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 December 31, 2005

      [ ] 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 February 13, 2006
                -----                          --------------------------------
  Common stock, $.33-1/3 par value                     2,296,762 shares


Transitional Small Business Disclosure Format YES [X] 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) -December 31, 2005                 1


                 Statements of Income (Unaudited) -
                 Three and Six Months Ended December 31, 2005 and 2004        2


                 Statements of Cash Flows (Unaudited)-
                 Six Months Ended December 31, 2005 and 2004                  3


                 Notes to Financial Statements (Unaudited)                    4


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

         Item 3  Controls and Procedures                                      11


PART II  OTHER INFORMATION AND                                                12
         SIGNATURES


         Item 1  Legal Proceedings                                            12

         Item 2  Unregistered Sales of Equity Securities and Use of Proceeds  12

         Item 3  Defaults on Senior Securities                                12

         Item 4  Submission of Matters to a Vote of Security Holders          12

         Item 5  Other Information                                            13

         Item 6  Exhibits and Reports on Form 8-K                             13

         SIGNATURES                                                           14

<PAGE>
<TABLE>
<CAPTION>

                          PART I: FINANCIAL INFORMATION

                         ESPEY MFG. & ELECTRONICS CORP.
                            Balance Sheet (Unaudited)
                                December 31, 2005

                                                                             December 31,
                                                                                 2005
                                                                             ------------
<S>                                 <C>
ASSETS:

          Cash and cash equivalents                                          $  7,457,105
          Short term investments                                                4,032,000
          Trade accounts receivable, net                                        3,556,018
          Other receivables                                                         8,658

          Inventories:
                  Raw materials and supplies                                    1,783,852
                  Work-in-process                                               2,443,499
                  Costs relating to contracts in process, net of advance
                    payments of  $344,578 at December 31, 2005                  6,973,947
                                                                             ------------
                                    Total inventories                          11,201,298

          Deferred income taxes                                                   135,997
          Prepaid expenses and other current assets                               402,250
                                                                             ------------
                                    Total current assets                       26,793,326
                                                                             ------------
          Property, plant and equipment, net                                    2,946,194
                                                                             ------------

                                    Total assets                             $ 29,739,520
                                                                             ============

LIABILITIES AND STOCKHOLDERS' EQUITY:

          Accounts payable                                                   $    843,467
          Accrued expenses:
                  Salaries, wages and commissions                                  79,302
                  Vacation                                                        441,105
                  ESOP payable                                                    178,551
                  Other                                                            67,820
          Payroll and other taxes withheld and accrued                             42,091
          Income taxes payable                                                     77,243
                                                                             ------------
                               Total current liabilities                        1,729,579
                                                                             ------------
          Deferred income taxes                                                   263,057
                                                                             ------------
                               Total liabilities                                1,992,636
                                                                             ------------

          Common stock, par value $.33-1/3 per share.
             Authorized 10,000,000 shares; issued
             3,029,874 shares on December 31, 2005
             Outstanding 2,296,762 on December 31, 2005                         1,009,958
          Capital in excess of par value                                       12,424,236
          Retained earnings                                                    24,945,747

          Less: Cost of 300,000 Unearned ESOP Shares on December 31, 2005      (4,335,000)
                Cost of 733,112 Treasury shares on December 31, 2005           (6,298,057)
                                                                             ------------
                               Total stockholders' equity                      27,746,884
                                                                             ------------

                                        Total liabilities and
                                        stockholders' equity                 $ 29,739,520
                                                                             ============
</TABLE>

See accompanying notes to the financial statements.

                                       1
<PAGE>

                         ESPEY MFG. & ELECTRONICS CORP.
                        Statements of Income (Unaudited)
              Three and Six Months Ended December 31, 2005 and 2004

<TABLE>
<CAPTION>
                                                        Three Months                 Six Months
                                                     2005           2004          2005          2004
                                                 --------------------------   --------------------------
<S>                                              <C>            <C>           <C>            <C>
Net sales                                        $ 5,056,083    $ 4,896,741   $ 9,616,657    $ 9,627,068
Cost of sales                                      4,108,723      4,124,354     7,789,007      8,205,539
                                                 -----------    -----------   -----------    -----------
       Gross profit                                  947,360        772,387     1,827,650      1,421,529

Selling, general and
   administrative expenses                           666,440        580,538     1,336,159      1,181,217
                                                 -----------    -----------   -----------    -----------

       Operating income                              280,920        191,849       491,491        240,312
                                                 -----------    -----------   -----------    -----------

Other income (expense)

       Interest and dividend income                  110,976         43,618       209,910         78,488
       Other                                          (5,614)         3,150        (8,437)         6,366
                                                 -----------    -----------   -----------    -----------
                                                     105,362         46,768       201,473         84,854
                                                 -----------    -----------   -----------    -----------

Income before income taxes                           386,282        238,617       692,964        325,166

Provision for income taxes                           112,022         71,585       200,960         97,550
                                                 -----------    -----------   -----------    -----------

                  Net income                     $   274,260    $   167,032   $   492,004    $   227,616
                                                 ===========    ===========   ===========    ===========

Net income per share:

       Basic                                     $      0.14    $      0.08   $      0.24    $      0.11
       Diluted                                   $      0.13    $      0.08   $      0.24    $      0.11
                                                 -----------    -----------   -----------    -----------

Weighted average number of shares outstanding:

           Basic                                   2,010,791      2,022,756     2,010,779      2,024,538
           Diluted                                 2,049,020      2,049,070     2,050,590      2,045,852
                                                 -----------    -----------   -----------    -----------

Dividends per share:                             $    0.0875    $     0.075   $    0.1625    $      0.15
                                                 ===========    ===========   ===========    ===========
</TABLE>

As  described  in note 7, a stock  split in the form of a stock  dividend of one
share of common stock for each share of common stock issued was paid on December
30, 2005 (all per share and share  amounts  have been  adjusted to reflect  this
dividend).

See accompanying notes to the financial statements.

                                       2
<PAGE>

                         ESPEY MFG. & ELECTRONICS CORP.
                      Statements of Cash Flows (Unaudited)
                   Six Months Ended December 31, 2005 and 2004
<TABLE>
<CAPTION>
                                                                                      December 31,
                                                                                  2005           2004
                                                                              ------------    ------------
<S>                                                                           <C>             <C>
Cash Flows From Operating Activities:
       Net income                                                             $    492,004    $    227,616

       Adjustments  to  reconcile  net income to net
       cash provided by operating
       activities:
       Depreciation                                                                278,391         282,170
       ESOP compensation expense                                                   227,301              --
       Loss on disposal of assets                                                   18,660              --
       Deferred income tax                                                         (35,000)         21,462
       Changes in assets and liabilities:
           Increase in trade receivables, net                                     (562,778)       (169,445)
           Increase in other receivables                                            (5,485)         (6,732)
           (Increase) decrease in inventories                                     (833,746)         77,191
           (Increase) decrease in prepaid expenses and other current assets        (66,255)        122,442
           Increase in accounts payable                                            464,696         764,330
           Increase in accrued salaries, wages and commissions                      17,024          39,015
           Increase in accrued employees' insurance costs                               --           1,023
           Decrease in vacation accrual                                            (56,910)        (49,953)
           Increase in other accrued expenses                                       14,037           5,000
           Increase in payroll & other taxes withheld and accrued                    6,114          19,514
           Decrease in income taxes payable                                       (234,885)        (49,815)
           Decrease in ESOP payable                                                (48,750)             --
                                                                              ------------    ------------
                      Net cash (used in) provided by operating activities         (325,582)      1,283,818
                                                                              ------------    ------------

Cash Flows From Investing Activities:
       Unearned ESOP Shares                                                     (4,335,000)             --
       Additions to property, plant & equipment                                   (258,908)       (230,716)
       Proceeds on sale of assets, net                                                 500              --
       Purchase of short term investments                                       (3,648,000)     (1,440,000)
       Maturity of short term investments                                        2,688,000         672,000
                                                                              ------------    ------------
                      Net cash used in investing activities                     (5,553,408)       (998,716)
                                                                              ------------    ------------

Cash Flows From Financing Activities:
       Sale of treasury stock                                                    4,396,424              --
       Dividends on common stock                                                  (325,832)       (303,331)
       Purchase of treasury stock                                                 (679,809)        (90,315)
       Proceeds from exercise of stock options                                     141,805          15,500
                                                                              ------------    ------------
                      Net cash provided by (used in) financing activities        3,532,588        (378,146)
                                                                              ------------    ------------

Decrease in cash and cash equivalents                                           (2,346,402)        (93,044)
Cash and cash equivalents, beginning of period                                   9,803,507      12,310,972
                                                                              ------------    ------------
Cash and cash equivalents, end of period                                         7,457,105      12,217,928
                                                                              ============    ============

Supplemental disclosures of cash flow information:
       Income Taxes Paid                                                      $    470,845    $    125,902
                                                                              ============    ============
</TABLE>

Non-cash investing and financing activities:
       During  the  period  ended  December  31,  2005,  the  Company effected a
       stock  split  in the form of a stock dividend of 1,514,937 common shares,
       representing  one share for each share outstanding and each share held as
       a  treasury  share. This resulted in a transfer from retained earnings to
       common stock of $504,979.

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 2005 Form 10-K.

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

The Company has elected to account for its stock-based  compensation plans under
the intrinsic  value-based method of accounting as permitted by SFAS No. 123 and
as prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock  Issued to  Employees,"  and related  interpretations  including  FASB
Interpretation  No. 44,  "Accounting  for Certain  Transactions  Involving Stock
Compensation  - An  Interpretation  of APB No. 25," in accounting  for its fixed
stock option plan. Under this method,  compensation expense would be recorded on
the date of grant  only if the  current  market  price of the  underlying  stock
exceeded the exercise price.

The  following  table  illustrates  the  effect on net income and net income per
share if the Company had applied the fair value  recognition  provisions of SFAS
No. 123, to stock-based employee compensation.

<TABLE>
<CAPTION>
                                          Three Months Ended         Six Months Ended
                                              December 31,             December 31,
                                           2005         2004         2005         2004
                                        ----------   ----------   ----------   ----------
<S>                                     <C>          <C>          <C>          <C>
Net income as reported                  $  274,260   $  167,032   $  492,004   $  227,616

Deduct: Total stock-based employee
compensation expense determined
under fair value based method for all
awards, net of related  tax effects        (20,926)      (9,997)     (25,784)     (18,374)
                                        ----------   ----------   ----------   ----------

Pro forma net income                    $  253,334   $  157,035   $  466,220   $  209,242
                                        ==========   ==========   ==========   ==========

Net Income per share:
    Basic-as reported                   $      .14   $      .08   $      .24   $      .11
                                        ==========   ==========   ==========   ==========

    Basic-pro forma                     $      .13   $      .08   $      .23   $      .10
                                        ==========   ==========   ==========   ==========

    Diluted-as reported                 $      .13   $      .08   $      .24   $      .11
                                        ==========   ==========   ==========   ==========

    Diluted-pro forma                   $      .12   $      .08   $      .23   $      .10
                                        ==========   ==========   ==========   ==========
</TABLE>

                                       4
<PAGE>

Note 4. Commitments and Contingencies

The Company has entered 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 $19,650 at December 31, 2005. The Company does not
expect to fund any of the  amounts  under the  standby  letters of credit.  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 at this time to predict the outcome of any such
actions.  However,  management  is of the opinion that it has or would have good
defenses  against such actions and believes that none of these matters will have
a material effect on the consolidated financial position,  results of operations
or cash flows of the Company.

Note 5. Recently Issued Accounting Standards

In December 2004, the FASB issued SFAS No. 123R, "Share Based Payment." SFAS No.
123R requires companies to recognize in the income statement the grant-date fair
value of stock options and other equity-based  compensation issued to employees.
SFAS No. 123R was originally  effective for interim and annual periods beginning
after  December 15, 2005.  The effective  date has been delayed by the SEC until
annual  periods  beginning  after  December 15,  2005.  The SFAS No. 123R is not
expected to have a material  impact on the Company's  results of operations  and
financial condition.

In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets
-  Accounting  Principles  Board  Opinion  No. 29,  Accounting  for  Nonmonetary
Transactions."  SFAS No. 153  requires  that  exchanges  should be recorded  and
measured at the fair value of the assets  exchanged,  with  certain  exceptions.
SFAS No. 153 is effective for nonmonetary  exchanges occurring in fiscal periods
beginning  after June 15, 2005.  The adoption of SFAS No. 153 is not expected to
have a significant  impact on the  Company's  results of operations or financial
position.

In June 2005,  the FASB  issued  SFAS No.  154,  "Accounting  Changes  and Error
Corrections",  a replacement of APB Opinion No. 20,  "Accounting  Changes",  and
SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements". SFAS
No. 154 changes the requirements of the accounting for and reporting of a change
in  accounting  principle.  Previously,  most  voluntary  changes in  accounting
principles  required  recognition via a cumulative  effect adjustment within net
income  of the  period  of the  change.  SFAS  No.  154  requires  retrospective
application to prior periods' financial statements,  unless it is impractical to
determine  either the  period-specific  effects or the cumulative  effect of the
change.  SFAS No. 154 is effective for  accounting  changes made in fiscal years
beginning  after December 15, 2005;  however,  the Statement does not change the
transition  provisions of any of the existing accounting  pronouncements.  We do
not  believe  adoption  of SFAS  No.  154 will  have a  material  effect  on our
consolidated financial position, results of operations or cash flows.

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. Prior to July 15, 2005, the ESOP owned 230,120 shares,  all
of which were  allocated to  employees.  On July 15,  2005,  pursuant to a Stock
Purchase Agreement dated as of such date, the Company, by selling 150,000 shares
of its  common  stock,  par value  $0.33 1/3 per  share,  to the  Espey  Mfg.  &
Electronics Corp.  Employee Stock Ownership Plan Trust,  provided more shares to
be allocated to employees for services rendered over the next 15 years. The ESOP
paid  $28.90 per share,  for an  aggregate  purchase  price of  $4,335,000.  The
determination  of the purchase price was based on a fairness opinion obtained by
an independent  valuation firm. The ESOP borrowed from the Corporation an amount
equal to the  purchase  price.  The loan will be repaid in  fifteen  (15)  equal
annual  installments of principal and the unpaid balance will bear interest at a
fixed rate of 6.25% per annum,  the  "prime  rate" as quoted in The Wall  Street
Journal on the date of closing.

The Board of Directors  of the Company had  approved a purchase  price per share
equal to a 5% discount  on the average  trading  price of the  Company's  common
stock on the American Stock Exchange on the date before closing, but in no event
greater than the fair market value as  determined  by an  independent  valuation
firm retained by the

                                       5
<PAGE>

ESOP.  The average  trading price of the Company's  common stock on the American
Stock Exchange on July 14, 2005 was $30.72.

In making the sale, the Company relied on the exemption from registration  under
Section 4(2) of the Securities Act of 1933, as amended,  because the shares sold
were offered only to the ESOP.

After giving  effect to the  transaction  the ESOP owned  380,120  shares of the
Company's 1,158,294 outstanding shares of common stock as of July 15, 2005.

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
$120,900 for the quarter ended  December 31, 2005 and $227,301 for the six-month
period  ending  December 31, 2005.  The ESOP shares as of December 31 (after the
stock split described in note 7) were as follows:

     Allocated Shares                                            424,244
     Committed-to-be-released shares                              12,916
     Unreleased shares                                           287,084
                                                            ------------

     Total shares held by the ESOP                               724,244
                                                            ============

     Fair value of unreleased shares at December 31, 2005   $  5,282,346
                                                            ============

Note 7. Stock Split

On December 30, 2005, the Company effected a one-for-one stock split in the form
of a  dividend  of one share of  common  stock  for each  share of common  stock
outstanding. The Company also allocated to treasury an additional share for each
share being held as a treasury  share.  All  references  to the number of common
shares,  shares related to the Company's stock option plan, as well as per share
data in the accompanying financial statements, have been adjusted to reflect the
stock split on a retroactive basis with the exception of the details  describing
the Company's ESOP transaction  which became executed on July 15, 2005 described
in note 6 and "Other Matters".  As a result of the stock split, common stock was
increased and retained earnings was decreased by $504,979.

                                       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 and 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.

Management is optimistic  about the future of the Company.  In the first half of
fiscal 2006,  the Company  received  approximately  $20.6 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 getting
involved in long-term high quantity military and industrial products.

The sales backlog of approximately  $42.7 million at December 31, 2005 gives the
Company a solid  base of future  sales  and,  therefore,  management  expects an
increase in sales during  fiscal 2006 as compared to fiscal 2005. In addition to
the backlog,  the Company currently has outstanding  quotations  representing in
excess of $27.9 million in the aggregate for both repeat and new programs.  Many
potential   orders  are  currently  being  discussed  and  negotiated  with  our
customers.

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.

The total  backlog for the Company of $42.7  million at December  31,  2005,  up
$28.6 million over December 31, 2004,  represents the estimated  remaining sales
value of work to be performed under firm  contracts.  The funded portion of this
backlog at December 31, 2005 is approximately $34.1 million. This includes items
that have been  authorized  and  appropriated  by Congress  and/or funded by the
customer. The unfunded backlog is approximately $8.6 million and represents firm
multi-year  orders for which funding has not yet been  appropriated by Congress.
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.

                                       7
<PAGE>

The unfunded  backlog at December 31, 2004 was zero. The backlog at December 31,
2005,  as  discussed  above,   includes  significant  orders  for  military  and
industrial  power  supplies,  and  contracts  to  manufacture  certain  customer
products in accordance with pre-engineered requirements.

Management,  along with the Board of  Directors,  continues to evaluate the need
and use of the  Company's  working  capital.  Expectations  are that the working
capital  will be required to fund the  increase in 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

We believe 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  December  31,  2005 were  $5,056,083  as
compared  to  $4,896,741  for the  same  period  in  2004,  representing  a 3.3%
increase.  Net sales for the six months ended December 31, 2005 were  $9,616,657
as compared to $9,627,068 for the same period in 2004.  The Company's  sales for
the three month and six month period ended December 31, 2005 remained relatively
flat  compared  to the prior  year.  Generally,  this can be  attributed  to the
contract  specific nature of the Company's  business and the long-term nature of
these  contracts.  The increase in backlog that  occurred  during the prior year
should  begin  to be  reflected  in net  sales in the near  future.  New  orders
received  in the first  half of fiscal  2006 were  approximately  $20.6  million
compared to approximately $8.3 million in the first half of fiscal 2005.

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  December  31,  2005 and 2004  gross  profits  were
$947,360 and $772,387,  respectively.  Gross profit as a percentage of sales was
18.7%  and  15.8%,  for the  three  months  ended  December  31,  2005 and 2004,
respectively.  For the six months ended December 31, 2005 and 2004 gross profits
were  $1,827,650 and $1,421,529,  respectively.  Gross profit as a percentage of
sales was 19.0% and 14.8%,  for the six months ended December 31, 2005 and 2004,
respectively.  The improved gross profit  percentage in the three and six months
ended December 31, 2005,  relates to favorable  product mix, offset partially by
higher ESOP  contribution  expense and higher  energy costs.  ESOP  contribution
expense  included  in cost of sales  was  $96,720  for the  three  months  ended
December 31, 2005,  and $181,840 for the six months ended December 31, 2005, and
$0 for both  comparable  periods of the prior year (see note 6 to the  financial
statements).  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 December 31, 2005
was 175 people compared to 171 people at December 31, 2004.

                                       8
<PAGE>

Selling,  general and administrative expenses were $666,440 for the three months
ended  December  31, 2005;  an increase of $85,902  compared to the three months
ended  December 31, 2004.  Selling,  general and  administrative  expenses  were
$1,336,159  for the six months ended  December 31, 2005; an increase of $154,942
compared to the six months ended  December  31, 2004.  The increase is primarily
due to an  increase  in the sales force and ESOP  contribution  expense,  offset
partially by a decrease in professional fees.

Other  income for three and six months  ended  December  31, 2005  increased  as
compared to the three months ended  December 31, 2004 due to increased  interest
income on the Company's  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 December 31, 2005 all of
the  investments  are primarily  represented  by short-term  liquid  investments
including certificates of deposit and money market accounts.

The effective income tax rate at December 31, 2005 and 2004 was 29.0% and 30.0%,
respectively.  The effective tax rate 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  December 31, 2005,  was $274,260 or $.14
and $.13 per share,  basic and  diluted,  respectively,  compared to $167,032 or
$.08 per share, both basic and diluted,  for the three months ended December 31,
2004.  Net income for the six months ended  December  31, 2005,  was $492,004 or
$.24 per share, both basic and diluted,  compared to $227,616 or $.11 per share,
both basic and diluted, for the six months ended December 31, 2004. The increase
in net income per share was due to  improved  gross  profit as a  percentage  of
sales,  offset partially by the increase in selling,  general and administrative
expenses.

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.

The Company's  working capital as of December 31, 2005 was  approximately  $25.1
million.  During the three months  ended  December 31, 2005 and 2004 the Company
repurchased  14,462,  and 0 shares,  respectively,  of its common stock from the
Company's  Employee  Retirement  Plan and Trust  ("ESOP"),  for a total purchase
price of $262,125 and $0, respectively. During the six months ended December 31,
2005 and 2004 the Company repurchased 38,746 and 8,028 shares, respectively,  of
its  common  stock  for  a  total   purchase  price  of  $679,809  and  $90,315,
respectively.   Under  existing  authorizations  from  the  Company's  Board  of
Directors,  as of December 31, 2005,  management  is  authorized  to purchase an
additional $737,876 million of Company stock.

<TABLE>
<CAPTION>
                                                         Six Months Ended December 31,
                                                            2005              2004
                                                         -----------        ----------
<S>                                                      <C>                <C>
Net cash (used in) provided by operating activities      $  (325,582)       $1,283,818
Net cash used in investing activities                     (5,553,408)        (998,716)
Net cash provided by (used in) financing activities        3,532,588         (378,146)
</TABLE>

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 increased in the first
half of fiscal 2006 due to the purchase of short-term  investments  and the ESOP
transaction  described  in note 6. The  increase in cash  provided by  financing
activities  is due  primarily to the sale of treasury  shares to the ESOP in the
first half of fiscal 2006.

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.

                                       9
<PAGE>

During the six months  ended  December 31, 2005 and 2004,  the Company  expended
$258,908 and $230,716,  respectively,  for plant improvements and new equipment.
The Company has  budgeted  approximately  $500,000 for new  equipment  and plant
improvements in fiscal 2006.  Management  presently  anticipates  that the funds
required will be available from current operations.

The Company has entered 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 $19,650 at December 31, 2005. The Company does not
expect to fund any of the amounts under the standby letters of credit.

Other Matters

On July 15, 2005,  pursuant to a Stock Purchase Agreement dated as of such date,
the Company sold  150,000  shares of its common  stock,  par value $0.33 1/3 per
share, to the Espey Mfg. & Electronics Corp. Employee Stock Ownership Plan Trust
(the "ESOP"). The ESOP paid $28.90 per share, for an aggregate purchase price of
$4,335,000.  The  determination  of the  purchase  price was based on a fairness
opinion  obtained by an independent  valuation  firm. The ESOP borrowed from the
Corporation  an amount equal to the purchase  price.  The loan will be repaid in
fifteen (15) equal annual  installments of principal and the unpaid balance will
bear interest at a fixed rate of 6.25% per annum,  the "prime rate" as quoted in
The Wall Street Journal on the date of closing.

The Board of Directors of the Company  approved a purchase price per share equal
to a 5% discount on the average  trading price of the Company's  common stock on
the American Stock Exchange on the date before closing,  but in no event greater
than the fair  market  value as  determined  by an  independent  valuation  firm
retained by the ESOP. The average trading price of the Company's common stock on
the American Stock Exchange on July 14, 2005 was $30.72.

In making the sale, the Company relied on the exemption from registration  under
Section 4(2) of the Securities Act of 1933, as amended,  because the shares sold
were offered only to the ESOP.

After giving  effect to the  transaction  the ESOP owned  380,120  shares of the
Company's  1,158,294  outstanding shares of common stock as of July 15, 2005. As
of December 31, 2005,  there were 424,244  shares  (after  giving  effect to the
one-for-one stock dividend) allocated to participants.


                                       10
<PAGE>

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,  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.

                                       11
<PAGE>

                    PART II: Other Information and Signatures

Item 1.       Legal Proceedings

              None

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


              (a) Securities Sold - For the three and six  month  periods  ended
                                    December  31,  2005, 8,800 and  15,400 stock
                                    options were  exercised  under the Company's
                                    existing stock option plan, respectively. In
                                    addition  to the stock  option  shares,  the
                                    Company  sold  3,520  shares to the ESOP for
                                    the  three  and  six  month   periods  ended
                                    December 31, 2005. The securities  were sold
                                    for cash and the  sales  were  made  without
                                    registration  under  the  Securities  Act in
                                    reliance    upon    the    exemption    from
                                    registration  afforded under Section 4(2) of
                                    the  Securities  Act of 1933.  Proceeds were
                                    used for general working capital purposes.

              (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)
              ------------------------------------------------------------------------------------------
<S>                                   <C>              <C>            <C>                   <C>
              December 1 to
              December 31, 2005        14,462           $18.13         14,462                $320,191
</TABLE>

              (1)  Pursuant to a prior Board of Directors  authorization,  as of
              December 31, 2005 the Company can repurchase up to $737,876 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

              (a)    The Company's  Annual Meeting of Shareholders  (the "Annual
                     Meeting") was held on November 18, 2005.

              (b)    Barry Pinsley was re-elected as a Class B director to serve
                     for a two-year term.  Paul J. Corr and Michael W. Wool were
                     re-elected  as  Class  C  directors  each  to  serve  for a
                     three-year  term.  Continuing as directors after the Annual
                     Meeting were:

                      Class A (term expiring 2006):    Howard Pinsley
                                                       Alvin O. Sabo
                                                       Carl Helmetag

                      Class B (term expiring 2007):    Barry Pinsley
                                                       Seymour Saslow

                      Class C (term expiring 2008):    Paul J. Corr
                                                       Michael W. Wool

                                       12
<PAGE>

              (c)    The  following  matters  were  voted  upon  at  the  annual
                     meeting:

                     The  election of one Class B director.  The votes were cast
                     as follows:

Nominee:          Voted For:    Voted Against or Withheld:    Broker Non-Votes:
-------           ---------     -------------------------     ----------------
Barry Pinsley     1,000,091              129,637                     0

                     The election of two Class C directors.  The votes were cast
                     as follows:

Nominee:          Voted For:     Voted Against or Withheld:    Broker Non-Votes:
-------           ---------      -------------------------     ----------------
Paul J. Corr      1,107,441               22,287                      0
Michael W. Wool     973,791               155,937                     0

                     Ratification  of  Rotenberg & Company  LLP, as  independent
                     auditors  for the  Corporation  for the fiscal  year ending
                     June 30, 2006. The votes were cast as follows:

                      Shares IN FAVOR               1,125,750
                      Shares AGAINST                      100
                      ABSTENTIONS                       3,878
                      Broker NON-VOTES                      0

Item 5.       Other Information

              None

Item 6.       Exhibits and Reports on Form 8-K

              (a)    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

              (b)    Reports on form 8-K

                      Form   8-K filed  October 7, 2005  updating the  Company's
                      description of its Common Stock.

                      Form 8-K filed October 25, 2005,  announcing the dismissal
                      of KPMG LLP as the Company's independent registered public
                      accounting   firm.   Also  announcing  the  engagement  of
                      Rotenberg  &  Company  LLP  as the  Company's  independent
                      public accountants.

                      Form 8-K filed November 21, 2005, announcing the Company's
                      Board  of  Directors  declaration  of  an  increased  cash
                      dividend and a one-for-one stock split.

                                       13
<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

February 13, 2006
-----------------
      Date


                                       14