================================================================================

                                  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, 2006

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

                             For the transition period from ________ to _______

                             Commission file number 333-87224

                       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 [ ] No [X]*

     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 March 31, 2006

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

----------
* We were not required to file reports pursuant to Section 13 or 15(d) of the
Securities Exchange Act during the past 12 months because (i) our registered
common stock was registered under the Securities Act during such period and was
not registered under the Exchange Act, (ii) we did not have any registration
statement that became effective during such period and (iii) we had less than
300 shareholders of record at the beginning of such period. Although we were not
required to do so, we voluntarily filed such reports with the Securities and
Exchange Commission during such period. On March 24, 2006 we filed a
registration statement on Form 10-SB to register our common stock pursuant to
the Exchange Act, which will become effective within 60 days of filing such
registration statement, unless the SEC directs otherwise. Once such registration
statement is effective, we will be subject to the filing requirements of
Section 13 of the Exchange Act.

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<PAGE>

                                     PART I.
                              FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INDEX TO FINANCIAL STATEMENTS

Consolidated Balance Sheet (Unaudited) as of March 31, 2006                  F-1

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

Consolidated Statement of Changes in Stockholders' Deficit
 (Unaudited) for the Period from December 31, 2004 to March 31, 2006         F-3

Consolidated Statements of Cash Flows (Unaudited) for the Three
 Months Ended March 31, 2006                                                 F-4

Notes to Consolidated Financial Statements                                   F-5

                                       1
<PAGE>

                       ELECTRONIC SENSOR TECHNOLOGY, INC.

                           CONSOLIDATED BALANCE SHEET

                                 MARCH 31, 2006
                                   (Unaudited)

                                     ASSETS
<TABLE>
<S>                                                                        <C>
CURRENT ASSETS:
  Cash and cash equivalents                                                $     4,216,536
  Certificate of deposit-restricted                                                250,000
  Accounts receivable, net of allowance for doubtful accounts of $20,577           222,081
  Prepaid expenses                                                                  66,333
  Inventories                                                                    1,008,098
                                                                           ---------------
    TOTAL CURRENT ASSETS                                                         5,763,047
                                                                           ---------------

DEFERRED FINANCING COSTS, net of amortization of $69,188                           761,066
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $925,677                166,804
SECURITY DEPOSITS                                                                   12,817
                                                                           ---------------
                                                                           $     6,703,734
                                                                           ===============
</TABLE>

                      LIABILITIES AND STOCKHOLDERS' DEFICIT

<TABLE>
<S>                                                                        <C>
CURRENT LIABILITIES:
  Accounts payable and accrued expenses                                    $       531,718
  Deferred revenues                                                                129,167
  Derivative liabilities                                                        11,093,393
                                                                           ---------------
    TOTAL CURRENT LIABILITIES                                                   11,754,278
                                                                           ---------------
CONVERTIBLE DEBENTURES, net of unamortized discount of $6,222,223                  777,777
                                                                           ---------------
  TOTAL LIABILITIES                                                             12,532,056
                                                                           ---------------
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                                                    (1,949,780)
  Accumulated deficit                                                           (3,932,716)
                                                                           ---------------
    TOTAL STOCKHOLDERS' DEFICIT                                                 (5,828,322)
                                                                           ---------------
                                                                           $     6,703,734
                                                                           ===============
</TABLE>

                 See notes consolidated to financial statements

                                       F-1
<PAGE>

                       ELECTRONIC SENSOR TECHNOLOGY, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                              Three Months Ended
                                                                   March 31,
                                                         ----------------------------
                                                             2006            2005
                                                         ------------    ------------
<S>                                                      <C>             <C>
REVENUES                                                 $    532,817    $    219,511
COST OF SALES                                                 301,592         149,962
                                                         ------------    ------------
  GROSS PROFIT                                                231,225          69,549
                                                         ------------    ------------

OPERATING EXPENSES:
  Research and development                                    211,799         140,172
  Selling, general and administrative                         780,092         567,950
                                                         ------------    ------------
    TOTAL OPERATING EXPENSES                                  991,890         708,122
                                                         ------------    ------------
LOSS FROM OPERATIONS                                         (760,665)       (638,573)
                                                         ------------    ------------
OTHER INCOME AND EXPENSE:
  Other income                                              1,687,046         278,801
  Other expense                                                  (216)     (5,409,745)
  Gain (loss) on sale of property and equipment                     0          13,257
  Interest expense                                           (730,391)        (20,566)
                                                         ------------    ------------
    TOTAL OTHER INCOME AND EXPENSE                            956,439      (5,138,253)
                                                         ------------    ------------
NET INCOME (LOSS)                                        $    195,773    $ (5,776,826)
                                                         ============    ============
  Loss per share, basic and diluted                      $       0.00    $      (0.11)
                                                         ============    ============
  Weighted average number of shares, basic and diluted     54,145,922      52,640,310
                                                         ============    ============
</TABLE>

                 See notes to consolidated financial statements

                                       F-2
<PAGE>

                       ELECTRONIC SENSOR TECHNOLOGY, INC.

           CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
                                   (Unaudited)

<TABLE>
<CAPTION>
                                            Common Stock                Preferred Stock       Additional
                                  --------------------------------    -------------------       Paid-In
                                      Shares            Amount         Shares     Amount        Capital
                                  --------------    --------------    --------   --------   --------------
<S>                                   <C>           <C>                      <C> <C>        <C>
BALANCE - December 31, 2004           81,279,000            81,279           -          -        4,763,774
  Reclassification of
   Partners' deficit to
   Additional paid-in capital                  -                 -           -          -      (10,466,133)
  Cancellation of common stock       (54,279,147)          (54,279)          -          -           54,279
  Notes payable converted to
   common stock                        1,272,000             1,272           -          -        1,270,728
  Sale of common stock                 3,985,000             3,985           -          -           (3,985)
  Deferred compensation
   contributed to capital                      -                 -           -          -          934,957
  Officers loans converted to
   common stock                        1,198,630             1,199           -          -        1,197,431
  Issuance of shares for
   services                              130,000               130           -          -           74,820
  Accrued interest converted
   to common stock                       313,262               313           -          -          312,949
  Common stock issued for
   acquisition of EST                 20,200,000            20,200           -          -         (109,525)
  Net loss                                     -                 -           -          -                -
                                  --------------    --------------    --------   --------   --------------
BALANCE - December 31, 2005           54,098,745            54,099           -          -       (1,970,705)
Issuance of shares for services           75,000                75                                  20,925
Net income                                     -                 -           -          -                -
                                  --------------    --------------    --------   --------   --------------
Balance - March 31, 2006              54,173,745    $       54,174           -   $      -   $   (1,949,780)
                                  ==============    ==============    ========   ========   ==============
<CAPTION>
                                                          Total
                                      Accumulated      Stockholders'
                                        Deficit          Deficit
                                    --------------    --------------
<S>                                 <C>               <C>
BALANCE - December 31, 2004            (10,466,133)       (5,621,080)
  Reclassification of
   Partners' deficit to
   Additional paid-in capital           10,466,133                 -
  Cancellation of common stock                   -                 -
  Notes payable converted to
   common stock                                  -         1,272,000
  Sale of common stock                           -                 -
  Deferred compensation
   contributed to capital                        -           934,957
  Officers loans converted to
   common stock                                  -         1,198,630
  Issuance of shares for
   services                                      -            74,950
  Accrued interest converted
   to common stock                               -           313,262
  Common stock issued for
   acquisition of EST                            -           (89,325)
  Net loss                              (4,128,489)       (4,128,489)
                                    --------------    --------------
BALANCE - December 31, 2005             (4,128,489)       (6,045,095)
Issuance of shares for services                  -            21,000
Net income                                 195,773           195,773
                                    --------------    --------------
Balance - March 31, 2006            $   (3,932,716)   $   (5,828,322)
                                    ==============    ==============
</TABLE>

                 See notes to consolidated financial statements.

                                      F-3
<PAGE>

                       ELECTRONIC SENSOR TECHNOLOGY, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                Three Months Ended
                                                                     March 31
                                                         --------------------------------
                                                              2006              2005
                                                         --------------    --------------
<S>                                                      <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                      $      195,773    $   (5,776,826)
  Adjustments to reconcile net income (loss) to net
   cash provided by (used in) operating activities:
    Depreciation and amortization                                 8,666             1,845
    Issuance of shares for services                              21,000                 -
    Amortization of debt discount                               583,333                 -
    Amortization of deferred financing costs                     51,891                 -
    Fair value of derivatives at date of issuance                     -         5,326,185
    Decrease in fair value of derivative liability           (1,687,046)         (195,480)
  Changes in assets and liabilities:
    Accounts receivable                                         243,695          (106,349)
    Inventories                                                 (68,476)            7,212
    Prepaid expenses                                              3,603            (7,324)
    Security deposits                                                 -               140
    Accounts payable and accrued expenses                        50,919           120,797
    Deferred revenues                                           (12,500)          (12,500)
    Due to related party                                              -           (60,000)
    Interest payable                                                  -            (5,544)
    Other current liabilities                                         -            (1,016)
                                                         --------------    --------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES            (609,140)         (708,860)
                                                         --------------    --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Decrease (increase) in restricted security deposit            668,678          (900,651)
  Proceeds from sale of property and equipment                        -            16,064
  Purchase of property and equipment                            (62,924)          (55,044)
                                                         --------------    --------------
  NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES           605,754          (939,631)
                                                         --------------    --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Increase (decrease) in line of credit                               -          (200,000)
  Repayment of partners' loans payable                                -          (110,000)
  Proceeds from issuance of common stock                              -         3,811,708
                                                         --------------    --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                             -         3,501,708
                                                         --------------    --------------
NET INCREASE (DECREASE) IN CASH                                  (3,385)        1,853,217
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                4,219,921            26,430
                                                         --------------    --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD               $    4,216,536    $    1,879,647
                                                         ==============    ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
  Cash paid during the period for:
    Interest                                             $      140,000    $       21,217
                                                         ==============    ==============

NON-CASH FINANCING ACTIVITIES
  Fair Value of derivative liabilities issued in
   connection with issuance of shares of common stock    $            -    $    3,811,708
                                                         ==============    ==============
</TABLE>

                 See notes consolidated to financial statements

                                       F-4
<PAGE>

                       ELECTRONIC SENSOR TECHNOLOGY, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)
                                 March 31, 2006

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
     Article 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,
     2005, 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, 2006, and the results of operations and cash flows for the
     three-month period ending March 31, 2006 have been included. The results of
     operations for the three-month period ended March 31, 2006 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, 2005.

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. Bluestone Ventures,
     Inc. ("Bluestone") executed an Agreement and Plan of Merger ("Merger
     Agreement") by and among Bluestone, Amerasia Technology, Inc.,
     ("Amerasia"), holder of approximately 55% of the partnership interests of
     Electronic Sensor Technology, L.P., ("EST"), L & G Sensor Technology, L.P.,
     ("L&G"), holder of approximately 45% of the partnership interests of EST,
     Amerasia Acquisition Corp., ("AAC") a wholly-owned subsidiary of Bluestone,
     and L & G Acquisition Corp., ("LAC") a wholly-owned subsidiary of Bluestone
     on January 31, 2005. Under the Merger Agreement (i) AAC merged with and
     into Amerasia such that Amerasia became of wholly-owned subsidiary of
     Bluestone, (ii) LAC merged with and into L&G such that L&G became a
     wholly-owned subsidiary of Bluestone, (iii) as a result of the merger of
     (i) and (ii), Bluestone indirectly acquired all of the partnership
     interests of EST and (iv) Bluestone issued 20,000,000 shares of its common
     stock to the shareholders of Amerasia and L&G. This merger has been treated
     as a purchase only of the partnership interests of Electronic Sensor
     Technology L.P.

     For accounting purposes, the transaction was treated as a recapitalization
     of EST and accounted for as a reverse acquisition. Accordingly, the
     accompanying financial statements include the accounts of EST for the
     period from January 1, 2005 to March 31, 2006 and the accounts of Bluestone
     from February 1, 2005 to March 31, 2006.

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.

                                       F-5
<PAGE>

     c)   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. The amount available
          under the line of credit amounts to $500,000 at March 31, 2006. The
          line of credit expires on March 31, 2007.

     d)   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.

     e)   SHIPPING AND HANDLING

          The Company accounts for shipping and handling costs as a component of
          "Cost of Sales".

     f)   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.

     g)   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.

     h)   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.

     i)   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.

     j)   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.

     k)   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 instruments.
          The derivative liabilities are carried at their fair market value at
          the date of the balance sheet.

                                       F-6
<PAGE>

     l)   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, 2006
          no assets were impaired.

     m)   DERIVATIVE LIABILITIES

          The Company accounts for 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". Pursuant to
          EITF 05-04, View C, the liquidated damages payable 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. The Company also
          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
          is recognized as other expense or other income, respectively. The
          valuation of such derivatives requires significant judgment. We
          exercise our judgment in determining the maximum liabilities
          associated with such derivatives as well as the expected volatility
          related to their fair value. We base our estimate of the maximum
          liabilities on our interpretation of the agreements related to the
          derivatives.

     n)   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 issuable upon the exercise
          of stock options and warrants (calculated using the reverse treasury
          stock method). The outstanding options, warrants and shares equivalent
          issuable pursuant to embedded conversion features amounted to
          102,982,543 and 6,365,475 at March 31, 2006 and 2005, respectively.
          The outstanding options, warrants and shares equivalent issuable
          pursuant to embedded conversion features and warrants at March 31,
          2005 are excluded from the loss per share computation for that period
          due to their antidilutive effect.

                                       F-7
<PAGE>

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

<TABLE>
<CAPTION>
                                                                   2006           2005
                                                               ------------   ------------
          <S>                                                  <C>            <C>
          Numerator:
          Net income (loss)                                    $    263,465   $ (5,776,826)
                                                               ============   ============

          Denominator:
          Denominator for basic earnings per share-
           Weighted average shares outstanding                   54,145,922     52,640,310
          Effect of dilutive warrants, embedded conversion
           features and liquidated damages                        3,673,719              0
                                                               ------------   ------------
          Denominator for diluted earnings per share-
           Weighted average shares outstanding                   57,819,641     52,640,310
                                                               ============   ============
          Basic earnings (loss) per share                      $       0.00   $      (0.11)
                                                               ============   ============
          Diluted earnings (loss) per share                    $       0.00   $      (0.00)
                                                               ============   ============
          Anti-dilutive weighted-average shares                  14,391,654      4,243,650
                                                               ============   ============
</TABLE>

     o)   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 123R. 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. 123R 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.

4)   CONVERTIBLE DEBENTURES

     During December 2005, we issued in a private offering, (i) $7,000,000
     aggregate principal amount of convertible debentures due December 7, 2009,
     convertible into 15,404,930 shares of common stock, with a conversion price
     of $0.4544 per share and (ii) five-year warrants to purchase 13,574,399
     shares of common stock at an exercise price of $0.4761 per share. We
     received $7,000,000 in cash as consideration. The convertible debentures
     bear interest at 8%. The convertible debentures and related agreements
     provide, among other things, for liquidated damages amounting to 2% per
     month of the outstanding principal amount, default interest rate of 18% and
     pre-payment or default premium of 30%, and a reset feature of the
     conversion price in the event of a subsequent financing. Additionally, the
     warrants could be converted in cash if certain events occur, such as a
     provision which require compensation for buy-in on failure to timely
     deliver shares issued pursuant to the exercise of warrants, whereas the
     Company reimburse the warrant holders for shares they purchase on the
     market at the market price for shares issued pursuant to the exercise of
     warrants it fails to issue in a timely manner. This compensation may be
     paid in shares of common stock

                                       F-8
<PAGE>

     or cash. The exercise price of the warrants, which is $0.4761 per share at
     the date of the agreement, may be reduce to $0.001 per share, at a monthly
     rate $0.03 per share if the Company's registration statement is not
     declared effective after 180 days of the exercise date.

     The aggregate fair value of the warrants and embedded conversion features
     associated with the convertible debentures amounted to approximately $12.8
     million at the date of issuance which exceeded the principal amount of the
     convertible debentures by $5.8 million. 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.

     The interest expense, including the amortization of debt discount but
     excluding charges related to the recognition of derivative liability
     amounted to approximately $730,000 during the three-month period ended
     March 31, 2006.

5)   DERIVATIVE LIABILITIES

     During February 2005, we recognized derivative liabilities of approximately
     $6.6 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.

     The 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 amount to 49% of the gross proceeds associated with the
     issuance of shares of common stock, which amounts to $1,952,650. The % 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 permitted
     for four months, two-month period to file and five-month period to become
     effective), times the penalty %, which is 1%.

     Additionally, because there is no explicit number of shares that are to be
     delivered upon satisfaction of the liquidated damages, the Company is
     unable to assert that it had sufficient authorized and unissued shares to
     settle the liquidated damages. Accordingly, all of the Company's previously
     issued and outstanding instruments, such as warrants and options as well as
     those issued in the future, would be classified as liabilities as well,
     effective with the granting of the registration rights. The fair value of
     the derivative liabilities at the date of issuance of the warrants and the
     granting of registration rights and at March 31, 2006 is as follows:

                                At Issuance   At March 31, 2006
                               ------------  ------------------
     Freestanding warrants     $  6,017,350          $        -
     Liquidated damages             577,659             594,285
     Other outstanding
      Options and warrants        2,506,994                   -

                                       F-9
<PAGE>

     The Company used the following assumptions to measure the identified
     derivatives as follows:

     Freestanding warrants

                                At Issuance   At March 31, 2006
                               ------------   -----------------
     Market price:             $       2.40        $       0.23
     Exercise price:           $       1.00        $       1.00
     Term:                          3 years          2.08 years
     Volatility:                         39%                 39%
     Risk-free interest rate:          2.78%               4.82%
     Number of warrants:          3,985,000           3,985,000

     Liquidated damages

                                At Issuance   At March 31, 2006
                               ------------   -----------------
     Market price:             $       2.40        $       0.23
     Exercise price:           $       2.40        $       0.23
     Term:                       4.08 years          2.92 years
     Volatility:                         39%                 39%
     Risk-free interest rate:          2.78%               4.82%
     Maximum liability:        $  1,952,650        $  1,952,650

     Other options and warrants

                                At Issuance    At March 31, 2006
                               ------------    -----------------
     Market price:             $       2.40    $            0.34
     Exercise price:           $       1.00    $       1.00-2.40
     Term:                        4-5 years      3.75-4.67 years
     Volatility:                         39%                  39%
     Risk-free interest rate:          2.78%                4.82%
     Outstanding other
      options and warrants        1,566,871            1,916,871

     During December 2005, in connection with the issuance of the convertible
     debentures, the Company determined that the conversion feature of the of
     the convertible debentures represents an embedded derivative since the note
     is convertible into a variable number of shares upon conversion and, among
     other things, a liquidated damage clause contained in the registration
     rights agreement requires the Company to pay 2% per month of the
     outstanding principal amount of the notes, in cash or shares of the common
     stock to the note holders in the event that a registration statement
     covering the shares underlying the convertible notes and warrants is not
     declared effective within 5 months of the initial filing of our
     registration statement. 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. Furthermore, the warrants could be converted in
     cash if certain events occur, such as a provision which require
     compensation for buy-in on failure to timely deliver shares issued pursuant
     to the exercise of warrants, whereas we reimburse the warrant holders for
     shares they purchase on the market at the market price for shares issued
     pursuant to the exercise of warrants we fail to issue in a timely manner.
     This compensation may be paid in shares of common stock or cash.

     The Company believes that the aforementioned embedded derivatives and
     freestanding warrants meet the criteria of SFAS 133 and EITF 00-19, when
     appropriate, and should be accounted for as separate derivatives with a
     corresponding value recorded as liability.

     The embedded conversion features are as follows:

     Default Interest Rate: 10%, which is the difference between the default
     rate and the contractual rate.

                                      F-10
<PAGE>

     Reset Feature Following Subsequent Financing: 10%, which is the effective
     discount to market value we would offer in the event we provide for a
     subsequent private placement financing.

     Liquidated Damage Clause: 38%, which is the difference, in months between
     the time the underlying shares are free-trading and the grace period to
     obtain a registration statement, multiplied by the liquidated damage rate
     of 2% per month.

     Mandatory Premium Upon Default: 30%

     The fair value of the derivative liabilities at the date of issuance of the
     convertible debentures and at March 31, 2006 are as follows:

                                       At Issuance   At March 31, 2006
                                      ------------   -----------------
     Freestanding warrants            $  6,181,608        $  2,901,571
     Embedded Conversion Features        7,375,880           7,597,536

     The Company used the following assumptions to measure the identified
     derivatives as follows:

     Embedded conversion features

                                  At Issuance    At March 31, 2006
                                 ------------    -----------------
     Market price:               $      0.488         $       0.23
     Conversion price:           $     0.4544         $       0.21
     Term:                            5 years           4.67 years
     Volatility:                           39%                  39%
     Risk-free interest rate:            4.39%                4.82%
     Maximum liability:
     Principal debentures:       $  7,000,000         $  7,000,000
     Default interest rate:         3,500,000            3,266,900
     Reset feature:                   700,000              700,000
     Liquidated damages:            2,660,000            2,660,000
     Default premium:               2,100,000            2,100,000

     Freestanding warrants

     The derivative liability amounts to the fair value of the warrants issuable
     upon exercise, assuming that the underlying shares will not be timely
     registered. We computed the fair value of this embedded derivative using
     the Black Scholes valuation model with the following assumptions:

                                  At Issuance    At March 31, 2006
                                 ------------    -----------------
     Market price:               $      0.488         $       0.23
     Exercise price:             $      0.001         $      0.001
     Term:                            5 years           4.67 years
     Volatility:                           39%                39.0%
     Risk-free interest rate:            4.39%                4.82%

     The aggregate fair value of the warrants and embedded conversion features
     amounted to approximately $13.6 million at the date of issuance which
     exceeded the principal amount of the convertible debentures by $6.6
     million. This excess amount has been recorded as liability and a
     corresponding increase to interest expense.

     The aggregate fair value of all derivative liabilities upon issuance of the
     various debt and equity instruments, less amounts allocated to the net
     proceeds of the issuance of common stock and convertible debentures,
     amounted to approximately $11.1 million at March 31, 2006. The decrease in
     fair value of the

                                      F-11
<PAGE>

     derivative liabilities between the measurement dates amounted to
     approximately $1.7 million and $360,000 during the three-month ended
     March 31, 2006 and 2005, respectively, and has been recorded as other
     income.

6)   STOCKHOLDERS' DEFICIT

     COMMON STOCK

     Shares issued pursuant to services

     During January 2006, the Company issued 75,000 shares to its former chief
     executive officer for services rendered. The fair value of such shares
     amounted to approximately $21,000 based on the quoted price of the
     Company's shares at the date of issuance.

     Conversion of shares for pre-merger liabilities

     In connection with the Mergers, the Company issued, in aggregate, 2,783,892
     shares of common stock in satisfaction of liabilities incurred pursuant to
     notes payable, loan payable, and related accrued interest to related
     parties.

     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 that 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.

                                      F-12
<PAGE>

     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 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.

     All options outstanding at March 31, 2006 were fully-vested at January 1,
     2006, with the exception of 250,000 options which vested upon the
     termination of our chief executive officer in January 2006. However, such
     options were cancelled, without being exercised, in April 2006.
     Accordingly, no expense associated with the outstanding options was
     recorded during the three-month period March 31, 2006.

                                      F-13
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

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, 2005 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 on March 24, 2006.

The following discussion and other parts of this Form 10-QSB contain
forward-looking statements that involve risks and uncertainties. Forward-looking
statements can be identified by words such as "anticipates," "expects,"
"believes," "plans," and similar terms. Our actual results could differ
materially from any future performance suggested in this report as a result of
factors, including the risk factors discussed in Exhibit 99.1 hereto, which is
incorporated herein by reference, and factors discussed elsewhere in this report
and in our Annual Report on Form 10-KSB for the fiscal year ended December 31,
2005. All forward-looking statements are based on information currently
available to the Company and we assume no obligation to update such
forward-looking statements, except as required by law. Service marks, trademarks
and trade names referred to in this Form 10-QSB are the property of their
respective owners.

--------------------------------------------------------------------------------

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.
Prior to the closing of the mergers, as discussed in the footnotes to the
financial statements, 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.

                                        2
<PAGE>

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, 2006 no assets were impaired.

The Company accounts for 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". Pursuant to EITF 05-04, View C, the liquidated damages
payable 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. The Company also
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 is recognized as other expense or other income,
respectively. The valuation of such derivatives requires significant judgment.
We exercise our judgment in determining the maximum liabilities associated with
such derivatives as well as the expected volatility related to their fair value.
We base our estimate of the maximum liabilities on our interpretation of the
agreements related to the derivatives.

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:

                                                  Three Months Ended March 31
                                                  ---------------------------
     Statement of Operations Data:                    2006            2005
     ------------------------------------------   -----------     -----------
       Revenues................................           100%            100%
       Cost of Sales...........................            57%             68%
       Gross Profit............................            43%             32%

                                        3
<PAGE>

       Operating Expenses......................           186%            323%
       Loss From Operations....................          (143%)          (291%)
       Other Income (Expense)..................           180%         (2,341%)
       Net Income (Loss).......................            37%         (2,632%)

THREE MONTHS ENDED MARCH 31, 2006 COMPARED TO THREE MONTHS ENDED MARCH 31, 2005

Revenues are derived from product sales and product support services. For the
three months ended March 31, 2006 revenues were $532,817, compared to $219,511
in 2005. The 143% increase in revenues results from an increase in the number of
zNose(R) units shipped from 6 units in 2005 to 12 units in 2006 for the three
month period. Also contributing to the increase in revenues was a corresponding
increase in sales from product support services.

Cost of Sales consist of product costs and expenses associated with product
support services. For the first quarter period cost of sales was $301,592 for
2006 as compared to $149,962 in 2005. The improvement in cost of sales from 68%
of 2005 revenues to 57% of 2006 revenues is attributed to production
efficiencies and production economies of scales resulting in overhead being
spread over a greater volume of production.

Gross profit was $231,225 for the three months ending March 31, 2006, compared
to $69,549 for the same period in 2005. The increase of 2006 gross profit from
32% in 2005 to 43% of revenues is attributed to increased sales volume offset by
higher product support costs.

Research and Development costs for first quarter 2006 were $211,799 versus
$140,172 for 2005. The increase of $71,627 over 2005 R&D expenditures were
mainly for increased personnel related expenses with additional research and
development staff dedicated in the enhancements of existing products and new
product development.

Selling, General and Administrative expenses for the three months ending March
31, 2006 were $780,092, compared to $567,950 for 2005. The $212,142 increase was
due to the hiring of new employees necessitated by the growth of the business,
expanded marketing activities, offset by a reduction in legal and related
expenses incurred in connection with the company's reverse merger and IPO in
2005.

Interest expense for the first three months of 2006 was $730,391, as compared to
$20,566 in 2005. 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 during the-three-month period ended March 31, 2006 when compared to prior
period is primarily attributable to a decrease in the quoted price of our common
stock. Please refer to Note 4 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, upon satisfaction of liquidated
damages pursuant to registration rights, or, possibly, upon satisfaction of our
convertible debentures.

Other expense-derivatives primarily consist of the recognition of derivative
liabilities we issued during the three-month period ended March 31, 2005. No
derivatives were issued during the three-month period ended March 31, 2006.
Please refer to Note 4 of our accompanying financial statements for further
explanation of the origin and nature of such expenses. We believe that we will
incur additional expenses associated with the fair value at issuance of
financial instruments which will be recorded pursuant to derivative accounting.
However, we are unable to determine the expected amount we would recognize
pursuant to such issuances since their fair value is computed based on a number
of assumptions, including, among others, the fair value of our stock price,
expected term and exercise price of the financial instrument and expected
volatility of our stock price, which will only be known at the date of issuance.

                                        4
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

In the first three months of 2006, net cash used by the Company for operating
activities was $609,140. In the first three months of 2005, cash used by Company
operations was $708,860. Cash used in the first three months of 2006 was
comprised of the net income earned for the three-month period of $195,773, less
net non-cash items of $1,022,155 plus the net change in operating assets and
liabilities of $217,240. Cash used in operations in the three months of 2005 was
comprised of the net loss of $5,776,826, plus net non-cash expenses of
$5,132,550, less the net change in operating assets and liabilities of $64,584.

Investing activities provided cash of $605,754 in the first three months of 2006
and used $939,631 during the same period in 2005. In both 2006 and 2005, cash
was used to purchase of equipment. In 2005, $900,651 was used to purchase a
certificate of deposit as collateral for the company's line of credit. Whereas
in 2006, $668,678 was provided due to a reduction in the amount of collateral
required for the company's line of credit.

There were no financing activities for the first three months of 2006. In first
quarter 2005, financing activities provided cash of $3,501,708 primarily from
the issuance of common stock.

On March 31, 2006 the Company's cash (including cash equivalents) was
$4,216,536, compared to $1,879,647 on March 31, 2005. The Company had a working
deficit on March 31, 2006 of $5,991,231. The working deficit includes
$11,093,393 for derivative liabilities - excluding this amount from current
liabilities, the Company's working capital would be $5,102,162. The Company's
working deficit at March 31, 2005 was $7,868,032 - excluding derivative
liabilities, working capital would be $1,074,381.

The Company has a credit facility in place with East West Bank for $500,000. The
entire credit line was available at March 31, 2006.

Although the Company possesses a bank operating line of credit, there can be no
assurance that these proceeds will be adequate for our 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 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 Chief Executive Officer and our
Vice President of Finance and Administration, of the effectiveness of the design
and operation of our disclosure controls and procedures as of March 31, 2006
pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, our Chief
Executive Officer and Vice President of Finance and Administration 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.

                                        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 issued 75,000 shares of common stock to our former President and Chief
Executive Officer, Matthew Collier, on January 25, 2006. Details regarding this
issuance are included in the Current Report on Form 8-K that we filed on January
31, 2006.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

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.

ITEM 5. OTHER INFORMATION

There is no other information to report.

ITEM 6. EXHIBITS

Exhibit No.  Description
-----------  -------------------------------------------------------------------
31.1         Certification of Chief Executive Officer Pursuant to
             Rule 13a-14(a)/15d-14(a) of the Exchange Act.

31.2         Certification of Principal Financial and Accounting Officer
             Pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act.

32.1         Certification of Chief Executive Officer Pursuant to Rule 13a-14(b)
             or 15d-14(b) of the Exchange Act and 18 U.S.C. 1350.

32.2         Certification of Principal Financial and Accounting Officer
             Pursuant to Rule 13a-14(b) or 15d-14(b) of the Exchange Act and 18
             U.S.C. 1350.

99.1         Risk Factors.

                                        7
<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 11, 2006                        By: /s/ Teong C. Lim
                                               ---------------------------------
                                           Name:  Teong C. Lim
                                           Title: Chief Executive Officer
                                                  (Principal Executive Officer)


Dated: May 11, 2006                        By: /s/ Francis Chang
                                               ---------------------------------
                                           Name:  Francis Chang
                                           Title: Vice President, Finance and
                                                  Administration
                                                  (Principal Accounting Officer)

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