U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) of the SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
ACT OF 1934
For the transition period to
Commission file number 2-92949-S
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
(Name of small business issuer in its charter)
Washington 91-1238077
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
415 N. Quay St., Kennewick , Washington 99336
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (509) 735-9092
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: None
Check whether the issuer (1) filed all reports required 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 [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulations S-B is met contained in this form, and no
disclosure will be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-KSB or any amendment to this
Form 10-KSB. [ ] Not applicable [X]
State issuer's revenues for its most recent fiscal year. $1,476,487.
----------
On January 29, 1998 the aggregate market value, based on the average
of the bid and asked Price, of the voting stock held by nonaffiliates
of the registrant was $1,611,275.
The number of shares outstanding of the registrant's common stock as
of January 29, 1998: 4,953,667 shares.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference into Parts I,
II, III, and IV of this report: (1) Form S-18, effective Nov. 5, 1984,
Commission File No. 2-92949-S; (2) Form 8-K, filed March 15, 1985,
Commission File No. 2-92949-S; Forms 8-K dated July 12, 1991, December
14, 1992, December 10, 1993, Form 8-K/A, dated February 3, 1995, and
Forms 8-K, dated February 9, 1996, February 7, 1997, and February 6,
1998.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE>
PART I
ITEM 1
FORWARD LOOKING STATEMENTS:
When used in this Annual Report and the documents incorporated herein by
reference, the words "believes", "anticipates", "expects" and similar
expressions are intended to identify in certain circumstances, forward-
looking statements. Such statements are subject to a number of risks and
uncertainties that could cause actual results to differ materially from
those projected, including the risks described in this Annual Report.
Given these uncertainties, readers are cautioned not to place undue
reliance on such statements. The Company also undertakes no obligation
to update those forward-looking statements.
BUSINESS
Electronic Systems Technology, Inc. ("EST" or the "Company") specializes
in the manufacturing and development of wireless modem products. The
Company uses its research and development, manufacturing, and marketing
efforts to produce and market the Company's line of ESTeem (TM) Wireless
Modem products and accessories. The Company offers a product line which
provide innovative communication solutions for applications not served by
existing conventional communication systems. The product line is offered
in the growing markets for process automation in commercial, industrial,
and government arenas domestically, as well as internationally. The
Company's product line is marketed through direct sales, sales
representatives, Original Equipment Manufacturers (OEM's), and domestic,
as well as foreign, resellers.
The Company was incorporated in the State of Washington in February,
1984, and was granted a U.S. Patent for the "Wireless Computer Modem" in
May 1987, and the Canadian patent in October 1988. In the past three
years, the Company has continued to improve its products to incorporate
the latest technology and respond to customer needs and market
opportunities. Most recently and significantly, the Company developed a
new generation of faster, more flexible, ESTeem products, the ESTeem 192
series, which were released in the fourth quarter of 1996, and available
for volumes sales in 1997. The Company has continually expanded its
customer base, particularly in the industrial controls arena with efforts
to team with all major programmable logic controller (PLC) hardware
vendors. The Company has also been involved as a hardware provider for
Government programs such as the Core Automated Maintenance System (CAMS)
for the U.S. Air Force, and Automatic Identification Technology (AIT)
for the U.S. Army. In 1997, the Company continued to participate in
foreign and domestic Supervisory Control and Data Acquisition (SCADA),
Industrial Controls, and Government marketplaces.
PRODUCTS AND MARKETS
EST's products provide communication links between computers,
peripherals, and instrumentation controls using radio frequency waves.
The Company's products are a family of narrow band, packet burst, VHF &
UHF FM radio modems, operating in radio frequency bands between 72 to 76
Megahertz (MHz), 406 to 420 MHz, and 450 to 470 MHz.
The ongoing revolution of computer applications in business and
industrial environments is constantly redefining the boundaries of
<PAGE>
automation and network capabilities and continuously increasing the
requirements on data transfer. Prior to the invention of the ESTeem
modem, the majority of data transfers used telephone modems or direct
cable connections. These alternatives both had costly side effects.
When utilizing telephone modems, there is a monthly charge for the use of
telephone lines. When using direct cable connections, the cost of
installing cable systems usually costs as much or more than the cost of
the communication system. ESTeem wireless modem products provide a
"Wireless Solution" by eliminating the need for conventional hardwiring
and leased phone lines.
All of the ESTeem models ("ESTeems") come with the industry standard
asynchronous communications ports to give the user a new dimension to
"Local Area Networking". As many as 253 devices can be interfaced on a
single frequency. ESTeem wireless modems have over one hundred internal
software commands to allow the user to easily configure the unit for any
application or use. The ESTeem setup parameters are saved in its own
non-volatile memory.
ESTeem Modems work on a packet burst communications concept. Packet
systems, whether hardwired or radio, share the same principle of
operation: data is taken from a standard RS-232C or RS-422 asynchronous
port and is transmitted in "Electronic Packets" (i.e. electronic packets
of information). The size of the packet can be defined by the user from
1 to 1010 bytes of information. Once a packet of data is formed, it is
transmitted in a "burst," from one ESTeem modem to another ESTeem modem,
hence the term "packet burst communications." ESTeem Modems provide data
accuracy of greater than one part in 100 million. The ESTeems have
frequency agility in the VHF and UHF frequency ranges. Internal
Digi-Repeater features allow the user to increase operating range by
relaying transmission through a maximum of three ESTeems to reach the
destination ESTeem. An ESTeem can operate as an operating node, a
repeater node, or both simultaneously, for added flexibility. Secure
data communication is provided in the ESTeem products through the use of
proprietary technology and techniques, providing users of the products
four definable security codes. If higher security is required, the
ESTeem is compatible with asynchronous Data Encryption Standard (DES)
encryption devices.
PRODUCT APPLICATIONS
Some of the major applications and/or industries for which the ESTeem
products are being utilized are as follows:
Water and Waste Water Industry Overhead Crane Control
Industrial Process Control Shop Floor Manufacturing
Remote Data Acquisition (SCADA) Intra-Office/Building Computer Networking
Law Enforcement/Public Safety
Power Utility Federal
Oil/Gas Pipeline Ground Mobile Communications
Material Handling Ship to Shore Communications
Flight Line Maintenance
<PAGE>
PRODUCT LINES
VHF RADIO MODEM PRODUCTS: The ESTeem VHF radio modem products are the
ESTeem Model 95 and Model 192V which operate in the mid 60-70 MHz band of
the VHF RF spectrum.
The standard production units of the ESTeem Model 95 and 192V are
configured to operate in the lower 70 MHz spectrum. The frequency and
receiver sensitivity of the ESTeem 95 are software selectable, and
includes a device for examining the received signal strength of the
radio. The ESTeem 192V has a data rate of 19,200 bits per second
(bps), which is four times faster than the ESTeem 95 data rate. The
ESTeem 192V also features infrared and optional telephone interfaces
which are not available on the ESTeem 95 products. Listed below
are the major markets for these products:
Domestic: Industrial process control, SCADA, inventory control,
water/waste water, overhead crane, shop floor manufacturing.
International: Telephone by-pass, industrial control, and SCADA.
Federal: Inventory and command control.
UHF RADIO MODEM PRODUCTS: Operating in the lower 400 MHz federal radio
band, and the mid to upper 400 MHz commercial radio band of the UHF RF
spectrum. The ESTeem UHF radio modem products are the ESTeem Model 192C,
192F, 96F, and 96C.
The UHF radio modem products, ESTeem Models 192C, 192F, 96F, and 96C,
have the same features as the VHF radio modem products, but were
designed to operate in the lower 400 and upper 400 MHz areas of the
UHF RF spectrum. The ESTeem 192C and 192F product lines are
differentiated from the other ESTeem 96C and 96F products by having a
data rate of 19,200 bps, which is four times faster than the data
rates of the 96C and 96F products, the 192C and 192F products contain
infrared and optional telephone interfaces not available on the 96C
and 96F products. The ESTeem 192C and 96C were designed to operate
in business radio bands of upper 400 MHz. The ESTeem Model 192F and
96F were designed to operate in U.S. Government radio bands of lower
400 MHz. All of the UHF radio modem products have the additional
capability of RF output power from two to four watts depending on
customer licensing. Listed below are the major markets for these
products:
Domestic: Industrial control, SCADA, inventory control, water/waste
water, power utility, oil/gas pipeline, law enforcement
and public safety.
International: Telephone by-pass, industrial control and SCADA.
Federal: Inventory and command control.
SPECIALTY MODEM PRODUCTS: Network enhancing products using ESTeem modem
technology. The ESTeem specialty modem products are the ESTeem Model
84SP, 85SP and Port Expansion Module.
The ESTeem Models 84SP and 85SP are special purpose version
developments of the ESTeem Model 95 without the radio transceiver
circuitry. In place of the transceiver card is a universal interface
card that allows the use of a customer's full- or half-duplex radio
transceiver, turning it into a packet burst communications device.
The Model 85SP is a lower cost version of the 84SP and contains only
the necessary circuitry for interfacing to direct digital modulated
<PAGE>
radios. The major market for these products are civilian SCADA and
public safety applications.
The ESTeem Port Expansion Module (PEM) is designed to allow a single
ESTeem model 95 or 96 product to have up to eight independent RS-
232/422 communications ports. The PEM is designed with interfaces to
be cascaded to additional PEM modules to increase the communications
ports in multiple groups of eight. The major market for this product
is main frame to remote terminal applications in the Domestic,
Foreign, and Federal markets.
ADDITIONAL PRODUCTS AND SERVICES
The Company sells various accessories which support its EST
product lines. Accessories are purchased from other
manufacturers and resold by EST to support the application of
ESTeem modems. Antennas, power supplies and cable assemblies
are examples of such items. The Company also provides Factory
Services, such as repair and upgrade of ESTeem products. To
assist in the application of ESTeem wireless modems the Company
provides professional services, site survey testing, system
start-up, and custom engineering services.
RESEARCH AND DEVELOPMENT AND NEW PRODUCTS
The Company's products compete in the rapidly changing technology
environment of the communications industry, where standards and
technologies are subject to rapid and unexpected changes. This
environment results in it being necessary for the Company to be
continually updating and enhancing existing products, as well as
developing new products in order to remain competitive. Research and
Development expenditures for new product development and improvements of
existing products by the Company for 1997 and 1996 were $128,110 and
$135,468, respectively. None of the Company's research and development
expenses are directly paid for by any of the Company's customers. In
1997, the Company continued to contract with an independent,
nonaffiliated, engineering company specializing in radio design, when
that expertise was required.
During 1997, the Company completed development of the ESTeem 192V radio
modem, which is an evolution of the ESTeem 192C and 192F radio modems
developed during 1996, and brought to market during 1997. The ESTeem
192V is designed to be a higher data rate complement in the VHF radio
frequency spectrum, comparable to the ESTeem 192C and 192F radio modems
in the UHF radio frequency spectrum. Development has commenced on the
ESTeem 192M product line, which will have features similar to previous
ESTeem 192 models, but for operation in the mid range VHF spectrum not
covered by the Company's existing products. The Company has undertaken
an investigation as to the feasibility of the development of a radio
modem product using spread spectrum technology as a complement to
existing products offered by the Company. The Company plans on
continued research and development expenditures and to undertakes new
development and improvement projects as they become necessary.
<PAGE>
MARKETING, CUSTOMERS AND SUPPORT
The majority of the Company's products are sold and distributed directly
from the Company's facility through direct sales to end users of the
ESTeem products. The remainder of the Company's sales are through non-
exclusive, non-stocking Resellers, and Original Equipment Manufacturers
(OEM's). Normally, seventy-one percent of the Company's products are
distributed through direct sales and twenty-nine percent are through
Reseller and OEM entities. Customers generally place orders on an "as
needed basis". Shipping dates for most products are generally within 5
working days after receipt of an order. As of December 31, 1997, the
Company had a backlog of $181,000, for orders placed late in December.
The majority of these orders were shipped during January, 1998.
During 1997, the Company continued to advertise in trade publications
specifically targeted at users of control, instrumentation, and
automation systems worldwide. The Company's advertising is targeted
toward customers using Programmable Logic Controllers (PLCs). There are
approximately twenty-five major PLC manufacturers worldwide. The Company
also attends tradeshows each year specifically targeted toward the
customers and markets in which it sells products. During 1998, the
Company intends to implement marketing plans specifically targeted at the
high growth potential market segments of the recently deregulated power
utility marketplace, and Mobile Data Computers for public safety
networks. The Company maintains an Internet web site to provide easy
access to product and technical information for both present and
potential customers of the Company's products. The Company provides
technical support and service for its products through phone support,
field technicians, and Internet sources. The Company believes high
quality customer and technical support is necessary and vital to its
business and the markets in which it competes. To maintain this high
level of customer support the Company has in the past, and will continue
in the future, to make investments and expenditures in support of its
customer service programs.
The Company is continuing its Government sales activities which are
directed towards all branches of the United States Armed Services.
Examples of projects the Company's products are included in are; flight-
line maintenance for the United States Air Force, flight-line lighting
for the United States Navy, command and inventory control for the United
States Marine Corps, and the Automatic Identification Technology program
for the United States Army.
For the year ended December 31, 1997, the largest sales concentration
were to entities of the United States Government, which amounted to 18%
of total product sales for the year. Foreign sales were 24% of total
revenues for 1997. No other sales to a single customer comprised 10% or
more of total product sales as of December 31, 1997. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations", and "Financial Statements".
The Company has a General Services Administration (GSA) contract to sell
goods to the U.S. Government. This contract is a fixed price, indefinite
quantity and delivery agreement. The current contract runs through March
31, 1998. A renewal of the Company's GSA contract is being negotiated.
The Company participates in a Government program with contracts
administered by the Intermec Corporation. The contract is a fixed price,
<PAGE>
indefinite quantity and delivery agreement. The current Intermec
contract expires September 30, 1999.
COMPETITION
The Company's competition varies according to the market in which the
Company's products are competing. All of the markets in which the
Company's products are sold are highly competitive. Listed below are the
markets the Company's products compete in and competition in those
markets:
Major Market Major Competitors
------------ -----------------
Remote Data Acquisition, Industrial Aerotron Repco Systems, Data-Linc,
Control, Shop Floor Manufacturing, GRE America, E.F. Johnson, Maxon,
Overhead Crane Control Microwave Data Systems, Motorola,
Metricom, and Proxim
Computer Networking, inter and Aironet Wireless Communications,
intra building Cylink, Digital Wireless, Metricom,
and Proxim
Radio Area Networking of hand held Intermec, LXE, Norand, Symbol
data collection terminals and bar Technologies, and Telxon
coding
Federal applications Data Radio, Datron Technology,
Harris Computer Systems, Lockheed
Martin, Magnavox, Motorola, Siemens,
Watkins-Johnson, and California
Microwave
Management believes the ESTeem products compete favorably in the market
because of performance, price, and adaptability of the products to a wide
range of applications. The Company's major limitation in competing with
other manufacturers is its limited marketing budget.
PATENTS, TRADEMARKS, AND PROPRIETARY INFORMATION
EST was granted a United States patent in 1987 for a "Wireless Computer
Modem". In 1988, EST was granted a Canadian Patent for a "Wireless
Computer Modem". Both patents have lives of 17 years. Trademark for the
ESTeem Wireless Modem was granted in 1985.
To protect the Company against unauthorized disclosure of proprietary
information belonging to the Company, all employees, dealers,
distributors, original equipment manufacturers, sales representatives and
other persons having access to confidential information regarding Company
products or technology are required to sign non-disclosure agreements.
GOVERNMENT REGULATION
For operation in the United States, the ESTeem Radio Modems require
Federal Communications Commission (FCC) Type Acceptance. The FCC Type
Acceptance is granted for devices which demonstrate operation within
performance criteria mandated, observed, and tested by the FCC. All of
the Company's products requiring FCC Type Acceptance have been granted
such acceptance.
<PAGE>
For operation in Canada, the ESTeem RF Modems require Industry Canada
Type Acceptance. The Type Acceptance is granted for devices which
demonstrate operation within performance criteria mandated, observed, and
tested by Industry Canada. Of the Company's current production line,
the ESTeem Models 96C, 192F, 192C, and 192V have applied for and have
been granted type acceptance in Canada.
All ESTeem radio modem products require consumer licensing under Part 90
of the FCC Rules and Regulations, which must be applied for by the end
user of the Company's products. The Company cannot guarantee its
customers that they will receive FCC consumer licenses in the VHF or UHF
frequency spectrum for any particular application. The Company provides
information to its customers to assist in the application for FCC
consumer licenses.
At the time of this filing the Company is unaware of any existing or
proposed FCC regulation that would have an materially adverse effect on
the Company's operations, but there can be no assurance that future FCC
regulations will not have materially adverse effects on the operations of
the Company.
SOURCE OF SUPPLY AND MANUFACTURING
The Company purchases certain components necessary for the production of
its products from sole suppliers. Key components for the Company's
products are supplied by the Motorola Corporation and Toko America Inc.,
as purchased through a number of distributors. The components provided
by Motorola and Toko America could be replaced or substituted by other
products, if it became necessary to do so. If this action became
necessary, a material interruption of production and/or material cost
expenditures involved with locating and qualifying replacement components
could take place.
Approximately 10% of the Company's inventory at December 31, 1997
consisted of parts having lead times ranging from 12 to 20 weeks. Some of
these parts are maintained at high levels to assure availability to meet
production requirements, and accordingly, account for a significant
portion of the inventory dollar amount. Based on past experience with
component availability, current distributor relationships, and current
inventory levels, the Company foresees no anticipated shortages of
materials used in production.
The Company contracts with Manufacturing Services, Inc., in Kennewick,
Washington, for assembly of the Company's products, using material
purchased by the Company. By contracting with Manufacturing Services,
Inc., the Company is able to avoid staff fluctuations associated with
operating its own manufacturing operation. The President of
Manufacturing Services, Melvin H. Brown, is a Director of the Company.
Management believes all prices for services, provided by Manufacturing
Services, Inc., were as favorable as could be obtained from comparable
manufacturing services companies. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations", and
"Financial Statements".
EMPLOYEES
As of December 31, 1997, the Company employed a staff of 11 persons on a
full time basis, 2 in marketing, 2 in technical support, 5 in
engineering/manufacturing, and 2 in Finance and Administration. The
<PAGE>
Company's operations are dependent upon key members of its Engineering
and Management personnel. In the event services of these key individuals
were lost to the Company, an adverse effect on the Company's operations
may be felt. The Company employs part-time labor on an "as needed"
basis, usually in engineering/manufacturing. At year end 1997 the
Company employed 3 part-time employees. None of the Company's employees
are represented by a labor union and the Company believes it has good
relations with its employees.
ITEM 2.
PROPERTIES
EST does not own any real property, plants, mines, or any other
materially important physical properties. The Company's administrative
offices and laboratories are located in leased facilities at 415 N. Quay
Street, Kennewick, Washington. The Company leases its office and
laboratory space in a lease agreement with The Port of Kennewick in
Kennewick, Washington for approximately 6,300 square feet of office and
laboratory space. The total monthly lease cost is $2,265.83, including a
leasehold tax of $257.83. The lease covers a period of three years which
expires November 30, 1999.
The Company also owns miscellaneous assets, such as computer equipment,
laboratory equipment, and furnishings. The Company does not have any
real estate holdings, nor investments in real estate. The Company
maintains insurance in such amounts and covering such losses,
contingencies and occurrences that the Company deems adequate to protect
its property. Insurance coverage includes a comprehensive liability
policy covering legal liability for bodily injury or death of persons,
and for property owned by, or under the control of the Company, as well
as damage to the property of others. The Company maintains key man life
insurance protecting the Company in the event of the death of its
President. The Company also maintains fidelity insurance which provides
coverage to the Company in the event of employee dishonesty.
ITEM 3.
LEGAL PROCEEDINGS
No proceedings are identified to which involve a claim for damages,
exclusive of interest and costs, that exceed 10% of the current assets of
the Company. The Company's Form 8-K/A dated February 9, 1996, as filed
with the Securities and Exchange Commission, is incorporated herein by
reference.
The Company was notified on March 8, 1995 that it was included in a class
action against Piper Jaffray, the manager of the Company's marketable
securities fund investment which experienced losses as described in Note
13 to the financial statements. This litigation was an amended
consolidated class action complaint originally filed on October 5, 1994,
as Civ. File No. 3-94-587, in the United States District Court, District
of Minnesota. In February 1996, the Company received the first payments
pursuant to the settlement of this litigation, and as of December 31,
1997 had received settlement payments amounting to a total of $12,921.
The Company expects to receive the final settlement payment in 1998.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters for shareholder approval during
the fourth quarter of 1997 fiscal year.
<PAGE>
PART II
ITEM 5.
MARKET INFORMATION FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established market for trading the Common Stock of the
Company. The Common Stock is not regularly quoted in the automated
quotation system of a registered securities system or association. The
Common Stock of the Company is traded on the "over-the-counter" market
and is listed on the electronic bulletin board under the symbol of
"ELST". The following table illustrates the average high/low price of
the Common Stock for the last two (2) fiscal years. The "over-the-
counter" quotations do not reflect inter-dealer prices, retail mark-ups,
commissions or actual transactions.
Bid Ask
--- ---
High Low High Low
---- --- ---- ---
Fiscal year ended December 31, 1997
First Quarter 1/4 1/4 5/16 1/4
Second Quarter 1/4 7/32 5/16 1/4
Third Quarter 1/4 7/32 5/16 7/32
Fourth Quarter 9/32 5/32 0.34 3/16
Fiscal year ended December 31, 1996
First Quarter 7/16 11/32 1/2 7/16
Second Quarter 15/32 1/4 9/16 15/32
Third Quarter 7/16 5/16 9/16 15/32
Fourth Quarter 11/32 3/16 3/8 5/16
The above data was compiled from information obtained from the National
Quotation Bureau, Inc. daily quotation service.
The approximate number of record holders of common stock of the Registrant
as of January 29, 1998 was 649 persons/entities.
Electronic Systems Technology Inc. paid a one-time, non cumulative, cash
distribution on July 11, 1997, equivalent to $0.01 per outstanding
share. The Company's Form 8-K dated June 5, 1997 as filed with the
Securities and Exchange Commission is included herein by reference. The
Company has never paid a cash dividend, and any such dividend undertaken
by the Company will be at the discretion of the Board of Directors.
ITEM 6.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis is intended to be read in
conjunction the Company's audited financial statements the integral notes
thereto. The following statements may be forward-looking in nature and
actual results may differ materially.
RESULTS OF OPERATIONS
GENERAL: The Company specializes in the manufacturing and development
of wireless modem products. The Company offers a product line which
provide innovative communication solutions for applications not served by
existing conventional communication systems. The Company offers its
<PAGE>
product lines in the growing markets for process automation in
commercial, industrial, and government arenas domestically, as well as
internationally. The Company markets its products through direct sales,
sales representatives, Original Equipment Manufacturers (OEM's), and
domestic, as well as foreign, resellers. Operations of the Company are
sustained solely from revenues received through sales of its products and
services.
FISCAL YEAR 1997 vs. FISCAL YEAR 1996
GROSS REVENUES: Total revenues for the fiscal year 1997 were $1,476,487
reflecting a 2% increase from the $1,443,549 gross revenues for fiscal
year 1996. The increase is attributable primarily to increased product
sales in 1997, of $1,337,303 as compared to 1996 sales of $1,190,304,
representing an increase of 12%. During 1997 the Company experienced
increased commercial sales to both domestic and foreign customers, and a
slight decrease in sales revenues to the U.S. Government (See Note 6 to
Financial Statements.) Management believes the increase in sales revenues
to domestic and foreign customers is primarily a result of commercial
market acceptance of the Company's ESTeem 192 modems which were available
for volume sales from the end of the first quarter of 1997, and enhanced
sales contributions from increased number of EST distributors.
In 1997, a majority of the Company's domestic sales were for Supervisory
Control and Data Acquisition (SCADA) applications and Industrial Controls
applications. An example of a SCADA system is a city's water treatment
operation. An example of an Industrial Control system is a
manufacturer's remote control crane operation. It is Management's
opinion that these applications will continue to provide the largest
portion of the Company's revenues in the foreseeable future.
In 1997, the Company had $340,423 in foreign export sales, amounting to
24% of gross product and service sales for the year. For year end 1996,
foreign export sales were $222,239, or 17% of gross product sales for the
year. It is Management's belief that foreign sales increased due to
comparatively large orders to customers in Brazil, and orders placed with
new EST distributors in the Philippines and Malaysia. Products purchased
by foreign customers were used primarily for use in SCADA projects.
Management believes the majority of the Company's foreign sales are the
result of EST distributor efforts and the Company's Internet website
presence. The geographic composition of the Company's foreign export
sales for 1997 and 1996 are shown in Note 6 to the Financial Statements.
(See Note 6 to Financial Statements.)
In 1997 products purchased by U.S. Government agencies or by U.S.
Government contractors amounted to $250,840 or 18%, of gross product
sales compared with 1996 levels of $262,326, or 22%, of gross product
sales. Management believes the decrease in U.S. Government sales is the
result of a general contraction of the military infrastructure in which
the Company's products are used. Management believes this contraction
will continue and may possibly increase in the foreseeable future.
Products purchased by the U.S. Government continue to be utilized in
three main categories: Inventory Control, PC/PC (Personal Computer)
networking, and Command Control. Due to the uncertain nature of U.S.
Government purchasing in general, and specifically the Automatic
Identification Technologies (AIT), Core Automated Maintenance System
(CAMS), and other programs the Company's products are involved in,
Management does not base liquidity, profitability, or material purchase
projections on anticipated U.S Government sales.
<PAGE>
As of December 31, 1997, the Company had a backlog of $181,000, for
orders placed late in December, 1997. The majority of these orders were
shipped during January, 1998. The Company's customers generally place
orders on an "as needed basis". Shipment for most of the Company's
products is generally made within 5 working days after receipt of
customer orders.
COST OF SALES: Cost of Sales, as a percentage of gross sales, for the
years of 1997 and 1996 was 43% and 41%, respectively. Cost of Sales
variations that occur are attributed to the type of product sold and the
size of orders processed. Larger orders grant lower sales prices,
reducing the profit margin.
INVENTORY: The Company's year-end inventory values for 1997 and 1996
were as follows:
1997 1996
---- ----
Parts $218,263 $260,397
Work in Progress 26,582 68,555
Finished goods 74,282 72,353
-------- --------
TOTAL $319,127 $401,305
======== ========
The Company's objective is to maintain inventory levels as low as
possible to provide maximum cash liquidity, while at the same time, meet
production and delivery requirements. If the Company's sales are less
than anticipated, inventory over-stocking can occur. Based on past
experience with component availability, current distributor
relationships, and current inventory levels, the Company foresees no
anticipated shortages of materials used in production, however component
availability cannot be assured.
For year end 1997, purchases and costs allocated to cost of goods sold
were $492,985 as compared to $595,119 in 1996. This decrease is a result
of lower purchasing by the Company in 1997 when compared with the
purchasing undertaken to support the introduction of the ESTeem 192
products during 1996. Increased sales volume during 1997 also resulted
in the Company reducing existing inventory stocks at year end 1997.
OPERATING EXPENSES: Operating expenses, prior to allocation of expenses
to Cost of Sales and Engineering Services, decreased to $813,364 in 1997,
from 1996 levels of $865,162. Material changes in expenses is comprised
of the following components: Advertising expenses decreased to $51,935
in 1997 from 1996 levels of $54,969 due to reduced advertising by the
Company in 1997 in as contrasted with the marketing campaign in 1996 for
the ESTeem 192 products. Supplies and materials expenses decreased to
$22,079 in 1996, from $26,060 in 1996 due to decreased research and
development projects requiring such material. Office and Administration
expenses decreased from 1996 levels of $18,517 to $11,371 at year end
1997 due to an overall reduction in mailing and postage expenses from
expenses incurred in 1996 related to mailings associated with tradeshows
and the release of the ESTeem 192 products. Professional services
decreased from 1996 levels of $77,795 to $56,215 at year end 1997 due to
decreased subcontracted engineering services for research and development
<PAGE>
projects when compared with 1996. Repair and maintenance expenses
decreased in 1997 to $10,759 as compared to $13,080 in 1996, due to an
absence of abnormal equipment repairs, as contrasted with the Company's
experience in 1996.
Salaries decreased to $408,840 in 1997, from 1996 levels of $413,920.
The salaries decrease is primarily a result of decreased wage bonuses
paid during 1997, which were based on the Company's reduced financial
performance figures in 1996. Travel expenses for the Company decreased
from 1996 levels of $54,837 to $36,804 in 1997 primarily due to reduced
requests for engineering services from the Company's customers, resulting
in reduced frequency and amount incurred travel expenses. The Company
did not incur bad debt expenses during 1997 or 1996.
FISCAL YEAR 1996 vs. FISCAL YEAR 1995 RESULTS
Total revenues for the fiscal year 1996 were $1,443,549 reflecting a 17%
decrease from the $1,731,949 total revenues for fiscal year 1995. The
decrease is attributable primarily to decreased sales in 1996, of
$1,190,304 as compared to 1995 sales of $1,535,071, representing a
decrease of 22%. During 1996, the Company experienced decreases in
sales revenues in all of the Company's major customer categories;
domestic, foreign and U.S. Government. Management believes the reduction
in sales revenues was a result of several factors, including increased
competition from other types of wireless products, postponement of
customer projects employing the Company's products, and customers'
purchase decision uncertainty generated from delays in the releasing the
Company's ESTeem 192 product line.
For year end 1996, purchases and costs allocated to cost of goods sold
were $595,119 as compared to $475,691 in 1995. This increase is a
primary result of increased specific and specialized inventory stocks for
production of the Company's EST 192 product line. The additional
inventory requirements was also reflected in the increase in inventory
value at year end 1996 to $401,305 from 1995 year end levels of $297,037.
Operating expenses, prior to allocation of expenses to Cost of Sales and
Engineering Services, during 1996 increased to $865,162 from 1995 levels
of $839,793. Material changes in expenses were comprised of the
following components: Advertising expenses increased to $54,969 in 1996
from 1995 levels of $50,619 due to expanded advertising exposure in
preparation of the release of the ESTeem 192 product line, as well as
increased fees charged by publishers for the Company's advertising.
Sales commissions decreased from 1995 levels of $31,974 to $22,972 in
1996 due to decreased sales to the U.S. Government. Depreciation expense
on the Company's assets increased from 1995 levels of $25,379 to $30,303
in 1996 due to increased depreciable assets acquired by the Company for
manufacturing and research and development use. Supplies and materials
expenses increased to $26,060 in 1996, from 1995 levels of $12,383 due to
increased requirements primarily from research/development projects.
Professional services increased from 1995 levels of $46,113 to $77,795 at
year end 1996 due to increased amounts paid for engineering services to
outside third parties for research and development in association with
the ESTeem 192 product line. Repair and maintenance expenses increased
in 1996 to $13,080 as compared to $6,992 in 1995, due to increased
equipment calibration costs, and higher than normal necessary repairs on
the Company's manufacturing and analysis equipment.
<PAGE>
Salaries increased to $413,920 in 1996, increased from 1995 levels of
$391,826. This increase was a result of increased wages and benefits
costs, as well as higher accrued vacation benefits from a more tenured
employee base accruing an increased amount of vacation benefits in 1996,
as compared with figures for 1995. Trade show expenses increased from
1995 levels of $8,688 to $17,682 in 1996, due to increased trade show
attendance on the part of the Company.
The Company did not incur bad debt expense during 1996 as compared with
the $54,474 recognized for amounts owed to the Company by Diversified
Engineering for 1995. Amounts expensed as bad debt in 1995 for amounts
owed to the Company by Diversified Engineering were recovered by the
Company from Diversified Engineering in the second quarter of 1996.
The Company's cash resources at December 31, 1996, including cash in the
bank and cash equivalent liquid assets, were $1,413,182, reflecting an
increase from cash resources of $1,162,726 for year end 1995. Cash flows
from operating activities were provided by the Company's net income of
$158,735, a decrease in accounts receivable of $119,609, and depreciation
of $30,303. Cash flows were offset by increases in inventory of
$104,268, decreasing federal income taxes payable of $58,665, and
repurchase of the Company's common stock in the amount of $23,981 during
1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's revenues and expenses equated to a net income of $166,120
for 1997, reflecting a 5% increase from the $158,735 net income of 1996.
At December 31, 1997, the Company's working capital was $1,988,266
compared with $1,861,527 at December 31, 1996. The increase is primarily
attributable to the Company's 1997 after-tax profit of $166,120. The
Company's operations rely solely on the income generated from sales. The
Company's major capital resource requirement is for maintaining adequate
inventory levels. Long lead times for some of the critical components,
ranging from 12 to 20 weeks, force the Company to maintain high inventory
levels. It is Management's opinion that the Company's working capital as
of December 31, 1997 is adequate for expected resource requirements for
the next twelve months.
The Company's current asset to current liability ratio at December 31,
1997 was 26.7:1 compared to 61.5:1 at December 31, 1996. The decreased
ratio is attributable to the Company having increased trade accounts
payable and federal income tax liabilities at year end 1997 when compared
with year end 1996.
The Company's cash resources at December 31, 1997, including cash in the
bank and cash equivalent liquid assets, were $1,466,760, reflecting an
increase from cash resources of $1,413,182 for year end 1996. Cash flows
from operating activities were provided by net income of $166,201, and
depreciation of $30,303. Cash flows were also increased from decreased
inventory levels, increased accounts payable and other accrued
liabilities, and increased federal income tax liabilities at year end
1997 when compared with the same period of 1996. Cash flows were offset
primarily by increases in accounts receivable of $230,668, additions to
property plant and equipment of $24,497, cash distributions paid by the
Company of $49,537.
The Company's trade accounts receivable, adjusted for allowance for
uncollectible accounts, at December 31, 1997 were $268,980, compared to
<PAGE>
$38,311 at year end 1996. The increase is attributable to increased
sales in the fourth quarter of 1997 and an abnormally low sales amount in
the fourth quarter of 1996 with which to compare. No bad debt expense
was recorded during 1997. The Company is experiencing delayed payment on
the part of one of the Company's distributors due to unexpected delays in
the end customers project, but the Company expects payment in full to be
forthcoming from the distributor in the first quarter of 1998. Management
believes that all of the Company's accounts receivable as of December 31,
1997 are collectible.
The Company believes it's level of risk associated with customer receipts
on export sales is minimal. Foreign shipments are made only after
payment has been received, irrevocable letter of credit terms have been
pre-arranged, or on Net 30 terms to foreign offices of domestic companies
with which the Company has an existing relationship. Foreign orders are
generally filled as soon as they are received, therefore, foreign
exchange rate fluctuations do not impact the Company. Due to the cash or
letter of credit terms for the Company's foreign sales, the Company is
not aware of any material negative impacts on the Company by the downturn
experienced in the Asian economy during late 1997.
Inventory levels as of December 31, 1997 were $319,127, which is a
decrease from December 31, 1996 levels of $401,305. This decrease is the
result of increased sales activity during 1997 thereby reducing existing
inventory stocks.
Outlays for capital expenditures during fiscal year 1997 amounted to
$24,497. These expenditures were primarily for manufacturing and
research/development equipment and computer upgrades. The Company
intends on investing in additional capital equipment as it is deemed
necessary to support development and/or manufacture of the ESTeem Modem.
As of December 31, 1997, the Company's current liabilities were $77,213,
an increase of $46,438 from 1996 year end levels of $30,775. The
increase is a result of increased carrying levels of trade accounts
payable and increased federal income taxes payable based on increased
Company profitability at year end 1997. All of the Company's accounts
payable at year end were current.
The Company's subcontract, dated December 23, 1993, with UNISYS was an
indefinite delivery, indefinite quantity, fixed price contract which
expired in September 1997. The Company had not received any sales
revenues pursuant to the contract prior to expiration for year to date
1997. It is Management's opinion that the UNISYS contract has not been
renewed by UNISYS due to a perceived shift in corporate focus on the part
of UNISYS.
The Company's AIT subcontract administered by INTERMEC, dated July 26,
1994, 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 sales under the AIT contract are impossible to predict due
to the uncertain nature of U.S. Government purchasing.
<PAGE>
The Company has a General Services Administration (GSA) contract to sell
goods to the U.S. Government. This contract is a fixed price, indefinite
quantity and delivery agreement. The current contract runs through March
31, 1997. A renewal GSA contract is being negotiated. If awarded the
new GSA contract period would extend through March 31, 1998. Management
expects its GSA contract to be renewed. Based on previous years
activity, the Company expects the majority of U.S. Government purchases
to be placed under the Company's GSA contract. Projections regarding
liquidity, profitability, and material purchases are based on past
history of annual purchases. Historically, Federal Government sales
have averaged approximately 18% of annual sales. Due to the uncertain
nature of Federal Government purchasing, procurement of material and
production planning is adjusted quarterly based on demand. It is
Management's opinion that the majority of Federal Government purchases
in 1998 will be under this GSA contract.
With the possible exception of orders from the Company's AIT or GSA
contracts, and the impact of planned research and development
expenditures, Management is unaware of any known trend which would
reasonably be likely to have a material effect on the Company's
liquidity, results of operations, or financial condition.
The Company's operations were not adversely effected by inflation during
1997. No adverse affect is anticipated during 1998.
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 registrations statements filed with
the Securities and Exchange Commission.
ITEM 7.
FINANCIAL STATEMENTS
See Exhibit 1, Financial Statements and Financial Statement Schedules.
Such Financial Statements and Schedules are incorporated herein by
reference.
ITEM 8.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None
<PAGE>
PART III
ITEM 9.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
IDENTIFICATION OF DIRECTORS:
The following table sets forth the names and ages of all directors of the
Company as of December 31, 1997; as well as term in office and principal
occupation of each director.
Name of Director Term in Office Age Principal Occupation
---------------- -------------- --- ---------------------
T.L. Kirchner 06/05/93 - 06/04/99 49 President of the Company
Melvin H. Brown 06/06/97 - 06/06/00 67 President of Manufacturing
Services, Inc.
Arthur Leighton 06/06/97 - 06/06/00 74 Consultant
Robert Southworth 06/04/97 - 06/06/00 54 Patent Attorney for U.S.
Dept. of Energy
John H. Rector 06/05/93 - 06/04/99 81 Consultant
John L. Schooley 06/02/95 - 06/05/98 58 President of Remtron, Inc.
Management believes that there are no agreements or understanding between
the directors and suppliers or contractors of the Company, except the
agreement with Manufacturing Services, Inc. as described elsewhere in
this report.
IDENTIFICATION OF EXECUTIVE OFFICERS
The following table sets forth the names and ages of all executive
officers of the Company as of December 31, 1997; all positions by such
persons; term of office and the period during which he has served as
such; and any arrangement or understanding between him and any other
person(s) pursuant to which he was elected as an officer:
Name of Officer Age Position Term of Office Period of Service
---------------- --- -------- -------------- -----------------
T. L. Kirchner 49 President 3 Years 02/10/84- Present
Robert Southworth 54 Sec/Treas 3 Years 12/11/92- Present
There are no family relationships, whether by blood, marriage, or adoption,
between any of the Directors or Executive Officers of the Company.
The following is a brief description of the business experience during the
last five years of each director and/or executive officer of the Company.
T.L. KIRCHNER. Mr. Kirchner is founder, President and a Director of the
Company. During the last five years Mr. Kirchner devoted 100% of his
time to the Management of the Company. His primary duties are to oversee
the Management and Marketing functions of the Company. Mr. Kirchner does
<PAGE>
not serve as a director for any company registered under the Securities
Exchange Act.
MELVIN H. BROWN. Mr. Brown is a Director of the Company. During the
last five years Mr. Brown has been the owner and president of
Manufacturing Services, Inc. Manufacturing Services provides services in
packaging design, printed circuit board layout, prototyping, production
runs, verification of documentation testing, burn-in, quality control,
and repetitive volume production. Manufacturing Services provides
electronic manufacturing and quality control testing services for
Electronic Systems Technology. Mr. Brown does not serve as a director
for any company registered under the Securities Exchange Act.
ROBERT SOUTHWORTH. Mr. Southworth is a Director and the
Secretary/Treasurer of the Company. Since 1980, Mr. Southworth has been
employed with the U. S. Department of Energy as a Senior Patent Attorney
in Richland, Washington. His primary duties with the Department of
Energy include the preparation and prosecution of domestic and foreign
patent applications in such fields as nuclear reactors, fuel
reprocessing, waste management and energy related fields of solar, wind,
and fossil fuels. Mr. Southworth does not serve as a director of any
company which is registered under the Securities Exchange Act.
ARTHUR LEIGHTON. Mr. Leighton is a Director of the Company. Mr.
Leighton served as President of Kraft Industries through mid 1986. Since
then he has been working as an independent Management Consultant. Mr.
Leighton was critically injured in 1997..Currently, Mr. Leighton is
recovering from his injuries at his home in Southern California, where he
is expected to make a full recovery. Mr. Leighton does not serve as
director of any company which is registered under the Securities Exchange
Act.
JOHN H. RECTOR. Mr. Rector is a Director of the Company. Mr. Rector
founded Western Sintering, located in Richland, Washington. Western
Sintering, a powdered metal parts manufacturer, is an Original Equipment
Manufacturer (OEM). Mr. Rector is the former President of Western
Sintering, Inc. Mr. Rector currently serves as President of Plastic
Injection Molding, Inc., a plastic injection parts manufacturer. Mr.
Rector does not serve as director of any company which is registered
under the Securities Exchange Act.
JOHN L. SCHOOLEY. Mr. Schooley is a Director of the Company. During the
past five years, Mr. Schooley has been the owner and President of
Remtron, Inc. in San Diego, California. Remtron, Inc. is a manufacturer
of advanced radio control and telemetry systems for the industrial
market. Remtron, Inc. has provided research and development services for
Electronic Systems Technology. Mr. Schooley does not serve as director of
any other company which is registered under the Securities Act.
The Company is not registered under the Securities Exchange Act of 1934
and is therefore not subject to the requirements of section 16 (a) of the
Securities Exchange Act of 1934.
<PAGE>
ITEM 10.
EXECUTIVE COMPENSATION
The Company's named compensated executive officer is T.L. Kirchner, President
and CEO. The Company had no other compensated executive officers as of
December 31, 1997.
The information specified concerning the compensation of the named executive
officers for each of the Registrant's last three completed fiscal years is
provided in the following Summary Compensation Table:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Securities
Name and Other Restricted Options All
Principal Annual Stock Underlying LTIP Other
Position Year Salary Bonus Compensation Awards SARs Payouts Compensation
($) ($)(1) ($)(2) ($) (#) ($) ($)(3)(4)
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
T. L. Kirchner 1997 74,580 5,081 1,615 0 25,000 0 5,524
President & 1996 74,015 8,748 1,185 0 25,000 0 5,368
CEO 1995 67,800 5,356 1,406 0 25,000 0 5,025
</TABLE>
(1) Includes amounts paid under the Non-qualified Employee Profit Sharing Bonus
(2) Other Annual Compensation includes Accrued Vacation Pay
(3) All Other Compensation consists of premiums paid for Group Health Insurance
and Key Man Insurance
(4) Amount does not reflect proceeds of $0.01 per share cash distribution
received during 1997, totaling to $4035. Receipt of cash distribution was
based solely on capacity as a shareholder.
The information specified concerning the stock options of the named executive
officers during the fiscal year ended December 31, 1997 is provided in the
following Option/SAR Grants in the Last Fiscal Year Table:
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants (5)
(a) (b) (c) (d) (e)
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or base Expiration
Name Granted # (5) Fiscal Year Price($/Sh) Date
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
T.L. Kirchner 25,000 11.6% 0.28 2/8/00
</TABLE>
(5) This table does not include Stock Options granted previously. Forms 8-K
dated 2/9/96 and 2/7/97, respectively, are incorporated herein by
reference.
<PAGE>
The information specified concerning the stock options of the named
executive officers during the fiscal year ended December 31, 1997 is
provided in the following Aggregated Option/SAR Exercises in Last Fiscal
Year and Fiscal Year-End Options/SAR Values Table:
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised in-the-money
Options/SARs Options/SARs
at FY-End (#) at FY-End ($)
Number of
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized($) Unexercisable Unexercisable
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
T.L. Kirchner 0 0 75,000 0
</TABLE>
The Company does not currently have a Long-Term Incentive Plan ("LTIP").
Compensation to outside directors is limited to reimbursement of out-of-pocket
expenses that are incurred in connection with the directors duties associated
with the Company's business. There is currently no other compensation
arrangements for the Company's directors. (See "Security Ownership of Certain
Beneficial Owners and Management" for Stock Options granted in previous years.)
The Company currently does not hold any Employment Contracts nor Change of
Control Arrangements with any parties.
ITEM 11.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of December 31, 1997, the amount and
percentage of the Common Stock of the Company, which according to
information supplied by the Company, is beneficially owned by each person
who, to the best knowledge of the Company, is the beneficial owner (as
defined below) of more than five (5%) of the outstanding common stock.
Amount &
Nature of
Title Name & Address Beneficial Percent
of of of of
Class Beneficial Owner (1) Ownership (2) Class
--------------------------------------------------------------------
Common T.L. Kirchner 403,488 (3) 8.1%
415 N. Quay Street.
Kennewick, WA 99336
---------------------------------------------------------------------
(1) Under Rule 13d-3, issued by the Securities and Exchange Commission,
a person is, in general, deemed to "Beneficially own" any shares if
such person directly or indirectly, through any contract,
<PAGE>
arrangement, understanding, relationship or otherwise, has or shares
(a) voting power, which includes the power to vote or to direct the
voting of those shares and/or (b) investment power, which included
the power to dispose, or to direct the disposition of those
securities. The foregoing table gives effect to shares deemed
beneficially owned under Rule 13d-3 based on the information
supplied to the Company. The persons named in the table have sole
voting power and investment power with respect to all shares of
Common Stock beneficially owned by them.
(2) The beneficial owner listed above has stock options giving the right
to acquire 75,000 shares of Electronic Systems Technology, Inc.
Common Stock: Options for 25,000 shares were granted February 9,
1996; Options for 25,000 shares were granted February 7, 1997;
Options for 25,000 shares were granted February 6, 1998. Forms 8-K,
dated February 9, 1996, February 7, 1997, and February 6, 1998,
respectively, are incorporated herein by reference.
(3) Does not include options granted. See footnote (1) above.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of January 29, 1998, amount and
percentage of the Common Stock of the Company, which according to
information supplied by the Company, is beneficially owned by Management,
including officers and directors of the Company.
Title Name Amount & Nature Percent
of of of of
Class Beneficial Owner Beneficial Ownership Class
----------------------------------------------------------------------
Common T.L. Kirchner 403,488 (1) 8.1%
(Officer & Director)
Common Robert Southworth 4,000 (1) 0.1%
(Officer & Director)
Common Melvin H. Brown 76,500 (1) 1.5%
(Director)
Common Arthur Leighton 84,000 (1) 1.7%
(Director)
Common John H. Rector 6,000 (1) 0.1%
(1) Does not include stock options. See below.
<PAGE>
On various dates, the Company's Board of Directors has approved Stock
Option Bonuses for Directors and Employees. The following is a summary
of the Stock Option bonuses currently outstanding: Options are
exercisable at fixed prices. Options may not be exercised in blocks of
less than 5,000 shares. Options not exercised expire three years after
approval date or 90 days following termination of employment/board
membership, whichever occurs first. In the event of acquisition, merger,
recapitalization or similar events of the Company, the optionee will
receive equivalent shares or will have a 10-day window in which to
exercise the options. Option grants are not transferable or assignable
except to the optionee's estate in the event of the optionee's death.
The information below does not include stock options granted in February 1998.
Recipients of Stock Options currently unexpired as of 12/31/97 were as follows:
Exercise Price
Name Option Shares per Share ($)
-----------------------------------------------------------------------
APPROVAL DATE: 2-7-97
David B. Strecker 15,000 0.28
Eric P. Marske 15,000 0.28
Jon A. Correio 15,000 0.28
Alan B. Cook 15,000 0.28
Debra Vaughn 5,000 0.28
Melvin Brown 25,000 0.28
Tom Kirchner 25,000 0.28
Arthur Leighton 25,000 0.28
Robert Southworth 25,000 0.28
John H. Rector 25,000 0.28
John L. Schooley 25,000 0.28
APPROVAL DATE: 2-9-96
David B. Strecker 25,000 0.42
Eric P. Marske 25,000 0.42
Jon A. Correio 25,000 0.42
Alan B. Cook 25,000 0.42
Melvin Brown 25,000 0.42
Tom Kirchner 25,000 0.42
Arthur Leighton 25,000 0.42
Robert Southworth 25,000 0.42
APPROVAL DATE: 2-3-95
George M. Stoltz 25,000 0.31
David B. Strecker 25,000 0.31
Eric P. Marske 25,000 0.31
Melvin Brown 25,000 0.31
Tom Kirchner 25,000 0.31
Arthur Leighton 25,000 0.31
Robert Southworth 25,000 0.31
Stock options must be exercised within 90 days after termination of
employment/board membership. During 1997, no options expired nor were
exercised. At December 31, 1997 there were 590,000 shares reserved for
future exercise.
<PAGE>
ITEM 12.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT AND OTHERS
During fiscal year 1997, the Company contracted for services from
Manufacturing Services, Inc. in the amount of $82,490. Manufacturing
Services, Inc. is owned and operated by Melvin H. Brown, who is a
Director of Electronic Systems Technology, Inc. Management believes all
prices for services, provided by Manufacturing Services, Inc., were as
favorable as could be obtained from comparable manufacturing services
companies.
<PAGE>
PART IV
ITEM 13.
EXHIBITS AND REPORTS ON FORM 8-K
Exhibits filed as part of the Company's 10KSB report for 1997 are listed
below. Certain exhibits have been previously filed with the Securities
and Exchange Commission and are incorporated by reference.
EXHIBIT
NUMBER DESCRIPTION
--------------- ----------------------------------------------------
1. Report of Independent Certified Public Accountant
Financial Statements/Financial Statement Schedules
Balance Sheets
Statement of Operations
Statement of Changes in Stockholders Equity
Statement of Cash Flows
Notes to Financial Statements
2. Reports on Form 8-K
2.1 Form 8-K dated October 31, 1997
2.2 Form 8-K dated November 4, 1997
2.3 Form 8-K dated November 7, 1997
2.4 Form 8-K dated November 12, 1997
3. Articles of Incorporation and By-Laws filed as Exhibit
2.1 to Form S-18, Registration Statement No. 2-92949-S,
Exhibit (c) to Form 8-K, filed March 15, 1985, and
Amendments to By-Laws adopted by Shareholders on
January 14, 1985 are incorporated herein by reference.
4. Instrument defining the rights of security holders
including indentures. Exhibit II Form S-18 Registration
Statement No. 2-92949-S is incorporated herein by
reference. Forms 8-K dated February 9, 1996,
February 7, 1997, February 6, 1998, and Form 8-K/A dated
February 3, 1995, are incorporated herein by reference.
11. Statement re-computation of per share earnings.
13. Annual report to security holders, Form 10-Q or quarterly
report to security holders. N/A
22. Published report regarding matters submitted to vote of
security holders. N/A
24. Consents of experts and counsel
27. Financial Data Schedule
99. Additional Exhibits N/A
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
By: /s/ T.L. KIRCHNER
T.L. Kirchner, Director/President
(Principal Executive Officer)
Date: March 20, 1998
In accordance with the Exchange Act, this Report has been signed below by
the following persons on behalf of the Registrant and in the capacities
and on the dates indicated.
Signature Title Date
------------- -------------- -------------
/s/ T.L. KIRCHNER Director/President March 20, 1998
T.L. Kirchner
/s/ ROBERT SOUTHWORTH Director/Secretary/ March 20, 1998
Robert Southworth Treasurer
/s/ MELVIN H. BROWN Director March 20, 1998
Melvin H. Brown
Director
Arthur Leighton
/s/ JOHN RECTOR Director March 20, 1998
John H. Rector
Director
John L. Schooley
EXHIBIT 1 - FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
PAGE
ACCOUNTANTS' REPORT ON THE FINANCIAL STATEMENTS 1
BALANCE SHEETS 2-3
STATEMENT OF OPERATIONS 4-5
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY 6
STATEMENT OF CASH FLOWS 7-8
NOTES TO FINANCIAL STATEMENTS 9-19
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Electronic Systems Technology, Inc.
415 N. Quay, Suite 4
Kennewick, WA 99336
We have audited the accompanying balance sheets of ELECTRONIC SYSTEMS
TECHNOLOGY, INC. as of December 31, 1997 and 1996, and the related statements
of operations, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ELECTRONIC SYSTEMS TECHNOLOGY,
INC. as of December 31, 1997 and 1996 and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1997,
in conformity with generally accepted accounting principles.
ROBERT MOE & ASSOCIATES, PS
Spokane, Washington
February 6, 1998
<PAGE>
<TABLE>
<CAPTION>
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
1997 1996
------------ -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 6,237 $ 5,717
Money market investment 405,815 482,892
Certificate of Deposit 439,708 724,573
Commercial paper 615,000 200,000
Accounts receivable, net of
allowance for uncollectibles of
$1,284-1997 and $1,284-1996 268,980 38,311
Inventory 319,127 401,305
Accrued interest 7,439 2,707
Prepaid insurance 3,098 3,101
Prepaid expenses 75 6,930
Prepaid Federal income taxes - 26,355
Deferred tax asset - 411
----------- ---------
Total current assets 2,065,479 1,892,302
----------- ---------
PROPERTY & EQUIPMENT
Leasehold improvements 13,544 13,544
Laboratory equipment 298,027 276,421
Furniture & fixtures 15,017 15,017
Dies & molds 20,827 21,612
----------- ---------
347,415 326,594
Less accumulated depreciation 214,491 185,384
----------- ---------
132,924 141,210
----------- ---------
OTHER ASSETS
Patent costs, net of amortization
of $1,453-1997 and $1,344-1996 933 1,042
Deposits 340 340
Capitalized software cost of
$64,852-1997 net of amortization
of $58,717; $64,062-1996 net of
amortization of $56,247 6,135 7,815
----------- ---------
7,408 9,197
----------- ---------
TOTAL ASSETS $2,205,811 $2,042,709
=========== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
BALANCE SHEETS
December 31, 1997 and 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
1997 1996
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 29,931 $ 15,035
Accrued payroll 3,704 1,288
Accrued payroll taxes 930 1,816
Accrued excise taxes payable 959 418
Accrued vacation pay 16,896 12,218
Federal income taxes payable 24,793 -
------------ ------------
Total current liabilities 77,213 30,775
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $.001 par value,
50,000,000 shares authorized,
4,953,667-1997 and 4,953,667-1996
shares issued and outstanding 4,954 4,954
Additional paid-in capital 894,129 894,129
Retained earnings 1,229,515 1,112,851
------------ ------------
2,128,598 2,011,934
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,205,811 $ 2,042,709
============ ============
</TABLE>
The accompanying notes are an integral part of this statement
<PAGE>
<TABLE>
<CAPTION>
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
STATEMENT OF OPERATIONS
for the years ended December 31, 1997, 1996 and 1995
1997 1996 1995
----------- --------- ----------
<S> <C> <C> <C>
SALES $1,337,303 $1,190,304 $1,535,071
COST OF SALES
Beginning inventory 401,305 297,037 423,932
Purchases and allocated costs 492,985 595,119 475,691
----------- ---------- ----------
894,290 892,156 899,623
Ending inventory 319,127 401,305 297,037
----------- ---------- ----------
575,163 490,851 602,586
GROSS PROFIT 762,140 699,453 932,485
----------- ---------- ----------
OPERATING EXPENSES
Advertising 51,935 54,969 50,619
Amortization 2,579 1,837 1,837
Bad Debts 0 0 54,474
Commissions-sales 21,036 22,972 31,974
Dues & Subscriptions 4,180 5,407 7,700
Depreciation 32,599 30,303 25,379
Insurance 7,568 6,528 6,911
Materials & supplies 22,079 26,060 12,383
Office & administration 11,371 18,517 16,628
Printing 8,443 10,203 13,104
Professional services 56,215 77,795 46,113
Rent & utilities 32,932 26,001 25,895
Repair & maintenance 10,759 13,080 6,992
Salaries 408,840 413,920 391,826
Taxes 74,806 73,412 74,333
Telephone 11,463 11,639 11,159
Trade shows 19,755 17,682 8,688
Travel expenses 36,804 54,837 53,778
---------- ---------- ---------
813,364 865,162 839,793
Expenses allocated to cost of sales (227,389) (257,035) (280,650)
---------- ---------- ---------
585,975 608,127 559,143
---------- ---------- ---------
OPERATING INCOME 176,165 91,326 373,342
---------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of this statement
<PAGE>
<TABLE>
<CAPTION>
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
STATEMENT OF OPERATIONS
for the years ended December 31, 1997, 1996 and 1995
1997 1996 1995
---------- --------- ----------
<S> <C> <C> <C>
OTHER INCOME
Interest income 63,347 62,206 58,359
Site support reimbursement net of
allocated costs 6,799 16,192 24,259
Loss on disposition of assets (184) (238) (1,870)
Realized loss on marketable securities
due to impairment - - (49,953)
Realized loss on marketable securities - (3,522) -
Uncollectible accounts recovered - 57,204 -
Recovery from marketable securities
litigation 1,633 11,288 -
---------- -------- ---------
71,595 143,130 30,795
---------- -------- ---------
INCOME BEFORE PROVISION FOR FEDERAL
INCOME TAXES 247,760 234,456 404,137
PROVISION FOR FEDERAL INCOME TAXES 81,559 75,721 136,428
---------- -------- ---------
NET INCOME $166,201 $158,735 $267,709
========== ======== =========
BASIC EARNINGS PER SHARE $ 0.03 $ 0.03 $ 0.05
========== ======== =========
DILUTED EARNINGS PER SHARE $ 0.03 $ 0.03 $ 0.05
========== ======== =========
</TABLE>
The accompanying notes are an integral part of this statement
<PAGE>
<TABLE>
<CAPTION>
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
for December 31, 1994 through December 31, 1997
Additional Loss on
Common Stock Paid-In Marketable Retained
Shares Amount Capital Securities Earnings TOTAL
---------- ---------- ------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT
December 31, 1994 5,006,667 $5,007 $918,057 $(53,913) $ 686,407 $1,555,558
Unrealized holding loss
reclassified to realized
loss due to impairment - - - 53,913 53,913
NET INCOME
December 31, 1995 - - - - 267,709 267,709
---------- ---------- ------------- ------------- ------------ -----------
5,006,667 5,007 918,057 - 954,116 1,877,180
REPURCHASE OF COMMON STOCK:
May 17, 1996 (7,000) (7) (3,143) (3,150)
June 26, 1996 (13,000) (13) (6,658) (6,671)
July 8, 1996 (3,000) ( 3) (1,527) (1,530)
September 3, 1996 (30,000) (30) (12,600) (12,630)
NET INCOME
December 31, 1996 - - - - 158,735 158,735
---------- ---------- ------------ -------------- ------------ ----------
4,953,667 4,954 894,129 - 1,112,851 2,011,934
CASH DISTRIBUTIONS
DECLARED:
$0.01 per share - - - - (49,537) (49,537)
NET INCOME
December 31, 1997 - - - - 166,201 166,201
----------- ---------- ------------ -------------- ------------ ----------
BALANCE AT
December 31, 1997 4,953,667 $4,954 $894,129 $ - $ 1,229,515 $2,128,598
=========== ========== ============ ============== ============ ==========
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
<TABLE>
<CAPTION>
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
STATEMENT OF CASH FLOWS
for the years ended December 31, 1997, 1996 and 1995
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
CASH FLOWS PROVIDED (USED) IN
OPERATING ACTIVITIES:
Net income $ 166,201 $ 158,735 $ 267,709
Noncash expenses included in income:
Depreciation 32,599 30,303 25,379
Amortization 2,579 1,836 1,837
Deferred income taxes 411 4,876 (17,035)
Loss on disposition of assets 184 238 1,870
Realized loss/impaired securities - 3,522 49,953
Decrease (increase) in Current Assets:
Accounts receivable, net (230,668) 119,609 6,391
Inventory 82,178 (104,268) 126,895
Other current assets 28,481 (31,214) 13,587
Increase (decrease) in Current Liabilities:
Accounts payable, accrued expenses
and other current liabilities 21,644 (44,152) 41,730
Federal Income Taxes Payable 24,793 (58,665) 59,863
----------- ---------- -----------
Net Cash Provided By Operating Activities 128,402 80,820 578,179
----------- ---------- -----------
CASH FLOWS PROVIDED (USED) IN
INVESTING ACTIVITIES:
Deposit - - 497
Capitalized software (790) (2,919) -
Additions to property & equipment (24,497) (26,508) (68,373)
Certificates of deposit-over 3 months - 102,000 (102,000)
Institutional Governmental Income Fund - - (17,344)
Proceeds from sale of marketable securities - 117,595 -
----------- ---------- -----------
Net Cash Used In Investing Activities (25,287) 190,168 (187,220)
----------- ---------- -----------
CASH FLOWS PROVIDED (USED) IN
FINANCING ACTIVITIES:
Repurchase common stock - (23,981) -
Distributions paid (49,537) - -
Proceeds from note receivable - 3,449 1,800
----------- ---------- -----------
Net Cash Provided By Financing Activities (49,537) (20,532) 1,800
----------- ---------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 53,578 250,456 392,759
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,413,182 1,162,726 769,967
----------- ---------- -----------
CASH AND CASH EQUIVALENTS AT ENDING OF PERIOD $1,466,760 $1,413,182 $1,162,726
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
<TABLE>
<CAPTION>
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
STATEMENT OF CASH FLOWS
for the years ended December 31, 1997, 1996 and 1995
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH
FLOWS INFORMATION:
Cash paid during the year for:
Interest - - -
Income taxes $ 30,000 $ 155,865 $ 77,129
========= ========= ========
Cash and Cash equivalents:
Cash $ 6,237 $ 5,717 $ 15,765
Money Market 405,815 482,892 444,335
Certificates of deposit (maturity=
3 months or less) 439,708 724,573 402,626
Commercial paper (maturity=
3 months or less) 615,000 200,000 300,000
--------- ---------- ---------
$1,466,760 $1,413,182 $1,162,726
========= ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ORGANIZATION: The Company was incorporated under the laws of the
State of Washington on February 10, 1984, primarily to develop, produce, sell
and distribute wireless modems that will allow communication between
peripherals via radio frequency waves.
ACCOUNTING ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION: The Company recognizes revenue from product sales upon
shipment to the customer. Revenues from site support are recognized as the
Company performs the services in accordance with agreement terms.
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS: The Company uses the reserve method for
recording allowance for uncollectible accounts. The amount included in
Allowance for Uncollectible Accounts consists of $1,284 as of
December 31, 1997, and $1,284 as of December 31, 1996.
INVENTORY: Inventories are stated at lower of cost or market with cost
determined using the FIFO (first in, first out) method. Inventories consisted
of the following:
1997 1996 1995
----------- ---------- ----------
Parts $218,263 $260,397 $198,487
Work in progress 26,582 68,555
Finished goods 74,282 72,353 98,550
----------- ---------- ----------
$319,127 $401,305 $297,037
=========== ========== ==========
PROPERTY AND EQUIPMENT: Property and equipment are carried at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. The useful life of property and equipment for
purposes of computing depreciation is five to seven years. The useful life for
leasehold improvements is thirty-one and a half years. The Company
periodically reviews its long-lived assets for impairment and, upon
indication that the carrying value of such assets may not be recoverable,
recognizes an impairment loss by a charge against current operations.
PATENT COSTS: Expenses incurred in connection with the patent have been
capitalized and are being amortized over 17 years.
RESEARCH AND DEVELOPMENT: Research and development costs are expensed as
incurred. Research and development expenditures for new product development
and improvements of existing products by the Company for 1997, 1996, and 1995
were $128,110, $135,468, and $85,265, respectively.
<PAGE>
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
1 - ORGANIZATION AND SUMMARY OF SIGNIFCANT ACCOUNTING POLICIES (continued)
EARNINGS (LOSS) PER COMMON SHARE: Basic EPS excludes dilution and is computed
by dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur 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 entity. The
primary weighted average number of common shares outstanding was
5,521,283, 5,478,558, and 5,433,174, for the years ended December 31, 1997,
1996, and 1995 respectively.
For the Year Ended 1997
---------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------- --------------- ---------
BASIC EPS
Income available to common
stockholders $166,201 5,521,283 $0.03
============= =============== =========
DILUTED EPS
Income available to common
stockholders + assumed conversions $166,201 5,543,667 $0.03
============= =============== =========
CAPITALIZED SOFTWARE COSTS: In August, 1985, the Statements of Financial
Accounting Standards No. 86 was issued by the Financial Accounting Standards
Board (FASB), directing that the costs of creating a computer software product
to be sold, leased, or otherwise marketed, and which are incurred after the
product's technological feasibility has been established, be capitalized.
During 1986 the Company adopted this statement as permitted by the FASB No. 86
and, accordingly, capitalized all such costs subsequent to 1985. Costs
incurred prior to 1986 are not permitted to be capitalized by FASB No. 86 and
the Company has not capitalized such costs. All costs capitalized under FASB
No. 86 are required to be amortized over their estimated revenue-producing
lives, not to exceed five years, beginning on the date the product is available
for distribution to customers.
Amortization of capitalized software costs charged to expenses for periods
presented is as follows:
1986 $3,234
1987 4,865
1988 9,080
1989 10,501
1990 9,527
1991 7,358
1992 6,219
1993 1,719
1994 288
1995 1,728
1996 1,728
1997 2,470
<PAGE>
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
CASH AND CASH EQUIVALENTS: Cash and cash equivalents generally consist of
cash, certificates of deposit, time deposits, commercial paper and other money
market instruments. The Company invests its excess cash in deposits with major
banks, and commercial paper of investment grade companies and, therefore bears
minimal risk. These securities have original maturity dates not exceeding
three months. Such investments are stated at cost, which approximates fair
value, and are considered cash equivalents for purposes of reporting cash flows.
ADVERTISING COSTS: Costs incurred for producing and communicating advertising
are expensed when incurred.
2 - FEDERAL INCOME TAXES
Effective as of January 1, 1992, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109 Accounting for Income Taxes which
establishes generally accepted accounting principles for the financial
accounting measurement and disclosure principles for income taxes that are
payable or refundable for the current year and for the future tax consequences
of events that have been recognized in the financial statements of the Company
and past and current tax returns. The change had no effect on prior years
results.
The provision for Federal Income Taxes consisted of:
1997 1996 1995
---------- ---------- ----------
Currently payable $81,148 $70,845 $152,265
Deferred 411 4,876 (15,837)
---------- ---------- ----------
Provision for Federal Income Taxes $81,559 $75,721 $136,428
========== ========== ==========
The components of the net deferred tax (asset) liability at December 31, were
as follows:
1997 1996 1995
---------- ---------- ---------
Depreciation $ 19,969 $ 18,523 $ 16,116
Accrued vacation payable (5,744) (4,154) (3,982)
Allowance for uncollectible
accounts receivable (437) (437) (437)
Realized loss due to impairment
of marketable securities - - (16,984)
Unused capital loss carryforward (13,788) (14,343) -
---------- --------- ---------
$ - $ (411) $ (5,287)
========== ========= =========
<PAGE>
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
2 - FEDERAL INCOME TAXES (continued)
The differences between the provision for income taxes and income taxes
computed using the U.S. federal income tax rate were as follows:
1997 1996 1995
---------- --------- ---------
Amount computed using
the statutory rates $81,148 $70,845 $152,265
Increase (reduction):
Deferred tax (asset) liability 411 4,876 (15,837)
---------- --------- ---------
Provision for Federal Income Taxes $81,559 $75,721 $136,428
========== ========= =========
3 - PUBLIC OFFERING OF COMMON STOCK
The Company sold 3,000,000 shares of its unissued common stock to the public on
November 12, 1984. An offering price of $.30 per share was arbitrarily
determined by the underwriter.
4 - COMPENSATED ABSENCES
FASB Statement No. 43 requires employers to accrue a liability for employees'
compensation for certain future absences. Liabilities for vacation pay in the
amounts of $16,896 and $12,218 have been accrued as of December 31, 1997, and
1996, respectively.
5 - LEASES
The Company has no obligation under capital lease arrangements.
The Company rents its facility under a three (3) year operating lease
commencing on the 1st day of December, 1996. The Company leases the facility
from the Port of Kennewick, who with the assistance of federal economic
development funds (EDA), has constructed a building for the purpose of leasing
space to new or expanding high tech and electronic industries. The Company
will pay as rental for 6,275 square feet of building space the sum of
$24,096.00 per year, payable monthly in advance at the rate of $2,008.00 per
month.
A leasehold tax of $257.83 per month is due in addition to the $2,008.00
monthly rent. For the second and any following years of the renewed term, the
parties agree that any rental amount be increased by the Consumer Price
Index-Pacific Cities and US City Average-All Items Indexes using the US City
Average for the 12 month period preceding. The rental expense for 1997, 1996
and 1995 were as follows: 1997 = $27,670; 1996 = $21,428; 1995 = $21,428.
<PAGE>
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
5 - LEASES (continued)
The following is a schedule of estimated future minimum rental payments
required under the above operating leases over the next five succeeding fiscal
years:
Year ending December 31, Amount
------------------------ ------
1998 27,652
1999 25,348
2000 -0-
2001 -0-
2002 -0-
6 - FOREIGN SALES
The Company's revenues fall into three major customer categories, Domestic,
Export, and US Government Sales. A percentage breakdown of E.S.T.'s major
customer categories for the years of 1997 and 1996 are as follows:
1997 1996
---------- -----------
Domestic Sales 58% 61%
Export Sales 24% 17%
US Government Sales 18% 22%
The geographic distribution of foreign sales for 1997 and 1996 is as follows:
1997 1996
---------- ----------
Brazil 21 15
Malaysia 14 -
Philippines 12 14
Croatia 12 14
Chile 10 -
Mexico 6 25
South Korea 6 4
Canada 5 3
Ecuador 5 2
Israel 3 3
Ghana 2 -
Cyprus 2 -
Slovenia 1 -
Thailand less than 1 -
Venezuela less than 1 16
Costa Rica - 2
Peru - 2
7 - PROFIT SHARING SALARY DEFERRAL 401-K PLAN
The Company sponsors a Profit Sharing Plan and Salary Deferral 401-K plan and
trust. All employees over the age of 21 are eligible. The Company is not
making contributions under the current plan agreement.
<PAGE>
ELECTRONIC SYSTEMS TECHONOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
8 - STOCK OPTIONS
On February 3, 1995, stock options to purchase shares of the Company's common
stock were granted to individual employees and directors with no less than
three years continuous tenure. The options have an exercise price of $0.31
per share. Options may be exercised any time during the period from
February 3, 1995, through February 2, 1998. Following is a summary of
transactions:
Shares under Option
-------------------
Outstanding, beginning of year 175,000
Granted during year 0
Canceled during year 0
Exercised during year 0
--------
Outstanding, end of year 175,000
========
On February 9, 1996, stock options to purchase shares of the Company's common
stock were granted to individual employees and directors with no less than
three years continuous tenure. The options have an exercise price of $.42 per
share. Options may be exercised any time during the period from
February 9, 1996, through February 9, 1999. Following is a summary of
transactions:
Shares under Option
-------------------
Outstanding, beginning of year 200,000
Granted during year 0
Canceled during year 0
Exercised during the year 0
--------
Outstanding, end of year 200,000
========
On February 7, 1997, stock options to purchase shares of the Company's common
stock were granted to individual employees and directors with no less than
three years continuous tenure. The options have an exercise price of $0.28 per
share. Options may be exercised any time during the period from
February 7, 1997, through February 7, 2000. Following is a summary of
transactions:
Shares under Option
-----------------------
Outstanding, beginning of year 0
Granted during year 215,000
Canceled during year 0
Exercised during the year 0
---------
Outstanding, end of year 215,000
=========
<PAGE>
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
8 - STOCK OPTIONS (continued)
1997 1996
----------- -----------
Option price range at end of year $.28 to $.42 $.31 to $.42
Option range for exercised shares None Exercised
Weighted average fair value of
options granted during the year $.28 $.42
The following table summarizes information about fixed-price stock options
outstanding at December 31, 1997:
Weighted
Number Average Weighted
Range of Exerciseable & Remaining Average
Exercise Outstanding Contractual Exercise
Prices at 12/31/97 Life Price
------------- -------------- ----------- ----------
$.31 175,000 1 years $.31
$.42 200,000 2 years $.42
$.28 215,000 3 years $.28
After termination of employment, stock options may be exercised within
90 days. During the 12 months ended December 31, 1997, 150,000 shares under
option expired and no shares under option were exercised. At December 31, 1997,
there are 590,000 shares reserved for future exercises.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for the
stock option plan. Had compensation cost for the Company's stock option plan
been determined based on the fair value at the grant date for awards in 1997
consistent with the provisions of SFAS No. 123, the Company's net earnings and
earnings per share would have been reduced to the pro forma amounts indicated
below:
1997 1996
---------- ---------
Net earnings-as reported $166,201 $158,735
Net earnings-pro forma 141,925 124,850
Earnings per share-as reported .03 .03
Earnings per share-pro forma .03 .02
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997; dividend yield equaled 0; expected
volatility of 52.37%, risk-free interest rate of 5%; and expected lives of 3
years.
<PAGE>
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
9 - EMPLOYEE PROFIT SHARING BONUS PROGRAM (NON-QUALIFIED)
On December 11, 1992, the Board of Directors revised the Employee Profit
Sharing bonus Program as follows. The Company makes contributions to the
Program in accordance with the following formula: After the Company's
"net profit before tax" reaches $100,000, the Company sets aside $10,000 for
the Program. Thereafter, the Company adds 8% of the "net profit before tax" to
the Program.
NET PROFIT COMPENSATION TO FUND
---------- --------------------
$ 100,000 $10,000 + 8% Of amount over
$100,000 NET PROFIT
10 - CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
trade accounts receivable. As of December 31, 1997, the Company had cash and
cash equivalents with Seattle First National Bank with a combined balance of
$385,032 which is $285,032 in excess of the FDIC insured amount. At December
31, 1997, the Company held commercial paper in the amount of $615,000 which was
not FDIC insured. At December 31, 1997, the Company had cash deposits with
Pioneer Bank with a balance of $112,189 which is $12,189 in excess of the FDIC
insured amount. At December 31, 1997, the Company had cash deposits with First
Savings Bank of Washington with a balance of $110,400 which is $10,400 in
excess of the FDIC insured amount. Additionally, at December 31, 1997, the
Company had cash deposits with Pacific One Bank with a combined balance of
$117,120 which is $17,120 in excess of the FDIC insured amount. At December
31, 1997, the Company had cash deposits with Piper Jaffray with a balance of
$127,289, which is not FDIC insured.
Concentrations of credit risk with respect to trade accounts receivable are
generally diversified due to the geographic dispersion of the Company's
customer base.
11 - RELATED PARTY TRANSACTIONS
For the years ended December 31, 1997, 1996, and 1995 services in the amount of
$82,490, $52,199, and $51,974 respectively, were contracted with a
manufacturing process company of which the owner/president is a member of the
Board of Directors of Electronic Systems Technology, Inc.
The Company purchases certain key components necessary for the production of
its products from sole suppliers. The components provided by the suppliers
could be replaced or substituted by other products, if it became necessary to
do so. It is possible that if this action became necessary, a material
interruption of production and/or material cost expenditures could take place.
<PAGE>
ELECTRONNIC SYSTEMS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
12 - 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.
The following information is as of December 31, 1997, and 1996:
1997 1996
----------- -----------
Aggregate fair value of marketable securities $ -- $ --
Gross unrealized holding gains -- --
Gross unrealized holding losses -- --
Gross unrealized loss due to impairment
in marketable securities -- --
Amortized cost basis -- --
Changes in marketable securities for the period ended December 31, 1997, and
1996 are as follows:
Cost $ -- $ 171,070
Dividends and capital gains reinvested -- --
Sale of securities -- (117,595)
Realized loss due to impairment
in marketable securities -- (49,953)
Realized loss on sale of securities -- (3,522)
------------ ------------
Fair market value $ 0 $ 0
============ ============
The Company was included in the class action suit settlement against the
manager of the Company's marketable securities investments, Piper Jaffray.
The Company received settlement payments of $11,288 during 1996 and $1,633
during 1997, and expects to receive periodic settlement payments of similar
amounts in 1998.
<PAGE>
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
13 - CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1995, the Company changed its method of accounting for
Debt and Equity Securities to conform with requirements of the Financial
Accounting Standards Board. This change was adopted by the Company as of
January 1, 1995, but was not reported on subsequent filing with the Commission
until the Form 10-Q for the quarter ending March 31, 1996. The effect of this
change was to increase net income for 1995 by $3,287, which resulted in an
amount of $0.0006 per share. The cumulative effect of the change of $3,287 is
shown as a one-time credit to income for 1995.
14 - STOCK REPURCHASE PLAN
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 broker and dealers, up to the amount
allocated by the Plan of $100,000. Repurchase transactions could continue
through 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, would be in effect from July 1, 1996,
through September 30, 1996. At the conclusion of the established repurchase
Plan on September 30, 1996, $23,981 of the funds allocated by the Plan had
been expended by the Company to repurchase a total 53,000 shares.
The transactions for shares repurchased under the Plan were completed by
September 30, 1996. The subject shares were canceled from the Company's
outstanding shares and were therefore removed from the Company's outstanding
common shares.
NOTE - CASH DISTRIBUTION
On June 5, 1997, the Company declared a one-time, non-cumulative, cash
distribution to shareholders of record as of June 20, 1997 of $0.01 per share
of common stock, with a payable date of July 11, 1997. The payment of the cash
distribution was completed by July 11, 1997, for a total dollar value
of $49,537.
<PAGE>
<TABLE>
<CAPTION>
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
SELECTED FINANCIAL DATA
For the five years
ended December 31, 1997 1996 1995 1994 1993
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $1,337,303 $1,190,304 $1,535,071 $1,197,720 $1,444,039
Gross profit 762,140 699,453 932,485 732,340 846,292
Income (Loss)
before provision
for income taxes 247,760 234,456 404,137 290,839 438,192
Provision for
income taxes 81,559 75,721 136,428 104,899 144,970
Net income 166,201 158,735 267,709 185,940 293,222
Net income per share 0.03 0.03 0.05 0.04 0.06
Weighted average
number of shares
outstanding 5,521,283 5,478,558 5,433,174 5,360,982 5,345,844
Total Assets 2,205,811 2,042,709 2,010,772 1,597,612 1,540,141
Long-term debt and
capital lease
obligations - - - - -
Stockholders' equity 2,128,598 2,011,934 1,877,180 1,555,558 1,403,744
Stockholders' equity
per share 0.43 0.41 0.37 0.31 0.28
Working capital 1,988,266 1,861,527 1,723,823 1,449,848 1,297,738
Current Ratio 26.7:1 61.5:1 13.9:1 44.9:1 10.5:1
Equity to total assets 96% 98% 93% 97% 91%
</TABLE>
EXHIBIT 2.1 - Form 8-K dated October 31, 1997
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: October 31, 1997
ELECTRONIC SYSTEMS TECHNOLOGY INC.
(A Washington Corporation)
Commission File no. 2-92949-S
IRS Employer Identification no. 91-1238077
415 N. Quay St. #4
Kennewick WA 99336
(Address of principal executive offices)
Registrant's telephone number, including area code:(509) 735-9092
<PAGE>
ITEM 5. OTHER EVENTS
On October 31, 1997, the Company issued a press release announcing product type
acceptance for the ESTeem(tm) 192F Radio Modem in Malaysia. This press release
is incorporated by reference and is attached hereto as Exhibit 99.6.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS,
AND EXHIBITS.
Exhibit 99.6 - Press release issued October 31,1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
/s/ T.L. KIRCHNER
By: T.L. Kirchner
President
Date: November 6, 1997
<PAGE>
EXHIBIT 99.6 - PRESS RELEASE ISSUED OCTOBER 31, 1997
PRESS RELEASE
ELECTRONIC SYSTEMS TECHNOLOGY
415 N. QUAY STREET
KENNEWICK, WA 99336
509-735-9092 (O)
509-783-5475 (FAX)
EST ANNOUNCES TELCOM APPROVAL OF NEW PRODUCT IN MALAYSIA
KENNEWICK, WASHINGTON --- October 31, 1997 --- Electronic Systems Technology
Inc. (EST) (OTC: ELST), a manufacturer of wireless communications hardware,
today announced the Company's new product, the ESTeem(tm) 192F has been granted
type acceptance by the Malaysian government, effective October 18, 1997.
The ESTeem 192F had previously been granted type acceptance in Canada
as of May 1997.
The new ESTeem 192F boasts a RF data rate four times faster than its current
Model 96F that it replaces, while adding infrared and phone interfaces to the
radio area network (RAN). The standard infrared communications port will
allow the user to perform local programming and diagnostic functions for the
radio network without interruption of communications over the RAN. The
optional phone port in the ESTeem 192F allows a communications gateway over
existing phone lines providing remote data access to and from the RAN world
wide. The Model 192F offers over 1,600 software selectable channels at a data
rate of 19,200 bps, 2 to 4 watts RF output in the 400 to 420 MHz frequency
range. The narrow band packet burst transceiver allows networking of 253
devices in high EMF environments on a single frequency using the industry
standard RS-232, RS-422, or RS-485 asynchronous full duplex interfaces. The
ESTeem's internal digi-repeating capability allows routing data through a
maximum of three ESTeems to extend the typical line-of-sight range of
15 miles to approximately 60 miles.
Electronic Systems Technology, a publicly held Company since 1984, was
the first Company to develop the wireless modem and receive the United
States and Canadian patent for this technology.
Contact EST for more details.
www.esteem.com
<PAGE>
APPENDIX:
Item no. 1: (graphic material not included in electronic filing format)
The press release was published showing at top left of the press release,
the Electronic Systems Technology, Inc. trademarked company logo, showing
a black square field containing the stylized letters E S T.
EXHIBIT 2.2 - Form 8-K dated November 4, 1997
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: November 4, 1997
ELECTRONIC SYSTEMS TECHNOLOGY INC.
(A Washington Corporation)
Commission File no. 2-92949-S
IRS Employer Identification no. 91-1238077
415 N. Quay St. #4
Kennewick WA 99336
(Address of principal executive offices)
Registrant's telephone number, including area code:(509) 735-9092
<PAGE>
ITEM 5. OTHER EVENTS
On November 4, 1997, the Company issued a press release announcing product type
acceptance for the ESTeem (TM) 192V Radio Modem in Canada. This press release
is incorporated by reference and is attached hereto as Exhibit 99.7.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS,
AND EXHIBITS.
Exhibit 99.7 - Press release issued November 4,1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
/s/ T.L. KIRCHNER
By: T.L. Kirchner
President
Date: November 6, 1997
<PAGE>
EXHIBIT 99.7 - PRESS RELEASE ISSUED NOVEMBER 4, 1997
PRESS RELEASE
ELECTRONIC SYSTEMS TECHNOLOGY
415 N. QUAY STREET
KENNEWICK, WA 99336
509-735-9092 (O)
509-783-5475 (FAX)
EST ANNOUNCES INDUSTRY CANADA APPROVAL OF NEW PRODUCT
KENNEWICK, WASHINGTON --- November 4, 1997 --- Electronic Systems Technology
Inc. (EST) (OTC: ELST), a manufacturer of wireless communications hardware,
today announced the Company's new product, the ESTeem(TM) 192V has been granted
Industry Canada, effective November 3, 1997.
The new ESTeem 192V boasts a RF data rate four times faster than the current
Model 85 and 95 products it replaces, while adding infrared and phone
interfaces to the radio area network (RAN). The standard infrared
communications port will allow the user to perform local programming and
diagnostic functions for the radio network without interruption of
communications over the RAN. The optional phone port in the ESTeem 192V
allows a communications gateway over existing phone lines providing remote
data access to and from the RAN world wide. The Model 192V offers over 50
software selectable channels at a data rate of 19,200 bps, 1watt RF output in
the 72 to 73 MHz frequency range. The narrow band packet burst transceiver
allows networking of 253 devices in high EMF environments on a single
frequency using the industry standard RS-232, RS-422, or RS-485 asynchronous
full duplex interfaces. The ESTeem's internal digi-repeating capability
allows routing data through a maximum of three ESTeems to extend the typical
line-of-sight range of 5 miles to approximately 20 miles.
Electronic Systems Technology, a publicly held Company since 1984, was
the first Company to develop the wireless modem and receive the United
States and Canadian patent for this technology.
Contact EST for more details.
www.esteem.com
<PAGE>
APPENDIX:
Item no. 1: (graphic material not included in electronic filing format)
The press release was published showing at top left of the press release,
the Electronic Systems Technology, Inc. trademarked company logo, showing
a black square field containing the stylized letters E S T.
EXHIBIT 2.3 - Form 8-K dated November 7, 1997
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: November 7, 1997
ELECTRONIC SYSTEMS TECHNOLOGY INC.
(A Washington Corporation)
Commission File no. 2-92949-S
IRS Employer Identification no. 91-1238077
415 N. Quay St. #4
Kennewick WA 99336
(Address of principal executive offices)
Registrant's telephone number, including area code:(509) 735-9092
<PAGE>
ITEM 5. OTHER EVENTS
On November 7, 1997, the Company issued a press release with summary financial
performance figures for the quarter eneded September 30, 1997. This press
release is incorporated by reference and is attached hereto as Exhibit 99.8.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS, AND EXHIBITS.
Exhibit 99.8 -Press release issued November 7, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
/s/ T. L. KIRCHNER
By: T.L. Kirchner
President
Date: November 7, 1997
<PAGE>
EXHIBIT 99.8 - PRESS RELEASE DATED NOVEMBER 7, 1997
PRESS RELEASE
EST ANNOUNCES 3rd Quarter 1997 FINANCIAL INFORMATION
KENNEWICK, WASHINGTON --- November 7, 1997 --- Electronic Systems Technology,
Inc. (EST) (OTC: ELST), a manufacturer of wireless communications modems, today
announced sales and results of operations for the tree and ninie month periods
ended September 30, 1997.
EST reported sales for the third quarter of 1997 in the amount of $366,869
compared to $259,919 for the same quarter of 1996. Net income was $70,995,
or $0.01 per share, compared with net income of $20,395, or $0.004 per share
for the third quarter of 1996. For the nine month period, EST reported net
income of $93,691 or $0.02 per share on sales of $913,763 compared with net
income of $138,557 or $0.03 per share on sales of $905,680 for the same period
of 1996.
<TABLE>
<CAPTION>
Selected Statement of Operations Information
(Unaudited)
Three Months Ended Nine Month Ended
Sept 30 Sept 30 Sept 30 Sept 30
1997 1996 1997 1996
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Sales $366,869 $259,919 $913,763 $905,680
Net income before tax 107,567 30,902 141,956 211,750
Net income 70,995 20,395 93,691 138,557
Weighted average
common shares
outstanding 5,480,843 5,475,339 5,480,843 5,475,339
Earnings per Share $ 0.01 0.004 $ 0.02 0.03
</TABLE>
<TABLE>
<CAPTION>
Selected Balance Sheet Information
(Unaudited)
Sept 30 December 31
1997 1996
----------- ---------------
<S> <C> <C>
Cash and cash equivalents $ 1,435,762 $ 1,413,182
Total current assets 1,960,042 1,892,302
Property & equipment (net) 134,021 141,210
Total assets 2,102,117 2,042,709
Total current liabilities 46,029 30,775
Long-term debt 0 0
Stockholders' equity 2,056,088 2,011,934
</TABLE>
www.esteem.com
<PAGE>
APPENDIX:
Item no. 1: (graphic material not included in electronic filing format)
The press release was published showing at top left of the press release, the
Electronic Systems Technology, Inc. trademarked company logo, showing a black
square field containing the stylized letters E S T.
EXHIBIT 2.4 - Form 8-K dated November 12, 1997
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: November 12, 1997
ELECTRONIC SYSTEMS TECHNOLOGY INC.
(A Washington Corporation)
Commission File no. 2-92949-S
IRS Employer Identification no. 91-1238077
415 N. Quay St. #4
Kennewick WA 99336
(Address of principal executive offices)
Registrant's telephone number, including area code:(509) 735-9092
<PAGE>
ITEM 5. OTHER EVENTS
On November 12, 1997, corresponding with Company's attendance of Allen-Bradley
Automation Fair 1997 in Nashville, Tennessee, the Company issued press releases
regarding the introduction of the Company's newest product, the ESTeem 192V, and
announcement of the use of the Company's products in a project with the
Klickitat County Public Utility District. These press releases are
incorporated by reference and are attached hereto as Exhibit 99.9
and Exhibit 99.10, respectively.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS, AND EXHIBITS.
Exhibit 99.9 - Press release issued November 12, 1997.
Exhibit 99.10 - Press release issued November 12, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
/s/ T.L. KIRCHNER
By: T.L. Kirchner
President
Date: November 25, 1997
<PAGE>
EXHIBIT 99.9 - PRESS RELEASE ISSUED NOVEMBER 12, 1997
PRESS RELEASE
ELECTRONIC SYSTEMS TECHNOLOGY
415 N. QUAY STREET
KENNEWICK, WA 99336
509-735-9092 (O)
509-783-5475 (FAX)
WIRELESS RADIO LAN GOES FASTER, ADDS INFRARED AND PHONE INTERFACES
Allen-Bradley Fair 97, Nashville, TN --- November 12, 1997 --- Electronic
Systems Technology Inc. (EST) (OTC: ELST), a manufacturer of wireless
communications hardware, announced the release of the ESTeem (TM) Model 192V,
the newest and fastest member of its growing wireless-data communications
products for commercial and military applications. The new ESTeem boasts a
radio frequency (RF) data rate twice as fast as current technology, while
adding infrared and phone interfaces to the radio area network (RAN).
The standard infrared communications port will allow the user to perform
local programming and diagnostic functions for the radio network without
interruption of communications over the RAN. The optional phone port in
the ESTeem allows a communications gateway over existing phone lines
providing remote data access to and from the RAN world wide. The Model 192V
has over 100 software programmable features, including internal
Allen-Bradley (R) DF1 protocol drivers for direct interfacing to PLC-5, 2,
and SLC family of controllers. The model 192V offers over 50 software
selectable channels at a data rate of 19,200 bps, 1 watt RF output in the
FCC licensed frequencies of 72 to 75 MHz. The narrow band packet burst
transceiver allows networking of 253 devices in high EMF environments on
a single frequency using the industry standard RS-232, RS-422, or RS-485
asynchronous, full duplex interfaces. The ESTeem's internal digi-repeating
capability allows routing data through a maximum of three ESTeems to extend
the typical line-of-sight range of 5 miles to approximately 20 miles.
The 12 VDC powered device can be operated from battery or solar panels in
addition to 90-250 VAC, 50/60 Hz with its external power supply for world
applications.
Electronic Systems Technology, a publicly held corporation since 1984,
was the first company to develop the wireless modem and receive the
United States and Canadian patents for this technology.
Contact EST Marketing for more details.
www.esteem.com
<PAGE>
EXHIBIT 99.10 - PRESS RELEASE ISSUED NOVEMBER 12, 1997
PRESS RELEASE
ELECTRONIC SYSTEMS TECHNOLOGY
415 N. QUAY STREET
KENNEWICK, WA 99336
509-735-9092 (O)
509-783-5475 (FAX)
WASHINGTON POWER UTILITY DISTRICT GOES WIRELESS
Allen-Bradley Fair 97, Nashville, TN --- November 12, 1997 --- Electronic
Systems Technology Inc. (EST) (OTC: ELST), a manufacturer of wireless
communications hardware, announced today that its latest technology product,
the ESTeem (TM) Model 192C wireless modem, was selected by Programmable Control
Services (PCS), an Allen-Bradley (R) authorized systems integrator, to provide
the wireless network for the Klickitat County Public Utility District (PUD)
located in south central Washington.
Klickitat County PUD, a municipal subdivision of the State of Washington,
providing electricity, water, and sewer to more than eleven thousand
residents, awarded a contract to PCS to install a state-of-the-art
Supervisory Control and Data Acquisition (SCADA) system to monitor loads
and resources on a real-time basis to allow more cost effective purchasing
decisions for electric power. A secondary benefit of the systems is to
remotely monitor and operate fourteen substations and point of delivery
centers from a central location. The SCADA system upgrade is to make
Klickitat County PUD more cost competitive after the deregulation of the
power utility market starting January 1, 1998.
The ESTeem Model 192C will provide a wireless network covering 1,880
square miles for the SCADA system, will be the first of its kind in
Washington state.
Electronic Systems Technology, a publicly held corporation since 1984, was
the first company to develop the wireless modem and receive the United
States and Canadian patents for this technology.
Electronic Systems Technology is an authorized Allen-Bradley Encompass
Program hardware provider for wireless communications networks.
Contact EST Marketing for more details.
www.esteem.com
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS.
EARNINGS (LOSS) PER COMMON SHARE: Basic EPS excludes dilution and is computed
by dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur 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 entity.
The primary weighted average number of common shares outstanding was
5,521,283, 5,478,558 and 5,433,174, for the years ended December 31, 1997,
1996, and 1995 respectively.
For the Year Ended 1997
-------------------------------------------
Income Share Per-Share
(Numerator) (Denominator) Amount
-------------------------------------------
Basic EPS
Income available to common
stockholders $166,201 5,521,283 $0.03
======== ========= =====
Diluted EPS
Income available to common
stockholders+assumed
conversions $166,201 5,543,667 $0.03
======== ========= =====
EXHIBIT 24 - CONSENTS OF EXPERTS AND COUNSEL
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Electronic Systems Technology, Inc.
415 N. Quay, Suite 4
Kennewick, WA 99336
We hereby consent to the use of our opinion dated February 6, 1998, on the
financial statements of ELECTRONIC SYSTEMS TECHNOLOGY, INC. for the year ended
December 31, 1997, in your annual report.
ROBERT MOE & ASSOCIATES, PS
Spokane, Washington
February 26, 1998
<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 10KSB, FOR
DECEMBER 31, 1997.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,466,760
<SECURITIES> 0
<RECEIVABLES> 270,264
<ALLOWANCES> 1,284
<INVENTORY> 319,127
<CURRENT-ASSETS> 2,065,479
<PP&E> 347,415
<DEPRECIATION> 214,491
<TOTAL-ASSETS> 2,205,811
<CURRENT-LIABILITIES> 77,213
<BONDS> 0
<COMMON> 4,954
0
0
<OTHER-SE> 2,123,644
<TOTAL-LIABILITY-AND-EQUITY> 2,205,811
<SALES> 1,337,303
<TOTAL-REVENUES> 1,476,487
<CGS> 575,163
<TOTAL-COSTS> 642,568
<OTHER-EXPENSES> 209,862
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 247,760
<INCOME-TAX> 81,559
<INCOME-CONTINUING> 166,201
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 166,201
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
