10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2018

OR

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

From ________________ to ________________

ELECTRONIC SYSTEMS TECHNOLOGY, INC.

(Exact name of registrant as specified in its charter)

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

415 N. Quay St. Bldg. B1 Kennewick WA	99336
(Address of principal executive offices)	(Zip Code)

                (509) 735-9092                  

(Registrant's telephone number, including area code)

                                            N/A                                            

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

Indicate by check mark whether the registrant (1) has filed all documents and reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filings for the past 90 days.  YES x  NO  ¨

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 ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  

Large Accelerated Filer   ¨	Accelerated Filer  ¨
Non-Accelerated Filer    ¨ (Do not check if a smaller reporting company)	Small Reporting Company    x Emerging Growth Company  ¨

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨  No x

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of September 30, 2018, the number of the Company's shares of common stock par value $0.001, outstanding was 4,986,048.

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ELECTRONIC SYSTEMS TECHNOLOGY, INC.

FORM 10-Q

September 30, 2018

Index

2

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements.

ELECTRONIC SYSTEMS TECHNOLOGY, INC.
BALANCE SHEETS (Unaudited)
	September 30, 2018	December 31, 2017
ASSETS
Current assets
Cash and cash equivalents	$           356,406	$       208,101
Certificates of deposit investments	900,000	1,000,000
Accounts receivable	116,273	98,941
Inventories	650,726	762,517
Accrued interest receivable	9,579	5,137
Prepaid expenses	24,607	8,039
Total current assets	2,057,591	2,082,735
Property and equipment, net	23,137	31,444
Total assets	$        2,080,728	$      2,114,179
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$             59,983	$          18,969
Accrued liabilities	19,804	21,882
Refundable deposits	-	3,937
Total current liabilities	79,787	44,788
Total liabilities	79,787	44,788
COMMITMENTS (NOTE 6)
Stockholders’ equity
Common stock, $0.001 par value 50,000,000 shares authorized 4,986,048 and 4,986,048 shares issued and outstanding, respectively	4,986	4,986
Additional paid-in capital	944,161	944,161
Retained earnings	1,051,794	1,120,244
Total stockholders’ equity	2,000,941	2,069,391
Total liabilities and stockholders’ equity	$        2,080,728	$    2,114,179

See notes to Financial Statements

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ELECTRONIC SYSTEMS TECHNOLOGY, INC. STATEMENTS OF OPERATIONS (Unaudited)
	Three Months Ended September 30, 2018	Three Months Ended September 30, 2017	Nine Months Ended September 30, 2018	Nine Months Ended September 30, 2017
SALES, NET	$         293,154	$         312,042	$        1,062,346	$      1,038,932
SITE SUPPORT	5,849	10,720	16,398	43,229
COST OF SALES	(142,138)	(133,721)	(520,335)	(481,931)
GROSS PROFIT	156,865	189,041	558,409	600,230
Operating Expenses
General and administrative	67,171	59,367	215,330	212,802
Research and development	42,965	55,511	134,392	191,836
Marketing and sales	85,121	114,902	290,125	338,080
TOTAL OPERATING EXPENSE	195,257	229,780	639,847	742,718
OPERATING INCOME (LOSS)	(38,392)	(40,739)	(81,438)	(142,488)
OTHER INCOME
Interest income	4,857	2,958	12,988	8,496
TOTAL OTHER INCOME	4,857	2,958	12,988	8,496
NET INCOME (LOSS) BEFORE   INCOME TAX	(33,535)	(37,781)	(68,450)	(133,992)
Benefit (provision) for income tax	-	-	-	-
NET INCOME (LOSS)	$       (33,535)	$       (37,781)	$        (68,450)	$      (133,992)
Basic and diluted earnings per share	$           (0.01)	$           (0.01)	$            (0.01)	$             (0.03)
Weighted average shares used in computing income (loss) per share:
Basic and Diluted average shares	4,986,048	5,019,376	4,986,048	5,032,788

See notes to Financial Statements

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ELECTRONIC SYSTEMS TECHNOLOGY, INC. STATEMENTS OF CASH FLOWS (Unaudited)
	Nine Months Ended September 30, 2018	Nine Months Ended September 30, 2017
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
Net loss	$           (68,450)	$           (133,992)
Non-cash items included in net loss:
Depreciation	8,307	14,954
Changes in operating assets and liabilities:
Accounts receivable	(17,332)	(23,304)
Inventories	111,791	(110,823)
Accrued interest receivable	(4,442)	1,119
Prepaid expenses	(16,567)	(11,916)
Accounts payable	41,014	39,595
Accrued liabilities	(2,079)	4,313
Refundable deposits	(3,937)	2,719
NET CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES	48,305	(217,335)
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:
Certificates of deposit redeemed	100,000	-
NET CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES	100,000	-
CASH FLOWS USED IN FINANCING ACTIVITIES:
Repurchase of shares of common stock	-	(28,524)
NET CASH USED IN FINANCING ACTIVITIES	-	(28,524)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	148,305	(245,859)
Cash and cash equivalents at beginning of period	208,101	502,971
Cash and cash equivalents at end of period	$           356,406	$           257,112

See notes to Financial Statements

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ELECTRONIC SYSTEMS TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - BASIS OF PRESENTATION

The financial statements of Electronic Systems Technology, Inc. (the "Company") presented in this Form 10Q are unaudited and reflect, in the opinion of Management, a fair presentation of operations for the three and nine-month periods ended September 30, 2018 and September 30, 2017.  All adjustments of a normal recurring nature and necessary for a fair presentation of the results for the periods covered have been made. Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the applicable rules and regulations of the Securities and Exchange Commission. In preparation of the financial statements, certain amounts and balances have been reformatted from previously filed reports including classification of components of cash and cash equivalents to conform to the format of this quarterly presentation.  These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Form 10K for the year ended December 31, 2017, as amended and filed with Securities and Exchange Commission.

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09 Revenue Recognition, replacing guidance currently codified in Subtopic 605-10 Revenue Recognition-Overall with various SEC Staff Accounting Bulletins providing interpretive guidance. The new ASU establishes a new five step principles-based framework in an effort to significantly enhance comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets. In August 2015, the FASB issued ASU No. 2015-14 Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. ASU No. 2015-14 defers the effective date of ASU No. 2014-09 until annual and interim reporting periods beginning after December 15, 2017. The Company has performed an assessment of the impact of implementation of ASU No. 2014-09, and concluded it will not change the timing of revenue recognition or amounts of revenue recognized compared to how revenue is recognized under current policies. ASU No. 2014-09 will require additional disclosures, where applicable, on (i) contracts with customers, (ii) significant judgments and changes in judgments in determining the timing of satisfaction of performance obligations and the transaction price, and (iii) assets recognized for costs to obtain or fulfill contracts. See Note 5.

In February 2016, the FASB issued ASU No. 2016-02 Leases (Topic 842). The update modifies the classification criteria and requires lessees to recognize the assets and liabilities on the balance sheet for most leases. The update is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the potential impact of implementing this update on the financial statements.

In August 2016, the FASB issued ASU No. 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The update provides guidance on classification for cash receipts and payments related to eight specific issues. The update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The Company determined the impact of implementing this update is immaterial.

In November 2016, the FASB issued ASU No. 2016-18 Statement of Cash Flows (Topic 230): Restricted Cash. The update requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The adoption of this standard did not have a material impact on the financial statements.

In January 2017, the FASB issued ASU No. 2017-01 Business Combinations (Topic 805): Clarifying the Definition of a Business. The update clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company will apply the provisions of the update to potential future acquisitions occurring after January 1, 2018.

The Company estimates that for 2018 the anticipated effective annual federal income tax rate will be 0%.

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption.

The results of operations for the nine-month period ended September 30, 2018 are not necessarily indicative of the results expected for the full fiscal year or for any other fiscal period.

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ELECTRONIC SYSTEMS TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 2 - INVENTORIES

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

	September 30,   2018	December 31, 2017
Parts	$ 129,483	$       143,452
Work in progress	197,383	201,526
Finished goods	323,860	417,539
	$ 650,726	$       762,517

NOTE 3 - INCOME (LOSS) PER SHARE

Basic income (loss) per share excludes dilution and is computed by dividing income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period.  Diluted income (loss) per share reflects potential dilution occurring if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.  At September 30, 2018 and 2017, the Company had 120,000 and 150,000, respectively outstanding stock options that could have a dilutive effect on future periods.  However, at September 30, 2018 and 2017 there was no dilutive effect of stock options on earnings per share or weighted average shares outstanding.  

NOTE 4 - STOCK OPTIONS

As of September 30, 2018, the Company had outstanding stock options which have been granted periodically to individual employees and directors with no less than three years of continuous tenure with the Company.  The Board of Directors did not issue stock options during the first nine-months ended September 30, 2018 and 2017.

A summary of option activity during the nine months ended September 30, 2018 is as follows:

	Number Outstanding	Weighted-Average Exercise Price Per Share	Weighted-Average Remaining Life (Years)	Approximate Aggregate Intrinsic Value
Outstanding and Exercisable at December 31, 2017	150,000	$0.40
Expired	(30,000)	0.40
Outstanding and Exercisable at September 30, 2018	120,000	$0.40	1.9	$18,000

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ELECTRONIC SYSTEMS TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 5 - REVENUE

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09 Revenue Recognition, replacing guidance currently codified in Subtopic 605-10 Revenue Recognition-Overall.  The new ASU establishes a new five step principles-based framework in an effort to significantly enhance comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets.  We adopted ASU No. 2014-09 as of January 1, 2018 using the modified-retrospective transition approach.  The impact of adoption of the update to our financial statements for the nine months ended September 30, 2018 was not material.

We performed an assessment of the impact of implementation of ASU No. 2014-09, and concluded it does not change the timing of revenue recognition or amounts of revenue recognized compared to how we recognize revenue under our current policies.  Our revenues involve a relatively limited number of types of contracts and customers.  In addition, our revenue contracts do not involve multiple types of performance obligations.  Revenues from product sales are recognized, and the transaction price is known, when the goods are shipped or delivered, and title and risk of loss passes to the customer.

Adoption of ASU No. 2014-09 involves additional disclosures, where applicable, on (i) contracts with customers, (ii) significant judgments and changes in judgments in determining the timing of satisfaction of performance obligations and the transaction price, and (iii) assets recognized for costs to obtain or fulfill contracts.  

For product sales, the performance obligation is met, the transaction price can be reasonably estimated, and revenue is recognized generally at the time of shipment.  We have determined the performance obligation is met and title is transferred to the customer upon shipment of products because, at that time, 1) legal title is transferred to the customer, 2) the customer has accepted the product and obtained the ability to realize all of the benefits from the product, 3) the product specifications are known, have been communicated to the customer, and the customer has the significant risks and rewards of ownership to it, 4) it is very unlikely the product will be rejected by a customer upon physical receipt, and 5) we have the right to payment for the product. Revenues from site support and engineering services are recognized as the Company performs the services, which is when the performance obligation is determined to be met.

Sales and accounts receivable for product sales are 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.

The Company does not generally sell its products with the right of return.  Therefore, returns are accounted for when they occur and are accepted.  

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. Warranty expenses are immaterial based on the Company’s historical warranty experience.

Our trade accounts receivable balance related to sales to customers was $116,273 at September 30, 2018 and $98,941 at December 31, 2017 and included no allowance for doubtful accounts.  

We have determined our sales do not include a significant financing component, as payment is received at the time the performance obligation is satisfied.

We do not incur significant costs to obtain sales, nor costs to fulfill sales orders which are not addressed by other standards.  Therefore, we have not recognized an asset for such costs as of September 30, 2018 or December 31, 2017.

NOTE 6 - COMMITMENTS

The Company leases its facilities from a port authority for $5,445 per month for three years, expiring in September 2020, with annual increases based upon the Consumer Price Index.

8

ELECTRONIC SYSTEMS TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 7 - SEGMENT REPORTING

Segment information is prepared on the same basis that the Company's management reviews financial information for operational decision-making purposes.    

During the quarter ended September 30, 2018, Domestic customers represented approximately 91% of total net revenues. Domestic sales revenues decreased to $271,976 for the quarter ended September 30, 2018 compared to $283,239 for the quarter ended September 30, 2017. Year to date domestic sales revenues increased to $1,021,153 as of September 30, 2018 compared to $893,277 for the same period of 2017.  Foreign customers represented approximately 9% of total net revenues.  Foreign sales revenues decreased to $27,027 for the quarter ended September 30, 2018 compared to $39,523 for the quarter ended September 30, 2017. Year to date foreign sales revenues decreased to $57,591 as of September 30, 2018 compared to $188,884 for the same period of 2017.  During the quarter and nine-month period ended September 30, 2018, sales to one customer comprised more than 10% of the Company’s sales revenues.  Revenues from foreign countries during the third quarter of 2018 consist primarily of revenues from product sales to Peru, Bolivia and Ireland.

NOTE 8 – STOCK REPURCHASE

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. As of September 30, 2018, $184,405 remains of $250,000 approved by the board. 97,764 and 74,885 shares were repurchased in 2016 and 2017 respectively, bringing the total number of shares repurchased to 172,619. During the nine-month period ended September 30, 2018, there were no shares repurchased.

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

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATION

Management’s discussion and analysis is intended to be read in conjunction with the Company’s unaudited financial statements and the integral notes thereto for the year ended December 31, 2017.  The following statements may be forward looking in nature and actual results may differ materially.

A.  Results of Operations

REVENUES:

Total revenues from the sale of the Company’s ESTeem wireless modem products and services decreased to $299,003 for the third quarter of 2018, compared to $322,763 for the third quarter of 2017.  Gross revenues, including interest income, decreased to $303,859 for the quarter ended September 30, 2018, from $325,721 for the same quarter of 2017.  Year to date sales decreased to $1,078,744 for the nine-month period ending September 30, 2018, as compared to $1,082,161 as of September 30, 2017. Year to date gross revenues, including interest income, increased to $1,091,732 as of September 30, 2018, compared to $1,090,657 as of September 30, 2017.  

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

A percentage breakdown of EST's Domestic and Export Sales, for the third quarter of 2018 and 2017 are as follows:

	For the third quarter of
	2018	2017
Domestic Sales	91%	88%
Export Sales	9%	12%

Domestic Revenues

During the quarter ended September 30, 2018, the Company’s domestic operations represented 91% of the Company’s total sales revenues.  Domestic operations sell ESTeem modem products, accessories and service primarily through domestic resellers, as well as directly to end users of the Company’s products.  Domestic sales revenues decreased to $271,976 for the quarter ended September 30, 2018 compared to $283,239 for the quarter ended September 30, 2017.  Management believes the decrease in sales revenues is due to decreased domestic sales for water/waste water and mining industrial automation projects during the three-month period ended September 30, 2018.During the quarter and nine-month period ended September 30, 2018, one customer, comprised more than 10% of the Company’s sales revenues.  

For the nine-month period ended September 30, 2018, the Company’s domestic operations represented 95% of the Company’s total sales revenues.  Year to date domestic sales revenues increased to $1,021,153 as of September 30, 2018 compared to $893,277 for the same period of 2017. Management believes the increase in year to date sales revenues is due to increased marketing efforts during the nine-month period.  

Foreign Revenues

The Company’s foreign operating segment represented 9% of the Company’s total net revenues for the quarter ended September 30, 2018.  The foreign operating segment is based wholly in the United States and maintains no assets outside of the United States.  The foreign operating segment sells ESTeem modem products, accessories and service primarily through foreign resellers, as well as directly to end customers of the Company’s products located outside the United States.  

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During the quarter ended September 30, 2018, the Company had $27,026 in foreign export sales, amounting to 9% of total net revenues of the Company for the quarter, compared with foreign export sales of $39,522 for the same quarter of 2017.  Management believes the decrease in foreign sales revenues was due to decreased automation needs in Oil & Gas and Mining industries.  Revenues from foreign countries during the third quarter of 2018 consist primarily of revenues from product sales to Peru, Bolivia and Ireland.  No foreign sales to a single customer comprised 10% or more of the Company's product sales for the quarter ended September 30, 2018.  Products purchased by foreign customers were used primarily in industrial automation applications.  We believe the majority of foreign export sales are the results of the EST foreign reseller activity, and the Company’s internet website presence.

For the nine-month period ended September 30, 2018, the Company had $57,591 in foreign export sales, amounting to 5% of total sales revenues of the Company for the period, compared with foreign export sales of $188,884 for the same period of 2017. Management believes the decrease was due to the lack of Sales staff in the countries that the Company’s products are exported to.

BACKLOG:

The Corporation had a sales order backlog of approximately $36,295 as of September 30, 2018.  The Company’s customers generally place orders on an "as needed basis".  Shipment for most of the Company’s products is generally made within 1 to 15 working days after receipt of customer orders, with the exception of ongoing, scheduled projects, and custom designed equipment.

COST OF SALES:

Cost of sales percentage for the third quarter of 2018 and 2017 was 47% and 40%, respectively. The cost of sales increase for the third quarter of 2018 is the result of the product mix and increased manufacturing costs for items sold during the period. For the nine-month period ended September 30 2018 and 2017 the cost of sales percentage was 48% and 43% respectively.

OPERATING EXPENSES:

Operating expenses for the third quarter of 2018 decreased $34,523 from the third quarter of 2017.  The following is an outline of operating expenses:

For the quarter ended:	September 30, 2018	September 30, 2017	Increase (Decrease)
General and Administrative	$             67,171	$             59,367	7,804
Research/Development	42,965	55,511	(12,546)
Marketing and Sales	85,121	114,902	(29,781)
Total Operating Expenses	$           195,257	$           229,780	($34,523)

GENERAL AND ADMINISTRATIVE:

During the third quarter of 2018, general and administrative expenses increased $7,804 to $67,171 from the same quarter of 2017, due to increased professional services. General and administrative expenses for the nine-month period ended September 30, 2018 and 2017 increased $2,528 to $215,330, due to increased professional services.

RESEARCH AND DEVELOPMENT:

Research and development expenses decreased $12,546 to $42,965 during the third quarter of 2018 when compared with the same period in 2017 due to reduced payroll expense, which was partially offset by increased services purchased. Research and development expenses for the nine-month period ended September 30, 2018 and 2017 decreased $57,444 to $134,392, due to decreased payroll and services purchased.

MARKETING AND SALES:

During the third quarter of 2018, marketing and sales expenses decreased $29,781 to $85,121 from the same period in 2017, due to decreased payroll and services purchased relating to website improvements in 2017. Marketing and sales expenses for the nine-month period ended September 30, 2018 and 2017 decreased $47,955 to $290,125, due to decreased payroll.

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INTEREST AND DIVIDEND INCOME:

The Corporation earned $4,857 in interest and dividend income during the quarter ended September 30, 2018. For the nine-month period ended September 30, 2018 interest and dividend income increased $4,492 to $12,988 compared to $8,496 in 2017.  Sources of this income were money market accounts and certificates of deposit.

NET INCOME (LOSS):

The Company had a net loss of $33,535 for the third quarter of 2018, compared to a net loss of $37,781 for the same quarter of 2017.  For the nine-month period ended September 30, 2018, the Company recorded a net loss of $68,450, compared with a net loss of $133,992 for the same period of 2017. The decrease in the Company’s net loss is the result of reduced operating expenses during the third quarter of 2018.

TAXES:

The Company has $65,964 of research and development tax credits available to reduce any Federal Income taxes that may be incurred in future periods as if September 30, 2018.

B.  Financial Condition, Liquidity and Capital Resources

The Corporation's current asset to current liabilities ratio at September 30, 2018 was 25.8:1 compared to 46.5:1 at December 31, 2017. At September 30, 2018, the Company had cash and cash equivalents of $356,406; compared to cash and cash equivalent holdings of $208,100 at December 31, 2017.  The Company had certificates of deposit investments in the amount of $900,000 at September 30, 2018 and $1,000,000 at December 31, 2017.

Accounts receivable increased to $116,273 as of September 30, 2018 from December 31, 2017 levels of $98,941, due to sales revenue timing differences between the third quarter of 2018 and year-end 2017.  Inventories decreased to $650,726 as of September 30, 2018, from December 31, 2017 levels of $762,517, due primarily to a decrease of finished goods.  The Company's fixed assets, net of depreciation, decreased to $23,137 as of September 30, 2018, from December 31, 2017 levels of $31,444.

As of September 30, 2018, the Company’s accounts payable balance was $59,983 as compared with $18,969at December 31, 2017, and reflects amounts owed for inventory items, contracted services, and state tax liabilities.  Accrued liabilities and refundable deposits as of September 30, 2018 were $19,804 compared with $25,819at December 31, 2017, and reflect items such as accrued vacation benefits and payroll tax liabilities       

In Management's opinion, the Company's cash and cash equivalent reserves, and working capital at September 30, 2018 is sufficient to satisfy requirements for operations, capital expenditures, and other expenditures as may arise during the next 12 months.

The Company did not declare or issue any cash dividends during 2017 or through 2018.

Cash from operations for the nine-month period ended September 30, 2018 was $48,306, comparted to ($217,335) for the same period in 2017. Reductions in inventory was the largest contributor to the improvement. The Company converted from a “kit build” to turn-key manufacturing, which enabled a reduction in component inventory, which also reduces the exposure to write-off of obsolete parts.

FORWARD LOOKING STATEMENTS:  The above discussion may contain forward looking statements that involve a number of risks and uncertainties.  In addition to the factors discussed above, among other factors that could cause actual results to differ materially are the following: competitive factors such as rival wireless architectures and price pressures; availability of third party component products at reasonable prices; inventory risks due to shifts in market demand and/or price erosion of purchased components; change in product mix, and risk factors that are listed in the Company’s reports and registration statements filed with the Securities and Exchange Commission.

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Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Not applicable

Item 4.  Evaluation of Disclosure Controls and Procedures.

Conclusions of Management Regarding Effectiveness of Disclosure Controls and Procedures

At the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision and with the participation of the Company's management, including the President and Principal Executive Officer ("PEO") and Principal Financial Officer ("PFO"), of the effectiveness of the design and operations of the Company's disclosure controls and procedures (as defined in Rule 13a – 15(e) and Rule 15d – 15(e) under the Exchange Act). Based on that evaluation, the PEO and the PFO have concluded that as of the end of the period covered by this report, the Company's disclosure controls and procedures were not effective as it was determined that there were material weaknesses affecting our disclosure controls and procedures. 

Management of the Company believes that these material weaknesses are due to the small size of the Company's accounting staff. The small size of the Company's accounting staff may prevent adequate controls in the future, such as segregation of duties, due to the cost/benefit of such remediation. To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of external legal and accounting professionals. As the Company grows, management expects to increase the number of employees, which will enable us to implement adequate segregation of duties within the internal control framework.

Changes in internal control over financial reporting.

There have been no changes during the quarter ended September 30, 2018 in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, internal controls over financial reporting.

13

PART II - OTHER INFORMATION

Item 1 Legal Proceedings

The Company is not involved in any material current of pending legal proceedings 

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

None 

Item 3 Defaults Upon Senior Securities

None 

Item 4 Mine Safety Disclosure

Not Applicable 

Item 5 Other Information

None 

Item 6.  Exhibits

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

14

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ELECTRONIC SYSTEMS TECHNOLOGY, INC.
Date:   November 5, 2018	/s/ Michael W. Eller
	Name:  Michael Eller
	Title: Director/President (Chief Executive Officer)
Date:   November 5, 2018	/s/ Michael W. Eller
	Name:  Michael Eller
	Title: Director/President (Principal Accounting Officer)

15

EX-31

Exhibit 31.1

CERTIFICATION

I, Michael Eller, certify that:

1.

I have reviewed this quarterly report on Form 10-Q 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.

/s/ Michael Eller                              

Michael Eller

President

(Chief Executive Officer)

Date: November 5, 2018

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.

EX-31

Exhibit 31.2

CERTIFICATION

I, Michael Eller, certify that:

1.

I have reviewed this quarterly report on Form 10-Q 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.

/s/ Michael Eller                              

Michael Eller

President

Principal Accounting Officer

Date: November 5, 2018

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.

EX-32

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 quarterly report of Electronic Systems Technology Inc. (the "Company") on Form 10-Q for the quarter ended September 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael 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.

/s/ Michael Eller                              

Michael Eller

President

(Chief Executive Officer)

Date: November 5, 2018

This certification is being furnished to the Securities and Exchange Commission as an exhibit to the Quarterly 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.

EX-32

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 quarterly report of Electronic Systems Technology Inc. (the "Company") on Form 10-Q for the quarter ended September 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael 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.

/s/ Michael Eller                              

Michael Eller

President

(Principal Accounting Officer)

Date: November 5, 2018

This certification is being furnished to the Securities and Exchange Commission as an exhibit to the Quarterly 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.

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2018 shares
Document and Entity Information:
Entity Registrant Name	Electronic Systems Technology Inc
Document Type	10-Q
Document Period End Date	Sep. 30, 2018
Trading Symbol	elst
Amendment Flag	false
Entity Central Index Key	0000752294
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding	4,986,048
Entity Filer Category	Non-accelerated Filer
Entity Current Reporting Status	No
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q3

XML

ELECTRONIC SYSTEMS TECHNOLOGY, INC. BALANCE SHEETS (Interim period unaudited) - USD ($)		Sep. 30, 2018	Dec. 31, 2017
Current assets
Cash and cash equivalents		$ 356,406	$ 208,101
Certificates of deposit investments		900,000	1,000,000
Accounts receivable		116,273	98,941
Inventories		650,726	762,517
Accrued interest receivable		9,579	5,137
Prepaid expenses		24,607	8,039
Total current assets		2,057,591	2,082,735
Property and equipment, net		23,137	31,444
Total assets		2,080,728	2,114,179
Current liabilities
Accounts payable		59,983	18,969
Accrued liabilities		19,804	21,882
Refundable deposits			3,937
Total current liabilities		79,787	44,788
Total liabilities		79,787	44,788
COMMITMENTS	[1]	0	0
Stockholders' equity
Common stock, $0.001 par value 50,000,000 shares authorized 4,986,048 and 4,986,048 shares issued and outstanding, respectively		4,986	4,986
Additional paid-in capital		944,161	944,161
Retained earnings		1,051,794	1,120,244
Total stockholders' equity		2,000,941	2,069,391
Total liabilities and stockholders' equity		$ 2,080,728	$ 2,114,179

[1] Note 6

XML

Statement of Financial Position - Parenthetical - $ / shares	Sep. 30, 2018	Dec. 31, 2017
Statement of financial position
Common Stock, Par Value	$ 0.001	$ 0.001
Common Stock, Shares Authorized	50,000,000	50,000,000
Common Stock, Shares Issued	4,986,048	4,986,048
Common Stock, Shares Outstanding	4,986,048	4,986,048

XML

ELECTRONIC SYSTEMS TECHNOLOGY, INC. STATEMENTS OF OPERATIONS (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Income statement
PRODUCT SALES, NET	$ 293,154	$ 312,042	$ 1,062,346	$ 1,038,932
SITE SUPPORT	5,849	10,720	16,398	43,229
COST OF SALES	(142,138)	(133,721)	(520,335)	(481,931)
GROSS PROFIT	156,865	189,041	558,409	600,230
Operating Expenses
General and administrative	67,171	59,367	215,330	212,802
Research and development	42,965	55,511	134,392	191,836
Marketing and sales	85,121	114,902	290,125	338,080
TOTAL OPERATING EXPENSE	195,257	229,780	639,847	742,718
OPERATING INCOME (LOSS)	(38,392)	(40,739)	(81,438)	(142,488)
OTHER INCOME
Interest income	4,857	2,958	12,988	8,496
TOTAL OTHER INCOME	4,857	2,958	12,988	8,496
NET INCOME (LOSS) BEFORE INCOME TAX	(33,535)	(37,781)	(68,450)	(133,992)
NET INCOME (LOSS)	$ (33,535)	$ (37,781)	$ (68,450)	$ (133,992)
Basic and diluted earnings per share	$ (0.01)	$ (0.01)	$ (0.01)	$ (0.03)
Weighted average shares used in computing income (loss) per share: Basic and Diluted average shares	4,986,048	5,019,376	4,986,048	5,032,788

XML

ELECTRONIC SYSTEMS TECHNOLOGY, INC. STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
Net loss	$ (68,450)	$ (133,992)
Non-cash items included in net loss:
Depreciation	8,307	14,954
Changes in operating assets and liabilities:
Accounts receivable	(17,332)	(23,304)
Inventories	111,791	(110,823)
Accrued interest receivable	(4,442)	1,119
Prepaid expenses	(16,567)	(11,916)
Accounts payable	41,014	39,595
Accrued liabilities	(2,079)	4,313
Refundable deposits	(3,937)	2,719
NET CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES	48,305	(217,335)
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:
Certificates of deposit redeemed	100,000
NET CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES	100,000
CASH FLOWS USED IN FINANCING ACTIVITIES:
Repurchase of shares of common stock		(28,524)
NET CASH USED IN FINANCING ACTIVITIES		(28,524)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	148,305	(245,859)
Cash and cash equivalents at beginning of period	208,101	502,971
Cash and cash equivalents at end of period	$ 356,406	$ 257,112

XML

Note 1 - Basis of Presentation

9 Months Ended

Sep. 30, 2018

Notes

Note 1 - Basis of Presentation

NOTE 1 - BASIS OF PRESENTATION

The financial statements of Electronic Systems Technology, Inc. (the "Company") presented in this Form 10Q are unaudited and reflect, in the opinion of Management, a fair presentation of operations for the three and nine-month periods ended September 30, 2018 and September 30, 2017.  All adjustments of a normal recurring nature and necessary for a fair presentation of the results for the periods covered have been made. Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the applicable rules and regulations of the Securities and Exchange Commission. In preparation of the financial statements, certain amounts and balances have been reformatted from previously filed reports including classification of components of cash and cash equivalents to conform to the format of this quarterly presentation.  These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Form 10K for the year ended December 31, 2017, as amended and filed with Securities and Exchange Commission.

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09 Revenue Recognition, replacing guidance currently codified in Subtopic 605-10 Revenue Recognition-Overall with various SEC Staff Accounting Bulletins providing interpretive guidance. The new ASU establishes a new five step principles-based framework in an effort to significantly enhance comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets. In August 2015, the FASB issued ASU No. 2015-14 Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. ASU No. 2015-14 defers the effective date of ASU No. 2014-09 until annual and interim reporting periods beginning after December 15, 2017. The Company has performed an assessment of the impact of implementation of ASU No. 2014-09, and concluded it will not change the timing of revenue recognition or amounts of revenue recognized compared to how revenue is recognized under current policies. ASU No. 2014-09 will require additional disclosures, where applicable, on (i) contracts with customers, (ii) significant judgments and changes in judgments in determining the timing of satisfaction of performance obligations and the transaction price, and (iii) assets recognized for costs to obtain or fulfill contracts. See Note 5.

In February 2016, the FASB issued ASU No. 2016-02 Leases (Topic 842). The update modifies the classification criteria and requires lessees to recognize the assets and liabilities on the balance sheet for most leases. The update is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the potential impact of implementing this update on the financial statements.

In August 2016, the FASB issued ASU No. 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The update provides guidance on classification for cash receipts and payments related to eight specific issues. The update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The Company determined the impact of implementing this update is immaterial.

In November 2016, the FASB issued ASU No. 2016-18 Statement of Cash Flows (Topic 230): Restricted Cash. The update requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The adoption of this standard did not have a material impact on the financial statements.

In January 2017, the FASB issued ASU No. 2017-01 Business Combinations (Topic 805): Clarifying the Definition of a Business. The update clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company will apply the provisions of the update to potential future acquisitions occurring after January 1, 2018.

The Company estimates that for 2018 the anticipated effective annual federal income tax rate will be 0%.

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption.

The results of operations for the nine-month period ended September 30, 2018 are not necessarily indicative of the results expected for the full fiscal year or for any other fiscal period.

XML

Note 2 - Inventories

9 Months Ended

Sep. 30, 2018

Notes

Note 2 - Inventories

NOTE 2 - INVENTORIES

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

	September 30,  2018	December 31, 2017
Parts	$ 129,483	$       143,452
Work in progress	197,383	201,526
Finished goods	323,860	417,539
Total inventory	$ 650,726	$       762,517

XML

Note 3 - Income (Loss) Per Share

9 Months Ended

Sep. 30, 2018

Notes

Note 3 - Income (Loss) Per Share

NOTE 3 - INCOME (LOSS) PER SHARE

Basic income (loss) per share excludes dilution and is computed by dividing income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period.  Diluted income (loss) per share reflects potential dilution occurring if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.  At September 30, 2018 and 2017, the Company had 120,000 and 150,000, respectively outstanding stock options that could have a dilutive effect on future periods.  However, at September 30, 2018 and 2017 there was no dilutive effect of stock options on earnings per share or weighted average shares outstanding. 

XML

Note 4 - Stock Options

9 Months Ended

Sep. 30, 2018

Notes

Note 4 - Stock Options

NOTE 4 - STOCK OPTIONS

As of September 30, 2018, the Company had outstanding stock options which have been granted periodically to individual employees and directors with no less than three years of continuous tenure with the Company.  The Board of Directors did not issue stock options during the first nine-months ended September 30, 2018 and 2017.

A summary of option activity during the nine months ended September 30, 2018 is as follows:

	Number Outstanding	Weighted-Average Exercise Price Per Share	Weighted-Average Remaining Life (Years)	Approximate Aggregate Intrinsic Value
Outstanding and Exercisable at December 31, 2017	150,000	$0.40
Expired	(30,000)	0.40
Outstanding and Exercisable at September 30, 2018	120,000	$0.40	1.9	$18,000

XML

Note 5 - Revenue

9 Months Ended

Sep. 30, 2018

Notes

Note 5 - Revenue

NOTE 5 - REVENUE

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09 Revenue Recognition, replacing guidance currently codified in Subtopic 605-10 Revenue Recognition-Overall.  The new ASU establishes a new five step principles-based framework in an effort to significantly enhance comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets.  We adopted ASU No. 2014-09 as of January 1, 2018 using the modified-retrospective transition approach.  The impact of adoption of the update to our financial statements for the nine months ended September 30, 2018 was not material.

We performed an assessment of the impact of implementation of ASU No. 2014-09, and concluded it does not change the timing of revenue recognition or amounts of revenue recognized compared to how we recognize revenue under our current policies. Our revenues involve a relatively limited number of types of contracts and customers.  In addition, our revenue contracts do not involve multiple types of performance obligations.  Revenues from product sales are recognized, and the transaction price is known, when the goods are shipped or delivered, and title and risk of loss passes to the customer.

Adoption of ASU No. 2014-09 involves additional disclosures, where applicable, on (i) contracts with customers, (ii) significant judgments and changes in judgments in determining the timing of satisfaction of performance obligations and the transaction price, and (iii) assets recognized for costs to obtain or fulfill contracts. 

For product sales, the performance obligation is met, the transaction price can be reasonably estimated, and revenue is recognized generally at the time of shipment.  We have determined the performance obligation is met and title is transferred to the customer upon shipment of products because, at that time, 1) legal title is transferred to the customer, 2) the customer has accepted the product and obtained the ability to realize all of the benefits from the product, 3) the product specifications are known, have been communicated to the customer, and the customer has the significant risks and rewards of ownership to it, 4) it is very unlikely the product will be rejected by a customer upon physical receipt, and 5) we have the right to payment for the product. Revenues from site support and engineering services are recognized as the Company performs the services, which is when the performance obligation is determined to be met.

Sales and accounts receivable for product sales are 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.

The Company does not generally sell its products with the right of return.  Therefore, returns are accounted for when they occur and are accepted. 

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. Warranty expenses are immaterial based on the Company’s historical warranty experience.

Our trade accounts receivable balance related to sales to customers was $116,273 at September 30, 2018 and $98,941 at December 31, 2017 and included no allowance for doubtful accounts. 

We have determined our sales do not include a significant financing component, as payment is received at the time the performance obligation is satisfied.

We do not incur significant costs to obtain sales, nor costs to fulfill sales orders which are not addressed by other standards.  Therefore, we have not recognized an asset for such costs as of September 30, 2018 or December 31, 2017.

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Note 6 - Commitments and Contingencies

9 Months Ended

Sep. 30, 2018

Notes

Note 6 - Commitments and Contingencies

NOTE 6 - COMMITMENTS

The Company leases its facilities from a port authority for $5,445 per month for three years, expiring in September 2020, with annual increases based upon the Consumer Price Index.

XML

Note 7 - Segment Reporting

9 Months Ended

Sep. 30, 2018

Notes

Note 7 - Segment Reporting

NOTE 7 - SEGMENT REPORTING

Segment information is prepared on the same basis that the Company's management reviews financial information for operational decision-making purposes.   

During the quarter ended September 30, 2018, Domestic customers represented approximately 91% of total net revenues. Domestic sales revenues decreased to $271,976 for the quarter ended September 30, 2018 compared to $283,239 for the quarter ended September 30, 2017. Year to date domestic sales revenues increased to $1,021,153 as of September 30, 2018 compared to $893,277 for the same period of 2017.  Foreign customers represented approximately 9% of total net revenues.  Foreign sales revenues decreased to $27,027 for the quarter ended September 30, 2018 compared to $39,523 for the quarter ended September 30, 2017. Year to date foreign sales revenues decreased to $57,591 as of September 30, 2018 compared to $188,884 for the same period of 2017.  During the quarter and nine-month period ended September 30, 2018, sales to one customer comprised more than 10% of the Company’s sales revenues.  Revenues from foreign countries during the third quarter of 2018 consist primarily of revenues from product sales to Peru, Bolivia and Ireland.

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Note 8 - Stock Repurchase

9 Months Ended

Sep. 30, 2018

Notes

Note 8 - Stock Repurchase

NOTE 8 – STOCK REPURCHASE

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. As of September 30, 2018, $184,405 remains of $250,000 approved by the board. 97,764 and 74,885 shares were repurchased in 2016 and 2017 respectively, bringing the total number of shares repurchased to 172,619. During the nine-month period ended September 30, 2018, there were no shares repurchased.

XML

Note 1 - Basis of Presentation: New Accounting Pronouncements (Policies)

9 Months Ended

Sep. 30, 2018

Policies

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09 Revenue Recognition, replacing guidance currently codified in Subtopic 605-10 Revenue Recognition-Overall with various SEC Staff Accounting Bulletins providing interpretive guidance. The new ASU establishes a new five step principles-based framework in an effort to significantly enhance comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets. In August 2015, the FASB issued ASU No. 2015-14 Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. ASU No. 2015-14 defers the effective date of ASU No. 2014-09 until annual and interim reporting periods beginning after December 15, 2017. The Company has performed an assessment of the impact of implementation of ASU No. 2014-09, and concluded it will not change the timing of revenue recognition or amounts of revenue recognized compared to how revenue is recognized under current policies. ASU No. 2014-09 will require additional disclosures, where applicable, on (i) contracts with customers, (ii) significant judgments and changes in judgments in determining the timing of satisfaction of performance obligations and the transaction price, and (iii) assets recognized for costs to obtain or fulfill contracts. See Note 5.

In February 2016, the FASB issued ASU No. 2016-02 Leases (Topic 842). The update modifies the classification criteria and requires lessees to recognize the assets and liabilities on the balance sheet for most leases. The update is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the potential impact of implementing this update on the financial statements.

In August 2016, the FASB issued ASU No. 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The update provides guidance on classification for cash receipts and payments related to eight specific issues. The update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The Company determined the impact of implementing this update is immaterial.

In November 2016, the FASB issued ASU No. 2016-18 Statement of Cash Flows (Topic 230): Restricted Cash. The update requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The adoption of this standard did not have a material impact on the financial statements.

In January 2017, the FASB issued ASU No. 2017-01 Business Combinations (Topic 805): Clarifying the Definition of a Business. The update clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company will apply the provisions of the update to potential future acquisitions occurring after January 1, 2018.

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Note 2 - Inventories: Schedule of Inventory, Current (Tables)

9 Months Ended

Sep. 30, 2018

Tables/Schedules

Schedule of Inventory, Current

	September 30,  2018	December 31, 2017
Parts	$ 129,483	$       143,452
Work in progress	197,383	201,526
Finished goods	323,860	417,539
Total inventory	$ 650,726	$       762,517

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Note 4 - Stock Options: Schedule of Stock Options Roll Forward (Tables)

9 Months Ended

Sep. 30, 2018

Tables/Schedules

Schedule of Stock Options Roll Forward

	Number Outstanding	Weighted-Average Exercise Price Per Share	Weighted-Average Remaining Life (Years)	Approximate Aggregate Intrinsic Value
Outstanding and Exercisable at December 31, 2017	150,000	$0.40
Expired	(30,000)	0.40
Outstanding and Exercisable at September 30, 2018	120,000	$0.40	1.9	$18,000

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Note 2 - Inventories: Schedule of Inventory, Current (Details) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Details
Inventory, Parts and Components, Net of Reserves	$ 129,483	$ 143,452
Inventory, Work in Process, Gross	197,383	201,526
Inventory, Finished Goods, Gross	323,860	417,539
Inventories	$ 650,726	$ 762,517

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Note 3 - Income (Loss) Per Share (Details) - shares	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Details
Incremental Common Shares Attributable to Dilutive Effect of Call Options and Warrants	120,000	150,000
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount		0

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Note 4 - Stock Options: Schedule of Stock Options Roll Forward (Details)	9 Months Ended
	Sep. 30, 2018 USD ($) $ / shares shares	Dec. 31, 2017 $ / shares shares
Details
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number | shares	120,000	150,000
Weighted Average Exercise Price | $ / shares	$ 0.40	$ 0.40
Share-based Compensation Arrangement by Share-based Payment Award, Options, Expirations in Period | shares	(30,000)
Share-based Compensation Arrangement by Share-based Payment Award, Options, Forfeitures and Expirations in Period, Weighted Average Intrinsic Value | $ / shares	$ 0.40
Weighted Average Remaining Life Years	1.9
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value | $	$ 18,000

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Note 5 - Revenue (Details) - USD ($)	9 Months Ended
	Sep. 30, 2018	Dec. 31, 2017
Details
Revenue Recognition, New Accounting Pronouncement, Material Effect, Description	In May 2014, the Financial Accounting Standards Board ('FASB') issued Accounting Standards Update ('ASU') No. 2014-09 Revenue Recognition, replacing guidance currently codified in Subtopic 605-10 Revenue Recognition-Overall. The new ASU establishes a new five step principles-based framework in an effort to significantly enhance comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets. We adopted ASU No. 2014-09 as of January 1, 2018 using the modified-retrospective transition approach. The impact of adoption of the update to our financial statements for the nine months ended September 30, 2018 was not material.
Revenue Recognition, New Accounting Pronouncement, Timing	We performed an assessment of the impact of implementation of ASU No. 2014-09, and concluded it does not change the timing of revenue recognition or amounts of revenue recognized compared to how we recognize revenue under our current policies.
Revenue Recognition Accounting Policy, Gross and Net Revenue Disclosure	Sales and accounts receivable for product sales are 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.
Accounts receivable	$ 116,273	$ 98,941

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Note 6 - Commitments and Contingencies (Details)	9 Months Ended
	Sep. 30, 2018 USD ($)
Details
Operating Leases, Rent Expense	$ 5,445

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Note 7 - Segment Reporting (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Details
Domestic sales revenues	$ 271,976	$ 283,239	$ 1,021,153	$ 893,277
Foreign sales	$ 27,027	$ 39,523	$ 57,591	$ 188,884
Customer A			10.00%

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Note 8 - Stock Repurchase (Details) - shares	9 Months Ended	12 Months Ended
	Sep. 30, 2018	Dec. 31, 2017	Dec. 31, 2016
Details
Employee Stock Ownership Plan (ESOP), Terms of Repurchase Obligation	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.
Stock Repurchased During Period, Shares		74,885	97,764