================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
----------
Date of report (Date of earliest event reported) March 16, 2006
ELECTRONIC SENSOR TECHNOLOGY, INC.
------------------------------------------------------
(Exact Name of the Registrant as Specified in Charter)
Nevada 333-87224 98-0372780
---------------------------- ------------ -------------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
1077 Business Center Circle, Newbury Park, California 91320
-----------------------------------------------------------
(Address of Principal Executive Offices)
Registrant's telephone number, including area code (805) 480-1994
Not Applicable.
-------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
================================================================================
ITEM 4.02 NON-RELIANCE ON PREVIOUSLY ISSUED FINANCIAL STATEMENTS OR A RELATED
AUDIT REPORT OR COMPLETED INTERIM REVIEW.
In connection with the filing of an amendment to our registration statement on
Form SB-2/A with the Securities and Exchange Commission, and after reviewing
certain accounting principles we had applied in our financial statements for the
periods ended March 31, 2005, June 30, 2005 and September 30, 2005 previously
filed with the Commission, we have determined that those financial statements
should no longer be relied upon as we did not properly account for certain
liquidated damages associated with a $3.985 million private placement of
warrants and shares of our common stock that occurred in February 2005.
Previously, we had not reflected the liquidated damages at their fair value nor
their effect on other outstanding convertible instruments. Pursuant to the terms
of the warrants that we issued in such private placement, the warrant holders
are entitled to liquidated damages payable in cash or shares of our common stock
at a rate of 1% following a grace period of 11 months if an event of default by
Electronic Sensor Technology occurs. There is no maximum penalty stated for the
liquidated damages to which the warrant holders may be entitled. In determining
the proper accounting for the liquidated damages, we considered the guidance
contained in Emerging Issue Task Force ("EITF") 05-04 View C, "The Effect of a
Liquidated Damages Clause on a Freestanding Financial Instrument", subject to
EITF Issue No. 00-19, "Accounting for Derivative Financial Instruments Indexed
to, and Potentially Settled in, a Company's Own Stock". Because there is no
explicit number of shares that are to be delivered upon satisfaction of the
liquidated damages, we are unable to assert that we had or have sufficient
authorized and unissued shares to settle the liquidated damages. Accordingly,
all of our previously issued and outstanding instruments, such as warrants and
options, as well as those issued in the future, would be classified as
liabilities as well, effective with the granting of the right to receive
liquidated damages.
This determination was made by us on March 16, 2006 and affects our quarterly
reports of Form 10-QSB for the periods ended March 31, 2005, June 30, 2005 and
September 30, 2005. We will restate the financial statements included in our
quarterly reports of Form 10-QSB for the periods ended March 31, 2005, June 30,
2005 and September 30, 2005 and file amended quarterly reports on Form 10-QSB/A
for the periods ended March 31, 2005, June 30, 2005 and September 30, 2005, as
soon as practicable.
The proper accounting for such liquidated damages provision affects the
following figures in our quarterly financial statements:
Interim Periods
-------------------------------------------------------------------------------------------
Three Months Three Months Nine Months
Ended Three Months Six Months Ended Ended
March 31, Ended June 30, Ended June 30, September 30, September 30,
2005 2005 2005 2005 2005
--------------- --------------- --------------- --------------- ---------------
Liabilities: $ (10,347,933) $ (3,356,109) $ (639,156)
Shareholders'
deficit: 10,347,933 3,356,109 639,156
Net loss: (6,536,225) 6,991,823 455,599 2,716,954 3,172,552
Basic and diluted
earnings per share: (0.12) 0.13 (0.01) (0.05) (0.06)
The accounting for the liquidated damages has no effect on our assets or cash
flows used in operating and investing activities or cash generated from
financing activities for the aforementioned interim periods.
Our President and Chief Executive Officer and Vice President of Finance and
Administration (our principal financial and accounting officer) discussed the
matters described herein with our independent accountant.
1
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ELECTRONIC SENSOR TECHNOLOGY, INC.
Date: March 17, 2006 By: /s/ Teong C. Lim
----------------------------------------
Name: Teong C. Lim
Title: President and Chief Executive Officer