U.S. Securities and Exchange CommissionWashington, D.C. 20549FORM 10-KSB

(Mark One)[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) of the SECURITIESEXCHANGE ACT OF 1934For the fiscal year ended **December 31, 2006**

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934For the transition period ___ to ___ 
Commission file number **000-27793****ELECTRONIC    SYSTEMS TECHNOLOGY, INC.
(Name of small    business issuer in its charter)**Washington**91-1238077
(State or other    jurisdiction of incorporation or organization)
(I.R.S. Employer    Identification No.) **415 N. Quay St.,    Bldg B1, Kennewick , Washington **99336
(Address of    principal executive offices)
(Zip Code)
Issuer's    telephone number **(509) 735-9092
Securities registered under Section 12(b) of the  Exchange Act:  None

Securities registered under Section 12(g) of the  Exchange Act:  Common

Check whether the issuer (1) filed all reports required by Section 13  or 15(d) of the 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 [  ]
Check if there is no disclosure of delinquent filers in response to  Item 405 of Regulations S-B is met contained in this form, and no disclosure will be  contained, to the best of the registrant's knowledge, in definitive proxy or information  statements incorporated by reference in Part III of this Form 10-KSB or any amendment to  this Form 10-KSB. [X] Not applicable [  ]
State issuer's revenues for its most recent fiscal year.$2,666,120
On February 26, 2007 the aggregate  market value, based on the asked price, of the voting stock held by nonaffiliates of the  registrant was $3,159,575.
The number of shares outstanding of the registrant's  common stock as of February 26, 2007:  5,153,667 shares.

DOCUMENTS INCORPORATED BY REFERENCE

The following documents are incorporated by reference  into Parts I, II, III, and IV of this report:  Form 8-K dated June 2, 2006. Forms 8-K  dated February 10, 2006 and February 16, 2007. 

Transitional Small Business Disclosure Format: Yes [ ] No [X]
PART I

ITEM 1.

FORWARD LOOKING STATEMENTS:
***When used in this Annual Report and the documents incorporated hereinby reference, the terms "anticipates", "believes", "expects"and similar expressions are intended to identify in certain circumstances, forward-lookingstatements. Such statements are subject to risks and uncertainties that could cause actualresults to differ materially from those projected, including the risks described in thisAnnual Report. Given these uncertainties, readers are cautioned not to place unduereliance on such statements. The Company also undertakes no obligation to update thoseforward-looking statements.***
BUSINESS  

Electronic Systems Technology, Inc. ("EST" or the"Company") specializes in the manufacturing and development of wireless modemproducts. The Company uses manufacturing, marketing, and research and development effortsto produce and market the Company’s line of ESTeem (tm) Wireless Modem products andaccessories. The Company offers products, which provide innovative communication solutionsfor applications not served or underutilized by conventional communication systems. TheCompany’s products are offered in the process automation markets in commercial,industrial, and government arenas both domestically and internationally, as well asdomestic markets for public safety communications infrastructure. The Company’sproducts are marketed through direct sales, sales representatives, and resellers. 

The Company was incorporated in the State of Washington in February1984, and was granted a United States Patent for the "Wireless Computer Modem"in May 1987, and Canadian patent in October 1988. During the past three years, the Companyhas continued product improvements and enhancements to incorporate continuingtechnological developments, and respond to customer needs and market opportunities.Development efforts during 2006 focused on the development of the ESTeem 195Ep Ethernetlicensed 4.9 GHz, spread spectrum radio modem, the ESTeem 195Es unlicensed 900 MHz spreadspectrum radio modem, and continued enhancement of the ESTeem 195Eg Ethernet based radiomodem. The Model 195Ep modem is designed to operate in the US Government licensedfrequency spectrum for Homeland Security and first responder infrastructures. The ESTeem195Ep entered production in the second half of 2006. The ESTeem 195Es modem will providethe user with both low speed Ethernet and high-speed serial interfaces. The ESTeem 195Esis targeted for domestic and foreign industrial automation markets and is scheduled toenter production in the first half of 2007. In an effort to maintain and expand itscustomer base, with particular focus on the industrial control marketplace, the Companycontinues efforts to team with all major programmable logic controller (PLC) hardwarevendors. During 2006, the Company continued marketing products for use in SCADA,Industrial Automation, Public Safety Communication and Government marketplaces. 

PRODUCTS AND MARKETS

The Company’s ESTeem wireless modem product lines provide wirelesscommunication links between computers, peripherals, and instrumentation controls usingradio frequency waves. The proliferation of computer applications in business, industryand public service has created a dynamic environment of automation and networking,requiring constantly growing amounts of data transfer. Prior to the invention of theESTeem modem, the majority of data transfers used telephone modems or direct cableconnections, both of which have costly side effects. Telephone modems have a potentiallyexpensive monthly charge for the use of telephone lines, and direct cable connections canhave installation costs as much or more than the cost of the communication system. ESTeemwireless modem products provide a wireless solution for data transfer by eliminating theneed for conventional hardwiring and leased phone lines. 

All of the ESTeem models ("ESTeems") come with industrystandard asynchronous or Ethernet communications ports, giving users new dimensions to"Local Area Networking". ESTeem modems work on a "packet burst"communications concept. Packet systems, whether hardwired or radio, share the sameprinciple of operation: data is taken from RS-232C, RS-422, RS-485 asynchronous orEthernet ports and transmitted in "Electronic Packets". Once a packet of data isformed, the packet is transmitted in a "burst," from one ESTeem modem to anotherESTeem modem, hence the term "packet burst communications." InternalDigi-Repeater features allow the user to increase operating range by relaying transmissionthrough multiple ESTeems to reach a destination ESTeem. An ESTeem can operate as anoperating node, a repeater node, or both simultaneously, for added flexibility. Securedata communication is provided in the ESTeem products through use of proprietarytechnology and industry standard techniques.

1

 

PRODUCT APPLICATIONS

Some of the major applications and industries in which ESTeem productsare being utilized are as follows:

Water/Waste Water    Processing 
Overhead Crane ControlIndustrial Automation 
Shop Floor Manufacturing
Remote Data Acquisition    (SCADA) 
Intra-Office/Building    Computer Networking
Law Enforcement/Public    Safety CommunicationsRemote Internet Access
Power Utility 
Flight Line MaintenanceOil/Gas Pipeline 
Airfield lighting control
Material Handling 
Ship to Shore    Communications
PRODUCT LINES
**Licensed Narrow Band Products**
The Company’s licensed, narrow band "packet burst" radiomodems are typically used for commercial, industrial, and public safety applications.Typical indoor and outdoor fixed base and mobile applications include point to point aswell as point to multi-point digital data networking. The distance is dependent on theproduct chosen as shown in the table below. Employing the internal digi-repeater featurein each radio modem can increase the Line-of-Sight (LOS) distances shown below for eachproduct type.
**ESTeem Model**Type**Frequency (MHz)**RF Power (Watts)**RF Data Rate (bps)**LOS Range (Miles)**Interface
192C
Narrow    Band Licensed
450    to 470
1    to 5
19.2    K
15
RS-232/422/485
192CHP
Narrow    Band Licensed
450    to 470
10,    20, or 30
19.2    K
40-70
RS-232/422/485
192F
Narrow    Band Licensed
400    to 420
1    to 5
19.2    K
15
RS-232/422/485
192M
Narrow    Band Licensed
150    to 174
1    to 5
19.2    K
15
RS-232/422/485
192MHP
Narrow    Band Licensed
150    to 174
10,    20, or 30
19.2    K
40-70
RS-232/422/485**Unlicensed Spread Spectrum Products**
The Model 192S is a low cost unlicensed direct sequence spread spectrumtransceiver for commercial and industrial applications operating in the 2.4 GHz spectrum.Typical indoor and outdoor applications include point to point and point to multi-pointdigital data networking for distances to approximately 10 miles line-of-sight without theuse of the digi-repeater option. 
**ESTeem Model**Type**Frequency (MHz)**RF Power (Watts)**RF Data Rate (bps)**LOS Range (Miles)**Interface
192S
Unlicensed
2400
.5    or 1
171K
10
Serial**Licensed Spread Spectrum Products**
The Model 195Ep is a high performance, direct sequence spread spectrumtransceiver employing the industry standard, 10baseT, Ethernet connectivity, specificallydesigned to operate on the US Government allocated frequencies in the 4.9 GHz spectrum forHomeland Defense and first responder networks and infrastructures. Typical outdoorapplications include point to point and point to multi-point digital data networking fordistances to approximately 5 to 7 miles line-of-sight without the use of the digi-repeateroption. 
**ESTeem Model**Type**Frequency(MHz)**RF Power(Watts)**RF Data Rate (bps)**LOS Range (Miles)**Interface
195Ep
Licensed
4900
2
54    M
5-7
Ethernet**Unlicensed Ethernet Spread Spectrum Products**
The Company’s Ethernet radios are a high performance, directsequence spread spectrum transceiver employing the industry standard, 10baseT, 802.11b/gEthernet connectivity for commercial, industrial and public safety applications operatingin the unlicensed 2.4 GHz spectrum with data transfer rates of up to 54 Mbps. Typicalinstallations include data rate critical, point to point, point to multi-point,"last-mile" bridge data networking and mobile applications for distances ofapproximately 5 to 7 miles line-of-sight without the use of the digi-repeater option. Thehigh data capability of these products allows them to be used in Video and Voice overInternet Protocol (VoIP) applications.
**ESTeem Model**Type**Frequency (MHz)**RF Power (Watts)**RF Data Rate (bps)**LOS Range (Miles)**Interface
195Eg
Unlicensed
2400
1
54    M
5-7
Ethernet/Serial
WLANC
Unlicensed
2400
0.3
11    M
300-3000    ft.
Ethernet
2

ADDITIONAL PRODUCTS AND SERVICES

The Company offers various accessories to support the ESTeem products.Accessories, such as antennas, power supplies and cable assemblies, are purchased fromother manufacturers and resold by EST to support the application of ESTeem modems. TheCompany provides direct services to customers, such as repair and upgrade of ESTeemproducts. To assist in the application of ESTeem wireless modems, the Company also offersprofessional services, site survey testing, system start-up, and custom engineeringservices.

RESEARCH AND DEVELOPMENT AND NEW PRODUCTS

The Company’s products compete in an environment of rapidlychanging technology. This environment results in the necessity of the Company to becontinually updating and enhancing existing products, as well as developing new productsin order to remain competitive. Research and Development expenditures for new productdevelopment and improvements of existing products by the Company for 2006 and 2005 were$401,572 and $280,052, respectively. None of the Company’s research and developmentexpenses were paid directly by any of the Company’s customers. During 2006, theCompany contracted and will continue to contract, with independent, nonaffiliated,engineering companies specializing in radio design and software development, when suchexpertise is required. 

Development efforts during 2006 focused on the development of theESTeem 195Ep Ethernet licensed 4.9 GHz, spread spectrum radio modem, the ESTeem 195Esunlicensed 900 MHz spread spectrum radio modem, and continued enhancement of the ESTeem195Eg Ethernet based radio modem. The Model 195Ep modem is designed to operate in the USGovernment licensed frequency spectrum for Homeland Security and first responderinfrastructures. The ESTeem 195Ep entered production in the second half of 2006. TheESTeem 195Es modem will provide the user with both low speed Ethernet and high-speedserial interfaces. The ESTeem 195Es is targeted for domestic and foreign industrialautomation markets and is scheduled to enter production in the first half of 2007. TheCompany plans continued research and development expenditures for development andimprovement projects, as they are deemed necessary. 

MARKETING, CUSTOMERS AND SUPPORT

The majority of the Company’s products sold during 2006 werethrough the reselling efforts of non-exclusive, non-stocking distributors and resellers ofthe Company’s products, with the remainder of the Company’s sales distributeddirectly from the Company’s facility through direct sales to end-users of the ESTeemproducts. Customers generally place orders on an "as needed basis". Shipping ofproducts is generally completed 1 to 15 working days after receipt of a customer order,with the exception of ongoing, scheduled projects, and custom designed equipment forspecific customer applications. As of December 31, 2006, the Company had a backlog of$100,400 in sales orders.

During 2006, the Company continued advertisements in trade publicationsspecifically targeted at users of control, instrumentation, and automation systems, aswell as domestic public safety entities. The Company’s advertising targeted at usersof control, instrumentation, and automation systems was focused primarily on potentialusers of Programmable Logic Controllers (PLCs). There are approximately twenty-five majorPLC manufacturers worldwide. The Company has maintained active attendance at tradeshowstargeted toward the customers and markets in which it sells products. During 2006, Companyemployed sales managers to concentrate marketing and sales efforts in both domestic andLatin American industrial automation, as well as Mobile Data Computers for public safetycommunication markets. During 2007, the Company intends to continue strategies targetingexisting markets of industrial automation and Mobile Data Computers for public safetynetworks. The Company maintains an internet web site to provide access to product andtechnical information for both present and potential customers of the Company’sproducts. Due to the variable configuration possibilities of the Company’s products,and existing reseller relationships, the Company has not implemented an electroniccommerce internet website. The Company provides technical support and service for ESTeemproducts through phone support, field technicians and internet sources. The Companybelieves high quality customer support is necessary and vital to its business. To maintaina high level of customer support the Company has in the past, and will continue in thefuture, to make investments and expenditures in support of its customer service programs. 

The Company continues marketing activities directed towards allbranches of the U.S. Government. The Company has a General Services Administration (GSA)contract to sell goods to the U.S. Government. This contract is a fixed price, indefinitequantity and delivery agreement. The current contract expires during February 2009. RecentU.S. Government sales revenue has been minimal and Management does not foresee a change inthis trend.

3
During the year ended December 31, 2006, sales to ADSI, a domesticreseller of the Company’s products consisted of 16% the Company’s salesrevenues. No sales to any other single customer comprised 10% or more of total productsales for the year ended December 31, 2006. See "Management’s Discussion andAnalysis of Financial Condition and Results of Operations", and "FinancialStatements".

COMPETITION

The Company’s competition varies according to the market in whichthe Company's products are competing. All of the markets in which the Company’sproducts are sold are highly competitive. Listed below are the markets the Company’sproducts compete in and major competitors in those markets:

Major Market
Major Competitors
Industrial Automation
Data-Linc, Freewave,    GE/Microwave Data Systems and Prosoft. 
Computer networking, inter    and intra building, and remote internet access.
Adaptive Broadband,    Cisco/Aironet, Digital Wireless, Dlink, Linksys, P-Com and Proxim 
Mobile Data Computer    systems for public safety applications
Data Radio, IP Mobilenet,    Microwave Data Systems, Motorola, Trango Broadband, and various cellular service providers    using GPRS architectures.
Management believes the ESTeem products compete favorably in the marketbecause of performance, price, and adaptability of the products to a wide range ofapplications. The Company's major limitation in competing with other manufacturers is itslimited marketing budget, which currently limits the Company’s nationwide advertisingand sales force presence.

PATENTS, TRADEMARKS, AND PROPRIETARY INFORMATION

EST was granted a United States patent in 1987 for a "WirelessComputer Modem". In 1988, EST was granted a Canadian patent for a "WirelessComputer Modem". Both patents had lives of 17 years and are expired. TheCompany’s rights to the ESTeem Wireless Modem trademark, in uninterrupted use by theCompany since 1985, were renewed in 2005. To protect the Company against unauthorizeddisclosure of proprietary information belonging to the Company, all employees, dealers,distributors, original equipment manufacturers, sales representatives and other personshaving access to confidential information regarding Company products or technology arebound by non-disclosure agreements.

GOVERNMENT REGULATION

For operation in the United States, the ESTeem Radio Modems requireFederal Communications Commission (FCC) type acceptance. The FCC type acceptance isgranted for devices, which demonstrate operation within mandated and tested performancecriteria. All of the Company’s products requiring FCC type acceptance have beengranted such acceptance. All of the Company’s current ESTeem production models havealso been granted type acceptance in Canada. 

The ESTeem radio modem products that operate in the FCC licensedfrequency band, require licensing under Part 90 of the FCC Rules and Regulations, whichmust be applied for by the end user of the Company’s products. The Company cannotguarantee customers will receive FCC licenses in the frequency spectrum for any particularapplication. The Company provides information to customers to assist in the applicationfor FCC consumer licenses. The ESTeem 192S and 195E products operate in the nonlicensed,2.4 GHz spread spectrum frequency band, which does not require licenses for users of thoseproducts.

At the time of this filing the Company is unaware of any existing orproposed FCC regulation that would have a materially adverse effect on the Company’soperations, but there can be no assurance that future FCC regulations will not havematerially adverse effects on the operations of the Company.

SOURCE OF SUPPLY AND MANUFACTURING

The Company purchases certain components necessary for the productionof the ESTeem products from sole suppliers. Components manufactured by Hitachi, Intersil,Integrated Microelectronics, Motorola Corporation, Mitsubishi, Murata Corporation, Rakonand Toko America Inc. as purchased through a number of distributors, supply key componentsfor the Company’s products. The components provided by these companies could bereplaced or substituted by other products, if it became necessary to do so. If this actionoccurs, a material interruption of production and/or material cost expenditures, forexample involved with locating and qualifying replacement components, could take place.

4

Approximately 10% of theCompany’s inventory at December 31, 2006 consisted of parts having lead times rangingfrom 12 to 16 weeks. Some parts are maintained at high levels to assure availability tomeet production requirements, and accordingly, account for a significant portion of theCompany’s inventory value. Based on past experience with component availability,distributor relationships, and inventory levels, the Company does not foresee shortages ofmaterials used in production. However, developments in the electronic componentmarketplace, involving components used by the Company which are also used in cellularphones, pagers and other personal technology devices, have the potential of creatingnegative availability and delivery issues for components used by the Company. The Companyhas been able to procure parts on a timely basis as of the date of this report, howeverprocurement cannot be guaranteed in the future. If shortages were to occur, materialinterruption of production and product delivery to customers could occur. 

The Company contracts withManufacturing Services, Inc., in Kennewick, Washington, for assembly of the Company’sproducts, using materials purchased by the Company. By contracting with ManufacturingServices, Inc., the Company is able to avoid staff fluctuations associated with operatingits own manufacturing operation. The former President of Manufacturing Services, Melvin H.Brown, is a Director of the Company. Management believes all prices for services, providedby Manufacturing Services, Inc., are as favorable as could be obtained from comparablemanufacturing services companies. See "Management’s Discussion and Analysis ofFinancial Condition and Results of Operations", and "Financial Statements".

REPORTS TO SECURITY HOLDERS

The Registrant does not issue annual or quarterly reports to security holders otherthan the annual Form 10-KSB and quarterly Forms 10-QSB as electronically filed with theSEC. Electronically filed reports may be accessed at www.sec.gov. Interested parties also may read and copy any material filed with the SEC atthe SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549.Information may be obtained on the operation of the Public Reference Room by calling theSEC at 1(800)SEC-0330.
EMPLOYEES

As of December 31, 2006, the Company employed a staff of 14 persons ona full time basis, 4 in sales/marketing, 2 in technical support, 8 inengineering/manufacturing, and 1 in finance and administration. During 2006, the Companyhad turnover resulting in a net loss of three employees. Management believes thisreduction is temporary and intends to replace these employees during 2007. TheCompany’s operations are dependent upon key members of its engineering and managementpersonnel. In the event services of these key individuals were lost to the Company,adverse effects on the Company’s operations may be realized. The Company employspart-time labor on an "as needed" basis, usually in engineering/manufacturing.At year-end 2006 the Company employed 2 part-time employees. None of the Company’semployees are represented by a labor union and the Company believes it has good relationswith its employees.
**RISK FACTORS

We cannot predict whether we will be able to sustain revenue growth,profitability or positive cash flow. Ourproducts are sold in highly competitive markets. Our revenues and operating results can benegatively affected by technology changes in our markets, economic conditions in ourmarkets, and the level of competition in our markets.**Our marketing efforts may be unsuccessful due to limited marketing andsales capabilities. Limited national advertising and sales coverage may result in themarkets in which our products are offered not being fully penetrated. This lack of marketpentetration may result in an adverse effect on our sale revenues.We must continue to develop appropriate marketing, sales, technical, customerservice and distribution capabilities, or enter into agreements with third parties toprovide these services to successfully market our products. A failure to develop thesecapabilities or obtain third-party agreements could adversely affect us. **We may be unable to produce products for sale if we are unable toobtain component materials. Our products require highly specialized components, whichare subject to rapid obsolescence, limited availability and design change. If we cannotobtain material to produce products for sale our sales revenues will be negativelyimpacted.
**Our success depends on our ability to retain key management personnel.The success of our Company depends in large part on our ability to attract and retainhighly qualified management, administrative, manufacturing, sales, and research anddevelopment personnel. Due to the specialized nature of our business, it may be difficultto locate and hire qualified personnel. Our success is significantly dependent on theperformance and continued service of key members of Management, such as Chief ExecutiveOfficer, Tom Kirchner, Vice President of Engineering, D. Brent Strecker and certain otherkey employees. If the services of any members of Management become unavailable for anyreason, our business and prospects could be adversely affected. Although we have beensuccessful in retaining highly capable and qualified management in the past, there can beno assurance that it will be able to do so in the future. 
**We may be adversely affected by government regulation. The FederalCommunication Commission (FCC) governs use of the products we sell. If the FCC were toimplement rules detrimental to our products and the markets in which they are offered ouroperations would be negatively impacted.

5
**Rapid technological changes in our industry may adversely affect us ifwe do not keep pace with advancing technology.  The wireless communication marketis characterized by rapidly advancing technology. Our success depends on our ability tokeep pace with advancing technology, processes and industry standards. We intend tocontinue to develop and enhance our products to meet perceived market opportunities.However, our development efforts may be rendered obsolete by research efforts andtechnological advances made by others, and devices other than those we currently producemay prove more advantageous. 
**If we fail to maintain an effective system of internal controls, we maynot be able to detect fraud or report our financial results accurately, which could harmour business and we could be subject to regulatory scrutiny. Pursuant to Section 404of the Sarbanes-Oxley Act of 2002 ("Section 404"), we will be required,beginning in fiscal year 2007, to perform an evaluation of our internal controls overfinancial reporting and have our independent registered public accounting firm test andevaluate the design and operating effectiveness of such internal controls and publiclyattest to such evaluation. We are in the early phases of a plan of action for compliancewith the requirements of Section 404, which includes a timeline and scheduled activities,although as of the date of this filing we have not yet completed the effectivenessevaluation. Although we believe our internal controls are operating effectively, we cannotguarantee that we will not have any material weaknesses as reported by our independentregistered public accounting firm. Compliance with the requirements of Section 404 isexpected to be expensive and time-consuming. If we fail to complete this evaluation in atimely manner, or if our independent registered public accounting firm cannot timelyattest to our evaluation, we could be subject to regulatory scrutiny and a loss of publicconfidence in our internal controls. In addition, any failure to implement required new orimproved controls, or difficulties encountered in their implementation, could harm ouroperating results or cause us to fail to meet our reporting obligations.
**The market for our common stock is limited, and as such ourshareholders may have difficulty reselling their shares when desired or at attractivemarket prices. Our stock price and our listing may make it more difficult for ourshareholders to resell shares when desired or at attractive prices. Our Company stocktrades on The Over the Counter Bulletin Board ("OTC Bulletin Board"). Our commonstock has continued to trade in low volumes and at low prices. Some investors viewlow-priced stocks as unduly speculative and therefore not appropriate candidates forinvestment. Many institutional investors have internal policies prohibiting the purchaseor maintenance of positions in low-priced stocks.
ITEM 2.PROPERTIES

EST does not own any real property, plants, mines, or any othermaterially important physical properties. The Company's administrative offices, inventoryand laboratories are located in leased facilities at 415 N. Quay Street, Bldg B1,Kennewick, Washington. The Company leases approximately 8,600 square feet of office andlaboratory space by a lease agreement with the Port of Kennewick in Kennewick, Washington.As of January 1, 2007, the total monthly lease cost is $3,875.83. The lease covers aperiod of three years, expiring September 2008.

The Company also owns miscellaneous assets, such as computer equipment,laboratory equipment, and furnishings. The Company does not have any real estate holdings,nor investments in real estate. The Company maintains insurance in such amounts andcovering such losses, contingencies and occurrences that the Company deems adequate toprotect its property. Insurance coverage includes a comprehensive liability policycovering legal liability for bodily injury or death of persons, and for property owned by,or under the control of the Company, as well as damage to the property of others. TheCompany maintains key man life insurance protecting the Company in the event of the deathof the Company President. The Company also maintains fidelity insurance which providescoverage to the Company in the event of employee dishonesty. 

ITEM 3. LEGAL PROCEEDINGS

No proceedings are identified which involve a claim for damages,exclusive of interest and costs that exceed 10% of the current assets of the Company. 

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

The Company did not submit any matters for shareholder approval during thefourth quarter of the 2006 fiscal year. 

6

PART II

ITEM 5.****MARKET INFORMATION FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS****
There is no established market for trading the Common Stock of theCompany. The Common Stock is not regularly quoted in the automated quotation system of aregistered securities system or association. The Common Stock of the Company is traded onthe "over-the-counter" market and is listed on the OTC electronic bulletin boardunder the symbol of "ELST". The following table illustrates the average high/lowprice of the Common Stock for the last two (2) fiscal years. The"over-the-counter" quotations do not reflect inter-dealer prices, retailmark-ups, commissions or actual transactions.
 
Bid
Ask
High
Low
High
Low
Fiscal year ended December    31, 2006
First Quarter
0.78
0.58
0.85
0.60
Second Quarter
0.75
0.62
0.92
0.60
Third Quarter
0.65
0.57
0.65
0.57
Fourth Quarter
0.65
0.63
0.70
0.63 
Fiscal year ended December    31, 2005
First Quarter
0.80
0.65
0.83
0.65
Second Quarter
0.77
0.67
0.90
0.67
Third Quarter
0.73
0.52
0.76
0.52
Fourth Quarter
0.70
0.60
0.75
0.61
The above data was compiled from information obtained from the OTCBulletin Board system.

The number of record holders of common stock of the Registrant as ofJanuary 5, 2007 was 466 persons/entities.

Electronic Systems Technology Inc. paid non-cumulative, cashdistributions on July 17, 2006, July 13, 2005, July 14, 2004, July 9, 1999, July 9, 1998,and July 11, 1997, respectively, each equivalent to $0.01 per outstanding share. TheCompany also paid a non-cumulative cash distribution on July 16, 2003, equivalent to$0.015 per outstanding share. Dividends undertaken by the Company will be solely at thediscretion of the Board of Directors. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7

ITEM 6.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
**Management’s discussion and analysis is intended to be read inconjunction the Company’s audited financial statements the integral notes thereto.The following statements may be forward-looking in nature and actual results may differmaterially.**
RESULTS OF OPERATIONS

GENERAL: The Company specializes in themanufacturing and development of wireless modem products. The Company offers product lineswhich provide innovative communication solutions for applications not served by existingconventional communication systems. The Company offers product lines in markets forprocess automation in commercial, industrial and government arenas domestically, as wellas internationally, and domestically to public safety entities for mobile data computerterminal (MDC) applications. The Company markets its products through direct sales, salesrepresentatives, and domestic, as well as foreign, resellers. Operations of the Companyare sustained solely from revenues received through sales of its products and services. 
FISCAL YEAR 2006 vs. FISCAL YEAR 2005

GROSS REVENUES: Total revenues for the fiscalyear 2006 were $2,666,120 reflecting an 8% increase from $2,460,506 gross revenues forfiscal year 2005. The increase in total revenues is the result of increased interestrevenues and a small increase in product sales revenues during 2006. Product salesincreased to $2,617,810 in 2006, as compared to 2005 sales of $2,417,700, reflecting asales increase of 8%. Management believes the increase in sales revenues were the resultof increases in domestic MDC sales and foreign sales. The growth in MDC sales was due tothe completion of a large MDC project using the Company’s products in the State ofMississippi during 2006. The Company’s products being employed in a large industrialautomation project in Colombia during 2006 resulted in increased foreign sales revenues.The Company’s domestic industrial automation sales did not experience any growthduring 2006. Management believes the lack of growth in domestic industrial automationrevenues is the continuation of a pattern seen in 2005 and is the result of continuedproduct and price competition in the industrial automation market. During 2007, theCompany will continue strategies targeting existing markets of industrial controls and MDCapplications, and a continued restructuring of the activities of the Company’s salesmanagers for increased coverage and exposure for the domestic industrial automationmarket. Though Management is committed to implementing these strategies, sustaining orincreasing sales revenues for 2007 cannot be guaranteed due to the highly competitivemarkets in which the Company’s products and services are marketed.
Interest revenues increased to $48,310 from 2005 levels of $42,806 dueto increased rates of return received on the Company’s investments. 

OPERATING SEGMENTS

Segment information is prepared on the same basis that theCompany’s Management reviews financial information for operational decision-makingpurposes. The Company’s operating segment information is contained in "FinancialStatements, Notes to Financial Statements, Note 13 – Segment Reporting".

Domestic Revenues

The Company’s domestic operations represent 81% of theCompany’s total net revenues. Domestic operations sell ESTeem modem products,accessories and service primarily through domestic resellers, as well as directly to endusers of the Company’s products. Domestic revenues increased to $2,149,021 for theyear ended 2006, compared to $2,001,143 for the year ended 2005, reflecting an increase of7%. The increase in domestic revenues is attributable to increased sales for MDCapplications during 2006. A majority of the Company's domestic product sales during 2006were employed in industrial automation applications. An example of an industrialautomation application is a municipal water treatment operation, which employs the ESTeemmodem to transmit industrial control information to and from control room areas via awireless communications infrastructure. It is the opinion of Management that industrialautomation applications will continue to provide the largest portion of the Company'srevenues in the foreseeable future. The Company’s domestic industrial automationsales did not experience any growth during 2006. Management believes the lack of growth indomestic industrial automation revenues is the continuation of a pattern seen in 2005 andis the result of continued product and price competition in the industrial automationmarket.

The Company’s domestic sales were augmented by sales of theCompany’s products for MDC systems to public entities, which accounted for 25% of theCompany’s domestic sales during 2006. The growth in MDC sales was due to thecompletion of a large MDC project using the Company’s products in the State ofMississippi during 2006. An example of an MDC system for a public entity is a local areanetwork (LAN), between police department computer dispatch centers and individual policevehicles. Management believes funding of MDC projects on local, state and federal levelscannot be guaranteed and therefore MDC projects involving the Company’s productsbecome very difficult to predict.

 

8

In 2006, products purchased byU.S. Government agencies or by U.S. Government contractors amounted to $29,075 or 1% ofgross sales revenues as compared with 2005 levels of $45,384 or 2% of gross product andservice revenues. Products purchased by the U.S. Government or U.S. Government contractorsduring 2006 were used primarily for water/waste water processing and airport lightingapplications. Management believes U.S. Government sales will remain low during 2007 due toa lack of U.S. Government funding for programs using the Company’s products.

Domestic segment operating incomeincreased to $427,513 for 2006 as compared with $225,967 for 2005 due to increased profitmargin on the products and services sold during 2006 when compared with 2005.

Foreign Revenues

The Company’s foreignoperating segment represents 19% of the Company’s total net revenues. The foreignoperating segment is based wholly in the United States and maintains no assets outside ofthe United States. The foreign operating segment sells ESTeem modem products, accessoriesand service primarily through foreign resellers, as well as directly to end customers ofthe Company’s products located outside the United States. 

During 2006, the Company had$517,099 in foreign export sales, amounting to 19% of gross revenues for the year,compared with foreign export sales of $459,363 for 2005, reflecting an increase of 13%.The increase is attributable to increased sales revenues in Latin America, particularlyColombia where the Company’s products were installed in a large industrial automationapplication. Products purchased by foreign customers were used primarily in industrialautomation applications. Management believes the majority of foreign export sales are theresults of the Company’s Latin American sales staff, EST foreign reseller activity,and the Company’s internet website presence. 

Operating income for the foreignsegment increased to $189,327 for 2006 as compared with $169,632 for 2005 due to increasedsales revenues for the segment during 2006.

Unallocated Corporate

Unallocated corporate expensesrelate to functions, such as accounting, corporate management and administration, thatsupport but are not attributable to the Company’s domestic or foreign operatingsegments, include salaries, wages and other expenses related to the performance of thesesupport functions. Unallocated corporate expenses increased during 2006 to $273,826 ascompared with $220,842 for 2005, and represented expense to total net revenue percentageof 10% and 9% respectively. The increase during 2006 was the result of increased profitsharing bonuses accrued for 2006 profitability, recognition of share based compensation,increased state taxes and professional services when compared with 2005.

As of December 31, 2006, theCompany had a backlog of $100,400 in sales orders. TheCompany’s customers generally place orders on an "as needed basis".Shipment for the Company’s products is generally completed within 1 to 15 workingdays after receipt of customer orders, with the exception of ongoing, scheduled projects,and custom designed equipment for specific customer applications. 
COST OF SALES: Cost of Sales, as a percentage of gross sales, was 39%and 46% respectively, for 2006 and 2005. Cost of Sales variances are the result of theproduct mix sold, as well as differences in the price discounting structure for the mix ofproducts sold during the period.

INVENTORY: The Company's year-end inventoryvalues for 2006 and 2005 were as follows:
2006
2005
Parts 
$255,793 
$293,077 
Work in progress 
108,162
14,518
Finished goods
218,960 
177,662 
TOTAL 
$582,915 
$485,257 
The Company's objective is to maintain inventory levels as low as possibleto provide maximum cash liquidity, while at the same time, meet production and deliveryrequirements. Approximately 10% of the Company’s inventory at December 31, 2006consisted of parts having lead times ranging from 12 to 16 weeks. Some parts aremaintained at high levels to assure availability to meet production requirements, andaccordingly, account for a significant portion of the Company’s inventory value.Based on past

9

experience with component availability, distributorrelationships, and inventory levels, the Company does not foresee shortages of materialsused in production. However, developments in the electronic component marketplace,involving components used by the Company which are also used in cellular phones, pagersand other personal technology devices, have the potential of creating negativeavailability and delivery issues for components used by the Company. The Company has beenable to procure parts on a timely basis as of the date of this report, however procurementcannot be guaranteed in the future. If shortages were to occur, material interruption ofproduction and product delivery to customers could occur. Inventory levels increasedbetween December 31, 2005 and December 31, 2006, due to the Company increasing productionand finished goods levels to meet increased sales activity during 2006. 

OPERATING EXPENSES: Operating expenses increasedto $1,282,761 in 2006, from 2005 levels of $1,140,174. Material changes in expenses arecomprised of the following components: Advertising increased to $17,558 from $12,679 in2005 due to timing differences in trade publication advertising when compared with 2005.Sales Commissions decreased to $4,144 in 2006 due to decreased commissions paid to thirdparties when compared with 2005. Depreciation expense decreased during 2006 to $59,401from 2005 levels of $71,031 due to the Company’s decreased assets when compared with2005. Supplies and materials expense increased to $49,850 for 2006 from 2005 levels of$25,789 due to increased research and development related supplies employed in productdevelopment during 2006. Professional services increased to $191,817 from 2005 levels of$100,785 due to increased subcontracted software development and engineering expertiseemployed by the Company during 2006. Rent and Utilities expense increased to $53,751during 2006 as compared with $44,072 during 2005 due to the Company moving to a largerleased facility during the fourth quarter of 2005. Telephone expenses decreased during2006 to $12,935 as compared to $15,161 during 2005 due to a temporary reduction in salespersonnel during 2006. Travel expenses decreased to $85,145 for 2006, compared to $119,278for 2005, due to decreased sales and customer support related activities when comparedwith 2005. Salaries, benefits and related taxes, decreased to $1,012,199 in 2006, from2005 levels of $1,030,027, due to wages paid by the Company decreasing as a result of theCompany having a net loss of three employees during 2006 when compared with 2005. 
FISCAL YEAR 2005 vs. FISCAL YEAR 2004

GROSS REVENUES: Total revenues for the fiscalyear 2005 were $2,460,506 reflecting a 1% increase from $2,440,133 gross revenues forfiscal year 2004. The increase in total revenues is the result of increased interestrevenues and a small increase in product sales revenues during 2005. Product salesincreased to $2,417,700 in 2005, as compared to 2004 sales of $2,416,625. Managementbelieves the small increase in sales revenues was the result of increases in domesticindustrial automation and MDC sales, but these increases were countered by lower thanexpected foreign sales. Management believes that the lack of growth for domestic andforeign industrial automation revenues is the result of continued product and pricecompetition in the industrial automation market. Interest revenues increased to $42,806from 2004 levels of $23,508 due to increased rates of return received on theCompany’s investments. 
OPERATING SEGMENTS

The Company’s operating segment information is contained in"Financial Statements, Notes to Financial Statements, Note 13 – SegmentReporting".

Domestic Revenues

The Company’s domestic operations represent 81% of theCompany’s total net revenues. Domestic operations sell ESTeem modem products,accessories and service primarily through domestic resellers, as well as directly to endusers of the Company’s products. Domestic revenues increased to $2,001,143 for theyear ended 2005, compared to $1,932,642 for the year ended 2004, reflecting an increase of3%. This slight increase is attributable to increased sales in both the industrialautomation and MDC marketplaces during 2005. Management believes that the reduced growthfor domestic revenues is the result of continued product and price competition in theindustrial automation market. During 2005, a majority of the Company's domestic productsales were employed in industrial automation applications. It is the opinion of Managementthat industrial automation applications will continue to provide the largest portion ofthe Company's revenues in the foreseeable future. The Company’s domestic sales wereaugmented by sales of the Company’s products for MDC systems to public entities,which accounted for 21% of the Company’s domestic sales during 2005. Managementbelieves funding of MDC projects on local, state and federal levels cannot be guaranteedand therefore MDC projects involving the Company’s products become very difficult topredict.

In 2005, products purchased by U.S. Government agencies or by U.S.Government contractors amounted to $45,384 or 2% of gross sales revenues as compared with2004 levels of $16,432 or 1% of gross product and service revenues. Products purchased bythe U.S. Government or U.S. Government contractors during 2005 were used primarily forairport lighting and material handling applications. 

10

Domestic segment operating incomedecreased to $225,967 for 2005 as compared with $261,378 for 2004 due to increasedoperating expenses for the segment resulting from the addition of a domestic sales managerduring 2005.

Foreign Revenues

The Company’s foreignoperating segment represents 19% of the Company’s 2005 total net revenues. Theforeign operating segment is based wholly in the United States and maintains no assetsoutside of the United States. The foreign operating segment sells ESTeem modem products,accessories and service primarily through foreign resellers, as well as directly to endcustomers of the Company’s products located outside the United States. 

During 2005, the Company had$459,363 in foreign export sales, amounting to 19% of gross revenues for the year,compared with foreign export sales of $507,491 or 21% of gross revenues for 2004. Foreignrevenues decreased to $459,363 for the year ended 2005, compared to $507,491 for the yearended 2004, reflecting a decrease of 9%. This decrease is attributable to reduced salesrevenues in Ecuador, Brazil, Jordan and Taiwan when compared with the same period of 2004,which had strong sales for these countries. Products purchased by foreign customers wereused primarily in industrial automation applications. Management believes the majority offoreign export sales are the results of the Company’s Latin American sales staff, ESTforeign reseller activity, and the Company’s internet website presence.

Unallocated Corporate

Unallocated corporate expensesrelate to functions, such as accounting, corporate management and administration, thatsupport but are not attributable to the Company’s domestic or foreign operatingsegments, include salaries, wages and other expenses related to the performance of thesesupport functions. Unallocated corporate expenses decreased slightly during 2005 to$220,842 as compared with $221,490 for 2004, and represented expense to total net revenuespercentage of 9% for both 2004 and 2005.

OPERATING EXPENSES: Operating expenses increasedto $1,140,174 in 2005, from 2004 levels of $1,089,396. Material changes in expenses arecomprised of the following components: Advertising decreased from 2004 levels of $17,160to $12,679 due to timing differences in trade publication advertising when compared with2004. Bad debt expense increased to $5,116 during 2005 as compared to none during 2004.Sales Commissions decreased to $5,291 in 2005 due to decreased commissions paid to thirdparties under one-time finders fee agreements for various projects. Depreciation expenseincreased during 2005 to $71,031 from 2004 levels of $65,370 due to the Company’sincreased depreciable assets when compared with 2004. Supplies and materials expensedecreased to $25,789 for 2005 from 2004 levels of $31,920 due to decreased supplies usageas the development cycle of the ESTeem 195E changed during 2005. Professional servicesincreased to $100,785 from 2004 levels of $96,039 due to subcontracted softwaredevelopment and engineering expertise employed by the Company, as well as increased auditand legal consultation fees paid during 2005. Rent and Utilities expense increase to$44,072 during 2005 as compared with $39,170 during 2004 due to the Company moving to alarger leased facility during the fourth quarter of 2005. Repairs and maintenance expensedecreased to $16,435 during 2005 as compared with $24,774 during 2004 due to decreasedrepairs and updates for test equipment and computer systems. Telephone expenses increasedduring 2005 to $15,161 as compared to $12,845 during 2004 due to the addition of adomestic sales manager during 2005. Travel expenses increased to $119,278 for 2005,compared to $91,879 for 2004, due to increased travel related to the activities for theCompany’s additional sales manager and foreign sales activity during 2005. Salaries,benefits and related taxes, increased to $1,030,027 in 2005, from 2004 levels of $986,731,due to wages paid to an additional Company employee during 2005, and increased healthinsurance costs when compared with 2004.
LIQUIDITY AND CAPITAL RESOURCES

The Company’s revenues and expenses resulted in net income of$226,089 for 2006, increased from net income of $113,063 for 2005. The increase in netincome is the result of increased sales revenues and profit margins on products andservices sold, as well as increased interest income, when compared with 2005. At December31, 2006, the Company's working capital was $2,824,793 compared with $2,588,752 atDecember 31, 2005. The Company’s operations rely solely on the income generated fromsales. The Company's major capital resource requirements are payment of employee salariesand benefits and maintaining inventory levels adequate for production. Extendedavailability for components critical for production of the Company’s products,ranging from 12 to 16 weeks, require the Company to maintain high inventory levels. It isManagement’s opinion that the Company’s working capital as of December 31, 2006is adequate for expected resource requirements for the next twelve months. 

The Company's current asset to current liability ratio at December 31,2006 was 10.1:1 compared to 15.7:1 at December 31, 2005. The decrease in current assetratio is the result of increased income tax payable, accounts payable and accrued payrollliability at year-end 2006, when compared with 2005. 

The Company's cash resources at December 31, 2006, including cash and cashequivalent liquid assets, were $1,487,848, compared to cash resources of $651,265 atyear-end 2005. The increase in cash resources is the result of restructuring of theCompany’s

11

investments from a third party managed investment account to shortterm, self managed investment instruments when compared with year-end 2005. At year-end2006 none of the Company’s investments contained elements that would have presentedunrealized losses, as compared with net unrealized losses on marketable securities net oftax in the amount of $17,017 for year-end December 31, 2005.

As of January 1, 2005, the Company entered into a 39-month agreementwith Netsuite Inc. to provide the Company’s customer relationship management andaccounting software and related network infrastructure services. The current portion ofthe prepaid Netsuite Inc. services as of December 31, 2006, is reflected in prepaidexpenses and amounted to $18,104. The long term portion of the prepaid Netsuite Inc.services as of December 31, 2006 is reflected in "other assets" in theCompany’s Balance Sheets.

The Company's trade accounts receivable, adjusted for allowance foruncollectible accounts, at December 31, 2006, were $401,127, compared to $222,982 atyear-end 2005. The increase is the result of unusually strong sales late in December of2006 when compared with the same period of December 31, 2005. Management believes that allof the Company’s accounts receivable as of December 31, 2006 are collectible.

The Company believes the level of risk associated with customerreceipts on export sales is minimal. Foreign shipments are made only after payment hasbeen received, irrevocable letter of credit terms have been pre-arranged, or on Net 30 daycredit terms to established foreign companies with which the Company has distributorrelationships. Foreign orders are generally filled as soon as they are received therefore,foreign exchange rate fluctuations do not impact the Company. 

Inventory level as of December 31, 2006, was $582,915, reflecting anincrease from December 31, 2005 levels of $485,257. The increase in inventory betweenDecember 31, 2005 and December 31, 2006, is due to the Company increasing production andfinished goods levels to meet increased sales activity during 2006. 

The Company had capital expenditures during 2006 of $28,125 primarilyfor production related test equipment, computer system upgrades and a new tradeshowdisplay. The Company intends on investing in additional capital equipment as deemednecessary to support development and manufacture of current and future products. As ofDecember 31, 2006, the Company's current liabilities were $310,351, increased from 2005year-end levels of $176,137. The increase was the result of increased levels of accountspayable, accrued payroll liabilities and income taxes payable when compared with year-end2005. 

Inflation had minimal adverse effect on the Company’s operationsduring 2006. Minimal adverse effect is anticipated during 2007.
**FORWARD LOOKING STATEMENTS: The above discussion may containforward-looking statements that involve a number of risks and uncertainties. In additionto the factors discussed above, among other factors that could cause actual results todiffer materially are the following: competitive factors such as rival wirelessarchitectures and price pressures; availability of third party component products atreasonable prices; inventory risks due to shifts in market demand and/or price erosion ofpurchased components; change in product mix, and risk factors that are listed in theCompany’s reports and registrations statements filed with the Securities and ExchangeCommission.**
ITEM 7.FINANCIAL STATEMENTS

See Exhibit 1, Financial Statements and Financial Statement Schedules.Such Financial Statements and Schedules are incorporated herein by reference.

ITEM 8.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None

ITEM 8A.CONTROLS AND PROCEDURES.

An evaluation was performed by the Registrant’s Chief Executive Officer and ChiefFinancial Officer of the effectiveness of the design and operation of theRegistrant’s disclosure controls and procedures. Based on that evaluation, the ChiefExecutive Officer and Chief Financial Officer concluded that disclosure controls andprocedures were effective as of December 31, 2006, in ensuring that all materialinformation required to be filed in this annual report has been made known to them in atimely fashion.

There has been no change in our internal control over financial reporting during theyear ended December 31, 2006 that has materially affected, or is reasonably likely tomaterially affect, our internal control over financial reporting.

12**Inherent Limitations on Effectiveness of Controls**
The Company’s management does not expect that our Disclosure Controls or ourinternal control over financial reporting will prevent or detect all error and all fraud.A control system, no matter how well designed and operated, can provide only reasonable,not absolute, assurance that the control system’s objectives will be met. The designof a control system must reflect the fact that there are resource constraints, and thebenefits of controls must be considered relative to their costs. Further, because of theinherent limitations in all control systems, no evaluation of controls can provideabsolute assurance that misstatements due to error or fraud will not occur or that allcontrol issues and instances of fraud, if any, within the Company have been detected.These inherent limitations include the realities that judgements in decision making can befaulty and that breakdowns can occur because of simple error or mistake. Controls can alsobe circumvented by the individual acts of some persons, by collusion of two or morepeople, or management override of the controls. The design of any system of controls isbased in part on certain assumptions about the likelihood of future events, and there canbe no assurance that any design will succeed in achieving its stated goals under allpotential future conditions. Projections of any evaluation of controls effectiveness tofuture periods are subject to risks. Over time, controls may become inadequate because ofchanges in conditions or deterioration in the degree of compliance with policies orprocedures. 

ITEM 8B.OTHER INFORMATION.

None.13

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

IDENTIFICATION OF DIRECTORS:

The following table sets forth the names and ages of all directors ofthe Company as of December 31, 2006; as well as term in office and principal occupation ofeach director. 
Name of Director
Term in Office
AgePrincipal OccupationT.L. Kirchner 
06/03/05 – 06/03/08
58President of the CompanyMelvin H. Brown
06/02/06 – 06/02/09
76Former President of Manufacturing Services,    Inc.Robert Southworth
06/02/06 – 06/02/09
63Patent Attorney, U.S. Dept. of Energy    (retired)Jon Correio
06/02/03 – 06/02/09
39Vice President of Finance of the CompanyJohn L. Schooley 
06/04/04 – 06/04/07
67Former President of Remtron, Inc.
Management believes that there are no agreements or understandingbetween the directors and suppliers or contractors of the Company, except the agreementwith Manufacturing Services, Inc. as described elsewhere in this report.

Audit Committee

The Audit Committee of the Board of Directors as of December 31, 2006is comprised of Robert Southworth (Chairman), Melvin Brown and John Schooley. Mr. Brown isconsidered to be a non-independent member of the Audit Committee, however his serving onthe Audit Committee was deemed by the Board to be in the best interest of the Corporationdue to Mr. Brown’s experience and familiarity with the Corporation. The Board ofDirectors has determined that none of the audit committee members can be classified as an"audit committee financial expert" as defined in Item 401(e) of Regulation S-B.The Board of Directors does not contain a member that can be classified as an "auditcommittee financial expert" under the referenced definition. The Board of Directorsbelieves that attracting and retaining board members that could be classified as an"audit committee financial expert" is unlikely due to the high cost of suchDirector candidates.

The Board of Directors had an Employee/Director Stock Option Committeeconsisting of Tom Kirchner and Jon Correio. The committee existed for the sole purpose ofrecommending the recipients and amounts of the Company awarded stock options during 2006.

Compensation Committee

There is no Compensation Committee of the Board of Directors.

Code of Ethics

On June 2, 2006, the Company's Board of Directors adopted a Code of Ethics for theCompany. This Code of Ethics is filed herewith as an exhibit. 

IDENTIFICATION OF EXECUTIVE OFFICERS

The following table sets forth the names and ages of all executiveofficers of the Company as of December 31, 2006; all positions by such persons; term ofoffice and the period during which he has served as such; and any arrangement orunderstanding between him and any other person(s) pursuant to which he was elected as anofficer:

Name of Officer
Age
Position
Term of Office
Period of Service
T. L. Kirchner
58
President
3 Years
02/10/84- Present
Jon Correio
39
Sec/Treas
3 Years
02/9/01- Present
There are no family relationships, whether by blood, marriage, oradoption, between any of the Directors or Executive Officers of the Company.

The following is a brief description of the business experience duringthe last five years of each director and/or executive officer of the Company.

T.L. KIRCHNER. Mr. Kirchner is founder, Presidentand a Director of the Company. During the last five years Mr. Kirchner devoted 100% of histime to the management of the Company. His primary duties are to oversee the managementand marketing functions of the Company. Mr. Kirchner does not serve as a director for anyother company registered under the Securities Exchange Act.
14

MELVIN H. BROWN. Mr. Brown is a Director of theCompany. During the last five years Mr. Brown has been the owner and President ofManufacturing Services, Inc until his retirement in late 2006. Manufacturing Servicesprovides services in packaging design, printed circuit board layout, prototyping,verification of documentation, testing, burn-in, quality control, and repetitive volumeproduction. Manufacturing Services provides electronic manufacturing and quality controltesting services for Electronic Systems Technology. Mr. Brown does not serve as a directorfor any other company registered under the Securities Exchange Act.
ROBERT SOUTHWORTH. Mr. Southworth is a Directorof the Company. Mr. Southworth is a retired Senior Patent Attorney with the U. S.Department of Energy in Richland, Washington. His primary duties with the Department ofEnergy were the preparation and prosecution of domestic and foreign patent applications insuch fields as nuclear reactors, fuel reprocessing, waste management and energy relatedfields of solar, wind, and fossil fuels. Mr. Southworth does not serve as a director ofany other company that is registered under the Securities Exchange Act
JON CORREIO. Mr. Correio is the Vice President offinance and administration, Secretary/Treasurer and a Director of the Company. During thelast five years Mr. Correio has been a full time employee of the Company, whose primaryduties are to oversee the finance and administration functions of the Company. Mr. Correiodoes not serve as a director for any other company registered under the SecuritiesExchange Act. 
JOHN L. SCHOOLEY. Mr. Schooley is a Director ofthe Company. During the past five years, Mr. Schooley was the former owner and Presidentof Remtron, Inc. in San Diego, California, prior to acquisition of Remtron by acompetitor. Remtron, Inc. manufactures advanced radio control and telemetry systems forthe industrial marketplace. Remtron, Inc. has previously provided research and developmentservices for Electronic Systems Technology. Mr. Schooley does not serve as director of anyother company that is registered under the Securities Exchange Act.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

During the year ended December 31, 2006, to the knowledge ofManagement, there was no director, officer, or beneficial owner of more than 10% any classof equity securities of the registrant who failed to file on a timely basis the requireddisclosure form as required by Section 16(a) of the Securities and Exchange Act of 1934.

ITEM 10.****
EXECUTIVE COMPENSATION

The Company’s named compensated executive officer is T.L.Kirchner, President and CEO. The Company had no other compensated executive officers as ofDecember 31, 2006. 

The information specified concerning the compensation of the namedexecutive officers for each of the Registrant's last three completed fiscal years whoseannual salary, bonus and other compensation exceeded $100,000 in 2004, 2005 and 2006 isprovided in the following Summary Compensation Table:

SUMMARY    COMPENSATION TABLEName and Principal    Position
 Year
Salary    ($)Bonus ($)(1)Stock Awards ($)Option Awards ($)(2)Non-Equity    Incentive Plan Compensation ($)Change in Pension    Value and Non-qualified Deferred Compensation Earnings ($)
All    Other Compen-sation     ($)(3)(4)
Total    ($)
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)T.L. Kirchner,    President/CEO
2006
$125,000
$3,672
0
$750
-
-
$16,565
$145,987
2005
$125,000
$5,124
0
-
-
-
$11,558
$141,682
2004
$125,000
$3,865
0
-
-
-
$9,467
$138,332
(1) Includes amounts paid under the Non-qualified Employee Profit    Sharing Bonus    (2) Amount represents the dollar amount recognized for financial statement reporting    purposes in accordance with SFAS 123R. Assumptions made in the valuation of stock option    awards are disclosed in Note 7 of the Notes to the Consolidated Financial Statements in    this Form 10-KSB. Prior to 2006, the Company accounted for stock option awards under APB    Opinion No. 25’s intrinsic value method and, as such, recognized no compensation cost    for employee stock options.    (3) All Other Compensation consists of premiums paid for Group Health Insurance, Key Man    Insurance, Accrued Vacation Pay and Company paid 401(k) matching amounts.    (4) Amounts do not reflect proceeds of $0.01 per share cash distribution received during    2006 totaling $4,035. Receipt of cash distribution was based solely on capacity as a    shareholder. 

 

15

The information specified concerning the stock options of the namedexecutive officers during the fiscal year ended December 31, 2006 is provided in thefollowing Option/SAR Grants in the Last Fiscal Year Table:

OPTION/SAR GRANTS IN LAST    FISCAL YEAR
Individual Grants (5)
(a)
(b)
(c)
(d)
(e)
Name
Number of Securities    Underlying    Options/SARs    Granted # (5)
% of Total Options/SARs    Granted to Employees in Fiscal Year
Exercise or base price    ($/Share)
Expiration Date
T.L. Kirchner************************************************************************************