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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

                  For the quarterly period ended MARCH 31, 2007

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

          For the transition period from _____________ to _____________

                        Commission file number 000-51859

                       ELECTRONIC SENSOR TECHNOLOGY, INC.
        (Exact name of Small Business Issuer as Specified in Its Charter)

          NEVADA                                    98-0372780
  (State or Other Jurisdiction of        (I.R.S. Employer Identification No.)
   Incorporation or Organization)

                           1077 Business Center Drive
                         Newbury Park, California 91320
                    (Address of Principal Executive Offices)

                                 (805) 480-1994
                (Issuer's Telephone Number, Including Area Code)

     Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 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 is a shell company (as
defined in Rule 12b-2 of the Exchange Act).                       Yes [ ] No [X]

     State the number of shares  outstanding of each of the issuer's  classes of
common equity, as of the latest  practicable  date.  54,173,745 shares of common
stock as of May 1, 2007

     Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]

================================================================================
<PAGE>
Certain statements in this quarterly report on Form 10-QSB, including those
relating to the company's plans regarding business and product development;
product sales and distribution; market demands and developments in homeland
security, 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, and other factors described under the heading "Risk Factors" in our
post-effective amendments to our registration statements on Form SB-2 as filed
with the Securities and Exchange Commission, which became effective on April 19,
2007. 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 Sheet (Unaudited) as of March 31, 2007                 F-1

Consolidated Statements of Operations (Unaudited) for the Three
Months Ended March 31, 2007 and 2006                                        F-2

Consolidated Statements of Cash Flows (Unaudited) for the Three
Months Ended March 31, 2007 and 2006                                        F-3

Notes to Consolidated Financial Statements                                  F-4

                                       1
<PAGE>
                       ELECTRONIC SENSOR TECHNOLOGY, INC.

                           CONSOLIDATED BALANCE SHEET

                                 MARCH 31, 2007
                                   (Unaudited)

                                     ASSETS
<TABLE>

<S>                                                                                 <C>
CURRENT ASSETS:
  Cash and cash equivalents                                                         $           591,679
  Certificate of deposit                                                                        712,467
  Certificate of deposit-restricted                                                             250,000
  Accounts receivable, net of allowance for doubtful accounts of $16,366                        223,735
  Prepaid expenses                                                                               74,287
  Inventories                                                                                 1,277,843
                                                                                       ----------------
    TOTAL CURRENT ASSETS                                                                      3,130,011
                                                                                       ----------------

DEFERRED FINANCING COSTS, net of amortization of $244,232                                       484,128

PROPERTY AND EQUIPMENT, net of accumulated depreciation of $974,035                             187,371

SECURITY DEPOSITS                                                                                12,817
                                                                                       ----------------
                                                                                       $      3,814,327
                                                                                       ================

                      LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
  Accounts payable and accrued expenses                                             $           613,494
  Deferred revenues                                                                              79,167
  Derivative liabilities                                                                      3,238,193
  Convertible debentures - current portion                                                      777,778
                                                                                       ----------------
    TOTAL CURRENT LIABILITIES                                                                 4,708,632
                                                                                       ----------------
CONVERTIBLE DEBENTURES- long-term portion, net of unamortized discount of $3,888,889          2,333,333
                                                                                       ----------------
  TOTAL LIABILITIES                                                                           7,041,965
                                                                                       ----------------
STOCKHOLDERS' DEFICIT:
  Preferred stock, $.001 par value 50,000,000 shares authorized,
   none issued and outstanding                                                                        -
  Common stock, $.001 par value, 200,000,000 shares authorized,
   54,173,745 issued and outstanding                                                             54,174
  Additional paid-in capital                                                                  8,570,763
  Accumulated deficit                                                                       (11,852,575)
                                                                                       ----------------
    TOTAL STOCKHOLDERS' DEFICIT                                                              (3,227,638)
                                                                                       ----------------
                                                                                       $      3,814,327
                                                                                       ================
</TABLE>

            See unaudited notes to consolidated financial statements

                                   F-1
<PAGE>
                       ELECTRONIC SENSOR TECHNOLOGY, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE>
                                                       Three Months Ended
                                                            March 31,
                                                --------------------------------
                                                     2007              2006
                                                --------------    --------------
<S>                                             <C>               <C>
REVENUES                                        $      477,275    $      532,817

COST OF SALES                                          253,843           301,592
                                                --------------    --------------
GROSS PROFIT                                           223,432           231,225

OPERATING EXPENSES:
  Research and development                             218,787           211,799
  Selling, general and administrative                  777,458           780,092
                                                --------------    --------------
    TOTAL OPERATING EXPENSES                           996,245           991,891
                                                --------------    --------------
LOSS FROM OPERATIONS                                  (772,813)         (760,666)
                                                --------------    --------------
OTHER INCOME (EXPENSE)
  Other income - derivative                            127,030         1,220,197
  Other income                                           1,854                 -
  Other expense                                              -              (217)
  Interest (expense)                                  (709,499)         (730,391)
                                                --------------    --------------
    TOTAL OTHER INCOME AND EXPENSE                    (580,615)          489,589
                                                --------------    --------------
NET (LOSS)                                     $   (1,353,428)   $     (271,077)
                                                ==============    ==============
Loss per share, basic                           $        (0.02)   $        (0.01)
                                                ==============    ==============
Weighted average number of shares, basic            54,173,745        54,145,922
                                                ==============    ==============
Loss per share, diluted                         $        (0.03)   $        (0.03)
                                                ==============    ==============
Weighted average number of shares, diluted          54,173,745        54,145,922
                                                ==============    ==============
</TABLE>

               See unaudited notes to consolidated financial statements

                                      F-2
<PAGE>
                       ELECTRONIC SENSOR TECHNOLOGY, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
                                                                                        Three Months Ended
                                                                                             March 31,
                                                                                 --------------------------------
                                                                                      2007                2006
                                                                                 --------------    --------------
<S>                                                                              <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                                       $   (1,353,428)   $     (271,077)
  Adjustments to reconcile net loss to net
   cash provided by (used in) operating activities:
    Depreciation and amortization                                                        13,385             8,666
    Decrease in allowance for doubtful accounts                                          (7,996)                -
    Issuance of shares for services                                                           -            21,000
    Amortization of compensation expense related to issuance of  stock options           54,409
    Amortization of debt discount                                                       583,334           583,333
    Amortization of deferred financing costs                                             45,386            51,894
    Decrease in fair value of derivative liability                                     (118,280)       (1,220,197)
  Changes in assets and liabilities:
    Accounts receivable                                                                  84,674           243,695
    Inventories                                                                           7,847           (68,476)
    Prepaid expenses                                                                      4,483             3,603
    Accounts payable and accrued expenses                                               209,576            50,920
    Deferred revenues                                                                   (12,500)          (12,500)
                                                                                 --------------    --------------
  Net cash provided by (used in) operating activities                                  (489,110)         (609,139)
CASH FLOWS FROM INVESTING ACTIVITIES:
  Decrease in restricted security deposit                                                     -           668,678
  Increase in certificate of deposit                                                    (10,385)                -
  Purchase of property and equipment                                                     (2,967)          (62,924)
                                                                                 --------------    --------------
  Net cash provided by (used in) investing activities                                   (13,352)          605,754
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net cash provided by financing activities                                                   -                 -
                                                                                 --------------    --------------
NET INCREASE (DECREASE) IN CASH                                                        (502,462)           (3,385)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                      1,094,141         4,219,921
                                                                                 --------------    --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                       $      591,679    $    4,216,536
                                                                                 ==============    ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
  Interest                                                                       $      140,000    $      140,000
                                                                                 ==============    ==============
</TABLE>

            See unaudited notes to consolidated financial statements.

                                      F-3
<PAGE>
                       ELECTRONIC SENSOR TECHNOLOGY, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)
                                 March 31, 2007

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-QSB and
     Item 10 of Regulation S-B. 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,
     2006, included in the Annual Report filed on Form 10-KSB 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
     March 31, 2007, and the results of operations and cash flows for the
     three-month period ending March 31, 2007 have been included. The results of
     operations for the three-month period ended March 31, 2007 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-KSB as filed with the Securities and Exchange Commission for the year
     ended December 31, 2006, included in the Annual Report filed on Form 10-KSB
     for the year then ended.

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 through distribution channels
          in over 20 countries.

     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)   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 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.

                                      F-4
<PAGE>
     d)   LINE OF CREDIT

          The Company has a revolving line of credit agreement for borrowings up
          to $500,000. The line of credit is secured and collateralized with a
          certificate of deposit in the amount of $250,000. No amounts were due
          under this line of credit at March 31, 2007. The line of credit
          expires on March 31, 2008.

     e)   REVENUE RECOGNITION

          The Company records revenue from direct sales of products to end-users
          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)   DEFERRED FINANCING COSTS

          Deferred financing costs consist of direct costs incurred by the
          Company in connection with the issuance of its convertible debentures.
          The direct costs include cash payments and fair value of warrants
          issued to the placement agent, which secured the financing. Deferred
          financing costs are amortized over 48 months using the effective
          interest rate method.

     i)   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.

     j)   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.

     k)   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.

     l)   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

                                      F-5
<PAGE>
          instruments. The fair value of the convertible debentures issued by
          the Company in December 2005 amounts to $7,000,000, based on the
          Company's incremental borrowing rate. The carrying value of the
          derivative liabilities associated with the convertible debentures
          represents its fair value.

     m)   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 March 31, 2007
          no assets were impaired.

     n)   DERIVATIVE LIABILITIES

          The Company accounts for its liquidated damages pursuant to 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". In
          December 2006, FASB issued FASB Staff Position No. EITF 00-19-2
          "Accounting for Registration Payment Arrangements" ("FSP 00-19-2"),
          which superseded EITF 05-04. FSP 00-19-2 provides that the contingent
          obligation to make future payments or otherwise transfer consideration
          under a registration payment arrangement, should be separately
          recognized and measured in accordance with FASB Statement No.5,
          "Accounting for Contingencies". The registration statement payment
          arrangement should be recognized and measured as a separate unit of
          account from the financial instrument(s) subject to that arrangement.
          If the transfer of consideration under a registration payment
          arrangement is probable and can be reasonably estimated at inception,
          such contingent liability is included in the allocation of proceeds
          from the related financing instrument. Pursuant to EITF 05-04, View C,
          the liquidated damages paid in cash or stock are accounted for as a
          separate derivative, which requires a periodical valuation of its fair
          value and a corresponding recognition of liabilities associated with
          such derivative. FSP00-19-2 did not have an impact on the Company's
          accounting of the liquidated damages.

          The Company has registered all shares underlying the convertible
          debentures as well as all shares underlying the warrants related to
          the convertible debentures.

          The Company accounts for its embedded conversion features and
          freestanding warrants pursuant to SFAS No. 133, "Accounting for
          Derivative Instruments and Hedging Activities", which requires a
          periodic valuation of their fair value and a corresponding recognition
          of liabilities associated with such derivatives. The recognition of
          derivative liabilities related to the issuance of shares of common
          stock is applied first to the proceeds of such issuance, at the date
          of issuance, and the excess of derivative liabilities over the
          proceeds is recognized as other expense in the accompanying
          consolidated financial statements. The recognition of derivative
          liabilities related to the issuance of convertible debt is applied
          first to the proceeds of such issuance as a debt discount, at the date
          of issuance, and the excess of derivative liabilities over the
          proceeds is recognized as other expense in the accompanying
          consolidated financial statements. Any subsequent increase or decrease
          in the fair value of the derivative liabilities, which are measured at
          the balance sheet date, are recognized as other expense or other
          income, respectively.

     o)   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 using the weighted average number of common and dilutive
          common share equivalents outstanding during the period. Dilutive
          common share equivalents consist of shares

                                      F-6
<PAGE>
          issuable upon the exercise of stock options and warrants embedded
          conversion features (calculated using the reverse treasury stock
          method). The outstanding options, warrants and shares equivalent
          issuable pursuant to embedded conversion features amounted to
          59,370,639 and 58,558,501 at March 31, 2007 and 2006, respectively.
          The outstanding options, warrants and shares equivalent issuable
          pursuant to embedded conversion features and warrants at March 31,
          2007 and 2006, respectively, are excluded from the loss per share
          computation for that period due to their antidilutive effect. The
          Company adjusted the numerator for any changes in income or loss that
          would result if the contract had been recorded as an equity instrument
          for accounting purposes during the period. However, the Company did
          not adjust the numerator for interest charges during the period on the
          convertible debentures because it would have been anti-dilutive.

          The following sets forth the computation of basic and diluted earnings
          per share at March 31:

<TABLE>

                                                                      2007              2006
                                                                 --------------    --------------
<S>                                                              <C>               <C>
          Numerator:
            Net income (loss)                                    $   (1,353,428)   $     (271,077)
            Net other income/expense associated with
             derivative contracts                                       127,030         1,220,197
                                                                 --------------    --------------
            Net (loss) for diluted earnings per share purposes   $   (1,480,458)   $   (1,491,274)
                                                                 ==============    ==============
          Denominator:
            Denominator for basic earnings per share-
             Weighted average shares outstanding                     54,173,745        54,145,922
            Effect of dilutive warrants, embedded
             conversion features and liquidated damages                       0                 0
                                                                 --------------    --------------
          Denominator for diluted earnings per share-
           Weighted average shares outstanding                       54,173,745        54,145,922
                                                                 ==============    ==============
          Basic earnings (loss) per share                        $        (0.02)   $        (0.01)
                                                                 ==============    ==============
          Diluted earnings (loss) per share                      $        (0.03)   $        (0.03)
                                                                 ==============    ==============
</TABLE>

     p)   STOCK BASED COMPENSATION

          In December 2004, the FASB issued SFAS No. 123(R), "Share-Based
          Payment," which replaces SFAS No. 123 and supersedes APB Opinion
          No. 25. Under SFAS No. 123(R), companies are required to measure the
          compensation costs of share-based compensation arrangements based on
          the grant-date fair value and recognize the costs in the financial
          statements over the period during which employees are required to
          provide services. Share-based compensation arrangements include stock
          options, restricted share plans, performance-based awards, share
          appreciation rights and employee share purchase plans. In March 2005
          the SEC issued Staff Accounting Bulletin No. 107, or "SAB 107". SAB
          107 expresses views of the staff regarding the interaction between
          SFAS No. 123(R) and certain SEC rules and regulations and provides the
          staff's views regarding the valuation of share-based payment
          arrangements for public companies. SFAS No. 123(R) permits public
          companies to adopt its requirements using one of two methods.
          On April 14, 2005, the SEC adopted a new rule amending the compliance
          dates for SFAS No. 123(R). Companies may elect to apply this statement
          either prospectively, or on a modified version of retrospective
          application under which financial statements for prior periods are
          adjusted on a basis consistent with the pro forma disclosures required
          for those periods under SFAS 123. Effective January 1, 2006, the
          Company has fully adopted the provisions of SFAS No. 123(R) and
          related interpretations as provided by SAB 107. As such, compensation
          cost is measured on the date of grant as the excess of the current
          market price of the underlying stock over the exercise price. Such
          compensation amounts, if any, are amortized over the respective
          vesting periods of the option grant. The Company applies this
          statement prospectively.

                                      F-7
<PAGE>
          During the quarter, 1,520,450 stock option shares, with varying
          vesting terms, were granted to directors and employees of the company.
          The fair value of the stock options at March 31, 2007, as calculated
          using Black Scholes methodology, was $145,430. The fair value amount
          is amortized over a 48 month period with $54,409 charged to
          compensation expense for the first quarter of 2007.

          Additionally, 137,500 stock option shares, of which 87,500 option
          shares were fully vested, were issued to a consultant during the
          quarter. The fair value of the fully vested shares, as calculated
          using Black Scholes methodology, was $8,750 and charged to consulting
          expense. The remaining 50,000 stock option shares will vest over a 48
          month period with the fair value of the respective stock option shares
          charged to expense when they become vested.

     q)   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

          In September 2006, the FASB issued FASB Statement No. 157. This
          Statement defines fair value, establishes a framework for measuring
          fair value in generally accepted accounting principles (GAAP), and
          expands disclosures about fair value measurements. This Statement
          applies under other accounting pronouncements that require or permit
          fair value measurements, the Board having previously concluded in
          those accounting pronouncements that fair value is a relevant
          measurement attribute. Accordingly, this Statement does not require
          any new fair value measurements. However, for some entities, the
          application of this Statement will change current practices. This
          Statement is effective for financial statements for fiscal years
          beginning after November 15, 2007. Earlier application is permitted
          provided that the reporting entity has not yet issued financial
          statements for that fiscal year. Management believes this Statement
          will have no impact on the financial statements of the Company once
          adopted.

          On July 13, 2006, the Financial Accounting Standards Board (FASB)
          issued FASB Interpretation No. 48, ("FIN 48"), entitled, "Accounting
          for Uncertainty in Income Taxes - an Interpretation of FASB Statement
          No. 109". Concurrently, FASB issued a FASB staff position (FSP)
          relating to income taxes, (FSP) No. FAS 13-2, "Accounting for a Change
          or Projected Change in the Timing of Cash Flows Relating to Income
          Taxes Generated by a Leveraged Lease Transaction." FASB's summary of
          FIN 48 notes that differences between tax positions recognized in the
          financial statements and tax positions taken in the tax return
          (referred to commonly as "book" vs. "tax") will generally result in:
          (a) an increase in a liability for income taxes payable or a reduction
          of an income tax refund receivable, (b) a reduction in a deferred tax
          asset or an increase in a deferred tax liability, or (c) both of the
          above. FIN 48 requires the affirmative evaluation that it is more
          likely than not, based on the technical merits of a tax position, that
          an enterprise is entitled to economic benefits resulting from
          positions taken in income tax returns. Further, if a tax position does
          not meet the more-likely-than-not recognition threshold, the benefit
          of that position is not recognized in the financial statements.
          Additionally, FIN 48 establishes guidance for "derecognition" of
          previously recognized deferred tax items, and sets forth disclosure
          requirements. The effective date of FIN 48 is for fiscal years
          beginning after December 15, 2006. The Company does not believe that
          FIN 48, once adopted, will have a significant impact on its financial
          position, operating results, or cash flows.

          In February 2007, the FASB issued SFAS No. 159, The Fair Value Option
          for Financial Assets and Financial Liabilities -- including an
          amendment of FAS 115 ("SFAS No. 159"). SFAS No. 159 allows companies
          to choose, at specified election dates, to measure eligible financial
          assets and liabilities at fair value that are not otherwise required
          to be measured at fair value. Unrealized gains and losses shall be
          reported on items for which the fair value option has been elected in
          earnings at each subsequent reporting date. SFAS No. 159 also
          establishes presentation and disclosure requirements. SFAS No. 159 is
          effective for fiscal years beginning after November 15, 2007 and will
          be applied prospectively. The Company is currently evaluating the
          impact of adopting SFAS No. 159 on our consolidated financial
          position, results of operations and cash flows.

                                      F-8
<PAGE>
4)   CONVERTIBLE DEBENTURES

     During December 2005, we issued in a private offering, $7,000,000 aggregate
     principal amount of convertible debentures due December 7, 2009. The
     convertible debentures are convertible at any time on or prior to the
     maturity date at the option of the debenture holder at a conversion price
     of $0.4544, which was subsequently reduced to $0.4000 as per a Forbearance
     and Amendment Agreement, dated September 7, 2006, with the holders of the
     convertible debentures (see Note 7), and can be redeemed at the lesser of
     $0.4000 or 90% of the average of the volume weighted average price for the
     20 consecutive trading days immediately prior to the conversion date. The
     Company received $7,000,000 in cash as consideration. The convertible
     debentures bear interest at 8%, payable in cash or stock, at the Company's
     option, and are required to be redeemed in 9 equal quarterly payments
     commencing January 1, 2008, in cash or stock, at the Company's option. If
     the Company chooses to pay interest on or redeem the debentures in shares
     of the Company's common stock, rather than in cash, the conversion rate for
     such stock payment is the lesser of $0.4544, which was subsequently reduced
     to $0.4000 as per a Forbearance and Amendment Agreement, dated September 7,
     2006, with the holders of the convertible debentures (see Note 7), or 90%
     of the average of the volume weighted average price for the 20 consecutive
     trading days immediately prior to the interest payment or redemption date,
     as applicable.

     In connection with the issuance of the convertible debentures, the Company
     issued five-year warrants to purchase 12,130,314 shares of common stock at
     an exercise price of $0.4761 per share, which was subsequently reduced to
     $0.4300 per share as per a Forbearance and Amendment Agreement, dated
     September 7, 2006, with the holders of the warrants (see Note 7).
     Furthermore, the Company granted liquidated damages pursuant to a
     registration rights agreement.

     The convertible debentures and related agreements provide, among other
     things, for:

          1)   Liquidated damages amounting to 2% per month of the outstanding
               principal amount, payable in cash or stock, to the debenture
               holders in the event that a registration statement covering the
               shares underlying the convertible debentures is not declared
               effective within 150 days of the date the debentures were issued
               (which was subsequently extended to February 28, 2007 as per a
               Forbearance and Amendment Agreement, dated September 7, 2006,
               with the holders of the convertible debentures and warrants - see
               Note 7). The registration statements covering the shares
               underlying the convertible debentures were declared effective on
               November 21, 2006 and December 21, 2006, respectively.

          2)   Default interest rate of 18% and a default premium of 30% of the
               principal amount of the debentures, payable in cash or stock.
               Events of default include, among other things, if a payment,
               whether cash or stock is not paid on time and cured within three
               days, if the Company's common stock is not quoted for trading for
               at least five trading days, if a registration is not effective
               within 180 days after December 7, 2005 (which was subsequently
               extended to February 28, 2007 as per a Forbearance and Amendment
               Agreement, dated September 7, 2006 with the holders of the
               convertible debentures and warrants (see Note 7) - the
               registration statements covering the shares underlying the
               convertible debentures and warrants were declared effective on
               November 21 and December 21, 2006, respectively). The default
               interest rate and the default premium may be converted in shares
               of common stock at the same prevailing rate as the remaining
               principal amount of the convertible debentures;

          3)   A reset feature of the conversion price in the event of a
               subsequent equity or convertible financing with an effective
               price lower than the debenture conversion price, whereby the
               aforementioned variable conversion price of the convertible
               debentures is adjusted to the new lower effective price of the
               subsequent equity or convertible financing; and

          4)   The warrants require that the Company reimburse any holder of a
               warrant in respect of any trading loss resulting from the failure
               of the Company to timely deliver shares issued pursuant to the
               exercise of warrants. This compensation may be paid in shares of
               common stock or cash. The exercise price of the warrants, which
               is $0.4761 per share at the date of the agreement (and was

                                      F-9
<PAGE>
               subsequently reduced to $0.4300 per share as per a Forbearance
               and Amendment Agreement, dated September 7, 2006, with the
               holders of the warrants - see Note 7), may be further reduced if
               the registration statement we are required to file at the request
               of the warrant holders with respect to the common stock
               underlying the warrants is not declared effective within six
               months of the date of issuance of the warrants (which was
               subsequently extended to February 28, 2007 as per a Forbearance
               and Amendment Agreement, dated September 7, 2006 with the holders
               of the warrants - see Note 7). The registration statement
               covering the shares underlying the warrants was declared
               effective on December 21, 2006.

     In connection with the issuance of the convertible debentures, we issued
     485,213 warrants to a company in partial consideration for financial
     advisory services, as well as paid $490,000 to this company. The warrants
     have the same terms as those granted to the debenture holders. The fair
     value of the warrants at the date of issuance amounted to approximately
     $136,000. We also incurred approximately $102,500 in additional
     professional fees relating to the issuance of the convertible debentures
     and warrants. The payments of professional fees and the fair value of the
     warrants, aggregating approximately $729,000 have been recorded as deferred
     financing costs. The deferred financing costs are amortized over the term
     of the convertible debentures. The amortization of deferred financing costs
     approximated $45,400 for the three-month period ending March 31, 2007.

     See Note 5- Derivative Liabilities for further information on the
     accounting and measurement of the derivative liabilities associated with
     the issuance of the convertible debentures and related agreements.

     We recognized a debt discount of $7,000,000 at the date of issuance of the
     convertible debentures and the excess amount has been recorded as liability
     and a corresponding increase to other expense. The debt discount is
     recognized over the term of the convertible debentures.

     Amounts due on the convertible debentures within the next twelve months are
     classified as a current liability. The amount of convertible debentures
     payable within the next twelve months at March 31, 2007 is $777,778.

5)   DERIVATIVE LIABILITIES

     FEBRUARY 2005 TRANSACTION

     During February 2005, we recognized derivative liabilities of approximately
     $6.0 million pursuant to the issuance of 3,985,000 freestanding warrants
     and granting certain registration rights which provided for liquidated
     damages in the event of failure to timely register the shares in connection
     with the issuance of shares of common stock and the related warrants.

     There are no liquidated damages provided for untimely effectiveness of the
     registration of shares pursuant to piggy-back registration rights. The
     Company intends to register all shares and warrants pursuant to the
     subscriber piggy-back registration rights.

     The agreement pursuant to which the warrants were issued and the
     registration rights were granted provided for liquidated damages pursuant
     to demand registration rights in the event of a failure to timely register
     the shares after demand is made by the holders of a majority of the
     warrants and shares of common stock issued pursuant to such agreement. The
     demand registration rights of these investors are such that if the Company
     fails to register the investors shares, including the shares underlying the
     warrants, the Company will pay a cash penalty amounting to 1% of the amount
     invested per month, $39,850, if the registration statement is not filed
     within 60 days of demand or is not declared effective within 150 days from
     the date of initial filing. The maximum liability associated with the
     liquidated damages amounts to 49% of the gross proceeds associated with the
     issuance of shares of common stock, which amounts to $1,952,650. The
     percentage of liquidated damages amounts to the difference between 60
     months, which is the inherent time limitation under which the underlying
     shares would be free-trading (three year term and two year holding period)
     and 11 months, which is the grace period for registering the shares (no
     demand

                                      F-10
<PAGE>

     permitted for four months, two-month period to file and five-month period
     to become effective), times the penalty percentage, which is 1%. The
     Company believes that the likelihood that it will incur any liabilities
     resulting from the liquidated damages pursuant to the demand registration
     rights is remote considering that it will register the shares and the
     shares underlying the warrants pursuant to piggy-back registration rights,
     which do not contain liquidated damages.

     Because the registration rights were not granted under a separate
     registration rights agreement, we considered those features in evaluating
     whether the associated warrants should be classified as derivative
     liabilities. Considering that the amount of the maximum penalty is 49%, the
     Company cannot conclude that that this discount represents a reasonable
     approximation of the difference between registered and unregistered shares
     under paragraph 16 of EITF 00-19. Accordingly, the warrants issued in
     connection with the February 2005 transaction are considered derivative
     liabilities.

     The fair value of the warrants issued in connection with the February 2005
     transaction at the date of issuance of the warrants and the granting of
     registration rights and at March 31, 2007 is as follows:

                                       At issuance             At March 31, 2007
                                       -----------             -----------------
     Freestanding warrants              $6,017,350                    $0

     The Company used the following assumptions, using the Black Scholes Model
     to measure the identified derivatives as follows:

     Freestanding warrants

                                      At issuance             At March 31, 2007
                                      -----------             -----------------
     Market price:                          $2.40                         $0.21
     Exercise price:                        $1.00                         $1.00
     Term:                                3 years                    1.00 years
     Volatility:                               39%                           39%
     Risk-free interest rate:                2.78%                         4.54%
     Number of warrants:                3,985,000                     3,985,000

     DECEMBER 2005 TRANSACTION

     During December 2005, in connection with the issuance of the convertible
     debentures, the Company determined that the conversion feature of the
     convertible debentures represents an embedded derivative since the
     debentures are convertible into a variable number of shares upon
     conversion. Because there is no explicit number of shares that are to be
     delivered upon satisfaction of the convertible debentures and that there is
     no cap on the number of shares to be delivered upon expiration of the
     contract to a fixed number, the Company is unable to assert that it had
     sufficient authorized and unissued shares to settle its obligations under
     the convertible debentures and therefore, net-share settlement is not
     within the control of the Company. Accordingly, the convertible debentures
     are not considered to be conventional debt under EITF 00-19 and the
     embedded conversion feature must be bifurcated from the debt host and
     accounted for as a derivative liability.

     The embedded conversion features are as follows:

     Default Interest Rate and Premium: The default interest rate is 18% while
     the stated rate of the convertible debentures is 8%. Additionally, the
     Company is liable to pay for a premium amounting to 30% of the principal
     amount of the convertible debentures in the event of default. This embedded
     derivative could at least double the investor's initial rate of return on
     the host contract and could also result in a rate of return that is at
     least twice what otherwise would be the market return for a contract that
     has the same terms as the host contract and that involves a debtor with a
     similar credit quality. Furthermore, the default interest rate

                                      F-11
<PAGE>

     may be triggered by certain events of defaults which are not related to
     credit-risk-related covenants or the Company's creditworthiness (e.g., if a
     registration statement is not timely filed). The default provisions are
     effective, at the holders' option, upon an event of default.

     Reset Feature Following Subsequent Financing: The debenture provides for a
     reset feature of the conversion price in the event of a subsequent equity
     or convertible financing with an effective price lower than the debenture
     conversion price, whereby the aforementioned variable conversion price of
     the convertible debentures is adjusted to the new lower effective price of
     the subsequent equity or convertible financing, which amounts to 10% of the
     shares issuable pursuant to the convertible debentures, which is the
     effective discount to market value we would offer in the event we provide
     for a subsequent private placement financing. This reset does not
     constitute a standard anti-dilution provision and is indexed to an
     underlying other than an interest rate or credit risk.

     Conversion Rate: The convertible debentures are convertible at a variable
     conversion price, which is the lesser of $0.4544, which was subsequently
     reduced to $0.4000 as per a Forbearance and Amendment Agreement, dated
     September 7, 2006, with the holders of the convertible debentures (see Note
     7), or 90% of the average of the volume weighted average price for the 20
     consecutive trading days immediately prior to the conversion date. The
     convertible debentures are convertible at any time on or prior to the
     maturity date at the option of the debenture holder. The implied conversion
     embedded feature amounts to a conversion discount of 10% to market.

     The Company believes that the aforementioned embedded derivatives meet the
     criteria of SFAS 133, including Implementation issue No. B16 and EITF
     00-19, when appropriate, and should be accounted for as derivatives with a
     corresponding value recorded as a liability.

     In connection with the issuance of the convertible debentures, the Company
     issued warrants to the debenture holders. The related warrants require that
     the Company reimburse any holder of a warrant in respect of any trading
     loss resulting from the failure of the Company to timely deliver shares
     issued pursuant to the exercise of warrants. This compensation may be paid
     in shares of common stock or cash. Accordingly, we have accounted for such
     warrants as derivatives.

     In connection with the issuance of the convertible debentures, the Company
     granted liquidated damages pursuant to a registration rights agreement. The
     liquidated damages results in the event that a registration statement
     covering the shares underlying the convertible debentures is not declared
     effective within 150 days of the date the debentures were issued (which was
     subsequently extended to February 28, 2007 as per a Forbearance and
     Amendment Agreement, dated September 7, 2006 with the holders of the
     convertible debentures - see Note 7). The registration statement covering
     the shares underlying the convertible debentures was declared effective on
     November 21, 2006.

     Additionally, because there is no explicit number of shares that are to be
     delivered upon satisfaction of the convertible debentures, the Company is
     unable to assert that it had sufficient amount of authorized and unissued
     shares to settle its obligations under the convertible debentures.
     Accordingly, all of the Company's previously issued and outstanding
     instruments, such as warrants, as well as those issued in the future, would
     be classified as liabilities as well, effective with the issuance of the
     convertible debentures and until the Company is able to assert that it has
     a sufficient amount of authorized and unissued shares to settle its
     obligations under all outstanding instruments. At the date of the issuance
     of the convertible debentures, the Company had 1,941,871 warrants
     outstanding which were classified as derivatives.

     The fair value of the derivative liabilities at the date of issuance of the
     convertible debentures and at March 31, 2007 are as follows:

                                   At Issuance    At March 31, 2007
                                  ------------   -------------------
          Freestanding warrants   $  3,532,348   $           378,466
          Embedded conversion
           features                  3,463,542             2,851,852
          Liquidated damages           192,500                     0
          Other outstanding            143,268                     0
           warrants

                                      F-12
<PAGE>
     The Company used the following methodology to value the embedded conversion
     features and liquidated damages:

     It estimated the discounted cash flows payable by the Company, using
     probabilities and likely scenarios, for event of defaults triggering the
     30% penalty premium and 18% interest accrual, subsequent financing reset,
     and liquidated damages, such as the untimely effectiveness of a
     registration statement. If the additional cash consideration was payable in
     cash or stock, it determined the amount of additional shares that would be
     issuable pursuant to its assumptions. The Company revisits the weight of
     probabilities and the likelihood of scenarios at each measurement date of
     the derivative liabilities, which are the balance sheet dates.

     The Company used the following methodology to value the embedded conversion
     features and liquidated damages:

     It estimated the discounted cash flows payable by the Company, using
     probabilities and likely scenarios, for event of defaults triggering the
     30% penalty premium and 18% interest accrual, subsequent financing reset,
     and liquidated damages, such as the untimely effectiveness of a
     registration statement. If the additional cash consideration was payable in
     cash or stock, it determined the amount of additional shares that would be
     issuable pursuant to its assumptions. The Company revisits the weight of
     probabilities and the likelihood of scenarios at each measurement date of
     the derivative liabilities, which are the balance sheet dates.

     The Company used the following assumptions to measure the identified
     derivatives, using the Lattice valuation model, as follows:

     Embedded conversion features

                                   At issuance    At March 31, 2007
                                  ------------    -----------------
          Market price:           $     0.4880    $            0.21
          Conversion price:       $     0.4544    $            0.19
          Term:                        4 years           2.67 years
          Volatility:                       39%                  39%
          Risk-free interest rate:        4.39%                4.54%

     Freestanding warrants

     The derivative liability amounts to the fair value of the warrants issuable
     upon exercise. We computed the fair value of this embedded derivative using
     the Black Scholes valuation model with the following assumptions:

                                   At issuance    At March 31, 2007
                                  ------------    -----------------
          Market price:           $      0.488    $            0.21
          Exercise price:         $     0.4761    $            0.43
          Term:                        5 years           3.67 years
          Volatility:                       39%                  39%
          Risk-free interest rate:        4.39%                4.54%

     Liquidated damages

     The liquidated damages, payable in cash, are valued using the weighting
     probabilities and likely scenarios to estimate the amount of liquidated
     damages and were valued at approximately $192,500 and $0 at the date of the
     grant of the registration rights and at March 31, 2007, respectively.

                                      F-13
<PAGE>
     The aggregate fair value of the derivative liabilities associated with the
     warrants, embedded conversion features, and liquidated damages in
     connection with the issuance of the convertible debentures and related
     agreements amounted to approximately $7.05 million at the date of issuance
     which exceeded the principal amount of the convertible debentures by
     approximately $50,000. The Company recognized $7,000,000 as debt discount
     and the excess amount was recorded as other expenses in December 2005.
     Additionally, approximately $136,000 of the fair value of the warrants was
     recorded as deferred financing costs.

     The aggregate fair value of all derivative liabilities upon their issuance
     in 2005 of the various debt and equity instruments amounted to $13.3
     million, of which $10.7 million was allocated to the net proceeds of the
     issuance of common stock and convertible debentures, $2.4 million was
     allocated and charged to other expenses (in 2005), and approximately
     $136,000 was allocated to deferred financing costs (in 2005).

     The decrease in fair value of the derivative liabilities between
     measurement dates, which are the date of issuance of the various debt and
     equity instruments and the balance sheet date, which is March 31, amounted
     to approximately $0.1 million and $1.2 million, and have been recorded as
     other income in 2007 and 2006, respectively.

6)   STOCKHOLDERS' DEFICIT

     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 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

                                      F-14
<PAGE>

     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.

     During the quarter ended March 31, 2007, 1,520,450 stock option shares,
     with varying vesting terms, were granted to directors and employees of the
     company. The fair value of the granted stock options shares, as calculated
     using Black Scholes methodology, at March 31, 2007 was approximately
     $145,000, of which approximately $54,000 was charged to compensation
     expense in the first quarter 2007. The remaining amount will be amortized
     to compensation expense over future periods based on the vesting schedule
     of the respective stock option shares.

     Additionally, 137,500 stock option shares were granted to a consultant
     during the quarter ended March 31, 2007, of which 87,500 were fully vested.
     Consulting expense of $8,750 was recorded to reflect the fully vested stock
     option shares. Consulting expense will be recorded in future periods as the
     remaining stock option shares become fully vested. The fair value of the
     unvested shares $7,875, as calculated using Black Scholes methodology, is
     included in the derivative liability balance at March 31, 2007.

     The fair value of the options issued was based on the following
     assumptions: exercise price: $0.19-0.24, market value: $0.19-0.24,
     risk-free interest rate: 4.54%, expected dividend rate: 0%, expected
     volatility: 39%, term 5 years.

     The expected volatility was based on the average historical volatility of
     comparable publicly-traded companies.

     The weighted-average grant-date fair value of options granted during the
     three-month period ended March 31, 2007 amounted to $0.09 per option.

     The total compensation cost related to nonvested awards not yet recognized
     amounted to approximately $90,000 at March 31, 2007 and the Company expects
     that it will be recognized over the following weighted-average period of 17
     months.

     There were a total of 2,774,450 stock option shares issued and outstanding
     at March 31, 2007, of which 995,750 were fully vested. The remaining stock
     option shares will vest as follows:

                                     Number of stock
                  Year                option Shares
           -----------------         ---------------
           Remainder of 2007               140,000
                 2008                      368,675
                 2009                      143,675
                 2010                      143,675
                 2011                      116,175

                                      F-15
<PAGE>
7)   FORBEARANCE AND AMENDMENT AGREEMENT

     On September 7, 2006, the Company entered into a Forbearance and Amendment
     Agreement with the holders of the convertible debentures and warrants that
     we issued in a private placement on December 7, 2005. The terms of the
     convertible debentures and warrants required that we register the shares of
     our common stock underlying such debentures and warrants within 180 days of
     the date of issuance of the debentures and warrants. The failure to do so
     is an event of default under the debentures, giving the holders the right
     to accelerate the debentures and receive a premium of approximately 30% of
     the outstanding amounts due under the debentures upon acceleration. The
     failure to do so also reduces the exercise price of the warrants by $0.03
     per month until such shares are registered. In addition, the failure to
     register such shares within 150 days of the date of issuance of the
     debentures and warrants gives the holders the right to receive liquidated
     damages in the amount of 2% per month of the purchase price of the
     debentures and warrants, pursuant to a registration rights agreement, and
     the failure to pay such liquidated damages relating to the debentures is an
     event of default under the debentures.

     Pursuant to the Forbearance and Amendment Agreement, the holders agreed,
     among other things, to abstain from exercising the aforementioned rights
     and remedies arising out of the existing defaults under the debentures and
     warrants unless we were unable to register the shares underlying the
     convertible debentures and the warrants by February 28, 2007. In exchange
     for such forbearance, the Company agreed to reduce the conversion price of
     the debentures issued on December 7, 2005 from $0.4544 per share to $0.4000
     per share and to reduce the exercise price of the warrants issued to the
     holders of the convertible debentures on such date from $0.4761 per share
     to $0.4300 per share. The registration statements covering the shares
     underlying the convertible debentures and warrants were declared effective
     on November 21 and December 21, 2006, respectively.

     The Forbearance and Amendment Agreement provides for revised probabilities
     and likely outcomes that the Company will use in its valuation of the
     embedded conversion features, the freestanding warrants and the liquidated
     damages associated with the issuance of the convertible debentures, as
     required by SFAS 133, paragraph 17. Such valuation is performed at each
     balance sheet date.

                                      F-16
<PAGE>
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, 2006 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-KSB
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, environmental and laboratory instrumentation 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 assembling a 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 records revenue from direct sales of products to end-users 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 March 31, 2007 no assets were impaired.

                                       2
<PAGE>
The Company accounts for its liquidated damages pursuant to 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". In December 2006, FASB issued FASB Staff Position No. EITF
00-19-2 "Accounting for Registration Payment Arrangements" ("FSP 00-19-2"),
which superseded EITF 05-04. FSP 00-19-2 provides that the contingent obligation
to make future payments or otherwise transfer consideration under a registration
payment arrangement, should be separately recognized and measured in accordance
with FASB Statement No.5, "Accounting for Contingencies". The registration
statement payment arrangement should be recognized and measured as a separate
unit of account from the financial instrument(s) subject to that arrangement. If
the transfer of consideration under a registration payment arrangement is
probable and can be reasonably estimated at inception, such contingent liability
is included in the allocation of proceeds from the related financing instrument.
Pursuant to EITF 05-04, View C, the liquidated damages paid in cash or stock are
accounted for as a separate derivative, which requires a periodical valuation of
its fair value and a corresponding recognition of liabilities associated with
such derivative. FSP00-19-2 did not have an impact on the Company's accounting
of the liquidated damages.

The Company has registered all shares underlying the convertible debentures as
well as all shares underlying the warrants related to the convertible
debentures.

The Company accounts for its embedded conversion features and freestanding
warrants pursuant to SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", which requires a periodic valuation of their fair value and
a corresponding recognition of liabilities associated with such derivatives. The
recognition of derivative liabilities related to the issuance of shares of
common stock is applied first to the proceeds of such issuance, at the date of
issuance, and the excess of derivative liabilities over the proceeds is
recognized as other expense in the accompanying consolidated financial
statements. The recognition of derivative liabilities related to the issuance of
convertible debt is applied first to the proceeds of such issuance as a debt
discount, at the date of issuance, and the excess of derivative liabilities over
the proceeds is recognized as other expense in the accompanying consolidated
financial statements. Any subsequent increase or decrease in the fair value of
the derivative liabilities, which are measured at the balance sheet date, are
recognized as other expense or other income, respectively.

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 tables sets forth, in $ and as a percentage of revenues, certain
items included in the Company's Income Statements (see Financial Statements and
Notes) for the periods indicated:

<TABLE>
                                                    THREE MONTHS ENDED MARCH 31
                                                    ----------------------------
     STATEMENT OF OPERATIONS DATA: ...............          2007         2006
                                                          --------     --------
           <S>                                                <C>          <C>
           Revenues ..............................             100%         100%
           Cost of Sales .........................              53%          57%
           Gross Profit ..........................              47%          43%
           Operating Expenses ....................             209%         186%
           (Loss) From Operations ................            (162%)       (143%)
           Other Income (Expense) ................            (122%)         92%
           Net Income (Loss) .....................            (284%)        (51%)
</TABLE>

                                       3
<PAGE>
THREE MONTHS ENDED MARCH 31, 2007 COMPARED TO THREE MONTHS ENDED MARCH 31, 2006

Revenues are derived from product sales and product support services. For the
three months ending March 31, 2007, revenues were $477,300, compared to $532,800
for the same period in 2006. Product revenues for the quarter were 5% lower than
in 2006. The decrease in product revenues results from an unfavorable sales mix.
Although the number of zNose(R) units shipped during the quarter increased to 17
units from 13 units in 2006, a significant number of the shipped units were our
lowest priced instrument. A more balanced sales mix is expected for the
remainder of the year. Product support revenues for the quarter decreased 71%
from last year due primarily to a decrease in training and after-sales support.
A majority of our shipments for the quarter were to overseas customers whose
training and after-sale needs are performed by the respective sales
representative or distributor servicing their accounts. Training and after-sale
support functions for domestic customers are performed by the Company.

Cost of Sales consist of product costs and expenses associated with product
support services. For the three months ending March 31, 2007, cost of sales was
$253,800, compared to $301,600 for the same period 2006. Cost of sales decreased
from 57% of revenues in 2006 to 53% of revenues in 2007. The improvement was due
primarily to manufacturing efficiencies resulting from continued refinement of
our manufacturing processes.

Gross profit was $223,400 for the three months ending March 31, 2007, compared
to $231,200 for the same period in 2006. Gross profit as a percentage of
revenues improved to 47% from 43% in 2006 for the reasons noted in the cost of
sales discussion above. Unit margins are expected to continue to improve as the
aforementioned manufacturing efficiencies and refinement of our manufacturing
processes are expected to reduce our per unit manufacturing costs.

Research and Development costs for the three months ending March 31, 2007 were
$218,800 versus $211,800 for the same period in 2006. Increased engineering
staffing in the area of software development resulted in personnel related
expenses being approximately $16,600 greater than in 2006. This increase was
offset by a reduction in engineering overhead expenses of approximately $8,700.

Selling, General and Administrative expenses for the three months ending
March 31, 2007 were $777,500, compared to $780,100 for the same period in 2006.
The $2,600 decrease was primarily due to a reduction of professional and legal
expenses, offset by an increase in health insurance costs and the occurrence of
an additional Board of Directors meeting during the quarter.

Interest expense for the three months ending March 31, 2007 was $709,500, as
compared to $730,400 for the same period in 2006. The increase in interest
expense is primarily due to the amortization of debt discount and stated
interest associated with our convertible debentures, which were issued in
December 2005.

Other income-derivatives primarily consist of the decrease in the fair value of
derivative liabilities between the measurement dates. The increase in other
income for the three month period ending March 31, 2007, as compared to the
prior period, is primarily attributable to a decrease in the quoted price of our
common stock. Please refer to Note 5 of our accompanying financial statements
for further explanation of the origin and nature of such income. We are unable
to determine whether we will record further decreases in the fair value of
derivative liabilities in the foreseeable future, which would be recorded as
other income-derivatives. Such decreases would be generally triggered by a
decrease in the fair value of our stock price, or, possibly, upon satisfaction
of our convertible debentures.

LIQUIDITY AND CAPITAL RESOURCES

For the three months ending March 31, 2007, net cash used by the Company for
operating activities were $489,110 and $609,140 for 2007 and 2006 respectively.
Cash used for the three months ending March 31, 2007 was comprised of the net
loss for the period of $1,353,428, plus net non-cash items (including
depreciation and

                                       4
<PAGE>
amortization expenses of $13,385, issuance of stock option shares of $54,409,
amortization of debt discount of $583,334, amortization of deferred financing
costs of $45,386, less decrease in fair value of derivative liability of
$118,280, decrease in allowance for doubtful accounts of $7,996) of $570,238
plus the net change in operating assets and liabilities of $294,080. Cash used
in operations during the same three months of 2006 was comprised of the net loss
for the period of $271,077, less net non-cash expenses (including depreciation
and amortization expenses of $8,666, issuance of common shares for services of
$21,000, amortization of debt discount of $583,333, amortization of deferred
financing costs of $51,894, less decrease in fair value of derivative liability
of $1,220,197) of $555,304, and plus the net change in operating assets and
liabilities of $217,241.

Investing activities used cash of $13,352 in the first three months of 2007 and
provided cash of $605,754 during the same period in 2006. Cash of $2,967 in
2007, and $62,924 in 2006 were used to purchase capital equipment. In 2007,
there was an increase in our certificate of deposit of $10,385. Whereas in 2006,
$668,678 was provided through a reduction in the amount of collateral required
for the company's reduced line of credit.

There were no financing activities for the first three months of 2007 and 2006.

On March 31, 2007 the Company's cash (including cash equivalents) was $591,679,
compared to $4,216,536 on March 31, 2006. The Company had a working deficit on
March 31, 2007 of $1,578,621. The working deficit includes $3,238,193 for
derivative liabilities - excluding this amount from current liabilities; the
Company's working capital would be $1,659,572. The Company's working capital at
March 31, 2006 was $551,281 - excluding derivative liabilities; working capital
would be $5,102,162.

The Company has a credit facility in place with East West Bank for $500,000. No
amounts were due under this line of credit at March 31, 2007. The line of credit
expires on March 31, 2008.

Although the Company possesses a bank operating line of credit, there can be no
assurance that these proceeds will be adequate for our long-term future capital
needs. There can be no assurance that any required or desired financing will be
available through any other 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.

The Company's primary capital needs are to fund its growth strategy, which
includes 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.

SEASONALITY AND QUARTERLY RESULTS

We 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 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
<PAGE>
ITEM 3.  CONTROLS AND PROCEDURES.

We have carried out an evaluation, under the supervision and with the
participation of our management, including our President and Chief Executive
Officer and our Treasurer and Chief Financial Officer, on the effectiveness of
the design and operation of our disclosure controls and procedures as of March
31, 2007 pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation,
our President and Chief Executive Officer and our Treasurer and Chief Financial
Officer concluded that our disclosure controls and procedures are effective to
ensure that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms.

There were no changes in the company's internal control over financial reporting
that have materially affected, or are reasonably likely to materially affect,
the company's internal control over financial reporting.

                                       6
<PAGE>
                                    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 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

We granted the following options during the three months ended March 31, 2007.
The options were not registered; however, the shares of common stock underlying
the options are registered pursuant to our Registration Statement on Form S-8
filed with the Securities and Exchange Commission on July 25, 2005.

     o    On January 16, 2007 we issued options to purchase 1,239,700 shares of
          common stock at an exercise price of $0.24 per share pursuant to our
          2005 Stock Incentive Plan. Details regarding this issuance are
          included in the amended Current Report on Form 8-K/A that we filed on
          January 24, 2007.

     o    On March 5, 2007 we issued options to purchase 418,250 shares of
          common stock at an exercise price of $0.19 per share pursuant to our
          2005 Stock Incentive Plan. Details regarding this issuance are
          included in the Current Report on Form 8-K that we filed on March 6,
          2007.

We did not repurchase any of our equity securities during the three months ended
March 31, 2007.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

During the three months ended March 31, 2007, there were no material defaults
upon senior securities.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

There were no matters submitted to the vote of security holders during the three
months ended March 31, 2007.

ITEM 5.  OTHER INFORMATION.

None.

ITEM 6.  EXHIBITS.

Exhibit
   No.    Description
-------   --------------------------------------------------------------------

10.1      Option  Agreements  dated  January  16,  2007,  incorporated  by
          reference  herein to the  description contained in the amended Current
          Report on Form 8-K/A filed January 24, 2007, the form of which is
          attached as Exhibit 10.2 to the Annual Report on Form 10-KSB filed
          April 15, 2005 and such form is incorporated by reference herein.

10.2      Letter  Agreement  dated November 1, 2006,  incorporated  by reference
          herein from Exhibit 10.1 to the amended Current Report on Form 8-K/A
          filed February 14, 2007.

10.3      Offer Letter dated March 15, 2006,  incorporated  by reference  herein
          from Exhibit 10.2 to the amended Current Report on Form 8-K/A filed
          February 14, 2007.

10.4      Option Agreements dated March 5, 2007, incorporated by reference
          herein to the description contained in the Current Report on Form 8-K
          filed March 6, 2007, the form of which is attached as Exhibit 10.2 to
          the Annual Report on Form 10-KSB filed April 15, 2005 and such form is
          incorporated by reference herein.

                                       7
<PAGE>
10.5      Severance  Agreement  dated March 8, 2007,  incorporated  by reference
          herein from Exhibit 10.1 to the Current Report on Form 8-K filed March
          13, 2007.

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.

                                       8
<PAGE>

                                   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:  May 14, 2007               By:    /s/ Teong C. Lim
                                          --------------------------------------
                                   Name:  Teong C. Lim
                                   Title: President and Chief Executive Officer
                                          (Principal Executive Officer)


Dated:  May 14, 2007               By:    /s/ Philip Yee
                                          --------------------------------------
                                   Name:  Philip Yee
                                   Title: Secretary, Treasurer and Chief
                                          Financial Officer (Principal Financial
                                          and Accounting
                                          Officer)