UNITED STATES SECURITIES AND EXCHANGE COMMISSIONSWASHINGTON 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 2002
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, 2002was 5,098,667. 

 
**PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.**
ELECTRONIC SYSTEMS TECHNOLOGY, INC.SELECTED FINANCIAL DATA(as prepared by Management)(Unaudited)
Three Months Ended
Mar. 31, 2002
Mar. 31, 2001Sales
$ 485,748
$ 210,721Other Revenues
$ 55,538
$ 52,830Gross Profit
$ 293,525
$ 91,598 Net Income (Loss) Before Taxes 
$ 129,847
$ ( 46,630)Net Income (Loss) 
$ 85,699
$ ( 30,571) Earnings (Loss) Per Share Before    TaxesBasic
$ 0.02
$ ( 0.01)Diluted
$ 0.02
$ ( 0.01) Earnings (Loss) Per Share Basic
$ 0.015
$ ( 0.006)Diluted
$ 0.015
$ ( 0.006) Weighted Average Shares    Outstanding (Basic)Primary
5,622,338
5,660,229Diluted
5,633,667
5,688,667 Total Assets
$ 2,654,937
$ 2,382,701 Long-Term Debt and Capital Lease Obligations
$ 0
$ 0  Shareholders' Equity
$ 2,395,848
$ 2,289,875 Shareholders' Equity Per Share
$ 0.47
$ 0.45 Working Capital
$ 2,216,829
$ 2,111,927 Current Ratio
9.5:1
23.75:1 Equity To Total Assets
90 %
96 %
 

 

 

 

 

 

ELECTRONIC SYSTEMS TECHNOLOGY, INC.BALANCE SHEET(as prepared by Management)(Unaudited)
 
Mar. 31, 2002
Dec. 31 ,2001ASSETSCURRENT ASSETSCash and cash equivalents
$ 1,666,952
$ 1,513,592 Accounts Receivable, net of    allowance for uncollectibles
214,975
158,674 Inventory
578,671
531,599 Accrued Interest
958
1,243 Prepaid Expenses
14,362
7,252Provision for Federal Income Taxes
0
6,633Total Current Assets
$ 2,475,918
$ 2,218,993 PROPERTY & EQUIPMENT net of    Depreciation of $368,707 at    Mar. 31, 2002 and $359,018 at Dec. 31, 2001
 

162,431
 

164,989 OTHER ASSETS
16,589
17,690TOTAL ASSETS
$ 2,654,938
$ 2,401,672 LIABILITIES & STOCKHOLDERS'    EQUITY CURRENT LIABILITIESAccounts Payable
$ 75,380
$ 53,384Refundable Deposits 
98,024
0Deferred Tax Liability 
17,283
17,283Federal Income Taxes Payable
37,515
0Accrued Liabilities
30,887
20,855Total Current Liabilities 
259,089
91,522 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
1,445,016
1,359,317 
$ 2,395,849
$ 2,310,150 TOTAL LIABILITIES AND    STOCKHOLDERS' EQUITY
$ 2,654,938
$ 2,401,672 
 

 

(See "Notes To Financial Statements")

 

ELECTRONIC SYSTEMS TECHNOLOGY, INC.STATEMENT OF OPERATIONS(as prepared by Management)(Unaudited)
Three Months Ended
Mar. 31, 2002
Mar. 31, 2001 SALES
$ 485,748
$ 210,721COST OF SALESBeginning Inventory
531,599
561,946Purchases and Allocated Costs
239,295
173,169 
$ 770,894 
$ 735,115 Ending Inventory
578,671
615,992Total Cost of Sales
$ 192,223
$ 119,123Gross Profit
$ 293,525
$ 91,598 OPERATING EXPENSESFinance/Administration
$ 51,581
$ 46,797Research & Development
39,730
37,542Marketing
61,692
57,363Customer Service
23,610
23,739Total Operating Expense
$ 176,613
$ 165,441OPERATING INCOME (LOSS)
$ 116,912
$ ( 73,843) Other Income (expenses)Interest Income
$ 6,611
$ 18,890Loss on Asset Disposal
--
( 3)Engineering Services
48,927
33,940Engineering Support
(42,603)
(25,614)Net Other Income (expense)
$ 12,935
$ 27,213 NET INCOME (LOSS) BEFORE TAX
$ 129,847
$ ( 46,630)Provision For Income Tax
( 44,148)
16,059NET INCOME (LOSS)
$ 85,699
$ ( 30,571) Basic Earnings (Loss) Per Share    Before Tax
$ 0.02
$ ( 0.01)Basic Earnings (Loss) Per Share     After Tax
$ 0.015
$ ( 0.006)   Diluted Earnings (Loss) Per Share    Before Tax
$ 0.02
$ ( 0.01)Diluted Earnings (Loss) Per Share    After Tax
$ 0.015
$ ( 0.006)
 

(See "Notes To Financial Statements")

 

ELECTRONIC SYSTEMS TECHNOLOGY, INC.STATEMENT OF CASH FLOWS(as prepared by Management)(Unaudited)
Three Months Ended
Mar. 31, 2002
Mar. 31, 2001 CASH FLOWS PROVIDED (USED) IN OPERATING    ACTIVITIES:Net Income (Loss)
$ 85,699
$ ( 30,571)Noncash items included in income:
Depreciation

9,689
9,904
Amortization

1,101
415
Loss on Disposition of Assets

--
3
Provision for Federal Income Taxes

6,633
( 16,059) DECREASE (INCREASE) IN CURRENT ASSETS:Accounts Receivable Net
( 56,301)
86,472Inventory
( 47,072)
( 54,046)Prepaid Expenses
( 7,110)
124Accrued Interest
285
1,108 INCREASE (DECREASE) IN CURRENT LIABILITIES:Accounts Payable and Accrued Expenses 
32,028
(6,899)Refundable Deposits
98,024
--Accrued Federal Income Taxes
37,515
-- 
$ 160,491 
$ ( 9,549) CASH FLOWS PROVIDED (USED) IN INVESTING    ACTIVITIES:Additions To Property And Equipment
$ ( 7,131)
$ ( 5,535) 
$ ( 7,131) 
$ ( 5,535) CASH FLOWS PROVIDED (USED) IN FINANCING    ACTIVITIES:Common Stock Issued through exercised stock    options
$ --
$ 30Additional Paid In Capital from exercised    stock options
--
12,270 
$ --
$ 12,300NET INCREASE (DECREASE) IN CASH    AND    CASH EQUIVALENTS
$ 153,360
$ ( 2,784)Cash And Cash Equivalents At    Beginning Of Period
1,513,592
1,452,287Cash And Cash Equivalents At Ending of Period 
$ 1,666,952
$ 1,449,503 SUPPLEMENTAL DISCLOSURES OF CASH FLOWS    INFORMATION:Cash Paid Year To Date:Interest
0
0 Federal Income Taxes
$ 0
$ 0  Cash And Cash Equivalents:Cash
$ 6,060
$ 6,100Money Market Accounts
664,465
371,636Certificates Of Deposit
996,427
1,071,767 
$ 1,666,952
$ 1,449,503
(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 month periods ended March31, 2002 and March 31, 2002. Certain information and footnote disclosure normally includedin 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 conformwith the format of this quarterly presentation. These financial statements should be readin conjunction with the audited financial statements and notes thereto included in theCompany's Form 10K for the year ended December 31, 2001 as filed with Securities andExchange Commission.

The results of operation for the three-month periods ended March 31, 2002 and March 31,2001 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 2002
December 31 

2001Parts
$ 315,497
$ 357,884Work in progress
105,307
94,036Finished goods
157,867
79,679 
$ 578,671
$ 531,599**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 was5,622,338 and 5,660,229 for the quarters ended March 31, 2002 and 2001 respectively.

For the Quarter Ended    March 31, 2002 
Income (Numerator)
Shares (Denominator)
Per Share Amount
Basic EPS

Income available to common stockholders
$85,699
5,622,338
$0.015
Diluted EPS

Income available to common stockholders + assumed conversions
$85,699
5,633,667
$0.015
 

 
**NOTE 4 - STOCK OPTIONS**
As of March 31, 2002, 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 15, 2002, 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 15, 2002 totaled 180,000 shares under option and have an exerciseprice of $0.42 per share. The options granted on February 15, 2002 may be exercised anytime during the period from February 15, 2002 through February 14, 2005. The Company'sForm 8-K dated February 15, 2002, 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, 2002 to March 31, 2001,235,000 shares under option expired, no shares under option were exercised, and 180,000shares under option were granted. At March 31, 2002 there were 535,000 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 - RELATED PARTY TRANSACTIONS**
For the quarter ended March 31, 2002, services in the amount of $34,689were contracted with Manufacturing Services, Inc., of which the owner/president is amember of the Board of Directors of EST.

 

 

 
** 

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, 2002. 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 $534,675 for the first quarter of 2002 as compared to $244,661 in the firstquarter of 2001, reflecting an increase of 119%. Gross revenues increased to $541,286 forthe quarter ending March 31, 2002, from $263,551 for the same quarter of 2001. Managementbelieves the increased product and service revenues are the result of increased domesticindustrial automation sales, as well as a large water control retrofit project undertakenand completed by the Company during the first quarter of 2002 when compared with a lowsales revenue first quarter 2001. 

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 increased to$498,560 in the first quarter of 2002 as compared to $171,965 for the first quarter of2001. Foreign export sales for the first quarter of 2002 decreased to $32,985 as comparedto the $66,464 in foreign sales in the same quarter of 2001. The comparative reduction inforeign sales reflects large industrial automation projects in India and Croatia in thefirst quarter of 2001, which did not recur during the first quarter of 2002. The Companyhad sales of $3,131 to U.S. Government programs for the first quarter of 2002 as comparedwith $6,202 in the first quarter 2001. Engineering services billed in the first quarter of2002 increased to $48,927 as compared with $33,940 for the same quarter of 2001. Theincrease in engineering services billed is the result of period differences in the amountof engineering services requested by the Company’s customers when compared with thefirst quarter of 2001, due to increased quantity and scope of engineering servicesundertaken by the Company during the first quarter of 2002. During the quarter ended March31, 2002 sales to the Potlatch Corporation, an end user of the Company’s products,for a water control network retrofit application, consisted of 33% of the Company's salesand service revenues. No other sales to a single customer comprised 10% or more of theCompany's product sales.

A percentage breakdown of EST's major customer categories of Domestic,Export and U.S. Government Sales, for the first quarter of 2002 and 2001 are as follows: 

For the first quarter of
2002
2001
Domestic Sales
93%
70%
U.S. Government Sales
1%
3%
Export Sales
6%
27%
A percentage breakdown of EST's product sales categories for the first quarter of 2002and 2001 are as follows:
For the first quarter of
2002
2001ESTeem Model 192
75%
62%ESTeem Model 95
2%
5%ESTeem Model 96
0%
2%ESTeem Accessories
13%
15%Factory Services
1%
2%Site Support
9%
14%
Sales include foreign export sales as follows:
Three Months Ended
March 31 2002
March 31 2001Export sales
$ 32,985
$ 66,494Percent of sales
6%
27%
The geographic distribution of foreign sales for the first quarter of 2002 and 2001 isas follows:**