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 March 31, 2007

[   ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT 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 filedby Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes [ X ] No [   ]

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act). Yes [   ] No [ X ]

State the number of shares outstanding of each of the issuer’sclasses of common equity, as of the latest practicable date: As of March 31, 2007:5,153,667 shares of common $0.001 par value.

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

 
**PART IFINANCIAL INFORMATION

Item 1. Financial Statements.**
ELECTRONIC SYSTEMS TECHNOLOGY, INC.SELECTED FINANCIAL DATA(as prepared by Management)(Unaudited)
Three Months Ended
Mar. 31, 2007
Mar. 31, 2006Sales
$ 674,557
$ 487,833Other Revenues
$ 18,572
$ 11,430Gross Profit
$ 395,101
$ 246,895 Net Income (Loss) Before Taxes 
$ 84,469
$ ( 55,148)Net Income (Loss) 
$ 66,569
$ ( 30,000) Earnings (Loss) Per Share Before TaxesBasic
$ 0.02
$ ( 0.01)Diluted
$ 0.02
$ ( 0.01) Earnings (Loss) Per Share Basic
$ 0.01
$ ( 0.01)Diluted
$ 0.01
$ ( 0.01) Weighted Average Shares Outstanding (Basic)Primary
5,153,667
5,150,834Diluted
5,156,534
5,188,092 Total Assets
$ 3,241,697
$ 3,007,539 Long-Term Debt and Capital Lease    Obligations
$ 0
$ 0 Shareholders' Equity
$ 3,026,594
$ 2,741,912 Shareholders' Equity Per Share
$ 0.59
$ 0.53 Working Capital
$ 2,892,552
$ 2,572,081 Current Ratio
18.6:1
13.2:1 Equity To Total Assets
93 %
91 %
 

 

1

 

ELECTRONIC SYSTEMS TECHNOLOGY, INC.BALANCE SHEET(as prepared by Management)(Unaudited)
 
Mar. 31, 2007
Dec. 31 ,2006ASSETSCURRENT ASSETS Cash and Cash Equivalents
$ 1,352,206
$ 1,487,848 Short Term    Certificates of Deposit Investments
810,000
630,000Accounts Receivable,    net of allowance for uncollectibles
263,106
401,127Inventory
591,414
582,915 Accrued Interest
9,239
4,650Prepaid Expenses
30,490
28,604Total Current Assets
3,056,455
3,135,144 PROPERTY &    EQUIPMENT net of depreciation 
154,574
152,655 OTHER ASSETS
1,068
5,852DEFERRED INCOME TAX BENEFIT
29,600
26,200TOTAL ASSETS
$ 3,241,697
$ 3,319,851 LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable
103,461
93,051Refundable Deposits 
6,717
67Federal Income Taxes Payable
2,690
140,090Accrued Liabilities
51,035
77,143 Total Current Liabilities 
163,903
310,351 DEFERRED INCOME TAXES 
51,200
50,500 STOCKHOLDERS' EQUITYCommon Stock, $.001    Par Value 50,000,000 Shares Authorized 5,153,667 Shares Issued And Outstanding
5,154
5,154 Additional Paid-in Capital
975,491
974,466 Retained Earnings
2,045,949
1,979,380  
3,026,594
2,959,000 TOTAL LIABILITIES AND    STOCKHOLDERS' EQUITY
$    3,241,697
$ 3,319,851 
See Notes To Financial Statements2

ELECTRONIC SYSTEMS TECHNOLOGY, INC.STATEMENTS OF INCOME (LOSS)(as prepared by Management)(Unaudited)
Three Months Ended
Mar. 31, 2007
Mar. 31, 2006 SALES
$    674,557
$ 487,833 COST OF SALES
279,456
240,938Gross Profit
395,101
246,895 OPERATING EXPENSESFinance/Administration
91,320
77,518Research & Development
112,416
85,121Marketing
104,789
108,246Customer Service
20,679
31,538Total Operating Expense
329,204
302,423OPERATING INCOME (LOSS)
65,897
( 55,528) Other Income (expenses)Interest Income
18,572
8,273Uncollectible Accounts Recovered
--
3,157Realized Loss on Marketable    Securities
--
(8,942)Management Fee, Marketable    Securities
--
(2,108)Net Other Income (expense)
18,572
380NET INCOME (LOSS) BEFORE TAX
84,469
(55,148)Provision For Income Tax
(17,900)
25,148NET INCOME (LOSS) 
$ 66,569
$ ( 30,000) Basic Earnings (Loss)    Per Share Before Tax
$ 0.02
$ ( 0.01)Basic Earnings (Loss)    Per Share After Tax
$ 0.01
$ ( 0.01) Diluted Earnings    (Loss) Per Share Before Tax
$ 0.02
$ ( 0.01)Diluted Earnings    (Loss) Per Share After Tax
$ 0.01
$ ( 0.01)
See Notes To Financial Statements

3

ELECTRONIC SYSTEMS TECHNOLOGY, INC.STATEMENTS OF COMPREHENSIVE INCOME (LOSS)(as prepared by Management)(Unaudited)

 
Three Months Ended
Mar. 31, 2007
Mar. 31, 2006NET INCOME (LOSS)
$ 66,569
$ ( 30,000) OTHER COMPREHENSIVE LOSS:Unrealized gain (loss) on securities arising    during period (net of tax effect)
--
2,088COMPREHENSIVE INCOME (LOSS)
$ 66,569
$ ( 27,912)
 

 

 

 

 

 

 

 

 

 

 

 

See Notes To Financial Statements

4

ELECTRONIC SYSTEMSTECHNOLOGY, INC.STATEMENT OF CASH FLOWS(as prepared by Management)(Unaudited)
Three Months Ended
Mar. 31, 2007
Mar. 31, 2006CASH FLOWS PROVIDED (USED) IN OPERATING    ACTIVITIES:Net Income (Loss)
$ 66,569
$ ( 30,000)Noncash items included in income:
Depreciation

12,558
14,391
Amortization

--
370
Loss on Marketable Securities

--
8,942
Provision for Federal Income Taxes

--
( 19,147)
Accrued Interest 

( 4,589)
1,767
Deferred Income Tax

( 2,700)
( 6,000)
Share Based Compensation

1,025
2,004 DECREASE (INCREASE) IN CURRENT ASSETS:Accounts Receivable Net
138,021
16,367Certificates of Deposit Redeemed (Purchased)
( 180,000)
360,000Marketable Securities Investments Purchased
--
( 402,000)Marketable Securities Investments Sold
--
292,042Inventory
( 8,499)
( 24,478)Prepaid Software and Network Services
4,784
3,433Prepaid Expenses
( 1,886)
( 5,769) INCREASE (DECREASE) IN CURRENT LIABILITIES:Accounts Payable and Accrued Expenses 
( 15,698)
87,397Refundable Deposits
6,650
27,772Accrued Federal Income Taxes
( 137,400)
( 80,579) 
( 121,165) 
246,512 CASH FLOWS PROVIDED (USED) IN INVESTING    ACTIVITIES:Additions To Property And    Equipment
( 14,477)
( 11,633) 
( 14,477)
( 11,633)CASH FLOWS PROVIDED (USED) IN FINANCING    ACTIVITIES:Stock option exercise
--
2,000 
--
2,000 NET INCREASE (DECREASE) IN CASH    AND EQUIVALENTS
(135,642)
236,879Cash and Equivalents At Beginning    Of Period
1,487,848
651,265Cash and Equivalents At Ending of Period 
$ 1,352,206
$ 888,144 SUPPLEMENTAL DISCLOSURES OF CASH FLOWS    INFORMATION:Cash Paid Year To Date:Interest
0
0Federal Income Taxes
$ 158,000
$ 80,579 Cash and Equivalents:Cash
$ 62,883
$ 10,086Money Market Accounts
1,289,323
878,058 
$ 1,352,206
$ 888,144
See Notes To FinancialStatements
5

ELECTRONIC SYSTEMS TECHNOLOGY, INC.NOTES TO FINANCIAL STATEMENTS(as prepared by Management)(Unaudited)
**NOTE 1 - BASIS OF PRESENTATION**
The financial statements of Electronic Systems Technology, Inc. (the"Company"), presented in this Form 10QSB are unaudited and reflect, in theopinion of Management, a fair presentation of operations for the three month periods endedMarch 31, 2007 and March 31, 2006. Certain information and footnote disclosure normallyincluded in financial statements prepared in accordance with generally accepted accountingprincipals have been condensed or omitted pursuant to the applicable rules and regulationsof the Securities and Exchange Commission. In preparation of the financial statements,certain amounts and balances have been restated from previously filed reports to conformto the format of this quarterly presentation. These financial statements should be read inconjunction with the audited financial statements and notes thereto included in theCompany's Form 10K for the year ended December 31, 2006 as filed with Securities andExchange Commission.

The results of operation for the three-month periods ended March 31, 2007 and March 31,2006 are not necessarily indicative of the results expected for the full fiscal year orfor any other fiscal period.
**NOTE 2 - INVENTORIES**
Inventories are stated at lower of cost or market with cost determined using the FIFO(first in, first out) method. Inventories consist of the following:
 
March 312007
December 31 2006Parts
$ 266,752
$ 255,793Work in progress
87,161
108,162Finished goods
237,501
218,960 
$ 591,414
$ 582,915**NOTE 3 - EARNINGS (LOSS) PER SHARE**
Basic EPS excludes dilution and is computed by dividing incomeavailable to common stockholders by the weighted-average number of common sharesoutstanding for the period. Diluted EPS reflects potential dilution occurring ifsecurities or other contracts to issue common stock were exercised or converted intocommon stock or resulted in the issuance of common stock that then shared in the earningsof the Company.The primary weightedaverage number of common shares outstanding was 5,153,667 and 5,150,834 for the quartersended March 31, 2007 and 2006 respectively. 
For the three    months ended March 31, 2007 
Income (Numerator)
Shares (Denominator)
Per Share Amount
Basic EPS

Income available to common stockholders
$66,569
5,153,667
$0.01
Diluted EPS

Income available to common stockholders + assumed conversions
 

$66,569
 

5,156,534
 

$0.01**NOTE 4 - STOCK OPTIONS**
Effective January 1, 2006, the Company adopted the provisions of FinancialAccounting Standards Board (FASB) Statement No. 123R, "Share-Based Payment",(FAS 123R) for its share-based compensation plan. The Company

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previously accounted for these plans under the recognition and measurementprinciples of Accounting Principles Board (APB) Opinion No. 25, "Accounting for StockIssued to Employees", (APB 25) and related interpretations and disclosurerequirements established by FAS 123, "Accounting for Stock-Based Compensation".The Company adopted FAS 123R using the modified prospective method and, accordingly,results for prior periods have not been restated. 

As of March 31, 2007, the Company had outstanding stock options, whichhave been granted periodically to individual employees and directors with no less thanthree years of continuous tenure with the Company. On February 16, 2007, additional stockoptions to purchase shares of the Company's common stock were granted to individualemployees and directors with no less than three years continuous tenure. The optionsgranted on February 16, 2007 totaled 180,000 shares under option and have an exerciseprice of $0.68 per share.

The options granted on February 16, 2007 may be exercised any timeduring the period from February 16, 2007 through February 15, 2010. The Company's Form 8-Kdated February 16, 2007, as filed with the Securities and Exchange Commission is includedherein by reference. All outstanding stock options must be exercised within 90 days aftertermination of employment.

The fair value of each option award is estimated on the date of thegrant using the Black-Scholes option-pricing model with the following weighted-averageassumptions used for grants in:
 
2007
2006
2005    (proforma)
2004    (proforma)Dividend yield
1.43%
1.43%
1.25%
1.15%Expected volatility
67%
49%
63%
65%Risk-free interest rate
4.40%
4.67%
3.65%
2.25%Expected term (in years)
3
3
3
3Estimated Fair Value per Option Granted
$0.21
$0.25
$0.34
$0.41
The Company uses historical data to estimate option exercise rates. Theoption exercise rate for option grants in 2007 through 2004 was eleven percent.

A summary of option activity during the quarter ended March 31, 2007 is as follows:** |
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