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

9

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

11

Item 4.  Evaluation of Disclosure Controls and Procedures.

12

PART II - OTHER INFORMATION

13

Item 1 Legal Proceedings

13

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

13

Item 3 Defaults Upon Senior Securities

13

Item 4 Mine Safety Disclosure

13

Item 5 Other Information

13

Item 6.  Exhibits

13

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements.

(See "Notes to Financial Statements")

(See "Notes to Financial Statements")

(See "Notes to Financial Statements")

5

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, 20162017 and September 30, 2015.2016.  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. 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, 20152016 as filed with Securities and Exchange Commission.

The results of operations for the three and nine months ended September 30, 2017 and September 30, 2016, are not necessarily indicative of the results expected for the full fiscal year or for any other fiscal period.

New Accounting Pronouncements

In July of 2015 the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2015-11 “Simplifying the Measurement of Inventory” an update to Inventory Topic 330. The ASU simplifies the concept of lower of cost or market to the lowlower of cost and net realizable value and more closely align the measurement of inventory in Generally Accepted Accounting Principles (“GAAP”) with the measurement of inventory in International Financial Reporting Standards (“IFRS”). The amendments inThis update was adopted and did not materially impact the Update are effectivefinancial statements.

Certain prior period amounts have been reclassified for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years.consistency with the current period presentation. These reclassifications had no effect on the reported results of operations, cash flows or financial position of prior period amounts.

NOTE 2 - INVENTORIES

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

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, 20162017, the Company had 220,000150,000 outstanding stock options that could have a dilutive effect on future periods.  However, at September 30, 20162017 there was no dilutive effect of stock options on earnings per share or weighted average shares outstanding.  

6

ELECTRONIC SYSTEMS TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 4 - STOCK OPTIONS

As of September 30, 2016,2017, 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 has not awarded stock options during the nine months ended September 30, 2016.2017. The Board of Directors may consider issuing stock options later in 2016.2017. Shareholders approved the 2015 Stock Incentive Plan on June 3, 2016 for 250,000 stock options. 150,000 of the approved amount were granted in 2015 to certain management employees as part of the 2015 Stock Incentive Plan. The options were dated effective August 7, 2015 and have a five year exercise period. The Company bookedcompany recognized an expense of $1,841 for the quarter ending September 30, 2016 in which the options were approved by the Shareholders.

NOTE 4 - STOCK OPTIONS, ContinuedShareholders and were fully vested at that time.

The fair value of each option award is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2015 and approved by the Shareholders in 2016.

The Company uses historical data to estimate option exercise rates.  The option exercise rate for option grants in 2005 through 20152016 was 5.42%5.2%.  

A summary of option activity during the nine months ended September 30, 2016,2017 is as follows:

NOTE 5 - RELATED PARTY TRANSACTIONS

During the quarter ended September 30, 20162017, the Company accrued total directors’ fees of $1,200, or $300 per director for board meetings attended, compared to $1,200 for the same period in 2015.attended. For the nine-month period ending September 30, 2016,2017, the Company paid or accrued a total of $4,200$3,600 for directors’ fees, compared to $4,200 for the same period in 2015.fees.

NOTE 6 - COMMITMENTS and CONTINGENCIES

The Company leases its facilities from a port authority for $5,348$5,445 per month for three years, expiring in September 2017,2020, with annual increases based upon the Consumer Price IndexIndex.

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 makingdecision-making purposes.    

During the quarter ended September 30, 2016,2017, Domestic customers represented approximately 86%88% of total net revenues. Domestic sales revenues decreasedincreased to $283,239 for the quarter ended September 30, 2017 compared to $275,709 for the quarter ended September 30, 2016 compared to $375,433 for the quarter ended September 30, 2015.2016. Year to date domestic sales revenues increaseddecreased to $1,020,831$893,277 as of September 30, 20162017 compared to $980,681$1,020,831 for the same period of 2015.2016.  Foreign customers represented approximately 14%12% of total net revenues.  Foreign sales revenues decreased to $39,523 for the quarter ended September 30, 2017 compared to $45,759 for the quarter ended September 30, 2016 compared to $63,647 for the quarter ended September 30, 2015.2016. Year to date foreign sales revenues decreased to $229,407$188,884 as of September 30, 20162017 compared to $261,745$229,407 for the same period of 2015.2016.  During the quarter ended September 30, 2016, no2017, sales to one customer comprised more than 10% of the Company’s sales revenues.  Revenues from foreign countries during the third quarter of 20162017 consist primarily of revenues from product sales to Hungary, India and Chile.Mexico, Peru, India.

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. On March 2, 2016, the Company’s Board of Directors approved a resolution authorizing the repurchase of up to an additional $150,000 of the Company’s common stock at the price of $0.38 per share. As of September 30, 2017, $184,405 remains of $250,000 approved by the board. 97,764 shares were repurchased for $37,191 in 2016, bringing the total number of shares repurchased to 172,619 through September 30, 2017. The Company’s share repurchase program does not obligate it to acquire any specific number of shares. Under the program, 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.

The following table shows the Company’s activity and related information for the nine-month period endedending September 30, 2016:2017.

⁽¹⁾  Amount includes commissions paid of $79.

The trading price of the Company’s shares as of September 30, 2017, was $0.59.

NOTE 9 – ReclassificationIncome Taxes

Certain prior period amounts haveNo Income Tax has been reclassifiedrecognized due to the net operating loss. The current year’s net operating loss tax impact has been reserved, as the estimated effective tax rate for consistency with the current period presentation. These reclassifications had no effect2017 will be zero.

The Deferred Tax asset that is recognized on the reported results of operations, cash flows or financial positionBalance Sheets consists primarily of prior period amounts.years’ net operating loss and R&D credits. We believe that the Company will be generate net operating income and utilize the asset in future periods.

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 quarter ended September 30, 2016.  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 decreasedincreased to $322,763 for the third quarter of 2017, compared to $321,468 for the third quarter of 2016, compared to $439,080 for the third quarter of 2015.2016.  Gross revenues, including interest income, decreasedincreased to $324,514$325,721 for the quarter ended September 30, 2016,2017, from $442,017$324,514 for the same quarter of 2015.2016.  Year to date sales increaseddecreased to $1,082,161 as of September 30, 2017, as compared to $1,250,238 as of September 30, 2016 as compared to $1,242,426 as of September 30, 2015.2016. Year to date gross revenues, including interest income, increaseddecreased to $1,090,657 as of September 30, 2017, compared to $1,259,155 as of September 30, 2016 compared to $1,251,161 as of September 30, 2015.2016.  Management believes the decreaseincrease in quarterly is due to decreased engineering services and related product sales, the increase in year to date sales revenues is due to increased engineering services and related product sales duringdemand for the first six monthsnew products introduced at the beginning of the year.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 20162017 and 20152016 are as follows:

Domestic Revenues

During the quarter ended September 30, 2016,2017, the Company’s domestic operations represented 86%88% 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 decreasedincreased to $283,239 for the quarter ended September 30, 2017 compared to $275,709 for the quarter ended September 30, 2016 compared to $375,433 for the quarter ended September 30, 2015.2016.  Management believes the decreaseincrease in sales revenues is due to decreasedincreased domestic sales for water/waste water and mining industrial automation projects during the quarterthree-month period ending September 30, 2016.2017.  During the quarter ended September 30, 2016, no2017, one customer, comprised more than 10% of the Company’s sales revenues.  

For the nine-month period ended September 30, 2016,2017, the Company’s domestic operations represented 82%83% of the Company’s total sales revenues.  Year to date domestic sales revenues increaseddecreased to $1,020,831$893,277 as of September 30, 20162017 compared to $980,681$1,020,831 for the same period of 2015.2016. Management believes the increasedecrease in year to date sales revenues is due to increaseddecreased engineering services and related product sales during the first nine monthshalf of 2016.2017.  

Foreign Revenues

The Company’s foreign operating segment represented 14%12% of the Company’s total net revenues for the quarter ended September 30, 2016.2017.  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, 2015,2017, the Company had $45,759$39,522 in foreign export sales, amounting to 14%12% of total net revenues of the Company for the quarter, compared with foreign export sales of $63,647$45,759 for the same quarter of 2015.2016.  Management believes the decrease in foreign sales revenues was due to decreased automation needs to lower operating expenses in Oil & Gas and Mining industries.  Revenues from foreign countries during the third quarter of 20162017 consist primarily of revenues from product sales to Hungary, IndiaMexico, Peru and Chile.India.  No foreign sales to a single customer comprised 10% or more of the Company's product sales for the quarter ended September 30, 2016.2017.  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 Company’s Latin American sales staff, EST foreign reseller activity, and the Company’s internet website presence.

For the nine-month period ended September 30, 2016,2017, the Company had $229,407$188,884 in foreign export sales, amounting to 18%17% of total sales revenues of the Company for the period, compared with foreign export sales of $261,745$229,407 for the same period of 2015.2016. Management believes the decrease in foreign sales revenues is due unfavorable exchange rates with respectend of life product purchases in 2016 to the strengthCroatia and slow acceptance of the US Dollar.product released in 2017 in Latin America.

BACKLOG:

The Corporation had a sales order backlog of approximately $34,786$22,707 as of September 30, 2016.2017.  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 2017 and 2016 was 40% and 2015 was 36% and 38%, respectively. The cost of sales decreaseincrease for the third quarter of 20162017 is the result of the product mix for items sold.sold during the period.

OPERATING EXPENSES:

Operating expenses for the third quarter of 20162017 decreased $59,859$10,857 from the third quarter of 2015.2016.  The following is an outline of operating expenses:

GENERAL AND ADMINISTRATIVE:

During the third quarter of 2016,2017, general and administrative expenses decreased $3,399$8,425 to $67,792$59,367 from the same quarter of 2015,2016, due to decreased wages, benefitsprofessional services and travel.bank fees.

RESEARCH AND DEVELOPMENT:

Research and development expenses decreased $12,878$4,113 to $59,624$55,511 during the third quarter of 2016,2017 when compared with the same period in 20152016 due to decreased wagesfees paid for type acceptance and supplies.prototype builds of new product.

MARKETING AND SALES:

During the third quarter of 2016,2017, marketing and sales expenses decreased $43,582increased $1,681 to $113,221$114,092 from the same period in 2015,2016, due to decreased wages and benefits.increased services purchased.

INTEREST AND DIVIDEND INCOME:

The Corporation earned $3,046$2,958 in interest and dividend income during the quarter ended September 30, 2016.2017.  Sources of this income were money market accounts and certificates of deposit.

NET INCOME (LOSS):

The Company had a net loss of $42,497$37,781 for the third quarter of 2016,2017, compared to a net loss of $44,204$42,497 for the same quarter of 2015.2016.  For the nine-month period ended September 30, 2016,2017, the Company recorded a net loss of $55,114,$133,992, compared with a net loss of $267,825$55,114 for the same period of 2015.2016. The decrease in the Company’s net loss is the result of decreasedincreased sales revenues, increaseddecreased gross margins and reduced operating expenses during the third quarter of 2016.2017.

TAXES:

The Company has estimated valuation allowance of $40,094 to reduce the value of the Deferred Tax Asset (non-current) to reflect the amount that may not be realizable in future periods.

B.  Financial Condition, Liquidity and Capital Resources

The Corporation's current asset to current liabilities ratio at September 30, 20162017 was 33.4:24.6:1 compared to 71.4:54:1 at December 31, 2015.  For the quarter ended2016. At September 30, 2016,2017, the Company had cash and cash equivalents of $618,995;$257,112; compared to cash and cash equivalent holdings of $618,060$502,971 at December 31, 2015.2016.  The Company had certificates of deposit investments in the amount of $1,000,000 at September 30, 20162017 and $1,202,625$1,000,000 at December 31, 2015.2016.

Accounts receivable increased to $102,290$94,506 as of September 30, 2016,2017 from December 31, 20152016 levels of $66,276,$71,202, due to sales revenue timing differences between the third quarter of 20162017 and year-end 2015.2016.  Inventories increased to $734,819$813,970 as of September 30, 2016,2017, from December 31, 20152016 levels of $603,291,$703,147, due primarily to parts to be used in manufacturing the sub-componentsan increase of the Horizon Series product.finished goods.  The Company's fixed assets, net of depreciation, decreased to $57,955$36,428 as of September 30, 20162017, from December 31, 20152016 levels of $77,673.$51,383.

As of September 30, 2016,2017, the Company’s accounts payable balance was $38,013$54,709 as compared with $8,550at$15,114at December 31, 2015,2016, and reflects amounts owed for inventory items, contracted services, and state tax liabilities.  Accrued liabilities and refundable deposits as of September 30, 20162017 were $37,170$34,252 compared with $26,959at$27,220at December 31, 2015,2016, 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, 20162017 is sufficient to satisfy requirements for operations, capital expenditures, and other expenditures as may arise during the remainder of 2016.next 12 months.

The Company did not declare or issue any cash dividends during 20152016 or 2016.2017.

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.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Not applicable

Item 4.  Evaluation of Disclosure Controls and Procedures.

The Company’sConclusions of Management is responsible for establishingRegarding Effectiveness of Disclosure Controls and maintaining adequate internal control over financial reporting for the Company. The Company’s internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of Company assets are made in accordance with Management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of Company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.Procedures

AnAt the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation has been performedwas carried out under the supervision and with the participation of our Management,the Company's management, including our Chiefthe President and Principal Executive Officer ("PEO") and Principal AccountingFinancial Officer ("PFO"), of the effectiveness of the design and operations of the operation of our "disclosureCompany's disclosure controls and procedures"procedures (as such term is defined in Rules 13a-15(e)Rule 13a – 15(e) and Rule 15d – 15(e) under the Securities Exchange Act of 1934)Act). Based on that evaluation, the PEO and the PFO have concluded that as of September 30, 2016.  Based onthe end of the period covered by this evaluation, our Chief Executive Officer and Principal Accounting Officer have determined that there was a material weakness affecting our internal control over financial reporting and, as a result of that weakness, ourreport, the Company's disclosure controls and procedures were not effective as of September 30, 2016.  

The material weakness is as follows:

We did not maintain effective controls to ensure appropriate segregation of duties as the same officer and employeeit was responsible for the initiating and recording of transactions, thereby creating segregation of duties weaknesses. Due to the (1) significance of segregation of duties to the preparation of reliable financial statements; (2) the significance of potential misstatement that could have resulted due to the deficient controls; and, (3) the absence of sufficient other mitigating controls; we determined that this control deficiency resulted in more than a remote likelihood that athere were material misstatement or lack ofweaknesses affecting our disclosure within the annual or interim financial statements will not be prevented or detected.controls and procedures. 

Management has evaluated and continues to evaluate, avenues for mitigating our internal controlsof the company believes that these material weaknesses but mitigating controls have been deemed to be impractical and prohibitively costlyare due to the small size of our organization atthe 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 time.  Management does not foresee implementing a cost effective methodlimited resources and limited employees, we rely heavily on direct management oversight of mitigating ourtransactions, 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 weaknesses in the near term.   Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.  These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake.  The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks.framework.

Changes in internal control over financial reporting.

There have been no changes during the quarter ended September 30, 20162017 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.

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

13

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.

14