See Notes to Financial Statements.
See Notes to Financial Statements.
NOTES TO CONDENSED
FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The condensed financial statements, including notes,
of Electronic Systems Technology, Inc. (the "Company") are representations of the Company’s management, which is responsible
for their integrity and objectivity. The accompanying unaudited condensed financial statements have been prepared by the Company in accordance
with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information,
as well as the instructions to Form 10-Q. Accordingly, the financial statements do not include all of the information and footnotes required
by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying unaudited condensed financial statements
contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its financial position as
of March 31, 2023, and its results of operations, cash flows, and changes in stockholders’ equity for the three months ended March
31, 2023 and 2022. The balance sheet at December 31, 2022 was derived from audited annual financial statements but does not contain all
of the footnote disclosures from the annual financial statements. All amounts presented are in U.S. dollars. For further information,
refer to the financial statements and footnotes thereto in the Company’s Annual Report on Form 10-K for the year ended December
31, 2022.
The results of operations for the three-month period
ended March 31, 2023 are not necessarily indicative of the results expected for the full fiscal year or for any other fiscal period. The
Company estimates that for 2023 the anticipated effective annual federal income tax rate will be 0%.
New Accounting Pronouncements
Accounting standards that have been issued by the
Financial Accounting Standards Board that do not require adoption until a future date are not expected to have a material impact on the
financial statements upon adoption.
NOTE 2 - INVENTORIES
Inventories are stated at lower of direct cost or
net realizable value with cost determined using the FIFO (first in, first out) method. Inventories consist of the following:
Schedule of inventories | |
| | | |
| | |
| |
March 31, 2023 | | |
December 31, 2022 | |
Parts | |
$ | 146,628 | | |
$ | 172,190 | |
Work in progress | |
| 247,223 | | |
| 336,298 | |
Finished goods | |
| 335,457 | | |
| 216,990 | |
Total inventory | |
$ | 729,308 | | |
$ | 725,478 | |
NOTE 3 - EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share excludes dilution
and is computed by dividing income (loss) available to common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted earnings (loss) per share reflects potential dilution occurring if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the
Company. At March 31, 2023 and 2022, the Company had 180,000 and 240,000 outstanding stock options, respectively, that could have a dilutive
effect on future periods’ net income. The stock options were not included in the calculation of diluted earnings per share for either
period as they were anti-dilutive.
NOTE 4 - STOCK OPTIONS
The Company has outstanding stock options, which have
been granted periodically to individual employees and directors. No shared based compensation was recognized during the three-month periods
ended March 31, 2023 and 2022.
As of March 31, 2023 and 2022, there were 180,000
and 240,000 options outstanding respectively with a weighted average exercise price of $0.40 per share, a weighted average remaining life
of 2.3 and 3.4 years respectively and no intrinsic value.
NOTE 5 – REVENUE
The Company product revenue includes industrial wireless
products and accessories such as antennas, power supplies and cable assemblies. The Company also provides direct site support and engineering
services to customers, such as repair and upgrade of its products. During the three-month period ended March 31, 2023 and 2022, the Company’s
revenue from products sales was $297,589 and $461,843, respectively. Revenue from site support and engineering services was $7,500 and
$10,300 respectively, over the same periods.
The Company’s customers, to which trade credit
terms are extended, consist of United States and local governments and foreign and domestic companies. Domestic sales for the three-month
period ended March 31, 2023 and March 31, 2022 were $293,908 and $436,670, respectively. Sales to foreign customers for the three-month
period ended March 31, 2023 and March 31, 2022 were $11,181 and $35,473, respectively.
For the three-month period ended March 31, 2023 and
2022, sales to individual customers representing more than 10% of total revenue were as follows:
Schedule of revenue | |
| | | |
| | | |
| | | |
| | |
| |
For the three-month period ended March 31, | |
| |
2023 | | |
2022 | |
| |
Sales | | |
%age of Total Sales | | |
Sales | | |
%age of Total Sales | |
Domestic customer A | |
$ | 70,090 | | |
| 23 | % | |
$ | 75,505 | | |
| 16 | % |
Domestic customer B | |
| — | | |
| — | | |
| 72,683 | | |
| 15 | % |
Domestic customer C | |
| — | | |
| — | | |
| 53,625 | | |
| 11 | % |
As of March 31, 2023 Domestic customer A’s accounts
receivable balance was $43,019.
As of March 31, 2023 and 2022, the Company had a sales order backlog of
$162,396 and $116,461, respectively.
NOTE 6 - LEASES
On September 23, 2022, the Company signed a new two-year
lease for its facilities. The base lease is $3,373 and $3,478 per month for years one and two, respectively. There is a leasehold tax
applied to the base lease at 12.84%. The Company has the right to terminate the lease with 90 days’ notice. There is no renewal
clause contained in the current lease. Upon signing the lease, the Company recognized a lease liability and right of use asset of $78,757
based on the two-year payment stream discounted using an estimated incremental borrowing rate of 4.125%. At March 31, 2023, the remaining
lease term is 18 months. As of March 31, 2023, future payments on this lease of $30,671 and $31,304 will be paid in 2023 and 2024 respectively.
For the three-month periods ended March 31, 2023 and
2022, lease expense of $11,576 and $10,903, respectively, are included in the following expense classifications on the statements of operations:
Schedule of lease expense | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
2023 | | |
2022 | |
| |
Cost of sales | | |
Operating expenses | | |
Total | | |
Cost of sales | | |
Operating expenses | | |
Total | |
Base rent pursuant to lease agreement | |
$ | 5,751 | | |
$ | 4,526 | | |
$ | 10,277 | | |
$ | 5,397 | | |
$ | 4,247 | | |
$ | 9,644 | |
Variable lease costs | |
| 727 | | |
| 572 | | |
| 1,299 | | |
| 704 | | |
| 555 | | |
| 1,259 | |
Total lease costs | |
$ | 6,478 | | |
$ | 5,098 | | |
$ | 11,576 | | |
$ | 6,101 | | |
$ | 4,802 | | |
$ | 10,903 | |
NOTE 7 - Cares Act Retention Credit
As at December 31, 2022 and March 31, 2023, the Company has an employee
retention tax credit due of $63,000. The amount to be received is a refund of qualified payroll taxes the Company paid in connection with
employee payroll during the COVID 19 pandemic. The Company expects to receive the credit in 2023.