UNITED STATES SECURITIES AND EXCHANGE COMMISSIONS
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, 1996
Commission File Number: 2-92949-S
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Washington 91-1238077
(State of incorporation) (I.R.S. Employer Identification No.)
415 N. Quay St., #4 Kennewick WA 99336
(Address of principal executive offices) (ZIP Code)
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 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
The number of shares outstanding of common stock as of June 30, 1996
was 4,986,667.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
<TABLE>
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
(as prepared by Management)
(Unaudited)
<CAPTION>
SELECTED FINANCIAL DATA
Six months ended June 30 June 30
1996 1995
========== ==========
<S> <C> <C>
Sales $ 645,760 $ 739,626
Other revenue 156,495 115,782
Gross profit 390,948 454,725
Net income before taxes 180,848 195,205
after taxes 118,162 113,005
Earnings per share before taxes
Primary $ 0.03 $ 0.04
Fully diluted 0.03 0.04
Earnings per share after taxes
Primary $ 0.02 $ 0.02
Fully diluted 0.02 0.02
Weighted average shares outstanding
Primary 5,463,948 5,357,078
Fully diluted 5,463,948 5,357,078
Total assets $ 2,052,710 $ 1,823,940
Long-term debt and capital
lease obligations $ 0 $ 0
Shareholders' equity $ 1,985,521 $ 1,722,476
Shareholders' equity per share $ 0.39 $ 0.34
Working Capital $ 1,824,258 $ 1,608,048
Current ratio 28 : 1 19 : 1
Equity to total assets 97% 94%
</TABLE>
<PAGE>
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEET
(as prepared by Management)
(Unaudited)
ASSETS
June 30 December 31
1996 1995
========== ===========
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,399,739 $ 1,162,726
Marketable securities 0 121,117
Certificates of Deposit
(over 90 day maturity) 0 102,000
Accounts receivable, net of allowance
for uncollectibles of $1,284 121,395 157,920
Inventory 341,430 297,037
Accrued Interest 2,053 3,745
Prepaid Expenses 8,029 4,134
Deferred tax asset 5,287 5,287
Prepaid federal Income Taxes 13,514 0
Note Receivable (current portion) 0 3,449
---------- -----------
Total Current Assets $ 1,891,447 $ 1,857,415
PROPERTY & EQUIPMENT, net of depreciation
of $170,060 at June 30, 1996
and $155,504 at Dec. 31, 1995 154,067 145,243
OTHER ASSETS 7,196 8,114
------------ -----------
TOTAL ASSETS $ 2,052,710 $ 2,010,772
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 49,554 $ 56,493
Accrued Liabilities 17,635 18,434
Federal Income Taxes Payable 0 58,665
------------ -----------
Total Current Liabilities $ 67,189 $ 133,592
------------ -----------
STOCKHOLDERS' EQUITY
Common stock, $.001 par value
50,000,000 shares authorized,
shares issued and outstanding:
5,006,667-Dec. 31, 1995
4,986,667-June 30, 1996 $ 4,987 $ 5,007
Additional Paid-in Capital 908,256 918,057
Appropriated Retained Earnings for
stock repurchase plan 100,000 0
Retained earnings 972,278 954,116
----------- ----------
$ 1,985,521 $ 1,877,180
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,052,710 $ 2,010,772
=========== ==========
</TABLE>
(See "Notes to Financial Statements")
<PAGE>
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
<TABLE>
CONDENSED STATEMENT OF OPERATIONS
(as prepared by Management)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30 June 30 June 30
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
SALES $293,704 $ 477,487 $ 645,760 $ 739,626
--------- --------- --------- ---------
COST OF SALES
Beginning Inventory $279,740 $ 401,548 $ 297,037 $ 423,932
Purchases & allocated
costs 192,204 132,495 299,205 217,079
--------- --------- --------- ---------
$471,944 $ 534,043 $ 596,242 $ 641,011
Ending Inventory 341,430 356,110 341,430 356,110
--------- --------- --------- ---------
Total Cost of Sales $130,514 $ 177,933 $ 254,812 $ 284,901
--------- --------- --------- ---------
Gross Profit $163,190 $ 299,554 $ 390,948 $ 454,725
--------- --------- --------- ---------
OPERATING EXPENSES
Finance/Administration $ 39,185 $ 38,765 $ 122,813 $ 107,730
Research & Development 31,487 14,076 62,133 32,827
Marketing 56,963 55,237 97,349 91,991
Customer Service 15,889 10,690 24,399 23,188
--------- --------- --------- ---------
Total Operating Expense $143,524 $ 118,768 $ 306,694 $ 255,736
--------- --------- --------- ---------
OPERATING INCOME $ 19,666 $ 180,786 $ 84,254 $ 198,989
--------- --------- --------- ---------
Other Income (Expenses)
Interest Income $ 15,588 $ 13,863 $ 32,142 $ 25,020
Loss-Marketable Securities 0 ( 46,558) ( 3,522) ( 46,558)
Recovery from Marketable
Securities Litigation 0 0 3,700 0
Uncollectibles Accounts
Recovered 57,204 0 57,204 0
Engineering Services 23,722 48,475 63,450 90,762
Engineering Support ( 20,951) ( 37,211) ( 56,380) ( 73,008)
--------- -------- ------- --------
Net Other Income $ 75,563 $( 21,431) $ 96,594 $ ( 3,784)
--------- -------- ------- --------
NET INCOME BEFORE TAX $ 95,229 $ 159,355 $ 180,848 $ 195,205
Provision for income tax 32,378 70,010 62,686 82,200
--------- -------- ------- --------
Net Income $ 62,851 $ 89,345 $ 118,162 $ 113,005
========= ======== ======= ========
Earnings per Share
Primary $ 0.01 $ 0.02 $ 0.02 $ 0.02
Fully Diluted 0.01 0.02 0.02 0.02
</TABLE>
(See "Notes to Financial Statements")
<PAGE>
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
<TABLE>
STATEMENT OF CASH FLOWS
(as prepared by Management)
(Unaudited)
<CAPTION>
SIX MONTHS ENDED June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
CASH FLOWS PROVIDED (USED) IN
OPERATING ACTIVITIES:
Net income $ 118,162 $ 113,005
Noncash expenses included in income:
Depreciation 14,556 10,746
Amortization 918 918
Deferred income tax liability 0 1,693
Realized Loss/Impair securities 3,522 46,558
DECREASE (INCREASE) IN CURRENT ASSETS:
Accounts receivable, net 36,525 ( 17,090)
Inventory ( 44,393) 67,822
Prepaid income taxes ( 13,514) 16,471
Prepaid expenses ( 3,895) 1,143
Accrued interest 1,692 ( 4,987)
Increase (Decrease) in Current Liabilities:
Accounts payable, accrued expenses
and other current liabilities ( 7,738) 22,317
Accrued federal income taxes ( 58,665) 35,400
-------- --------
$ 47,170 $ 293,996
-------- --------
CASH FLOWS PROVIDED (USED) IN
INVESTING ACTIVITIES:
Additions to property and equipment $ ( 23,380) $ ( 22,259)
Refund of Deposits 0 184
Marketable Securities 0 ( 8,574)
Certificate of Deposit classified as
cash equivalent 102,000 0
Proceeds from sale of Marketable
Securities 117,595 0
-------- ---------
$ 196,215 $ ( 30,649)
-------- ---------
CASH FLOWS PROVIDED (USED) IN
FINANCING ACTIVITIES:
Proceeds from Note Receivable 3,449 462
Repurchase of Common Stock ( 9,821) 0
-------- ---------
$ ( 6,372) $ 462
-------- ---------
Net increase in cash and cash equivalents $ 237,013 $ 263,809
Cash and cash equivalents at beginning
of period 1,162,726 769,967
---------- ----------
Cash and Cash equivalents at end of period $ 1,399,739 $1,033,776
========== ==========
</TABLE>
(See "Notes to Financial Statements")
<PAGE>
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
<TABLE>
STATEMENT OF CASH FLOWS
(continued)
(as prepared by Management)
(Unaudited)
<CAPTION>
SIX MONTHS ENDED June 30, 1996 June 30, 1995
------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
INFORMATION:
<S> <C> <C>
Cash paid year to date:
Interest $ 0 $ 0
Federal income taxes $ 134,865 $ 30,329
======== =======
Cash and Cash Equivalents:
Cash $ 11,115 $ 10,616
Money market accounts 470,774 519,290
Certificates of Deposit 517,850 103,870
Banker Acceptances 400,000 400,000
--------- ---------
$1,399,739 $1,033,776
========= =========
</TABLE>
(See "Notes to Financial Statements")
<PAGE>
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
(as prepared by Management)
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The condensed financial statements of Electronic Systems Technology, Inc.
(the "Company"), presented in this Form 10Q are unaudited and reflect, in the
opinion of Management, a fair presentation of operations for the three and
six month periods ending June 30, 1996 and June 30, 1995. Certain information
and footnote disclosure normally included in financial statements prepared in
accordance with generally accepted accounting principals have been condensed
or omitted pursuant to the applicable rules and regulations of the Securities
and Exchange Commission. In preparation of the condensed financial
statements, certain amounts and balances have been restated from previously
filed reports to conform with the condensed format of the 1996 presentation.
These condensed financial statements should be read in conjunction with the
audited financial statements and notes thereto included in the Company's Form
10K for the year ended December 31, 1995 as filed with Securities and
Exchange Commission.
The results of operation for the three and six month periods ended June 30,
1996 and June 30, 1995, are not necessarily indicative of the results
expected for the full fiscal year or for 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:
June 30 December 31
1996 1995
----------- --------------
Parts $ 252,483 $ 198,487
Work in progress 9,068 0
Finished goods 79,879 98,550
--------- ---------
$ 341,430 $ 297,037
========= ========
NOTE 3 - EARNINGS PER COMMON SHARE
Primary earnings per common share are based on the weighted average number
of shares outstanding during the period after consideration of the dilutive
effect on stock options and restricted stock awards. The primary weighted
average number of common shares outstanding was 5,463,948 and 5,357,078 for
the quarters ended June 30, 1996 and June 30, 1995, respectively. Also,
fully diluted earnings per common share assume conversion of derivative
securities when the result is dilutive.
NOTE 4 - STOCK OPTIONS
As of June 30, 1996, the Company had outstanding stock options which have
been granted periodically to individual employees and directors with no less
than three years of continuous tenure with Company. On February 9, 1996,
additional stock options to purchase shares of the Company's common stock
<PAGE>
were granted to individual employees and directors with no less than three
years continuous tenure. The options granted on February 9, 1996 totaled
200,000 shares under option and have an exercise price of $0.42 per share.
The options granted on February 9, 1996 may be exercised any time during the
period from February 9, 1996 through February 8, 1999. The Company's Form 8-
K dated February 9, 1996, as filed with the Securities and Exchange
Commission is included herein by reference. All outstanding stock options
must be exercised within 90 days after termination of employment.
During the 12 month period from June 30, 1995 to June 30, 1996, 125,000
shares under option expired, no shares under option were exercised, and
200,000 shares under option were granted. At June 30, 1996 there were
525,000 shares under option reserved for future exercises.
NOTE 5 - RELATED PARTY TRANSACTIONS
For the six month period ended June 30, 1996, services in the amount of
$26,626, were contracted with Manufacturing Services, Inc., of which the
owner/president is a member of the Board of Directors of the Company.
NOTE 6 - MARKETABLE SECURITIES
The Company has adopted SFAS No. 115, Accounting for Certain Investments in
Debt and Equity Securities. SFAS No. 115 establishes generally accepted
accounting principles for the financial accounting, measurement and
disclosure principals for (1) investments in equity securities that have
readily determinable fair market value and (2) all investments in debt
securities. The change had no effect on prior year's results. All of the
marketable securities held by the Company consisted of securities
"available-for-sale", as defined by SFAS No. 115. The securities held
determined in computing realized gain or loss is the specific
identification method. During 1995, a total loss of $49,953 was recognized
by the Company due to impairment of the value of the marketable securities
held by the Company. As of March 31, 1996, the Company had liquidated its
marketable securities investment. A summary of the Company's marketable
security investment activity as of June 30, 1996 is shown below:
June 30, December 31,
1996 1995
--------- ------------
Aggregate fair value of marketable
securities $ 0 $ 121,117
Gross unrealized holding gains -- --
Gross unrealized holding losses -- --
Gross realized loss due to impairment
in Marketable Securities -- 49,953
Amortized cost basis 0 171,070
<PAGE>
Changes in marketable securities for the period ended June 30, 1996 are as
follows:
June 30, December 31,
1996 1995
--------- ------------
Cost $ 171,070 $ 153,726
Purchase of shares -- --
Dividends and capital gains reinvested -- 17,344
Sale of securities ( 117,595) --
Realized loss due to impairment of
marketable securities ( 49,953) (49,953)
Realized loss on sale of securities ( 3,522) --
---------- ---------
Fair market value $ 0 $ 121,117
========== =========
The Company was included in the class action suit settlement against the
manager of the Company's marketable securities investments, Piper Jaffray.
In February 1996, the Company received the first payments pursuant to this
settlement in the amount of $3,700 and expects to receive annual settlements
of similar amounts over the next three years.
NOTE 7 - APPROPRIATED RETAINED EARNINGS
On March 26, 1996, the Company's Board of Directors authorized the
establishment of a plan for the repurchase of the Company's common stock.
Pursuant to the Plan, the Company could repurchase shares of its common
stock in open market transactions through brokers and dealers, up to the
amount allocated by the Plan of $100,000. Repurchase transactions could
continue through June 30, 1996. At the time of establishment of the stock
repurchase Plan by the Company, amounts equal to those allocated by the
Plan were appropriated in the Company's retained earnings reserve and will
be distributed from the Company's cash reserves as necessary to fund the
stock repurchase Plan. As of June 30, 1996, $9,821 of the allocated funds
had been expended by the Company to repurchase a total of 20,000 shares.
The transactions for shares repurchased under the Plan were completed by
June 30, 1996. The subject shares were either canceled from the Company's
outstanding shares or were in transit to the Company's transfer agent for
cancellation, and were therefore removed from the Company's outstanding
common shares for June 30, 1996. On June 6, 1996, the Company's Board of
Directors authorized the establishment of a plan for the repurchase of the
Company's common stock with terms and conditions identical to the plan
expiring June 30, 1996. The plan approved June 6, 1996 will be in effect
from July 1, 1996 through September 30, 1996. The Company's Forms 8-K
dated March 26, 1996, and June 6, 1996, as filed with the Securities and
Exchange Commission, are included herein by reference.
<PAGE>
ITEM II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Management's discussion and analysis is intended to be read in conjunction
with the Company's unaudited financial statements and the integral notes
thereto for the quarter ending June 30, 1996. The following statements may
be forward looking in nature and actual results may differ materially.
A. Results of Operations
REVENUES:
Total revenues from the sale of the Company's ESTeem(TM) wireless modem systems,
accessories, and services decreased to $317,426 for the second quarter of
1996 as compared to $525,962 in the second quarter of 1995, reflecting a 40%
decrease. Gross revenues decreased to $390,218 for the quarter ending June
30, 1996, from $539,825 for the same quarter of 1995. This decrease is
attributable to an overall softening of orders from the industrial market
sector for both domestic and export customers in the second quarter of
1996, as well as orders placed during the quarter being of higher volume,
and therefore resulting in lower sales prices due to volume discounts.
The Company's revenues fall into three major customer categories, Domestic,
Export and U.S. Government Sales. Domestic commercial sales decreased to
$142,023 in the second quarter of 1996 as compared to $293,000 for the second
quarter of 1995. Foreign export sales for the second quarter of 1996
decreased to $43,091 as compared to the $86,117 in the same quarter of 1995
due to low sales to customers in Croatia and Slovenia. U.S. Government
sales of $132,318 remained strong in the second quarter of 1996, a slight
decrease from second quarter 1995 figure of $152,529 which was effected by
the processing of an unusually large order for the United States Marine
Corps. The decrease in engineering services from $48,475 as of June 30,
1995, to $23,722 as of June 30, 1996, is a result of a decrease in the size
and scope of engineering services requested when compared with the second
quarter of 1995. During the quarter ending June 30, 1996, sales to U.S.
Government programs and customers comprised 42% of the Company's product
sales. Sales to P&H Harnischfeger, Inc., resulted in 14% of the Company's
product sales, a concentration which is due to lower overall sales volume
in the second quarter, and a higher than usual concentration of sales from
that particular customer. No other sales to a single customer comprised
10% or more of the Company's product sales for the quarter ending June 30,
1996.
A percentage breakdown of EST's major customer categories of Domestic,
Export and U.S. Government Sales, for the second quarter of 1996 and 1995
are as follows:
For the second quarter of
1996 1995
------- -------
Domestic Sales 45% 55%
Export Sales 13% 16%
U.S. Government Sales 42% 29%
<PAGE>
A percentage breakdown of EST's product sales categories for the second
quarter of 1996 and 1995 are as follows:
For the second quarter of
1996 1995
-------- -------
ESTeem Model 84SP/85SP - 2%
ESTeem Model 85 9% 7%
ESTeem Model 95 49% 26%
ESTeem Model 96 12% 34%
ESTeem Model 98 - 1%
PEM and PEM-CPU less than 1% 1%
ESTeem Accessories 20% 19%
Factory Services 2% 1%
Site Support 8% 9%
Sales include foreign export sales as follows:
Six Months Ended June 30 June 30
1996 1995
-------- --------
Export sales $ 94,859 $ 133,760
Percent of sales 14% 16%
The geographic distribution of foreign sales for the first quarter of 1996
and 1995 is as follows:
Percent of Foreign Sales
------------------------
June 30 June 30
COUNTRY 1996 1995
------- -------- --------
Slovenia/Croatia 32% 28%
Mexico 26% 10%
Brazil 25% 9%
Canada 6% 28%
Ecuador 6% --
Israel 5% --
Venezuela less than 1% --
Taiwan -- 9%
Singapore -- less than 1%
Chile -- 16%
The bulk of the Company's domestic sales for the second quarter of 1996
continue to be used in Supervisory Control and Data Acquisition (SCADA)
applications. It is Management's opinion that these applications will
continue to provide the largest portion of the Company's domestic sales
revenues in the foreseeable future. Products purchased by foreign customers
in the second quarter of 1996 were used primarily in Industrial Control
applications. In Management's opinion, these applications will continue to
provide the largest portion of the Company's foreign revenues in the
foreseeable future. Products purchased by U.S. Government agencies or by
U.S. Government contractors continue to be used primarily in Inventory
Control.
The Company's subcontract, dated December 23, 1993, with UNISYS is a five
year indefinite delivery, indefinite quantity, fixed price contract through
September 1997. Based on the terms of the UNISYS contract, and contracts of
this type in general, Management does not base liquidity, profitability, or
<PAGE>
material purchase projections on anticipated sales. The Company's economic
position allows it to respond to UNISYS orders on an as needed basis. It is
Management's opinion that due to the nature of this contract, sales or timing
of orders, if any, pursuant to the contract cannot be predicted.
The Company's AIT subcontract, dated July 26, 1994, with INTERMEC is a five
year indefinite delivery, indefinite quantity, fixed price contract through
September 1999. Based on the terms of the AIT contract, and contracts of
this type in general, Management does not base liquidity, profitability, or
material purchase projections on anticipated sales. The Company's economic
position allows it to respond to AIT orders on an as needed basis. It is
Management's opinion that due to the nature of this contract, sales or timing
of orders, if any, pursuant to the contract cannot be predicted.
Based on previous years activity, the majority of all Federal government
purchases are under the Company's GSA contract. Projections regarding
liquidity, profitability, and material purchases are based on past history of
annual purchases. Historically Federal sales average approximately 18% of
annual sales, but this level cannot be guaranteed. Due to the uncertain
nature of Federal purchasing, procurement of material and production planning
is adjusted quarterly based on demand. It is Management's opinion that the
majority of Federal purchases in 1996 will be under this contract.
The Company's revenues have historically fluctuated from quarter to quarter
due to timing factors such as customer order placement and product
shipments to customers, as well as customer buying trends, and changes in
the general economic environment. The procurement process regarding plant
and project automation, or project development, which usually surrounds the
decision to purchase ESTeem products can be lengthy. This procurement
process may involve bid activities unrelated to the ESTeem products, such
as additional systems and subcontract work, as well as capital budget
considerations on the part of the customer. Because of the complexity of
this procurement process, forecasts in regard to the Company's revenues
become difficult to predict.
BACKLOG:
The Corporation had no backlog at June 30, 1996. Customers generally place
orders on an "as needed basis". Shipment is generally made within 5
working days after receiving an order.
COST OF SALES:
Cost of sales percentages of gross sales for the second quarters of 1996
and 1995 were 44% and 37% of gross sales respectively. Cost of Sales
variations are attributed to the type of product sold and the size of the
order. Larger orders grant lower sales prices because of volume
discounting, thus reducing the margin of profit. High sales volume to the
U.S. Government in the second quarter of 1996, resulted in deeper volume
discounting on the Company's sales prices, which resulted in the cost of
sales increasing when compared with the same quarter of 1995.
<PAGE>
OPERATING EXPENSES:
Operating expenses for the second quarter of 1996 were $24,756 higher than
the second quarter of 1995. The following is a delineation of operating
expenses:
For the quarter ended: June 30 June 30 Increase
1996 1995 (Decrease)
---------- --------- -----------
Finance/Administration $ 39,185 $ 38,765 $ 420
Research/Development 31,487 14,076 17,411
Marketing 56,963 55,237 1,726
Customer Service 15,889 10,690 5,199
-------- -------- --------
Total Operating Expenses $143,524 $118,768 $ 24,756
======== ======= =======
FINANCE AND ADMINISTRATION:
During the second quarter of 1996 Finance and Administration expenses
increased $420 over the second quarter of 1995.
RESEARCH AND DEVELOPMENT:
The Company has under development a new generation of ESTeem products
planned to replace existing product lines in the VHF and UHF ESTeem radio
modem product categories, and are targeted for applications within the
Industrial Control and Federal markets. The new generation of products
were originally scheduled for release during the second quarter of 1996,
but due to delays from third-party service providers, as well as
orientation and instruction issues surrounding the use of surface mount
technology. Product releases are now scheduled for the third quarter of
1996. The new generation of products described above are currently under
development and have to date not received required FCC Type Acceptance.
During the second quarter of 1996, Research and Development expenses
increased $17,411 as compared to the same period in 1995. This increase is
due to increased devoted in-house labor as well as subcontracted Research and
Development expertise associated with the development of the Company's new
generation of products as compared with the same period in 1995. Management
foresees increased Research and Development expenditures on a whole during
1996.
MARKETING:
During the second quarter of 1996, marketing expenses increased $1,726 over
the same period in 1995. This increase is attributable to a combination of
increased in-house manpower being used by the department and increased
travel expenses for the second quarter of 1996 when compared with the same
quarter of 1995.
CUSTOMER SERVICE:
Customer service expenses increased by $5,199 in the second quarter of 1996
as compared with the same period of 1995. The increase is attributable
mainly to increased devoted in-house labor in the customer service
department during the second quarter of 1996 as compared with the same
quarter of 1995.
<PAGE>
INTEREST INCOME:
The Corporation earned $15,588 in interest income during the quarter ending
June 30, 1996. Sources of this income were savings and money market
accounts, and short term investments.
ENGINEERING SUPPORT:
Engineering support costs decreased to $20,951 for the quarter ended June
30, 1996, as compared to $37,211 for the same period of 1995. This
decrease in engineering support costs for the second quarter of 1996 is a
result of an overall decrease in engineering services requested by
customers when compared with the second quarter of 1995.
NET INCOME:
The Corporation had a net income of $62,851 for the second quarter of 1996,
compared to a $89,345 net income for the same quarter of 1995. The net
income decrease is attributed to decreased revenues from product sales and
engineering services, as well as increased operating expenses, as described
above.
B. Financial Condition as of June 30, 1996.
The Corporation's current asset to current liabilities ratio at June 30, 1996
was 28:1 compared to 19:1 at December 31, 1995. The increase in current
ratio is primarily attributable to decreases in trade accounts payable and
federal income tax liability as compared with year-end 1995.
For the quarter ending June 30, 1996, the Company had cash and cash
equivalent short-term investment holdings of $1,399,739 as compared to cash
and cash equivalent holdings of $1,162,726 at December 31, 1996. This
increase is attributable to a certificate of deposit being classified as a
cash equivalent due to approaching maturity, and proceeds received by the
Company from the sale of its marketable securities investment held at year-
end 1995.
Accounts receivable decreased to $121,395 as of June 30, 1996, from
December 31, 1995 levels of $157,920, due to decreased sales revenues
during the second quarter. Management believes that all of the Company's
accounts receivable as of June 30, 1996 are collectible. During the second
quarter of 1996, the Company received payment from Diversified Engineering
in the amount of $57,204 for amounts owed the Company since mid-year 1995.
This amount was recognized as uncollectible accounts recovered as is shown
in the "other income" section of the condensed statement of operations as
of June 30, 1996. Due to the doubtful nature of payment by Diversified,
the Company had recognized a bad debt expense for the amounts owed as of
December 31, 1995. The interest owed by Diversified Engineering was
waived in the interest of final settlement of the payment issue.
On May 31, 1991 the Corporation received a Promissory Note from Western
Data Com in the amount of $31,491 to cover its outstanding accounts
receivable balance. The Company had received $30,679 from Western Data Com
prior to April 25, 1996. On April 25, 1996, the Company received $3,656
from Western Data Com in full settlement of the outstanding portion of the
Promissory Note.
<PAGE>
Inventory increased to $341,430 at June 30, 1996, from December 31, 1995
levels of $297,037 due to lower than expected sales and procurement of
components for production of the Company's new generation of products,
scheduled for release in the third quarter of 1996. It is Management's
opinion that inventory levels will increase significantly in 1996 as
components are procured for the production of these new products. Prepaid
expenses increased from December 31, 1995 levels of $4,134 to $8,029 as of
June 30, 1996, due mainly to annual insurance policy renewals and prepaid
fees for tradeshows to be attended later in 1996.
The Company's fixed assets increased to $324,127 as of June 30, 1996, from
December 31, 1995 levels of $300,747, resulting in capital expenditure of
$23,380. These expenditures consisted mainly of upgrade and expansion of
the Company's tradeshow display, as well as computer network upgrades, and
production support equipment.
As of June 30, 1996, the Company's trade accounts payable balances were
$49,554 as compared with $56,493 at December 31, 1995, and reflects amounts
owed for capital expenditures and purchasing for inventory stocks. Federal
income taxes payable decreased from $58,665 at December 31, 1995, to a
prepaid tax asset of $13,514 as of June 30, 1996, due to the Company making
tax payments for amounts due at year end 1995, as well as scheduled
estimated tax payments for 1996.
It is Management's opinion that the Company's cash and cash equivalent
reserves, and working capital at June 30, 1996 is sufficient to satisfy
requirements for operations, capital expenditures, and other expenditures
as may arise within 1996.
FORWARD LOOKING STATEMENTS: The above discussion may contain forward looking
statements that involve a number of risks and uncertainties. In addition to
the factors discussed above, among other factors that could cause actual
results to differ materially are the following: competitive factors such as
rival wireless architectures and price pressures; availability of third party
component products at reasonable prices; inventory risks due to shifts in
market demand and/or price erosion of purchased components; change in product
mix, and risk factors that are listed in the Company's reports and
registration statements filed with the Securities and Exchange Commission.
<PAGE>
PART II
OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27. Financial Data Schedule, June 30, 1996
Exhibit 27. Financial Data Schedule, June 30, 1995 (restated)
Exhibit 27. Financial Data Schedule, September, 1995 (restated)
Exhibit 27. Financial Data Schedule, March 31, 1996 (restated)
(b) Reports on Form 8-K
Form 8-K/A dated February 9, 1996 is incorporated herein by reference.
Form 8-K dated February 9, 1996 is incorporated herein by reference.
Form 8-K dated March 21, 1996 is incorporated herein by reference.
Form 8-K dated March 26, 1996 is incorporated herein by reference.
Form 8-K dated April 5, 1996 is incorporated herein by reference.
Form 8-K/A dated April 12, 1996 is incorporated herein by reference.
Form 8-K dated May 1, 1996 is incorporated herein by reference.
Form 8-K dated May 14, 1996 is incorporated herein by reference.
Form 8-K dated May 17, 1996 is incorporated herein by reference.
Form 8-K dated June 6, 1996 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 Jul 12, 1991 is incorporated herein by reference.
Form 8-K dated Dec 14, 1992 is incorporated herein by reference.
Form 8-K dated Dec 10, 1993 is incorporated herein by reference.
Form 8-K/A dated Feb 3, 1995 is incorporated herein by reference.
Form 8-K dated Feb 9, 1996 is incorporated herein by reference.
11. Statement Re: computation of per share earnings
Note 3 to Financial
Statements
<PAGE>
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.
T. L. KIRCHNER
Date: August 7, 1996 Name: T.L. Kirchner
Title: Director/President
(Principal Executive Officer)
ROBERT SOUTHWORTH
Date: August 9, 1996 Name: Robert Southworth
Title: Director/Secretary/Treasurer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM BALANCE SHEET, STATEMENT OF OPERATIONS, AND
STATEMENT OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10QSB, FOR JUNE 30, 1996.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,399,739
<SECURITIES> 0
<RECEIVABLES> 122,679
<ALLOWANCES> 1,284
<INVENTORY> 341,430
<CURRENT-ASSETS> 1,891,447
<PP&E> 324,127
<DEPRECIATION> 170,060
<TOTAL-ASSETS> 2,052,710
<CURRENT-LIABILITIES> 67,189
<BONDS> 0
<COMMON> 4,987
0
0
<OTHER-SE> 1,980,534
<TOTAL-LIABILITY-AND-EQUITY> 2,052,710
<SALES> 645,760
<TOTAL-REVENUES> 802,256
<CGS> 254,812
<TOTAL-COSTS> 311,192
<OTHER-EXPENSES> 86,352
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 180,848
<INCOME-TAX> 62,686
<INCOME-CONTINUING> 118,162
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 118,162
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM BALANCE SHEET, STATEMENT OF OPERATIONS, AND
STATEMENT OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10QSB, FOR JUNE 30, 1995.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 1,033,776
<SECURITIES> 114,049
<RECEIVABLES> 185,415
<ALLOWANCES> 4,014
<INVENTORY> 356,110
<CURRENT-ASSETS> 1,698,962
<PP&E> 260,488
<DEPRECIATION> 144,856
<TOTAL-ASSETS> 1,823,940
<CURRENT-LIABILITIES> 90,914
<BONDS> 0
<COMMON> 5,007
0
0
<OTHER-SE> 1,717,469
<TOTAL-LIABILITY-AND-EQUITY> 1,823,940
<SALES> 739,626
<TOTAL-REVENUES> 855,408
<CGS> 284,901
<TOTAL-COSTS> 357,909
<OTHER-EXPENSES> 56,015
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 195,205
<INCOME-TAX> 82,200
<INCOME-CONTINUING> 113,005
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 113,005
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM,
BALANCE SHEET, STATEMENT OF OPERATIONS, AND STATEMENT OF CASH FLOWS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10QSB, FOR SEPTEMBER
30, 1995.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 943,943
<SECURITIES> 117,253
<RECEIVABLES> 317,179
<ALLOWANCES> 4,014
<INVENTORY> 332,715
<CURRENT-ASSETS> 1,825,473
<PP&E> 272,049
<DEPRECIATION> 150,742
<TOTAL-ASSETS> 1,955,667
<CURRENT-LIABILITIES> 117,224
<BONDS> 0
<COMMON> 5,007
0
0
<OTHER-SE> 1,822,886
<TOTAL-LIABILITY-AND-EQUITY> 1,955,667
<SALES> 1,154,290
<TOTAL-REVENUES> 1,308,030
<CGS> 446,937
<TOTAL-COSTS> 540,876
<OTHER-EXPENSES> 92,322
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 355,545
<INCOME-TAX> 136,715
<INCOME-CONTINUING> 218,830
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 218,830
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONDENSED BALANCE SHEET, STATEMENT OF OPERATIONS, AND STATEMENT OF CASH
FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10QSB,
FOR MARCH 31, 1996.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,378,218
<SECURITIES> 0
<RECEIVABLES> 192,031
<ALLOWANCES> 1,284
<INVENTORY> 279,740
<CURRENT-ASSETS> 1,870,898
<PP&E> 464,075
<DEPRECIATION> 162,638
<TOTAL-ASSETS> 2,017,352
<CURRENT-LIABILITIES> 84,862
<BONDS> 0
<COMMON> 5,007
0
0
<OTHER-SE> 1,927,483
<TOTAL-LIABILITY-AND-EQUITY> 2,017,352
<SALES> 352,057
<TOTAL-REVENUES> 412,037
<CGS> 124,299
<TOTAL-COSTS> 159,727
<OTHER-EXPENSES> 39,154
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 85,618
<INCOME-TAX> 30,308
<INCOME-CONTINUING> 55,310
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,310
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
