Dear Shareholders,
2021 was an exciting year. When this letter was written
last year there were many unknowns regarding the effect of COVID-19 on our business. We experienced a strong resurgence in demand from
our customers. I am pleased to report that the momentum continued into the 1st Quarter of 2022.
R&D continued to focus on our current product
offerings by continually improving the operation, manufacturability, and customer-friendly features. We will continue to look at new technologies
in 2022, as well as continuing our emphasis on delivering exceptional products to the Industrial Automation market.
Due to cancellation of all scheduled tradeshows, our
marketing team worked with key customers by providing product-based webinars to their sales staff in 2021. As we transitioned into 2022,
trade shows have resumed, and our customers are allowing in person sales calls. We are excited to reconnect and meet future customers
in a face-to-face environment.
We are committed to using our success in 2021, into
2022 and beyond. We continue our commitment to provide a unique blend of innovative products and excellent support to our customers. All
of us here at the Company would like to thank you for your ongoing support.
Michael W. Eller
President
Cautionary Note Regarding Forward-Looking Statements
This letter contains "forward-looking statements"
within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Examples of forward-looking
statements include, among others, statements we make regarding our strategies, expectations about new and existing products, market demand,
acceptance of new and existing products, technologies and opportunities, market size and growth, and return on investments in products
and market. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in
circumstances that are difficult to predict and many of which are outside of our control. More details about these and other risks that
may impact our business are included in our Form 10-K for the fiscal year ended December 31, 2021 and in our other SEC filings. You can
locate these reports through our website at www.esteem.com. We undertake no obligation to publicly update any forward-looking statement,
whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-K
| x |
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| |
For
the fiscal year ended: December 31, 2021 |
| |
|
| o |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| |
For
the transition period from
to |
Commission
file number: 000-27793
ELECTRONIC SYSTEMS TECHNOLOGY INC.
(Exact
name of registrant as specified in its charter)
| Washington |
|
91-1238077 |
| (State
or other jurisdiction of incorporation or organization) |
|
(I.R.S.
Employer Identification No.) |
| |
|
|
| 415 N. Roosevelt St., STE B1, Kennewick, Washington |
|
99336 |
| (Address
of principal executive offices) |
|
(Zip
Code) |
Registrant’s
telephone number, including area code: (509) 735-9092
Securities
registered under Section 12(b) of the Exchange Act:
| Title
of each class |
Trading
Symbol(s) |
Name
of each exchange on which registered |
| |
|
|
| None
|
N/A |
N/A |
Securities
registered under Section 12(g) of the Exchange Act:
Common |
| (Title
of Class) |
Indicate
by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate
by checkmark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 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 filing requirements for the past 90 days. Yes x No o
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). Yes x No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act. (Check one):
| Large
accelerated filer |
o |
|
Accelerated
filer |
o |
Non-accelerated Filer |
x |
|
Smaller
reporting company |
x |
| Emerging
Growth Company |
o |
|
|
|
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. o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
The
aggregate market value of the registrant’s common stock held by non-affiliates was $921,507, based on the reported last sale price
of common stock on June 30, 2020, which was the last business day of the registrant’s most recently completed second fiscal quarter.
For purposes of this computation, all executive officers and directors were deemed affiliates.
The
number of shares outstanding of the registrant’s common stock as of February 15, 2022: 4,946,502 shares.
ELECTRONIC
SYSTEMS TECHNOLOGY INC.
FORM
10-K
Table
of Contents
PART I
FORWARD
LOOKING STATEMENTS:
This
Annual Report on Form 10-K and the exhibits attached hereto contain “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995, as amended. Such forward-looking statements concern the Company’s anticipated
results and developments in the Company’s operations in future periods, planned exploration and development of its properties,
plans related to its business and other matters that may occur in the future. These statements relate to analyses and other information
that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management.
Any
statement that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions
or future events or performance (often, but not always using words or phrases such as “believes”, “expects” or
“does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”,
“estimates”, or “intends”, or stating that certain actions, events or results “may” or “could”,
“would”, “might” or “will” be taken, occur or be achieved) are not statements of historical fact
and may be forward-looking statements. Forward-looking statements are subject to a variety of known and unknown risks, uncertainties
and other factors which could cause actual events or results to differ from those expressed or implied by the forward-looking statements.
The
Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The
Company disclaims any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or unanticipated events, except as required by law. The Company advises
readers to carefully review the reports and documents filed from time to time with the Securities and Exchange Commission (the “SEC”),
particularly the Company’s Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
Management’s
Discussion and Analysis is intended to be read in conjunction with the Company’s financial statements and the integral notes (“Notes”)
thereto for the fiscal year ending December 31, 2021. The following statements may be forward-looking in nature and actual results may
differ materially. All dollar amounts in this Annual Report are expressed in U.S. dollars, unless otherwise indicated.
Item
1. Business.
For
over 35 years, Electronic Systems Technology, Inc. (“EST”, “us”, “we”, “our” or the “Company”)
has specialized in the development and manufacturing of digital data (non-voice) radio transceivers for use in industrial wireless networking
applications. With reliance on wireless communication in the modern world, the global modernization of industrial control systems now
requires the benefits gained by use of wireless technology. EST designs, manufactures, develops and produces these specialized, hardened
products uniquely designed to operate and survive in these difficult environments in which these systems must perform.
The
Company’s ESTeem® line of products provide innovative communication solutions for harsh environment applications not served
or that are underutilized by conventional, commercial grade communication systems. Our products are part of the ESTeem® Industrial
Wireless Solutions for commercial, industrial, and government arenas both domestically and internationally. We market through direct
sales, sales representatives, resellers and system integrators
EST
was incorporated in the State of Washington in February 1984 and was granted a United States Patent for the “Wireless Computer
Modem” in May 1987, and Canadian patent in October 1988. We registered and commenced building brand recognition on the trade name
of “ESTeem® Wireless Modems” in 2007. After reviewing for marketability and profitability, our strategy is to provide
product improvements and enhancements that incorporate technological developments in response to customer needs and market opportunities
arising from changes in FCC regulations or technological developments.
Development
efforts in 2021 were focused primarily on software enhancements and hardware maintenance for the ESTeem® Horizon Series. These next
generation industrial wireless products will improve our networking capability with higher data rates, improved security, improved support
features and updates to the latest wireless standards.
In
an effort to maintain and expand our customer base in the industrial control marketplace, we team with major automation hardware vendors
such as Rockwell Automation. Our 30-year relationship with Rockwell Automation’s Encompass Program delivers significant benefits
via increased exposure to markets that would not otherwise be available to us. Rockwell Automation has the largest market share in the
United States and is a major entity in the world-wide automation and controls marketplace.
PRODUCTS
AND MARKETS
ESTeem®
industrial wireless products provide communication links between computer networks, network enabled devices and mobile devices without
cables. The widespread use of networked computer systems in business, industry and public service and the adoption of mobile devices
in all aspects of modern life has created an environment where the wireless network is no longer a convenience but a necessity. As wireless
networking proliferates through the modernization of the industrial sector the need for our products, which are specifically designed
for rigors of operation in harsh environments, is increasing dramatically. Wireless networks are the backbone connections to the Internet
for cloud-based services such as the Internet of Things (“IoT”) and Industrial Internet of Things (“IIoT”).
All
of the ESTeem® models come with industry standard Ethernet (Internet) communication ports and legacy serial ports to provide the
broadest range of connections for both new and legacy hardware. The combined features such as AES 128 or AES 256 security encryption,
self-healing repeaters, mesh networking, long range operation and outdoor weatherproof cases make the ESTeem® products unique in
our market space.
PRODUCT
APPLICATIONS
Major
applications and industries in which ESTeem® products are being utilized are as follows:
| Water/Wastewater |
Mining |
| Oil/Gas |
Industrial
Automation |
PRODUCT
LINES
We
manufacture nine (9) models of the ESTeem® industrial wireless modems that operate in frequency from 150 MHz to 5.8 GHz. A wireless
modem is a hardware device for sending and receiving data over a radio carrier and is the foundation of our industrial wireless solution.
Each model will fit best in a specific application based upon several factors such as distance, required data rate and Federal Communication
Commission (“FCC”) licensing requirements. Each wireless network is discussed in detail with the end customer to determine
the best overall solution for their application. No single model or frequency band can solve all applications and having a diverse product
selection is critical for expanding our customer base. The following is a summary of our product offering.
ESTeem
Model |
Type |
Frequency
(MHz) |
RF
Power
(Watts) |
RF
Data Rate |
LOS
Range
(Miles) |
Interface |
| 210M |
Narrow
Band Licensed |
150
to 174 |
2 |
64.8
Kbps |
15 |
Ethernet/RS-232 |
| 195M |
Narrow
Band Licensed |
150
to 174 |
4 |
12.5
Kbps |
15 |
Ethernet/RS-232/422/485 |
| 195C |
Narrow
Band Licensed |
450
to 470 |
4 |
12.5
Kbps |
15 |
Ethernet/RS-232/422/485 |
| 195H |
Narrow
Band Licensed |
217
to 220 |
2 |
50
Kbps |
15 |
Ethernet/RS-232/422/485 |
| Horizon900 |
Unlicensed |
900 |
1 |
72.2
Mbps |
10 |
Ethernet/
RS-232 |
| Horizon2.4 |
Unlicensed |
2400 |
1 |
150
Mbps |
5-7 |
Ethernet/
RS-232 |
| Horizon4.9 |
Licensed |
4900 |
1 |
72.2
Mbps |
5-7 |
Ethernet/
RS-232 |
| Horizon5.8 |
Unlicensed |
5800 |
.250
(Dual Stream) |
300
Mbps |
5-7 |
Ethernet/
RS-232 |
| Edge900 |
Unlicensed |
900 |
.25
|
1
Mbps |
10 |
Ethernet/
RS-232 |
ADDITIONAL
PRODUCTS AND SERVICES
Various
accessories to support the above products, e.g., antennas, power supplies and cable assemblies, are purchased from other manufacturers
and resold by us to support the application of our industrial wireless modems for repairs and upgrades. To assist in the application
of ESTeem industrial wireless modems, we also offer professional services, including site survey testing, system start-up, and custom
engineering.
RESEARCH
AND DEVELOPMENT AND NEW PRODUCTS
Our
products compete in an environment of rapidly changing technology which results in the necessity for continuous updates and enhancements.
Research and Development expenditures for new product development and improvements of existing products for 2021 and 2020 were $212,397
and $200,024 respectively. None of our research and development expenses were paid directly by any of our customers. We contract with
third parties for software development and hardware design as needed. Development efforts during 2021 were focused primarily on software
enhancements for the ESTeem® Horizon Series and the redesign of the Horizon900. Research and development expenditures will continue,
in order to meet our customers’ evolving needs
MARKETING,
CUSTOMERS AND SUPPORT
The
majority of our products sold during 2021 were through the reselling efforts of non-exclusive, non-stocking distributors and resellers,
and the remainder our sales were direct to end-users. Orders are generally place on an “as needed basis”. Shipping of products
is usually completed 1 to 15 working days after receipt of a customer order, with the exception of ongoing scheduled projects and custom
designed equipment for specific applications. Our sales order backlog at year end was $81,293.
We
advertise in trade publications and attend trade shows specifically targeting industrial automation systems. We provide support personnel
and maintain an internet web site to provide access to product and technical information for customers. We provide technical support
and service for our products and installations through phone support, field technicians and internet sources. High quality customer support
is vital to differentiate ourselves in our marketplace. We intend to maintain this high level of customer support by investing in our
customer service programs.
COMPETITION
All
of our markets are highly competitive as there are approximately twenty major automation hardware manufacturers worldwide. Listed below
are major competitors in the markets in which we compete.
| Major
Market |
Major
Competitors |
| Industrial
Automation |
FreeWave
Technologies, GE/Microwave Data Systems, and Cal Amp |
| |
| Computer
networking, inter and intra building, and remote internet access |
Cisco,
Digital Wireless, D-link, Linksys, P-Com and Proxim |
We
believe our products compete favorably based on performance, price, and adaptability of the products to a wide range of applications,
as well as world class service and support.
PATENTS,
TRADEMARKS, AND PROPRIETARY INFORMATION
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 bound by nondisclosure agreements. Rights to the ESTeem® Wireless Modems, trademark were renewed in 2014.
The initial patents granted in 1987 and 1988 have expired and we currently have no patents on any of our products.
GOVERNMENT
REGULATION
For
operation in the United States, the ESTeem® industrial wireless products require FCC type acceptance which is granted for devices
demonstrating operation within mandated and tested performance criteria. All of our products requiring FCC type acceptance have been
granted such acceptance, and all except the Horizon4.9 have been granted such acceptance in Canada.
The
ESTeem® industrial wireless products that operate in the FCC licensed frequency band require licensing under Part 90 of the FCC Rules
and Regulations which must be applied for by the end user. We provide information to customers to assist in the application for FCC consumer
licenses, although we cannot guarantee FCC licenses in a given frequency spectrum for a particular application will be received.
While
there can be no assurance that future FCC regulations will not have material adverse effects on our operations, we are unaware of any
such existing or proposed FCC regulations at this time.
SOURCE
OF SUPPLY AND MANUFACTURING
Components
are purchased through a number of distributors and key component suppliers, such as Hitachi, Motorola, and others, some of which have
long lead times. Although these components could be replaced or substituted by other products, if necessary, a significant interruption
or delay in their availability could have a material adverse effect on our business.
Approximately
30% of the Company’s inventory at December 31, 2021 consisted of parts having lead times ranging from 12 to 30 weeks. Some parts
are maintained at high levels to assure availability to meet production requirements, thus, accounting for a significant portion of the
Company’s inventory value. Based on past experience with component availability, distributor relationships, and inventory levels,
we do not foresee shortages of materials. However, developments in the electronic component marketplace, which are also used in cellular
phones, personal technology devices and other technology devices, have the potential of creating negative availability and delivery issues
for components used by us. Although we have been able to procure parts on a timely basis as of the date of this report, however procurement
cannot be guaranteed in the future. If shortages were to occur, material interruption of production and product delivery to customers
would result.
The
Company contracts with multiple companies for manufacturing of sub-assemblies and some engineering assistance services as needed. By
contracting with these companies, the Company is able to avoid staff fluctuations associated with operating its own manufacturing and
reduced capital investments in specialized manufacturing equipment. We review the costs for the services provided by these companies
and regularly submits Requests for Quotes (RFQ) to multiple suppliers of these operations. See “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”, and “Financial Statements”.
ACCESS
TO COMPANY INFORMATION
The
Registrant does not issue annual or quarterly reports to security holders other than the annual Form 10-K and quarterly Forms 10-Q as
electronically filed with the Securities and Exchange Commission (“SEC”) and available for viewing at www.sec.gov. Electronically
filed reports may be accessed at www.sec.gov or via the Company’s website at www.esteem.com. We make available on our website such
reports as soon as reasonably practicable after they are filed with the SEC.
EMPLOYEES
As
of December 31, 2021, we employ 9 persons on a full-time basis (4 in sales/marketing, 1 in technical support, 3 in engineering/manufacturing,
and 1 in finance and administration). The Company’s operations are dependent upon key members of its engineering and management
personnel, which, if lost to the Company, could have a material adverse effect on our business.
Item
1A. Risk Factors.
Our
common stock value and our business, results of operations, cash flows and financial condition are subject to various risks, including,
but not limited to those set forth below. If any of the following risks actually occurs, our common stock, business, results of operations,
cash flows and financial condition could be materially adversely affected. These risk factors should be carefully considered together
with the other information in this Annual Report on Form 10-K, including the risks and uncertainties described under the heading “Forward-Looking
Statements.” This list is not exhaustive of the factors that may affect the Company’s forward-looking statements. Some of
the important risks and uncertainties that could affect forward-looking statements are described further under the sections titled “Risk
Factors and Uncertainties”, “Description of Business” and “Management’s Discussion and Analysis”
of this Annual Report. If any of the events described in the risk factors below actually occur, our business, financial condition or
results of operations could suffer significantly. In such case, the value of your investment could decline and you may lose all or part
of the money you paid to buy our common stock. Forward-looking statements are subject to a variety of known and unknown risks, uncertainties
and other factors which could cause actual events or results to differ from those expressed or implied by the forward-looking statements,
including, without limitation:
We
cannot predict whether we will be able to sustain revenue growth, profitability or positive cash flow. Our products are sold in highly
competitive markets. Our revenues and operating results may be negatively affected by technology changes in our markets, economic conditions
in our markets, and the level of competition in our markets.
Our
marketing efforts may be unsuccessful due to limited marketing and sales capabilities. Our limited national advertising and sales
coverage may result in our markets not being fully penetrated. The lack of market penetration may result in an adverse effect on our
revenues. We must continue to develop and maintain appropriate marketing, sales, technical, customer service and distribution capabilities,
or enter into agreements with third parties to provide these services, to successfully market our products. A failure to develop these
capabilities or obtain third-party agreements could adversely affect us.
We
may be unable to produce products for sale if we are unable to obtain component materials. Our products require highly specialized
components, which are subject to rapid obsolescence, limited availability and design change. Many of the components in our products are
also used in cellular phone, pagers and other technology devices. If we cannot obtain material to produce products, our sales revenues
will be negatively impacted.
Our
success depends on our ability to retain key management personnel. The success of our Company depends in large part on our ability
to attract and retain highly qualified management, administrative, manufacturing, sales, and research and development personnel. Due
to the specialized nature of our business, it may be difficult to locate and hire qualified personnel. Our success is significantly dependent
on the performance and continued service of key members of Management, such as Chief Executive Officer, Michael Eller, and certain other
key employees. If the services of any members of Management become unavailable for any reason, our business and prospects could be adversely
affected. Although we have been successful in retaining highly capable and qualified management in the past, there can be no assurance
that we will be able to do so in the future.
We
may be adversely affected by government regulation. The Federal Communication Commission (FCC) governs use of the products we sell.
If the FCC were to implement rules detrimental to our products and the markets in which they are offered, our operations would be negatively
impacted.
Rapid
technological changes in our industry may adversely affect us if we do not keep pace with advancing technology. The wireless communication
market is characterized by rapidly advancing technology. Our success depends on our ability to keep pace with advancing technology, processes
and standards, such as cellular telephone based technology. We intend to continue to develop and enhance our products to meet perceived
market opportunities. However, our development efforts may be rendered obsolete by research efforts and technological advances made by
others, and devices other than those we currently produce may prove more advantageous.
We
have material weaknesses in our internal controls which may result in us not being able to prevent or detect a material misstatement
of our financial statements, which could harm our business and result in regulatory scrutiny. Pursuant to the requirements of Section
404 of the Sarbanes-Oxley Act of 2002 (“Section 404”), Management conducted an assessment of the effectiveness of our internal
controls over financial reporting for the year ending December 31, 2021. We determined that there continues to be material weakness affecting
our internal control over financial reporting and, as a result of that weakness, our disclosure controls and procedures were not effective
as of December 31, 2021. We have not maintained effective controls to ensure appropriate segregation of duties due to our limited number
of employees in finance and administration. The same employee is responsible for the initiating and recording of transactions, thereby
creating segregation of duties weaknesses. Due to this weakness and absence of sufficient mitigating controls, we determined that this
control deficiency resulted in a more than remote likelihood that material misstatement or lack of disclosure within the annual or interim
financial statements will not be prevented or detected. Avenues for mitigating our internal control weaknesses have been evaluated but
mitigating controls have been deemed to be impractical and prohibitively costly due to the size of our organization at the current time.
The material weakness in our internal controls may subject us to regulatory scrutiny with undetermined consequences.
The
market for our common stock is limited and our shareholders may have difficulty reselling their shares when desired or at attractive
market prices. Our stock price and our listing may make it more difficult for our shareholders to resell shares when desired or at
attractive prices. Our Company stock trades on the “over-the-counter” market and is listed on OTCQB tier of the OTC Markets.
Our common stock has continued to trade in low volumes and at low prices. Some investors view low-priced stocks as unduly speculative
and therefore not appropriate candidates for investment. Many institutional investors have internal policies prohibiting the purchase
or maintenance of positions in low-priced stocks.
Item
1B. Unresolved Staff Comments.
None.
Item
2. Properties.
We
do not own any real property, plants, mines, or any other materially important physical properties. The Company’s administrative offices,
inventory and laboratories are located in leased facilities at 415 N. Roosevelt Street, STE B1, Kennewick, Washington. The Company leases
approximately 5,270 square feet of office and laboratory space by a lease agreement with the Port of Kennewick in Kennewick, Washington.
As of December 31, 2021, the total monthly lease cost, including tax, is $3,687 The lease initially covered a period of two years, expiring
September 2022.
We
also own miscellaneous assets, such as computer equipment, laboratory equipment, and furnishings. We maintain insurance in such amounts
and covering such losses, contingencies and occurrences deemed adequate to protect our 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 our control, as
well as damage to the property of others. We also maintain fidelity insurance which provides coverage to the Company in the event of
employee dishonesty.
Item
3. Legal Proceedings.
EST
is not a party to any material legal proceedings and, to management’s knowledge, no such proceedings are threatened or contemplated.
Item
4. Mine Safety Disclosure.
Not
Applicable
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
The
closing price for our common stock on the OTCQB was $0.30 on February 15, 2022.
There
were 339 holders of record of our Common Stock as of February 15, 2022.
Our
stock transfer agent is EQ Shareowner Services, 320 Cherry Creek Drive South, Suite 435, Denver CO 80209.
The
Company does not maintain any form of Equity Compensation Plan.
Stock
Repurchases
On
January 13, 2016, the Company’s Board of Directors approved a resolution authorizing the repurchase of up to $100,000 of the Company’s
common stock at the price of $0.38 per share. The Company’s share repurchase program does not obligate it to acquire any specific
number of shares. On March 2, 2016 the Company’s Board of Director approved a resolution authorizing the repurchase of an additional
$150,000 of the Company’s common stock at the price of $0.38 per share. Under the program (the “Stock Repurchase Plan”),
shares may be repurchased in open market transactions, complying with Rule 10b5-1 and Rule 10b-18 under the Securities Exchange Act of
1934, as amended (the “Exchange Act”). Shares repurchased are retired. On April 23, 2020, repurchases were suspended indefinitely.
The
following table shows the Company’s activity and related information for the year ended December 31, 2021 and 2020 under the Stock
Repurchase Plan.
ISSUER
PURCHASES OF EQUITY SECURITIES
| Period |
|
Total
number of
shares purchased |
Average
price
paid per share |
Total
number
of shares
purchased as
part of
publicly
announced
plans or
programs |
Maximum
number of
shares that
may yet be
purchased
under the plans
or programs |
| January
1, 2017-January 31, 2017 |
|
98,764 |
$0.38 |
98,764 |
559,130 |
| February
1, 2017-February 28, 2017 |
|
-0- |
-0- |
-0- |
559,130 |
| March
1, 2017-March 31,2017 |
|
7,725 |
$0.38 |
106,489 |
551,405 |
| April
1, 2017-April 30, 2017 |
|
45,601 |
$0.38 |
152,090 |
505,804 |
| May
1, 2017-June 30, 2017 |
|
-0- |
-0- |
-0- |
505,804 |
| July
1, 2017-July 31, 2017 |
|
8,642 |
$0.38 |
160,732 |
497,162 |
| August
1, 2017-August 31, 2017 |
|
11,887 |
$0.38 |
172,619 |
485,275 |
| September
1, 2017-December 31, 2017 |
|
-0- |
-0- |
-0- |
485,275 |
| January
1, 2018 – November 31, 2018 |
|
-0- |
-0- |
-0- |
485,275 |
| December
1, 2018 – December 31, 2018 |
|
300 |
$0.38 |
172,919 |
484,975 |
| January
1, 2019 – January 31, 2019 |
|
39,246 |
$0.38 |
212,165 |
445,729 |
| February
1, 2019 – December 31, 2019 |
|
-0- |
-0- |
-0- |
445,729 |
| Total |
|
212,165 |
$0.38 |
212,165 |
445,729 |
Item
6. Selected Financial Data.
We
are a “smaller reporting company” as defined by Regulation S-K and as such, are not required to provide this information.
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Management’s
discussion and analysis is provided as supplement to, and is intended to be read in conjunction with, the Company’s audited financial
statements and the accompanying integral notes (“Notes”) thereto. The following statements may be forward-looking in nature
and actual results may differ materially.
RESULTS
OF OPERATIONS
GENERAL:
We specialize in the manufacturing and development of data radio products. The Company offers product lines which provide innovative
communication solutions for applications not served by existing conventional communication systems. We offer product lines in markets
for process automation in commercial, industrial and government arenas domestically as well as internationally. We market our products
through direct sales, sales representatives, and domestic, as well as foreign, resellers. Operations are sustained solely from revenues
received through sales of its products and services.
As
a result of COVID-19, and governmental responses thereto, are experiencing some negative impacts to our business, primarily as a result
of reductions in staffing by our customers, and their customers, which is lengthening our normal sales cycles. Many of our customers
are also restricting visits from vendors. All of our planned trade shows and sales presentations have been canceled or postponed as a
result of the risks associated with face to face meetings. We have utilized various platforms to provide current customers and potential
customers with presentations about our products and services. We have also experienced some delays in our supply chain but none of these
COVID-19 related disruptions, to the supply chain, has been significant at this point.
FISCAL
YEAR 2021 vs. FISCAL YEAR 2020
GROSS
REVENUES: Total revenues for the fiscal year 2021 were $1,512,028 reflecting an increase of 23.4% from $1,225,372 in gross revenues for
fiscal year 2020. During the year ended December 31, 2021, two customers sales accounted for more than 10% of the total sales revenues.
The increase in total revenues is the result of increased product sales during 2021. Domestic Sales for the fiscal year were $1,341,287
compared to $927,494 in 2020. Sales to Foreign Customers for the fiscal year were $170,741 compared to $297,878 in 2020. Product sales
increased to $1,458,328 in 2021, as compared to 2020 sales of $1,181,022 reflecting an increase of 23.5%.
Interest
revenues during 2021 decreased to $2,489 from 2020 level of $10,736 due to the decreased interest rates for the certificates of deposit
held by the Company and the reduction of the value of the certificates held during 2021.
As
of December 31, 2021, the Company had sales backlog of $81,293. The Company’s customers generally place orders on an “as needed
basis”. Shipment of the Company’s products is generally completed within 1 to 15 working days after receipt of customer orders,
with the exception of ongoing, scheduled projects, and custom designed equipment for specific customer applications.
COST
OF SALES: Cost of Sales, as a percentage of net sales, was 49.2% and 49.7% respectively, for 2021 and 2020. Cost of Sales variances are
the result of differences in the product mix sold and occurrences of obsolete inventory expense, as well as differences in the price
discounting structure for the mix of products sold during the period.
INVENTORY:
The Company’s year-end inventory values for 2021 and 2020 were as follows:
| |
2021 |
2020 |
| Parts
|
$ 92,751 |
$ 99,303 |
| Work
in progress |
171,705 |
275,230 |
| Finished
goods |
237,377 |
257,174 |
| TOTAL
|
$ 501,833 |
$ 631,707 |
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.
OPERATING
EXPENSES: Operating expenses increased to $957,654 in 2021 from 2020 levels of $839,173. Significant changes in expenses are comprised
of the following components: Payroll and related expenses $19,911 increase, services purchased $109,432 increase, Travel $15,191 increase
Depreciation expense decreased during 2021 to $1,784 from 2020 levels of $5,169 due to the Company’s decreased capital purchases.
LIQUIDITY
AND CAPITAL RESOURCES
The
Company’s revenues and expenses resulted in net income of $92,989 for 2021, an increase from a net loss of $202,179 for 2020. At
December 31, 2021, the Company’s working capital was $1,6410,537 compared with $1,676,530 at December 31, 2020. The Company’s operations
rely solely on the income generated from sales. The Company’s major capital resource requirements are payment of employee salaries and
benefits and maintaining inventory levels adequate for production. Extended availability for components critical for production of the
Company’s products, ranging from 12 to 30 weeks, require the Company to maintain high inventory levels. It is management’s
opinion that the Company’s working capital as of December 31, 2021 is adequate for expected resource requirements for the next
twelve months. During the twelve month period ending December 31, 2021, the Company had positive cash flow of $347,506.
The
Company’s current asset to current liability ratio at December 31, 2021 was 12.7:1 compared to 20.7:1 at December 31, 2020. The decrease
in current asset ratio is the result of the Company having increased accounts payable for year-end 2021 when compared with year-end 2020.
The Company’s liquid resources at December 31, 2021, including cash and cash equivalent and certificates of deposits, were $1,055,616,
compared to $808,109 at December 31, 2020. The increase in liquid resources is the result of the 2021 operating income. The Company’s
accounts receivable at December 31, 2021 were $166,303, compared to $288,884 at December 31, 2020. Management believes that all Company
accounts receivable as of December 31, 2021 are collectible and does not have a reserve for uncollectable accounts.
The
Company believes the level of risk associated with customer receipts on export sales is minimal. Foreign shipments are made only after
payment has been received or on Net 30 day credit terms to established foreign companies with which the Company has distributor relationships.
Foreign orders are generally filled as soon as they are received therefore; foreign exchange rate fluctuations do not impact the Company.
Inventories
at December 31, 2021 were $501,833, reflecting a decrease from December 31, 2020 of $631,707. The decrease in inventory between December
31, 2021 and December 31, 2020, is due to the delays in the supply chain.
We
had capital expenditures $1,082 during 2021. The Company intends on investing in additional capital equipment as deemed necessary to
support development and manufacture of current and future products.
As
of December 31, 2021, our current liabilities increased to $137,637 from $84,916 at December 31, 2020. The increase in current liabilities
was impacted by a increase in accounts payable to $70,686 from $21,113.
We
had no off-balance sheet arrangements for the year ended December 31, 2021.
Inflation
had minimal adverse effect on the Company’s operations during 2021. Minimal adverse effect is anticipated during 2022.
FORWARD
LOOKING STATEMENTS: The above discussion may contain forward-looking statements that involve a number of risks and uncertainties. These
factors are more fully described in the “Risk Factors” section of Item 1A of this Annual Report on Form 10-K. 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, rapid advances in
competing technologies and risk factors that are listed in the Company’s reports filed with the Securities and Exchange Commission.
Item
7A. Quantitative and Qualitative Disclosures About Market Risk.
Not
Applicable.
Item
8. Financial Statements and Supplementary Data.
ELECTRONIC
SYSTEMS TECHNOLOGY, INC.
DBA ESTEEM WIRELESS MODEMS
FINANCIAL
STATEMENTS AND SUPPLIMENTAL SCHEDULE
AND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FOR
THE YEARS ENDED DECEMBER 31, 2021 AND 2020
TABLE
OF CONTENTS
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders
Electronic Systems Technology, Inc.
Opinion
on the Financial Statements
We
have audited the accompanying balance sheets of Electronic Systems Technology, Inc. (“the Company”) as of December 31, 2021
and 2020, and the related statements of operations, changes in stockholders’ equity and cash flows for the years then ended, and
the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in
all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and
its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits,
we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
Critical
Audit Matters
Critical
audit matters are matters arising from the current-period audit of the financial statements that were communicated or required to be
communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and
(2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
Supplemental
Information
The
supplemental schedule of operating expenses for the years ended December 31, 2021 and 2020 (“the supplemental information”)
has been subjected to audit procedures performed in conjunction with the audit of the Company’s financial statements. The supplemental
information is the responsibility of the Company’s management. Our audit procedures included determining whether the supplemental information
reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test
the completeness and accuracy of the information presented in the supplemental information. In forming our opinion on the supplemental
information, we evaluated whether the supplemental information, including its form and content, is presented in conformity with accounting
principles generally accepted in the United States of America. In our opinion, the supplemental information is fairly stated, in all
material respects, in relation to the financial statements as a whole.
/s/
Assure CPA, LLC.
We
have served as the Company’s auditor since 2012.
Spokane, Washington
Firm ID is 444
March 2, 2022
ELECTRONIC
SYSTEMS TECHNOLOGY, INC.
DBA
ESTEEM WIRELESS MODEMS
BALANCE
SHEETS
DECEMBER
31, 2021 AND 2020 |
| | |
2021 | | |
2020 | |
| ASSETS | |
| | | |
| | |
| CURRENT ASSETS | |
| | | |
| | |
| Cash and cash equivalents | |
$ | 655,616 | | |
$ | 308,110 | |
| Certificates of deposit | |
| 400,000 | | |
| 499,999 | |
| Accounts receivable - net | |
| 166,303 | | |
| 288,884 | |
| Inventories - net | |
| 501,833 | | |
| 631,707 | |
| Prepaid expenses | |
| 24,387 | | |
| 28,087 | |
| Accrued interest receivable | |
| 35 | | |
| 4,659 | |
| | |
| | | |
| | |
| Total Current Assets | |
| 1,748,174 | | |
| 1,761,446 | |
| | |
| | | |
| | |
| PROPERTY AND EQUIPMENT – NET | |
| 1,358 | | |
| 5,445 | |
| | |
| | | |
| | |
| Right of use – asset, net of amortization (NOTE 8) | |
| 28,922 | | |
| 65,230 | |
| | |
| | | |
| | |
| TOTAL ASSETS | |
$ | 1,778,454 | | |
$ | 1,832,121 | |
| | |
| | | |
| | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | | |
| | |
| CURRENT LIABILITIES | |
| | | |
| | |
| Accounts payable | |
$ | 71,645 | | |
$ | 21,113 | |
| Accrued wages | |
| 9,114 | | |
| 2,699 | |
| Operating lease liability – current (NOTE 8) | |
| 28,438 | | |
| 36,753 | |
| Accrued vacation payable | |
| 13,613 | | |
| 17,631 | |
| Other accrued liabilities | |
| 14,827 | | |
| 6,720 | |
| | |
| | | |
| | |
| Total Current Liabilities | |
| 137,637 | | |
| 84,916 | |
| | |
| | | |
| | |
| Long-term liabilities | |
| | | |
| | |
| | |
| | | |
| | |
| CARES Act loan payable (NOTE 11) | |
| - | | |
| 171,712 | |
| Operating lease liability (NOTE 8) | |
| - | | |
| 28,635 | |
| | |
| | | |
| | |
| Total Long-term Liabilities | |
| - | | |
| 200,347 | |
| | |
| | | |
| | |
| TOTAL LIABILITIES | |
| 137,637 | | |
| 285,263 | |
| | |
| | | |
| | |
| STOCKHOLDERS’ EQUITY | |
| | | |
| | |
Common stock - $.001 par value 50,000,000 shares authorized, 4,946,502 and 4,946,502 shares issued and outstanding, respectively
| |
| 4,947 | | |
| 4,947 | |
| Additional paid-in capital | |
| 932,412 | | |
| 931,442 | |
| Retained earnings | |
| 703,458 | | |
| 610,469 | |
| TOTAL STOCKHOLDERS’ EQUITY | |
| 1,640,817 | | |
| 1,546,858 | |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | |
$ | 1,778,454 | | |
$ | 1,832,121 | |
See
Notes to Financial Statements.
ELECTRONIC
SYSTEMS TECHNOLOGY, INC.
DBA
ESTEEM WIRELESS MODEMS
STATEMENTS
OF OPERATIONS
FOR
THE YEARS ENDED DECEMBER 31, 2021 AND 2020
|
| | |
2021 | | |
2020 | |
| | |
| | |
| |
| SALES – NET | |
$ | 1,512,028 | | |
$ | 1,225,372 | |
| | |
| | | |
| | |
| COST OF SALES | |
| 744,246 | | |
| 608,654 | |
| | |
| | | |
| | |
| GROSS PROFIT | |
| 767,782 | | |
| 616,718 | |
| | |
| | | |
| | |
| OPERATING EXPENSES | |
| 957,654 | | |
| 839,173 | |
| | |
| | | |
| | |
| OPERATING LOSS | |
| (189,872 | ) | |
| (222,455 | ) |
| | |
| | | |
| | |
| OTHER INCOME: | |
| | | |
| | |
| Interest income | |
| 2,488 | | |
| 10,736 | |
| Government grant income | |
| - | | |
| 9,000 | |
| Gain on forgiveness of CARES Act loan (Note 11) | |
| 280,373 | | |
| - | |
| TOTAL OTHER INCOME | |
| 282,861 | | |
| 19,736 | |
| | |
| | | |
| | |
| NET INCOME ( LOSS) BEFORE INCOME TAXES | |
| 92,989 | | |
| (202,719 | ) |
| | |
| | | |
| | |
| INCOME TAX PROVISION (BENEFIT) | |
| - | | |
| - | |
| | |
| | | |
| | |
| NET INCOME (LOSS) AFTER INCOME TAXES | |
$ | 92,989 | | |
$ | (202,719 | ) |
| | |
| | | |
| | |
| NET INCOME (LOSS) PER SHARE, BASIC AND DILUTED | |
$ | 0.02 | | |
$ | (0.04 | ) |
| | |
| | | |
| | |
| WEIGHTED AVERAGE SHARES OUTSTANDING, BASIC AND DILUTED | |
| 4,946,502 | | |
| 4,946,502 | |
See
Notes to Financial Statements.
ELECTRONIC
SYSTEMS TECHNOLOGY, INC.
DBA
ESTEEM WIRELESS MODEMS
STATEMENTS
OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR
THE YEARS ENDED DECEMBER 31, 2021 AND 2020 |
| | |
|
|
|
|
|
| | |
Additional | | |
| | |
| |
| | |
Common Stock | | |
Paid-In | | |
Retained | | |
| |
| | |
Shares | | |
Amount | | |
Capital | | |
Earnings | | |
Total | |
| | |
| | |
| | |
| | |
| | |
| |
| BALANCE AT DECEMBER 31, 2019 | |
| 4,946,502 | | |
$ | 4,947 | | |
$ | 929,159 | | |
$ | 813,188 | | |
$ | 1,747,294 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net loss | |
| - | | |
| - | | |
| - | | |
| (202,719 | ) | |
| (202,719 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Share based compensation | |
| - | | |
| - | | |
| 2,283 | | |
| - | | |
| 2,283 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| BALANCE AT DECEMBER 31, 2020 | |
| 4,946,502 | | |
$ | 4,947 | | |
$ | 931,442 | | |
$ | 610,469 | | |
$ | 1,546,858 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net income | |
| - | | |
| - | | |
| - | | |
| 92,989 | | |
| 92,989 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Share based compensation | |
| - | | |
| - | | |
| 970 | | |
| - | | |
| 970 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| BALANCE AT DECEMBER 31, 2021 | |
| 4,946,502 | | |
$ | 4,947 | | |
$ | 932,412 | | |
$ | 703,458 | | |
$ | 1,640,817 | |
See
Notes to Financial Statements.
ELECTRONIC
SYSTEMS TECHNOLOGY, INC.
DBA
ESTEEM WIRELESS MODEMS
STATEMENTS
OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2021 AND 2020 |
| | |
2021 | | |
2020 | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | | |
| | |
| Net income (loss) | |
$ | 92,989 | | |
$ | (202,719 | ) |
| Noncash expenses included in income (loss): | |
| | | |
| | |
| Depreciation and amortization | |
| 5,169 | | |
| 6,953 | |
| Share based compensation | |
| 970 | | |
| 2,283 | |
| Gain on forgiveness of CARES Act loan | |
| (280,373 | ) | |
| - | |
| Changes in operating assets and liabilities: | |
| | | |
| | |
| | |
| | | |
| | |
| Accounts receivable | |
| 122,581 | | |
| (211,923 | ) |
| Inventories | |
| 129,873 | | |
| 191,112 | |
| Prepaid expenses | |
| 3,702 | | |
| (7,179 | ) |
| Accrued interest receivable | |
| 4,624 | | |
| 1,881 | |
| Accounts payable | |
| 49,572 | | |
| (80,435 | ) |
| Other accrued liabilities | |
| 2,865 | | |
| 11,488 | |
| Net Cash provided (used) by Operating Activities | |
| 131,972 | | |
| (288,539 | ) |
| | |
| | | |
| | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
| Certificates of deposits purchased | |
| (400,000 | ) | |
| (1,049,999 | ) |
| Certificates of deposits redeemed | |
| 499,999 | | |
| 1,200,000 | |
| Purchase of equipment | |
| (1,082 | ) | |
| - | |
| Net Cash provided by Investing Activities | |
| 98,917 | | |
| 150,001 | |
| | |
| | | |
| | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
| Principal payments on CARES Act loan payable (round 1) | |
| (13,638 | ) | |
| - | |
| Proceeds from CARES Act loan payable (rounds 1 and 2) | |
| 130,255 | | |
| 171,712 | |
| Net Cash provided by Financing Activities | |
| 116,617 | | |
| 171,712 | |
| | |
| | | |
| | |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | |
| 347,506 | | |
| 33,174 | |
| | |
| | | |
| | |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | |
| 308,110 | | |
| 274,936 | |
| | |
| | | |
| | |
| CASH AND CASH EQUIVALENTS AT END OF YEAR | |
$ | 655,616 | | |
$ | 308,110 | |
| | |
| | | |
| | |
| Non-cash investing and financing activities: | |
| | | |
| | |
| Recognition of operating lease liability and right of use asset | |
$ | - | | |
$ | 74,005 | |
See
Notes to Financial Statements.
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.
Effective
September 13, 2007, the Company announced their establishment of a “doing business as” or dba structure, based on the Company’s
registered trade name of ESTeem® Wireless Modems.
As
a result of COVID-19, and governmental responses thereto, the Company has experienced some negative impacts to its business, primarily
as a result of reductions in staffing by customers, and their customers, which is lengthened normal sales cycles. Many of customers also
restricted visits from vendors. All of planned trade shows and sales presentations were canceled or postponed as a result of the risks
associated with face to face meetings. Management utilized various platforms to provide current customers and potential customers with
presentations about products and services. The Company also experienced and continue to experience delays in its supply chain. While
many of the past negative impacts have lessened over time, if new outbreaks, or strains, of Covid-19 occur and/or if governments revert
to more restrictive measures with respect to travel and business operations which require or result in our inability to effectively market
and/or interact with customers (whether potential or actual), the Company could again experience negative impacts.
Basis
of Presentation and Accounting Estimates
The
preparation of financial statements are prepared in conformity with generally accepted accounting principles in the United States which
requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses.
Estimates used in the accompanying financial statements include the allowance for doubtful accounts receivable, inventory obsolescence,
useful lives of depreciable assets, share-based compensation, and deferred income taxes. Actual results could differ from those estimates.
Concentrations
and Credit Risks
The
Company places its cash with three major financial institutions. During the period, the Company had cash balances that were in excess
of federally insured limits.
The
Company purchases certain key components necessary for the production of its products from a limited number of suppliers. The components
provided by the suppliers could be replaced or substituted by other products. It is possible that if this action became necessary, an
interruption of production and/or material cost expenditures could take place.
Revenue
Recognition
The
Company recognizes revenue when it has satisfied the performance obligation required under a contract with the customer. A performance
obligation is a promise in a contract with a customer to transfer a distinct good or service to the customer. Our contracts with customers
contain a single performance obligation. A contract’s transaction price is recognized as revenue when, or as, the performance obligation
is satisfied.
Performance
obligations for product sales are satisfied as of a point in time. Revenue is recognized when control of the product transfers to the
customer, generally upon product shipment. Performance obligations for site support and engineering services are satisfied over-time
if the customer receives the benefits as we perform work and we have a contractual right to payment. Revenue recognized on an over-time
basis is based on costs incurred to date relative to milestones and total estimated costs at completion to measure progress.
The
Company considers the contractual consideration payable by the customer when determining the transaction price of each contract. Revenue
is recorded net of charges for certain sales incentives and discounts, and applicable state and local sales taxes, which represent components
of the transaction price. Charges are estimated by us upon shipment of the product based on contractual terms, and actual charges typically
do not vary materially from our estimates. Shipping estimates are determined by utilizing shipping costs provided by the various service
providers websites based on number of packages, weight and destination. Shipping costs are included in the cost of goods sold as the
revenue is captured in total sales.
ELECTRONIC
SYSTEMS TECHNOLOGY, INC.
NOTES
TO FINANCIAL STATEMENTS
The
Company receives payments from customers based on the terms established in our contracts. When amounts are billed and collected before
the services are performed, they are included in deferred revenues. The Company does not generally sell its products with the right of
return. Therefore, returns are accounted for when they occur and are accepted. Products sold to foreign customers are shipped after payment
is received in U.S. funds, unless an established distributor relationship exists, or the customer is a foreign branch of a U.S. company.
The
Company warrants its products as free of manufacturing defects and provides a refund of the purchase price, repair or replacement of
the product for a period of one year from the date of installation by the first user/customer. No allowance for estimated warranty
repairs or product returns has been recorded due to the Company’s historical experience of repairs and product returns.
Financial
Instruments
The
Company’s financial instruments are cash, money market funds, and certificates of deposit. The recorded values of cash, money market
funds and certificates of deposit approximate their fair values based on their short-term nature.
Cash
and Cash Equivalents
Cash
and cash equivalents are cash and money market funds purchased with original maturities of three months or less.
Allowance
for Uncollectible Accounts
The
Company uses the allowance method to account for estimated uncollectible accounts receivable. Accounts receivable are presented net of
an allowance for doubtful accounts. As of December 31, 2021 and 2020, the Company’s estimate of doubtful accounts was zero. The
Company’s policy for writing off past due accounts receivable is based on the time past due and responses received from the subject
customer.
Inventories
Inventories
are stated at lower of direct cost or market. Cost is determined on an average cost basis that approximates the first-in, first-out (FIFO)
method. Market is determined based on net realizable value and consideration is given to obsolescence.
Reclassifications
Certain
prior year amounts have been reclassified for consistency with the current year presentation. Reclassifications had no effect on net
income (loss), stockholders’ equity, or cash flows as previously reported.
Property
and Equipment
Property
and equipment is carried at cost. Major betterments are capitalized and de minimis purchases are expensed. 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 three to seven years. When the Company sells or otherwise disposes of property and equipment a gain or loss is recorded
in the statement of operations. The cost of improvements that extend the life of property and equipment is capitalized. 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.
Certificates
of Deposit
Certificates
of deposit with original maturities ranging from one month to twelve months were 400,000 and $499,999 at December 31, 2021 and 2020,
respectively.
Software
Costs
Software
purchased and used by the Company is capitalized as property and equipment based on its cost, and amortized over its useful life, usually
not exceeding five years.
ELECTRONIC
SYSTEMS TECHNOLOGY, INC.
NOTES
TO FINANCIAL STATEMENTS
The
Company capitalizes the costs of creating a software product to be sold, leased or otherwise marketed, for which technological feasibility
has been established. Amortization of the software product, on a product-by-product basis, begins on the date the product is available
for distribution to customers and continues over the estimated revenue-producing life, not to exceed five years.
Leases
Contracts
that meet the definition of a lease are classified as operating or financing leases and are recorded on the balance sheet as both a right-of-use
asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the
Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the
right-of-use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the
right-of-use asset result in straight-line rent expense over the lease term. Variable lease expenses are recorded when incurred.
Income
Taxes
The
provision (benefit) for income taxes is computed on the pretax income (loss) based on the current tax law. Deferred income taxes are
recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial
reporting amounts at each year-end based on enacted tax laws and statutory tax rates. The Company evaluates positive and negative information
when estimating the valuation allowance for deferred tax assets. For tax positions that meet the more likely than not recognition threshold
a deferred tax asset is recognized.
Research
and Development
Research
and development costs are recognized as operating expenses when incurred. Research and development expenditures for new product development
and improvements of existing products by the Company for 2021 and 2020 were $212,397 and $200,024, respectively.
Advertising
Costs
Costs
incurred for producing and communicating advertising are recognized as operating expenses when incurred. Advertising costs for the years
ended December 31, 2021 and 2020 were $7,979 and $6,351, respectively.
Earnings
Per Share
The
Company is required to have dual presentation of basic earnings per share (“EPS”) and diluted EPS. Basic EPS is computed
as net income (loss) divided by the weighted average number of common shares outstanding for the period. Diluted EPS is calculated based
on the weighted average number of common shares outstanding during the period plus the effect of potentially dilutive common stock equivalents.
Potentially
dilutive common stock equivalents consist of 240,000 and 180,000 stock options outstanding as of December 31, 2021 and 2020, respectively.
As of December 31, 2021 and 2020, the potentially dilutive stock options were not included in the calculation of the diluted weighted
average number of shares outstanding or diluted EPS as their effect would have been anti-dilutive.
Share-Based
Compensation
Share-based
payments to employees, including grants of employee stock options, are measured at fair value and expensed in the statement of operations
over the vesting period. In addition to the recognition of expense in the financial statements, any excess tax benefits received upon
exercise of options will be presented as a financing activity inflow rather than an adjustment of operating activity in the statement
of cash flows.
Fair
Value Measurements
When
required to measure assets or liabilities at fair value, the Company uses a fair value hierarchy based on the level of independent, objective
evidence surrounding the inputs used. The Company determines the level within the fair value hierarchy in which the fair value measurements
in their entirety fall. The categorization within the fair value hierarchy is based upon the lowest level of input that is significant
to the fair value measurement. Level 1 uses quoted prices in active markets for identical assets or liabilities, Level 2 uses significant
other observable inputs, and Level 3 uses significant unobservable inputs. The amount of the total gains or losses for the period are
included in earnings that are attributable to the change in unrealized gains or losses relating to those assets and liabilities
still held at the reporting date. At December 31, 2021 and 2020, the Company has no assets or liabilities subject to fair value measurements
on a recurring basis.
ELECTRONIC
SYSTEMS TECHNOLOGY, INC.
NOTES
TO FINANCIAL STATEMENTS
New
Accounting Pronouncements
Accounting
standards issued by the Financial Accounting Standards Board that do not require adoption until a future date are not expected to have
a material impact on the financial statements upon adoption.
Inventories
consist of the following:
Schedule
of Inventories
| | |
2021 | | |
2020 | |
| Parts | |
$ | 92,751 | | |
$ | 99,303 | |
| Work
in progress | |
| 171,705 | | |
| 275,230 | |
| Finished
goods | |
| 237,377 | | |
| 257,174 | |
| Total | |
$ | 501,833 | | |
$ | 631,707 | |
Included
in the above amounts are reserves for obsolete inventories of $5,829 and $4,730 at December 31, 2021 and 2020, respectively.
Property
and equipment consist of the following:
Schedule of Property and Equipment
| | |
2021 | | |
2020 | |
| Laboratory
equipment | |
$ | 522,575 | | |
$ | 522,575 | |
| Software | |
| 35,028 | | |
| 35,028 | |
| Furniture
and fixtures | |
| 16,344 | | |
| 15,262 | |
| Dies
and molds | |
| 73,607 | | |
| 73,607 | |
| Property Plant and Equipment, Gross | |
| 647,554 | | |
| 646,472 | |
| Accumulated
depreciation and amortization | |
| (646,196 | ) | |
| (641,027 | ) |
| Total Property Plant and Equipment, Net | |
$ | 1,358 | | |
$ | 5,445 | |
For
the years ended December 31, 2021 and 2020, the Company did not have an income tax benefit nor provision because of continuing losses.
The
components of net deferred tax assets are as follows:
Schedule of Deferred Tax Assets
and Liabilities
Realization
of the deferred tax asset is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards and the
income tax carryforwards. Management determined that it does not believe it is more likely than not that all of the net deferred tax
assets will be realized. Therefore, a valuation allowance has been recorded for the full net deferred tax asset at December 31, 2021
and 2020.
ELECTRONIC
SYSTEMS TECHNOLOGY, INC.
NOTES
TO FINANCIAL STATEMENTS
At
December 31, 2021, the Company had approximately $67,000 of research and development income tax credits available to reduce federal income
taxes in future periods. The credits expire from 2035-2039. In addition, at December 31, 2021, the Company had approximately $1,400,000
of net operating loss carryforwards, $750,000 of which will expire between 2035 and 2038. The remaining balance of $650,000 will never
expire but whose utilization is limited to 80% of taxable income in any future year.
The
differences between the provision (benefit) for federal income taxes and federal income taxes computed using the U.S. statutory federal
income tax rate of 21% were as follows:
Schedule of Effective Income Tax Rate Reconcillation
Should
the Company have future accrued interest expense and penalties related to uncertain income tax positions, they will recognize those expenses
in income tax expense.
The
Company files federal income tax returns in the United States only. The Company is no longer subject to federal income tax examination
by tax authorities for years before 2018. The Company has evaluated all tax positions for open years and has concluded that they have
no material unrecognized tax benefits or penalties.
| 5. | 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 twenty-one are eligible.
On January 1, 2006, the Company adopted a four percent salary matching provision. The Company contributed $16,660 and $15,659 to the
plan for the years ended December 31, 2021 and 2020, respectively.
The
Board of Directors establishes Sales and Net Income thresholds at the start of each year that are used in calculating the amount of bonuses
that may be awarded. If these thresholds are not achieved, there will be no bonus issued. There was no accrual or expense recorded for
2021 or 2020.
| 7. | Share-Based
Compensation |
The
Company grants stock options to individual employees and directors with three years continuous tenure. After termination of employment,
stock options may be exercised within ninety days, after which they are subject to forfeiture. On September 1, 2021 the Board of Directors
granted 60,000 options to employess. The new options have an exercise price of $0.40, a term of 5 years, and vested immediately. The
fair value of the options was determined using the Black-Scholes model using the following variables: stock price of $0.40, volatility
of 107.69%, expected term of 5 years with a forfeiture rate of 95%, and a discount factor of 0.77%. Share based compensation of $970
was recognized in 2021.
On
March 13, 2020, the Board of Directors canceled all 120,000 outstanding stock options that were granted on August 7, 2017 and were due
to expire on August 6, 2020. In addition, the Board of Directors granted 180,000 options to employees. The new options have an exercise
price of $0.40, a term of 5 years, and vested immediately. The fair value of the options was determined using the Black-Scholes model
using the following variables: stock price of $0.40, volatility of 79.27%, expected term of 5 years with a forfeiture rate of 95%, and
a discount factor of 0.72%. Share based compensation of $2,283 was recognized in 2020.
In
the years ended December 31, 2021 and 2020, the Company recognized $970 and $2,283 respectively, in share-based compensation expense.
No non-vested share-based compensation arrangements existed as of December 31, 2021 and 2020.
ELECTRONIC
SYSTEMS TECHNOLOGY, INC.
NOTES
TO FINANCIAL STATEMENTS
A
summary of option activity follows:
Schedule
of Stock Option Activity
| | |
Number
Outstanding | | |
Weighted
Average
Exercise Price
Per Option | | |
Weighted
Average
Remaining
Contractual
Term (Years) | |
| Balance
at December 31, 2019 | |
| 120,000 | | |
| 0.40 | | |
| 1.6 | |
| Granted | |
| 180,000 | | |
| 0.40 | | |
| | |
| Canceled | |
| (120,000 | ) | |
| 0.40 | | |
| | |
| Balance
at December 31, 2020 | |
| 180,000 | | |
$ | 0.40 | | |
| 4.2 | |
| Granted | |
| 60,000 | | |
| 0.40 | | |
| | |
| Balance
at December 31, 2021 | |
| 240,000 | | |
$ | 0.40 | | |
| 3.6 | |
| | |
| | | |
| | | |
| | |
| Outstanding
and Exercisable at December 31, 2021 | |
| 240,000 | | |
$ | 0.40 | | |
| 3.6 | |
The
aggregate intrinsic value of the options outstanding and exercisable at December 31, 2021 was nil.
On
September 23, 2020, the Company signed a new two-year lease for its facilities. The base lease is $3,162 and $3,267 per month for years
one and two, respectively. There is a leasehold tax applied to the base lease at 12.84%. The Company has the right to terminate the lease
with 90 days’ notice. There is no renewal clause contained in the current lease. Upon signing the lease, the Company recognized
a lease liability and a right of use asset of $74,005 based on the two-year payment stream discounted using an estimated incremental
borrowing rate of 4.0%. At December 31, 2021, the remaining lease term is nine months.
Prior
to the new lease in September 23, 2020, the Company’s lease for its facilities was for $5,639 per month.
As
of December 31, 2021, total future lease payments are as follows:
Schedule of Future Minimum Lease Payment
| |
| | |
| For
the 12 months ended December 31, 2022 | |
$ | 28,922 | |
| Total | |
| 28,922 | |
| Less
imputed interest | |
| (484 | ) |
| Net
lease liability | |
| 28,438 | |
| Current
portion | |
| 28,438 | |
| Long-term
portion | |
$ | - | |
For
the years ended December 31, 2021 and 2020, costs relating to the operating lease were recognized in the statement of operations as follows:
Schedule of Cost Related to Operating Lease
| |
|
|
|
|
|
|
|
|
|
| | |
|
|
|
|
|
|
|
|
|
| |
| | |
2021 | | |
2020 | |
| | |
Cost
of
sales | | |
Operating
expenses | | |
Total | | |
Cost
of
sales | | |
Operating
expenses | | |
Total | |
| Base
rent pursuant to lease agreement | |
$ | 21,587 | | |
$ | 16,989 | | |
$ | 38,576 | | |
$ | 14,393 | | |
$ | 40,411 | | |
$ | 54,804 | |
| Variable
lease costs | |
| 2,749 | | |
| 2,164 | | |
| 4,913 | | |
| 1,836 | | |
| 5,156 | | |
| 6,992 | |
| Total
lease costs | |
$ | 24,336 | | |
$ | 19,153 | | |
$ | 43,489 | | |
$ | 16,229 | | |
$ | 45,567 | | |
$ | 61,796 | |
ELECTRONIC
SYSTEMS TECHNOLOGY, INC.
NOTES
TO FINANCIAL STATEMENTS
The
Company derives revenues from the sales of 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. The
Company’s customers, to which trade credit terms are extended, consist of United States and local governments and foreign and domestic
companies.
Schedule
of Revenue by Products
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | |
For
the year ending December 31, | |
| | |
2021 | | |
2020 | |
| | |
Domestic Sales | | |
Foreign Sales | | |
Total Sales | | |
Domestic Sales | | |
Foreign Sales | | |
Total Sales | |
| Product Sales | |
$ | 1,287,587 | | |
$ | 170,741 | | |
$ | 1,458,328 | | |
$ | 883,144 | | |
$ | 297,878 | | |
$ | 1,181,022 | |
| Site Support Sales | |
| 53,700 | | |
| - | | |
| 53,700 | | |
| 44,350 | | |
| - | | |
| 44,350 | |
| Total
Sales | |
$ | 1,341,287 | | |
$ | 170,741 | | |
$ | 1,512,028 | | |
$ | 927,494 | | |
$ | 297,878 | | |
$ | 1,225,372 | |
For
the 12-month period ended December 31, 2021, sales to two customers represented more than 10% of total revenue. Two customers represented
more than 10% of total revenue for the same period in 2020.
Schedule of Revenue by Customers
| | |
2021
Sales | | |
2021
% age of
Total Sales | |
2020
Sales | | |
2020
% age of
Total Sales |
| Foreign
customer A | |
$ | 41,599 | | |
2.8% | |
$ | 180,331 | | |
14.7% |
| Domestic
customer A | |
$ | 242,451 | | |
16.0% | |
$ | 158,483 | | |
12.9% |
| Domestic
customer B | |
$ | 160,385 | | |
10.6% | |
| | | |
|
As
of December 31, 2021 and 2020, the Company had a sales order backlog of $81,293 and $0, respectively.
On
January 13, 2016, the Company’s Board of Directors approved a resolution authorizing the repurchase of up to $100,000 of the Company’s
common stock at the price of $0.38 per share. The Company’s share repurchase program does not obligate it to acquire any specific
number of shares. On March 2, 2016, the Company’s Board of Director approved a resolution authorizing the repurchase of an additional
$150,000 of the Company’s common stock at the price of $0.38 per share. Under the program (the “Stock Repurchase Plan”),
shares may be repurchased in open market transactions. Shares repurchased are retired.
During
the years ended December 31, 2020, the Company did not repurchase shares of its common stock. As of December 31, 2021, the Company has
repurchased a total of 212,165 shares for a total cost of $80,629 and a balance of $169,371 remains of the original $250,000 approved
by the board. On April 23, 2020, repurchases were suspended indefinitely.
| 11. | Cares
Act Loan Payable |
On
March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (the “CARES Act”) Act was signed into United States law.
In
April 2020, the Company received a loan of $171,712 pursuant to the Paycheck Protection Program (the “PPP”) under Division
A, Title I, Section 1102 and 1106 of the CARES Act. The loan, which was in the form of a promissory note, originally had a maturity date
of April 13, 2022 and an interest rate of 1% per annum. $150,118 of this loan was forgiven in June 2021 which was recognized as a gain
on forgiveness of CARES Act loan in 2021. A balance of $21,594 remained after the forgiveness. As of December 31, 2021, the balance remaining
was $7,956 and is included in other accrued liabilities. This balance will be paid in 2022.
ELECTRONIC
SYSTEMS TECHNOLOGY, INC.
NOTES
TO FINANCIAL STATEMENTS
In
February 2021, the Company received a second loan of $130,255 pursuant to the PPP. The loan, which was in the form of a promissory note,
originally had a maturity date of February 21, 2023 and an interest rate of 1% per annum. The Note could be prepaid by the Company at
any time prior to maturity with no prepayment penalties. The second loan was forgiven and the Company recognized gain on forgiveness
of CARES Act loan of $130,255 during 2021.
Under
the terms of the PPP, certain amounts of the loans may be forgiven if they are used for qualifying expenses as described in the CARES
Act. Qualifying expenses include payroll costs, costs used to continue group health care benefits, mortgage payments, rent, and utilities.
As of December 31, 2021, the Company has used funds from the loans to pay qualifying expenses.
During
the year ended December 31, 2020, the Company received $9,000 under Division A, Title I, Section 1110 of the CARES Act. The Company was
not required to pay this amount back and recognized $9,000 as government grant income during 2020.
ELECTRONIC
SYSTEMS TECHNOLOGY, INC.
DBA
ESTEEM WIRELESS MODEMS
SUPPLEMENTAL
SCHEDULE
ELECTRONIC
SYSTEMS TECHNOLOGY, INC.
DBA ESTEEM WIRELESS MODEMS
SUPPLEMENTAL SCHEDULE OF OPERATING EXPENSES
FOR THE YEARS
ENDED DECEMBER 31, 2021 AND 2020 |
| | |
2021 | | |
2020 | |
| | |
| | |
| |
| Advertising | |
$ | 7,979 | | |
$ | 6,351 | |
| Dues
and subscriptions | |
| 2,011 | | |
| 4,280 | |
| Depreciation | |
| 5,169 | | |
| 6,953 | |
| Insurance | |
| 13,242 | | |
| 12,386 | |
| Materials
and supplies | |
| 12,668 | | |
| 17,630 | |
| Office
and administration | |
| 4,097 | | |
| 5,473 | |
| Printing | |
| 3,318 | | |
| 1,753 | |
| Professional
services | |
| 138,357 | | |
| 110,191 | |
| Services
Purchased in lieu of payroll | |
| 81,250 | | |
| - | |
| Rent
and utilities | |
| 49,662 | | |
| 68,760 | |
| Repair
and maintenance | |
| 8,096 | | |
| 1,643 | |
| Salaries
and benefits | |
| 614,337 | | |
| 611,880 | |
| Taxes,
licenses & health insurance | |
| 183,546 | | |
| 165,232 | |
| Telephone | |
| 5,968 | | |
| 7,090 | |
| Warranty
expense | |
| 2,867 | | |
| 929 | |
| Gain
on disposal of assets | |
| - | | |
| (785 | ) |
| Trade
shows | |
| 7,631 | | |
| 7,300 | |
| Travel
expenses | |
| 18,955 | | |
| 3,764 | |
| | |
| | | |
| | |
| | |
| 1,159,153 | | |
| 1,030,830 | |
| | |
| | | |
| | |
| Expenses
allocated to cost of sales | |
| (201,499 | ) | |
| (191,657 | ) |
| | |
| | | |
| | |
| Total
Operating Expenses | |
$ | 957,654 | | |
$ | 839,173 | |
Item
9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.
None
Item
9A. Controls and Procedures.
Disclosure
Controls and Procedures.
Under
the supervision and with the participation of our Management, including the Chief Executive Officer and Principal Accounting Officer,
these positions are currently held by the same individual, we have evaluated the effectiveness of our disclosure controls and procedures
(as such terms are defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Exchange Act) as of the end of the period covered
by this report. Based on that evaluation, the Chief Executive Officer and Principal Accounting Officer have concluded that there was
a material weakness affecting our internal control over financial reporting and, as a result of this weakness, our disclosure controls
and procedures were not effective as of December 31, 2021.
Management’s
Annual Report on Internal Control over Financial Reporting.
The
Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting for the
Company. The Company’s internal control over financial reporting is a process to provide reasonable assurance regarding the reliability
of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of
America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect
our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements;
providing reasonable assurance that receipts and expenditures of company assets are made in accordance with management authorization;
and providing reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect
on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over
financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented
or detected.
As
of December 31, 2021, management conducted an assessment of the effectiveness of the Company’s internal control over financial
reporting based on the criteria for effective internal control over financial reporting established in “Internal Control —
Integrated Framework,” (2013) issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Management,
under the supervision and with the participation of the Company’s Chief Executive Officer and Principal Accounting Officer, assessed
the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021 and concluded that it is ineffective
in assuring that the financial reports of the Company are free from material errors or misstatements. The material weakness is as follows:
We
did not maintain effective controls to ensure appropriate segregation of duties as the same officer and employee was responsible for
the initiating and recording of transactions, thereby creating segregation of duties weaknesses. Due to the (1) significance of segregation
of duties to the preparation of reliable financial statements, (2) the significance of potential misstatement that could have resulted
due to the deficient controls and (3) the absence of sufficient other mitigating controls, we determined that this control deficiency
resulted in more than a remote likelihood that a material misstatement or lack of disclosure within the annual or interim financial statements
will not be prevented or detected.
Management’s
Remediation Initiatives
Management
has evaluated and continues to evaluate, avenues for mitigating our internal controls weaknesses, but mitigating controls have been deemed
to be impractical and cost prohibitive due to the size of our organization at the current time. Management does not foresee implementing
a cost effective method of mitigating our internal control weaknesses in the near term. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all
control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities
that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. The design of any system
of controls is based in part on 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. Projections of any evaluation of controls effectiveness
to future periods are subject to risks.
Changes
in internal control over financial reporting.
During
the quarter ended December 31, 2021, there were no changes in the Company’s internal control over financial reporting that have
materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item
9B. Other Information.
None
PART
III
Item
10. Directors, Executive Officers and Corporate Governance.
IDENTIFICATION
OF DIRECTORS:
The
following table sets forth the names and ages of all directors of the Company as of December 31, 2020 as well as the term in office and
principal occupation of each director.
| Name
of Director |
Term
in Office |
Age |
Principal Occupation |
| T.L.
Kirchner |
06/05/20
– 06/02/23 |
73 |
Former
President of the Company |
| Vern
Kornelsen |
06/05/20
– 06/02/23 |
89 |
General
Partner of EDCO |
| Thomas
Schaefer |
06/01/21–
06/01/24 |
61 |
Vice
President of Online Development Inc. |
| Donald
Siecke |
06/01/21
– 06/01/24 |
81 |
President
of Kelmore Development Corp. |
| Michael
W. Eller |
06/07/2019-06/03/2022 |
61 |
President
of Electronic Systems Technology, Inc. |
Management
believes that there are no agreements or understanding between the directors and suppliers or contractors of the Company.
Audit
Committee
The
Audit Committee of the Board of Directors as of December 31, 2021 is comprised of Don Siecke (Chairman) and Tom Schaefer. The Audit Committee
met on one occasion in 2021. The Board of Directors has determined that Mr. Siecke is an “audit committee financial expert”
as defined in Item 407(d)(5) of Regulation S-K promulgated by the SEC. The Board’s conclusions regarding the qualifications of
Mr. Siecke as an audit committee financial expert were based on his experience as a certified public accountant and his degree in accounting.
The
Board has also adopted a charter for the Audit Committee. The charter for the audit committee is available on our website at www.esteem.com
. The audit committee charter is also available in print to any shareholder who requests it.
Compensation
Committee
There
is no Compensation Committee of the Board of Directors. The Board of Directors did establish an Employee/Director Stock Option Committee
consisting of all Directors. The committee existed for the sole purpose of recommending the recipients and amounts of the Company awarded
stock options during 2021. There is no charter for the Employee/Director Stock Option Committee.
Code
of Ethics
On
September 22, 2020, the Company’s Board of Directors adopted a Code of Ethics for the Company. The Codes of Ethics, and any subsequent
amendments thereto, (other than technical, administrative, or non-substantive amendments), and any waivers of a provision of the Code
of Ethics for directors or executive officers, are available on our website at www.esteem.com.
IDENTIFICATION
OF EXECUTIVE OFFICERS
The
following table sets forth the names and ages of all executive officers of the Company as of December 31, 2021; 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 |
| Michael
Eller |
61 |
President/CEO/Principal
Accounting Officer |
Employed
at will |
9/7/12-
Present |
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, Past President and a Director of the Company. Mr. Kirchner does not serve as a director for any other
company registered under the Securities Exchange Act.
VERN
D. KORNELSEN. Mr. Kornelsen is the General Partner of EDCO Partners LLLP. Mr. Kornelsen formerly practiced as a certified public
accountant in Denver, CO for many years and is a financial consultant to several early stage companies. He was a director of Valleylab
for 10 years and led an investor group that provided a portion of its initial funding. Mr. Kornelsen has been a director and participated
in the capitalizing of a number of early stage companies, and is currently a director and audit-committee member of a publicly-held
company, Encision Inc. of Boulder, CO. He is also the Chairman, Secretary, Director, and CFO of Lifeloc Technologies, Inc., a publicly-held
company located in Wheat Ridge, CO.
THOMAS
J. SCHAEFER: Mr. Schaefer is Vice President of Online Development Inc. a division of Softing AG based in Munich, Germany. He is responsible
for business development activities and the integration of new business acquisitions. Prior to his current position Tom was President
of Phoenix Digital Corporation a privately held company based in Scottsdale, AZ that provides redundant mission critical networking technology
for industrial automation systems. Mr. Schaefer also spent 30 years at Rockwell Automation. His last assignment, at Rockwell, was the
Global Industry Manager for Rockwell’s Water Industry focus. During Mr. Schaefer’s tenure at Rockwell he held various positions
that included P&L responsibility for the Service business unit, Sales and Marketing for Software/MES, and Sales and Application responsibility
for the Drive Systems/Power Products group.
DONALD
E. SIECKE. Mr. Siecke practiced as a certified public accountant in the state of Colorado from 1963 to 1976. He has been president of
Kelmore Development Corp., a real estate development company, since 1981, and serves as the chairman of Redstone Bank, a Colorado bank
of which he was a founding director. He is a director of several privately held companies, metropolitan districts, and charitable organizations.
He received a BS degree in business administration from the University of Denver in 1961, having majored in accounting.
MICHAEL
W. ELLER. Mr. Eller is the President and Principal Accounting Officer. During the last five years Mr. Eller has been a full-time employee
of the Company. Prior to joining EST Mr. Eller was employed at Macys Logistics and Operations where he was employed as the Vice President
of Operations and Director of Finances. Mr. Eller does not serve as a director for any other company registered under the Securities
Exchange Act.
Family
Relationships
None.
Section
16(A) Beneficial Ownership Reporting Compliance
During
the year ended December 31, 2021 to the knowledge of Management, there was no director, officer, or beneficial owner of more than 10%
any class of equity securities of the registrant who failed to file on a timely basis the required disclosure form as required by Section
16(a) of the Securities and Exchange Act of 1934.
Indemnification
The
Company’s By-Laws address indemnification of Directors and Officers. Washington Law provides that Washington corporations may include
within their Articles of Incorporation provisions eliminating or limiting the personal liability of their directors and officers in shareholder
actions brought to obtain damages for alleged breaches of fiduciary duties, as long as the alleged acts or omissions did not involve
intentional misconduct, fraud, a knowing violation of law or payment of dividends in violation of the Washington statutes. Washington
law also allows Washington corporations to include in their Articles of Incorporation or Bylaws provisions to the effect that expenses
of officers and directors incurred in defending a civil or criminal action must be paid by the corporation as they are incurred, subject
to an undertaking on behalf of the officer or director that he or she will repay such expenses if it is ultimately determined by a court
of competent jurisdiction that such officer or director is not entitled to be indemnified by the corporation because such officer or
director did not act in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation.
The Company’s Articles of Incorporation provide that a director or officer is not personally liable to the Company or its shareholders
for damages for any breach of fiduciary duty as a director or officer, except for liability for (i) acts or omissions which involve intentional
misconduct, fraud or a knowing violation of law, or (ii) the payment of distribution in violation of Washington Business Corporation
Act.
Related
Person Transactions Policy and Procedures
As
set forth in the written charter of the Audit Committee, any related person transaction involving a Company director or executive officer
must be reviewed and approved by the Audit Committee. Any member of the Audit Committee who is a related person with respect to a transaction
under review may not participate in the deliberations or vote on the approval or ratification of the transaction. Related persons include
any director or executive officer, certain shareholders and any of their “immediate family members” (as defined by SEC regulations).
Item
11. Executive Compensation.
The
Company’s principal executive officer and principal accounting officer is Michael W. Eller.
Information
concerning the compensation of the Company’s principal executive officer and principal accounting officer, as well as any other
compensated employees of the Registrant’s whose total compensation exceeded $100,000 during 2021 and 2020 is provided in the following
Summary Compensation Table (collectively, the “Named Executive Officers” or “NEOs”):
| SUMMARY
COMPENSATION TABLE |
| |
Name
and
Principal
Position
(a) |
Year
(b) |
Salary
($)
(c) |
Bonus
($)(1)
(d) |
Stock
Awards
($)
(e) |
Option
Awards
($)(2)
(f) |
Non-Equity
Incentive
Plan
Compensation
($)
(g) |
Change
in
Pension
Value
and
Non-
qualified
Deferred
Compensation
Earnings
($)
(h) |
All
Other
Compen-
sation
($)(3)
(i) |
Total
($)
(j) |
Michael
W. Eller
President
CEO/Principal Accounting Officer |
2021 |
$123,500 |
- |
- |
- |
- |
- |
$27,074 |
$150,574 |
| 2020 |
$121,700 |
- |
- |
- |
- |
- |
$24,200 |
$145,900 |
| (1) | Includes
amounts paid under the Non-qualified Employee Profit Sharing Bonus. |
| (2) | Amount
represents the dollar amount recognized for financial statement reporting purposes. |
| (3) | All
Other Compensation consists of Group Health Insurance, Accrued Vacation Pay and Company paid 401(k) matching amounts. |
The
information specified concerning the stock options of the named executive officers during the fiscal years ended December 31, 2020 and
2021 is provided in the following Option/SAR Grants in the Last Fiscal Year Table:
| OPTION/SAR
GRANTS IN 2020 |
| Individual
Grants (5) |
| (a) |
(b) |
(c) |
(d) |
(e) |
Name |
Number
of Securities
Underlying
Options/SARs
Granted
# (5) |
%
of Total
Options/SARs
Granted
to
Employees in Fiscal
Year |
Exercise
or base price
($/Share) |
Expiration
Date |
| Michael
W. Eller |
-0- |
0% |
$0.00 |
n/a |
| (5) | This
table does not include Stock Options granted previously. |
The
information specified concerning the stock options of the named executive officers during the fiscal year ended December 31, 2021 is
provided in the following Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Options/SAR Values Table:
| OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END |
| Option
Awards |
Stock
Awards |
| Name |
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable |
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable |
Equity
Incentive
Plan
Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
(#) |
Option
Exercise
Price
($) |
Option
Expiration
Date |
Number
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
(#) |
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($) |
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
(#) |
Equity
Incentive
Plan
Awards:
Market
or
Payout
Value
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
($) |
| (a) |
(b) |
(c) |
(d) |
(e) |
(f) |
(g) |
(h) |
(i) |
(j) |
Michael
W.
Eller |
40,000 |
0 |
0 |
$0.40 |
3/13/25 |
0 |
0 |
0 |
0 |
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. The Board of Directors approved a stipend for members that are not employed by the Company
in the amount of $375 per quarter of service on the Board of Directors. There is currently no other compensation arrangements for the
Company’s directors. (See “Security Ownership of Certain Beneficial Owners and Management” for Stock Options granted
in previous years.) The information specified concerning items of Director Compensation for the fiscal year ended December 31, 2021 is
provided in the following Director Compensation Table:
| DIRECTOR
COMPENSATION |
Name
(1) |
Fees
Earned
or
Paid
in
Cash
($)(2) |
Stock
Awards
($) |
Option
Awards
($)(3) |
Non-Equity
Incentive
Plan
Compensation
($) |
Nonqualified
Deferred
Compensation
($) |
All
Other
Compensation
($)(4) |
Total
($) |
| (a) |
(b) |
(c) |
(d) |
(e) |
(f) |
(g) |
(h) |
| T.L.
Kirchner |
$1,500 |
$0 |
$0 |
$0 |
$0 |
$0 |
$1,500 |
| Vern
Kornelsen |
$1,500 |
$0 |
$0 |
$0 |
$0 |
$0 |
$1,500 |
| Thomas
Schaefer |
$1,500 |
$0 |
$0 |
$0 |
$0 |
$0 |
$1,500 |
| Donald
Siecke |
$1,500 |
$0 |
$0 |
$0 |
$0 |
$0 |
$1,500 |
| Michael
W. Eller |
$0 |
$0 |
$0 |
$0 |
$0 |
$0 |
$0 |
| (1) | Compensation
information for Michael Eller, President and Principal Accounting Officer is contained in the Executive Compensation Summary Compensation
Table. |
| (2) | Amount
represents the Director Stipend paid in 2021. |
| (3) | Amount
represents the dollar amount recognized for financial statement reporting purposes. Assumptions made in the valuation of stock option
awards are disclosed in Note 7 of the Notes to the Financial Statements in this Form 10-K. |
| (4) | Amounts
represent reimbursement of out-of-pocket expenses related to directors’ duties associated with the Company’s business (ie.
travel expenses for attending Company Director’s Meetings). |
The
Company currently does not hold any Employment Contracts or Change of Control Arrangements with any parties.
Option
Exercises
During
our fiscal year ended December 31, 2021, there were no options exercised by our executive officer or Directors.
Summary
of Executive Employment Agreements
There
are no executive employment agreements with any officer.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The
following table sets forth, as of December 31, 2021, 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.
| Title
of Class |
Name
& Address of
Beneficial
Owner (1) |
Amount
& Nature of
Beneficial
Ownership |
Percent
of Class |
| Common |
EDCO
Partners LLLP
4605
Denice Drive
Englewood
CO 80111 |
1,797,700 |
36.3% |
| Common |
T.L.
Kirchner
415
N. Roosevelt St.
Kennewick
WA 99336 |
403,488
|
8.2% |
| (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, 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. To the knowledge of 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. |
SECURITY
OWNERSHIP OF MANAGEMENT
The
following table sets forth, as of February 13, 2022, 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.
Name/Address
of
Beneficial
Owner (1) |
Title
of
Class |
Amount
& Nature of
Beneficial
Ownership |
Percent
of
Class |
| T.L.
Kirchner (Director)/415 N. Roosevelt St., STE B1 Kennewick, WA |
Common |
403,488 |
8.2% |
| Vern
Kornelsen (Director)/415 N. Roosevelt St., STE B1 Kennewick, WA |
Common |
1,797,700
|
36.3% |
| Thomas
Schaefer (Director)/415 N. Roosevelt St., STE B1 Kennewick, WA |
Common |
- |
- |
| Donald
Siecke (Director)/415 N. Roosevelt St., STE B1 Kennewick, WA |
Common |
-(2)
|
- |
| Michael
W. Eller (Officer)/415 N. Roosevelt St., STE B1 Kennewick, WA |
Common |
40,000
(1) |
0.8% |
| All
Officers and Directors as a group |
Common |
2,241,188 |
45.3% |
| (1) | Includes
40,000 stock options issued 3/15/2020. |
| (2) | Mr.
Siecke does not own any shares directly. However, EDCO Partners LLLC, of which Mr. Siecke
is a limited partner, holds 498,916 shares on his behalf. |
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 five years after approval date or 30 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 if one of the foregoing events occurs 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.
Recipients
of Stock Options currently unexpired as of December 31, 2021 were as follows:
| Name |
Option
Shares |
Exercise
Price
Per Share ($) |
| Grant
Date: 3-15-2020 |
| Alan
B. Cook |
25,000 |
0.40 |
| Neil
Helfeldt |
25,000 |
0.40 |
| Eric
P. Marske |
30,000 |
0.40 |
| Dan
Tolley |
30,000 |
0.40 |
| Ajay
Nagadeep Muniyappa |
30,000 |
0.40 |
| Michael
Eller |
40,000 |
0.40 |
| Total |
180,000 |
0.40 |
Name |
Option
Shares |
Exercise
Price
Per Share ($) |
| Grant
Date: 9-1-2021 |
| Joel
J. Austin |
30,000 |
0.40 |
| Peri
M. Olson |
30,000 |
0.40 |
| Total |
60,000 |
0.40 |
Stock
options must be exercised within 90 days after termination of employment/board membership. On September 1, 2021, the Board of Directis
granted 60,000 options to employees. The new options have an exercise price of $0.40, a term of 5 years, and vested immediately
On
March 13, 2020, the Board of Directors canceled all 120,000 outstanding stock options that were granted on August 7, 2017 and were due
to expire on August 6, 2020. In addition, the Board of Directors granted 180,000 options to employees. The new options have an exercise
price of $0.40, a term of 5 years, and vested immediately. At December 31, 2020, there were 180,000 options outstanding and exercisable.
Changes
in Control:
The
Board of Directors is aware of no circumstances which may result in a change of control of the Company.
Certain
Business Relationships:
There
have been no unusual business relationships during the last fiscal year of the Registrant between the Company and affiliates as described
in Item 404 (b) (1-6) of Regulation S-K.
Indebtedness
of Management:
No
Director or executive officer or nominee for Director, or any member of the immediate family of such has been indebted to the Company
during the past year.
Item
13. Certain Relationships and Related Transactions, and Director Independence.
TRANSACTIONS
WITH MANAGEMENT AND OTHERS
None.
Item
14. Principal Accounting Fees and Services.
AUDIT
AND NON-AUDIT FEES
The
following table presents fees billed to us during December 31, 2021 and 2020 for professional services provided by Assure CPA (formerly
DeCoria Maichel & Teague).
| Year
Ended |
December
31, 2021 |
December
31, 2020 |
| Audit
fees (1) |
$39,450 |
$39,450 |
| Audit-related
fees (2) |
- |
- |
| Tax
fees (3) |
3,000 |
3,000 |
| All
other fees (4) |
- |
- |
| Total
Fees |
$42,450 |
$42,450 |
| (1) | Audit
fees consist of fees billed for professional services provided in connection with the audit of the Company’s financial statements
and reviews of our quarterly financial statements. |
| (2) | Audit-related
fees consist of assurance and related services that include, but are not limited to, internal control reviews, attest services not required
by statute or regulation and consultation concerning financial accounting and reporting standards. |
| (3) | Tax
fees consist of the aggregate fees billed for professional services for tax compliance, tax advice, and tax planning. These services
include preparation of federal income tax returns. |
| (4) | All
other fees consist of fees billed for products and services other than the services reported above. |
Our
Audit Committee reviewed the audit and tax services rendered by Assure CPA and concluded that such services were compatible with maintaining
the auditors’ independence. All audit, non-audit, tax services, and other services performed by our independent accountants are
pre-approved by our Audit Committee to assure that such services do not impair the auditors’ independence from us. We do not use
Assure CPA for financial information system design and implementation. These services, which include designing or implementing a system
that aggregates source data underlying the financial statements or generates information that is significant to our financial statements,
are provided internally. We do not engage Assure CPA to provide compliance outsourcing services.
PART
IV
Item
15. Exhibits and Financial Statement Schedules.
Documents
filed as part of this report on Form 10-K or incorporated by reference:
| (1) | Our
financial statements can be found in Item 8 of this report. |
| (2) | Financial
Statement Schedules (omitted because they are either not required, are not applicable, or the required information is disclosed in the
notes to the financial statements or related notes). |
The
following exhibits are filed with this Annual Report on Form 10-K. Certain exhibits have been previously filed with the Securities
and Exchange Commission and are incorporated by reference.
EXHIBIT
NUMBER |
DESCRIPTION |
| 3.1 |
Articles
of Incorporation filed as Exhibit 2.1 to Form S-18, Registration Statement No. 2-92949-S, filed November 5, 1984 ** |
| 3.2 |
Amended
Articles of Incorporation of the Registrant, filed as Exhibit (c) to Form 8-K, filed March 15, 1985 ** |
| 3.3 |
By-Laws
filed as Exhibit 2.1 to Form S-18, Registration Statement No. 2-92949-S, filed November 5, 1984 ** |
| 3.4 |
Amendments
to By-Laws filed as Exhibit (c) to Form 8-K, filed March 15, 1985 ** |
| 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. Form 8A Registration Statement, 000-27793,
dated October 25, 1999 ** |
| 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 |
Inline
XBRL Instance Document – the instance document does not appear in the Interactive Data
File because XBRL tags are embedded within the Inline XBRL document. |
| 101.SCH |
Inline
XBRL Taxonomy Extension Schema Document |
| 101.CAL |
Inline
XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF |
Inline
XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB |
Inline
XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE |
Inline
XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 |
Cover
Page Interactive Data File (embedded within the Inline XBRL document) |
| ** | Incorporated
by reference |
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/ Michael W. Eller |
|
| |
Michael W. Eller, President |
| |
(Principal Executive Officer, Director) |
Date:
March 2, 2022
| By: |
/s/ Michael W. Eller |
|
| |
Michael W. Eller, President |
| |
(Principal Accounting Officer) |
Date:
March 2, 2022
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/
VERN KORNELSEN |
Director |
March
2, 2022 |
| Vern
D. Kornelsen |
|
|
| |
|
|
| /s/
THOMAS SCHAEFER |
Director |
March
2, 2022 |
| Thomas
Schaefer |
|
|
| |
|
|
| /s/
DONALD SIECKE |
Director |
March
2, 2022 |
| Don
Siecke |
|
|
Exhibit 31.1
Certification
I, Michael W. Eller, certify that:
| |
1. |
I have reviewed this annual report on Form 10-K of Electronic Systems Technology, Inc.; |
| |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. |
| |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report. |
| |
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| |
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| |
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| |
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors: |
| |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| |
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| By: |
/s/ Michael W. Eller |
|
| |
Michael W. Eller, President |
| |
(Principal Executive Officer) |
Date: March 2, 2022
A signed original of this written statement has been
provided to the registrant and will be retained by the registrant to be furnished to the Securities and Exchange Commission or its staff
upon request.
Exhibit 31.2
Certification
I, Michael Eller, certify that:
| |
1. |
I have reviewed this annual report on Form 10-K of Electronic Systems Technology, Inc.; |
| |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. |
| |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report. |
| |
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| |
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| |
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| |
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors: |
| |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| |
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| By : |
/s/ Michael W. Eller |
|
| |
Michael W. Eller, President |
|
| |
(Principal Accounting Officer) |
|
Date: March 2, 2022
A signed original of this written statement has been
provided to the registrant and will be retained by the registrant to be furnished to the Securities and Exchange Commission or its staff
upon request.
Exhibit 32.1 – CEO Certification
CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002
(18 U.S.C. 1350)
In connection with the Annual Report of Electronic Systems Technology Inc.
(the “Company”) on Form 10K for the year ended December 31, 2021 as filed with the Securities and Exchange Commission on the
date hereof (the “Report”), I, Michael W. Eller, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that:
| |
1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| |
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| By: |
/s/ Michael W. Eller |
|
| |
Michael W. Eller, President |
|
| |
(Principal Executive Officer) |
|
Date: March 2, 2022
This certification is being furnished to the Securities
and Exchange Commission as an exhibit to the Annual Report and shall not be deemed filed by the Company for purposes of § 18
of the Securities Exchange Act of 1934, as amended; and is not to be incorporated by reference into any filing of the Company, whether
made before or after the date hereof, regardless of any general incorporation language in such filing.
A signed original of this written statement has been
provided to the Registrant and will be retained by the Registrant to be furnished to the Securities and Exchange Commission or its staff
upon request.
Exhibit 32.2 – CFO Certification
CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002
(18 U.S.C. 1350)
In connection with the Annual Report of Electronic Systems Technology Inc.
(the “Company”) on Form 10K for the year ended December 31, 2021 as filed with the Securities and Exchange Commission on the
date hereof (the “Report”), I, Michael W. Eller, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that:
| |
1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| |
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| By: |
/s/ Michael W. Eller |
|
| |
Michael W. Eller, President |
|
| |
(Principal Accounting Officer) |
|
Date: March 2, 2022
This certification is being furnished to the Securities and Exchange Commission
as an exhibit to the Annual Report and shall not be deemed filed by the Company for purposes of § 18 of the Securities Exchange
Act of 1934, as amended.; and is not to be incorporated by reference into any filing of the Company, whether made before or after the
date hereof, regardless of any general incorporation language in such filing.
A signed original of this written statement has been
provided to the Registrant and will be retained by the Registrant to be furnished to the Securities and Exchange Commission or its staff
upon request.
ELECTRONIC SYSTEMS TECHNOLOGY
2021 ANNUAL REPORT
CORPORATE DIRECTORY
DIRECTORS
Michael W. Eller
President
Electronic Systems Technology, Inc.
Vern D. Kornelsen
General Partner
EDCO Partners LLLP
Vern D. Kornelsen
Thomas J. Schaefer
Vice President
Online Development Inc. a division
of Softing AG
Donald E. Siecke
President, Kelmore Development Corp.
Daniel M. Tolley
Director of Business Development
Electronic Systems Technology, Inc.
|
INDEPENDENT AUDITORS
Assure CPA, LLC
7307 N. Division, Ste. 222
Spokane, Washington 99208
TRANSFER AGENT
EQ Shareowner Services
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN, 5120
The Transfer Agent should be contacted
for questions
regarding changes in address, name,
or ownership, lost
certificates, and consolidation of
account. When
corresponding with the Transfer Agent,
shareholders
should state the exact name(s) in
which the stock is
registered and certificate number
of the certificate(s). |
CORPORATE
AND INVESTOR INFORMATION
EXECUTIVE OFFICERS
Michael W. Eller
President
Chief Executive Officer
Principal Accounting Officer
Vern D. Kornelsen
Secretary
CORPORATE HEADQUARTERS
Electronic Systems Technology, Inc.
415 N. Roosevelt Street, STE B1
Kennewick, Washington 99336
(509) 735-9092
(509) 783-5475 (Facsimile)
|
Please direct inquiries to:
Investor Relations Department
Electronic Systems Technology, Inc.
415 N. Roosevelt Street, STE. B1
Kennewick, Washington 99336
|
Electronic Systems Techn... (PK) (USOTC:ELST)
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