<HTML>
</FONT><B><FONT FACE="Arial"><P ALIGN="CENTER">UNITED STATES SECURITIES AND
EXCHANGE COMMISSIONS </P>
<P ALIGN="CENTER">WASHINGTON D.C. 20549 </P>
<P ALIGN="CENTER">FORM 10-QSB </P>
</B></FONT><P ALIGN="CENTER">QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES </P>
<P ALIGN="CENTER">EXCHANGE ACT OF 1934. </P>
<P ALIGN="CENTER">For the quarterly period ended: June 30, 1999 </P>
<P ALIGN="CENTER">Commission File Number: 2-92949-S </P>
<B><FONT FACE="Arial"><P ALIGN="CENTER">ELECTRONIC SYSTEMS TECHNOLOGY,
INC.</B></FONT><FONT FACE="Courier"> </P>
</FONT><P ALIGN="CENTER">(Exact name of registrant as specified in its charter)
</P>
<TABLE CELLSPACING=0 BORDER=0 WIDTH=530>
<TR><TD WIDTH="52%" VALIGN="MIDDLE" HEIGHT=25>
<P ALIGN="RIGHT">Washington
             </TD>
<TD WIDTH="46%" VALIGN="MIDDLE" HEIGHT=25>
<P>               91-1238077</TD>
</TR>
<TR><TD WIDTH="52%" VALIGN="MIDDLE" HEIGHT=26>
<P ALIGN="RIGHT">(State of incorporation)      </TD>
<TD WIDTH="46%" VALIGN="MIDDLE" HEIGHT=26>
<P>  (I.R.S. Employer Identification No.)</TD>
</TR>
</TABLE>

<P ALIGN="CENTER">415 N. Quay St., #4 Kennewick WA 99336</P>
<P ALIGN="CENTER">(Address of principal executive offices) (ZIP Code) </P>
<P ALIGN="CENTER">Registrant's telephone number, including area code: (509) 735-
9092 </P>
<P>Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [ X ] No
[ ] </P>
<P>The number of shares outstanding of common stock as of June 30, 1999 was
4,953,667. </P>
<P> </P>
<B><FONT FACE="Arial" SIZE=2><P ALIGN="CENTER">PART I - FINANCIAL
INFORMATION</P>
<P>Item 1. FINANCIAL STATEMENTS. </P>
<P ALIGN="CENTER">ELECTRONIC SYSTEMS TECHNOLOGY, INC.</B></FONT><BR>
<FONT SIZE=2>(as prepared by Management) <BR>
(Unaudited)</P>
<P>SELECTED FINANCIAL DATA</P>
<P><div align="center"></P></FONT>
<P ALIGN="CENTER"><CENTER><TABLE CELLSPACING=0 BORDER=0 WIDTH=543>
<TR><TD WIDTH="45%" VALIGN="TOP" HEIGHT=18>
<P><FONT SIZE=2>Six months ended</FONT></TD>
<TD WIDTH="28%" VALIGN="TOP" HEIGHT=18>
<FONT SIZE=2><P ALIGN="CENTER">June 30,<BR>
1999<BR>
===============</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" HEIGHT=18>
<FONT SIZE=2><P ALIGN="CENTER">June 30,<BR>
1998<BR>
================</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Sales</FONT></TD>
<TD WIDTH="28%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">$ 511,486</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">$ 717,116</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Other revenue</FONT></TD>
<TD WIDTH="28%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">91,186</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">67,748</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Gross profit</FONT></TD>
<TD WIDTH="28%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">241,764</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">386,253</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" HEIGHT=13><P></P></TD>
<TD WIDTH="28%" VALIGN="TOP" HEIGHT=13><P></P></TD>
<TD WIDTH="26%" VALIGN="TOP" HEIGHT=13><P></P></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Net Income (Loss) Before Taxes</FONT></TD>
<TD WIDTH="28%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">(52,601)</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">109,510</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Net Income (Loss) After Taxes</FONT></TD>
<TD WIDTH="28%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">(34,716)</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">72,276</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" HEIGHT=13><P></P></TD>
<TD WIDTH="28%" VALIGN="TOP" HEIGHT=13><P></P></TD>
<TD WIDTH="26%" VALIGN="TOP" HEIGHT=13><P></P></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Earnings (Loss) Per Share Before Taxes </FONT></TD>
<TD WIDTH="28%" VALIGN="TOP" HEIGHT=13><P></P></TD>
<TD WIDTH="26%" VALIGN="TOP" HEIGHT=13><P></P></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">Basic</FONT></TD>
<TD WIDTH="28%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">$ ( 0.01)</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">$ 0.02</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">Diluted </FONT></TD>
<TD WIDTH="28%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">( 0.01)</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">0.02</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" HEIGHT=13><P></P></TD>
<TD WIDTH="28%" VALIGN="TOP" HEIGHT=13><P></P></TD>
<TD WIDTH="26%" VALIGN="TOP" HEIGHT=13><P></P></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Earnings (Loss) Per Share After Taxes </FONT></TD>
<TD WIDTH="28%" VALIGN="TOP" HEIGHT=13><P></P></TD>
<TD WIDTH="26%" VALIGN="TOP" HEIGHT=13><P></P></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">Basic</FONT></TD>
<TD WIDTH="28%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">$ ( 0.01)</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">0.013</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">Diluted</FONT></TD>
<TD WIDTH="28%" VALIGN="MIDDLE" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">( 0.01)</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">0.013</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" HEIGHT=13><P></P></TD>
<TD WIDTH="28%" VALIGN="TOP" HEIGHT=13><P></P></TD>
<TD WIDTH="26%" VALIGN="TOP" HEIGHT=13><P></P></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Weighted Average Shares Outstanding (Basic)</FONT></TD>
<TD WIDTH="28%" VALIGN="TOP" HEIGHT=13><P></P></TD>
<TD WIDTH="26%" VALIGN="TOP" HEIGHT=13><P></P></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">Primary</FONT></TD>
<TD WIDTH="28%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">5,590,927</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">5,590,530</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">Diluted</FONT></TD>
<TD WIDTH="28%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">5,590,927</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">5,590,530</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" HEIGHT=13><P></P></TD>
<TD WIDTH="28%" VALIGN="TOP" HEIGHT=13><P></P></TD>
<TD WIDTH="26%" VALIGN="TOP" HEIGHT=13><P></P></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Total assets</FONT></TD>
<TD WIDTH="28%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">$ 2,281,656</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">$ 2,268,671</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" HEIGHT=13><P></P></TD>
<TD WIDTH="28%" VALIGN="TOP" HEIGHT=13><P></P></TD>
<TD WIDTH="26%" VALIGN="TOP" HEIGHT=13><P></P></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" HEIGHT=18>
<FONT SIZE=2><P>Long-term debt and capital lease obligations</FONT></TD>
<TD WIDTH="28%" VALIGN="TOP" HEIGHT=18>
<FONT SIZE=2><P ALIGN="CENTER">$ 0</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" HEIGHT=18>
<FONT SIZE=2><P ALIGN="CENTER">$ 0</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" HEIGHT=13><P></P></TD>
<TD WIDTH="28%" VALIGN="TOP" HEIGHT=13><P></P></TD>
<TD WIDTH="26%" VALIGN="TOP" HEIGHT=13><P></P></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Shareholders' equity</FONT></TD>
<TD WIDTH="28%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">$ 2,157,735</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">$ 2,151,338</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" HEIGHT=13><P></P></TD>
<TD WIDTH="28%" VALIGN="TOP" HEIGHT=13><P></P></TD>
<TD WIDTH="26%" VALIGN="TOP" HEIGHT=13><P></P></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Shareholders' equity per share</FONT></TD>
<TD WIDTH="28%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">$ 0.44</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">$ 0.43</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" HEIGHT=13><P></P></TD>
<TD WIDTH="28%" VALIGN="TOP" HEIGHT=13><P></P></TD>
<TD WIDTH="26%" VALIGN="TOP" HEIGHT=13><P></P></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Working Capital</FONT></TD>
<TD WIDTH="28%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">$ 1,983,369</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">$ 2,017,755</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" HEIGHT=13><P></P></TD>
<TD WIDTH="28%" VALIGN="TOP" HEIGHT=13><P></P></TD>
<TD WIDTH="26%" VALIGN="TOP" HEIGHT=13><P></P></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P>Current ratio</FONT></TD>
<TD WIDTH="28%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">17 : 1</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=2><P ALIGN="CENTER">18 : 1</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" HEIGHT=13><P></P></TD>
<TD WIDTH="28%" VALIGN="TOP" HEIGHT=13><P></P></TD>
<TD WIDTH="26%" VALIGN="TOP" HEIGHT=13><P></P></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP" HEIGHT=24>
<FONT SIZE=2><P>Equity to total assets</FONT></TD>
<TD WIDTH="28%" VALIGN="TOP" HEIGHT=24>
<FONT SIZE=2><P ALIGN="CENTER">95%</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" HEIGHT=24>
<FONT SIZE=2><P ALIGN="CENTER">95%</FONT></TD>
</TR>
</TABLE>
</CENTER></P>

<P ALIGN="CENTER"></div></P>
<B><FONT FACE="Arial" SIZE=2><P ALIGN="CENTER">ELECTRONIC SYSTEMS TECHNOLOGY,
INC.</P>
<P ALIGN="CENTER">BALANCE SHEET </P>
</B></FONT><FONT SIZE=2><P ALIGN="CENTER">(as prepared by Management) </P>
<P ALIGN="CENTER">(Unaudited) </P></FONT>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=616>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=48>
<P></TD>
<TD WIDTH="15%" VALIGN="TOP" HEIGHT=48>
<FONT SIZE=2><P ALIGN="CENTER">JUNE 30,<BR>
1999<BR>
===========</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=48>
<FONT SIZE=2><P ALIGN="CENTER">DECEMBER 31,<BR>
1998<BR>
============</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>ASSETS</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>CURRENT ASSETS </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Cash and cash equivalents</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 1,436,745</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 1,426,381</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Accounts receivable, net of allowance for uncollectibles of
$1,284</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">207,161</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">381,386</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Inventory</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">417,514</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">385,365</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Accrued Interest</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">5,189</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">7,888</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Prepaid Expenses</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">7,309</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">5,202</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Prepaid federal Income Taxes</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">32,885</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">0</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Deferred Tax Asset</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">487</U></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">487</U></FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Total Current Assets</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 2,107,290</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 2,206,709</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>PROPERTY & EQUIPMENT, net of depreciation </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>of $261,001 at June 30, 1999 and $246,122 at Dec. 31,
1998</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">162,942</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">112,314</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>OTHER ASSETS</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">11,424</U></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">35,122</U></FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>TOTAL ASSETS</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 2,281,656</U></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 2,354,145</U></FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>LIABILITIES AND STOCKHOLDERS' EQUITY </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>CURRENT LIABILITIES </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Accounts payable</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 49,507</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 52,386</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Federal Income Taxes Payable</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">0</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">14,510</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Accrued Liabilities</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">24,877</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">20,244</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Cash Distributions Payable</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">49,537</U></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">0</U></FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Total Current Liabilities</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 123,921</U></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 87,140</U></FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>STOCKHOLDERS' EQUITY </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Common stock, $.001 par value</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>50,000,000 shares authorized, shares issued and outstanding:
</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>4,953,667-Dec. 31, 1998 and June 30, 1999</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 4,954</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 4,954</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Additional Paid-in Capital</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">894,129</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">894,129</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Retained earnings</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">1,258,652</U></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">1,342,905</U></FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 2,157,735</U></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 2,241,988</U></FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 2,281,656</U></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 2,354,145</U></FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>(See "Notes to Financial Statements") </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
</TR>
</TABLE>

<P> </P>
<B><FONT FACE="Arial" SIZE=2><P ALIGN="CENTER">ELECTRONIC SYSTEMS TECHNOLOGY,
INC. </P>
<P ALIGN="CENTER">STATEMENT OF OPERATIONS</B></FONT> </P>
<FONT SIZE=2><P ALIGN="CENTER">(as prepared by Management) </P>
<P ALIGN="CENTER">(Unaudited) </P></FONT>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=620>
<TR><TD WIDTH="26%" VALIGN="TOP" HEIGHT=22>
<P></TD>
<TD WIDTH="38%" VALIGN="TOP" COLSPAN=2 HEIGHT=22>
<FONT SIZE=2><P ALIGN="CENTER">Three Months Ended</FONT></TD>
<TD WIDTH="36%" VALIGN="TOP" COLSPAN=2 HEIGHT=22>
<FONT SIZE=2><P ALIGN="CENTER">Six Months Ended</FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP" HEIGHT=36><P></P></TD>
<TD WIDTH="20%" VALIGN="TOP" HEIGHT=36>
<FONT SIZE=2><P ALIGN="CENTER">June 30,<BR>
1999<BR>
============</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=36>
<FONT SIZE=2><P ALIGN="CENTER">June 30,<BR>
1998<BR>
===========</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=36>
<FONT SIZE=2><P ALIGN="CENTER">June 30,<BR>
1999<BR>
=========</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=36>
<FONT SIZE=2><P ALIGN="CENTER">June 30,<BR>
1998<BR>
=============</FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P>SALES </FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 331,752</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 307,902</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 511,486</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 717,116</U></FONT></TD>
</TR>
<TR><TD WIDTH="100%" VALIGN="TOP" COLSPAN=5>
<FONT SIZE=2><P>COST OF SALES </FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P>Beginning Inventory</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 443,012</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 292,162</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 385,365</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 319,127</FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P>Purchases & allocated costs</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">151,095</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">205,360</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">301,871</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">351,424</U></FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP"> </TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 594,107</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 497,522</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 687,236</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 670,551</FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P>Ending Inventory</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">417,514</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">339,688</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">417,514</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">339,688</U></FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P>Total Cost of Sales </FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 176,593</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 157,834</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 269,722</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 330,863</U></FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P>Gross Profit </FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 150,068</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 241,764</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 386,253</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 155,159</U></FONT></TD>
</TR>
<TR><TD WIDTH="100%" VALIGN="TOP" COLSPAN=5>
<FONT SIZE=2><P>OPERATING EXPENSES </FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P>Finance/Administration </FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 37,939</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 40,834</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 107,181</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 109,892</FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P>Research & Development </FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">40,823</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">37,973</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">84,411</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">73,331</FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P>Marketing</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">63,020</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">56,427</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">106,956</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">100,815</FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P>Customer Service </FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">14,384</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">15,602</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">32,504</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">32,134</U></FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P>Total Operating Expense </FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 156,166</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 150,836</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 331,052</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 316,172</U></FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P>OPERATING INCOME (LOSS) </FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ (1,007)</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ ( 768)</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ (89,288)</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 70,081</U></FONT></TD>
</TR>
<TR><TD WIDTH="100%" VALIGN="TOP" COLSPAN=5>
<FONT SIZE=2><P>Other Income (Expenses) </FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P>Interest Income </FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 15,090</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 18,569</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 30,067</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 35,637</FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P>Recovery from Marketable </FONT></TD>
<TD WIDTH="20%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="JUSTIFY">Securities Litigation </FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">1,648</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">0</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">1,648</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">0</FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P>Engineering Services</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">20,676</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">14,909</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">61,119</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">30,463</FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P>Engineering Support</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">( 19,148)</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">( 13,730)</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">( 54,498)</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">( 28,319)</U></FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P>Net Other Income (Expense) </FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 21,396</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 36,688</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 39,430</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 16,618</U></FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P>NET INCOME (LOSS)</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P>BEFORE TAX </FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 15,611</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 20,628</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ (52,601)</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 109,510</FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P>Provision for income tax</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">5,307</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">7,013</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">17,885</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">37,234</U></FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P>NET INCOME (LOSS)</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 10,304</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 13,615</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ (34,716)</U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 72,276</U></FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP"> </TD>
<TD WIDTH="20%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="100%" VALIGN="TOP" COLSPAN=5>
<FONT SIZE=2><P>Basic Earnings (Loss) per Share </FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P>Before Tax</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 0.003</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 0.003</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ ( 0.01)</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 0.02 </FONT></TD>
</TR>
<TR><TD WIDTH="100%" VALIGN="TOP" COLSPAN=5>
<FONT SIZE=2><P>Basic Earnings (Loss)per Share</FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P>After Tax</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 0.002</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 0.002</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ ( 0.01)</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 0.013 </FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP"> </TD>
<TD WIDTH="20%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="100%" VALIGN="TOP" COLSPAN=5>
<FONT SIZE=2><P>Diluted Earnings (Loss) Per Share</FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P>Before Tax </FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 0.003</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 0.003</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ ( 0.01)</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 0.02</FONT></TD>
</TR>
<TR><TD WIDTH="100%" VALIGN="TOP" COLSPAN=5>
<FONT SIZE=2><P>Diluted Earnings (Loss) Per Share</FONT></TD>
</TR>
<TR><TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P>After Tax </FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 0.002</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 0.002</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ ( 0.01)</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 0.013</FONT></TD>
</TR>
</TABLE>

<FONT SIZE=2><P ALIGN="CENTER">(See "Notes to Financial Statements") </P>
</FONT><B><FONT FACE="Arial" SIZE=2><P ALIGN="CENTER">ELECTRONIC SYSTEMS
TECHNOLOGY, INC. <BR>
STATEMENT OF CASH FLOWS</FONT><FONT FACE="Arial"> <BR>
</B></FONT><FONT SIZE=2>(as prepared by Management)<BR>
(Unaudited) </P></FONT>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=616>
<TR><TD WIDTH="60%" VALIGN="TOP">
<P><FONT SIZE=2>SIX MONTHS ENDED</FONT></TD>
<TD WIDTH="16%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">June 30, 1999<BR>
===========</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">June 30, 1998<BR>
==========</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>CASH FLOWS PROVIDED (USED) IN OPERATING ACTIVITIES:</FONT></TD>
<TD WIDTH="16%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Net income</FONT></TD>
<TD WIDTH="16%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ ( 34,716)</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 72,276</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP"> </TD>
<TD WIDTH="16%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Noncash expenses included in income: </FONT></TD>
<TD WIDTH="16%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Depreciation</FONT></TD>
<TD WIDTH="16%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">14,879</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">15,633</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Amortization</FONT></TD>
<TD WIDTH="16%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">1,173</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">1,289</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP"> </TD>
<TD WIDTH="16%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>DECREASE (INCREASE) IN CURRENT ASSETS: </FONT></TD>
<TD WIDTH="16%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Accounts receivable, net </FONT></TD>
<TD WIDTH="16%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">174,225</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">172,261</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Inventory</FONT></TD>
<TD WIDTH="16%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">( 32,149)</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">(20,561)</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Prepaid expenses</FONT></TD>
<TD WIDTH="16%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">(2,107)</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">(5,996)</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Accrued interest </FONT></TD>
<TD WIDTH="16%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">2,699</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">(490)</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Prepaid income taxes</FONT></TD>
<TD WIDTH="16%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">(32,885)</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">(3,366)</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP"> </TD>
<TD WIDTH="16%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Increase (Decrease) in Current Liabilities: </FONT></TD>
<TD WIDTH="16%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Accounts payable, accrued expenses and other current
liabilities</FONT></TD>
<TD WIDTH="16%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">1,754</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">15,376</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Accrued federal income taxes</FONT></TD>
<TD WIDTH="16%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">( 14,510)</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">(24,793)</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Deferred Income </FONT></TD>
<TD WIDTH="16%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">( 25,017)</U></FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">0</U></FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP"> </TD>
<TD WIDTH="16%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 53,346</U></FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 221,629</U></FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP"> </TD>
<TD WIDTH="16%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>CASH FLOWS PROVIDED (USED) IN INVESTING ACTIVITIES: </FONT></TD>
<TD WIDTH="16%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Additions to property and equipment</FONT></TD>
<TD WIDTH="16%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ ( 65,507)</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ ( 10,172)</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Capitalized Software</FONT></TD>
<TD WIDTH="16%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">(3,725)</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">0</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Deposits; deposit for die mold applied to property</FONT></TD>
<TD WIDTH="16%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">26,250</U></FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">0</U></FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP"> </TD>
<TD WIDTH="16%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ ( 42,982)</U></FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ ( 10,172)</U></FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP"> </TD>
<TD WIDTH="16%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>CASH FLOWS PROVIDED (USED) IN FINANCING ACTIVITIES: </FONT></TD>
<TD WIDTH="16%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 0</U></FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 0</U></FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP"> </TD>
<TD WIDTH="16%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Net increase in cash and cash equivalents</FONT></TD>
<TD WIDTH="16%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 10,364</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 211,457</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP"> </TD>
<TD WIDTH="16%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Cash and cash equivalents at beginning of period</FONT></TD>
<TD WIDTH="16%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">1,426,381</U></FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">1,466,760</U></FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP">
<FONT SIZE=2><P>Cash and Cash equivalents at end of period</FONT></TD>
<TD WIDTH="16%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 1,436,745</U></FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 1,678,217</U></FONT></TD>
</TR>
</TABLE>

<B><FONT FACE="Arial" SIZE=2><P ALIGN="CENTER">ELECTRONIC SYSTEMS TECHNOLOGY,
INC.<BR>
STATEMENT OF CASH FLOWS (continued)<BR>
</B></FONT><FONT SIZE=2>(as prepared by Management)<BR>
(Unaudited) </P></FONT>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=434>
<TR><TD WIDTH="38%" VALIGN="TOP">
<P><FONT SIZE=2>SIX MONTHS ENDED</FONT></TD>
<TD WIDTH="32%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">June 30, 1999<BR>
===========</FONT></TD>
<TD WIDTH="31%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">June 30, 1998<BR>
===========</FONT></TD>
</TR>
<TR><TD WIDTH="100%" VALIGN="TOP" COLSPAN=3>
<FONT SIZE=2><P>SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:</FONT></TD>
</TR>
<TR><TD WIDTH="38%" VALIGN="TOP">
<FONT SIZE=2><P>Cash paid year to date: </FONT></TD>
<TD WIDTH="32%" VALIGN="TOP"> </TD>
<TD WIDTH="31%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="38%" VALIGN="TOP">
<FONT SIZE=2><P>Interest</FONT></TD>
<TD WIDTH="32%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 0</FONT></TD>
<TD WIDTH="31%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 0</FONT></TD>
</TR>
<TR><TD WIDTH="38%" VALIGN="TOP">
<FONT SIZE=2><P>Federal income taxes</FONT></TD>
<TD WIDTH="32%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 19,510</U></FONT></TD>
<TD WIDTH="31%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 65,393</U></FONT></TD>
</TR>
<TR><TD WIDTH="38%" VALIGN="TOP"> </TD>
<TD WIDTH="32%" VALIGN="TOP"> </TD>
<TD WIDTH="31%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="38%" VALIGN="TOP">
<FONT SIZE=2><P>Cash allocated for Cash Distribution</FONT></TD>
<TD WIDTH="32%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 49,537</U></FONT></TD>
<TD WIDTH="31%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 49,537</U></FONT></TD>
</TR>
<TR><TD WIDTH="38%" VALIGN="TOP"> </TD>
<TD WIDTH="32%" VALIGN="TOP"> </TD>
<TD WIDTH="31%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="38%" VALIGN="TOP">
<FONT SIZE=2><P>Cash and Cash Equivalents: </FONT></TD>
<TD WIDTH="32%" VALIGN="TOP"> </TD>
<TD WIDTH="31%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="38%" VALIGN="TOP">
<FONT SIZE=2><P>Cash</FONT></TD>
<TD WIDTH="32%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 6,648</FONT></TD>
<TD WIDTH="31%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 6,219</FONT></TD>
</TR>
<TR><TD WIDTH="38%" VALIGN="TOP">
<FONT SIZE=2><P>Money market accounts</FONT></TD>
<TD WIDTH="32%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">499,636</FONT></TD>
<TD WIDTH="31%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">592,197</FONT></TD>
</TR>
<TR><TD WIDTH="38%" VALIGN="TOP">
<FONT SIZE=2><P>Certificates of Deposit</FONT></TD>
<TD WIDTH="32%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">930,461</FONT></TD>
<TD WIDTH="31%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">450,801</FONT></TD>
</TR>
<TR><TD WIDTH="38%" VALIGN="TOP">
<FONT SIZE=2><P>Commercial Paper</FONT></TD>
<TD WIDTH="32%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">0</U></FONT></TD>
<TD WIDTH="31%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">629,000</U></FONT></TD>
</TR>
<TR><TD WIDTH="38%" VALIGN="TOP"> </TD>
<TD WIDTH="32%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 1,436,745</U></FONT></TD>
<TD WIDTH="31%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 1,678,217</U></FONT></TD>
</TR>
</TABLE>

<FONT SIZE=2><P ALIGN="CENTER">(See "Notes to Financial Statements")</P>
<P ALIGN="CENTER"> </P>
</FONT><B><FONT FACE="Arial" SIZE=2><P ALIGN="CENTER">ELECTRONIC SYSTEMS
TECHNOLOGY, INC. <BR>
NOTES TO FINANCIAL STATEMENTS<BR>
</B></FONT><FONT SIZE=2>(as prepared by Management)<BR>
(Unaudited)</P>
</FONT><B><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">NOTE 1 - BASIS OF
PRESENTATION</B></FONT> </P>
<FONT SIZE=2><P ALIGN="JUSTIFY">The financial statements of Electronic Systems
Technology, Inc. (the "Company"), presented in this Form 10Q are unaudited and
reflect, in the opinion of Management, a fair presentation of operations for the
three and six month periods ending June 30, 1999 and June 30, 1998. Certain
information and footnote disclosure normally included in financial statements
prepared in accordance with generally accepted accounting principals have been
condensed or omitted pursuant to the applicable rules and regulations of the
Securities and Exchange Commission. These financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
the Company's Form 10K for the year ended December 31, 1998 as filed with
Securities and Exchange Commission.</P>
<P ALIGN="JUSTIFY">The results of operation for the three and six month periods
ended June 30, 1999 and June 30, 1998, are not necessarily indicative of the
results expected for the full fiscal year or for any other fiscal period.</P>
</FONT><B><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">NOTE 2 - INVENTORIES</P>
</B></FONT><FONT SIZE=2><P ALIGN="JUSTIFY">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:</P></FONT>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=547>
<TR><TD WIDTH="48%" VALIGN="TOP">
<P></TD>
<TD WIDTH="32%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">June 30,<BR>
1999<BR>
=========</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">December 31,<BR>
1998<BR>
=========</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">Parts</FONT></TD>
<TD WIDTH="32%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 284,882</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">$ 229,903</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">Work in progress</FONT></TD>
<TD WIDTH="32%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">--</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">--</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">Finished goods</FONT></TD>
<TD WIDTH="32%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">132,632</U></FONT></TD>
<TD WIDTH="26%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">155,462</U></FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP"> </TD>
<TD WIDTH="32%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 417,514</U></FONT></TD>
<TD WIDTH="26%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">$ 385,365</U></FONT></TD>
</TR>
</TABLE>

<B><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">NOTE 3 - EARNINGS (LOSS) PER
SHARE </P>
</B></FONT><P ALIGN="JUSTIFY">Basic and diluted loss per share for the six month
period ended June 30, 1999, is computed by dividing loss by the number of common
shares outstanding for the period, excluding equivalent shares from possible
stock option exercises, the effect of which would be anti-dilutive. The number
of common shares outstanding used for calculation of basic and diluted loss per
share was 4,953,667 for the six month period ended June 30, 1999.</P>
<P ALIGN="JUSTIFY">Basic Earnings Per Share (EPS) excludes dilution and is
computed by dividing income available to common stockholders by the weighted-
average number of common shares outstanding for the period. Diluted EPS reflects
potential dilution occurring if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in the issuance
of common stock that then shared in the earnings of the Company. The primary
weighted average number of common shares outstanding was 5,590,927 and 5,590,530
for the quarters ended June 30, 1999 and 1998 respectively. </P>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=584>
<TR><TD WIDTH="110%" VALIGN="TOP" COLSPAN=4>
<P ALIGN="CENTER">For the Quarter Ended June 30, 1999<BR>
==========================</TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP"> </TD>
<TD WIDTH="26%" VALIGN="TOP">
<P ALIGN="CENTER">Income<BR>
(Numerator)<BR>
---------------<BR>
</TD>
<TD WIDTH="24%" VALIGN="TOP">
<P ALIGN="CENTER">Shares<BR>
(Denominator)<BR>
-----------------</TD>
<TD WIDTH="13%" VALIGN="TOP">
<P ALIGN="CENTER">Per-Share<BR>
Amount<BR>
------------<BR>
</TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP">
<P>Basic EPS</TD>
<TD WIDTH="26%" VALIGN="TOP"> </TD>
<TD WIDTH="24%" VALIGN="TOP"> </TD>
<TD WIDTH="13%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP">
<P>Income available to common stockholders</TD>
<TD WIDTH="26%" VALIGN="TOP">
<P ALIGN="CENTER">$10,304<BR>
======</TD>
<TD WIDTH="24%" VALIGN="TOP">
<P ALIGN="CENTER">5,590,927<BR>
=======</TD>
<TD WIDTH="13%" VALIGN="TOP">
<P ALIGN="CENTER">$0.002<BR>
=====</TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP">
<P>Diluted EPS</TD>
<TD WIDTH="26%" VALIGN="TOP"> </TD>
<TD WIDTH="24%" VALIGN="TOP"> </TD>
<TD WIDTH="13%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP">
<P>Income available to common<BR>
stockholders+assumed conversions</TD>
<TD WIDTH="26%" VALIGN="TOP">
<P ALIGN="CENTER">$10,304<BR>
======</TD>
<TD WIDTH="24%" VALIGN="TOP">
<P ALIGN="CENTER">5,608,667<BR>
=======</TD>
<TD WIDTH="13%" VALIGN="TOP">
<P ALIGN="CENTER">$0.002<BR>
=====</TD>
</TR>
</TABLE>

<B><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">NOTE 4 - STOCK OPTIONS</P>
</B></FONT><P ALIGN="JUSTIFY">As of June 30, 1999, the Company had outstanding
stock options that have been granted periodically to individual employees and
directors with no less than three years of continuous tenure with Company. On
February 12, 1999, additional stock options to purchase shares of the Company's
common stock were granted to individual employees and directors with no less
than three years continuous tenure. The options granted on February 12, 1999
totaled 225,000 shares under option and have an exercise price of $0.44 per
share. The options granted on February 12, 1999 may be exercised any time during
the period from February 12, 1999 through February 11, 2002. The Company's Form
8-K dated February 12, 1999, as filed with the Securities and Exchange
Commission is included herein by reference. All outstanding stock options must
be exercised within 90 days after termination of employment. </P>
<P ALIGN="JUSTIFY">During the 12-month period from June 30, 1998 to June 30,
1999, 200,000 shares under option expired, no shares under option were
exercised, and 225,000 shares under option were granted. At June 30, 1999 there
were 655,000 shares under option reserved for future exercises.</P>
<P ALIGN="JUSTIFY">The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation." The Company undertakes to make disclosures and
calculations pursuant to SFAS 123 on an annual basis coinciding with the
issuance of the Company's Annual Financial Statements. Accordingly, no
compensation cost has been recognized for the stock option plan. </P>
<B><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">NOTE 5 - RELATED PARTY
TRANSACTIONS</B></FONT> </P>
<P ALIGN="JUSTIFY">For the six month period ended June 30, 1999, services in the
amount of $17,654, were contracted with Manufacturing Services, Inc., of which
the owner/president is a member of the Board of Directors of the Company. </P>
<B><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">NOTE 6 - CASH DISTRIBUTION</P>
</B></FONT><P ALIGN="JUSTIFY">On June 11, 1999, the Company declared a one-time,
non-cumulative, cash distribution to shareholders of record as of June 25, 1999,
of $0.01 per share of common stock, with a payable date of July 9, 1999. The
payment of the cash distribution was completed by July 9, 1999. For the quarter
ended June 30, 1999, the Company recognized a current liability in the amount of
$49,537, reflecting the total dollar value of the cash distribution. The
Company's Form 8-K dated June 11, 1999, as filed with the Securities and
Exchange Commission is included herein by reference.</P>
<B><FONT FACE="Arial" SIZE=2><P ALIGN="CENTER">ITEM II</P>
<P ALIGN="CENTER">MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL <BR>
CONDITION AND RESULTS OF OPERATION </P>
</FONT><I><FONT SIZE=2><P ALIGN="JUSTIFY">Management's discussion and analysis
is intended to be read in conjunction with the Company's unaudited financial
statements and the integral notes thereto for the quarter ending June 30, 1999.
The following statements may be forward looking in nature and actual results may
differ materially.</P>
</I></FONT><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">A. Results of
Operations</B></FONT> </P>
<B><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">REVENUES</B></FONT>:</P>
<P ALIGN="JUSTIFY">Total revenues from the sale of the Company's ESTeem<FONT
FACE="Symbol">Ô</FONT> wireless modem systems, accessories, and services
increased to $352,428 for the second quarter of 1999, reflecting a 9% increase
when compared to $322,811 for the second quarter of 1998. Gross revenues
increased to $367,518 for the quarter ended June 30, 1999, from $343,028 for the
same quarter of 1998. The increase in sales revenues is attributable to
increased sales of the Company's products for use in Mobile Data Computer
Systems used by public safety entities. The Company's Form 8-K dated April 14,
1999, as filed with the Securities and Exchange Commission is included herein by
reference.</P>
<P ALIGN="JUSTIFY">The Company's revenues fall into three major customer
categories, Domestic, Export and U.S. Government sales. Domestic commercial
sales increased to $290,721 in the second quarter of 1999 as compared to
$230,858 for the second quarter of 1998, due to increased product sales to
public safety entities for Mobile Data Computer System projects. The Company has
experienced reduced product sales revenues in domestic sales to the industrial
automation market. It is Management's opinion that the reduction in sales
experienced in the industrial automation market is a result of both decreased
demand in automated control projects in the short term, and competitive
pressures from alternative product providers. The lengthy purchase cycles for
industrial automation projects where the Company's products are used makes
prediction of trends difficult, but Management believes the reduction in
Domestic sales is a trend that may continue in the near term. In an effort to
increase the competitiveness of the Company's products in the marketplace, the
end user and distributor prices for the Company's products were reduced during
second quarter. Management expects increased sales volumes as a result of
reduced sales prices, which will offset reduced revenue per unit, however the
long term effect of the price reduction remains to be seen and can therefore
lead to a negative effect on sales revenues and in turn, profitability of the
Company.</P>
<P ALIGN="JUSTIFY">Foreign export sales for the second quarter of 1999 decreased
to $36,004 as compared to the $57,077 in the same quarter of 1998. Management
believes the decrease in foreign export sales is a continuation of slow foreign
sales experienced in the last half of 1998 and first quarter of 1999, which may
continue in the near term, but uncertainty of foreign sales makes trends
difficult to predict.</P>
<P ALIGN="JUSTIFY">U.S. Government sales decreased to $25,703 in the second
quarter of 1999, a decrease from second quarter 1998 U.S. Government sales of
$34,876. Management believes the decreased U.S. Government sales is a result of
a continued lack of new projects and purchases for the Company's products, which
was also experienced in the first quarter of 1999. Due to the uncertain nature
of U.S. Government purchasing, Management does not base profitability or
liquidity projections on expected U.S. Government sales.</P>
<P ALIGN="JUSTIFY">During the quarter ended June 30, 1999 material and services
provided to the City of Vicksburg, Mississippi Police Department and the
Franklin County, Washington Sheriff's Department accounted for 27% and 26% of
the Company's sales and service revenues, respectively. Sales to the U.S
Government and subcontractors comprised 10% of the Company's sales and service
revenues. No other sales to a single customer comprised 10% or more of the
Company's product sales for the quarter ended June 30, 1999. </P>
<P ALIGN="JUSTIFY">A percentage breakdown of EST's major customer categories of
Domestic, Export and U.S. Government Sales, for the second quarter of 1999 and
1998 are as follows: </P>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=448>
<TR><TD WIDTH="100%" VALIGN="TOP" COLSPAN=3>
<P ALIGN="RIGHT">For the second quarter of</TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP"> </TD>
<TD WIDTH="29%" VALIGN="TOP">
<P ALIGN="CENTER">1999<BR>
====</TD>
<TD WIDTH="28%" VALIGN="TOP">
<P ALIGN="CENTER">1998<BR>
====</TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP">
<P ALIGN="JUSTIFY">Domestic Sales</TD>
<TD WIDTH="29%" VALIGN="TOP">
<P ALIGN="CENTER">83%</TD>
<TD WIDTH="28%" VALIGN="TOP">
<P ALIGN="CENTER">71%</TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP">
<P ALIGN="JUSTIFY">Export Sales</TD>
<TD WIDTH="29%" VALIGN="TOP">
<P ALIGN="CENTER">10%</TD>
<TD WIDTH="28%" VALIGN="TOP">
<P ALIGN="CENTER">18%</TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP">
<P ALIGN="JUSTIFY">U.S. Government </TD>
<TD WIDTH="29%" VALIGN="TOP">
<P ALIGN="CENTER">7%</TD>
<TD WIDTH="28%" VALIGN="TOP">
<P ALIGN="CENTER">11%</TD>
</TR>
</TABLE>

<P ALIGN="JUSTIFY">A percentage breakdown of EST's product sales categories for
the second quarter of 1999 and 1998 were as follows: </P>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=559>
<TR><TD WIDTH="56%" VALIGN="TOP" COLSPAN=2>
<P ALIGN="CENTER"></TD>
<TD WIDTH="44%" VALIGN="TOP" COLSPAN=2>
<P>For the second quarter of</TD>
</TR>
<TR><TD WIDTH="39%" VALIGN="TOP"> </TD>
<TD WIDTH="33%" VALIGN="TOP" COLSPAN=2>
<P ALIGN="CENTER">1999<BR>
====</TD>
<TD WIDTH="27%" VALIGN="TOP">
<P ALIGN="CENTER">1998<BR>
====</TD>
</TR>
<TR><TD WIDTH="39%" VALIGN="TOP">
<P ALIGN="JUSTIFY">ESTeem Model 192</TD>
<TD WIDTH="33%" VALIGN="TOP" COLSPAN=2>
<P ALIGN="CENTER">57%</TD>
<TD WIDTH="27%" VALIGN="TOP">
<P ALIGN="CENTER">62%</TD>
</TR>
<TR><TD WIDTH="39%" VALIGN="TOP">
<P ALIGN="JUSTIFY">ESTeem Model 95</TD>
<TD WIDTH="33%" VALIGN="TOP" COLSPAN=2>
<P ALIGN="CENTER">3%</TD>
<TD WIDTH="27%" VALIGN="TOP">
<P ALIGN="CENTER">16%</TD>
</TR>
<TR><TD WIDTH="39%" VALIGN="TOP">
<P ALIGN="JUSTIFY">ESTeem Model 96</TD>
<TD WIDTH="33%" VALIGN="TOP" COLSPAN=2>
<P ALIGN="CENTER">1%</TD>
<TD WIDTH="27%" VALIGN="TOP">
<P ALIGN="CENTER">less than 1%</TD>
</TR>
<TR><TD WIDTH="39%" VALIGN="TOP">
<P ALIGN="JUSTIFY">ESTeem Model 84SP/85SP</TD>
<TD WIDTH="33%" VALIGN="TOP" COLSPAN=2>
<P ALIGN="CENTER">--</TD>
<TD WIDTH="27%" VALIGN="TOP">
<P ALIGN="CENTER">less than 1%</TD>
</TR>
<TR><TD WIDTH="39%" VALIGN="TOP">
<P ALIGN="JUSTIFY">ESTeem Accessories</TD>
<TD WIDTH="33%" VALIGN="TOP" COLSPAN=2>
<P ALIGN="CENTER">31%</TD>
<TD WIDTH="27%" VALIGN="TOP">
<P ALIGN="CENTER">16%</TD>
</TR>
<TR><TD WIDTH="39%" VALIGN="TOP">
<P ALIGN="JUSTIFY">Factory Services</TD>
<TD WIDTH="33%" VALIGN="TOP" COLSPAN=2>
<P ALIGN="CENTER">2%</TD>
<TD WIDTH="27%" VALIGN="TOP">
<P ALIGN="CENTER">less than 1%</TD>
</TR>
<TR><TD WIDTH="39%" VALIGN="TOP">
<P ALIGN="JUSTIFY">Site Support</TD>
<TD WIDTH="33%" VALIGN="TOP" COLSPAN=2>
<P ALIGN="CENTER">6%</TD>
<TD WIDTH="27%" VALIGN="TOP">
<P ALIGN="CENTER">5%</TD>
</TR>
</TABLE>

<P ALIGN="JUSTIFY">Sales for the second quarter of 1999 and 1998 included
foreign export sales as follows:</P>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=526>
<TR><TD WIDTH="33%" VALIGN="TOP">
<P>Three Months Ended</TD>
<TD WIDTH="31%" VALIGN="TOP">
<P ALIGN="CENTER">June 30, 1999<BR>
==========</TD>
<TD WIDTH="26%" VALIGN="TOP">
<P ALIGN="CENTER">June 30, 1998<BR>
==========</TD>
</TR>
<TR><TD WIDTH="33%" VALIGN="TOP">
<P>Export sales</TD>
<TD WIDTH="31%" VALIGN="TOP">
<P ALIGN="CENTER">$ 36,004</TD>
<TD WIDTH="26%" VALIGN="TOP">
<P ALIGN="CENTER">$ 57,077</TD>
</TR>
<TR><TD WIDTH="33%" VALIGN="TOP">
<P>Percent of sales</TD>
<TD WIDTH="31%" VALIGN="TOP">
<P ALIGN="CENTER">10%</TD>
<TD WIDTH="26%" VALIGN="TOP">
<P ALIGN="CENTER">18%</TD>
</TR>
</TABLE>

<P ALIGN="JUSTIFY">The geographic distribution of foreign sales for the second
quarter of 1999 and 1998 was as follows:</P>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=489>
<TR><TD WIDTH="50%" VALIGN="TOP" COLSPAN=2>
<P ALIGN="RIGHT"></TD>
<TD WIDTH="50%" VALIGN="TOP" COLSPAN=2>
<P>Percent of Foreign Sales</TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP"> </TD>
<TD WIDTH="40%" VALIGN="TOP" COLSPAN=2>
<P ALIGN="CENTER">June 30, 1999<BR>
==========</TD>
<TD WIDTH="30%" VALIGN="TOP">
<P ALIGN="CENTER">June 30, 1998<BR>
==========</TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP">
<P>COUNTRY </TD>
<TD WIDTH="40%" VALIGN="TOP" COLSPAN=2> </TD>
<TD WIDTH="30%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP">
<P>Mexico</TD>
<TD WIDTH="40%" VALIGN="TOP" COLSPAN=2>
<P ALIGN="CENTER">59%</TD>
<TD WIDTH="30%" VALIGN="TOP">
<P ALIGN="CENTER">0%</TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP">
<P>Ecuador</TD>
<TD WIDTH="40%" VALIGN="TOP" COLSPAN=2>
<P ALIGN="CENTER">18%</TD>
<TD WIDTH="30%" VALIGN="TOP">
<P ALIGN="CENTER">0%</TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP">
<P>Brazil</TD>
<TD WIDTH="40%" VALIGN="TOP" COLSPAN=2>
<P ALIGN="CENTER">11%</TD>
<TD WIDTH="30%" VALIGN="TOP">
<P ALIGN="CENTER">0%</TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP">
<P>Indonesia</TD>
<TD WIDTH="40%" VALIGN="TOP" COLSPAN=2>
<P ALIGN="CENTER">8%</TD>
<TD WIDTH="30%" VALIGN="TOP">
<P ALIGN="CENTER">0%</TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP">
<P>Canada</TD>
<TD WIDTH="40%" VALIGN="TOP" COLSPAN=2>
<P ALIGN="CENTER">3%</TD>
<TD WIDTH="30%" VALIGN="TOP">
<P ALIGN="CENTER">10%</TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP">
<P>Thailand</TD>
<TD WIDTH="40%" VALIGN="TOP" COLSPAN=2>
<P ALIGN="CENTER">1%</TD>
<TD WIDTH="30%" VALIGN="TOP">
<P ALIGN="CENTER">0%</TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP">
<P>South Korea</TD>
<TD WIDTH="40%" VALIGN="TOP" COLSPAN=2>
<P ALIGN="CENTER">--</TD>
<TD WIDTH="30%" VALIGN="TOP">
<P ALIGN="CENTER">48%</TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP">
<P>Germany</TD>
<TD WIDTH="40%" VALIGN="TOP" COLSPAN=2>
<P ALIGN="CENTER">--</TD>
<TD WIDTH="30%" VALIGN="TOP">
<P ALIGN="CENTER">26%</TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP">
<P>Chile</TD>
<TD WIDTH="40%" VALIGN="TOP" COLSPAN=2>
<P ALIGN="CENTER">--</TD>
<TD WIDTH="30%" VALIGN="TOP">
<P ALIGN="CENTER">13%</TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP">
<P>Israel</TD>
<TD WIDTH="40%" VALIGN="TOP" COLSPAN=2>
<P ALIGN="CENTER">--</TD>
<TD WIDTH="30%" VALIGN="TOP">
<P ALIGN="CENTER">3%</TD>
</TR>
</TABLE>

<P ALIGN="JUSTIFY">The majority of the Company's domestic sales for the second
quarter of 1999 were used in Mobile Data Computer Systems for public safety
entities. It is Management's opinion the Mobile Data Computer Systems
applications for the Company's products will enhance the existing Supervisory
Control and Data Acquisition (SCADA) applications that have represented a
historical majority of the Company's domestic sales. It is Management's opinion
that the majority of foreign export applications will continue to be in SCADA
applications for the foreseeable future. </P>
<P ALIGN="JUSTIFY">The Company's AIT subcontract with INTERMEC is a five-year
indefinite delivery, indefinite quantity, fixed price contract through September
1999. The Company did not provide material or derive any sales revenues from
this contract during the second quarter of 1999. Based on the terms of the AIT
contract, and contracts of this type in general, Management does not base
liquidity, profitability, or material purchase projections on anticipated sales.
The Company's economic position allows it to respond to AIT orders on an "as
needed" basis.</P>
<P ALIGN="JUSTIFY">Based on previous sales activity, the majority of all U.S.
Government purchases are expected to be under the Company's General Services
Administration (GSA) contract. Projections regarding liquidity, profitability,
and material purchases are based on past history of annual purchases.
Historically Federal sales average approximately 18% of annual sales, but this
level cannot be guaranteed. Due to the uncertain nature of Federal purchasing,
procurement of material and production planning is adjusted quarterly based on
demand. It is Management's opinion that the majority of Federal purchases in
1999 will be under this contract.</P>
<P ALIGN="JUSTIFY">The Company's revenues have historically fluctuated from
quarter to quarter due to timing factors such as customer order placement and
product shipments to customers, as well as customer buying trends, and changes
in the general economic environment. The procurement process regarding plant and
project automation, or project development, which usually surrounds the decision
to purchase ESTeem products can be lengthy. This procurement process may involve
bid activities unrelated to the ESTeem products, such as additional systems and
subcontract work, as well as capital budget considerations on the part of the
customer. Because of the complexity of this procurement process, forecasts in
regard to the Company's revenues become difficult to predict. </P>
<P>The Company has undertaken the process to identify anticipated costs, and
implementation issues associated with transition of the Company's products and
internal systems to operations during and after the Year 2000. The Company
expects to resolve any Year 2000 issues associated with the Company's internal
and operations systems through planned replacement or upgrades of software
applications, which are not currently deemed to have significant cost potential.
All of the products supplied by the Company to customers are Year 2000
compliant. Management does not expect Year 2000 transition issues to have a
material impact on its operations, but there can be no assurance that there will
not be interruptions or disturbance of operations should negative transition
issues arise.<FONT FACE="Courier New"> </P>
</FONT><B><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">BACKLOG</B></FONT>:</P>
<P ALIGN="JUSTIFY">The Corporation had minimal backlog as of June 30, 1999.<FONT
SIZE=2> </FONT>Customers generally place orders on an "as needed basis".
Shipment is generally made within 5 to 10 working days after receipt of an order
from a customer.</P>
<B><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">COST OF SALES</B></FONT>:</P>
<P ALIGN="JUSTIFY">Cost of sales percentage for the second quarters of 1999 and
1998 was 53% and 51%, respectively. Cost of Sales variation is normally
attributed to the types of product sold and the size of the order. Larger orders
grant lower sales prices because of volume discounting, reducing the margin of
profit. The increase in cost of sales in the second quarter of 1999 is due to a
combination of decreased sales prices and product mix.</P>
<B><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">OPERATING
EXPENSES</B></FONT>:</P>
<P ALIGN="JUSTIFY">Operating expenses for the second quarter of 1999 were $5,330
higher than the second quarter of 1998. The following is a delineation of
operating expenses: </P>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=578>
<TR><TD WIDTH="28%" VALIGN="TOP">
<P ALIGN="JUSTIFY">For the quarter ended:</TD>
<TD WIDTH="22%" VALIGN="TOP">
<P ALIGN="CENTER">June 30, 1999<BR>
========</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="CENTER">June 30, 1998<BR>
========</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="CENTER">Increase <BR>
(Decrease)<BR>
==========</TD>
</TR>
<TR><TD WIDTH="28%" VALIGN="TOP">
<P ALIGN="JUSTIFY">Finance/Administration</TD>
<TD WIDTH="22%" VALIGN="TOP">
<P ALIGN="CENTER">$ 37,939</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="CENTER">$ 40,834</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="CENTER">$( 2,895)</TD>
</TR>
<TR><TD WIDTH="28%" VALIGN="TOP">
<P ALIGN="JUSTIFY">Research/Development</TD>
<TD WIDTH="22%" VALIGN="TOP">
<P ALIGN="CENTER">40,823</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="CENTER">37,973</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="CENTER">2,850</TD>
</TR>
<TR><TD WIDTH="28%" VALIGN="TOP">
<P ALIGN="JUSTIFY">Marketing</TD>
<TD WIDTH="22%" VALIGN="TOP">
<P ALIGN="CENTER">63,020</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="CENTER">56,427</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="CENTER">6,593</TD>
</TR>
<TR><TD WIDTH="28%" VALIGN="TOP">
<P ALIGN="JUSTIFY">Customer Service</TD>
<TD WIDTH="22%" VALIGN="TOP">
<U><P ALIGN="CENTER">14,384</U></TD>
<TD WIDTH="19%" VALIGN="TOP">
<U><P ALIGN="CENTER">15,602</U></TD>
<TD WIDTH="19%" VALIGN="TOP">
<U><P ALIGN="CENTER">( 1,218)</U></TD>
</TR>
<TR><TD WIDTH="28%" VALIGN="TOP">
<P ALIGN="JUSTIFY">Total Operating Expenses</TD>
<TD WIDTH="22%" VALIGN="TOP">
<U><P ALIGN="CENTER">$ 156,166</U></TD>
<TD WIDTH="19%" VALIGN="TOP">
<U><P ALIGN="CENTER">$ 150,836</U></TD>
<TD WIDTH="19%" VALIGN="TOP">
<U><P ALIGN="CENTER">$ 5,330</U></TD>
</TR>
</TABLE>

<B><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">FINANCE AND
ADMINISTRATION</B></FONT>:</P>
<P ALIGN="JUSTIFY">During the second quarter of 1999, Finance and Administration
expenses decreased $2,895 from the second quarter of 1998. Decreases in
professional services required by the Company and timing differences in printing
costs and postage associated with Company administration are responsible for the
decrease in category expenses when compared with the same quarter of 1998. </P>
<B><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">RESEARCH AND
DEVELOPMENT</B></FONT>:</P>
<P ALIGN="JUSTIFY">During the second quarter of 1999, Research and Development
expenses increased $2,850 over the same period in 1998. The increase in research
and development expenditures is the result of increased salaries and wages from
in-house labor being allocated to research and development projects when
compared with the same period in 1998.<FONT COLOR="#ff0000"> </P>
</FONT><B><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">MARKETING</B></FONT>:</P>
<P ALIGN="JUSTIFY">During the second quarter of 1999, Marketing expenses
increased $6,593 from the same period in 1998. The increase is the result of
increased expenses for design and printing services for redesigned marketing
materials and marketing specific mailings. </P>
<B><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">CUSTOMER SERVICE</B></FONT>:</P>
<P ALIGN="JUSTIFY">Customer service expenses decreased $1,218 in the second
quarter of 1999 as compared with the same period of 1998. The decrease is due to
a higher percentage of the department's costs being directly billed to customers
as engineering services when compared with the same period of 1998.</P>
<B><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">INTEREST INCOME</B></FONT>:</P>
<P ALIGN="JUSTIFY">The Corporation earned $15,090 in interest income during the
quarter ended June 30, 1999. Sources of this income were savings and money
market accounts, and short term investments. </P>
<B><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">ENGINEERING
SUPPORT</B></FONT>:</P>
<P ALIGN="JUSTIFY">Engineering support costs increased to $19,148 for the
quarter ended June 30, 1998, as compared to $13,730 for the same period of 1998.
This increase in engineering support costs for the second quarter of 1999 is a
result of an increase in engineering services performed by the Company for
customers when compared with the second quarter of 1998. </P>
<B><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">NET INCOME (LOSS)</B></FONT>:
</P>
<P ALIGN="JUSTIFY">The Company had net income of $10,304 for the second quarter
of 1999, compared to $13,615 net income for the same quarter of 1998. The net
income decrease is attributable to increased operating expenses during the
second quarter of 1999 when compared with the same period of 1998. The net
income for the second quarter of 1999 reduced the Company's year to date net
loss to $34,716 as of June 30, 1999, as compared with a year to date net income
of $72,276 at June 30, 1998. The year to date net loss for the Company is the
result of lower than expected sales revenues and increased operating expenses in
the first quarter of 1999. </P>
<B><FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">B. Financial Condition,
Liquidity and Capital Resources</B></FONT> </P>
<P ALIGN="JUSTIFY">The Corporation's current asset to current liabilities ratio
at June 30, 1999 was 17:1 compared to<FONT COLOR="#ff0000"> </FONT>25.3:1 at
December 31, 1998. The decrease in current ratio is primarily attributable to
reduced accounts receivable amounts, and liability incurred by cash distribution
to shareholders declared in June, when compared with current asset and liability
levels at year-end 1998.</P>
<P ALIGN="JUSTIFY">For the quarter ending June 30, 1999, the Company had cash
and cash equivalent short-term investment holdings of $1,436,745 as compared to
cash and cash equivalent holdings of $1,426,745 at December 31, 1998. The
increase is attributable primarily to conversion of the Company's accounts
receivables at December 31, 1998 into cash and was offset by the Company's year
to date net loss, increased inventory levels, and additions to property, plant
and equipment assets. </P>
<P ALIGN="JUSTIFY">Accounts receivable decreased to $207,161 as of June 30,
1999, from December 31, 1998 levels of $381,386, due to comparison with large
accounts receivable amounts from strong year-end 1998 U.S. Government sales.
Management believes all of the Company's accounts receivable as of June 30, 1999
are collectable. Inventory increased to $417,514 at June 30, 1999, from December
31, 1998 levels of $385,365, due to lower than expected sales volumes in the
first quarter of 1999, and procurement of material for ESTeem 192S product line
production. Provision for Federal Income Taxes increased to $32,885 at June 30,
1999 due to a combination of provision for potential tax credit for the
Company's year to date net loss and required minimum tax payments by the Company
in the first and second quarters of 1999. </P>
<P ALIGN="JUSTIFY">The Company's fixed assets increased to $423,943 as of June
30, 1999, from December 31, 1998 levels of $358,436, resulting from capital
expenditures of $65,507. The expenditures resulted from the construction of an
exterior case die for the ESTeem products to increase ease of use and
functionality of the Company's products. Amounts paid to the vendor
manufacturing the die, previously carried as a deposit by the Company, were
applied to the Company's property, plant and equipment assets upon completion of
die construction. Management foresees additional capital expenditures as may be
necessary in 1999 to support the production and sale of the Company's
products.</P>
<P ALIGN="JUSTIFY">As of June 30, 1999, the Company's trade accounts payable
balance was $49,507 as compared with $52,386 at December 31, 1998, and reflects
amounts owed for purchases of inventory items and contracted services. The
Company's deferred income liability at December 31, 1998 of $25,017 was reduced
to $0 as the Company fulfilled product contract obligations in the first quarter
of 1999 to offset the deferred income liability. As of June 30, 1999, the
Company recognized<FONT COLOR="#ff0000"> </FONT>a current liability of $49,537,
reflecting the total dollar value of a declared cash distribution as of June 11,
1999, of $0.01 per share of common stock. The cash distribution had a record
date of June 25, 1999 and a payable date of July 9, 1999.</P>
<P ALIGN="JUSTIFY">In Management's opinion, the Company's cash and cash
equivalent reserves, and working capital at June 30, 1999 is sufficient to
satisfy requirements for operations, capital expenditures, and other
expenditures as may arise during 1999</P>
<B><I><P ALIGN="JUSTIFY">FORWARD LOOKING STATEMENTS: The above discussion may
contain forward looking statements that involve a number of risks and
uncertainties. In addition to the factors discussed above, among other factors
that could cause actual results to differ materially are the following:
competitive factors such as rival wireless architectures and price pressures;
availability of third party component products at reasonable prices; inventory
risks due to shifts in market demand and/or price erosion of purchased
components; change in product mix, and risk factors that are listed in the
Company's reports and registration statements filed with the Securities and
Exchange Commission.</P>
</I><FONT FACE="Arial" SIZE=2><P ALIGN="CENTER">PART II</P>
<P ALIGN="CENTER">OTHER INFORMATION </P>
</B><P ALIGN="JUSTIFY">Item 4. Submission of Matters to the Securities Holders
</P>
</FONT><P ALIGN="JUSTIFY">At the Company's Annual Stockholder Meeting on June
11, 1999, in Kennewick, Washington the following items were voted on by the
stockholders with the following outcomes: </P>
<P ALIGN="JUSTIFY"> </P>
<TABLE CELLSPACING=0 BORDER=0 WIDTH=624>
<TR><TD WIDTH="46%" VALIGN="MIDDLE">
<P>Item #1 Election of Directors:</TD>
<TD WIDTH="16%" VALIGN="MIDDLE"> </TD>
<TD WIDTH="13%" VALIGN="MIDDLE"> </TD>
</TR>
<TR><TD WIDTH="46%" VALIGN="MIDDLE">
<P>T. L. Kirchner </TD>
<TD WIDTH="16%" VALIGN="MIDDLE"> </TD>
<TD WIDTH="13%" VALIGN="MIDDLE"> </TD>
</TR>
<TR><TD WIDTH="46%" VALIGN="MIDDLE">
<P>Votes for: 3,780,189 </TD>
<TD WIDTH="16%" VALIGN="MIDDLE">
<P>Votes against: 4,500</TD>
<TD WIDTH="13%" VALIGN="MIDDLE">
<P>Abstaining: 21,057</TD>
</TR>
<TR><TD WIDTH="46%" VALIGN="MIDDLE">
<P>John H. Rector </TD>
<TD WIDTH="16%" VALIGN="MIDDLE"> </TD>
<TD WIDTH="13%" VALIGN="MIDDLE"> </TD>
</TR>
<TR><TD WIDTH="46%" VALIGN="MIDDLE">
<P>Votes for: 3,776,689</TD>
<TD WIDTH="16%" VALIGN="MIDDLE">
<P>Votes against: 8,000</TD>
<TD WIDTH="13%" VALIGN="MIDDLE">
<P>Abstaining: 21,057</TD>
</TR>
<TR><TD WIDTH="46%" VALIGN="MIDDLE"> </TD>
<TD WIDTH="16%" VALIGN="MIDDLE"> </TD>
<TD WIDTH="13%" VALIGN="MIDDLE"> </TD>
</TR>
<TR><TD WIDTH="46%" VALIGN="MIDDLE">
<P>Item #2 Ratification of Robert Moe & Associates, P.S. as independent
auditors of the Corporation for the fiscal year ending December 31, 1999. </TD>
<TD WIDTH="16%" VALIGN="MIDDLE"> </TD>
<TD WIDTH="13%" VALIGN="MIDDLE"> </TD>
</TR>
<TR><TD WIDTH="46%" VALIGN="MIDDLE">
<P>Votes for: 3,721,389 </TD>
<TD WIDTH="16%" VALIGN="MIDDLE">
<P>Votes against: 34,700</TD>
<TD WIDTH="13%" VALIGN="MIDDLE">
<P>Abstaining: 49,657 </TD>
</TR>
<TR><TD WIDTH="46%" VALIGN="MIDDLE"> </TD>
<TD WIDTH="16%" VALIGN="MIDDLE"> </TD>
<TD WIDTH="13%" VALIGN="MIDDLE"> </TD>
</TR>
<TR><TD WIDTH="46%" VALIGN="MIDDLE">
<P>Item #3 Authorization of proxy to vote upon other matters as may properly
come before the meeting. (No such issues were brought before the meeting) </TD>
<TD WIDTH="16%" VALIGN="MIDDLE"> </TD>
<TD WIDTH="13%" VALIGN="MIDDLE"> </TD>
</TR>
<TR><TD WIDTH="46%" VALIGN="MIDDLE">
<P>Votes for: 3,690,439 </TD>
<TD WIDTH="16%" VALIGN="MIDDLE">
<P>Votes against: 43,300 </TD>
<TD WIDTH="13%" VALIGN="MIDDLE">
<P>Abstaining: 72,007 </TD>
</TR>
</TABLE>

<FONT FACE="Arial" SIZE=2><P ALIGN="JUSTIFY">Item 6. EXHIBITS AND REPORTS ON
FORM 8-K</P>
</FONT><FONT SIZE=2><P ALIGN="JUSTIFY">(a) Exhibits </P><DIR>
<DIR>
<DIR>

<P ALIGN="JUSTIFY">Exhibit 27. Financial Data Schedule, June 30,
1999</P></DIR>
</DIR>
</DIR>

<P ALIGN="JUSTIFY">(b) Reports on Form 8-K </P><DIR>
<DIR>
<DIR>

<P ALIGN="JUSTIFY">Form 8-K dated April 14, 1999 is incorporated herein by
reference.</P></DIR>
<P ALIGN="JUSTIFY">Form 8-K dated June 11, 1999 is incorporated herein
by reference. </P></DIR>
</DIR>
</DIR>

<P ALIGN="CENTER">Exhibit Index Reference Form 10-QSB</P>
<P ALIGN="CENTER">Exhibit Number Notes to Financial Statements</P>
<P ALIGN="JUSTIFY">4. Instruments defining the Rights of Security Holders
including indentures. </P><DIR>
<DIR>
<DIR>

<P ALIGN="JUSTIFY">Form 8-K dated Feb 12, 1999 is incorporated herein
by reference. </P></DIR>
</DIR>
</DIR>

<P ALIGN="CENTER">11. Statement Re: computation of per share earnings Note 3 to
Financial Statements</P>
<P ALIGN="CENTER"> </P>
</FONT><P ALIGN="CENTER">SIGNATURES</P>
<P>In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized. </P>
<P>ELECTRONIC SYSTEMS TECHNOLOGY, INC. </P>
<P>/s/ T. L. KIRCHNER</P>
<P>Date: August 10, 1999 </P>
<P>Name: T.L. Kirchner </P>
<P>Title: Director/President </P>
<P>(Principal Executive Officer) </P>
<P>/s/ ROBERT SOUTHWORTH</P>
<P>Date: August 10, 1999</P>
<P>Name: Robert Southworth </P>
<P>Title: Director/Secretary/Treasurer </P>
<P>(Principal Financial Officer)</P>
</HTML>