UNITED STATES SECURITIES ANDEXCHANGE COMMISSIONWASHINGTON D.C. 20549

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934For the quarterly period ended September 30, 2007

[   ] TRANSITION REPORT UNDERSECTION 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., BuildingB1Kennewick  WA  99336****(509) 735-9092**

 

Check whether the issuer (1) has filed all reports required to befiled by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) has beensubject to such 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 September 30, 2007:5,153,667 shares of common $0.001 par value.

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

 

 

 

 

 
- **PART I - FINANCIAL    INFORMATION**  **Item 1.  FINANCIAL STATEMENTS.**  **ELECTRONIC SYSTEMS    TECHNOLOGY, INC.**    (as prepared by Management)    (Unaudited)  SELECTED FINANCIAL DATA  
Nine Months EndedSeptember 30,        2007September 30,        2006
Sales
$               2,031,481
$               1,764,334
Other Revenues
60,884
35,072
Gross Profit
1,215,623
1,014,106
 
Net Income (Loss) Before        Taxes           
249,842
101,487
Net Income (Loss) After Taxes
165,142
62,979
 
Earnings (Loss) Per Share Before Taxes
Basic
$                         0.05
$                         0.02
Diluted
              0.05
              0.02
 Earnings        (Loss) Per Share After Taxes
Basic
$                        0.03
$                        0.01
Diluted
             0.03
             0.01
 
Weighted Average Shares Outstanding 
Primary
5,153,667
5,152,733
Diluted
5,237,537
5,169,484
 
Total Assets
$               3,286,108
$               3,015,468
 
Long-Term Debt and Capital Lease Obligations
$                             0
$                             0
 
Shareholders' Equity
$               3,024,143
$               2,795,587
 
Shareholders' Equity Per Share
$                        0.59
$                        0.54
 
Working Capital
$               2,901,404
$               2,648,987
 
Current Ratio
14.5:1
16.3:1
 
Equity To Total Assets
92%
93%
 

 

1

 

**ELECTRONIC SYSTEMSTECHNOLOGY, INC.BALANCE SHEETS** (as prepared by Management) (Unaudited)

 

                                                                                
**September    30, 2007****December 31, 2006**
ASSETS
CURRENT    ASSETS                   
Cash and Cash Equivalents
$               1,299,485
$       1,487,848
Short Term Certificates of Deposit Investments
960,000
630,000
Accounts Receivable, Net of Allowance for Uncollectibles
207,542
      401,127
Inventory
597,544
            582,915
Accrued Interest
16,155
4,650
Prepaid Expenses
                    35,343
              28,604
Total Current Assets
               3,116,069
         3,135,144
PROPERTY & EQUIPMENT, Net of Depreciation
                  142,799
            152,655
                           
OTHER ASSETS
                          340
                 5,852
Deferred Income Tax Benefit
                26,900
               26,200
TOTAL ASSETS
$           3,286,108
$        3,319,851
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable
$                  77,090
$             93,051
Refundable Deposits
32,596
              67
Accrued Liabilities
                   34,289
              77,143
Federal Income Taxes Payable
                   70,690
            140,090
Total Current Liabilities  
                 214,665
            310,351
Deferred Income Taxes
                   47,300
              50,500
STOCKHOLDERS' EQUITY

Common Stock,  $.001 Par Value 50,000,000 Shares Authorized    5,153,667 Shares Issued And    Outstanding           
5,154
5,154  
Additional Paid-in Capital
977,540
            974,466 
Retained Earnings
               2,041,449
         1,979,380
               3,024,143
         2,959,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$             3,286,108
$       3,319,851  
(See "Notes toFinancial Statements")2

**ELECTRONIC SYSTEMSTECHNOLOGY, INC.STATEMENTS OF OPERATIONS**(as prepared by Management)(Unaudited)

 

 
Three    Months Ended
Nine Months    Ended
 
September    30,     2007
September    30,     2006
September    30,    2007
September    30,    2006
 
 
 
SALES
$        682,945
$        635,531
$      2,031,481
$      1,764,334
 
COST OF SALES
          259,904
          253,710
           815,858
           750,228
 
Gross Profit
          423,041
          381,821
        1,215,623
         1,014,106
 
 
 
OPERATING EXPENSES
 
Finance/Administration
56,295
49,362
214,987
193,840
 
Research & Development
131,899
100,381
369,089
276,911
 
Marketing
127,719
107,649
361,328
358,437
 
Customer Service
           31,098
           30,577
          81,261
          93,991
 
Total Operating Expense
         347,011
         287,969
     1,026,665
        923,179
 
OPERATING INCOME (LOSS)
           76,030
           93,852
        188,958
          90,927
 
 
 
Other Income (Expenses)
 
Interest/Investment Income
           21,304
           12,137
          59,740
          31,915
 
Realized Loss on Marketable Securities
--
(16,385)
--
(19,343)
 
Management Fee, Marketable Securities
--
(647)
--
(5,075)
 
Uncollectible Amounts Recovered
204
--
1,144
3,157
 
Loss on Asset Disposal
                    --
                (94)
                  --
             (94)
 
Net Other Income (Expense)
            21,508
           (4,989)
          60,884
        10,560
 
 
 
INCOME (LOSS) BEFORE TAX
97,538
88,863
249,842
101,487
 
Provision For Income Tax
         (54,700)
         (35,139)
    (84,700)
    (38,508)
 
 
 
NET INCOME (LOSS)
$          42,838
$          53,724
$   165,142
$        62,979
 
 
 BasicBasic    Earnings (Loss) Per Share Before Tax$            0.02$            0.02$         0.05$          0.02 
Basic Earnings (Loss) Per Share After Tax
 $              0.01
 $              0.01
$           0.03
$           0.01
 
 
 
Diluted Earnings (Loss) Per Share Before Tax
$              0.02
$              0.02
$           0.05
$           0.02
 
Diluted Earnings (Loss) Per Share After Tax
$              0.01
$              0.01
$           0.03
$           0.01
 
 (See "Notes to Financial Statements") 

3

 

**ELECTRONIC SYSTEMSTECHNOLOGY, INC.STATEMENTS OF CASH FLOWS**(as prepared by Management)(Unaudited)

Nine Months Ended
September 30, 2007
September 30, 2006
CASH FLOWS PROVIDED (USED) IN OPERATING ACTIVITIES:
Net Income (Loss)
$165,142
$62,979
Noncash items included in income:
      Depreciation
38,961
44,145
      Amortization
--
1,090
      Loss on Disposition of Assets
--
94
       Loss on Marketable Securities
--
19,343
      Provision for Federal Income Taxes
--
(8,765)
      Deferred Income Tax
(  3,900)
(7,500)
      Accrued Interest
(11,505)
1,209
      Shared Based Compensation
3,074
5,984
 
DECREASE (INCREASE) IN CURRENT ASSETS:
Accounts Receivable Net
193,585
(7,599)
Certificates of Deposit Redeemed (Purchased)
(330,000)
270,000
Marketable Securities Investments Purchased
--
(402,000)
Marketable Securities Investments Sold
--
1,329,081
Inventory
(14,629)
(122,839)
Prepaid Software and Network Services
5,512
12,999
Prepaid Expenses
(6,739)
(15,114)
 
INCREASE (DECREASE) IN CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses 
(58,816)
23,322
Refundable Deposits
32,529
(72)
Accrued Federal Income Taxes
 (69,400)
 (25,806)
                                                          (56,186)
                       1,180,551
 
CASH FLOWS PROVIDED (USED) IN INVESTING ACTIVITIES:
Additions To Property And Equipment
          (29,104)
          (27,036)
                                                                                               (29,104)
         (27,036)
CASH FLOWS PROVIDED (USED) IN FINANCING ACTIVITIES:
Stock Options Exercised
--
2,000
Cash Distribution Paid to Shareholders
            (103,073)
              (51,537)
            (103,073)
              (49,537)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(188,363)
1,103,978
Cash And Cash Equivalents At Beginning Of Period
          1,487,848
             651,265
Cash And Cash Equivalents At Ending of Period 
1,299,485
$        1,755,243
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash And Cash Equivalents:
Cash
$             35,664
$             31,091
Money Market Accounts
          1,263,821
         1,724,152
           $        1,299,485
               $    1,755,243
(See"Notes to Financial Statements)4

**ELECTRONICSYSTEMS TECHNOLOGY, INC.NOTES TO FINANCIAL STATEMENTS** (as prepared by Management) (Unaudited)

                                                                                                                  

**NOTE 1 - BASIS OF PRESENTATION**

The financial statements of ElectronicSystems Technology, Inc. (the “Company”), presented in this Form 10QSB areunaudited and reflect, in the opinion of Management, a fair presentation of operations forthe three and nine month periods ended September 30, 2007 and September 30, 2006. Certaininformation and footnote disclosures normally included in financial statements prepared inaccordance with generally accepted accounting principals have been condensed or omittedpursuant to the applicable rules and regulations of the Securities and ExchangeCommission. These financial statements should be read in conjunction with the auditedfinancial statements and notes thereto included in the Company's Form 10KSB for the yearended December 31, 2006 as filed with Securities and Exchange Commission.

The results of operation for the three and nine month periods endedSeptember 30, 2007 and September 30, 2006, are not necessarily indicative of the resultsexpected for the full fiscal year or for any other fiscal period.

**NOTE 2 - INVENTORIES**

Inventories are stated at lower of direct cost or market with costdetermined using the FIFO (first in, first out) method.  Inventories consist of thefollowing:

 September 302007December 312006Parts$223,458$255,793Work In Process142,700108,162Finished Goods231,386218,960 $597,544$582,915
**NOTE 3 – EARNINGS (LOSS) PER SHARE**

Basic Earnings Per Share (EPS) excludesdilution and is computed by dividing income available to common stockholders by theweighted-average number of common shares outstanding for the period.  Diluted EPSreflects potential dilution occurring if securities or other contracts to issue commonstock were exercised or converted into common stock or resulted in the issuance of commonstock that then shared in the earnings of the Company.  The primary weighted averagenumber of common shares outstanding was 5,153,667 and 5,152,733 for the nine months endedSeptember 30, 2007 and 2006 respectively. The primary weighted average number of commonshares outstanding for the three month period ended September 30, 2007 was 5,153,667.

For the    Nine Months Ended September 30, 2007
 
Income(Numerator)
Shares(Denominator)
Per-ShareAmount**Basic EPS**    Income available to common stockholders
$165,142
5,153,667
$0.03**Diluted EPS**    Income available to common stockholders + assumed conversions
$165,142
5,237,537
$0.03
5

**NOTE 4 - STOCK OPTIONS**Effective January 1, 2006, the Company adopted the provisions of Financial AccountingStandards Board (FASB) Statement No. 123R, “Share-Based Payment”, (FAS 123R) forits share-based compensation plan.  The Company previously accounted for these plansunder the recognition and measurement principles of Accounting Principles Board (APB)Opinion No. 25, "Accounting for Stock Issued to Employees", (APB 25) and relatedinterpretations and disclosure requirements established by FAS 123, "Accounting forStock-Based Compensation".  The Company adopted FAS 123R using the modifiedprospective method and, accordingly, results for prior periods have not been restated.As of September 30, 2007, the Company hadoutstanding stock options that have been granted periodically to individual employees anddirectors with no less than three years of continuous tenure with the Company. On February16, 2007, additional stock options to purchase shares of the Company's common stock weregranted to individual employees and directors with no less than three years continuoustenure.  The options granted on February 16, 2007 totaled 180,000 shares under optionand have an exercise price of $0.68 per share.  The options granted on February 16,2007 may be exercised any time during the period from February 16, 2007 through February15, 2010.  The Company's Form 8-K dated February 16, 2007, as filed with theSecurities and Exchange Commission is included herein by reference.  All outstandingstock options must be exercised within 90 days after termination of employment.

The fair value of each option award isestimated on the date of the grant using the Black-Scholes option-pricing model with thefollowing weighted-average assumptions used for grants in:

 
2007
2006
2005

(proforma)
2004

(proforma)
Dividend yield
1.43%
1.43%
1.25%
1.15%
Expected volatility
39%
49%
63%
65%
Risk-free interest rate
4.40%
4.67%
3.65% |
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