UNITED STATES SECURITIES AND EXCHANGE COMMISSIONS
WASHINGTON D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: September 30, 1998
Commission File Number: 2-92949-S
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Washington 91-1238077
(State of Incorporation) (I.R.S. Employer Identification No.)
415 N. Quay St., #4 Kennewick WA 99336
(Address of Principal executive offices) (ZIP Code)
Registrant's telephone number, including area code: (509) 735-9092
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [ X ] No [ ]
The number of shares outstanding of common stock as of September 30,
1998 was 4,953,667.
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
(as prepared by Management)
(Unaudited)
SELECTED FINANCIAL DATA
Nine months ended Sept 30 Sept 30
1998 1997
========== ==========
<S> <C> <C>
Sales $ 967,678 $ 913,763
Other revenue $ 106,542 $ 99,622
Gross profit $ 516,931 $ 518,015
Income (Loss) before taxes $ 124,384 $ 141,956
after taxes $ 82,093 $ 93,691
Earnings per share before taxes
Basic $ .02 $ .03
Diluted .02 .03
Earnings per share after taxes
Basic $ .01 $ .02
Diluted .01 .02
Weighted Average Shares
Outstanding (Basic)
Primary 5,567,612 5,480,843
Diluted 5,567,612 5,480,843
Total assets $ 2,234,403 $2,102,117
Long-term debt and capital
lease obligations $ 0 $ 0
Shareholders' equity $ 2,161,155 $2,056,088
Shareholders' equity per share $ 0.44 $ 0.42
Working Capital $ 2,009,116 $1,914,013
Current ratio 28:1 43:1
Equity to total assets 97% 98%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
BALANCE SHEET
(as prepared by Management)
(Unaudited)
September 30 December 31
1998 1997
------------ --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,485,478 $ 1,466,760
Accounts receivable, net
of allowance for uncollectibles of $1,284 159,658 268,980
Inventory 405,716 319,127
Accrued interest 8,728 7,439
Prepaid expenses 19,475 3,173
Prepaid Federal Income Taxes 3,309 0
----------- -----------
Total Current Assets $ 2,082,364 $ 2,065,479
----------- -----------
PROPERTY & EQUIPMENT, net of
depreciation of $238,020 at
Sept. 30, 1998 and $214,491 at Dec. 31, 1997 120,315 132,924
OTHER ASSETS 31,724 7,408
----------- -----------
TOTAL ASSETS $ 2,234,403 $ 2,205,811
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 52,900 $ 29,931
Federal Income Taxes Payable 0 24,793
Accrued Liabilities 20,348 22,489
----------- ----------
Total Current Liabilities $ 73,248 $ 77,213
----------- ----------
STOCKHOLDERS' EQUITY
Common stock, $.001 par value
50,000,000 shares authorized,
shares issued and outstanding:
4,953,667-December 31, 1997
and September 30, 1998 $ 4,954 $ 4,954
Additional paid-in capital 894,129 894,129
Retained earnings 1,262,072 1,229,515
---------- ----------
$ 2,161,155 $ 2,128,598
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,234,403 $ 2,205,811
========== ==========
</TABLE>
(See "Notes to Financial Statements")
<PAGE>
<TABLE>
<CAPTION>
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
STATEMENT OF OPERATIONS
(as prepared by Management)
(Unaudited)
Three Months Ended Nine Months Ended
Sept 30 Sept 30 Sept 30 Sept 30
1998 1997 1998 1997
--------- ------- ------- --------
<S> <C> <C> <C> <C>
SALES $ 250,562 $ 366,869 $ 967,678 $ 913,763
--------- ------- ------- --------
COST OF SALES
Beginning Inventory $ 339,688 $ 394,670 $ 319,127 $ 401,305
Purchases & Allocated Costs 185,912 122,852 537,336 355,721
--------- ------- ------- --------
$ 525,600 $ 517,522 $ 856,463 $ 757,026
Ending Inventory 405,716 361,278 405,716 361,278
--------- ------- ------- --------
Total Cost of Sales $ 119,884 $ 156,244 $ 450,747 $ 395,748
--------- ------- ------- --------
GROSS PROFIT $ 130,678 $ 210,625 $ 516,931 $ 518,015
--------- ------- ------- --------
OPERATING EXPENSES
Finance/Administration $ 32,227 $ 31,373 $ 142,120 $ 135,020
Research & Development 28,358 29,682 101,689 99,289
Marketing 59,154 43,423 159,970 139,335
Customer Service 16,621 18,270 48,754 55,238
--------- ------- ------- --------
Total Operating Expenses $ 136,360 $ 122,748 $ 452,533 $ 428,882
--------- ------- ------- --------
NET OPERATING INCOME $ ( 5,682) $ 87,877 $ 64,398 $ 89,133
--------- ------- ------- --------
OTHER INCOME (EXPENSES)
Interest Income $ 18,760 $ 15,959 $ 54,398 $ 46,293
Recovery from Mktble
Sec. Litigation 562 1,633 2,210 1,633
Engineering Services 19,471 28,112 49,934 51,696
Engineering Support ( 18,237) ( 26,014) ( 46,556) (46,799)
--------- ------- -------- --------
Net Other Income $ 20,556 $ 19,690 $ 59,986 $ 52,823
--------- ------- -------- --------
NET INCOME BEFORE TAX $ 14,874 $ 107,567 $ 124,384 $ 141,956
Provision for income tax 5,057 36,572 42,291 48,265
--------- ------- -------- --------
NET INCOME $ 9,817 $ 70,995 $ 82,093 $ 93,691
========= ======= ======== =========
Basic Earnings per Share
Before Tax $ 0.003 $ 0.02 $ 0.02 $ 0.03
Basic Earnings per Share
After Tax $ 0.002 $ 0.01 $ 0.01 $ 0.02
Diluted Earnings per Share
Before Tax $ 0.003 $ 0.02 $ 0.02 $ 0.03
Diluted Earnings per Share
After Tax $ 0.002 $ 0.01 $ 0.01 $ 0.02
</TABLE>
(See "Notes to Financial Statements)
<PAGE>
<TABLE>
<CAPTION>
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
STATEMENT OF CASH FLOWS
(as prepared by Management)
(Unaudited)
NINE MONTHS ENDED September 30 September 30
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS PROVIDED (USED) IN
OPERATING ACTIVITIES:
Net income $ 82,093 $ 93,691
Noncash expenses included in income:
Depreciation 23,529 23,955
Amortization 1,935 1,933
Decrease (Increase) in Current Assets:
Accounts receivable, net 109,322 ( 99,776)
Inventory ( 86,589) 40,027
Prepaid income taxes ( 3,309) 26,355
Prepaid expenses ( 16,302) ( 7,576)
Accrued interest ( 1,289) ( 4,190)
Increase (Decrease) in Current Liabilities:
Accounts payable, accrued expenses
and other current liabilities 20,828 13,344
Accrued federal income taxes ( 24,793) 1,910
------------ ------------
$ 105,425 $ 89,673
------------ ------------
CASH FLOWS PROVIDED (USED) IN
INVESTING ACTIVITIES:
Additions to property and equipment $( 10,920) $ ( 16,766)
Additions to capitalized software 0 ( 790)
Additions to deposits for construction
of case die ( 26,250) 0
------------ ------------
$( 37,170) $ ( 17,556)
------------ ------------
CASH FLOWS PROVIDED (USED) IN
FINANCING ACTIVITIES:
Payment of Cash Distribution $( 49,537) $( 49,537)
------------ ------------
$( 49,537) $( 49,537)
------------ ------------
</TABLE>
(See "Notes to Financial Statements)
<PAGE>
<TABLE>
<CAPTION>
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
STATEMENT OF CASH FLOWS
(continued)
(as prepared by Management)
(Unaudited)
Nine Months Ended September 30 September 30
1998 1997
------------ ------------
<S> <C> <C>
Net increase in cash and cash equivalents $ 18,718 $ 22,580
Cash and cash equivalents at beginning
of period 1,466,760 1,413,182
------------ -----------
Cash and Cash equivalents at ending
of period $ 1,485,478 $ 1,435,762
============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash paid year to date:
Interest $ 0 $ 0
Income taxes 45,600 20,000
============ ===========
Cash and Cash Equivalents:
Cash $ 6,639 $ 6,233
Money market accounts 387,498 486,969
Certificates of Deposit 455,210 335,560
Commercial paper 636,131 607,000
------------ -----------
$ 1,485,478 $ 1,435,762
============ ===========
</TABLE>
(See "Notes to Financial Statements)
<PAGE>
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
(as prepared by Management)
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The financial statements of Electronic Systems Technology, Inc. (the
"Company"), presented in this Form 10Q are unaudited and reflect, in the
opinion of Management, a fair presentation of operations for the three and nine
month periods ended September 30, 1998 and September 30, 1997. Certain
information and footnote disclosure normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the applicable rules and regulations of the
Securities and Exchange Commission. In preparation of the financial
statements, certain amounts and balances have been restated from previously
filed reports to conform to the format of the 1998 presentation. These
financial statements should be read in conjunction with the audited financial
statements and notes thereto included in the Company's Form 10K for the year
ended December 31, 1997 as filed with the Securities and Exchange Commission.
The results of operation for the three and nine month periods ended
September 30, 1998 and September 30, 1997, are not necessarily indicative of
the results expected for the full fiscal year or for any other fiscal period.
The Company does not have other revenues, expenses, gains and losses that
require disclosure under SFAS No. 130 as other comprehensive income.
NOTE 2 - INVENTORIES
Inventories are stated at lower of cost or market with cost determined using
the FIFO (first in, first out) method. Inventories consist of the following:
September 30 December 31
1998 1997
----------------- ----------------
Parts $ 218,638 $ 218,263
Work in progress 50,978 26,582
Finished goods 136,100 74,282
----------------- ----------------
$ 405,716 $ 319,127
================= ================
<PAGE>
NOTE 3 - EARNINGS PER SHARE (EPS)
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 potential dilution occurring if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the Company. The primary weighted average number of common
shares outstanding was 5,567,612 and 5,480,843 for the quarters ended
September 30, 1998 and 1997 respectively.
For the Quarter Ended September 30, 1998
-------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------- -------------- ------------
Basic EPS
Income available to common
stockholders $82,093 5,567,612 $0.01
============ ============== ============
Diluted EPS
Income available to common
stockholders + assumed conversions $82,093 5,583,667 $0.01
============ ============== ============
NOTE 4 - STOCK OPTIONS
As of September 30, 1998, the Company had outstanding stock options which have
been granted periodically to individual employees and directors with no less
than three years of continuous tenure with Company. On February 6, 1998,
additional 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 granted on February 6, 1998 totaled
215,000 shares under option and have an exercise price of $0.28 per share.
The options granted on February 6, 1998 may be exercised any time during the
period from February 6, 1998 through February 5, 2001. The Company's
Form 8-K dated February 6, 1998, as filed with the Securities and Exchange
Commission is included herein by reference. All outstanding stock options
must be exercised within 90 days after termination of employment.
During the 12 month period from September 30, 1997 to September 30, 1998,
175,000 shares under option expired, no shares under option were exercised,
and 215,000 shares under option were granted. At September 30, 1998 there
were 630,000 shares under option reserved for future exercises.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation." The Company undertakes to make disclosures and calculations
pursuant to SFAS 123 on an annual basis coinciding with the issuance of the
Company's Annual Financial Statements. Accordingly, no compensation cost has
been recognized for the stock option plan.
NOTE 5 - RELATED PARTY TRANSACTIONS
For the nine-month period ended September 30, 1998 services in the amount of
$76,984 were contracted with Manufacturing Services, Inc., of which the
owner/president, is a member of the Board of Directors of the Company.
<PAGE>
NOTE 6 - CASH DISTRIBUTION
On June 4, 1998, the Company declared a one-time, non-cumulative, cash
distribution to shareholders of record as of June 19, 1998, of $0.01 per
share of common stock, with a payable date of July 9, 1998. The payment of the
cash distribution was completed by July 9, 1998 for a total dollar value of
$49,537. For the quarter ended September 30, 1998, the Company had met all
cash distribution obligations and no longer recognized current liabilities
previously recorded for the cash distribution. The Company's Form 8-K dated
June 5, 1998, as filed with the Securities and Exchange Commission is included
herein by reference.
<PAGE>
ITEM II
MANGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Management's discussion and analysis is intended to be read in conjunction with
the company's unaudited financial statements and the integral notes thereto for
the quarter ending September 30, 1998. The following statements may be forward
looking in nature and actual results may differ materially.
A. RESULTS OF OPERATIONS
REVENUES:
Total revenues from the sale of the Company's ESTeem(TM) wireless modem
systems, accessories, and services decreased to $270,033 for the third quarter
of 1998 as compared to $394,981 in the third quarter of 1997, reflecting a
decrease of 32%. Gross revenues decreased to $289,355 for the quarter ending
September 30, 1998, from $412,573 for the same quarter of 1997, reflecting a
decrease of 30%. The decrease in revenues is due to a general reduction in
sales volume to all of the Company's customer groups in the third quarter,
particularly unusually low sales volume experienced during July 1998. The
decrease is compounded when compared with third quarter 1997 performance, which
was an unusually strong revenue performance quarter. Management is of the
belief that the decrease in revenues is not a trend, an opinion based on
strong sales backlog of orders placed late in the third quarter of 1998, for
delivery in the fourth quarter of 1998.
The Company's revenues fall into three major customer categories, Domestic,
Export and U.S. Government Sales. Domestic commercial sales decreased to
$180,124 in the third quarter of 1998 as compared to $261,403 for the third
quarter of 1997. Foreign export sales for the third quarter of 1998 decreased
to $40,704 as compared to the $56,578 in the same quarter of 1997, which had
included unexpected sales to customers in Ghana and Cyprus. It is Management's
opinion that to date, the Company has experienced minimal impact in foreign
sales due to downturns in the Asian economy, however the long term effect in
1999 and beyond of the Asian economic downturn on the Company's foreign exports
remains to be seen. U.S. Government sales decreased in the third quarter of
1998 to $49,773, down from third quarter 1997 levels of $77,000. Management
believes the decrease in U.S. Government sales is the result of a timing
difference in sales, and expects normal or increased U.S. Government sales for
the year as a whole. Engineering services decreased to $19,471 as of
September 30, 1998, as compared to $28,112 as of September 30, 1997. The
decrease was primarily as a result of a decrease of engineering services
requested, believed due to a continually increasing number of customers using
local resources for automation project consultation and installation. During
the quarter ended September 30, 1998, sales to U.S. Government programs
and contractors comprised 18% of the Company's product and service revenues.
No other sales to a single customer comprised 10% or more of the Company's
product and service sales for the quarter ending September 30, 1998.
<PAGE>
A percentage breakdown of EST's major customer categories of Domestic, Export
and U.S. Government Sales, for the third quarter of 1998 and 1997 are as
follows:
For the third quarter of
1998 1997
------ ------
Domestic Sales 67% 67%
Export Sales 15% 14%
U.S. Government Sales 18% 19%
A percentage breakdown of EST's product sales categories for the third quarter
of 1998 and 1997 are as follows:
For the third quarter of
1998 1997
------ ------
ESTeem Model 192 27% 47%
ESTeem Model 95 25% 20%
ESTeem Model 96 15% 10%
ESTeem Model 84SP/85SP 1% 2%
ESTeem Accessories 16% 13%
Factory Services 3% 1%
Site Support/Custom Engineering 13% 7%
Sales for the third quarter of 1998 and 1997 include foreign export sales
as follows:
Three Months Ended
September 30 September 30
1998 1997
----------------- ----------------
Export sales $ 40,704 $ 56,578
Percent of sales 15% 14%
The geographic distribution of foreign sales for the third quarter of
1998 and 1997 is as follows:
Percent of Foreign Sales
September 30 September 30
COUNTRY 1998 1997
--------------------- ----------------- ----------------
Canada 26 % 7 %
Croatia/Slovenia 21 % --
South Korea 20 % 21 %
Chile 16 % 24 %
Israel 9 % 11 %
Mexico 9 % 0 %
Ghana -- 15 %
Cyprus -- 11 %
Malaysia -- 9 %
Philippines -- 1 %
Venezuela -- 1 %
The majority of the Company's domestic and foreign sales for the second quarter
of 1998 were used in Supervisory Control and Data Acquisition (SCADA)
applications. It is Management's opinion that these applications will continue
to provide the largest portion of the Company's domestic sales revenues in the
foreseeable future.
<PAGE>
The Company's AIT subcontract with INTERMEC is a five-year indefinite delivery,
indefinite quantity, fixed price contract through September 1999. The Company
received minimal sales revenues from the contract during the third quarter of
1998, however, Management expects increased sales under the AIT contract in
the fourth quarter of 1998. 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.
Based on previous year's activity, the majority of all U.S. Government
purchases are under the Company's General Services Administration (GSA)
contract. Projections regarding liquidity, profitability, and material
purchases are based on past history of annual purchases. Historically, U.S.
Government sales average approximately 18% of annual sales, but this level
cannot be guaranteed. Due to the uncertain nature of U.S. Government
purchasing, procurement of material and production planning is adjusted
quarterly based on demand.
The Company's revenues have historically fluctuated from quarter to quarter due
to timing factors such as placement of orders by customers, and product
shipments to customers, as well as customer buying trends, and changes in the
general economic environment. The procurement process involved with plant
and project automation, or project development, which usually surrounds the
decision to purchase ESTeem products, can be lengthy. This procurement
process may involve bid activities unrelated to the ESTeem products, such as
additional systems and subcontract work, as well as capital budget
considerations on the part of the customer. Because of the complexity of
this procurement process, forecasts in regard to the Company's revenues
become difficult to predict.
The Company has undertaken the process to identify anticipated costs, and
implementation issues associated with transition of the Company's products
and internal systems to operations during and after the Year 2000. The Company
expects to resolve any Year 2000 issues associated with the Company's internal
and operations systems through planned replacement or upgrades of software
applications, which are not currently deemed to have significant cost
potential. All of the products supplied by the Company to it's customers are
Year 2000 compliant. Management does not expect Year 2000 transition issues
to have a material impact on its operations, but there can be no assurance
that there will not be interruptions or disturbance of operations should
negative transition issues arise.
BACKLOG:
The Company had backlog of $180,000 at September 30, 1998, for orders placed
late in the quarter. The Company expects to make delivery all backlog items
early in the fourth quarter of 1998. Customers generally place orders on an
"as needed basis". Shipment is generally made within 5 to 10 working days
after receipt of an order from a customer.
COST OF SALES:
Cost of sales percentages of gross sales for the third quarters of 1998 and
1997 were 48% and 43% of gross sales respectively. Cost of Sales variations
are attributable to the type of product sold and the size of the order. Larger
orders grant lower sales prices because of volume discounting, reducing the
margin of profit.
<PAGE>
OPERATING EXPENSES:
Operating expenses for the third quarter of 1998 increased $13,612 when
compared with the third quarter of 1997. The following is a delineation of
operating expenses:
For the quarter ended: Sept. 30 Sept. 30 Increase
1998 1997 (Decrease)
------------ ------------ -------------
Finance/Administration $ 32,227 $ 31,373 $ 854
Research/Development 28,358 29,682 ( 1,324)
Marketing 59,154 43,423 15,731
Customer Service 16,621 18,270 ( 1,649)
------------ ------------ -------------
Total Operating Expenses $ 136,360 $ 122,748 $ 13,612
============ ============ =============
FINANCE AND ADMINISTRATION:
During the third quarter of 1998 Finance and Administration expenses increased
$854 when compared with the third quarter of 1997. Increased professional
services used by the Company are primarily responsible for the increased
expenditures.
RESEARCH AND DEVELOPMENT:
During the third quarter of 1998, Research and Development expenses decreased
$1,324 comparatively with the third quarter of 1997. The decrease in expenses
is due primarily to reduced subcontract Research and Development expertise
employed by the Company when compared with the third quarter of 1997. The
majority of Research and Development expenditures in the third quarter were
in-house design and development costs for a new external case for the ESTeem
products.
MARKETING:
Marketing expenses increased $15,731 from the same period in 1997, due
primarily to increased salaries, wages, travel, advertising and tradeshow
expenses resulting from the addition of a Mobile Data Computer Systems Manager
to promote the Company's products in Mobile Data Computer applications for the
law enforcement and public safety marketplaces. The Company's Form 8-K dated
June 11, 1998, as filed with the Securities and Exchange Commission is included
herein by reference.
CUSTOMER SERVICE:
Customer service expenses for the third quarter of 1998 decreased $1,649 when
compared with the third quarter of 1997. The decrease is due to reduced
salaries and wages being allocated to customer service when compared with the
same period of 1997.
INTEREST INCOME:
The Corporation earned $18,760 in interest income for the quarter ended
September 30, 1998. Sources of interest income were short-term investments,
as well as savings and money market accounts.
<PAGE>
ENGINEERING SUPPORT:
Engineering support costs decreased to $18,237 for the quarter ended
September 30, 1998, as compared to $26,014 for the same period of 1997. The
decrease in engineering support costs is a direct result of reduced engineering
services requested by customers in the third quarter of 1998.
NET INCOME:
The Corporation had net income of $9,817 for the third quarter of 1997,
compared to a $70,995 for the third quarter of 1997. The decrease is
attributable to decreased sales revenues, together with increased operating
expenses in the third quarter of 1998, as compared with the third quarter of
1997.
B. Financial Condition, Liquidity and Capital Resources
The Corporation's current asset to current liabilities ratio at
September 30, 1998 was 28:1 compared to 26.7:1 at December 31, 1997. The
increase in current ratio is attributable to increased current assets, and a
decrease in federal income taxes payable, as compared with year-end 1997.
For the quarter ending September 30, 1998, the Company had cash and cash
equivalent short-term investment holdings of $1,485,478 as compared to cash
and cash equivalent holdings of $1,466,760 at December 31, 1997. The items
primarily effecting cash holding of the Company are year to date net income,
payment of the Company's declared cash distribution to shareholders, and
payment of deposits for construction of a case die for the new external case
for the ESTeem products.
Accounts receivable decreased to $159,658 as of September 30, 1998, from
December 31, 1997 levels of $268,980. This was due to decreased sales
revenues during the third quarter of 1998, contrasted with the unusually high
accounts receivable levels at year end 1997. Management believes all of the
Company's accounts receivable as of September 30, 1998 are collectible.
Inventory increased to $405,716 at September 30, 1998, from December 31, 1997
levels of $319,127 due to decreased product sales in the third quarter of
1998, and increased purchases of material for large orders received late in the
third quarter for delivery in the fourth quarter of 1998. Prepaid expenses
increased to 19,475 as of September 30, 1997, as compared with
December 31, 1997 levels of $3,173 due to prepaid insurance policy renewals and
prepaid fees for tradeshows to be attended by the Company in the fourth
quarter of 1998.
The Company's fixed assets increased to $358,335 as of September 30, 1997, from
December 31, 1997 levels of $347,415, as a result of capital expenditures of
$10,920. Fixed asset expenditures consisted mainly of computer system upgrades
and office furniture. Other assets increased from December 31, 1997 levels of
$7,408 to $31,724 as of September 30, 1998 due to a deposit of $26,250 paid for
construction of a case die for the new external case for the ESTeem products,
to be capitalized as a fixed asset upon completion in the first quarter of
1999.
As of September 30, 1998, the Company's trade accounts payable balances were
$52,900 as compared with $29,931 at December 31, 1997, reflecting amounts owed
for inventory stocks and contracted services. As of September 30, 1998, all of
the Corporation's accounts payable were within agreed terms.
<PAGE>
It is Management's opinion the Company's cash, cash equivalent reserves, and
working capital at September 30, 1998 are sufficient to satisfy requirements
for operations, capital expenditures, and other expenditures as may arise in
the short term.
FORWARD LOOKING STATEMENTS: The above discussion may contain forward looking
statements that involve a number of risks and uncertainties. In addition to
the factors discussed above, among other factors that could cause actual
results to differ materially are the following: competitive factors such as
rival wireless architectures and price pressures; availability of third party
component products at reasonable prices; inventory risks due to shifts in
market demand and/or price erosion of purchased components; change in product
mix, and risk factors that are listed in the Company's reports and
registration statements filed with the Securities and Exchange Commission.
<PAGE>
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27. Financial Data Schedule, September 30, 1998
(b) Reports on Form 8-K
Form 8-K dated June 5, 1998 is incorporated herein by reference.
Form 8-K dated June 11, 1998 is incorporated herein by reference.
Exhibit Index Reference
Form 10-QSB
Exhibit Number Notes to
Financial Statements
4. Instruments defining the Rights of Security Holders including indentures.
Form 8-K dated February 6, 1998 is incorporated herein by reference.
11. Statement Re: computation of per share earnings. Note 3
to Financial
Statements
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
Date: November 4, 1998 By: /s/ T. L. KIRCHNER
Name: T.L. Kirchner
Title: Director/President
(Principal Executive Officer)
Date: November 4, 1998 By: /s/ ROBERT SOUTHWORTH
Name: Robert Southworth
Title: Director/Secretary/Treasurer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM, BALANCE
SHEET, STATEMENT OF OPERATIONS, AND STATEMENT OF CASH FLOWS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10QSB, FOR SEPTEMBER 30, 1998.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,485,478
<SECURITIES> 0
<RECEIVABLES> 160,942
<ALLOWANCES> 1,284
<INVENTORY> 405,716
<CURRENT-ASSETS> 2,082,364
<PP&E> 358,335
<DEPRECIATION> 238,020
<TOTAL-ASSETS> 2,234,403
<CURRENT-LIABILITIES> 73,248
<BONDS> 0
<COMMON> 4,954
0
0
<OTHER-SE> 2,156,201
<TOTAL-LIABILITY-AND-EQUITY> 2,234,403
<SALES> 967,678
<TOTAL-REVENUES> 1,074,220
<CGS> 450,747
<TOTAL-COSTS> 497,303
<OTHER-EXPENSES> 150,443
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 124,384
<INCOME-TAX> 42,291
<INCOME-CONTINUING> 82,093
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 82,093
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
