ELECTRONIC SYSTEMS TECHNOLOGY, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Management's discussion and analysis is intended to be read in conjunction with
the Company's unaudited financial statements and the integral notes thereto for
the quarter ended June 30, 2020 . The following statements may be forward looking
in nature and actual results may differ materially.
A. RESULTS OF OPERATIONS
REVENUES: Total revenues from sales decreased to $416,892 for the second quarter
of 2022 as compared to $457,003 in the second quarter of 2021, reflecting a
decrease of 8.8%. Management believes the decrease in sales revenues is due to
the impact of supply chain delays to materials needed by our customers to
compete projects. Year to date total revenues from sales increased to $889,035
in 2022 as compared to $881,779 in 2021, reflecting an increase of 0.8%.
Management believes the increase in sales revenues is due the company increased
inventory level and the ability to ship orders in a timely manner.
The Company's revenues have historically fluctuated from quarter to quarter due
to timing factors such as product shipments to customers, customer order
placement, customer buying trends, and changes in the general economic
environment. The procurement process regarding plant and project automation, or
project development, which usually surrounds the decision to purchase ESTeem
products, can be lengthy. This procurement process may involve bid activities
unrelated to the ESTeem products, such as additional systems and subcontract
work, as well as capital budget considerations on the part of the customer.
Because of the complexity of this procurement process, forecasts with regard to
the Company's revenues are difficult to predict.
A percentage breakdown of the Company's market segments of Domestic and Foreign
Export sales for the three and six month periods ended June 30, 2022 and 2021
are as follows:
Three Three Six Months Six Months
Months Months ended June ended June
ended June ended June 30, 2022 30, 2021
30, 2022 30, 2021
Domestic Sales 91% 95% 92% 90%
Export Sales 9% 5% 8% 10%
BACKLOG:
As of
COST OF SALES:
Cost of sales percentages for the second quarters of 2022 and 2021 were 46% and 47% of respective net sales. The cost of sales percentage decreased in the second quarter of 2022 is the result of the product mix sold during the same quarter of 2021. Cost of sales percentages for the six month periods endedJune 30, 2022 and 2021 were 45.1% and 44.7%, respectively. The cost of sales percentage increase in the second quarter of 2022 is the result of the product mix sold during the same period of 2021. 10 OPERATING EXPENSES:
The following is a delineation of operating expenses:
Three Months Ended Six Month Ended
June 30, June 30, Increase June 30, June 30, Increase
2022 2021 (Decrease) 2022 2021 (Decrease)
General and administrative $ 66,747 $ 66,452 $ 295 $ 151,522 $ 159,955 $ (8,433 )
Research and development 45,856 54,249 (8,393 ) 91,633 106,949 (15,316 )
Marketing and sales 132,242 127,419 4,823 269,401 221,634 47,767
Total operating expenses $ 244,845 $ 248,120 $ (3,275 ) $ 512,556 $ 488,538 $ 24,018
General and administrative: For the second quarter of 2022, general and
administrative expenses increased $295 to $66,747 , due to increased wages when
compared with the same quarter of 2021. For the six-month period, general and
administrative expenses decreased by $8,433 to $151,522 , due to decreased
services purchased. General and administrative expense was 16.0% compared to
14.5% of sales revenue for the second quarter of 2022 and 17.0% compared to
18.1% of sales revenue for six month period ended June 30, 2022 .
Research and development: Research and development expenses decreased $8,393 to
$45,856 during the second quarter of 2022 due to decreased payroll expenses when
compared with the same quarter of 2021. For the six-month period, research and
development expenses decreased by $15,316 to $91,633 , due to decreased payroll
expenses. Research and development expense was 11.0% compared to 11.9% of sales
revenue for the second quarter of 2022 and 10.3% compared to 12.1% of sales
revenue for six month period ending June 30, 2022 .
Marketing and sales: During the second quarter of 2022, marketing and sales
expenses increased $4,823 to $132,242 when compared with the same period of
2021, due to increased benefits expenses and travel. For the six-month period,
marketing and sales expenses increased by $47,767 to $269,401 , due to increased
payroll. Marketing and sales expense was 31.7% compared to 27.9% of sales
revenue for the second quarter of 2022 and 30.3% compared to 25.1% of sales
revenue for six month period ended June 30, 2022 .
OTHER INCOME:
The Company earned $594 in interest income during the quarter ended June 30,
2022 and $1,085 for the six-month period. Sources of this income were money
market accounts and certificates of deposit. In 2021, the Company recognized a
gain on forgiveness of debt in the amount of $150,118 for the first CARES Act
loan (PPP round 1).
NET LOSS:
The Company had a net loss of 18,796 for the second quarter of 2022 compared to
a net income of $146,370 for the same quarter of 2021. For the six-month period
ended June 30, 2022 , the Company recorded a net loss of $23,757 compared with
net income of $151,052 for the same period of 2021. The decrease in net income
during 2022 is the result of increased operating expenses and no CARES Act
forgiveness.
11
B. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Corporation's current asset to current liabilities ratio at June 30, 2022
was 21.0 compared to 12.7 at December 31, 2021 . The increase in current ratio is
due to the decrease of accounts payable and short-term leases payable at June
30, 2022 as compared to December 31, 2021 .
At
Cash provided from operating activities decreased by$419,549 for the six-month period endedJune 30, 2022 when compared to the same period in 2021. The decrease is attributable to a decrease in net income for the period being$174,809 less than the same period in 2021. The reduction in the change in accounts receivable and inventory balances contributed$120,753 and$167,186 respectively.
In management's opinion, the Company's cash and cash equivalents and other
working capital at
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 theSecurities and Exchange Commission .
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to its stockholders.
© Edgar Online, source
