UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWASHINGTON D.C. 20549**FORM 10-QSB**

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended June 30, 2006 

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from _________ to _______

| **Commission File Number:**000-27793
 
**ELECTRONIC SYSTEMS TECHNOLOGY, INC.(A Washington Corporation)******I.R.S. Employer Identification no.**91-1238077
 
**415 N. Quay St., Building B1Kennewick WA 99336(509) 735-9092**
Check whether the issuer (1) has filed all reports required to be filed 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 [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes [ ] No [ X ]

State the number of shares outstanding of each of the issuer’s classes of commonequity, as of the latest practicable date: As of June 30, 2006: 5,153,667 shares of common$0.001 par value.

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

 

 

 
**PART I - FINANCIAL INFORMATION
**Item 1. FINANCIAL STATEMENTS. 

ELECTRONIC SYSTEMS TECHNOLOGY, INC.(as prepared by Management) (Unaudited) Six Months Ended
June 30, 2006
June 30, 2005Sales
$ 1,128,803
$ 1,130,184Other Revenues
22,935
16,135Gross Profit
632,285
581,801 Net Income (Loss) Before Taxes 
6,640
19,963Net Income (Loss) After Taxes
5,305
5,247 Earnings (Loss) Per Share Before    TaxesBasic
$ 0.00
$ 0.00Diluted
0.00
0.00 Earnings (Loss) Per Share After    TaxesBasic
$ 0.00
$ 0.00Diluted
0.00
0.00 Weighted Average Shares    Outstanding (Basic)Primary
5,152,258
5,148,667Diluted
5,178,098
5,236,410 Total Assets
$ 2,995,813
$ 2,903,995 Long-Term Debt and Capital Lease    Obligations
$ 0
$ 0 Shareholders' Equity
$ 2,729,602
$ 2,656,484 Shareholders' Equity Per Share
$ 0.53
$ 0.52 Working Capital
$ 2,562,555
$ 2,448,905 Current Ratio
12.9:1
15.0:1 Equity To Total Assets
91%
91%
(See "Notes to Financial Statements")

1**ELECTRONIC SYSTEMS TECHNOLOGY, INC. BALANCE SHEETS(as prepared by Management)(Unaudited) **** 
June 30, 2006
Dec. 31, 2005ASSETSCURRENT ASSETS Cash and Cash Equivalents
$ 599,333
$ 651,265Short Term Certificates of Deposit    Investments
359,640
449,613Available for Sale Marketable    Securities
1,038,224
921,029Accounts Receivable, net of    allowance for uncollectibles
159,113
222,982Inventory
575,412
485,257Accrued Interest
1,366
2,758Prepaid Expenses
44,978
31,985Total Current Assets
2,778,066
2,764,889 PROPERTY & EQUIPMENT net of    depreciation
178,443
184,025 OTHER ASSETS
16,104
25,067DEFERRED INCOME TAX BENEFIT
23,200
20,600TOTAL ASSETS
$ 2,995,813
$ 2,994,581 LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIESAccounts Payable
99,487
41,377Refundable Deposits
127
72Federal Income Taxes Payable
18,045
80,579Accrued Liabilities
46,315
54,109Distributions Payable
51,537
              --Total Current Liabilities 
215,511
176,137 DEFERRED INCOME TAX LIABILITY
50,700
59,300STOCKHOLDERS' EQUITY    Common Stock, $.001 Par Value 50,000,000 Shares Authorized 5,153,667 Shares Issued And    Outstanding 
 

5,154
 

5,149 Additional Paid-in Capital
972,173
966,184 Retained Earnings
1,758,596
1,804,828 Accumulated other Comprehensive Gain (Loss)
(6,321)
(17,017) 
2,729,602
2,759,144 TOTAL LIABILITIES AND    STOCKHOLDERS' EQUITY
$ 2,995,813
$ 2,994,581 
(See "Notes to Financial Statements")2
**ELECTRONIC SYSTEMS TECHNOLOGY, INC. STATEMENTS OF OPERATIONS (as prepared by Management) (Unaudited) 
 
Three Months    Ended
Six Months Ended
June 30, 2006
June 30, 2005
June 30, 2006
June 30, 2005 SALES
$ 640,970
$ 547,178
$ 1,128,803
$ 1,130,184COST OF SALES
255,581
281,467
496,518
548,383Gross Profit
385,389
265,711
632,285
581,801 OPERATING EXPENSESFinance/Administration
66,959
62,696
144,477
138,699Research & Development
91,409
69,659
176,530
136,351Marketing
142,662
129,733
250,848
234,766Customer Service
31,757
26,966
63,355
56,229Total Operating Expenses
332,787
289,054
635,210
566,045OPERATING INCOME (LOSS)
52,602
(23,343)
(2,925)
15,756 Other Income (expenses)Interest/Investment Income
11,504
9,811
19,778
16,134Uncollectible amount recovered
--
--
3,157
--Realized Loss on Marketable Securities
--
(1,500)
(8,942)
(7,140)Management Fee, Marketable Securities
(2,320)
(2,331)
(4,428)
(4,655)Loss on Asset Disposal
--
--
--
(132)Net Other Income (Expense)
9,184
5,980
9,565
4,207 NET INCOME (LOSS) BEFORE TAX
61,786
(17,363)
6,640
19,963Provision For Income Tax
(26,482)
2,645
(1,335)
(14,716)NET INCOME (LOSS)
$ 35,304
$ ( 14,718)
$ 5,305
$ 5,247 Basic Earnings (Loss) Per Share    Before Tax
$ 0.01
$ ( 0.00)
$ 0.00
$ 0.00Basic Earnings (Loss) Per Share    After Tax
$ 0.01
$ ( 0.00)
$ 0.00
$ 0.00Diluted Earnings (Loss) Per Share    Before Tax
$ 0.01
$ ( 0.00)
$ 0.00
$ 0.00Diluted Earnings (Loss) Per Share    After Tax
$ 0.01
$ ( 0.00)
$ 0.00
$ 0.00
(See "Notes to Financial Statements") 3
**STATEMENTS OF COMPREHENSIVE INCOME (LOSS)(as prepared by Management)(Unaudited)**** 
Three Months    Ended
Six Months    Ended
June 30, 2006
June 30, 2005
June 30, 2006
June 30, 2005NET INCOME (LOSS)
$ 35,304
$ (14,718)
$ 5,305
$ 5,247 OTHER COMPREHENSIVE GAIN (LOSS):Unrealized gain (loss) on securities arising    during period (net of tax effect)
1,862
1,609
3,950
( 749)COMPREHENSIVE INCOME (LOSS)
$ 37,166
$ ( 13,109)
$ 9,255$ 4,498
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(See "Notes To Financial Statements")4**ELECTRONIC SYSTEMS TECHNOLOGY, INC. STATEMENTS OF CASH FLOWS(as prepared by Management) (Unaudited) ****Six Months Ended
June 30, 2006
June 30, 2005CASH FLOWS PROVIDED (USED) IN OPERATING    ACTIVITIES:Net Income (Loss)
$ 5,305
$ 5,247Noncash items included in income:  Depreciation
29,028
35,428Amortization
748
1,426Loss on Disposition of Assets
--
132Loss on Marketable Securities
8,942
7,140Provision for Federal Income Taxes
( 5,510)
( 2,042)Accrued Interest
1,392
( 1,998)Deferred Income Tax 
( 11,200)
3,200Share Based Compensation
3,994
-- DECREASE (INCREASE) IN CURRENT ASSETS:Accounts Receivable Net
63,869
40,520Certificates of Deposit Redeemed (Purchased)
90,000
( 450,000)Marketable Securities Investments Purchased
( 402,000)
--Marketable Securities Investments Sold
292,042
595,028Inventory
( 90,155)
( 5,691)Prepaid Software and Network Services
8,215
( 16,305)Prepaid Expenses
( 12,993)
( 3,089) DECREASE (INCREASE) IN LONG TERM ASSETS:Prepaid Software and Network Services
--
( 28,535) INCREASE (DECREASE) IN CURRENT LIABILITIES:Accounts Payable and Accrued Expenses 
50,316
( 62,825)Refundable Deposits
55
( 43)Deferred Tax Liability
--
( 2,300)Accrued Federal Income Taxes 
( 62,534)
( 23,343) 
( 30,486)
91,950CASH FLOWS PROVIDED (USED) IN INVESTING    ACTIVITIES:Additions To Property And Equipment
( 23,446)
( 17,050) 
( 23,446)
( 17,050)CASH FLOWS PROVIDED (USED) IN FINANCING    ACTIVITIES:Stock option exercise
2,000
-- NET INCREASE (DECREASE) IN CASH    AND CASH EQUIVALENTS
(51,932)
74,900Cash And Cash Equivalents At    Beginning Of Period
651,265
488,480Cash And Cash Equivalents At Ending of Period 
$ 599,333********************** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|