UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D. C. 20549

                                   FORM 10-QSB

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

                For the Quarterly Period Ended September 30, 2007

      [ ] TRANSISTION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

             For the transition period from __________ to __________

                          Commission File Number I-4383

                         ESPEY MFG. & ELECTRONICS CORP.

               (Exact name of registrant as specified in charter)

                               NEW YORK 14-1387171

         (State of Incorporation) (I.R.S. Employer's Identification No.)

              233 Ballston Avenue, Saratoga Springs, New York 12866

                    (Address of principal executive offices)

           Issuer's telephone number, including area code 518-584-4100
                                                          ------------

Check  whether  the issuer  (1) has filed all  reports  required  to be filed by
Section 13 or 15 (d) of the  Securities  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 [ ]

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES [ ] NO [X]

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.

              Class                           Outstanding at November 12, 2007
              -----                           --------------------------------
Common stock, $.33-1/3 par value                      2,320,150 shares


Transitional Small Business Disclosure Format YES [ ] NO [ ]

<page>

                         ESPEY MFG. & ELECTRONICS CORP.
                         Quarterly Report on Form 10-QSB
                                    I N D E X

PART I   FINANCIAL INFORMATION                                              PAGE

         Item 1  Financial Statements:

                   Balance Sheet (Unaudited)  - September 30, 2007             1

                   Statements of Income (Unaudited) -
                   Three Months Ended September 30, 2007 and 2006              2

                   Statements of Cash Flows (Unaudited)-
                   Three Months Ended September 30, 2007 and 2006              3

                   Notes to Financial Statements (Unaudited)                   4

         Item 2  Management's Discussion and Analysis of
                 Financial Condition and Results of Operations                 7

         Item 3  Controls and Procedures                                      10

PART II  OTHER INFORMATION                                                    11

         Item 1  Legal Proceedings                                            11

         Item 2  Unregistered Sales of Equity Securities and Use of Proceeds  11

         Item 3  Defaults on Senior Securities                                11

         Item 4  Submission of Matters to a Vote of Security Holders          11

         Item 5  Other Information                                            11

         Item 6  Exhibits                                                     11

         SIGNATURES                                                           12

<page>

                          PART I: FINANCIAL INFORMATION

                         ESPEY MFG. & ELECTRONICS CORP.
                            Balance Sheet (Unaudited)
                               September 30, 2007
<table>
<caption>

                                                                       <c>
ASSETS:

     Cash and cash equivalents                                         $ 11,036,079
     Short term investments                                               4,320,000
     Trade accounts receivable, net                                       3,356,244
     Other receivables                                                        5,934
     Income taxes receivable                                                 64,358

     Inventories:
             Raw materials and supplies                                   1,675,954
             Work-in-process                                              1,952,622
             Costs relating to contracts in process, net of advance
               payments of $194,941 at September 30, 2007                 6,896,601
                                                                       ------------
                          Total inventories                              10,525,177

     Deferred income taxes                                                  181,606
     Prepaid expenses and other current assets                              404,708
                                                                       ------------
                          Total current assets                           29,894,106
                                                                       ------------
     Property, plant and equipment, net                                   2,881,686
                                                                       ------------

                          Total assets                                 $ 32,775,792
                                                                       ============

LIABILITIES AND STOCKHOLDERS' EQUITY:

     Accounts payable                                                  $    548,807
     Accrued expenses:
             Salaries, wages and commissions                                187,393
             Vacation                                                       491,242
             ESOP payable                                                    90,643
             Other                                                           45,921
     Payroll and other taxes withheld and accrued                            64,754
     Income taxes payable                                                        --
                                                                       ------------
                          Total current liabilities                       1,428,760
                                                                       ------------
     Deferred income taxes                                                  168,612
                                                                       ------------
                          Total liabilities                               1,597,372
                                                                       ------------

     Common stock, par value $.33-1/3 per share.
         Authorized 10,000,000 shares; issued 3,029,874 shares
         on September 30, 2007. Outstanding 2,315,750 (includes
         243,125 Unearned ESOP Shares) on September 30, 2007              1,009,958
     Capital in excess of par value                                      13,022,234
     Retained earnings                                                   27,285,761

     Less:   Unearned ESOP Shares                                        (3,600,459)
             Cost of 714,124 Treasury shares on September 30, 2007       (6,539,074)
                                                                       ------------
                          Total stockholders' equity                     31,178,420
                                                                       ------------

                          Total liabilities and stockholders' equity   $ 32,775,792
                                                                       ============
</table>

See accompanying notes to the financial statements.

                                       1
<page>

                         ESPEY MFG. & ELECTRONICS CORP.
                        Statements of Income (Unaudited)
                 Three Months Ended September 30, 2007 and 2006

                                                      Three Months
                                                    2007         2006
                                                 -----------------------

Net sales                                        $6,301,786   $6,071,906
Cost of sales                                     4,952,676    4,674,598
                                                 ----------   ----------
       Gross profit                               1,349,110    1,397,308

Selling, general and
   administrative expenses                          667,553      726,980
                                                 ----------   ----------

       Operating income                             681,557      670,328
                                                 ----------   ----------

Other income (expense)

       Interest and dividend income                 196,121      145,511
       Other                                         19,485        3,625
                                                 ----------   ----------
                                                    215,606      149,136
                                                 ----------   ----------

Income before income taxes                          897,163      819,464

Provision for income taxes                          305,580      276,414
                                                 ----------   ----------

                  Net income                     $  591,583   $  543,050
                                                 ==========   ==========

Net income per share:

       Basic                                     $     0.29   $     0.27
       Diluted                                   $     0.28   $     0.26
                                                 ----------   ----------

Weighted average number of shares outstanding:

           Basic                                  2,065,879    2,034,014
           Diluted                                2,103,746    2,060,338
                                                 ----------   ----------

Dividends per share:                             $   0.1750   $   0.1300
                                                 ==========   ==========

See accompanying notes to the financial statements.

                                       2
<page>
<table>
<caption>

                                       ESPEY MFG. & ELECTRONICS CORP.
                                     Statements of Cash Flows (Unaudited)
                               Three Months Ended September 30, 2007 and 2006

                                                                                     September 30,
                                                                                  2007            2006
                                                                              ------------    ------------

                                                                                <c>             <c>
Cash Flows From Operating Activities:
       Net income                                                             $    591,583    $    543,050

       Adjustments to reconcile net income to net
        cash provided by operating activities:
       Excess tax benefits from share-based compensation                            53,725          24,569
       Stock-based compensation                                                     50,840          39,189
       Depreciation                                                                123,657         121,128
       ESOP compensation expense                                                   134,247         107,250
       Loss on disposal of assets                                                    1,526           3,493
       Deferred income tax                                                         (14,229)        (18,204)
       Changes in assets and liabilities:
           (Increase) decrease in trade receivable, net                           (335,763)        957,032
           (Increase) decrease in other receivables                                 (2,486)          1,657
           Increase in income taxes receivables                                    (64,358)             --
           Decrease (increase) in inventories                                      624,150        (135,680)
           Decrease (increase) in prepaid expenses and other current assets        143,504        (185,881)
           (Decrease) increase in accounts payable                                (432,144)        672,065
           Increase in accrued salaries, wages and commissions                      25,191          40,716
           Decrease in other accrued expenses                                         (114)         (4,551)
           Decrease in vacation accrual                                            (91,239)        (29,789)
           Increase in payroll and other taxes withheld and accrued                 22,688           4,451
           Decrease in income taxes payable                                       (253,668)       (544,728)
           Decrease in ESOP payable                                                (43,604)        (35,642)
                                                                              ------------    ------------
                  Net cash provided by operating activities                        533,506       1,560,125
                                                                              ------------    ------------

Cash Flows From Investing Activities:
       Additions to property, plant and equipment                                  (72,359)       (109,933)
       Purchase of short term investments                                         (864,000)       (864,000)
       Maturity of short term investments                                          864,000         576,000
                                                                              ------------    ------------
                  Net cash used in investing activities                            (72,359)       (397,933)
                                                                              ------------    ------------

Cash Flows From Financing Activities:
       Dividends on common stock                                                  (360,147)       (264,449)
       Purchase of treasury stock                                                 (370,857)        (31,126)
       Proceeds from exercise of stock options                                     156,100         100,550
       Excess tax benefits from share-based compensation                            53,725          24,569
                                                                              ------------    ------------
                  Net cash used in financing activities                           (521,179)       (170,456)
                                                                              ------------    ------------

(Decrease) increase in cash and cash equivalents                                   (60,032)        991,736
Cash and cash equivalents, beginning of period                                  11,096,111       7,072,615
                                                                              ------------    ------------
Cash and cash equivalents, end of period                                        11,036,079       8,064,351
                                                                              ============    ============

Supplemental disclosures of cash flow information:
       Income Taxes Paid                                                      $    540,000    $    790,500
                                                                              ============    ============
</table>

See accompanying notes to the financial statements.

                                                      3
<page>

                         ESPEY MFG. & ELECTRONICS CORP.
                    Notes to Financial Statements (Unaudited)
                    -----------------------------------------

Note 1. Basis of Presentation

In the opinion of management the  accompanying  unaudited  financial  statements
contain  all  adjustments  (consisting  of only  normal  recurring  adjustments)
necessary for a fair  presentation of the results for such periods.  The results
for any  interim  period are not  necessarily  indicative  of the  results to be
expected for the full fiscal year. Certain information and footnote  disclosures
normally  included in financial  statements  prepared in accordance  with United
States generally accepted accounting  principles have been condensed or omitted.
These financial statements should be read in conjunction with the Company's most
recent audited  financial  statements  included in its report on Form 10-KSB for
the year ended June 30, 2007.

Note 2. Net income per Share

Basic net income per share  excludes  dilution  and is computed by dividing  net
income available to common stockholders by the weighted average number of common
shares  outstanding  for the period.  Diluted net income per share  reflects the
potential  dilution that could occur 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 income of the  Company.  As
Unearned ESOP shares are released or committed-to-be-released  the shares become
outstanding for earnings-per-share computations.

Note 3. Stock Based Compensation

Effective July 1, 2006, the Company  adopted  Statement of Financial  Accounting
Standards  No. 123 (Revised  2004),"Share-Based  Payment"  ("SFAS No. 123 (R)"),
which amends SFAS No. 123 and  supersedes  Accounting  Principles  Board Opinion
("APB") No. 25 in establishing  standards for the accounting for transactions in
which an entity exchanges its equity instruments for goods or services,  as well
as transactions  in which an entity incurs  liabilities in exchange for goods or
services that are based on the fair value of the entity's equity  instruments or
that maybe settled by the issuance of those equity instruments.  SFAS No. 123(R)
requires that the cost resulting from all  share-based  payment  transactions be
recognized  in  the  financial  statements  based  on  the  fair  value  of  the
share-based  payment.  SFAS No.123(R)  establishes fair value as the measurement
objective in accounting for  share-based  payment  transactions  with employees,
except for equity instruments held by employee share ownership plans. As allowed
under SFAS No. 123(R),  the Company elected the modified  prospective  method of
adoption,   under  which  compensation  cost  is  recognized  in  the  financial
statements  beginning  with  the  effective  date of  SFAS  No.  123(R)  for all
share-based  payments  granted  after that  date,  and for all  unvested  awards
granted  prior to the  effective  date of SFAS No.  123(R).  Accordingly,  prior
period amounts have not been restated.

Total stock-based compensation expense recognized in the Statement of Income for
the three months  ended  September  30, 2007 and 2006,  was $50,840 and $39,189,
respectively,  before income taxes.  The related total  deferred tax benefit was
approximately  $4,017 and $3,069,  for the three months ended September 30, 2007
and 2006,  respectively.  Prior to the adoption of SFAS No. 123(R),  the Company
presented all tax benefits for  deductions  resulting from the exercise of stock
options as operating cash flows in the Statements of Cash Flows. SFAS No. 123(R)
requires  the tax  benefits  resulting  from tax  deductions  in  excess  of the
compensation  cost recognized for those options to be classified and reported as
both an  operating  cash  outflow and a financing  cash inflow on a  prospective
basis upon adoption.

As of  September  30, 2007,  there was  approximately  $120,183 of  unrecognized
compensation  cost  related  to  stock  option  awards  that is  expected  to be
recognized as expense over a period of 1.5 years.

The Company has one employee  stock option plan, the 2000 Stock Option Plan (the
"2000  Plan").  The Board of Directors  may grant  options to acquire  shares of
common  stock to employees of the Company at the fair market value of the common
stock on the date of grant.  Generally,  options granted have a two-year vesting
period based on two years of continuous service and have a ten-year  contractual
life.  Option  grants  provide for  accelerated  vesting if there is a change in
control.  Shares issued to satisfy option grants are issued from Treasury stock.
Options  authorized  for  issuance  under the 2000  Stock  Option  Plan  totaled
275,300.  As of September  30, 2007,  of the options  authorized  for  issuance,
123,200  were  granted  and are  outstanding,  21,800  of which are  vested  and
exercisable.

                                       4
<page>

Options  available  for future  grants at September  30, 2007 total  75,400.  If
approved  by the  Company's  shareholders  at the  Company's  Annual  Meeting on
November 30, 2007,  the 2007 Stock Option and  Restricted  Stock Plan (the "2007
Plan") will  supercede  the 2000 Plan and no further  grants of options  will be
made under said plan.  Four hundred  thousand  shares would be available for the
grant of options or restricted stock awards under the 2007 Plan.

SFAS No.  123(R)  requires the use of a valuation  model to  calculate  the fair
value of stock-based  awards.  The Company has elected to use the  Black-Scholes
option valuation model, which incorporates  various assumptions  including those
for volatility, expected life and interest rates.

The table below outlines the weighted average  assumptions that the Company used
to  calculate  stock-based  employee  compensation  for the three  months  ended
September 30, 2007:

<table>
<caption>
                                                                            Three Months Ended
                                                                            September 30, 2007
                                                                            ------------------

                                                                                <c>
Dividend yield                                                                     2.40 %
Expected stock price volatility                                                   22.29 %
Risk-free interest rate                                                            4.54 %
Expected option life (in years)                                                         5
Weighted average fair value per share of options granted during the period          $4.04
</table>

The Company  pays  dividends  quarterly  and does plan to pay  dividends  in the
foreseeable  future.  Expected stock price volatility is based on the historical
volatility of the Company's stock.  The risk-free  interest rate is based on the
implied  yield  available  on  U.S.  Treasury  issues  with an  equivalent  term
approximating  the expected  life of the options.  The expected  option life (in
years)  represents  the estimated  period of time until exercise and is based on
the safe harbor calculation under SFAS No. 123.

The following  table  summarizes  stock option  activity during the three months
ended September 30, 2007:

                                             Employee Stock Options Plan
                                      ---------------------------------------
                                                                    Weighted
                                       Number of     Weighted        Average
                                        Shares        Average       Remaining
                                        Subject      Exercise     Contractual
                                       To Option       Price          Term
                                      ---------------------------------------
Balance at July 1, 2007                138,800         $15.77           8
Granted                                     --          --             --
Exercised                              (15,600)        $10.01          --
Forfeited or expired                        --          --             --
                                      ---------------------------------------
Balance September 30, 2007             123,200         $16.50           8
                                      =======================================
Exercisable at September 30, 2007       21,800         $10.31           6
                                      =======================================

The  intrinsic  value of stock options  exercised was $17,914,  during the three
months  ended   September  30,  2007.  The  intrinsic  value  of  stock  options
outstanding  and exercisable as of September 30, 2007 and 2006, was $239,585 and
$387,525, respectively.

Note 4.  Commitments and Contingencies

The Company at certain  times enters into standby  letters of credit  agreements
with  financial  institutions  primarily  relating  to the  guarantee  of future
performance on certain contracts.  Contingent liabilities on outstanding standby
letters of credit  agreements  aggregated  to zero at September  30, 2007.  As a
government  contractor,  the Company is continually  subject to audit by various
agencies of the U.S. Government to determine compliance with various procurement
laws and regulations.  As a result of such audits and as part of normal business
operations of the Company,  various  claims and charges can be asserted  against
the  Company.  It is not  possible  to  predict  the  outcome  of such  actions.
Currently the Company has no claims or assertions against it.

                                       5
<page>

Note 5.  Recently Issued Accounting Standards

In July 2006,  the FASB issued  Interpretation  No.  ("FIN") 48,  Accounting for
Uncertainty in Income Taxes-An  Interpretation  of FASB Statement No. 109, which
prescribes a recognition  threshold and measurement  attribute for the financial
statement  recognition and measurement of a tax position taken or expected to be
taken in a tax return. In particular, this interpretation requires uncertain tax
positions to be recognized only if they are  "more-likely-than-not" to be upheld
based  on their  technical  merits.  Additionally,  the  measurement  of the tax
position will be based on the largest  amount that is determined to have greater
than a 50% likelihood of  realization  upon ultimate  settlement.  Any resulting
cumulative  effect of applying the  provisions of FIN 48 upon adoption  would be
reported as an adjustment to the beginning  balance of retained  earnings in the
period of adoption. FIN 48 was effective beginning July 1, 2007. The adoption of
FIN 48 did not have a material effect on the Company's financial statements.

In September 2006, the FASB issued  Statement of Financial  Accounting  Standard
("SFAS")  No.  157,  Fair  Value  Measurements.  SFAS 157  defines  fair  value,
establishes a framework for measuring fair value, and expands  disclosures about
fair value  measurements.  SFAS 157 applies to other  accounting  pronouncements
that  require or permit  fair value  measurements,  but does not require any new
fair value measurements.  SFAS 157 is effective for financial  statements issued
for fiscal years  beginning  after November 15, 2007, and interim periods within
those  years.  The Company is  currently  evaluating  the effect of the guidance
contained in SFAS 157 and does not expect the  implementation to have a material
effect on the Company's financial statements.

Note 6. Employee Stock Ownership Plan

The Company sponsors a leveraged employee stock ownership plan (the "ESOP") that
covers  all  nonunion  employees  who work  1,000 or more hours per year and are
employed on June 30.

The  Company  makes  annual  contributions  to the ESOP equal to the ESOP's debt
service less dividends on unallocated shares received by the ESOP. All dividends
on  unallocated  shares  received  by the ESOP  are  used to pay  debt  service.
Dividends  on  allocated  ESOP shares are  recorded  as a reduction  of retained
earnings.  As the debt is repaid,  shares are released  and  allocated to active
employees, based on the proportion of debt service paid in the year. The Company
accounts  for  its  ESOP  in  accordance   with   Statement  of  Position  93-6.
Accordingly,  the shares  purchased  by the ESOP are  reported as Unearned  ESOP
Shares in the  statement  of  financial  position.  As shares  are  released  or
committed-to-be-released,  the Company reports compensation expense equal to the
current  average market price of the shares,  and the shares become  outstanding
for  earnings-per-share  (EPS)  computations.   ESOP  compensation  expense  was
$134,247  for the  quarter  ended  September  30,  2007.  The ESOP  shares as of
September 30, 2007 were as follows:

        Allocated Shares                                             434,553
        Committed-to-be-released shares                                6,042
        Unreleased shares                                            243,125
                                                                  ----------

        Total shares held by the ESOP                                683,720
                                                                  ==========

        Fair value of unreleased shares at September 30, 2007     $5,178,563
                                                                  ==========

                                       6
<page>

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

Overview

Espey Mfg. & Electronics Corp. (the "Company") located in Saratoga Springs,  New
York, is engaged principally in the development,  design, production and sale of
specialized  electronic power supplies, a wide variety of transformers and other
types of iron-core components,  and electronic system components. In some cases,
the  Company   manufactures  such  products  in  accordance  with  pre-developed
mechanical and electrical  requirements  ("build to print"). In other cases, the
Company  is  responsible  for both the  overall  design and  manufacture  of the
product. The Company does not generally manufacture  standardized components and
does not have a product  line.  The  products  manufactured  by the Company find
application principally in (i) shipboard and land based radar, (ii) locomotives,
(iii)  aircraft,   (iv)  short  and  medium  range  communication  systems,  (v)
navigation systems, and (vi) land-based military vehicles.

Business is solicited from large industrial manufacturers and defense companies,
the  government  of the United  States,  foreign  governments  and major foreign
electronic  equipment  companies.  In certain countries the Company has external
sales  representatives  to help solicit and coordinate  foreign  contracts.  The
Company  is also  on the  eligible  list of  contractors  of the  United  States
Department of Defense and generally is automatically  solicited by such agencies
for procurement  needs falling within the major classes of products  produced by
the Company.  In addition,  the Company  directly  solicits bids from the United
States Department of Defense for prime contracts.

There is competition in all classes of products manufactured by the Company from
divisions of the largest electronic companies,  as well as many small companies.
The  Company's  sales do not  represent a  significant  share of the  industry's
market for any class of its products.  The principal  methods of competition for
electronic  products of both a military and  industrial  nature  include,  among
other  factors,  price,  product  performance,  the experience of the particular
company and history of its dealings in such  products.  The Company,  as well as
other companies  engaged in supplying  equipment for military use, is subject to
various risks,  including,  without limitation,  dependence on United States and
foreign government  appropriations and program allocations,  the competition for
available   military  business,   and  government   termination  of  orders  for
convenience.

In the first three months of fiscal  2008,  the Company  received  approximately
$4.2 million in new orders.  These  orders  include  both  follow-on  production
quantities for mature products,  and engineering  development  orders which will
enable the  Company to utilize  its  engineering  expertise  in  developing  new
customer  specific  products.  Some of these products,  once developed,  will be
produced in the  Company's  manufacturing  facility  and are expected to provide
large production  order quantities over several years.  These orders are in line
with the  Company's  strategy  of being  involved  in  long-term  high  quantity
military and industrial products.

The sales backlog of approximately $34.1 million at September 30, 2007 gives the
Company a solid base of future sales and,  therefore,  management  expects sales
for fiscal  2008 to equal or exceed  sales for fiscal  2007.  In addition to the
backlog, the Company currently has outstanding  quotations and expected business
representing  approximately $42 million in the aggregate for both repeat and new
programs.

Sales to two significant  customers in the first quarter of fiscal 2008 and 2007
represented 56.9% and 56.8%,  respectively,  of the Company's total sales. While
the Company has always had a small number of customers  that account for a large
percentage of its total sales in any given year, management is pursuing business
opportunities  involving  significant  product  programs  with  new and  current
customers with an overall  objective of lowering the  concentration of sales and
minimizing  the impact of a  significant  customer or excessive  reliance upon a
single major product  program of a particular  customer.  The current backlog of
$34.1 million  includes  $23.5 million from these two customers at September 30,
2007.

The outstanding  quotations  encompass  various new and previously  manufactured
power  supplies,  transformers,  and  subassemblies.  However,  there  can be no
assurance  that the Company  will acquire any or all of the  anticipated  orders
described  above,  many of which are subject to allocations of the United States
defense  spending  and factors  affecting  the  defense  industry  and  military
procurement generally.

                                       7
<page>

The total backlog for the Company of $34.1  million at September 30, 2007,  down
$1.5 million over September 30, 2006,  represents the estimated  remaining sales
value of work to be performed  under firm  contracts.  These  contracts  include
significant orders for military and industrial power supplies,  and contracts to
manufacture   certain  customer  products  in  accordance  with   pre-engineered
requirements.  The funded  portion  of this  backlog at  September  30,  2007 is
approximately  $33.8 million.  This includes items that have been authorized and
appropriated by Congress and/or funded by the customer.  The unfunded backlog is
approximately  $316,000 and  represents  one order for which funding has not yet
been received from the customer. While there is no guarantee that future budgets
and  appropriations  will provide  funding for a given  program,  management has
included in unfunded  backlog only those programs that it believes are likely to
receive funding. The unfunded backlog at September 30, 2006 was $4.3 million.

Management,  along  with the  Board of  Directors,  continues  to  evaluate  the
availability of and use of the Company's working capital.  Expectations are that
the working  capital  will be required to fund new orders over the next  several
quarters,  dividend payments, and general operations of the business.  Also, the
Mergers  and  Acquisitions  Committee  of the Board of  Directors  continues  to
evaluate potential strategic options on a periodic basis.

Critical Accounting Policies and Estimates

Management  believes  our most  critical  accounting  policies  include  revenue
recognition and estimates to completion.

A significant portion of our business is comprised of development and production
contracts.  Generally,  revenues on long-term fixed-price contracts are recorded
on a percentage of completion  basis using units of delivery as the  measurement
basis for progress toward completion.

Percentage  of  completion  accounting  requires  judgment  relative to expected
sales,  estimating costs and making assumptions  related to technical issues and
delivery schedule. Contract costs include material, subcontract costs, labor and
an  allocation  of overhead  costs.  The  estimation  of cost at completion of a
contract is subject to numerous variables involving contract costs and estimates
as to the length of time to complete the contract. Given the significance of the
estimation  processes  and  judgments  described  above,  it  is  possible  that
materially  different  amounts of  expected  sales and  contract  costs could be
recorded if different  assumptions were used, based on changes in circumstances,
in the  estimation  process.  When a change in expected sales value or estimated
cost is determined, changes are reflected in current period earnings.

Results of Operations

Net sales for the three  months  ended  September  30, 2007 were  $6,301,786  as
compared  to  $6,071,906  for the  same  period  in  2006,  representing  a 3.8%
increase.  Generally,  this increase can be attributed to the contract  specific
nature of the Company's  business.  The Company  continues to deliver product on
its single  largest  order for power  supplies and the increase in sales for the
quarter is largely  attributable to an increase in shipments on this order.  New
orders received in the first three months of fiscal 2008 were approximately $4.2
million  compared to  approximately  $3.9  million in the first three  months of
fiscal 2007.  The sales order backlog has been over $30 million for ten quarters
in a row and expectations are this trend will continue.

The primary  factor in  determining  gross profit and net income is product mix.
The gross  profits on mature  products and build to print  contracts  are higher
than  with  respect  to  the  products,  which  are  still  in  the  engineering
development stage or in the early stages of production.  In any given accounting
period the mix of product  shipments  between higher margin mature  programs and
less mature programs including loss contracts, has a significant impact on gross
profit and net income.

For the three  months  ended  September  30, 2007 and 2006 gross  profits were $
1,349,110 and  $1,397,308,  respectively.  Gross profit as a percentage of sales
was 21.4% and 23%,  for the three  months  ended  September  30,  2007 and 2006,
respectively.  The reduced  gross  profit  percentage  in the three months ended
September  30,  2007,  was the  result of  higher  overhead  expenses  including
supervisory  labor  for  quality  control  and  production,  ESOP  contribution,
production  supplies  and  maintenance.  Management  continues  to evaluate  the
Company's  workforce  to ensure that  production  and overall  execution  of the
backlog orders and additional  anticipated  orders are  successfully  performed.
Employment at September 30, 2007 was 182 compared to 173 people at September 30,
2006.

                                       8
<page>

Selling,  general and administrative expenses were $667,553 for the three months
ended  September  30, 2007,  a decrease of $59,427  compared to the three months
ended  September 30, 2006. The decrease is primarily due to the decreased  labor
for administrative purposes and lower selling costs due to reduced headcount.

Other income for three months ended  September 30, 2007 increased as compared to
the three months ended  September 30, 2006, due to increased  interest income on
the Company's cash and cash equivalents and short-term investments due to higher
interest  rates.  The Company does not believe that there is a significant  risk
associated  with its investment  policy,  since at September 30, 2007 all of the
investments are primarily represented by short-term liquid investments including
certificates of deposit and money market funds.

The effective income tax rate at September 30, 2007 and 2006 was 34.1% and 33.7%
respectively.  The  effective  tax rate for  September 30, 2006 is less than the
statutory  tax rate  mainly due to the foreign  exportation  benefit the Company
receives  on  its  international  sales,  the  Qualified  Production  Activities
benefit,  and the benefit  derived  from the ESOP  dividends  paid on  allocated
shares.

Net income for the three months ended  September 30, 2007,  was $591,583 or $.29
and $.28 per share,  basic and  diluted,  respectively,  compared to $543,050 or
$.27 and $.26 per share, basic and diluted,  respectively,  for the three months
ended  September  30, 2006.  The increase in net income per share was due to the
decrease in selling,  general and  administrative  expenses,  increased interest
income, offset partially by reduced gross profit as a percentage of sales.

Liquidity and Capital Resources

The Company's  working  capital is an appropriate  indicator of the liquidity of
its  business,  and  during the past  three  fiscal  years,  the  Company,  when
possible,  has  funded all of its  operations  with cash  flows  resulting  from
operating  activities and when necessary from its existing cash and investments.
The  Company  did not borrow  any funds  during  the last  three  fiscal  years.
Management has available a $3,000,000 line of credit to help fund further growth
or working capital needs, if necessary, but does not anticipate the need for any
borrowed  funds in the  foreseeable  future.  This  line of  credit  expires  on
November 30, 2007.

The Company's working capital as of September 30, 2007 was  approximately  $28.5
million.  During the three months ended  September 30, 2007 and 2006 the Company
repurchased 16,743 and 1,766 shares, respectively,  of its common stock from the
Company's   ESOP,   for  a  total   purchase  price  of  $370,857  and  $31,126,
respectively.   Under  existing  authorizations  from  the  Company's  Board  of
Directors,  as of September  30, 2007,  management  is authorized to purchase an
additional $1,629,143 of Company stock.

                                               Three Months Ended September 30,
                                                    2007             2006
                                                ------------      ------------
Net cash provided by operating activities       $    533,506      $  1,560,125
Net cash used in investing activities                (72,359)         (397,933)
Net cash used in financing activities               (521,179)         (170,456)

Net cash provided by operating  activities  fluctuates between periods primarily
as a result of  differences  in net  income,  the  timing of the  collection  of
accounts  receivable,  purchase  of  inventory,  level of sales and  payment  of
accounts payable.  Net cash used in investing  activities decreased in the first
three  months of fiscal 2008 due to the  increase in  maturities  of  short-term
investments.  The increase in cash used in financing activities is due primarily
to the purchases of treasury stock during the current quarter.

The Company currently  believes that the cash flow generated from operations and
when necessary,  from cash and cash equivalents,  will be sufficient to meet its
long-term funding requirements for the foreseeable future.

During the three months ended September 30, 2007 and 2006, the Company  expended
$72,359 and $109,933,  respectively,  for plant  improvements and new equipment.
The Company has  budgeted  approximately  $400,000 for new  equipment  and plant
improvements in fiscal 2008.  Management  presently  anticipates  that the funds
required will be available from current operations.

                                       9
<page>

The Company at certain  times enters into standby  letters of credit  agreements
with  financial  institutions  primarily  relating  to the  guarantee  of future
performance on certain contracts.  Contingent liabilities on outstanding standby
letters of credit agreements aggregated to zero at September 30, 2007.


    CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
                PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This  report  contains  "forward-looking  statements"  within the meaning of the
Private  Securities   Litigation  Reform  Act  of  1995.  The  terms  "believe,"
"anticipate,"  "intend," "goal," "expect," and similar  expressions may identify
forward-looking  statements.  These  forward-looking  statements  represent  the
Company's current  expectations or beliefs concerning future events. The matters
covered by these statements are subject to certain risks and uncertainties  that
could  cause  actual  results to differ  materially  from those set forth in the
forward-looking  statements,   including  the  Company's  dependence  on  timely
development, introduction and customer acceptance of new products, the impact of
competition and price erosion, supply and manufacturing constraints, maintenance
and  potential  increase of the  Company's  backlog,  potential  new orders from
customers and other risks and  uncertainties.  The foregoing  list should not be
construed as exhaustive,  and the Company disclaims any obligation  subsequently
to revise any  forward-looking  statements  to reflect  events or  circumstances
after the date of such statements or to reflect the occurrence of anticipated or
unanticipated  events.  The Company wishes to caution readers not to place undue
reliance on any such forward-looking statements, which speak only as of the date
made.


Item 3. Controls and Procedures

(a) The Company's  management,  with the  participation  of the Company's  chief
executive officer and chief financial officer,  carried out an evaluation of the
effectiveness  of our  disclosure  controls and  procedures  (as defined in Rule
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end
of the period  covered by this  Quarterly  Report on Form 10-QSB.  Based on such
evaluation,  our chief  executive  officer  and  chief  financial  officer  have
concluded that our disclosure  controls and procedures  were effective as of the
end of the period covered by this report.

(b) There have been no changes in our internal controls over financial reporting
during the period covered by this report that have materially  affected,  or are
reasonably  likely to materially  affect,  our internal  controls over financial
reporting.


                                       10
<page>

                    PART II: Other Information and Signatures

Item 1.  Legal Proceedings

         None

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

         (a)      None

         (c)      Securities Repurchased

<table>
<caption>
                              Purchases of Equity Securities

                                                      Total Number   Maximum Number
                                                        of Shares    (or Approximate
                                                        Purchased    Dollar Value)
                                                       as Part of      of Shares
                                Total       Average     Publicly      that May Yet
                               Number        Price      Announced     Be Purchased
                              of Shares      Paid        Plan or     Under the Plan
         Period               Purchased    per Share     Program     or Program (1)
         ---------------------------------------------------------------------------

                          <c>          <c>          <c>           <c>
         August 1 to
         August 31, 2007        16,743       $22.15       16,743        $1,629,143
</table>

         (1)  Pursuant  to a  prior  Board  of  Directors  authorization,  as of
         September  30, 2007 the Company can  repurchase up to $1,629,143 of its
         common stock pursuant to an ongoing plan.

Item 3   Defaults on Senior Securities

         None

Item 4.  Submission of Matters to a Vote of Security Holders

         None

Item 5.  Other Information

         None

Item 6.  Exhibits

         31.1     Certification of the Chief Executive Officer pursuant to Rules
                  13a-14(a) and 15d-14(a)  under the Securities  Exchange Act of
                  1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 2002

         31.2     Certification of the Principal  Financial  Officer pursuant to
                  Rules  13a-14(a) and 15d-14(a)  under the Securities  Exchange
                  Act  of  1934,  as  adopted  pursuant  to  Section  302 of the
                  Sarbanes-Oxley Act of 2002

         32.1     Certification  of the Chief Executive  Officer  pursuant to 18
                  U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002

         32.2     Certification of the Principal  Financial  Officer pursuant to
                  18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of
                  the Sarbanes-Oxley Act of 2002

                                       11
<page>

                              S I G N A T U R E S

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                               ESPEY MFG. & ELECTRONICS CORP.


                                               /s/ Howard Pinsley
                                               -----------------------------
                                               Howard Pinsley, President and
                                               Chief Executive Officer

                                               /s/ David O'Neil
                                               -----------------------------
                                               David O'Neil, Treasurer and
                                               Principal Financial Officer

November 12, 2007
-----------------
      Date

                                       12