415 N. Quay St., #4

Kennewick WA 99336

(as prepared by Management)

(Unaudited)

SELECTED FINANCIAL DATA

(as prepared by Management)

(Unaudited)

(See "Notes to Financial Statements")

(as prepared by Management)

(Unaudited)

(See "Notes to Financial Statements")

(as prepared by Management)

(Unaudited)

(See "Notes to Financial Statements)

(as prepared by Management)

(Unaudited)

The financial statements of Electronic Systems Technology, Inc. (the ² Company² ), 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, 2000 and September 30, 1999. Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principals 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, 1999 as filed with Securities and Exchange Commission.

The results of operation for the three and nine month periods ended September 30, 2000 and September 30, 1999, are not necessarily indicative of the results expected for the full fiscal year or for any other fiscal period.

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

Basic Earnings Per Share (EPS) excludes dilution and is computed by dividing income available to common stockholders by the weighted- average number of common shares outstanding for the period. Diluted EPS 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. The primary weighted average number of common shares outstanding was 5,744,992 and 5,553,941 for the quarters ended September 30, 2000 and 1999 respectively.

As of September 30, 2000, the Company had outstanding stock options that have been granted periodically to individual employees and directors with no less than three years of continuous tenure with Company. On February 11, 2000, additional stock options to purchase shares of the Company's common stock were granted to individual employees and directors with no less than three years continuous tenure. The options granted on February 11, 2000 totaled 220,000 shares under option and have an exercise price of $2.81 per share. The options granted on February 11, 2000 may be exercised any time during the period from February 11, 2000 through February 10, 2003. The Company's Form 8-K dated February 11, 2000, as filed with the Securities and Exchange Commission is included herein by reference. All outstanding stock options must be exercised within 90 days after termination of employment. During the 12 month period from September 30, 1999 to September 30, 2000, 165,000 shares under option expired, 115,000 shares under option were exercised, and 220,000 shares under option were granted. At September 30, 2000 there were 580,000 shares under option reserved for future exercises.

The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." The Company undertakes to make disclosures and calculations pursuant to SFAS 123 on an annual basis coinciding with the issuance of the Company's Annual Financial Statements. Accordingly, no compensation cost has been recognized for the stock option plan.

For the nine-month period ended September 30, 2000 services in the amount of $73,652 were contracted with Manufacturing Services, Inc., of which the owner/president is a member of the Board of Directors of the Company.

On June 11, 1999, the Company declared a one-time, non-cumulative, cash distribution to shareholders of record as of June 25, 1999, of $0.01 per share of common stock, with a payable date of July 9, 1999. The payment of the cash distribution was completed by July 9, 1999 for a total dollar value of $49,537. For the quarter ended September 30, 1999, the Company had met all cash distribution obligations and no longer recognized current liabilities previously recorded for the cash distribution. The Company's Form 8-K dated June 11, 1999, as filed with the Securities and Exchange Commission is included herein by reference.

Total revenues from the sale of the Company's ESTeemÔ wireless modem systems, accessories, and services increased to $479,927 for the third quarter of 2000 as compared to $307,044 in the third quarter of 1999, reflecting an increase of 56%. Gross revenues increased to $499,894 for the quarter ending September 30, 2000, from $321,375 for the same quarter of 1999, reflecting an increase of 56%. The sales revenue increase is attributable to timing differences for revenues recognized by the Company for Mobile Data Computer (MDC) for public safety entities projects using the Company's products, when compared with the same period of 1999, and large volume shipments to the Company's distributors for use in Industrial Automation applications. In Management's opinion, the increase in revenues for the quarter ended September 30, 2000 is a short-term result and should not be viewed as a long-term trend.

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.

The Company's revenues fall into three major customer categories, Domestic, Export and U.S. Government Sales. Domestic commercial sales increased to $404,187 in the third quarter of 2000 as compared to $227,339 for the third quarter of 1999. Foreign export sales for the third quarter of 2000 increased to $68,703 as compared to the $58,669 in the same quarter of 1999, due to strong sales activity in Brazil.

U.S. Government sales decreased in the third quarter of 2000 to $7,037, down from third quarter 1999 levels of $21,036. Management believes the decreased U.S. Government sales is a result of a continued lack of new projects and purchases for the Company's products, a trend experienced by the Company for the previous twelve months, and which Management feels may continue for the foreseeable future. Due to the uncertain nature of U.S. Government purchasing, Management does not base profitability or liquidity projections on expected U.S. Government sales.

During the quarter ended September 30, 2000, material and services provided to the Blaine County, Idaho, Sheriff's Department and the City of Florence, Alabama, Police Department accounted for 23% and 19% of the Company's sales and service revenues, respectively. Sales to Industrial Electronics and Controls, a southwestern regional distributor, consisted of 12% of the Company's sales and service revenues. No other sales to a single customer comprised 10% or more of the Company's product and service sales for the quarter ending September 30, 2000.

A percentage breakdown of EST's major customer categories of Domestic, Export and U.S. Government Sales, for the third quarter of 2000 and 1999 are as follows:

A percentage breakdown of EST's product sales categories for the third quarter of 2000 and 1999 are as follows:

Sales for the third quarter of 2000 and 1999 include foreign export sales as follows:

The geographic distribution of foreign sales for the third quarter of 2000 and 1999 is as follows:

The majority of the Company's domestic and foreign sales for the third quarter of 2000 were used in Industrial Automation applications. Industrial Automation applications have historically been the majority of the Company's domestic sales, which Management believes will continue for the foreseeable future, but will also be, augmented by sales of Mobile Data Computer Systems for public safety entities. It is Management's opinion that the majority of foreign export applications will continue to be in Industrial Automation applications for the foreseeable future.

Based on previous sales activity, the majority of all U.S. Government purchases are expected to be under the Company's General Services Administration (GSA) contract. Projections regarding liquidity, profitability, and material purchases are based on past history of annual purchases. Historically, Federal sales average approximately 18% of annual sales, but this level cannot be guaranteed, as is demonstrated in the reduced Federal sales volume the Company has experienced in the last twelve months. Due to the uncertain nature of Federal purchasing, procurement of material and production planning is adjusted quarterly based on demand. It is Management's opinion that the majority of U.S Government purchases in 2000 will be under this contract.

The Company had backlog of $126,000 at September 30, 2000, for orders placed late in the quarter. The Company expects to make delivery of all backlog items in the fourth quarter of 2000 or alternatively the backlog is part of ongoing large-scale public safety Mobile Data Computer (MDC) projects and will be delivered as part of project timelines. Customers generally place orders on an "as needed basis". Shipment is generally made within 5 to 10 working days after receipt of an order from a customer.

Cost of sales percentages of gross sales for the third quarters of 2000 and 1999 were 56% and 50% of gross sales respectively. Cost of Sales variations are attributable to the type of product sold and the size of the order. Larger orders grant lower sales prices because of volume discounting, reducing the margin of profit. The increase in cost of sales in the third quarter of 2000 is due to a combination of decreased sales prices and product mix.

Operating expenses for the third quarter of 2000 increased $30,338 when compared with the third quarter of 1999. The following is a delineation of operating expenses:

During the third quarter of 2000 Finance and Administration expenses decreased $1,175 when compared with the third quarter of 1999. The decrease is the result of decreased professional services in the third quarter of 2000 in comparison.

During the third quarter of 2000, Research and Development expenses increased $13,560 when compared with the third quarter of 1999. The increase in Research and Development expenditures during the third quarter of 2000 was due to increased subcontracted engineering expertise contracted by the Company primarily for development of the ESTeem Ethernet based products.

Marketing expenses increased $7,415 from the same period in 1999, due to timing differences in advertising and tradeshow expenditures by the Company as well as increased salaries and wages being assigned to the department when compared with the same period of 1999.

Customer service expenses for the third quarter of 2000 increased $10,538 when compared with the third quarter of 1999. The increase is primarily the result of increased salaries and wages from an additional employee being added to the department during 2000.

The Corporation earned $19,967 in interest income for the quarter ended September 30, 2000. Sources of interest income were short-term investments, as well as savings and money market accounts.

Engineering support costs increased to $32,385 for the quarter ended September 30, 2000, as compared to $17,575 for the same period of 1999. The increase in engineering support costs is a direct result of increased engineering services performed by the Company for customers in the third quarter of 2000.

The Corporation had net income of $43,525 for the third quarter of 2000, compared to a $22,266 for the third quarter of 1999. The increase is attributable to increased sales revenues and other income during the third quarter of 2000, as compared with the third quarter of 1999

The Corporation's current asset to current liabilities ratio at September 30, 2000 was 16:1 compared to 34.2:1 at December 31, 1999. The decrease in current ratio is due to increases in refundable customer deposits and accounts payable amounts when compared with December 31, 1999 amounts.

For the quarter ending September 30, 2000, the Company had cash and cash equivalent short-term investment holdings of $1,506,262 as compared to cash and cash equivalent holdings of $1,624,728 at December 31, 1999. The decrease is attributable to increased inventory levels, capital asset procurement, and prepaid expenses paid by the Company, while being offset by receipt of refundable deposits from customers and the Company's net income for the quarter ended September 30, 2000.

Accounts receivable increased to $212,707 as of September 30, 2000, from December 31, 1999 levels of $154,788. Management believes all of the Company's accounts receivable as of September 30, 2000 are collectible. Inventory increased to $519,347 at September 30, 2000, from December 31, 1999 levels of $357,490, due to increased procurement for production of products for both Mobile Data Computer, Industrial Automation projects and new product development. Provision for Federal Income Taxes decreased to $0 at September 30, 2000 as the Company's estimated tax liability for Net Income at quarter end absorbed the provision as compared with December 31, 1999 levels.

The Company's fixed assets, net of depreciation, increased to $186,949 as of September 30, 2000, from December 31, 1999 levels of $145,123, due to capital expenditures of $71,323. The expenditures were for software development tools for the new ESTeem 192E Ethernet product and additional equipment used in the manufacturing of the Company's products. Management foresees additional capital expenditures may be necessary to support the production and sale of the Company's products.

As of September 30, 2000, the Company's trade accounts payable balance was $44,546 as compared with $36,607 at December 31, 1999, and reflects amounts owed for purchases of inventory items and contracted services. Refundable deposit liability was $78,038 for the quarter ended September 30, 2000, and reflects prepaid amounts for Mobile Data Computer customers under contract prior to delivery of material by the Company.

It is Management's opinion the Company's cash, cash equivalent reserves, and working capital at September 30, 2000 are sufficient to satisfy requirements for operations, capital expenditures, and other expenditures as may arise in the short term.

(a) Exhibits

(b) Reports on Form 8-K

Exhibit Index Reference

Form 10-QSB

Exhibit Number Notes to

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.