PART I - FINANCIAL INFORMATION

(See "Notes to Financial Statements")

BALANCE SHEETS
(as prepared by Management)
(Unaudited)

(See "Notes to Financial Statements")

STATEMENTS OF OPERATIONS
(as prepared by Management)
(Unaudited)

(See "Notes to Financial Statements")

STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(as prepared by Management)
(Unaudited)

(See "Notes To Financial Statements")

STATEMENTS OF CASH FLOWS
(as prepared by Management)
(Unaudited)

(See "Notes to Financial Statements")

NOTES TO FINANCIAL STATEMENTS
(as prepared by Management)
(Unaudited)

NOTE 1 - BASIS OF PRESENTATION

The financial statements of Electronic Systems Technology, Inc. (the "Company"), presented in this Form 10QSB are unaudited and reflect, in the opinion of Management, a fair presentation of operations for the three and six month periods ending June 30, 2005 and June 30, 2004. 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 10KSB for the year ended December 31, 2004 as filed with Securities and Exchange Commission.

The results of operations for the three and six month periods ended June 30, 2005 and June 30, 2004, are not necessarily indicative of the results expected for the full fiscal year or for any other fiscal period.

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:

Basic 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 5,148,667 and 5,098,667 for the six month periods ended June 30, 2005 and 2004 respectively. For net loss per share calculations, the nondiluted outstanding shares as of June 30, 2005, 5,148,667 shares, is used as a denominator, so as to avoid decreasing the net loss per share amount.

As of June 30, 2005, 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 25, 2005, 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 25, 2005 totaled 195,000 shares under option and have an exercise price of $0.78 per share. The options granted on February 25, 2005 may be exercised any time during the period from February 25, 2005 through February 25, 2008. The Company's Form 8-K dated February 25, 2005, 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.

During the 12-month period from June 30, 2004 to June 30, 2005, 155,000 shares under option expired, 50,000 shares under option were exercised, and 195,000 shares under option were granted. At June 30, 2005 there were 545,000 shares under option reserved for future exercises.

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.

For the quarter ended June 30, 2005, the Company’s only item of other comprehensive income (loss) was unrealized gain on marketable securities investments, net of tax in the amount of $1,609, resulting from changes in value of mutual fund investments held by the Company. During the second quarter of 2004, the only item of comprehensive income (loss) was unrealized loss on marketable securities investments, net of tax in the amount of $9,524.

NOTE 6 - RELATED PARTY TRANSACTIONS

For the six-month period ended June 30, 2005, services in the amount of $77,202 were contracted with Manufacturing Services, Inc., of which the owner/president is a member of the Board of Directors of the Company.

On June 2, 2005, the Company declared a one-time, non-cumulative, cash distribution to shareholders of record as of June 24, 2005, of $0.01 per share of common stock, with a payable date of July 13, 2005. The payment of the cash distribution was completed by July 13, 2005. For the quarter ended June 30, 2005, the Company recognized a current liability in the amount of $51,487, reflecting the total dollar value of the cash distribution. The Company’s Form 8-K dated June 2, 2005, as filed with the Securities and Exchange Commission is included herein by reference.

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.

The Company's revenues fall into four major customer categories, Domestic, Export, Mobile Data Computer Systems (MDCS) and U.S. Government sales. Domestic commercial sales increased to $324,973 in the second quarter of 2005, as compared to $275,651 for the second quarter of 2004, which Management believes is the result of increased marketing activity during the first half of 2005. Foreign export sales for the second quarter of 2005 decreased to $61,680 as compared to the $232,156 in the same quarter of 2004. The decrease in export sales is due to lower than expected sales of the Company’s products in Mexico and Ecuador, both regions that had strong sales revenues during the same quarter of 2004. Sales revenues were also lower to Croatia, when compared with the same period of 2004, the result of sporadic sales activities by the Company’s Croatian distributor. MDCS sales for public safety entities decreased to $140,004 in the second quarter of 2005, as compared to $178,669 for the second quarter of 2004, which Management believes is the result of timing differences in federal and local funding cycles for public safety projects, when compared with the same period of 2004. U.S. Government sales increased to $20,521 in the second quarter of 2005, when compared with second quarter 2004 U.S. Government sales of $1,443, due to the companies products being included in a material handling project for the U.S. Army.

During the quarter ended June 30, 2005 no sales to a single customer comprised 10% or more of the Company’s sales revenues for the quarter ended June 30, 2005.

A percentage breakdown of EST's major customer categories of Domestic, Export, MDCS and U.S. Government Sales, for the second quarter of 2005 and 2004 are as follows:

A percentage breakdown of EST's product sales categories for the second quarter of 2005 and 2004 are as follows:

Sales for the second quarter of 2005 and 2004 include foreign export sales as follows:

The geographic distribution of foreign sales for the second quarter of 2005 and 2004 is as follows:

The majority of the Company's domestic and foreign sales for the second quarter of 2005 were used in Industrial Automation applications. It is Management’s opinion that the majority of the Company’s sales will continue to be in Industrial Automation applications for the foreseeable future. Industrial Automation applications for the Company’s products will be augmented by sales of MDCS for public safety entities. During the second quarter of 2005, MDCS sales accounted for 26% of the Company’s sales and service revenues.

Based on prior sales experience, U.S. Government purchases of the Company’s products are pursuant to the Company’s General Services Administration (GSA) contract or through open market purchases by U.S. Government agencies or contractors. Management believes that although there was an increase in government sales, the trend is for decreased U.S. Government sales, which Management believes will continue for the foreseeable future. Due to the uncertain nature of U.S. Government purchasing, Management does not base profitability or liquidity projections on expected U.S. Government sales.

The Corporation had backlog of $36,000 as of June 30, 2005, which is an unusually low backlog level for the Company. Management believes the decreased backlog level is the result of timing differences in customer ordering for projects and also the result of decreased sales revenues when compared with the same period of 2004. 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 percentage for the second quarter of 2005 and 2004 was 51% and 42%, respectively. The cost of sales increase for the second quarter of 2005 is the result the product mix for items sold shifted toward the ESTeem 195Eg, which is earlier in the product life cycle and has a decreased profit margin than more mature products sold by the Company. Cost of sales percentage was also effected by decreased profit margins for engineering services performed by the Company, when compared with the same quarter of 2004.

Operating expenses for the second quarter of 2005 increased $4,876 from the second quarter of 2004. The following is an outline of operating expenses:

During the second quarter of 2005, Finance and Administration expenses increased $11,439 from the same quarter of 2004. The increase is the result of increased professional services required by the Company for government compliance and administration, increased director reimbursed travel expenses related to the Company’s annual meeting, and increased bad debt expense recognized by the Company during the quarter when compared the same quarter of 2004.

During the second quarter of 2005, marketing expenses increased $7,914 from the same period in 2004. The increase is the result of increased department salaries and telephone expenses when compared with the same quarter of 2004.

Customer service expenses decreased $3,863 during the second quarter of 2005, when compared with the same quarter of 2004. The decrease is due to decreased department related travel expenses, and increased proportion of department costs being billed directly to customers for engineering services when compared with the same quarter of 2004.

The Corporation earned $9,811 in interest and dividend income during the quarter ended June 30, 2005. Sources of this income were money market accounts, certificates of deposit and marketable securities investments.

The Company had a net loss of $14,718 for the second quarter of 2005, compared to a $78,575 net income for the same quarter of 2004. The decrease in profitability is attributable to decreased sales revenues and increased operating expenses during the second quarter of 2005 when compared with the same quarter of 2004.

B. Financial Condition, Liquidity and Capital Resources

The Corporation's current asset to current liabilities ratio at June 30, 2005 was 15:1 compared to 13:1 at December 31, 2004. The increase in current ratio is the result of decreased accounts payable, accrued liabilities and federal income tax payable liability as of June 30, 2005 when compared with year-end 2004. For the quarter ending June 30, 2005, the Company had cash and cash equivalents of $563,380, compared to cash and cash equivalent holdings of $488,480 at December 31, 2004. Available for sale marketable securities decreased to $928,995 compared to $1,344,619 at December 31, 2004 as the result of restructuring of the Company’s investments to include certificates of deposit. The Company had certificates of deposit investments in the amount of $269,460 as of June 30, 2005. Certain components of investments held by the Company, if sold as of June 30, 2005, would have presented a realized loss net of tax of $11,861, as compared with a potential loss net of tax, of $15,824 as of December 31, 2004. The contingency for these items is reflected in the Balance Sheet as Accumulated Other Comprehensive Gain (Loss), and the Statement of Comprehensive Income (Loss), respectively, as of June 30, 2005.

Accounts receivable decreased to $216,560 as of June 30, 2005, from December 31, 2004 levels of $257,080, due to sales and collection differences during the second quarter of 2005, when compared with year-end 2005. Inventory increased to $610,850 at June 30, 2005, from December 31, 2004 levels of $605,159, due to lower than expected product sales during the first half of 2005. The Company's fixed assets, net of depreciation, decreased to $234,946 as of June 30, 2005, from December 31, 2004 levels of $253,456, due to depreciation of $35,428 and loss on asset disposition of $132, and being offset by capital expenditures of $17,050 for fixed assets. The Company’s capital expenditures for fixed assets were primarily computer upgrades and production related equipment. Management foresees additional capital expenditures may be necessary in 2005 to support the production and sale of the Company’s products.

As of January 1, 2005, the Company entered into a 39-month agreement with Netsuite Inc. to provide the Company’s customer relationship management and accounting software and related network infrastructure services. The current portion of the prepaid Netsuite Inc. services as of June 30, is reflected as prepaid software/network services and amounted to $16,306. The long-term portion of the prepaid Netsuite Inc. services as of June 30, 2005 is reflected as prepaid software/network services and is classified a long-term asset for the Company.

As of June 30, 2005, the Company’s trade accounts payable balance was $72,426 as compared with $96,949 at December 31, 2004, and reflects amounts owed for inventory items, contracted services, and state tax liabilities. Refundable deposit liability was $3,587 for the quarter ended June 30, 2005, and reflects prepaid foreign sales prior to shipment. Accrued liabilities as of June 30, 2005 were $30,953, compared with $69,255 at December 31, 2004, and reflect items such as accrued vacation benefits. The Company announced a cash distribution, payable during July 2005 in the amount of $51,487, which has been recognized as a liability as of June 30, 2005. Federal income taxes payable decreased to $15,858 as of June 30, 2005 a result of the Company’s decreased profitability during the first half of 2005.

In Management's opinion, the Company's cash and cash equivalent reserves, and working capital at June 30, 2005 is sufficient to satisfy requirements for operations, capital expenditures, and other expenditures as may arise during the remainder of 2005.

Item 4. Submission of Matters to the Securities Holders

At the Company's Annual Stockholder Meeting on June 3, 2005, in Kennewick, Washington the following items were voted on by the stockholders with the following outcomes:

Item #1 Election of Director:

Tom L. Kirchner

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(b) Reports on Form 8-K

Form 8-K dated February 25, 2005 is incorporated herein by reference.
Form 8-K dated June 2, 2005 is incorporated herein by reference.

Exhibit Index Reference Form 10-QSB

Exhibit Number Notes to Financial Statements

4. Instruments defining the Rights of Security Holders including indentures.

Form 8K dated February 25, 2005 is incorporated herein by reference

11. Statement Re: computation of per share earnings Note 3 to Financial Statements

31.1 CEO Certification

31.2 CFO Certification

32 Section 906 Certification

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.