ELECTRONIC SYSTEMS TECHNOLOGY, INC.
(A Washington Corporation)

415 N. Quay St., Building B
Kennewick WA 99336

ELECTRONIC SYSTEMS TECHNOLOGY, INC.
(as prepared by Management)
(Unaudited)

SELECTED FINANCIAL DATA

ELECTRONIC SYSTEMS TECHNOLOGY, INC.
BALANCE SHEETS
(as prepared by Management)
(Unaudited)

(See "Notes to Financial Statements")

ELECTRONIC SYSTEMS TECHNOLOGY, INC.
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")

ELECTRONIC SYSTEMS TECHNOLOGY, INC.
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 nine month periods ended September 30, 2005 and September 30, 2004. Certain information and footnote disclosures 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 operation for the three and nine month periods ended September 30, 2005 and September 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 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 5,148,667 and 5,098,667 for the quarters ended September 30, 2005 and 2004 respectively.

As of September 30, 2005, 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 the 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 September 30, 2004 to September 30, 2005, 155,000 shares under option expired, 50,000 shares under option were exercised, and 195,000 shares under option were granted. At September 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 first nine months of 2005, the Company’s only item of other comprehensive income (loss) was unrealized losses on marketable securities investments, net of tax in the amount $2,829. During the same period of 2004, the Company’s only item of other comprehensive income (loss) was unrealized losses on marketable securities investments, net of tax in the amount $2,420.

For the nine-month period ended September 30, 2005 services in the amount of $139,543 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 totaling $51,487 was completed by July 13, 2005. The Company’s Form 8-K dated June 2, 2005, as filed with the Securities and Exchange Commission is included herein by reference.

Total revenues from the sale of the Company’s ESTeem wireless modem systems, accessories, and services increased to $650,195 for the third quarter of 2005 as compared to $457,485 in the third quarter of 2004, reflecting an increase of 42% from the previous year’s quarter. Gross revenues increased to $661,454 for the quarter ending September 30, 2005, from $463,482 for the third quarter of 2004, reflecting an increase of 43% from the previous year. Management believes the increase in sales revenue is due to strong domestic and foreign export Industrial Automation product sales for the quarter when compared with relatively soft performance from these market segments during the same quarter of 2004. Management believes the increase in foreign export sales is the result of the comparatively strong third quarter 2005 sales into the countries of Colombia, Croatia and Canada for Industrial Automation projects, when compared with the third quarter of 2004. Management is of the opinion that domestic sales increased due to strong sales of the Company’s ESTeem 195Eg Ethernet modem product and related accessories for Ethernet based Industrial Automation projects when compared with the same quarter of 2004.

As of September 30, 2005, revenues from the sale of the Company’s products and services decreased to $1,780,378 for the first nine months of 2005, as compared to $1,789,944 for the same period of 2004. Management believes the decrease in revenues year-to-date, is the result of increased product and price competition in the industrial automation market, which negatively impacted revenues during 2004 and the first half of 2005. Not withstanding third quarter results, Management is cautious that 2005 sales revenues as a whole will be negatively impacted by these competitive and economic factors. The Company continues to counter these competitive and economic factors by increasing salesperson activity to enhance relationships with resellers of the Company’s products and to maintain tradeshow attendance specifically targeted to markets of the Company’s products.

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.

No sale to a single customer comprised 10% or more of the Company’s product and service sales for the quarter ending September 30, 2005.

A percentage breakdown of EST’s major customer categories of Domestic, Export and U.S. Government Sales, for the third quarter of 2005 and 2004 is as follows:

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

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

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

The Company had a backlog of $198,400 at September 30, 2005, which was comprised of orders placed late in September and ongoing MDCS projects. 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 percentages of gross sales for the third quarters of 2005 and 2004 were 43% and 48%, respectively. The cost of sales decrease during the third quarter of 2005 is the result a favorable change in product mix of items sold and pricing discounts on those products, when compared with the same period of 2004.

Operating expenses for the third quarter of 2005 increased $15,539 when compared with the third quarter of 2004. The following is a delineation of operating expenses:

During the third quarter of 2005 Finance and Administration expenses increased to $43,044 when compared with the third quarter of 2004. The increase is the result of increased professional services required by the Company for government compliance and administration when compared the same quarter of 2004.

During the third quarter of 2005, Research and Development expenses decreased $18,924 when compared with the third quarter of 2004. The decrease is the result of decreased subcontracted engineering expertise and development related material when compared with the same quarter of 2004, which had strong development activity for the ESTeem 195Eg product.

Marketing expenses increased $34,355 during the third quarter of 2005 when compared with the third quarter of 2004 due to increased department related salaries, travel and tradeshow expenses. The increase is due to the hiring of an additional sales manager during 2005, increased sales related travel and increased tradeshow attendance by the Company during the third quarter of 2005.

Customer service expenses for the third quarter of 2005 decreased $2,558 when compared with the third 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 Company earned $11,259 in investment and interest income for the quarter ended September 30, 2005. Sources of this income were money market accounts, certificates of deposit and marketable securities investments.

The Company recorded a net income of $80,947 for the third quarter of 2005, compared to a net loss of $3,536 for the third quarter of 2004. The increase is the result of increased sales revenues during the third quarter of 2005 when compared with the third quarter of 2004. Year to date, the Company has net income of $86,193 for the nine months ended September 30, 2005, compared with $144,151 for the same period of 2004. The decreased year to date net income is the result of decreased sales revenues and increased operating expenses negatively effecting year to date profitability when compared with the same period of 2004.

The Corporation's current asset to current liabilities ratio at September 30, 2005 was 15.5:1 compared to 13:1 at December 31, 2004. The increase in current ratio is due to decreased accounts payable liabilities as of September 30, 2005 when compared with December 31, 2004 amounts. Management views that this trend is likely to continue for the year as a whole.

For the quarter ending September 30, 2005, the Company had cash and cash equivalent holdings of $392,228 as compared to cash and cash equivalent holdings of $488,480 at December 31, 2004. Available for sale marketable securities decreased to $925,934 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 $449,370 as of September 30, 2005. Certain components of investments held by the Company, if sold as of September 30, 2005, would have presented a realized loss net of tax, of $13,940, 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 Sheets as Accumulated Other Comprehensive Gain (Loss), and the Statements of Comprehensive Income (Loss), respectively, as of September 30, 2005.

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 September 30, 2005, is reflected as prepaid software/network services and amounted to $18,104. The long-term portion of the prepaid Netsuite Inc. services as of September 30, 2005 is reflected as prepaid software/network services and is classified a long-term asset for the Company.

It is Management’s opinion the Company’s cash, cash equivalent reserves, and working capital at September 30, 2005 are sufficient to satisfy requirements for operations, capital expenditures, and other expenditures as may arise in the short term.