U.S. Securities and Exchange CommissionWashington, D.C. 20549

FORM 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, 2005**

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES 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: NoneSecurities registered under Section 12(g) of the Exchange Act:  Common

Check whether the issuer (1) filed all reports required by Section 13or 15(d) of the Exchange Act during the past 12 months (or for such shorter period thatthe registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response toItem 405 of Regulations S-B is met contained in this form, and no disclosure will becontained, to the best of the registrant's knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-KSB or any amendment tothis Form 10-KSB. [X ] Not applicable [ ]
State issuer's revenues for its most recent fiscal year.$2,460,506
On February 24, 2006 the aggregate market value,based on the asked price, of the voting stock held by nonaffiliates of the registrant was$3,384,259.
The number of shares outstanding of the registrant's common stock as ofFebruary 24, 2006: 5,153,667shares.
DOCUMENTS INCORPORATED BY REFERENCEThe following documents are incorporated by reference into Parts I, II, III, and IV ofthis report:  Form 8-K dated June 3, 2005. Forms 8-K dated February 25, 2005 andFebruary 10, 2006. 

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 2005 werefocused on continued enhancement of the ESTeem 195E Ethernet based radio frequency modemand development of the increased output power ESTeem 192MHP modem. The Model 195E Seriesproducts are multi-protocol, Ethernet based, spread spectrum nonlicensed radio frequencymodems, with a physically reduced "footprint" and higher RF data rates, up to 54Megabits per second (Mbps), which the Company intends to develop into several productsutilizing different frequency options for perceived market opportunities. The ESTeem192MHP is a development of the high output power ESTeem 192CHP modem and is targeted atlong physical distance public safety and Supervisory Control and Data Acquisition (SCADA)applications. In an effort to maintain and expand its customer base, with particular focuson the industrial control marketplace, the Company continues efforts to team with allmajor programmable logic controller (PLC) hardware vendors. During 2005, the Companycontinued marketing products for use in SCADA, Industrial Automation, Public SafetyCommunication 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 NetworkingLaw Enforcement/Public    Safety Communications Remote 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
RS-232/422/485**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(10baseT)
195Eg
Unlicensed
2400
1
54    M
5-7
Ethernet    
192E
Unlicensed
2400
1
11    M
5-7
Ethernet    
WLANC
Unlicensed
2400
0.2
11    M
300-3000    ft.
Ethernet
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.

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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 2005 and 2004 were$280,052 and $306,949, respectively. None of the Company’s research and developmentexpenses were paid directly by any of the Company’s customers. During 2005, 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 2005 were on continued enhancement of theESTeem 195E Ethernet based radio frequency modem and development of the increased outputpower ESTeem 192MHP modem. The Model 195E Series products are multi-protocol, Ethernetbased, spread spectrum nonlicensed radio frequency modems, with a physically reduced"footprint" and higher RF data rates, up to 54 Megabits per second (Mbps), whichthe Company intends to develop into several products utilizing different frequency optionsfor perceived market opportunities. The ESTeem 192MHP is a development of the high outputpower ESTeem 192CHP modem and is targeted at long physical distance public safety andSCADA applications and was placed into production during the first quarter of 2006. 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 2005 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, 2005, the Company had a backlog of$193,165 in sales orders.

During 2005, 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 2005, 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 2006, 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.

No sales to a single customer comprised 10% or more of total product salesfor the year ended December 31, 2005. See "Management’s Discussion and Analysisof Financial Condition and Results of Operations", and "FinancialStatements".

3

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, remote data acquisition, shop floor manufacturing, overhead crane control
Data-Linc,    Freewave, 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 successfully renewed with the U.S. Patent and Trademark Office inMay 2004. To protect the Company against unauthorized disclosure of proprietaryinformation belonging to the Company, all employees, dealers, distributors, originalequipment manufacturers, sales representatives and other persons having access toconfidential information regarding Company products or technology are bound bynon-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, observed, and testedperformance criteria. All of the Company’s products requiring FCC Type Acceptancehave been granted such acceptance. All of the Company’s current ESTeem productionmodels have also been granted type acceptance in Canada. 

The ESTeem radio modem products that operate in the FCC consumerlicense frequency band, require consumer licensing under Part 90 of the FCC Rules andRegulations, which must be applied for by the end user of the Company’s products. TheCompany cannot guarantee customers will receive FCC consumer licenses in the VHF or UHFfrequency spectrum for any particular application. The Company provides information tocustomers to assist in the application for FCC consumer licenses. The ESTeem 192S, 192Eand 195E products operate in the nonlicensed, 2.4 GHz spread spectrum frequency band,which does not require licenses for users of those products.

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,Motorola Corporation, Mitsubishi, Murata Corporation, Rakon and Toko America Inc. aspurchased through a number of distributors, supply key components for the Company’sproducts. The components provided by these companies could be replaced or substituted byother products, if it became necessary to do so. If this action occurs, a materialinterruption of production and/or material cost expenditures, for example involved withlocating and qualifying replacement components, could take place. 

Approximately 10% of the Company’s inventory at December 31, 2005consisted 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 experience with component availability, distributor relationships, andinventory levels, the Company does not foresee shortages of materials used in production.However, developments in the electronic component marketplace, involving components usedby the Company which are also used in cellular phones, pagers and other personaltechnology devices, have the potential of creating negative availability and deliveryissues for components used by the Company. The Company has been able to procure parts on atimely basis as of the date of this report, however procurement cannot be guaranteed inthe future. If shortages were to occur, material interruption of production and productdelivery to customers could occur. 

4

The Company contracts with Manufacturing Services, Inc., in Kennewick,Washington, for assembly of the Company’s products, using materials purchased by theCompany. By contracting with Manufacturing Services, Inc., the Company is able to avoidstaff fluctuations associated with operating its own manufacturing operation. ThePresident of Manufacturing Services, Melvin H. Brown, is a Director of the Company.Management believes all prices for services, provided by Manufacturing Services, Inc., areas favorable as could be obtained from comparable manufacturing services companies. See"Management’s Discussion and Analysis of Financial Condition and Results ofOperations", and "Financial Statements".

EMPLOYEES

As of December 31, 2005, the Company employed a staff of17 persons on a full time basis, 4 insales/marketing, 2 in technical support, 9 in engineering/manufacturing, and 2 in financeand administration. The Company’s operations are dependent upon key members of itsengineering and management personnel. In the event services of these key individuals werelost to the Company, adverse effects on the Company’s operations may be realized. TheCompany employs part-time labor on an "as needed" basis, usually inengineering/manufacturing. At year-end 2005 the Company employed 1 part-time employee.None of the Company’s employees are represented by a labor union and the Companybelieves it has good relations with its employees.**RISK FACTORS

We cannot predict whether we will be able to sustain revenue growth, profitability orpositive cash flow. Our products are soldin highly competitive markets. Our revenues and operating results can be negativelyaffected by technology changes in our markets, economic conditions in our markets, and thelevel of competition in our markets.**Our marketing efforts may be unsuccessful due to limited advertising and salespersonnel resources. 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 may be unable to produce products for sale if we are unable to obtain componentmaterials. Our products require highly specialized components, which are subject torapid obsolescence, limited availability and design change. If we cannot obtain materialto produce products for sale our sales revenues will be negatively impacted.
**The loss of key personnel could adversely affect our business. The success of ourCompany is significantly dependant on the performance and continued service of key membersof Management, such as Chief Executive Officer, Tom Kirchner, Vice President ofEngineering, D. Brent Strecker and certain other key employees. If the services of anymembers of Management become unavailable for any reason, our business and prospects couldbe adversely affected.
**We may be adversely affected by government regulation. The Federal CommunicationCommission (FCC) governs use of the products we sell. If the FCC were to implement rulesdetrimental to our products and the markets in which they are offered our operations wouldbe negatively impacted.
**If we fail to maintain an effective system of internal controls, we may not be able todetect fraud or report our financial results accurately, which could harm our business andwe could be subject to regulatory scrutiny. Pursuant to Section 404 of theSarbanes-Oxley Act of 2002 ("Section 404"), we will be required, beginning infiscal year 2007, to perform an evaluation of our internal controls over financialreporting and have our independent registered public accounting firm test and evaluate thedesign and operating effectiveness of such internal controls and publicly attest to suchevaluation. We have prepared an internal plan of action for compliance with therequirements of Section 404, which includes a timeline and scheduled activities, althoughas of the date of this filing we have not yet completed the effectiveness evaluation.Although we believe our internal controls are operating effectively, we cannot guaranteethat we will not have any material weaknesses as reported by the 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.

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. During 2005, the Company relocated to a larger facility within thePort of Kennewick managed property complex, and renewed a lease agreement with the Port ofKennewick. The Company leases approximately 8,600 square feet of office and laboratoryspace by a lease agreement with the Port of Kennewick in Kennewick, Washington. As ofJanuary 1, 2006, the total monthly lease cost is $ 3,682.04. The lease covers a period ofthree 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. 

For the year ended December 31, 2005, the Company abandoned or disposed ofapproximately $144,500 in capital assets related to the Company’s move to a newfacility. The majority of these assets were fully depreciated and had no book or salvagevalue. The assets abandoned or disposed included leasehold improvements made to theCompany’s previous facility; as well as outdated software, computer, furniture,dies/molds and test equipment no longer employed or usable in the Company’soperations. The Company recorded a loss on disposal of assets in the amount of $16,468 forthe year ending December 31, 2005 related to this asset disposal.

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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 duringthe fourth quarter of the 2005 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, 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
Fiscal year ended December    31, 2004
First Quarter
0.77
0.55
0.95
0.55
Second Quarter
1.05
0.70
1.25
0.70
Third Quarter
0.85
0.75
0.93
0.75
Fourth Quarter
0.85
0.75
1.01
0.75
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, 2006 was 477 persons/entities.

Electronic Systems Technology Inc. paid non-cumulative, cash distributionson 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. The Company also paid anon-cumulative cash distribution on July 16, 2003, equivalent to $0.015 per outstandingshare. The Company’s Forms 8-K dated June 3, 2005, June 4, 2004, June 6, 2003, June11, 1999, June 4, 1998 and June 5, 1997, as filed with the Securities and ExchangeCommission are incorporated herein by reference. Dividends undertaken by the Company willbe solely at the discretion 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 a productline which provide innovative communication solutions for applications not served byexisting conventional communication systems. The Company offers product lines in marketsfor process automation in commercial, industrial and government arenas domestically, aswell as internationally, and domestically to public safety entities for mobile datacomputer terminal (MDC) applications. The Company markets its products through directsales, sales representatives, and domestic, as well as foreign, resellers. Operations ofthe Company are sustained solely from revenues received through sales of its products andservices. 
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 were 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 growthfor domestic and foreign industrial automation revenues is the result of continued productand price competition in the industrial automation market. For 2006, the Company plansto continue strategies targeting existing markets of industrial controls and MDCapplications, and to restructure the activities of the Company’s sales managers forincreased coverage and exposure for the domestic industrial automation market. ThoughManagement plans to implement these strategies, sustaining or increasing sales revenuesfor 2006 cannot be guaranteed due to the highly competitive markets in which theCompany’s products and services are marketed.
Interest revenues increased to $42,806 from 2004 levels of $23,508 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 $2,001,143 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. 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 sales were augmented bysales of the Company’s products for MDC systems to public entities, which accountedfor 21% of the Company’s domestic sales during 2005. An example of an MDC system fora public entity is a local area network (LAN), between police department computer dispatchcenters and individual police vehicles. Management believes funding of MDC projects onlocal, state and federal levels cannot be guaranteed and therefore MDC projects involvingthe Company’s products become very difficult to predict. 

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. Management believes U.S. Governmentsales will remain low during 2006 due to a lack of U.S. Government funding for programsusing the Company’s products.

Domestic segment operating income decreased to $225,967 for 2005 ascompared with $261,378 for 2004 due to increased operating expenses for the segmentresulting from the addition of a domestic sales manager during 2005.

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Foreign Revenues

The Company’s foreign operating segment represents 19% of theCompany’s total net revenues. The foreign operating segment is based wholly in theUnited States and maintains no assets outside of the United States. The foreign operatingsegment sells ESTeem modem products, accessories and service primarily through foreignresellers, as well as directly to end customers of the Company’s products locatedoutside 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. Foreign revenues decreased to $459,363 for theyear ended 2005, compared to $507,491 for the year ended 2004, reflecting a decrease of9%. This decrease is attributable to reduced sales revenues in Ecuador, Brazil, Jordan andTaiwan when compared with the same period of 2004, which had strong sales for thesecountries. 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 foreign segment decreased to $169,632 for 2005as compared with $220,238 for 2004 due to decreased sales revenues and increased operatingexpenses for the segment resulting from travel expenses related to marketing support offoreign sales during 2005.

Unallocated Corporate

Unallocated corporate expenses relate to functions, such as accounting,corporate management and administration, that support but are not attributable to theCompany’s domestic or foreign operating segments, include salaries, wages and otherexpenses related to the performance of these support functions. Unallocated corporateexpenses decreased slightly during 2005 to $220,842 as compared with $221,490 for 2004,and represented expense to total net revenues percentage of 9% for both 2004 and 2005. 

As of December 31, 2005, the Company had a backlog of $193,165in sales orders. The Company’s customers generallyplace orders on an "as needed basis". Shipment for the Company’s productsis generally completed within 1 to 15 working days after receipt of customer orders, withthe exception of ongoing, scheduled projects, and custom designed equipment for specificcustomer applications. 
COST OF SALES: Cost of Sales, as a percentage of gross sales, was 46%and 45% respectively, for 2005 and 2004. Cost of Sales variances are the result of theproduct mix sold, as well as the price discounting structure for the mix of products soldduring the period.

INVENTORY: The Company's year-end inventoryvalues for 2005 and 2004 were as follows:
2005
2004
Parts 
$293,077 
$248,433 
Work in progress 
14,518
104,488
Finished goods
177,662 
252,238 
TOTAL 
$485,257 
$605,159 
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, 2005consisted 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 experience with component availability, distributor relationships, andinventory levels, the Company does not foresee shortages of materials used in production.However, developments in the electronic component marketplace, involving components usedby the Company which are also used in cellular phones, pagers and other personaltechnology devices, have the potential of creating negative availability and deliveryissues for components used by the Company. The Company has been able to procure parts on atimely basis as of the date of this report, however procurement cannot be guaranteed inthe future. If shortages were to occur, material interruption of production and productdelivery to customers could occur. Inventory levels decreased between December 31, 2004and December 31, 2005, due to timing differences in material purchasing and sales cycleswhen compared with the same period of 2004.

9

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 increased to $5,291 in 2005 due to increased 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. 
FISCAL YEAR 2004 vs. FISCAL YEAR 2003

GROSS REVENUES: Total revenues for the fiscalyear 2004 were $2,440,133 reflecting an 9% increase from $2,244,047 gross revenues forfiscal year 2003. The increase in total revenues is the result of increased product salesrevenues in the domestic MDC, and foreign industrial automation market segments during2004. Product sales increased to $2,416,625 in 2004, as compared to 2003 sales of$2,209,841. Management believes the increase in sales revenues for the particular marketsegments were the result of continued marketing efforts on the part of the Company,specifically efforts by the Company’s MDC and Latin American sales managers. During2004 sales revenues for the domestic industrial automation market were consistent with2003 results. Management believes that the lack of growth for domestic industrialautomation revenues is the result of increased product and price competition in thedomestic industrial automation market when compared with 2003. Interest revenues decreasedto $23,508 from 2003 levels of $34,206 due to decreased 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 represented 79% of theCompany’s total net revenues during 2004. Domestic operations sell ESTeem modemproducts, accessories and service primarily through domestic resellers, as well asdirectly to end users of the Company’s products. Domestic revenues increased to$1,932,642 for the year ended 2004, compared to $1,890,472 for the year ended 2003,reflecting an increase of 2%. For the year ended December 31, 2004, a majority of theCompany's domestic product sales were employed in industrial automation applications.During 2004 sales revenues for the domestic industrial automation market were consistentwith 2003 results. Management believes that the lack of growth for domestic industrialautomation revenues is the result of increased product and price competition in thedomestic industrial automation market when compared with 2003. It is the opinion ofManagement that industrial automation applications will continue to provide the largestportion of the Company's revenues in the foreseeable future. The Company’s domesticsales were augmented by sales of the Company’s products for MDC systems to publicentities, which accounted for 22% of the Company’s domestic sales during 2004.Management believes funding of MDC projects on a local, state and federal level, cannot beguaranteed and therefore MDC projects involving the Company’s products become verydifficult to predict.

In 2004, products purchased by U.S. Government agencies or by U.S.Government contractors amounted to $16,432 or less than 1%, of gross product and servicerevenues as compared with 2003 levels of $19,828 or 1% of gross product and servicerevenues. Products purchased by the U.S. Government or U.S. Government contractors during2004 were used primarily for airport lighting applications. The level U.S. Governmentsales revenue reflects a continuing trend of low U.S. Government Sales.

Domestic segment operating income decreased to $261,378 for 2004 ascompared with $312,889 for 2003 due to increased operating expenses for the segmentincluding salaries and wages, depreciation and research and development relatedprofessional services when compared with 2003.

10

Foreign Revenues

The Company’s foreign operating segment represents 21% of theCompany’s total net revenues. During 2004, the Company had $507,491 in foreign exportsales, amounting to 21% of gross revenues for the year, compared with foreign export salesof $353,575 or 16% of gross revenues for 2003. The increase in foreign sales was due toincreased sales volumes for industrial automation projects in Canada and Latin America,when compared with 2003. Products purchased by foreign customers were used primarily inindustrial automation applications. Management believes the majority of foreign exportsales were the results of the Company’s Latin American sales manager, EST foreigndistributor efforts, and the Company’s internet website presence.

Operating income for the foreign segment increased to $220,238 for 2004as compared with $99,444 for 2003 due to increased sales revenues for the segmentresulting from strong sales for industrial automation projects in Canada and Latin Americawhen compared with 2003.

Unallocated Corporate

Unallocated corporate expenses relate to functions, such as accounting,corporate management and administration, that support but are not attributable to theCompany’s domestic or foreign operating segments and include salaries, wages andother expenses related to the performance of these support functions. Unallocatedcorporate expenses decreased during 2004 to $221,490 as compared with $238,432 for 2003,due primarily to a decrease in profit sharing bonus paid by the Company when compared with2003. Unallocated corporate expense represented an expense to total net revenue percentageof 9% for 2004 as compared with 11% for 2003.

OPERATING EXPENSES: Operating expenses increasedto $1,089,396 in 2004, from 2003 levels of $1,006,674. Material changes in expenses arecomprised of the following components: Sales Commissions decreased to $6,706 in 2004 from2003 levels of $22,147 due to decreased commissions paid to Indian resellers of theCompany’s products during 2004, when compared with 2003. Depreciation expenseincreased during 2004 to $65,370 from 2003 levels of $49,207 due to the Company’sincreased depreciable assets when compared with 2003. Supplies and materials expenseincreased to $31,920 for 2004 from 2003 levels of $17,639 due to increased supplies usedin the development process of the ESTeem 195E. Professional services increased to $96,039from 2003 levels of $67,112 due to increased subcontracted software development andengineering expertise employed during the development of the ESTeem 195E. Repairs andmaintenance expense increased to $24,774 during 2004 as compared with $15,912 during 2003due to increased repairs and updates needed for test equipment and computer systems.Travel expenses increased to $91,879 for 2004, compared to $83,498 for 2003, due toincreased marketing and engineering related travel expenses during 2004. Salaries,benefits and related taxes increased to $986,731 in 2004, from 2003 levels of $933,342,due to increased wages paid to Company employees during 2004 when compared with 2003. TheCompany did not incur any bad debt expense during 2004 as compared with $3,047 during2003.
LIQUIDITY AND CAPITAL RESOURCES

The Company’s revenues and expenses resulted in net income of$113,063 for 2005, decreased from net income of $174,820 for 2004. The decrease in netincome is the result of increased operating expenses during 2005, when compared with 2004.At December 31, 2005, the Company's working capital was $2,588,752 compared with$2,498,881 at December 31, 2004. The Company’s operations rely solely on the incomegenerated from sales. The Company's major capital resource requirements are maintaininginventory levels adequate for production and payment of employee salaries and benefits.Extended availability for components critical for production of the Company’sproducts, ranging from 12 to 16 weeks, require the Company to maintain high inventorylevels. It is Management’s opinion that the Company’s working capital as ofDecember 31, 2005 is adequate for expected resource requirements for the next twelvemonths. 

The Company's current asset to current liability ratio at December 31,2005 was 15.7:1 compared to 13:1 at December 31, 2004. The increase in current asset ratiois the result of decreased accounts payable and accrued payroll liability at year-end2005, when compared with 2004. 

The Company's cash resources at December 31, 2005, including cash and cashequivalent liquid assets, were $651,265, compared to cash resources of $488,480 atyear-end 2004. The increase in cash resources is the result of timing differences inaccounts receivable collection cycles, as well as the Company having increased moneymarket holdings when compared with year-end 2004. The Company maintains a brokerageaccount comprised of marketable securities investments, which is managed by a third-partyinvestment management firm. As of December 31, 2005, the Company’s investments werevalued at $1,370,642. At year-end 2005, certain components of investments held by theCompany, if sold as of December 31, 2005, would have presented a realized loss, net of taxof $5,905. A net unrealized loss on marketable securities in the amount of $17,017 hasbeen recognized as an accumulated other comprehensive loss for the year ended December 31,2005. The contingency is shown in the Statement of Comprehensive Income (Loss) in theCompany’s Financial Statements for December 31, 2005.

11

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, 2005, is reflected in prepaidexpenses and amounted to $18,104. The long-term portion of the prepaid Netsuite Inc.services as of December 31, 2005 is reflected in "other assets" in theCompany’s Balance Sheets.

The Company's trade accounts receivable, adjusted for allowance foruncollectible accounts, at December 31, 2005, were $222,982, compared to $257,080 atyear-end 2004. The decrease is the result of sales and collection timing differencesbetween December 31, 2005 and December 31, 2004. Management believes that all of theCompany’s accounts receivable as of December 31, 2005 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, 2005, was $485,257, reflecting adecrease from December 31, 2004, levels of $605,159. The decrease in inventory betweenDecember 31, 2004 and December 31, 2005, is due to timing differences in materialpurchasing and sales cycles when compared with the same period of 2004. 

The Company had capital expenditures during 2005 of $18,067 primarilyfor production related test equipment and computer system upgrades. The Company intends oninvesting in additional capital equipment as deemed necessary to support development andmanufacture of current and future products. As of December 31, 2005, the Company's currentliabilities were $176,137, decreased from 2004 year-end levels of $209,035. The decreaseis due to reduced levels of accounts payable and accrued payroll liabilities when comparedwith year-end 2004. 

Inflation had minimal adverse effect on the Company’s operationsduring 2005. Minimal adverse affect is anticipated during 2006.
**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, 2005, 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, 2005 that has materially affected, or is reasonably likely tomaterially affect, our internal control over financial reporting.
**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.12

PART III

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

The following table sets forth the names and ages of all directors ofthe Company as of December 31, 2005; as well as term in office and principal occupation ofeach director. 
Name of Director
Term in Office
AgePrincipal OccupationT.L. Kirchner 
06/7/02 – 06/7/05
57President of the CompanyMelvin H. Brown
06/06/03 – 06/02/06
75President of Manufacturing Services, Inc.Robert Southworth
06/06/03 – 06/02/06
62Patent Attorney, U.S. Dept. of Energy    (retired)Jon Correio
06/06/03 – 06/02/06
38Vice President of Finance of the CompanyJohn L. Schooley 
06/04/04 – 06/04/07
66President 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, 2005is 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 no others committees during 2005.

Code of Ethics

On June 2, 2005, 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, 2005; 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
57
President
3 Years
02/10/84- Present
Jon Correio
38
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.
13

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. Manufacturing Services provides services in packaging design,printed circuit board layout, prototyping, verification of documentation, testing,burn-in, quality control, and repetitive volume production. Manufacturing Servicesprovides electronic manufacturing and quality control testing services for ElectronicSystems Technology. Mr. Brown does not serve as a director for any other companyregistered 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, 2005, 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, 2005. 

The information specified concerning the compensation of the namedexecutive officers for each of the Registrant's last three completed fiscal years isprovided in the following Summary Compensation Table:

SUMMARY COMPENSATION TABLE 
Long Term    Compensation
Annual    Compensation
Awards
Payouts 
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)    Name and Principal Position     Year
    Salary    ($)    Bonus    ($)(1)
    Other Annual Compensation ($)(2)
    Restricted Stock Awards    ($)
Securities Options    Underlying SARs    (#)
    LTIP    Payouts    ($)
    All    Other    Compensation    ($)(3)(4)
T. L. Kirchner,    President/CEO
2005
125,000
5,124
1,041
0
25,000
0
10,517 
2004
125,000
3,865
1,079
0
25,000
0
8,388
2003
125,000
5,594
4,146
0
25,000
0
8,391
(1) Includes amounts paid under the Non-qualified Employee Profit Sharing Bonus(2) Other Annual Compensation includes Accrued Vacation Pay (3)All Other Compensation consists of premiums paid for Group Health Insurance and Key ManInsurance(4)Amounts do not reflect proceeds of $0.01 per share cash distribution received during2005 totaling $4,035. Receipt of cash distribution was based solely on capacity as ashareholder. 

14

The information specified concerning the stock options of the named executive officersduring the fiscal year ended December 31, 2005 is provided in the following Option/SARGrants 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
25,000
12.8%
0.78
2/25/08
(5) This table does not include Stock Options granted previously. Forms    8-K dated 2/21/03 and 02/20/04 respectively, are incorporated herein by reference.

The information specified concerning the stock options of the namedexecutive officers during the fiscal year ended December 31, 2005 is provided in thefollowing Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-EndOptions/SAR Values Table:

AGGREGATED OPTION/SAR    EXERCISES IN LAST FISCAL YEAR    AND FISCAL YEAR-END OPTION/SAR VALUES
(a)
(b)
(c)
(d)
(e)******************************************************************