Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024

OR

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

From ________________ to ________________

ELECTRONIC SYSTEMS TECHNOLOGY INC

(Exact name of registrant as specified in its charter)

Washington	000-27793	91-1238077
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

415 N. Roosevelt St.STE B1KennewickWA		99336
(Address of principal executive offices)		(Zip Code)

(509) 735-9092

(Registrant's telephone number, including area code)

N/A

(Former name, former address & former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(g) of the Act:

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, $0.001 par value	ELST	OTCQB

Indicate by check mark whether the registrant (1) has filed all documents and reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filings for the past 90 days. YesxNo ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YesxNo ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act:

Large Accelerated Filer ☐	Accelerated Filer ☐
Non-Accelerated Filer☒	Small Reporting Company ☒ Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨Nox

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of October 30, 2024, the number of the Company's shares of Common Stock par value $0.001, outstanding was 4,946,502.

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

ELECTRONIC SYSTEMS TECHNOLOGY, INC. CONDENSED BALANCE SHEETS (Unaudited)
		September 30,			December 31,
		2024			2023
ASSETS
Current assets
Cash and cash equivalents		$	158,223			$	486,252
Certificates of deposit			400,000				400,000
Accounts receivable, net			59,365				52,592
Inventories			785,755				722,457
Prepaid expenses			29,679				19,278
Accrued interest receivable			1,342				1,906
Total current assets			1,434,364				1,682,485
Property and equipment, net of depreciation			16,450				18,255
Right to use - Lease, net of amortization			-				30,298
Total assets		$	1,450,814			$	1,731,038
LIABILITIES and STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable		$	21,754			$	37,355
Accrued wages and bonus			1,208				4,188
Accrued vacation pay			24,072				21,243
Lease liability, current			-				30,773
Other accrued liabilities			397				10,221
Total current liabilities			47,431				103,780
Total liabilities			47,431				103,780
Stockholders' equity
Common stock, $0.001par value 50,000,000shares authorized 4,946,502and 4,946,502shares issued and outstanding, respectively			4,947				4,947
Additional paid-in capital			933,105				933,105
Retained earnings			465,331				689,206
Total stockholders' equity			1,403,383				1,627,258
Total liabilities and stockholders' equity		$	1,450,814			$	1,731,038

See Notes to Condensed Financial Statements.

ELECTRONIC SYSTEMS TECHNOLOGY, INC. CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
			Three Months Ended September 30, 2024				Three Months Ended September 30, 2023				Nine Months Ended September 30, 2024				Nine Months Ended September 30, 2023
SALES - NET		$	293,936			$	342,721			$	983,566			$	1,233,016
COST OF SALES			(145,429	)			(178,435	)			(461,953	)			(586,631	)
GROSS PROFIT			148,507				164,286				521,613				646,385
Operating Expenses
General and administrative			59,881				55,829				211,328				202,086
Research and development			28,236				26,114				92,263				82,798
Marketing and sales			133,313				133,223				458,442				454,819
TOTAL OPERATING EXPENSE			221,430				215,166				762,033				739,703
OPERATING LOSS			(72,923	)			(50,880	)			(240,420	)			(93,318	)
OTHER INCOME
Interest income			5,482				8,375				16,545				17,559
TOTAL OTHER INCOME			5,482				8,375				16,545				17,559
NET LOSS BEFORE INCOME TAX			(67,441	)			(42,505	)			(223,875	)			(75,759	)
Benefit (provision) for income tax			-				-				-				-
NET LOSS		$	(67,441	)		$	(42,505	)		$	(223,875	)		$	(75,759	)
Basic and diluted loss per share		$	(0.01	)		$	(0.01	)		$	(0.05	)		$	(0.02	)
Basic and diluted weighted average shares used in computing loss per share:			4,946,502				4,946,502				4,946,502				4,946,502

See Notes to Condensed Financial Statements.

ELECTRONIC SYSTEMS TECHNOLOGY, INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
		Nine Months Ended
		September 30,			September 30,
		2024			2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(223,875	)		$	(75,759	)
Noncash items included in net loss:
Depreciation and amortization			3,109				1,423
Stock based compensation			-				693
Changes in operating assets and liabilities:
Accounts receivable, net			(6,773	)			45,216
Inventories			(63,298	)			(84,399	)
Accrued interest receivable			564				(1,466	)
Prepaid expenses			(10,401	)			10,191
Employee retention tax credit receivable			-				63,000
Accounts payable			(15,601	)			(106,414	)
Other accrued liabilities			(10,450	)			(14,040	)
NET CASH USED IN OPERATING ACTIVITIES			(326,725	)			(161,555	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets			(1,304	)			(19,769	)
Certificates of deposit redeemed			1,000,000				1,001,699
Certificates of deposit purchased			(1,000,000	)			(1,150,000	)
NET CASH USED IN INVESTING ACTIVITIES			(1,304	)			(168,070	)
NET DECREASE IN CASH AND CASH EQUIVALENTS			(328,029	)			(329,625	)
Cash and cash equivalents at beginning of period			486,252				751,118
Cash and cash equivalents at end of period		$	158,223			$	421,493

See Notes to Condensed Financial Statements.

ELECTRONIC SYSTEMS TECHNOLOGY, INC. CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
		Common Stock			Additional Paid-In			Retained
		Shares			Amount			Capital			Earnings			Total
Balances, January 1, 2023			4,946,502			$	4,947			$	932,412			$	849,989			$	1,787,348
Net income (loss)			-				-				-				(92,124	)			(92,124	)
Balance at March 31, 2023			4,946,502				4,947				932,412				757,865				1,695,224
Net income (loss)			-				-				-				58,870				58,870
Stock based compensation			-				-				693				-				693
Balance at June 30, 2023			4,946,502				4,947				933,105				816,735				1,754,787
Net income (loss)			-				-				-				(42,505	)			(42,505	)
Balance at September 30, 2023			4,946,502			$	4,947			$	933,105			$	774,230			$	1,712,282
Balances, January 1, 2024			4,946,502			$	4,947			$	933,105			$	689,206			$	1,627,258
Net income (loss)			-				-				-				(85,574	)			(85,574	)
Balance at March 31, 2024			4,946,502				4,947				933,105				603,632				1,541,684
Net income (loss)			-				-				-				(70,860	)			(70,860	)
Balance at June 30, 2024			4,946,502				4,947				933,105				532,772				1,470,824
Net income (loss)			-				-				-				(67,441	)			(67,441	)
Balance at September 30, 2024			4,946,502			$	4,947			$	933,105			$	465,331			$	1,403,383

See Notes to Condensed Financial Statements.

NOTE 1 - BASIS OF PRESENTATION

The unaudited condensed financial statements, including notes, of Electronic Systems Technology, Inc. (the "Company") are representations of the Company's management, which is responsible for their integrity and objectivity. The accompanying unaudited condensed financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information, as well as the instructions to Form 10-Q. Accordingly, the financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its financial position as of September 30, 2024 and its results of operations, cash flows, and changes in stockholders' equity for the three and nine months ended September 30, 2024, and 2023. The balance sheet at December 31, 2023 was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements. All amounts presented are in U.S. dollars. For further information, refer to the financial statements and footnotes thereto in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.

The results of operations for the three and nine-month periods ended September 30, 2024 are not necessarily indicative of the results expected for the full fiscal year or for any other fiscal period. The Company estimates that for 2024 the anticipated effective annual federal income tax rate will be 0%.

New Accounting Pronouncements

Management does not believe that any recently issued but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company's financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, amending reportable segment disclosure requirements to include disclosure of incremental segment information on an annual and interim basis. Among the disclosure enhancements are new disclosures regarding significant segment expenses that are regularly provided to the chief operating decision-maker and included within each reported measure of segment profit or loss, as well as other segment items bridging segment revenue to each reported measure of segment profit or loss. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and for interim periods beginning January 1, 2025, and are applied retrospectively. Early adoption is permitted. We are currently evaluating the effect the updated standard will have on our consolidated financial statements and disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvement to Income Tax Disclosures, amending income tax disclosure requirements for the effective tax rate reconciliation and income taxes paid. The amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2024 and are applied prospectively. Early adoption and retrospective application of the amendments are permitted. We are currently evaluating the effect the updated standard will have on our consolidated financial statements and disclosures.

NOTE 2 - INVENTORIES

Inventories are stated at lower of direct cost or net realizable value with cost determined using the FIFO (first in, first out) method. Inventories consist of the following:

		September 30, 2024			December 31, 2023
Parts		$	102,834			$	118,472
Work in progress			406,658				313,597
Finished goods			276,263				290,388
Total inventories		$	785,755			$	722,457

NOTE 3 - EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share excludes dilution and is computed by dividing income (loss) available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted earnings (loss) per share reflects potential dilution occurring if securities or other contracts to issue common stock were exercised or converted into Common Stock or resulted in the issuance of common stock that then shared in the earnings of the Company. At September 30, 2024 and 2023, the Company had 225,000and 225,000outstanding stock options, respectively, that could have a dilutive effect on future periods' net income. The stock options were not included in the calculation of diluted earnings per share for either period as they were anti-dilutive.

NOTE 4 - STOCK OPTIONS

As of September 30, 2024, there were 225,000options outstanding with a weighted average exercise price of $0.40per share, a weighted average remaining life of 1.0years and an intrinsic value of nil.

NOTE 5 - REVENUE

The Company's product revenue includes industrial wireless products and accessories such as antennas, power supplies and cable assemblies. The Company also provides direct site support and engineering services to customers, such as repair and upgrade of its products. During the three-month periods ended September 30, 2024 and 2023, the Company's revenue from products sales was $275,936and $336,621, respectively. Revenue from site support and engineering services was $18,000and $6,100respectively, over the same periods.

During the nine-month periods ended September 30, 2024 and 2023, the Company's revenue from products sales was $947,566and $1,209,516, respectively. Revenue from site support and engineering services was $36,000and $23,500respectively, over the same periods.

The Company's customers, to which trade credit terms are extended, consist of United States and local governments and foreign and domestic companies. Domestic sales for the three-month periods ended September 30, 2024 and 2023 were $247,572and $338,948, respectively. Sales to foreign customers for the three-month periods ended September 30, 2024 and September 30, 2023 were $46,364and $3,773, respectively.

Domestic sales for the nine-month periods ended September 30, 2024 and 2023 were $830,167and $1,208,539, respectively. Sales to foreign customers for the nine-month periods ended September 30, 2024 and September 30, 2023 were $153,399and $24,477, respectively.

For the three-month period ended September 30, 2024, sales to two customers represented more than 10% of total revenue. Three customers represented more than 10% of total revenue for the same period in 2023.

		2024 Sales			2024 %age of Total Sales			2023 Sales			2023 %age of Total Sales
Customer A		$	40,771				14	%		$	64,698				19	%
Customer B			39,518				13	%			57,456				17	%
Customer C			-				-	%			33,119				10	%

For the nine-month period ended September 30, 2024, sales to no one customer represented more than 10% of total revenue, one customer represented more than 10% of total revenue for the same period in 2023.

		2024 Sales			2024 %age of Total Sales			2023 Sales			2023 %age of Total Sales
Domestic customer A		$	-				-	%		$	262,149				21	%

As of September 30, 2024 and 2023, the Company had a sales order backlog of $5,109and $124,125, respectively.

For the three and nine-month periods ended September 30, 2024 and 2023, lease expenses of $11,616and $11,576and $34,835and $34,727, respectively, are included in the following expense classifications on the statement of operations:

		For the three-month period ended September 30,
		2024			2023
		Cost of sales			Operating expenses			Total			Cost of sales			Operating expenses			Total
Base rent pursuant to lease agreement		$	5,751			$	4,526			$	10,277			$	5,751			$	4,526			$	10,277
Variable lease costs			749				590				1,339				727				572				1,299
Total lease costs		$	6,500			$	5,116			$	11,616			$	6,478			$	5,098			$	11,576

		For the nine-month period ended September 30,
		2024			2023
		Cost of sales			Operating expenses			Total			Cost of sales			Operating expenses			Total
Base rent pursuant to lease agreement		$	17,252			$	13,578			$	30,830			$	17,252			$	13,578			$	30,830
Variable lease costs			2,241				1,764				4,005				2,181				1,716				3,897
Total lease costs		$	19,493			$	15,342			$	34,835			$	19,433			$	15,294			$	34,727

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATION

Management's discussion and analysis is intended to be read in conjunction with the Company's unaudited financial statements and the integral notes thereto for the quarter ended September 30, 2024. The following statements may be forward looking in nature and actual results may differ materially.

A. RESULTS OF OPERATIONS

REVENUES: Total revenues from sales decreased to $293,936 for the third quarter of 2024 as compared to $342,721 in the third quarter of 2023, reflecting a decrease of 14.2%. Management believes the decrease in sales revenues is due to the decrease in customer demand. Year to date total revenues from sales decreased to $983,566 in 2024 as compared to $1,233,016 in 2023, reflecting a decrease of 20.2%. Management believes the decrease in sales revenues is due to a decrease in customer demand and the increased cost associated with funding capital improvements.

The Company's revenues have historically fluctuated from quarter to quarter due to timing factors such as product shipments to customers, customer order placement, customer buying trends, and changes in the general economic environment. The procurement process regarding plant and project automation, or project development, which usually surrounds the decision to purchase ESTeem products, can be lengthy. This procurement process may involve bid activities unrelated to the ESTeem products, such as additional systems and subcontract work, as well as capital budget considerations on the part of the customer. Because of the complexity of this procurement process, forecasts with regard to the Company's revenues are difficult to predict.

A percentage breakdown of the Company's market segments of Domestic and Foreign Export sales for the three- and nine-month periods ended September 30, 2024 and 2023 are as follows:

		Three Months ended September 30, 2024			Three Months ended September 30, 2023			Nine Months ended September 30, 2024			Nine Months ended September 30, 2023
Domestic Sales			84	%			99	%			84	%			98	%
Export Sales			16	%			1	%			16	%			2	%

BACKLOG:

As of September 30, 2024, the Company had a sales order backlog of $5,109. The Company's customers generally place orders on an "as needed basis". Shipment for most of the Company's products is generally made within 1 to 5 working days after receipt of customer orders, with the exception of ongoing, scheduled projects, and custom designed equipment.

COST OF SALES:

Cost of sales percentages for the third quarters of 2024 and 2023 were 49.5% and 52.1% of respective net sales. Cost of sales percentages for the nine-month periods ended September 30, 2024 and 2023 were 47.0% and 47.6%, respectively. The cost of sales percentage decrease for the nine-month period ended September 30, 2024 is the result of the product mix sold during the same period of 2023. The product mix varies from period to period based on customer needs.

OPERATING EXPENSES:

The following is a delineation of operating expenses:

		Three Months Ended						Nine Month Ended
		September 30, 2024			September 30, 2023			Increase (Decrease)			September 30, 2024			September 30, 2023			Increase (Decrease)
General and administrative		$	59,881			$	55,829			$	4,052			$	211,328			$	202,086			$	9,242
Research and development			28,236				26,114				2,122				92,263				82,798				9,465
Marketing and sales			133,313				133,223				90				458,442				454,819				3,623
Total operating expenses		$	221,430			$	215,166			$	6,264			$	762,033			$	739,703			$	22,330

General and administrative: For the third quarter of 2024, general and administrative expenses increased $4,052 to $59,881, due to increased professional services when compared with the same quarter of 2023. For the nine-month period ended September 30, 2024, general and administrative expenses increased by $9,242, to $211,328, due to increased payroll and increased professional services.

Research and development: Research and development expenses increased $2,122 to $28,236 during the third quarter of 2024 due to increased payroll when compared with the same quarter of 2023. For the nine-month period, research and development expenses increased by $9,465 to $92,263, due to increased payroll and prototype services purchased.

Marketing and sales: During the third quarter of 2024, marketing and sales expenses increased $90 to $133,313 when compared with the same period of 2023, due to increased travel expenses, which were partially offset by lower payroll and benefit expenses. For the nine-month period, marketing and sales expenses increased by $3,623 to $458,442, due to increased travel and marketing expenses which were partially offset by lower payroll and benefit expenses.

OTHER INCOME:

The Company earned $5,482 in interest income during the quarter ended September 30, 2024 and $16,545 for the nine-month period. Sources of this income were money market accounts and certificates of deposit.

NET LOSS:

The Company had a net loss of $67,441 for the third quarter of 2024 compared to net loss of $42,505 for the same quarter of 2023. For the nine-month period ended September 30, 2024, the Company recorded a net loss of $223,875 compared with a net loss of $75,759 for the same period of 2023. The increase in net loss during 2024 is the result of increased operating expenses and lower sales.

B. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

The Corporation's current asset to current liabilities ratio at September 30, 2024 was 30.2 compared to 16.2 at December 31, 2023. The increase in the current ratio is due to the decrease of accounts payable, short-term lease payable and increase in inventory at September 30, 2024 as compared to December 31, 2023.

At September 30, 2024, the Company had cash and cash equivalents including certificates of deposit of $558,223 as compared to cash and cash equivalent of $886,252 at December 31, 2023.

Cash used from operating activities increased by $165,170 for the nine-month period ended September 30, 2024 when compared to the same period in 2023. The increase is attributable to an increase in net loss for the period being $148,116 more than the same period in 2023. The decrease in the change in accounts receivable, accounts payable, and inventory balances accounted for a $164,903 of the cash used versus the same period in 2023.

In management's opinion, the Company's cash and cash equivalents and other working capital at September 30, 2024 is sufficient to satisfy requirements for operations, capital expenditures, and other expenditures as may arise during 2024 and into the first nine months of 2025.

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.

OFF-BALANCE SHEET ARRANGEMENTS

The Company has no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to its stockholders.

Item 1. Controls and Procedures

An evaluation has been performed under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Accounting Officer, of the effectiveness of the design and the operation of our "disclosure controls and procedures" (as such term is defined in Rules 13a-15(e) under the Securities Exchange Act of 1934) as of September 30, 2024. Based on that evaluation, our principal executive officer and our principal financial officer concluded that the design and operation of our disclosure controls and procedures were effective as of September 30, 2024.

The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. However, management believes that our system of disclosure controls and procedures are designed to provide a reasonable level of assurance that the objectives of the system will be met.

Changes in Internal Control Over Financial Reporting

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II-OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 2. Unregistered Sales of Securities

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable

Item 5. Other Information

During the quarter ended September 30, 2024, no director or officer of the Company adoptedor terminateda contract, instruction or written plan for the purchase or sale of securities of the Company intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) and/or a non-Rule 10b5-1 trading arrangement.

Item 6. Exhibits

EXHIBIT NUMBER	DESCRIPTION
31.1	Section 302 Certification, CEO
31.2	Section 302 Certification, CFO
32.1	Section 906 Certification, CEO
32.2	Section 906 Certification, CFO
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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.

	By: /s/ Daniel M. Tolley
Date: October 29, 2024	Name: Daniel M. Tolley
	Title: President
(Principal Executive Officer)

	By: /s/ Michael W. Eller
Date: October 29, 2024	Name: Michael W. Eller
	Title: Vice President Administration
(Principal Accounting Officer)

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