of$70,060 were contracted with Manufacturing Services, Inc., of which the owner/president isa member of the Board of Directors of the Company. 
**NOTE 7 - CASH DISTRIBUTION**
On June 5, 2003, the Company declared a one-time, non-cumulative, cashdistribution to shareholders of record as of June 27, 2003, of $0.015 per share of commonstock, with a payable date of July 16, 2003. The payment of the cash distribution wascompleted by July 16, 2003. For the quarter ended June 30, 2003, the Company recognized acurrent liability in the amount of $76,480, reflecting the total dollar value of the cashdistribution. The Company’s Form 8-K dated June 5, 2003, as filed with the Securitiesand Exchange Commission is included herein by reference.
** 

 

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, 2003. 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 wirelessmodem systems, accessories, and services decreased to $370,325 for the second quarter of2003 compared to $537,697 for the second quarter of 2002. Gross revenues decreased to$376,214 for the quarter ended June 30, 2003, from $544,779 for the same quarter of 2002.The decrease in revenues is the result of reduced sales volumes during the second quarter2003 for Domestic and Foreign Industrial Automation applications, when compared with thesame quarter of 2002. Management believes the comparative revenue decrease in salesrevenues is not a trend, however this cannot be assured due to currently existing economicand market condition uncertainties. 

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$315,334 in the second quarter of 2003, as compared to $406,275 for the second quarter of2002, due to decreased product sales for industrial automation and projects and MobileData Computer Systems (MDCS), when compared with the same quarter for 2002. Foreign exportsales for the second quarter of 2003 decreased to $54,856 as compared to the $124,619 inthe same quarter of 2002. The reduction is due to comparatively reduced sales of theCompany’s products for industrial automation projects for foreign applications,specifically to Italy, which had unusually strong sales revenues during the second quarterof 2002. U.S. Government sales decreased to $135 in the second quarter of 2003 whencompared with second quarter 2002 U.S. Government sales of $6,803.

During the quarter ended June 30, 2003 material and services providedto Consolidated Electrical Distributors (CED), a national distributor of theCompany’s products, accounted for 17% of the Company’s sales and servicerevenues. No other sales to a single customer comprised 10% or more of the Company’sproduct sales for the quarter ended June 30, 2003. 

A percentage breakdown of EST's major customer categories of Domestic,Export and U.S. Government Sales, for the second quarter of 2003 and 2002 are as follows: 

For the second quarter of 
2003
2002
Domestic Sales
85%
76%
Export Sales
15%
23%
U.S. Government Sales
0%
1%
A percentage breakdown of EST's product sales categories for the secondquarter of 2003 and 2002 are as follows: 

For the Quarter Ended June    30 
2003
2002
ESTeem Model 192
73%
72%
ESTeem Model 95
2%
1%
ESTeem Model 96
1%
1%
ESTeem Accessories
14%
22%
Factory Services
2%
1%
Site Support
8%
3%
Sales for the second quarter of 2003 and 2002 include foreign exportsales as follows:

Three Months Ended
June 30, 2003
June 30, 2002
Export sales
$ 54,856
$ 124,619
Percent of sales
15%
23%
The geographic distribution of foreign sales for the second quarter of2003 and 2002 is as follows:

Percent of Foreign Sales
COUNTRY
June 30, 2003
June 30, 2002Puerto Rico
21%
10%Chile
21%
--Canada
19%
3%Colombia
15%
--Indonesia
9%
4%Venezuela
5%
--Ecuador
4%
27%Mexico
3%
--South Korea
2%
4%Brazil
Nil
--Australia
Nil
4%Italy
--
25%Peru
--
14%Austria
--
4%United Kingdom
--
3%Jordan
--
2%
The majority of the Company's domestic and foreign sales for the secondquarter of 2003 were used in Industrial Automation applications. It is Management’sopinion that the majority of the Company’s sales will continue to be in IndustrialAutomation applications for the foreseeable future. Industrial Automation applications forthe Company’s products will be augmented by sales of MDCS for public safety entities.During the second quarter of 2003, MDCS sales accounted for 13% of the Company’ssales and service revenues. Management believes MDCS sales may increase in the near term,however cannot be assured due to public safety entity purchases being linked to uncertaingovernment funding. 

Based on prior sales history, the majority of all U.S. Governmentpurchases of the Company’s products are under the Company’s General ServicesAdministration (GSA) contract. Management believes that although there was a slightincrease in government sales, the trend is toward decreased U.S. Government sales as aresult of a continued downward sales trend for projects and purchases in the U.S.Government sales marketplace. Management believes this may continue for the foreseeablefuture. Due to the uncertain nature of U.S. Government purchasing, Management does notbase profitability or liquidity projections on expected U.S. Government sales.
**BACKLOG:**
The Corporation had backlog of $70,000 as of June 30, 2003, the majority of which isfor industrial automation equipment ordered by customers late in the second quarter withan expected shipment date of early July, 2003. The Company’s customers generallyplace orders on an "as needed basis". Shipment for most of the Company’sproducts is generally made within 5 to 10 working days after receipt of customer orders,with the exception of ongoing, scheduled projects, and custom designed equipment forspecific customer applications.
**COST OF SALES:**
Cost of sales percentage for the second quarters of 2003 and 2002 was46% and 48%, respectively. The Cost of Sales reduction for the second quarter of 2003 isattributable to the type of product sold, as well as differences in discounted pricingstructures for those products sold, positively effecting profit margins, when comparedwith the same quarter of 2002.
**OPERATING EXPENSES:**
Operating expenses for the second quarter of 2003 increased $40,382from the second quarter of 2002. The following is a delineation of operating expenses: 

For the quarter ended:
June 30, 2003
June 30, 2002
Increase (Decrease)
Finance/Administration
$ 47,296
$ 52,608
$ ( 5,312)
Research/Development
52,394
44,556
7,838
Marketing
107,258
77,340
29,918
Customer Service
30,425
22,487
7,938
Total Operating Expenses
$ 237,373
$ 196,991
$ 40,382**FINANCE AND ADMINISTRATION:**
During the second quarter of 2003, Finance and Administration expensesdecreased $5,312 from the same quarter of 2002. The decrease is the result of decreasedbad debt expense being recognized by the Company during the second quarter of whencompared the same quarter of 2002. 
**RESEARCH AND DEVELOPMENT:**
Research and Development expenses increased $7,838 during the secondquarter of 2003, when compared with the same period in 2002. The increase is attributableto increased department salaries when compared with the same quarter of 2002.**MARKETING:**
During the second quarter of 2003, marketing expenses increased $29,918from the same period in 2002. The increase is the result of increased department salaries,travel expenses and tradeshow fees when compared with the same quarter of 2002. 
**CUSTOMER SERVICE:**
Customer service expenses increased $7,938 during the second quarter of2003. The increase is attributable to increased allocated salaries and travel expenses forthe department when compared with the same quarter of 2002.
**INTEREST AND DIVIDEND INCOME:**
The Corporation earned $5,889 in interest and dividend income duringthe quarter ended June 30, 2003. Sources of this income were money market accounts andmarketable securities investments. 
**ENGINEERING SUPPORT:**
Engineering support costs increased to $25,266 for the quarter endedJune 30, 2003, as compared to $21,465 for the same period of 2002. The increase inengineering support costs for the second quarter of 2003 is a direct result of increasedengineering services revenues performed by the Company for customers, when compared withthe second quarter of 2002. 
**NET INCOME (LOSS):**
The Company had a net loss of $30,660 for the second quarter of 2003,compared to a $55,576 net income for the same quarter of 2002. The decreased profitabilityis attributed to decreased sales revenues and increased operating expenses during thesecond quarter of 2003 when compared with the second quarter of 2002. 
**B. Financial Condition, Liquidity and Capital Resources

The Corporation's current asset to current liabilities ratio at June30, 2003 was 12:1 compared to 11.47:1 at December 31, 2002. The increased in current ratiois due to decreased Federal income tax payable amounts when compared with December 31,2002 amounts.

For the quarter ending June 30, 2003, the Company had cash and cashequivalents of $312,408, compared to cash and cash equivalent holdings of $322,997 atDecember 31, 2002. Available for sale marketable securities increased to $1,339,008compared to $1,337,668 at December 31, 2002. Certain components of investments held by theCompany, if sold as of June 30, 2003, would have presented a realized gain net of tax of$2,874, compared with a potential loss net of tax, of $4,182 as of December 31, 2002. Thecontingency for these items is reflected in the Balance Sheet as Accumulated othercomprehensive loss, and the Statement of Comprehensive Income, respectively, as of June30, 2003.

Accounts receivable decreased to $169,399 as of June 30, 2003, fromDecember 31, 2002 levels of $302,269, due to decreased sales and collection differencesduring the second quarter of 2003, when compared with year-end 2002. Inventory increasedto $583,420 at June 30, 2003, from December 31, 2002 levels of $569,424. The Company'sfixed assets, net of depreciation, increased to $177,386 as of June 30, 2003, fromDecember 31, 2002 levels of $159,182, due to capital expenditures of $38,754 for fixedassets and being offset by depreciation of $20,550, and loss on asset disposition of$1,245. The Company’s capital expenditures for fixed assets were primarily fordevelopment software and related computer upgrades. Management foresees additional capitalexpenditures may be necessary in 2003 to support the production and sale of theCompany’s products. Prepaid Federal Income Taxes increased to $48,663 due to theCompany’s net loss for the quarter and estimated tax payments resulted in a potentialtax credit for the Company as of June 30, 2003. 

As of June 30, 2003, the Company’s trade accounts payable balancewas $52,600 as compared with $38,855 at December 31, 2002, and reflects amounts owed forinventory items and contracted services. Refundable deposit liability was $8,271 for thequarter ended June 30, 2003, and reflects prepaid foreign sales prior to shipment andongoing mobile data computer system (MDCS) projects contracted with the Company. Accruedliabilities as of June 30, 2003 were $34,300, compared with $27,019 at December 31, 2002,and reflect items such as accrued vacation benefits, accrued payroll tax and state excisetax liabilities. The Company announced a cash distribution, payable during July 2003 inthe amount of $76,480 which has been recognized as a liability as of June 30, 2003.Federal Income Taxes payable has decreased to $0 as of June 30, 2003, from December 31,2002 levels of $104,594 as a result of payment of Federal Tax liability for 2002 by theCompany as well as decreased profitability during 2003 resulting in a potential tax creditas of June 30, 2003. 

In Management's opinion, the Company's cash and cash equivalentreserves, and working capital at June 30, 2003 is sufficient to satisfy requirements foroperations, capital expenditures, and other expenditures as may arise during the remainderof 2003.
***FORWARD LOOKING STATEMENTS: The above discussion may contain forwardlooking statements that involve a number of risks and uncertainties. In addition to thefactors discussed above, among other factors that could cause actual results to differmaterially are the following: competitive factors such as rival wireless architectures andprice pressures; availability of third party component products at reasonable prices;inventory risks due to shifts in market demand and/or price erosion of purchasedcomponents; change in product mix, and risk factors that are listed in the Company’sreports and registration statements filed with the Securities and Exchange Commission.***
 

ITEM III

**CONTROLS & PROCEDURES**Evaluation of Disclosure Controls and    Procedures.The Company’s Chief Executive and its Chief Financial Officer,    after evaluating the effectiveness of the Company’s disclosure controls and    procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-    14(c) as of a date within 90 days of the filing date of this quarterly report on Form    10-QSB (the "Evaluation Date"), have concluded that as of the Evaluation Date,    the Company’s disclosure controls and procedures were adequate and effective to    ensure that material information relating to the Company would be made known to it by    others within the Company, particularly during the period in which this quarterly report    on Form 10-QSB was being prepared.

 **Changes in Internal Controls. There    were not significant changes in the Company’s internal controls or in other factors    that could significantly affect the Company’s disclosure controls and procedures    subsequent to the Evaluation Date, nor any significant deficiencies or material weaknesses    in such disclosure controls and procedures requiring corrective actions.

 

 

 

 

 

 

 

 

 

 

PART II

OTHER INFORMATION 

Item 4. Submission of Matters to the Securities Holders 

At the Company's Annual Stockholder Meeting on June 6, 2003, inKennewick, Washington the following items were voted on by the stockholders with thefollowing outcomes: 

Item #1 Election of Director:

Melvin H Brown 

Votes for: 4,045,802
Abstaining: 16,725
Jon Correio 

Votes for: 4,048,302
Abstaining: 14,225
Robert Southworth 

Votes for: 4,048,302
Abstaining: 14,225
Item #2 Ratification of Moe O’Shaughnessy &  Associates, P.S. as independent auditors and tax service provider for the Corporation for  the fiscal year ending December 31, 2003.

Votes for: 4,047,802 
Votes against: 3,100
Abstaining: 11,625
Item #3 Authorization of proxy to vote upon other  matters as may properly come before the meeting. (No such issues were brought before the  meeting) 

Votes for: 4,047,652
Votes against: 5,000
Abstaining: 9,875 
Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(b) Reports on Form 8-K 

Form 8-K dated February 21, 2003 is      incorporated herein by reference.      Form 8-K dated June 5, 2003 is incorporated herein by reference.
 
Exhibit Index 
Reference Form 10-QSB 
Exhibit Number 
Notes to Financial      Statements
4. Instruments defining the Rights of Security Holders  including indentures. 

 

Form 8-K dated February 21, 2003 is      incorporated herein by reference.
11. Statement Re:      computation of per share earnings 
Note 3 to Financial      Statements Exhibit 99Exhibit 99.3 – Certification of CEO      Exhibit 99.4 – Certification of CFO
 

 

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this  report to be signed on its behalf by the undersigned, thereunto duly authorized. 

ELECTRONIC SYSTEMS TECHNOLOGY, INC.
 
Date: August 11, 2003/s/ T.L. KIRCHNERName: T.L. KirchnerTitle: Director/President      (Principal Executive Officer)
 
Date: August 11, 2003/s/ JON CORREIOName: Jon CorreioTitle:      Director/Secretary/Treasurer      (Principal Financial Officer)
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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