Attached files
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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, 2009
or
[ ] 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 000-51859
ELECTRONIC SENSOR TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
NEVADA 98-0372780
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1077 Business Center Drive
Newbury Park, California 91320
(Address of principal executive offices)
(805) 480-1994
(Registrant's telephone number, including area code)
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 [ ]
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
(Section 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 [ ] 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.
See the definitions of "large accelerated filer," "accelerated filer" and
"smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
161,918,543 shares of common stock as of November 4, 2009
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Certain statements in this quarterly report on Form 10-Q, including those
relating to the company's plans regarding business and product development;
product sales and distribution; market demands and developments in the homeland
security, the future state of the homeland security market, analytical
instrumentation/quality control and environmental monitoring markets; and the
sufficiency of the company's resources to satisfy operation cash requirements
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. These forward-looking statements may contain the words
"believe," "anticipate," "expect," "predict," "estimate," "project," "will be,"
"will continue," "will likely result," or other similar words and phrases. Risks
and uncertainties exist that may cause results to differ materially from those
set forth in these forward-looking statements. Factors that could cause the
anticipated results to differ from those described in the forward-looking
statements include: risks related to changes in technology, our dependence on
key personnel, our ability to protect our intellectual property rights,
emergence of future competitors, changes in our largest customer's business and
government regulation of homeland security companies. The forward-looking
statements speak only as of the date they are made. We do not undertake to
update forward-looking statements to reflect circumstances or events that occur
after the date the forward-looking statements are made.
PART I.
FINANCIAL INFORMATION
Item 1. Financial Statements.
INDEX TO FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 2009 (unaudited)
and December 31, 2008 (audited) F-1
Consolidated Statements of Operations (unaudited) for the Three and
Nine Months Ended September 30, 2009 and 2008 F-2
Consolidated Statements of Cash Flows (unaudited) for the Three and
Nine Months Ended September 30, 2009 and 2008 F-3
Notes to Consolidated Financial Statements (unaudited) F-4
1
ELECTRONIC SENSOR TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
September December 31,
30, 2009 2008
------------- --------------
(Unaudited) (Audited)
CURRENT ASSETS:
Cash and cash equivalents $ 280,418 $ 484,028
Certificate of deposit-restricted 15,500 15,500
Accounts receivable, net of allowance for
uncollectible of $105,000 at September 30,
2009 and $0 at December 31, 2008 197,651 284,644
Prepaid expenses 73,528 59,219
Inventories 442,001 557,454
------------- --------------
TOTAL CURRENT ASSETS 1,009,098 1,400,845
------------- --------------
PROPERTY AND EQUIPMENT, net 104,997 114,213
SECURITY DEPOSITS 12,817 12,817
------------- --------------
$ 1,126,912 $ 1,527,875
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 358,112 $ 261,383
Interest payable - related party 132,678 90,986
Obligation under capital lease due within
one year 21,804 20,024
Debenture payable to related party 1,000,000 -
------------- --------------
TOTAL CURRENT LIABILITIES 1,512,594 372,393
------------- --------------
CONVERTIBLE DEBENTURES - long-term portion,
net of unamortized discount 1,959,590 1,951,017
LONG-TERM OBLIGATION UNDER CAPITAL LEASE - 16,583
------------- --------------
TOTAL LIABILITIES 3,472,184 2,339,993
------------- --------------
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value 50,000,000
shares authorized, none issued and
outstanding - -
Common stock, $.001 par value 250,000,000
shares authorized, 161,918,543 and
155,853,385 issued and outstanding at
September 30, 2009 and December 31, 2008,
respectively 161,919 155,854
Additional paid-in capital 15,324,700 15,207,301
Accumulated deficit (17,831,891) (16,175,273)
------------- --------------
TOTAL STOCKHOLDERS' EQUITY (2,345,272) (812,118)
------------- --------------
$ 1,126,912 $ 1,527,875
============= ==============
See unaudited notes to consolidated financial statements
F-1
ELECTRONIC SENSOR TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------------ ---------------------------
2009 2008 2009 2008
------------- -------------- ------------ ------------
REVENUES $ 778,147 $ 1,303,570 $ 194,668 $ 543,928
COST OF SALES 459,107 828,487 130,295 367,843
------------- -------------- ------------ ------------
GROSS PROFIT 319,040 475,083 64,373 176,085
OPERATING EXPENSES:
Research and development 293,066 512,883 94,993 163,946
Selling, general and administrative 1,490,829 1,545,723 485,388 405,018
------------- -------------- ------------ ------------
TOTAL OPERATING EXPENSES 1,783,895 2,058,606 580,381 568,964
------------- -------------- ------------ ------------
LOSS FROM OPERATIONS (1,464,855) (1,583,523) (516,008) (392,879)
------------- -------------- ------------ ------------
OTHER INCOME (EXPENSE)
Other income - derivative - 323,210 - -
Loss on disposal of fixed assets (1,121) - - -
Gain from extinguishment of debt - 1,261,864 - -
Other income 13 - - -
Interest expense (4,404) (740,390) (1,826) (2,846)
Interest expense - related party (186,251) (96,767) (70,361) (47,845)
------------- -------------- ------------ ------------
TOTAL OTHER INCOME (EXPENSE) (191,763) 747,917 (72,187) (50,691)
------------- -------------- ------------ ------------
NET LOSS $ (1,656,618) $ (835,606) $ (588,195) $ (443,570)
============= ============== ============ ============
Loss per share, basic $ (0.01) $ (0.01) $ (0.00) $ (0.00)
============= ============== ============ ============
Weighted average number of shares, basic 157,994,029 125,209,050 161,918,543 155,853,385
============= ============== ============ ============
Loss per share, diluted $ (0.01) $ (0.01) $ (0.00) $ (0.00)
============= ============== ============ ============
Weighted average number of shares, diluted 157,994,029 125,209,050 161,918,543 155,853,385
============= ============== ============ ============
See unaudited notes to consolidated financial statements
F-2
ELECTRONIC SENSOR TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
------------------------------
2009 2008
------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,656,618) $ (835,606)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization 32,467 36,223
Increase in allowance for doubtful accounts 105,000 -
Issuance of shares for payment of interest - 280,000
Issuance of shares for services 109,173 -
Stock based compensation 14,291 30,604
Amortization of debt discount 8,573 589,114
Amortization of deferred financing costs - 45,387
Gain on extinguishment of debt - (1,261,864)
Decrease in fair value of derivative liability - (323,210)
Changes in assets and liabilities:
Accounts receivable (18,007) (23,917)
Inventories 115,453 103,151
Prepaid expenses (14,309) (12,745)
Accounts payable and accrued expenses 96,728 (191,218)
Interest payable - related party 41,692 90,986
Deferred revenues - (37,500)
------------- --------------
Net cash provided by (used in) operating
activities (1,165,557) (1,510,595)
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and
equipment 4,772 9,884
Purchase of property and equipment (28,022) (3,620)
------------- --------------
Net cash provided by (used in) investing
activities (23,250) 6,264
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in capital lease obligation (14,803) (14,753)
Proceeds from 9% debenture payable issued to
related party 1,000,000 -
Proceeds from 9% convertible debenture
issued to related party - 2,000,000
Proceeds from equity issued to related
party - 3,500,000
Repayment of 8% convertible debentures - (3,500,000)
------------- --------------
Net cash provided by (used in) financing
activities 985,197 1,985,247
------------- --------------
NET INCREASE (DECREASE) IN CASH (203,610) 480,916
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 484,028 248,587
------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 280,418 $ 729,503
============= ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Total cash paid during the period for
interest $ 49,637 $ 9,211
============= ==============
Cash paid to related party during the period
for interest $ 45,000 $ -
============= ==============
NONCASH FINANCING AND INVESTING ACTIVITY:
Reclassification of derivative liability to
paid-in-capital $ - $ 2,053,333
============= ==============
Conversion of 8% convertible debentures into
equity $ - $ 500,000
============= ==============
Debt discount related to 9% convertible
debenture issued to related party $ - $ 54,678
============= ==============
See unaudited notes to consolidated financial statements.
F-3
ELECTRONIC SENSOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 2009
1) Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial statements and with the instructions to Form 10-Q and
Item 10 of Regulation S-K. Accordingly, they do not include all the
information and disclosures required for annual financial statements. These
financial statements should be read in conjunction with the consolidated
financial statements and related footnotes for the year ended December 31,
2008, included in the Annual Report filed on Form 10-K for the year then
ended.
In the opinion of the management of Electronic Sensor Technology, Inc. (the
"Company"), all adjustments (consisting of normal recurring accruals)
necessary to present fairly the Company's financial position as of
September 30, 2009, and the results of operations and cash flows for the
nine month period ending September 30, 2009 have been included. The results
of operations for the nine month period ended September 30, 2009 are not
necessarily indicative of the results to be expected for the full year. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report filed on Form
10-K as filed with the Securities and Exchange Commission for the year
ended December 31, 2008.
2) Basis of Consolidation
The accompanying financial statements include the accounts of the Company
and its wholly owned subsidiaries. All intercompany balances and
transactions have been eliminated in consolidation.
3) Nature of Business and Summary of Significant Accounting Policies
a) Nature of Business
The Company develops and manufactures electronic devices used for
vapor analysis. It markets its products primarily to government
agencies, higher education institutions, and multi-national
corporations. The company sells its products directly to domestic
customers who are end-users and, sells internationally to distributors
who, in turn, sell to end-users. Distributors are used for their
capability to provide local after-sales support to end-users.
b) Cash and Cash Equivalents
The Company considers highly liquid financial instruments with
maturities of three months or less at the time of purchase to be cash
equivalents.
c) Certificate of Deposit - Restricted
The Company had two certificates of deposit in place at September 30,
2009. One, in the amount of $12,000, was used to secure and
collateralize the Company's credit card liability. The other
certificate of deposit in the amount of $3,500 was used to provide a
performance guarantee for a sale to an overseas customer.
d) Allowance for Doubtful Accounts
The allowance for doubtful accounts is based on the Company's
assessment of the collectibility of customer accounts and the aging of
the accounts receivable. If there is a deterioration of a major
customer's credit worthiness or actual defaults are higher than the
Company's historical experience, the Company's estimates of the
recoverability of amounts due it could be adversely
F-4
affected. The Company regularly reviews the adequacy of the Company's
allowance for doubtful accounts through identification of specific
receivables where it is expected that payments will not be received.
The Company also establishes an unallocated reserve that is applied to
all amounts that are not specifically identified. In determining
specific receivables where collections may not be received, the
Company reviews past due receivables and gives consideration to prior
collection history and changes in the customer's overall business
condition. The allowance for doubtful accounts reflects the Company's
best estimate as of the reporting dates. Changes may occur in the
future, which may require the Company to reassess the collectibility
of amounts and at which time the Company may need to provide
additional allowances in excess of that currently provided.
The allowance for doubtful accounts balance at September 30, 2009 was
increased to $105,000 due to uncertainty in collection from a customer
who has encountered financial difficulties.
e) Revenue Recognition
The Company sells directly to domestic customers who are end-users.
The Company sells internationally to distributors who, in turn, sell
to end-users. Sales to distributors are not contingent on the sale by
the distributor to an end-user. As such, the distributor is the owner
of the products it purchases from the Company. The Company records
revenue from sales of products to customers when the products are
shipped, collection of the purchase price is probable and the Company
has no significant further obligations to the customer. Costs of
remaining insignificant Company obligations, if any, are accrued as
costs of revenue at the time of revenue recognition. Cash payments
received in advance of product shipment or service revenue are
recorded as deferred revenue.
f) Shipping and Handling
The Company accounts for shipping and handling costs as a component of
"Cost of Sales".
g) Inventories
Inventories are comprised of raw materials, work in process, and
finished goods. Inventories are stated at the lower of cost or market
and are determined using the first-in, first-out method.
h) Property and Equipment
Property and equipment are stated at cost, net of accumulated
depreciation. Depreciation is computed using the straight-line method
over the estimated useful lives of five years.
i) Research and Development
Research and development costs are charged to operations as incurred
and consists primarily of salaries and related benefits, raw materials
and supplies.
j) Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosures of contingent assets and liabilities
at the date of the financial statements and the recorded amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
F-5
k) Fair Value of Financial Instruments
The fair value of certain financial instruments, including accounts
receivable, accounts payable and accrued liabilities, approximate
their carrying values due to the short maturity of these instruments.
The fair value as of September 30, 2009 of the 9% convertible
debentures issued by the Company on March 28, 2008 and the 9% note
payable issued by the Company on April 10, 2009 amounts to $2,000,000
and $1,000,000, respectively, based on the Company's incremental
borrowing rate.
l) Long-lived Assets
The Company reviews long-lived assets, such as property and equipment,
to be held and used or disposed of, for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. If the sum of the expected cash flows,
undiscounted and without interest, is less than the carrying amount of
the asset, an impairment loss is recognized as the amount by which the
carrying amount of the asset exceeds its fair value. At September 30,
2009 no assets were impaired.
m) Capital Lease
On June 28, 2007, the Company entered into a capital lease under which
the present value of the minimum lease payments amounted to $59,200.
The present value of the minimum lease payments was calculated using a
discount rate of 11.41%. The principal balance of the capital lease
obligation amounted to approximately $21,800 at September 30, 2009.
The capital lease matures on September 8, 2010.
n) Basic and Diluted Earnings Per Share
Basic earnings per share are calculated by dividing income available
to stockholders by the weighted-average number of common shares
outstanding during each period. Diluted earnings per share are
computed by dividing income available to stockholders, adjusted for
interest savings on the convertible debenture and changes in income or
loss associated with the derivative contract that would result if the
contract had been recorded as an equity instrument for accounting
purposes during the period, by the weighted average number of common
shares outstanding during the period plus the net effect of stock
options and warrants, effect of the convertible debentures, and
embedded conversion features.
The outstanding options, warrants and shares equivalent issuable
pursuant to embedded conversion features and warrants at September 30,
2009 and 2008 are excluded from the loss per share computation for
that period due to their antidilutive effect.
The following sets forth the computation of basic and diluted earnings
per share at September 30:
F-6
2009 2008
------------- --------------
Numerator:
Net (loss) $ (1,656,618) $ (835,606)
Net other (income)/expense
associated with derivative
contracts - (323,210)
------------- --------------
Net (loss) for diluted earnings
per share purposes $ (1,656,618) $ (1,158,816)
============= ==============
Denominator:
Denominator for basic earnings
per share-Weighted average shares
outstanding 157,994,029 125,209,050
Effect of dilutive stock options
and warrants, determined under
the treasury stock method - -
Assume issued common shares for
convertible debentures,
determined under the if-converted
method - -
------------- --------------
Denominator for diluted earnings
per share-Weighted average shares
outstanding 157,994,029 125,209,050
============= ==============
Basic earnings (loss) per share $ (0.01) $ (0.01)
============= ==============
Diluted earnings (loss) per share $ (0.01) $ (0.01)
============= ==============
o) Stock Based Compensation
The Company adopted guidance for "Share Based Payments." The guidance
requires companies to expense the value of employee stock options and
similar awards and applies to all outstanding and vested stock-based
awards.
In computing the impact, the fair value of each option is estimated on
the date of grant based on the Black-Scholes options-pricing model
utilizing certain assumptions for a risk free interest rate;
volatility; and expected remaining lives of the awards. The
assumptions used in calculating the fair value of share-based payment
awards represent management's best estimates, but these estimates
involve inherent uncertainties and the application of management
judgment. As a result, if factors change and the Company uses
different assumptions, the Company's stock-based compensation expense
could be materially different in the future. In addition, the Company
is required to estimate the expected forfeiture rate and only
recognize expense for those shares expected to vest. In estimating the
Company's forfeiture rate, the Company analyzed its historical
forfeiture rate, the remaining lives of unvested options, and the
amount of vested options as a percentage of total options outstanding.
If the Company's actual forfeiture rate is materially different from
its estimate, or if the Company reevaluates the forfeiture rate in the
future, the stock-based compensation expense could be significantly
different from what we have recorded in the current period. The impact
of applying this guidance approximated $14,300 in additional
compensation expense during for the nine month period ended September
30, 2009. Such amount is included in general and administrative
expenses on the statement of operations.
p) Risk Factors
Recently, the credit markets and the financial services industry have
been experiencing a period of unprecedented turmoil and upheaval
characterized by the bankruptcy, failure, collapse or sale of various
financial institutions and an unprecedented level of intervention from
the United States federal government. While the ultimate outcome of
these events cannot be predicted, they may have a material adverse
effect on the Company's liquidity and financial condition if its
ability to borrow money to finance its operations from its existing
lenders or from other sources, or obtain credit from trade creditors
were to be impaired. In addition, the recent economic crisis could
also adversely impact our customers' ability to finance the purchase
of electronic instruments from us or our suppliers' ability to provide
us with product, either of which may negatively impact the Company's
business and results of operations.
F-7
Concentration of Credit Risks
The Company is subject to concentrations of credit risk primarily from
cash and cash equivalents. The Company's cash and cash equivalents
accounts are held at financial institutions and are insured by the
Federal Deposit Insurance Corporation ("FDIC") up to $250,000 at
September 30, 2009. During the nine-month periods ended September 30,
2009 and 2008, the Company has reached bank balances exceeding the
FDIC insurance limit. While the Company periodically evaluates the
credit quality of the financial institutions in which it holds
deposits, it cannot reasonably alleviate the risk associated with the
sudden failure of such financial institutions.
Customer Concentration
The Company's largest customer accounted for approximately 15% and 26%
of its revenues during the nine-month periods ended September 30, 2009
and 2008, respectively. The customer accounted for approximately 39%
and 53% of the gross accounts receivable balance at September 30, 2009
and 2008, respectively.
Product Concentration
All of the Company's revenues were derived from the sale of electronic
devices, related accessories and support services used for vapor
analysis.
Geographic Concentration
The Company sells its products internationally in 20 countries. Sales
to these countries were approximately 44% and 43% of net revenues
during the nine-month periods ended September 30, 2009 and 2008,
respectively.
q) Recently Issued Accounting Pronouncements
In April 2009, the FASB issued guidance in the Financial Instruments
Topic of the Codification on interim disclosures about fair value of
financial instruments. The guidance requires disclosures about the
fair value of financial instruments for both interim reporting
periods, as well as annual reporting periods. The guidance is
effective for all interim and annual reporting periods ending after
June 15, 2009 and shall be applied prospectively. The adoption of this
guidance had no impact on our financial statements as of September 30,
2009.
In May 2009, the FASB issued guidance in the Subsequent Events Topic
of the Codification . The guidance is intended to establish general
standards of accounting for, and disclosure of, events that occur
after the balance sheet date but before financial statements are
issued. It requires the disclosure of the date through which an entity
has evaluated subsequent events and the basis for that date. The
guidance is effective for interim or annual financial periods ending
after June 15, 2009 and is required to be adopted prospectively. We
adopted this guidance effective for the quarter ending June 30, 2009.
The adoption of this guidance had no impact on our financial
statements as of September 30, 2009.
In June 2009, the FASB issued guidance which will amend the
Consolidation Topic of the Codification. The guidance addresses the
effects of eliminating the qualifying special-purpose entity (QSPE)
concept and responds to concerns over the transparency of enterprises'
involvement with variable interest entities (VIEs). The guidance is
effective beginning on January 1, 2010. We do not expect the adoption
of this guidance to have an impact on our financial statements.
In August 2009, the FASB issued Accounting Standards Update No.
2009-05, "Measuring Liabilities at Fair Value" (ASU 2009-05). ASU
2009-05 amends the Fair Value Measurements and Disclosures Topic of
the FASB Accounting Standards Codification by providing additional
guidance clarifying the measurement of liabilities at fair value. ASU
2009-05 is effective for us
F-8
for the reporting period ending December 31, 2009. We do not expect
the adoption of ASU 2009-05 to have an impact on our financial
statements.
4) Convertible Debentures Issued To Related Parties
9% Debenture Payable
On April 10, 2009, the Company received $1 million from Halfmoon Bay
Capital Ltd., the Company's largest shareholder, in exchange for a
debenture bearing an interest rate of 9% with a maturity of one year. The
debenture grants the investor a security interest in all of the
intellectual property of the Company.
9% Convertible Debentures
On March 28, 2008, we received $2,000,000 from Halfmoon Bay Capital Ltd.,
the Company's largest shareholder, in exchange for a convertible debenture
bearing an interest rate of 9%, payable semi-annually in cash. The
convertible debenture has a five (5)-year term, and the conversion rate of
the debenture is $0.0486 (equal to 41,152,263 common shares). The
difference between the conversion rate of the debenture and the closing
price of the Company's common stock on the date of issuance resulted in a
note discount of approximately $58,000. The note discount will be amortized
over the term of the convertible debenture. On October 5, 2009, Halfmoon
Bay Capital Ltd agreed to defer a $90,000 interest payment owed to it on
September 28, 2009 until December 31, 2009.
5) Stockholders' Equity
Common Stock
On June 12, 2009, the Company filed Amended and Restated Articles of
Incorporation with the Nevada Secretary of State. The Articles of
Incorporation of the Company were amended and restated to give effect to
the following amendments: (i) to increase the number of authorized shares
of common stock from 200,000,000 shares to 250,000,000 shares, (ii) to vest
authority in the Board of Directors to prescribe the classes, series and
the number of each class or series of preferred stock and the voting
powers, designations, preferences, limitations, restrictions and relative
rights granted to or imposed upon any wholly unissued series of preferred
stock and (iii) to clarify and restate that the purpose of the business of
the Company is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the
State of Nevada.
Options
In 2005, the Board of Directors adopted the Electronic Sensor Technology,
Inc. 2005 Stock Incentive Plan. The purpose of the Stock Incentive Plan is
to attract and retain the services of experienced and knowledgeable
individuals to serve as our employees, consultants and directors. On the
date the Stock Incentive Plan was adopted, the total number of shares of
common stock subject to it was 5,000,000. The Stock Incentive Plan is
currently administered by the Board of Directors, and may be administered
by any Committee authorized by the Board of Directors, so long as any such
Committee is made up of Non-Employee Directors, as that term is defined in
Rule 16(b)-3(b) of the Securities Exchange Act of 1934.
The Stock Incentive Plan is divided into two separate equity programs: the
Discretionary Option Grant Program and the Stock Issuance Program. Under
the Discretionary Option Grant Program, eligible persons may, at the
discretion of the administrator, be granted options to purchase shares of
common stock and stock appreciation rights. Under the Stock Issuance
Program, eligible persons may, at the discretion of the administrator, be
issued shares of common stock directly, either through the immediate
purchase of such shares or as a bonus for services rendered for Electronic
Sensor Technology (or a parent or subsidiary of Electronic Sensor
Technology).
Pursuant to the terms of the Discretionary Option Grant Program, the
exercise price per share is fixed by the administrator, but may not be less
than 85% of the fair market value of the common stock on the date of
F-9
grant, unless the recipient of a grant owns 10% or more of Electronic
Sensor Technology's common stock, in which case the exercise price of the
option must not be less than 110% of the fair market value. An option grant
may be subject to vesting conditions. Options may be exercised in cash,
with shares of the common stock of Electronic Sensor Technology already
owned by the person or through a special sale and remittance procedure,
provided that all applicable laws relating to the regulation and sale of
securities have been complied with. This special sale and remittance
procedure involves the optionee concurrently providing irrevocable written
instructions to: (i) a designated brokerage firm to effect the immediate
sale of the purchased shares and remit to Electronic Sensor Technology, out
of the sale proceeds available on the settlement date, sufficient funds to
cover the aggregate exercise price payable for the purchased shares plus
all applicable federal, state and local income and employment taxes
required to be withheld by Electronic Sensor Technology by reason of such
exercise and (ii) Electronic Sensor Technology to deliver the certificates
for the purchased shares directly to such brokerage firm in order to
complete the sale. The term of an option granted pursuant to the
Discretionary Option Grant Program may not be more than 10 years.
The Discretionary Option Grant Program also allows for the granting of
Incentive Options to purchase common stock, which may only be granted to
employees, and are subject to certain dollar limitations. Any options
granted under the Discretionary Option Grant Program that are not Incentive
Options are considered Non-Statutory Options and are governed by the
aforementioned terms. The exercise price of an Incentive Option must be no
less than 100% of the fair market value of the common stock on the date of
grant, unless the recipient of an award owns 10% or more of Electronic
Sensor Technology's common stock, in which case the exercise price of an
incentive stock option must not be less than 110% of the fair market value.
The term of an Incentive Option granted may not be more than five years if
the option is granted to a recipient who owns 10% or more of Electronic
Sensor Technology's common stock, or 10 years for all other recipients of
Incentive Options. Incentive Options are otherwise governed by the general
terms of the Discretionary Option Grant Program.
Pursuant to the terms of the Stock Issuance Program, the purchase price per
share of common stock issued is fixed by the administrator, but may not be
less than 85% of the fair market value of the common stock on the issuance
date, unless the recipient of a such common stock owns 10% or more of
Electronic Sensor Technology's common stock, in which case the purchase
price must not be less than 100% of the fair market value. Common stock may
be issued in exchange for cash or past services rendered to Electronic
Sensor Technology (or any parent or subsidiary of Electronic Sensor
Technology). Common stock issued may be fully and immediately vested upon
issuance or may vest in one or more installments, at the discretion of the
administrator.
Management used Black Scholes methodology to determine the fair value of
the options on the date of issue based on the following assumptions. The
expected volatility was based on the average historical volatility of
comparable publicly-traded companies.
2009 2008
------------- --------------
Exercise price $0.02 - $0.24 $0.03 - $0.24
Market value $0.02 - $0.24 $0.03 - $0.24
Expected dividend yield 0% 0%
Expected volatility 36% - 47% 36% - 39%
Risk free interest rate 3.81% - 4.54% 4.01% - 4.54%
Expected life of option 5 years 5 years
The fair value of the granted stock options shares was approximately $0.02
per share. Approximately $30,600 and $14,300 were charged to compensation
expense for the nine month period ended September 30, 2008 and 2009,
respectively. The remaining amount will be amortized to compensation
expense over future periods based on the vesting schedule of the respective
stock option shares. The total compensation cost related to nonvested
awards not yet recognized amounted to approximately $22,100 at September
30, 2009. This compensation cost will be recognized over the weighted
average period 2.3 years, unless the options are terminated sooner.
F-10
The following tables summarize all stock option grants to employees and
non-employees as of September 30, 2009:
Weighted
Number of Average
Stock Options Options Exercise Price
------------------------------------------ ------------- --------------
Balance at December 31, 2007 3,437,950 $ 0.41
Granted 2,000,000 $ 0.03
Exercised - $ -
Forfeited (2,291,050) $ 0.37
------------- --------------
Balance at December 31, 2008 3,146,900 $ 0.19
Granted - $ -
Exercised - $ -
Forfeited (642,500) $ 0.48
------------- --------------
Balance at September 30, 2009 2,504,400 $ 0.12
============= ==============
Options exercisable at September 30, 2009 635,700 $ 0.38
============= ==============
Weighted average fair value of options
granted during 2009 - $ -
============= ==============
A summary of the status of the Company's nonvested shares as of September
30, 2009, and changes during the fiscal period then ended as presented
below.
Weighted
Average
Grant Date
Nonvested Shares Shares Fair Value
------------------------------------------ ------------- --------------
Nonvested at December 31, 2007 1,598,200 $ 0.09
Granted 2,000,000 $ 0.03
Vested (191,850) $ 0.24
Cancelled (1,158,300) $ 0.21
------------- --------------
Nonvested at December 31, 2008 2,248,050 $ 0.09
Granted - $ -
Vested (316,850) $ 0.07
Cancelled (62,500) $ 0.24
------------- --------------
Nonvested at September 30, 2009 1,868,700 $ 0.04
============= ==============
Options Outstanding Options Exercisable
------------------------------------------------------------- -----------------------------
Number Weighted Number
Outstanding Average Weighted Excercisable Weighted
as of Remaining Average at at Average
Exercise September Contractual Exercise September Exercise
Price 30, 2009 Years Price 30, 2009 Price
------------- ------------- ------------- ------------- ------------- -------------
$ 0.02 1,000,000 9.15 $ 0.02 - $ -
$ 0.03 1,000,000 8.82 $ 0.03 250,000 $ 0.03
$ 0.19 74,000 7.42 $ 0.19 74,000 $ 0.19
$ 0.24 282,400 7.29 $ 0.24 163,700 $ 0.24
$ 1.00 148,000 5.34 $ 1.00 148,000 $ 1.00
------------- ------------- ------------- ------------- -------------
2,504,400 8.53 $ 0.12 635,700 $ 0.38
============= ============= ============= ============= =============
F-11
Warrants
On May 29, 2009, the Company entered into an agreement with Montgomery
2006-1 Partnership ("Montgomery"), pursuant to which Montgomery agreed to
terminate and cancel the warrants issued by the Company on December 7, 2005
which entitled Montgomery to purchase up to 485,213 shares of common stock
of the Company. In consideration for the termination and cancellation of
the warrants, the Company paid $2,500 to Montgomery.
On June 29, 2009, the Company entered into an agreement with Midsummer
Investment, Ltd. ("Midsummer") and Islandia, L.P. ("Islandia"), pursuant to
which, the Company agreed to issue 3,899,030 shares of common stock to
Midsummer and 2,166,128 shares of common stock to Islandia in exchange for
the termination and cancellation of the warrants issued by the Company to
each of Midsummer and Islandia on December 7, 2005. The agreement also
provided for the termination of all existing agreements among the Company,
Midsummer and Islandia.
The following table summarizes the warrants outstanding at September 30,
2009:
Number of
Shares of
Expiration Common
Issue Date Date Stock Price Basis for Warrant Issuance
------------ ------------ ----------- ------- ---------------------------
03/09/05 03/08/10 200,000 2.40 Media consulting services
05/09/05 05/08/10 75,000 2.40 Media consulting services
08/09/05 08/08/10 75,000 2.40 Media consulting services
-----------
350,000 Outstanding at September 30, 2009
===========
F-12
Item 2. Management's Discussion and Analysis or Plan of Operation.
You should read the following discussion and analysis of our financial condition
and results of operations together with our interim financial statements and the
related notes appearing at the beginning of this report. The interim financial
statements and this Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with the financial
statements and notes thereto for the year ended December 31, 2008 and the
related Management's Discussion and Analysis of Financial Condition and Results
of Operations, both of which are contained in our Annual Report on Form 10-K
filed with the Securities and Exchange Commission.
--------------------------------------------------------------------------------
Overview
The company is engaged in the development, manufacturing, and sales of a
patented product called zNose(R); a device designed to detect and analyze
chemical odors and vapors, or, in other words, an electronic "nose." We believe
the zNose(R) is superior to other electronic "noses" because of its speed,
specificity and sensitivity. The zNose(R) is capable of measuring and
quantifying the chemistry of any compound, fragrance, vapor or odor with parts
per trillion sensitivity in 10 seconds. We also believe the zNose(R) has the
unique ability to quantify and speciate the subject chemical vapor by creating
visual olfactory images. This enables the measured odor or vapor to be easily
identified by the user.
We believe that our products will have broad applications in the homeland
security, analytical instrumentation/quality control, and environmental
monitoring and detection markets. The company is involved in ongoing product
research and development efforts in that regard. The company has also
concentrated its efforts on further product development, testing and proving and
continuing to expand our sales and support organization.
The company was originally incorporated under the laws of the state of Nevada as
"Bluestone Ventures, Inc." on July 12, 2000. From inception until February 1,
2005, we engaged in the business of acquiring, exploring and developing certain
mining properties in Ontario, Canada. Upon acquisition of Electronic Sensor
Technology, L.P. ("ELP"), we abandoned our mining business and adopted ELP's
business of developing, manufacturing and selling the vapor analysis device. On
January 26, 2005, we changed our name to "Electronic Sensor Technology, Inc."
Our executive offices are located at 1077 Business Center Circle, Newbury Park,
California 91320 and our telephone number is (805) 480-1994.
Critical Accounting Policies
The company sells directly to domestic customers who are end-users. The company
sells internationally to distributors who, in turn, sell to end-users. Sales to
distributors are not contingent on the sale by the distributor to an end-user.
The distributor is the owner whether or not it sells the product to an end-user.
The company records revenue from sales of products to customers when the
products are shipped, collection of the purchase price is probable and the
company has no significant further obligations to the customer. Costs of
remaining insignificant company obligations, if any, are accrued as costs of
revenue at the time of revenue recognition. Cash payments received in advance of
product shipment or service revenue are recorded as deferred revenue. The
preparation of the financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the recorded amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The company reviews long-lived assets, such as property and equipment, to be
held and used or disposed of, for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If the sum of the expected cash flows, undiscounted and without
interest, is less than the carrying amount of the asset, an impairment loss is
recognized as the amount by which the carrying amount of the asset exceeds its
fair value. At September 30, 2009 no assets were impaired.
2
Plan of Operations
Over the course of the next 12 months, we intend to execute our business plan
and focus our business development efforts in the following key areas:
o By diversifying our product offerings to enhance the usefulness of our
solutions for customers who will have already adopted one or more products;
o By enhancing our product lines and developing new products to attract new
customers; and
o By developing partnering relationships with wide-ranging sales and
distribution channel leaders already serving our vertical market space in a
way that assists them in developing new revenue streams and opportunities
through improved technical and sales support and customer services.
Results of Operations
The following table sets forth, as a percentage of revenues, certain items
included in the company's Income Statements (see Financial Statements and Notes)
for the periods indicated:
Nine Months Ended Three Months Ended
September 30 September 30
------------------- -------------------
Statement of Operations Data: 2009 2008 2009 2008
----------------------------------- -------- -------- -------- --------
Revenues......................... 100% 100% 100% 100%
Cost of Sales.................... 59% 64% 67% 68%
Gross Profit..................... 41% 36% 33% 32%
Operating Expenses............... 229% 158% 298% 105%
(Loss) From Operations........... (188%) (122%) (265%) (73%)
Other Income (Expense)........... (25%) 57% (37%) (9%)
Net (Loss)....................... (213%) (65%) (302%) (82%)
Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30,
2008
Revenues are derived from product sales and product support services. For the
three and nine month periods ended September 30, 2009, revenues were $194,700
and $778,100, compared to $543,900 and $1,303,600 in 2008. The decrease in
revenues for both the quarter and year-to-date results from: (1) a price
reduction averaging 24% on all of our instruments instituted at the beginning of
the year to make our products more price competitive and, (2) current global
economic conditions which have had a significant negative impact on the durable
equipment market. Potential customers are taking a "wait and see" approach to
capital equipment purchase decisions and are delaying such decisions until
economic conditions improve. This is reflected in the shipments for the quarter
and year-to-date which were 7 and 30 units, respectively, compared to 20 and 42
units shipped for the same periods in 2008. The decrease in shipments has also
impacted product support revenues which for the three and nine periods ended
September 30, 2009 were 16% and 50% less than for the same periods in 2008. The
decrease in product support revenues for the quarter was offset somewhat by an
increase in revenues from equipment rentals. Finally, revenues from the
company's license agreement with a customer ended in October 2008 when the
agreement was concluded and not renewed. The license agreement provided $12,500
in quarterly royalty income in 2008 for the company.
The company anticipates the stresses of current global economic conditions on
the commercial durable equipment market to continue for the rest of the year and
into 2010. These conditions have caused many of our customers (and potential
customers) to postpone their purchases of capital equipment. Until global
economic conditions improve, we expect the commercial durable equipment market
to remain depressed.
During the third quarter, we continued with the global rollout of our latest
product, the Model 4500, to mostly homeland security customers. Although the
upside potential of this market is vast, the homeland security market is
characterized by its long sales cycle where the time between product
introduction to product sale may be
3
considerable. Initial market reaction to the Model 4500 has been positive and we
are confident in the product's capabilities to meet the requirements of our
homeland security customers. We are, however, still in the early stages of the
sales cycle with many of these customers and, as such, anticipate only modest
sales performance for the Model 4500 for the remainder of 2009.
Cost of Sales consist of product costs and expenses associated with product
support services. For the three and nine month periods ended September 30, 2009,
cost of sales were $130,300 and $459,100, compared to $367,800 and $828,500 in
2008. For the same periods, cost of sales, as a percentage of revenues, were 67%
and 59%, versus 68% and 64% in 2008. Cost of sales were improved by favorable
price economics on purchased materials which offset production variances
resulting from under-absorption of overhead expenses caused by reduction in
production levels due to business conditions and to work-off on-hand
inventories.
Gross profits were 33% and 41% of sales for the three and nine month periods
ended September 30, compared to 32% and 36% of sales for the same periods in
2008. Gross margins were aided by cost improvements, primarily price economics
achieved on purchased materials, on our products which offset an averaged 24%
across-the-board price reduction on our entire instrument product line
instituted at the beginning of the year.
Research and Development costs for the three and nine month periods ended
September 30, 2009 were $95,000 and $293,100 versus $163,900 and $512,900 for
the same periods in 2008. The improvement of $68,900 for the quarter is
attributed to lower personnel expenses due to reduction of census ($59,800),
lower operating expenses ($16,200), offset by an increase in facilities expenses
($7,100). For the nine month period, expenses were improved by $219,800 due to
reductions in personnel expenses ($206,500), lower operating expenses ($43,500),
offset by higher facilities expenses ($21,200) and increase in use of outsider
services ($9,000).
Selling, General and Administrative expenses for the three and nine month
periods ended September 30, 2009 were $485,400 and $1,490,800, compared to
$405,000 and $1,545,700 for the same periods in 2008. For the quarter, expenses
were $80,400 higher than in 2008 due to recognition of bad debts expense
($105,000), higher outside services expenses ($27,100), higher facilities costs
($3,900), offset by savings from reductions in personnel expenses ($26,500) and
operating costs ($29,100). For the nine month period, selling, general and
administrative expenses were $54,900 improved over the same period in 2008 due
to lower operating ($154,900) and personnel ($200,000) expenses, offset by
increase in bad debts expense ($105,000), higher outside services ($83,200) and
facilities ($111,800) costs,
Interest expense for the nine months ending September 30, 2009 was $4,400, as
compared to $740,400 for the same period in 2008. Interest expense for the first
nine months of 2008 consisted of: (1) interest accrued on the $7.0 million 8%
convertible debentures which were retired on March 28, 2008; and, (2)
amortization of the debt discount on the same retired 8% convertible debentures.
Interest expense - related party for the three and nine month periods ended
September 30, 2009 were $70,400 and $186,300, compared to $47,800 and $96,800
for the same periods in 2008. Current year's interest consists of interest
accrued on the $2.0 million 9% convertible debenture issued to Halfmoon Bay
Capital Ltd on March 28, 2008 and on the $1.0 million 9% debenture also issued
to Halfmoon Bay Capital Ltd on April 10, 2009. Interest expense for 2008
pertained only to the $2.0 million 9% convertible debenture issued on March 28,
2008.
Other income-derivatives. There was no income from derivatives in 2009. Such
income from derivatives in 2008 resulted primarily from the decrease in the fair
value of derivative liabilities between the measurement dates which are the
balance sheet dates. On March 31, 2008, we satisfied our obligations under the
8% convertible debentures and as a result, the company asserted that it has a
sufficient amount of authorized and unissued shares to settle its obligations
which can be settled in shares. Accordingly, the company reclassified all
contracts, warrants, and other convertible instruments outstanding at March 31,
2008 from liability to equity.
Gain on extinguishment of debt. In 2008, a gain was realized from the early
retirement of the 8% convertible debentures on March 31, 2008. There have been
no debt retirements in 2009.
4
Liquidity and Capital Resources
For the nine months ending September 30, net cash used by the company for
operating activities were $1,165,600 and $1,510,600 for 2009 and 2008
respectively. Cash used for the nine months ending September 30, 2009 was
comprised of the net loss for the period of $1,656,600, plus net non-cash items
(including depreciation and amortization expenses of $32,400, increase in
allowance for doubtful accounts of $105,000, stock based compensation of
$14,300, issuance of common shares for services of $109,200 and amortization of
debt discount of $8,600) of $269,500, and plus the net change in operating
assets and liabilities of $221,500. Cash used in operations during the same nine
months of 2008 was comprised of the net loss for the period of $835,600, less
net non-cash expenses (including depreciation and amortization expenses of
$36,200, stock based compensation of $30,600, issuance of common shares for
payment of interest of $280,000, amortization of debt discount of $589,100,
amortization of deferred financing costs of $45,400, less decrease in fair value
of derivative liability of $323,200, and gain on early retirement of debt of
$1,261,900) of $603,800, and less the net change in operating assets and
liabilities of $71,200.
Investing activities used cash of 23,200 in the first nine months of 2009 and
provided cash of $6,300 during the same period in 2008. For the period, cash of
$4,800 was provided from the sale of property and equipment, and $28,000 was
used to purchase capital equipment. In 2008, cash of $9,900 was provided from
the sales of property and equipment and $3,600 was used to purchase capital
equipment.
Financing activities for the first nine months of 2009 provided cash of $985,200
which resulted from the issuance of a 9% debenture payable to an investor for
$1,000,000 and a decrease in capital lease obligation of $14,800. For the same
period in 2008, financing activities provided cash of $1,985,200 which included
$2,000,000 received from the issuance of 9% convertible debentures to a related
party investor, $3,500,000 from the issuance of equity to the same investor,
less $3,500,000 used to retire the 8% convertible debentures and a decrease in
capital lease obligation of $14,800.
On September 30, 2009 the company's cash (including cash equivalents) was
$208,400, compared to $484,000 on September 30, 2008. The company had working
deficit of $503,500 on September 30, 2009, compared to a working capital of
$1,414,000 on September 30, 2008.
The Company's current cash balance is not expected to be adequate to fund
operations beyond the fourth quarter of 2009. As such, the Company is actively
seeking additional funding to provide necessary working capital for operations
and implementation of its business strategy of creating a sales and marketing
staff for the marketing, advertising and selling of the zNose(R) family of
chemical detection products, increasing distribution channels both in the U.S.
and foreign countries, introducing new products, improving existing product
lines and development of a strong corporate infrastructure. There can be no
assurance that any financing will be available through any bank borrowings,
debt, or equity offerings, or otherwise, on acceptable terms. If future
financing requirements are satisfied through the issuance of equity securities,
investors may experience significant dilution in the net book value per share of
common stock and there is no guarantee that a market will exist for the sale of
the Company's shares.
Seasonality and Quarterly Results
We have not experienced and do not foresee any seasonality to our revenues or
our results of operations.
Inflation
Although we currently use a limited number of sources for most of the supplies
and services that we use in the manufacturing of our vapor detection and
analysis technology, our raw materials and finished products are sourced from
cost-competitive industries. While prices for our raw materials may vary
significantly based on market trends, we have not experienced and do not foresee
any material inflationary trends for our product sources.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
5
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
This Item is not applicable to smaller reporting companies.
Item 4T. Controls and Procedures.
The company's Chief Executive Officer and Chief Financial Officer, after
evaluating the effectiveness of the company's disclosure controls and procedures
(as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934, as
amended) as of the end of the period covered by this quarterly report on Form
10-Q, have concluded that, based on such evaluation, the company's disclosure
controls and procedures were effective to ensure that material information
relating to the company is recorded, processed, summarized, and reported in a
timely matter. In designing and evaluating the disclosure controls and
procedures, the company's management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and the
company's management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
There were no changes in the company's internal control over financial reporting
that occurred during the period covered by this quarterly report that have
materially affected, or are reasonably likely to materially affect, the
company's internal control over financial reporting.
6
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings.
We are not a party to any pending material legal proceedings and are not aware
of any threatened or contemplated proceeding by any governmental authority
against us.
Item 1A. Risk Factors.
This Item is not applicable to smaller reporting companies.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
We did not sell any unregistered equity securities or repurchase any of our
equity securities during the three months ended September 30, 2009.
Item 3. Defaults Upon Senior Securities.
During the three months ended September 30, 2009, there were no material
defaults upon senior securities.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
On August 25, 2009, the Company received a comment letter from the United States
Securities and Exchange Commission ("SEC") seeking additional information
related to Form 10-K for the fiscal year ended December 31, 2008 filed on April
15, 2009. The Company provided the requested information in a letter to the SEC
on September 8, 2009. Based on the Company's responses, the SEC in a letter
dated September 10, 2009 accepted our responses and indicated that it had no
further comments.
Item 6. Exhibits.
Exhibit No. Description
------------ -----------------------------------------------------------------
31.1 Certification of Chief Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act.
31.2 Certification of Principal Financial and Accounting Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act.
32.1 Certification of Chief Executive Officer Pursuant to Section 906
of the Sarbanes-Oxley Act.
32.2 Certification of Principal Financial and Accounting Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act.
7
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 SENSOR TECHNOLOGY, INC.
Dated: November 12, 2009 By: /s/ Teong Lim
----------------------------------------
Name: Teong Lim
Title: President and Chief Executive Officer
(Principal Executive Officer)
Dated: November 12, 2009 By: /s/ Philip Yee
----------------------------------------
Name: Philip Yee
Title: Secretary, Treasurer and Chief
Financial Officer
(Principal Financial and
Accounting Officer
