UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2017March 31, 2020

OR

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

From ________________ to ________________

ELECTRONIC SYSTEMS TECHNOLOGY, INC.

(Exact name of registrant as specified in its charter)

(509) 735-9092

(Registrant's telephone number, including area code)

                                 N/A                               

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YESxNO¨

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

See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨ Nox

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of September 30, 2017,April 16, 2020, the number of the Company's shares of common stock par value $0.001, outstanding was 4,986,048.4,946,502.

ELECTRONIC SYSTEMS TECHNOLOGY, INC.

FORM 10-Q

September 30, 2017

Index

PART I - FINANCIAL INFORMATION

3

Item 1.  Financial Statements.

3

Balance Sheets

3

Statements of Operations

4

Statements of Cash Flows

5

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 "NotesNotes to Financial Statements")Statements.

(See "NotesNotes to Financial Statements")Statements.

(See "NotesNotes to Financial Statements")Statements.

5

See Notes to Financial Statements.

ELECTRONIC SYSTEMS TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - BASIS OF PRESENTATION

The financial statements, including notes, of Electronic Systems Technology, Inc. (the "Company"), presented are representations of the Company’s management, which is responsible for their integrity and objectivity. The accompanying unaudited financial statements have been prepared by the Company in thisaccordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, as well as the instructions to Form 10Q are unaudited10-Q. Accordingly, the financial statements do not include all of the information and reflect, infootnotes required by U.S. GAAP for complete financial statements. In the opinion of Management, a fair presentationmanagement, the accompanying unaudited financial statements contain all adjustments, consisting of operations for the three and nine month periods ended September 30, 2017 and September 30, 2016.  All adjustments of aonly normal recurring nature andadjustments, necessary for a fair presentationstatement of its financial position as of March 31, 2020, and its results of operations, cash flows, and changes in stockholders’ equity for the three months ended March 31, 2020 and 2019.  The balance sheet at December 31, 2019 was derived from audited annual financial statements but does not contain all of the results forfootnote disclosures from the periods covered have been made. Certainannual financial statements. All amounts presented are in U.S. dollars. For further information, and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuantrefer 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 notesfootnotes thereto included in the Company'sCompany’s Annual Report on Form 10K10-K for the year ended December 31, 2016 as filed with Securities and Exchange Commission.2019.  

The results of operations for the three and nine monthsthree-month period ended September 30, 2017 and September 30, 2016,March 31, 2020 are not necessarily indicative of the results expected for the full fiscal year or for any other fiscal period. The Company estimates that for 2020 the anticipated effective annual federal income tax rate will be 0%.

New Accounting PronouncementsStandards Updates Adopted

In July of 2015August 2018, the Financial Accounting Standards Board (“FASB”)FASB issued Accounting Standard Update (“ASU”) 2015-11 “Simplifying theASU No. 2018-13 Fair Value Measurement of Inventory” an update to Inventory Topic 330. The ASU simplifies the concept of lower of cost or market(Topic 820):  Disclosure Framework - Changes to the lowerDisclosure Requirements for Fair Value Measurement.  The update removes, modifies and makes additions to the disclosure requirements on fair value measurements.  The update is effective for fiscal years beginning after December 15, 2019, with early adoption permitted.  The adoption 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”). Thisthis update was adopted and did not materiallyon January 1, 2020 had no impact on the financial statements.

Certain prior period amountsOther accounting standards that have been reclassified for consistency with the current period presentation. These reclassifications had no effectissued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the reported results of operations, cash flows or financial position of prior period amounts.statements upon adoption.

NOTE 2 - INVENTORIES

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

ELECTRONIC SYSTEMS TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 - INCOMEEARNINGS (LOSS) PER SHARE

Basic incomeearnings (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 incomeearnings (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, 2017,March 31, 2020 and 2019, the Company had 150,000180,000 and 120,000 outstanding stock options, respectively, that could have a dilutive effect on future periods.periods’ net income.  However, at September 30, 2017 there was no dilutive effect of stock options ondiluted earnings per share or weighted average shares outstanding.  are not presented because their effect would be antidilutive due to Company’s losses.

6

ELECTRONIC SYSTEMS TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 4 - STOCK OPTIONS

As of September 30, 2017,March 31, 2020, 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.  TheOn March 13, 2020, the Board of Directors has not awardedcanceled all 120,000 outstanding stock options duringthat were granted on August 7, 2017 and due to expire on August 6, 2020.    In addition, the nine months ended September 30, 2017. The Board of Directors may consider issuing stockgranted 180,000 options later in 2017. Shareholders approved the 2015 Stock Incentive Plan on June 3, 2016 for 250,000 stock options. 150,000to employees. The new options have an exercise price of the approved amount were granted to certain management employees as part$0.40, a term of the 2015 Stock Incentive Plan. The options were dated effective August 7, 20155 years, and have a five year exercise period. The company recognized an expense of $1,841 for the quarter ending September 30, 2016 in which the options were approved by the Shareholders and were fully vested at that time.

vest immediately.    The fair value of each option award is estimated on the date of the grantoptions was determined using the Black-Scholes option-pricing model withusing the following weighted-average assumptions used for grants in 2015variables:   stock price of $0.40, volatility of 79.27%, expected term of 5 years with a forfeiture rate of 95%, and approved bya discount factor of 0.72%. Share based compensation of $2,282 was recognized during the Shareholders in 2016.three month period ended March 31, 2020.

The Company uses historical data to estimate option exercise rates.  The option exercise rate for option grants in 2005 through 2016 was 5.2%.  

A summary of option activity during the nine monthsthree ended September 30, 2017March 31, 2020 is as follows:

There were no stock option transactions in 2019.

NOTE 5 - RELATED PARTY TRANSACTIONS– REVENUE

The Company product revenue includes industrial wireless products and accessories such as antennas, power supplies and cable assemblies. The Company also provides direct site support and engineering services to customers, such as repair and upgrade of its products.  During the quarterthree month period ended September 30, 2017,March 31, 2020 and 2019, the Company’s revenue from products sales was $252,968 and $369,389, respectively.  Revenue from site support and engineering services was $21,000 and $4,777 respectively, over the same periods.

The Company’s customers, to which trade credit terms are extended, consist of United States and local governments and foreign and domestic companies.  Domestic sales for the three month period ended March 31, 2020 were $241,975 compared to $292,193 in 2019.  Sales to foreign customers for the three month period ended March 31, 2020 were $31,993 compared to $81,973 in 2019.

ELECTRONIC SYSTEMS TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 5 – REVENUE (Cont.)

For the three month period ended March 31, 2020, sales to three customers represented more than 10% of total revenue, three customers represented more than 10% of total revenue for the same period in 2019.

As of March 31, 2020 and 2019, the Company accrued total directors’ feeshad a sales order backlog of $1,200, or $300 per director for board meetings attended. For the nine-month period ending September 30, 2017, the Company paid or accrued a total of $3,600 for directors’ fees.$5,028 and $11,538, respectively.

NOTE 6 - COMMITMENTSLEASES

The Company leases its facilities from a port authority for $5,445$5,639 per month for three years, expiring in September 2020, with annual increases based upon the Consumer Price Index.

The original lease was effective October 1, 2014 and contained a three-year renewal option and a provision for an annual increase of 2% per year, plus Leasehold Tax of 12.84%.  On September 5, 2017, the Company exercised the three year option. The first year of this option was not subject to the 2% increase. The current lease does not contain the option to extend the lease.  However, the Company believes that a new lease agreement will be signed prior to the expiration of the current lease. At March 31, 2020, the remaining lease term is 6 months.

For the three month periods ended March 31, 2020 and 2019, lease expense of $16,918 and $16,627, respectively, are included in the following expense classifications on the statements of operations:

As of March 31, 2020, total future lease payments are as follows:

ELECTRONIC SYSTEMS TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 7 - SEGMENT REPORTING

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

During the quarter ended September 30, 2017, Domestic customers represented approximately 88% of total net revenues. Domestic sales revenues increased to $283,239 for the quarter ended September 30, 2017 compared to $275,709 for the quarter ended September 30, 2016. Year to date domestic sales revenues decreased to $893,277 as of September 30, 2017 compared to $1,020,831 for the same period of 2016.  Foreign customers represented approximately 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. Year to date foreign sales revenues decreased to $188,884 as of September 30, 2017 compared to $229,407 for the same period of 2016.  During the quarter ended September 30, 2017, sales to one customer comprised more than 10% of the Company’s sales revenues.  Revenues from foreign countries during the third quarter of 2017 consist primarily of revenues from product sales to Mexico, Peru, India.

NOTE 87 – Stock RepurchaseSTOCK 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.share (the “Stock Repurchase Plan”). The Company’s share repurchase program does not obligate it to acquire any specific number of shares. On March 2, 2016, the Company’s Board of 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. AsUnder the Stock Repurchase Plan, shares may be repurchased in open market transactions, complying with Rule 10b5-1 and Rule 10b-18 under the Securities Exchange Act of September 30, 2017, $184,405 remains1934, as amended (the “Exchange Act”). Shares repurchased are retired. During the three-month period ended March 31, 2020, no shares were repurchased; 39,246 shares for $14,920 were repurchased in the three-month period ended March 31, 2019.     Since inception of the Stock Repurchase Plan, the Company has repurchased 212,165 shares for a total of $80,622 through March 31, 2020 and $169,378 of the original $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. The following table shows the Company’s activity and related information for the nine-month period ending September 30, 2017.board remains.

⁽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 – Income Taxes

No Income Tax has been recognized 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 2017 will be zero.

The Deferred Tax asset that is recognized on the Balance Sheets consists primarily of prior 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’sManagement's discussion and analysis is intended to be read in conjunction with the Company’sCompany's unaudited financial statements and the integral notes thereto for the quarter ended September 30, 2016.March 31, 2019.  The following statements may be forward looking in nature and actual results may differ materially.

A.  Results of OperationsRESULTS OF OPERATIONS

REVENUES:

Total revenues from the sale of the Company’s ESTeem wireless modem products and services increased to $322,763 for the third quarter of 2017, compared to $321,468 for the third quarter of 2016.  Gross revenues, including interest income, increased to $325,721 for the quarter ended September 30, 2017, from $324,514 for the same quarter of 2016.  Year to date sales decreased to $1,082,161 as$273,968 for the first quarter of September 30, 2017,2020 as compared to $1,250,238 as$374,166 in the first quarter of September 30, 2016. Year to date gross revenues, including interest income, decreased to $1,090,657 as2019, reflecting a decrease of September 30, 2017, compared to $1,259,155 as of September 30, 2016.26.8%.  Management believes the increasedecrease in quarterly sales revenues is due to increaseddecreased product demand forfrom both the new products introduced atDomestic and Foreign markets first quarter of 2020 when compared with the beginningsame quarter of 2017.2019.

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

Although the COVID-19 situation represents a significant disruption to operations in at least the first half of 2020, we have taken steps intended to keep our staff safe. Staff, whose jobs allow, are telecommuting.  Those whose jobs require specialized equipment continue to work on site and are keeping safe distances to minimize the potential to spread or contract the virus. We are experiencing some disruptions in the supply chain, but at this point do not see it having a material impact on sales.

A percentage breakdown of EST'sthe Company’s market segments of Domestic and Foreign Export Sales,sales, for the thirdfirst quarter of 20172020 and 20162019 are as follows:

Domestic Revenues

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

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

Foreign Revenues

The Company’s foreign operating segment represented 12% of the Company’s total net revenues for the quarter ended September 30, 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.  

During the quarter ended September 30, 2017, the Company had $39,522 in foreign export sales, amounting to 12% of total net revenues of the Company for the quarter, compared with foreign export sales of $45,759 for the same quarter of 2016.  Management believes the decrease in foreign sales revenues was due to decreased automation needs in Oil & Gas and Mining industries.  Revenues from foreign countries during the third quarter of 2017 consist primarily of revenues from product sales to Mexico, Peru and India.  No foreign sales to a single customer comprised 10% or more of the Company's product sales for the quarter ended September 30, 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, 2017, the Company had $188,884 in foreign export sales, amounting to 17% of total sales revenues of the Company for the period, compared with foreign export sales of $229,407 for the same period of 2016. Management believes the decrease in foreign sales revenues is due end of life product purchases in 2016 to Croatia and slow acceptance of product released in 2017 in Latin America.

BACKLOG:

The CorporationAs of March 31, 2020, the Company had a sales order backlog of approximately $22,707 as of September 30, 2017.$5,028.   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 155 working days after receipt of customer orders, with the exception of ongoing, scheduled projects, and custom designed equipment.

COST OF SALES:

Cost of sales percentagepercentages for the third quarterfirst quarters of 20172020 and 2016 was 40%2019 were 53% and 36%,47% of respective net sales and are calculated excluding site support expenses of $15,080 and $3,526 respectively. The cost of sales percentage increase forin the thirdfirst quarter of 20172020 is the result of the product mix for items sold during the period.same quarter of 2019.

OPERATING EXPENSES:

Operating expenses for the thirdfirst quarter of 20172020 decreased $10,857$20,458 from the thirdfirst quarter of 2016.2019 levels.  The following is an outlinea delineation of operating expenses:

GENERAL AND ADMINISTRATIVE:

DuringGeneral and administrative:  For the thirdfirst quarter of 2017,2020, general and administrative expenses decreased $8,425increased $2,207 to $59,367 from$95,713, due to increased wages, taxes and benefits when compared with the same quarter of 2016, due to decreased professional services2019.

Research and bank fees.

RESEARCH AND DEVELOPMENT:

development:  Research and development expenses decreased $4,113$10,577 to $55,511$54,897 during the thirdfirst quarter of 20172020 due to decreased expenses related to prototype build costs when compared with the same quarter of 2019.

Marketing and sales:During the first quarter of 2020, marketing and sales expenses decreased $12,088 to $87,896 when compared with the same period in 2016of 2019, due to fees paid for type acceptancedecreased travel and prototype builds of new product.

MARKETING AND SALES:

Duringtrade show expenses during the thirdfirst quarter of 2017, marketing and sales expenses increased $1,681 to $114,092 from the same period in 2016, due to increased services purchased.2020.

INTEREST AND DIVIDEND INCOME:

The CorporationCompany earned $2,958$3,463 in interest and dividend income during the quarter ended September 30, 2017.March 31, 2020 compared to $5,887 during the same period in 2019.  Sources of this income were money market accounts and certificates of deposit.

NET INCOME (LOSS):LOSS:

The Company had a net loss of $37,781$110,306 for the thirdfirst quarter of 2017,2020 compared to a net loss of $42,497$54,826 for the same quarter of 2016.  For the nine-month period ended September 30, 2017, the Company recorded a2019.  The increase in net loss of $133,992, compared with a net loss of $55,114 for the same period of 2016. The decrease in the Company’s net lossduring 2020 is the result of increaseddecreased sales revenues decreasedand gross margins and reduced operating expenses during the third quarter of 2017.margins.

B.  Financial Condition, Liquidity and Capital ResourcesFINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

The Corporation's current asset to current liabilities ratio at September 30, 2017March 31, 2020 was 24.6:124.8 compared to 54:111.8 at December 31, 2016. 2019.  The increase in current ratio is due to the reduction in accounts payable liability at March 31, 2020 as compared to December 31, 2019.

At September 30, 2017,March 31, 2020, the Company had cash and cash equivalents of $257,112;$297,906 as compared to cash and cash equivalent holdings of $502,971$274,936 at December 31, 2016.2019, primarily reflecting redemption of certificates of deposits that were held at December 31, 2019.  The Company had certificates of deposit investmentswere redeemed to offset the cash used in operation.    

Cash used in operating activities decreased by $5,338 for the amountthree-month period ended March 31, 2020 when compared to the same period in 2019. During that period, inventory decreased by $52,272. Accounts payable decreased $88,990 compared to the same period of $1,000,000 at September 30, 2017 and $1,000,000 at December 31, 2016.2019.

Accounts receivable increased to $94,506 as of September 30, 2017Cash provided from December 31, 2016 levels of $71,202,investing was $150,001 due to sales revenue timing differences between the thirdredemption of a CD during the first quarter of 2017 and year-end 2016.  Inventories increased2020 which is similar to $813,970 asthe redemption of September 30, 2017,$150,000 from December 31, 2016 levels of $703,147, due primarily to an increase of finished goods.  The Company's fixed assets, net of depreciation, decreased to $36,428 as of September 30, 2017, from December 31, 2016 levels of $51,383.the prior year.

As of September 30, 2017, the Company’s accounts payable balance was $54,709 as compared with $15,114at December 31, 2016, and reflects amounts owed for inventory items, contracted services, and state tax liabilities.  Accrued liabilities and refundable deposits as of September 30, 2017 were $34,252 compared with $27,220at December 31, 2016, and reflect items such as accrued vacation benefits and payroll tax liabilities       

In Management'smanagement's opinion, the Company's cash and cash equivalent reserves,equivalents and other working capital at September 30, 2017March 31, 2020 is sufficient to satisfy requirements for operations, capital expenditures, and other expenditures as may arise during the next 12 months.2020.

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’sCompany's reports and registration statements filed with the Securities and Exchange Commission.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Not applicableThere is no established market for trading the common stock of the Company. The market for the Company’s common stock is limited, and as such shareholders may have difficulty reselling their shares when desired or at attractive market prices.  The Common Stock is not regularly quoted in the automated quotation system of a registered securities system or association.  Our common stock, par value $0.001 per share, is quoted on the OTC Markets Group QB (OTCQB) under the symbol “ELST”.  The OTCQB is a network of security dealers who buy and sell stock. The dealers are connected by a computer network which provides information on current “bids” and “asks” as well as volume information. The OTCQB is not considered a “national exchange”.  The “over-the-counter” quotations do not reflect inter-dealer prices, retail mark-ups commissions or actual transactions.  The Company’s common stock has continued to trade in low volumes and at low prices. Some investors view low-priced stocks as unduly speculative and therefore not appropriate candidates for investment. Many institutional investors have internal policies prohibiting the purchase or maintenance of positions in low-priced stocks.

Item 4.  Evaluation of Disclosure Controls and Procedures.

Conclusions of Management Regarding Effectiveness of Disclosure Controls and Procedures

At the end of the period covered by this Quarterly Report on Form 10-Q, anAn evaluation was carried outhas been performed under the supervision and with the participation of the Company'sour management, including the Presidentour Chief Executive Officer and Principal ExecutiveAccounting Officer, ("PEO") and Principal Financial Officer ("PFO"), of the effectiveness of the design and operationsthe operation of the Company's disclosureour "disclosure controls and proceduresprocedures" (as such term is defined in Rule 13a – 15(e) and Rule 15d – 15(e)Rules 13a-15(e) under the Securities Exchange Act).Act of 1934) as of March 31, 2020.  Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have determined that evaluation, the PEOthere was a material weakness affecting our internal control over financial reporting and, the PFO have concludedas a result of that as of the end of the period covered by this report, the Company'sweakness, our disclosure controls and procedures were not effective as itof March 31, 2020.  

The material weakness is as follows:

We did not maintain effective controls to ensure appropriate segregation of duties as the same officer and employee was determinedresponsible 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 there were material weaknesses affecting our disclosure controls and procedures. 

Management of the company believes that these material weaknesses arecould have resulted due to the small sizedeficient controls; and, (3) the absence of the company's accounting staff. The small sizesufficient other mitigating controls; we determined that this control deficiency resulted in more than a remote likelihood that a material misstatement or lack of the company's accounting staff may prevent adequate controls in the future, such as segregation of duties, due to the cost/benefit of such remediation. To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of external legal and accounting professionals. As the Company grows, management expects to increase the number of employees, which will enable us to implement adequate segregation of dutiesdisclosure within the internal control framework.annual or interim financial statements will not be prevented or detected.

Changes in Internal Control Over Financial Reporting

There have not been any changes in our internal control over financial reporting.

There have been no changesreporting (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) during the most recent fiscal quarter ended September 30, 2017 in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controlscontrol over financial reporting.

PART II - 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 55.  Other Information

None

Item 6.  Exhibits

SIGNATURES

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

ELECTRONIC SYSTEMS TECHNOLOGY, INC.

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