UNITED
STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM
10-Q





[X] QUARTERLY REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period endedJune 30, 2008



OR



[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

From ________________ to ________________





ELECTRONIC SYSTEMS TECHNOLOGY, INC.

(Exact name of registrant as specified in
its charter)



|Washington                                     | 000-27793                 | 91-1238077                       
|---------------------------------------------- | ------------------------- | ---------------------------------
|(State or other jurisdiction of incorporation) | (Commission File  Number) | (IRS Employer Identification No.)



|415 N. Quay St. Bldg B1 Kennewick WA     |  | 99336     
|---------------------------------------- |  | ----------
|(Address of principal executive offices) |  | (Zip Code)





(509)
735-9092

(Registrant's telephone number, including area code)



N/A

(Former
name, former address & former fiscal year, if changed since last report)



Indicate by check
mark whether the registrant (1) has filed all documents and reports required to
be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filings for the
past 90 days.  YESx
 NO   ̈



Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer or a smaller reporting company.



|Large
accelerated filer |  ̈ |                                               | Accelerated
filer         |  ̈
|----------------------- | - | --------------------------------------------- | ------------------------- | -
|Non-accelerated
filer   |  ̈ | (Do not check if a smaller reporting
company) | Smaller
reporting company | x



Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).

Yes ̈Nox



APPLICABLE ONLY TO CORPORATE ISSUERS:



As of June 30, 2008, the
number of the Company's shares of par value ($0.001) common stock outstanding
was 5,158,667.







---

PART I

FINANCIAL INFORMATION



Item
1.  Financial Statements.





ELECTRONIC SYSTEMS TECHNOLOGY, INC.

SELECTED
FINANCIAL DATA

(as
prepared by Management)

(Unaudited)



|Six Months
Ended                             | June 30, 2008            | June 30, 2007           
|-------------------------------------------- | ------------------------ | ------------------------
|Sales                                        | $
       1,061,047       | $
       1,348,536      
|Other
Revenues                               | 35,220                   | 39,376                  
|Gross
Profit                                 | 588,074                  | 792,582                 
|                                            
|Net Income
(Loss) Before Taxes               | $
       (158,917)       | $
          152,304     
|Net Income
(Loss) After Taxes                | (133,517)                | 122,304                 
|                                            
|Earnings (Loss)
Per Share Before Taxes      
|Basic                                        | $
             (0.03)    | $
                0.03  
|Diluted                                      | (0.03)                   | 0.03                    
|                                            
|Earnings (Loss)
Per Share After Taxes       
|Basic                                        | $     
        (0.03)    | $     
           0.02  
|Diluted                                      | (0.03)                   | 0.02                    
|                                            
|Weighted
Average Shares Outstanding (Basic) 
|Primary                                      | 5,157,156                | 5,153,667               
|Diluted                                      | 5,199,551                | 5,209,121               
|                                            
|Total
Assets                                 | $
      3,251,230        | $
      3,268,647       
|                                            
|Long-Term Debt
and Capital Lease Obligations | $                      0 | $   
                  0
|                                            
|Shareholders'
Equity                         | $
      2,950,476        | $
      2,980,279       
|                                            
|Shareholders'
Equity Per Share               | $      
          0.57   | $     
           0.58  
|                                            
|Working
Capital                              | $
      2,817,271        | $
      2,855,263       
|                                            
|Current
Ratio                                | 12:1                     | 13:1                    
|                                            
|Equity To Total
Assets                       | 91%                      | 91%                     





(See "Notes to Financial Statements")









2



---



|ELECTRONIC SYSTEMS TECHNOLOGY, INC.
BALANCE SHEETS
(as prepared by Management)
(Unaudited)                                                                                                          
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|ASSETS                                                                                                                                                                                              
|CURRENT
ASSETS                                                                                                                                                                                      
|Cash and Cash
Equivalents                                                                                                                                                                           
|Short Term
Certificates of Deposit Investments                                                                                                                                                      
|Accounts
Receivable, net of allowance for uncollectibles                                                                                                                                            
|Inventory                                                                                                                                                                                           
|Accrued
Interest                                                                                                                                                                                    
|Prepaid Federal
Income Taxes                                                                                                                                                                        
|Prepaid
Expenses                                                                                                                                                                                    
|Total Current
Assets                                                                                                                                                                                
|                                                                                                                                                                                                    
|PROPERTY &
EQUIPMENT net of depreciation                                                                                                                                                            
|                                                                                                                                                                                                    
|OTHER
ASSETS                                                                                                                                                                                        
|DEFERRED INCOME
TAX BENEFIT                                                                                                                                                                         
|TOTAL
ASSETS                                                                                                                                                                                        
|                                                                                                                                                                                                    
|LIABILITIES
& STOCKHOLDERS' EQUITY                                                                                                                                                                  
|                                                                                                                                                                                                    
|CURRENT
LIABILITIES                                                                                                                                                                                 
|Accounts
Payable                                                                                                                                                                                    
|Refundable
Deposits                                                                                                                                                                                 
|Federal Income
Taxes Payable                                                                                                                                                                        
|Accrued
Liabilities                                                                                                                                                                                 
|Distributions
Payable                                                                                                                                                                               
|Total Current
Liabilities                                                                                                                                                                           
|                                                                                                                                                                                                    
|DEFERRED INCOME TAX LIABILITY                                                                                                                                                                       
|                                                                                                                                                                                                    
|STOCKHOLDERS'
EQUITY
Common Stock,
 $.001 Par Value
50,000,000
Shares Authorized
5,158,667
Shares Issued and Outstanding for June 30, 2008
5,153,667
Shares Issued and Outstanding for June 30, 2007
|Additional
Paid-in Capital                                                                                                                                                                          
|Retained
Earnings                                                                                                                                                                                   
|                                                                                                                                                                                                    
|TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                                          



(See "Notes to Financial Statements")



3



---



|ELECTRONIC SYSTEMS TECHNOLOGY, INC.
STATEMENTS OF OPERATIONS
(as prepared by Management)
(Unaudited)
|----------------------------------------------------------------------------------------------------
|                                                                                                    
|                                                                                                    
|June 30, 2008                                                                                       
|                                                                                                    
|SALES                                                                                               
|COST OF SALES                                                                                       
|Gross Profit                                                                                        
|                                                                                                    
|OPERATING EXPENSES                                                                                  
|Finance/Administration                                                                              
|Research & Development                                                                              
|Marketing                                                                                           
|Customer Service                                                                                    
|Total Operating
Expenses                                                                            
|OPERATING INCOME
(LOSS)                                                                             
|                                                                                                    
|Other Income (expenses)                                                                             
|Interest/Investment Income                                                                          
|Uncollectible amount recovered                                                                      
|Net Other Income (Expense)                                                                          
|                                                                                                    
|NET INCOME (LOSS) BEFORE TAX                                                                        
|Provision For Income Tax                                                                            
|                                                                                                    
|NET INCOME (LOSS)                                                                                   
|                                                                                                    
|Basic Earnings  (Loss) Per Share
Before
Tax                                                         
|Basic Earnings  (Loss) Per Share
After
Tax                                                          
|                                                                                                    
|Diluted Earnings (Loss) Per Share
Before
Tax                                                        
|Diluted Earnings (Loss) Per Share
After
Tax                                                         



(See "Notes to Financial Statements")



4



---



|ELECTRONIC SYSTEMS TECHNOLOGY, INC.
STATEMENTS OF CASH FLOWS
(as prepared by Management)
(Unaudited)
|----------------------------------------------------------------------------------------------------
|                                                                                                    
|                                                                                                    
|CASH FLOWS PROVIDED (USED) IN OPERATING ACTIVITIES:                                                 
|Net Income (Loss)                                                                                   
|Noncash items included in income:                                                                   
|Depreciation                                                                                        
|Prepaid Federal
Income Taxes                                                                        
|Accrued
Interest                                                                                    
|Deferred Income
Tax                                                                                 
|Share Based
Compensation                                                                            
|                                                                                                    
|DECREASE (INCREASE) IN CURRENT ASSETS:                                                              
|Accounts Receivable Net                                                                             
|Inventory                                                                                           
|Prepaid Expenses                                                                                    
|                                                                                                    
|INCREASE (DECREASE) IN CURRENT LIABILITIES:                                                         
|Accounts Payable and Accrued Expenses                                                               
|Refundable Deposits                                                                                 
|Accrued Federal Income Taxes                                                                        
|                                                                                                    
|CASH FLOWS PROVIDED (USED) IN INVESTING ACTIVITIES:                                                 
|Certificates of Deposit Redeemed (Purchased)                                                        
|Additions To Property And Equipment                                                                 
|                                                                                                    
|CASH FLOWS PROVIDED (USED) IN FINANCING ACTIVITIES:                                                 
|Stock Option Exercise                                                                               
|                                                                                                    
|NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS                                                
|Cash And Cash Equivalents At Beginning Of
Period                                                    
|Cash And Cash Equivalents At Ending of
Period                                                       
|                                                                                                    
|SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:                                                 
|Cash Paid Year To Date:                                                                             
|Interest                                                                                            
|Federal Income Taxes                                                                                
|                                                                                                    
|Cash allocated for Cash Distribution                                                                
|                                                                                                    
|Cash And Cash Equivalents:                                                                          
|Cash                                                                                                
|Money Market Accounts                                                                               
|                                                                                                    



(See "Notes to Financial Statements")













5



---



ELECTRONIC SYSTEMS TECHNOLOGY, INC.

NOTES
TO FINANCIAL STATEMENTS

(as prepared by Management)

(Unaudited)



NOTE
1 - BASIS OF PRESENTATION



The financial statements of Electronic
Systems Technology, Inc. (the Company), presented in this Form 10Q are
unaudited and reflect, in the opinion of Management, a fair presentation of
operations for the three and six months ended June 30, 2008 and June 30, 2007.
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.  In the opinion of Management
the financial statements reflect all adjustments that are necessary for a fair
statement of results for the periods presented and all adjustments were of a
normal recurring nature. These financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
the Company's Form 10KSB for the year ended December 31, 2007 as filed with
Securities and Exchange Commission.



The results of operations for the three and
six months ended June 30, 2008 and June 30, 2007, are not necessarily indicative
of the results expected 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 cost determined using the FIFO (first in, first out) method.
 Inventories consist of the following:



|                 | June 30
2008 | December 31
2007
|---------------- | ------------ | ----------------
|Parts            | $
312,806    | $
250,701       
|Work in progress | 167,802      | 108,101         
|Finished goods   | 269,320      | 239,399         
|                 | $
749,928    | $
598,201       



NOTE 3  EARNINGS (LOSS) PER SHARE



Basic and diluted loss per share is
computed by dividing income (loss) available to common stockholders by the
weighted-average 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 primary weighted average number of common shares
outstanding was 5,157,156 and 5,153,667 for the six month periods ended June 30,
2008 and June 30, 2007, respectively.



NOTE
4 - STOCK OPTIONS



Effective January 1, 2006, the Company
adopted the provisions of Financial Accounting Standards Board (FASB) Statement
No. 123R, Share-Based Payment, (FAS 123R) for its share-based compensation
plan.  The Company previously accounted for these plans under the
recognition and measurement principles of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees", (APB 25) and related
interpretations and disclosure requirements established by FAS 123, "Accounting
for Stock-Based Compensation".  The Company adopted FAS 123R using the
modified prospective method and, accordingly, results for prior periods have not
been restated.



As of June 30, 2008, the Company had stock
options outstanding, which have been granted periodically to individual
employees and directors with no less than three years of continuous tenure with
Company.  On February 22, 2008, 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 22, 2008 totaled 200,000 shares under option and have an exercise price
of $0.81 per share.



The options granted on February 22, 2008
may be exercised any time during the period from February 22, 2008 through
February 21, 2011.  The Company's Form 8-K dated February 22, 2008, 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.





6



---

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



|                                        | 2008  | 2007  | 2006 
|--------------------------------------- | ----- | ----- | -----
|Dividend yield                          | 2.35% | 1.43% | 1.43%
|Expected volatility                     | 75%   | 39%   | 49%  
|Risk-free interest rate                 | 2.24% | 4.40% | 4.67%
|Expected term (in years)                | 3     | 3     | 3    
|Estimated Fair Value per Option Granted | $0.39 | $0.21 | $0.25



The Company uses historical data to estimate option
exercise rates.  The option exercise rate for option grants in 2008 through
2006 was 10%.



A summary of option activity during the six
months ended June 30, 2008 is as follows:



|                               | Number Outstanding | Weighted-Average Exercise
Price Per Share
|------------------------------ | ------------------ | -----------------------------------------
|Outstanding at January 1, 2008 | 555,000            | $0.71                                    
|Granted                        | 200,000            | 0.81                                     
|Exercised                      | (5,000)            | 0.78                                     
|Canceled                       | (180,000)          | 0.78                                     
|Outstanding at June 30, 2008   | 570,000            | 0.72                                     



For the second quarter of 2008,
compensation expense charged against income for stock options was $1,960 ($1,294
after tax).  No non-vested share-based compensation arrangements existed as
of June 30, 2008.



NOTE
5 - RELATED PARTY TRANSACTIONS



For the six-month period ended June 30, 2008, services in
the amount of $70,531 were contracted with Manufacturing Services, Inc., of
which the current owner, Michael S. Brown and the former owner, Melvin H. Brown,
are both currently members of the Board of Directors of Electronic Systems
Technology Inc.



NOTE 6 - SEGMENT
REPORTING



Segment information is prepared on the same
basis that the Company's management reviews financial information for
operational decision making purposes.  The Company has two reportable
segments, domestic and foreign, based on the geographic location of the
customers.  Both segments sell radio modem products (requiring an FCC
license or license free Ethernet products), related accessories for radio modem
products for industrial automation projects, and mobile data computer products.
 The foreign segment sells the Company's products and services outside the
United States.



During the quarter ended June 30, 2008,
Domestic customers represented approximately 66% of total net revenues.
 Foreign customers represented approximately 34% of total net revenues.
 No sales to a single customer comprised 10% or more of the Company's
product sales.  Revenues from foreign countries consist primarily of
revenues from Canada and South American countries including Mexico.



The accounting policies of the segments are
the same as those described in the summary of significant accounting policies,
Note 1.  Management evaluates performance based on net revenues and
operating expenses.  Administrative functions such as finance and
information systems are centralized.  However, where applicable, portions
of the administrative function expenses are allocated between the operating
segments.  The operating segments share the same manufacturing and
distributing facilities.  Costs of operating the manufacturing plant,
equipment, inventory, and accounts receivable are allocated directly to each
segment.











7



---







|ELECTRONIC SYSTEMS TECHNOLOGY,
INC.                                                                                 
|--------------------------------------------------------------------------------------------------------------------
|Segment Reporting                                                                                                   
|                                                                                                                    
|Summary financial information for the two
reportable segments for the second quarter of 2008 and 2007 is as
follows:
|                                                                                                                    
|                                                                                                                    
|Three months ended June 30, 2008                                                                                    
|Total sales                                                                                                         
|Total other income                                                                                                  
|Earnings (loss) before tax                                                                                          
|Depreciation/amortization                                                                                           
|Identifiable assets                                                                                                 
|Net capital expenditures                                                                                            
|                                                                                                                    
|Three months ended June 30, 2007                                                                                    
|Total sales                                                                                                         
|Total other income                                                                                                  
|Earnings (loss) before tax                                                                                          
|Depreciation/amortization                                                                                           
|Identifiable assets                                                                                                 
|Net capital expenditures                                                                                            
|                                                                                                                    
|Six months ended June 30, 2008                                                                                      
|Total sales                                                                                                         
|Total other income                                                                                                  
|Earnings (loss) before tax                                                                                          
|Depreciation/amortization                                                                                           
|Identifiable assets                                                                                                 
|Net capital expenditures                                                                                            
|                                                                                                                    
|Six Months ended June 30, 2007                                                                                      
|Total sales                                                                                                         
|Total other income                                                                                                  
|Earnings (loss) before tax                                                                                          
|Depreciation/amortization                                                                                           
|Identifiable assets                                                                                                 
|Net capital expenditures                                                                                            



NOTE
7 - CASH DISTRIBUTION



On June 6, 2008, the Company declared a
one-time, non-cumulative, cash distribution to shareholders of record as of June
23, 2008, of $0.02 per share of common stock, with a payable date of July 18,
2008.  The payment of the cash distribution was completed by July 18, 2008.
 For the quarter ended June 30, 2008, the Company recognized a current
liability in the amount of $103,173, reflecting the total dollar value of the
cash distribution.  The Companys Form 8-K dated June 6, 2008, as filed
with the Securities and Exchange Commission is incorporated herein by
reference.



















8



---



Item
2.  Managements Discussion and Analysis of Financial Condition and Results
of Operations.



MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATION



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, 2008.
 The following statements may be forward looking in nature and actual
results may differ materially.



A.
 Results of Operations



REVENUES:



Total revenues from the sale of the
Companys ESTeem wireless modem products and services decreased to $480,910 for
the second quarter of 2008, compared to $673,979 for the second quarter of 2007.
 Gross revenues decreased to $497,434 for the quarter ended June 30, 2008,
from $694,783 for the same quarter of 2007.  Year to date sales decreased
to $1,061,047 as of June 30, 2008 as compared to $1,348,536 as of June 30, 2007.
Year to date gross revenues decreased to $1,096,267 as of June 30, 2008 compared
to $1,387,912 as of June 30, 2007.  Management believes the decrease in
sales revenues is due to a continued general economic downturn in the United
States that has led to delays in private sector funding of industrial automation
projects using the Companys products. Management believes that this general
economic downturn will continue to negatively affect the Companys domestic
sales revenue during 2008.



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.



A percentage breakdown of EST's Domestic
and Export Sales, for the second quarter of 2008 and 2007 are as follows:



|               | For the second quarter of
|-------------- | -------------------------
|               | 2008                     
|Domestic Sales | 66%                      
|Export Sales   | 34%                      



OPERATING SEGMENTS



Segment information is prepared on the same
basis that the Companys Management reviews financial information for
operational decision-making purposes.  The Companys operating segment
information is contained in Financial Statements, Notes to Financial
Statements, Note 6  Segment Reporting.



Domestic Revenues



During the quarter ended June 30, 2008, the
Companys domestic operations represented 66% of the Companys total sales
revenues.  Domestic operations sell ESTeem modem products, accessories and
service primarily through domestic resellers, as well as directly to end users
of the Companys products.  Domestic sales revenues decreased to $315,484
for the quarter ended June 30, 2008, compared to $501,912 for the quarter ended
June 30, 2007.  Management believes the decrease in domestic sales revenues
is due to a continued general economic downturn in the United States that has
led to delays in private sector funding of industrial automation projects using
the Companys products. Management believes that this general economic downturn
will continue to affect the Companys domestic sales revenue during 2008.



The Companys domestic sales were augmented
by sales of the Companys products for MDCS projects to public entities, which
accounted for 8% of the Companys domestic sales during the second quarter of
2008.  Management believes MDCS sales were weaker than expected during the
first half of 2008 due to reduced government funding for projects involving the
Companys products and the extended procurement cycle for public safety
entities.  Management believes that MDCS sales are difficult to predict and
cannot



9



---

be assured due
to public safety entity purchases being linked to uncertain government funding.
 During the quarter ended June 30, 2008 no sales to a single customer
comprised 10% or more of the Company's domestic product sales.



Domestic segment operating loss was $83,517
for the quarter ended June 30, 2008 as compared with a segment operating income
of $72,265 for the same quarter of 2007, due to decreased sales revenues and
increased operating expenses for the segment during the second quarter of
2008.



For the six-month period ended June 30,
2008, the Companys domestic operations represented 69% of the Companys total
sales revenues.  Year to date domestic sales revenues decreased to $733,624
as of June 30, 2008 compared to $1,010,453 for the same period of 2007.
Management believes the decrease in sales revenues is due to a continued general
economic downturn in the United States that has led to delays in private sector
funding of industrial automation projects using the Companys products.
Management believes that this general economic downturn will continue to
negatively affect the Companys domestic sales revenue during 2008.  The
Companys year to date domestic sales were augmented by sales of the Companys
products for MDCS to public entities, which accounted for 8% of the Companys
domestic sales during the first six months of 2008.



Year to date domestic segment operating
loss was $77,059 for the period ended June 30, 2008 as compared with a segment
operating income of $178,925 for the same period of 2007, due to decreased sales
revenues and increased operating expenses when compared with the same period of
2007.



Foreign
Revenues



The Companys foreign operating segment
represented 34% of the Companys total net revenues for the quarter ended June
30, 2008.  The foreign operating segment is based wholly in the United
States and maintains no assets outside of the United States.  The foreign
operating segment sells ESTeem modem products, accessories and service primarily
through foreign resellers, as well as directly to end customers of the Companys
products located outside the United States.



During the quarter ended June 30, 2008, the
Company had $165,426 in foreign export sales, amounting to 34% of total net
revenues of the Company for the quarter, compared with foreign export sales of
$172,067 for the same quarter of 2007. The slight decrease is the result in sales timing
differences when compared with the same period of 2007, which included strong
sales revenues for projects in Colombia, India and Peru.  No foreign sales
to a single customer comprised 10% or more of the Company's product sales for
the quarter ended June 30, 2008.  Products purchased
by foreign customers were used primarily in industrial automation applications.
 Management believes the majority of foreign export sales are the results
of the Companys Latin American sales staff, EST foreign reseller activity, and
the Companys internet website presence.



Operating income for the foreign segment
decreased to $41,315 for the quarter ended June 30, 2008 as compared with a net
operating income of $62,941 for the same period of 2007, due to slightly
decreased sales revenues; decreased profit margin for products sold, and
increased expenses during the quarter ended June 30, 2008.



For the six-month period ended June 30,
2008, the Company had $327,423 in foreign export sales, amounting to 31% of
total net revenues of the Company for the period, compared with foreign export
sales of $338,083 for the same period of 2007. The slight decrease is the result
in sales timing differences when compared with the same period of 2007, which
included strong sales revenues for projects in Canada, Colombia, Mexico and
India.  Products purchased by foreign customers were used primarily in
industrial automation applications.



Year to date foreign segment operating
income decreased to $89,981 for the period ended June 30, 2008 as compared with
a segment operating income of $132,071 for the same period of 2007, due to due
to slightly decreased sales revenues; decreased profit margin for products sold,
and increased expenses during the first half of 2008.



Unallocated Corporate



Unallocated corporate expenses relate to functions, such as accounting, corporate
management and administration, that support but are not attributable to the
Companys domestic or foreign operating segments, including salaries, wages and
other expenses related to the performance of these support functions.
 Unallocated corporate expenses increased during the quarter ended June 30,
2008 to $70,075 as compared with $67,371 for the same quarter of 2007, and
represented expense to total net revenues percentages of 14% and 10% for the
first quarters of 2008 and 2007, respectively.



Year to date unallocated corporate expenses
increased for the period ended June 30, 2008 to $171,839 as compared with
$158,692 for the same period of 2007, due primarily to increased professional
service expenses related to regulatory compliance, and represented expense to
total net revenues percentages of 16% and 11% for the first six months of 2008
and 2007, respectively.



10



---

BACKLOG:



The Corporation had an order backlog of
$40,900 as of June 30, 2008.  The Companys customers generally place
orders on an "as needed basis".  Shipment for most of the Companys
products is generally made within 1 to 15 working days after receipt of customer
orders, with the exception of ongoing, scheduled projects, and custom designed
equipment.



COST
OF SALES:



Cost of sales percentage for the second
quarter of 2008 and 2007 was 46% and 41%, respectively. The cost of sales
increase for the second quarter of 2008 is the result the product mix for items
sold during the quarter having a less favorable profit margin when compared with
the same period of 2007.



OPERATING EXPENSES:



Operating expenses for the second quarter
of 2008 increased $39,294 from the second quarter of 2007.  The following
is an outline of operating expenses:



|For the quarter ended:   | June 30, 2008 | June 30, 2007 | Increase (Decrease)
|------------------------ | ------------- | ------------- | -------------------
|Finance/Administration   | $
    70,075  | $
    67,371  | $
         2,704   
|Research/Development     | 132,171       | 124,774       | 7,397              
|Marketing                | 149,912       | 128,820       | 21,092             
|Customer Service         | 37,586        | 29,485        | 8,101              
|Total Operating Expenses | $
  389,744   | $
  350,450   | $
       39,294    



FINANCE AND ADMINISTRATION:



During the second quarter of 2008, Finance
and Administration expenses increased to $70,075 from the same quarter of 2007.
Finance and Administration expenses relate to functions, such as accounting,
corporate management and administration that support the Companys
activities.



RESEARCH AND DEVELOPMENT:



Research and Development expenses increased
$7,397 during the second quarter of 2008, when compared with the same period in
2007.  The increase is due to increased subcontracted engineering expertise
when compared with the same quarter of 2007.



MARKETING:



During the second quarter of 2008,
marketing expenses increased $21,092 from the same period in 2007.  The
increase is due to timing differences in tradeshow and travel expenses incurred
by the Company when compared with the same period of 2007.



CUSTOMER SERVICE:



Customer service expenses increased $8,101
during the second quarter of 2008, when compared with the same quarter of 2007.
The increase is due to a decreased amount of department expenses being billed
directly to customers compared with the same quarter of 2007.



INTEREST AND DIVIDEND INCOME:



The Corporation earned $15,999 in interest
and dividend income during the quarter ended June 30, 2008.  Sources of
this income were money market accounts and certificates of deposit.



NET
INCOME (LOSS):



The Company had a net loss of $97,277 for
the second quarter of 2008, compared to a net income of $55,735 for the same
quarter of 2007.  The decrease in profitability for the quarter ended June
30, 2008 is attributable to decreased sales revenues and increased operating
expenses when compared with the same quarter of 2007.   For the
six-month period ended June 30, 2008, the Company



11



---

recorded a net
loss of $133,517 compared with net income of $122,304 for the same period of
2007, the result of decreased sales revenues and increased operating costs when
compared with the same period of 2007.



B.
 Financial Condition, Liquidity and Capital Resources



The Corporation's current asset to current
liabilities ratio at June 30, 2008 was 12:1 compared to 13:1 at December 31,
2007.  For the quarter ending June 30, 2008, the Company had cash and cash
equivalents of $1,340,400, compared to cash and cash equivalent holdings of
$1,479,985 at December 31, 2007.  The Company had certificates of deposit
investments in the amount of $710,000 as of June 30, 2008 as compared to
$900,000 as of December 31, 2007.



Accounts receivable decreased to $168,283
as of June 30, 2008, from December 31, 2007 levels of $281,064, due to decreased
sales during the second quarter of 2008, when compared with year end 2007.
 Inventory increased to $749,928 at June 30, 2008, from December 31, 2007
levels of $598,201, due to decreased product shipments for sales during the
first six months of 2008.  The Company's fixed assets, net of depreciation,
decreased to $133,565 as of June 30, 2008, from December 31, 2007 levels of
$147,441, due to depreciation of $24,727, and was offset by capital expenditures
of $10,853 for fixed assets.  The Companys capital expenditures for fixed
assets were primarily for computer network upgrades.  Management foresees
additional capital expenditures may be necessary in 2008 to support the
production and sale of the Companys products.



Since January 1, 2005, the Company has
contracted with Netsuite Inc. to provide the Companys customer relationship
management and accounting software and related network infrastructure services.
 The prepaid Netsuite Inc. services as of June 30, 2008 are reflected in
prepaid expenses on the Companys balance sheet in the amount of $29,536.



As of June 30, 2008, the Companys trade
accounts payable balance was $94,969 as compared with $134,129 at December 31,
2007, and reflects amounts owed for inventory items, contracted services, and
state tax liabilities.  Accrued liabilities as of June 30, 2008 were
$50,757, compared with $90,478 at December 31, 2007, and reflect items such as
accrued vacation benefits.  The Company announced a cash distribution,
which was completed July 18, 2008, in the amount of $103,173, which has been
recognized as a liability as of June 30, 2008.  Federal income taxes
payable decreased from $12,304 at December 31, 2007 to a prepaid federal tax
asset of $48,300 at June 30, 2008 as the result of payment of the Companys
federal income tax liability and potential tax credit from the Companys net
loss as of June 30, 2008.



In Management's opinion, the Company's cash
and cash equivalent reserves, and working capital at June 30, 2008 is sufficient
to satisfy requirements for operations, capital expenditures, and other
expenditures as may arise during the remainder of 2008.



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.



Item
3.  Quantitative and Qualitative Disclosures About Market Risk.



There is no established market for trading
the Common Stock of the Company. The market for the Companys common stock is
limited, and as such shareholders may have difficulty reselling their shares
when desired or at attractive market prices.  The Common Stock is not
regularly quoted in the automated quotation system of a registered securities
system or association.  The Common Stock of the Company is traded on the
over-the-counter market maintained by the Financial Regulatory Authority
(FINRA) and is listed on the OTC electronic bulletin board under the symbol of
"ELST".  The Companys common stock has continued to trade in low volumes
and at low prices. Some investors view low-priced stocks as unduly speculative
and therefore not appropriate candidates for investment. Many institutional
investors have internal policies prohibiting the purchase or maintenance of
positions in low-priced stocks.



Item
4.  Controls and Procedures.



As a small, non-accelerated filer company, information
required by Item 307 of Regulation S-K is not applicable to Electronic Systems
Technology, Inc.









12



---

Item
4T.  Controls and Procedures.



The Companys management is responsible for
establishing and maintaining adequate internal control over financial reporting
for the company. The Companys internal control over financial reporting is a
process to provide reasonable assurance regarding the reliability of our
financial reporting for external purposes in accordance with accounting
principles generally accepted in the United States of America. Internal control
over financial reporting includes maintaining records that in reasonable detail
accurately and fairly reflect our transactions; providing reasonable assurance
that transactions are recorded as necessary for preparation of our financial
statements; providing reasonable assurance that receipts and expenditures of
company assets are made in accordance with management authorization; and
providing reasonable assurance that unauthorized acquisition, use or disposition
of company assets that could have a material effect on our financial statements
would be prevented or detected on a timely basis. Because of its inherent
limitations, internal control over financial reporting is not intended to
provide absolute assurance that a misstatement of our financial statements would
be prevented or detected.



An evaluation has been performed under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and the operation of our "disclosure controls and procedures" (as such
term is defined in Rules 13a-15(e) under the Securities Exchange Act of 1934) as
of June 30, 2008.  Based on this evaluation, our Chief Executive Officer
and Chief Financial Officer have determined that there was a material weakness
affecting our internal control over financial reporting and, as a result of that
weakness, our disclosure controls and procedures were not effective as of June
30, 2008.  The material weakness is as follows:



We did not maintain effective controls to
ensure appropriate segregation of duties as the same employees were responsible
for the initiating and recording of transactions, thereby creating segregation
of duties weaknesses. Due to the (1) significance of segregation of duties to
the preparation of reliable financial statements, (2) the significance of
potential misstatement that could have resulted due to the deficient controls
and (3) the absence of sufficient other mitigating controls, we determined that
this control deficiency resulted in more than a remote likelihood that a
material misstatement or lack of disclosure within the annual or interim
financial statements will not be prevented or detected.



Management is currently evaluating avenues
for mitigating our internal controls weaknesses, but mitigating controls that
are practical and cost effective may not be found based on the size and
structure of our organization.  Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
misstatements due to error or fraud will not occur or that all control issues
and instances of fraud, if any, within the Company have been detected.
 These inherent limitations include the realities that judgments in
decision making can be faulty and that breakdowns can occur because of simple
error or mistake.  The design of any system of controls is based in part on
certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions.  Projections of any evaluation of controls
effectiveness to future periods are subject to risks.

Changes in internal control over financial reporting.

Except as noted above, there have been no
changes during the quarter ended June 30, 2008 in the Companys internal
controls over financial reporting that have materially affected, or are
reasonably likely to materially affect, internal controls over financial
reporting.



13



---



PART II

OTHER INFORMATION



Item 4. Submission of Matters to the Securities Holders



At the
Company's Annual Stockholder Meeting on June 6, 2008, in Kennewick, Washington
the following items were voted on by the stockholders with the following
outcomes:





Item #1 Election of Directors:



|                     |                  
|-------------------- | -----------------
|                     |                  
|Tom L. Kirchner      |                  
|Votes for: 4,349,494 | Withheld: 168,296
|                     |                  
|Michael S. Brown     |                  
|Votes for: 4,455,994 | Withheld: 61,796 



Item #2 Ratification of Moe OShaughnessy & Associates, P.S.
as independent auditors and tax service provider for the Corporation for the
fiscal year ending December 31, 2008.



|Votes for: 4,269,631 | Votes against: 221,262 | Abstaining: 26,897
|-------------------- | ---------------------- | ------------------



Item 5. Other Information



| | Instruments defining the Rights of Security Holders
including indentures.
| | -------------------------------------------------------------------------
| |                                                                          
| | Form 8K dated February 22, 2008 is
incorporated herein by reference      



Item 6.  Exhibits



|     |                                                                                    
|---- | -----------------------------------------------------------------------------------
|11.  | Statement Re: computation of per
share earnings, see Note 3 to Financial Statements
|     |                                                                                    
|31.1 | CEO Certification                                                                  
|     |                                                                                    
|31.2 | CFO Certification                                                                  
|     |                                                                                    
|32.1 | CEO Section 906
Certification                                                      
|     |                                                                                    
|32.2 | CFO Section 906
Certification                                                      























14



---







SIGNATURES



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.





|                                                                  | ELECTRONIC
SYSTEMS TECHNOLOGY, INC.
|----------------------------------------------------------------- | -----------------------------------
|                                                                  |                                    
|                                                                  |                                    
|Date:
  August 12, 2008                                           | /s/ T. L.
KIRCHNER                 
|Name:
 T.L. Kirchner                                             
|Title:
Director/President
(Principal
Executive Officer)          
|                                                                  |                                    
|                                                                  |                                    
|Date:
  August 12, 2008                                           | /s/ JON
CORREIO                    
|Name:  Jon
Correio                                               
|Title:
Director/Secretary/Treasurer
(Principal
Financial Officer)























15