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 March 31, 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 May 10, 2007
                 -----                           ---------------------------
   Common stock, $.33-1/3 par value                   2,315,693 shares


Transitional Small Business Disclosure Format YES [ ] NO [ X ]

<page>

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

<table>
<caption>

                                                                                <c>
PART I    FINANCIAL INFORMATION                                                     PAGE

          Item 1      Financial Statements:

                          Balance Sheet (Unaudited)  - March 31, 2007                1

                          Statements of Income (Unaudited) -
                          Three and Nine Months Ended March 31, 2007 and 2006        2

                          Statements of Cash Flows (Unaudited)-
                          Nine Months Ended March 31, 2007 and 2006                  3

                          Notes to Financial Statements (Unaudited)                  4

          Item 2      Management's Discussion and Analysis of
                      Financial Condition and Results of Operations                  8

          Item 3      Controls and Procedures                                       11

PART II   OTHER INFORMATION                                                         12

          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                                             12

          Item 6      Exhibits                                                      13

          SIGNATURES                                                                13

</table>
<page>

                                PART I: FINANCIAL INFORMATION

                                ESPEY MFG. & ELECTRONICS CORP.
                                  Balance Sheet (Unaudited)
                                        March 31, 2007
<table>
<caption>

                                                                                  March 31,
                                                                                     2007
                                                                                 ------------

                                                                                 <c>
ASSETS:

          Cash and cash equivalents $                                            $  8,138,084
          Short term investments                                                    4,224,000
          Trade accounts receivable, net                                            4,577,044
          Other receivables                                                             3,356

          Inventories:
                  Raw materials and supplies                                        1,804,576
                  Work-in-process                                                   1,955,619
                  Costs relating to contracts in process, net of advance
                    payments of  $140,045 at March 31, 2007                         7,923,866
                                                                                 ------------
                                    Total inventories                              11,684,061

          Deferred income taxes                                                       174,431
          Prepaid expenses and other current assets                                   645,667
                                                                                 ------------
                                    Total current assets                           29,446,643
                                                                                 ------------
          Property, plant and equipment, net                                        2,884,906
                                                                                 ------------

                                    Total assets                                 $ 32,331,549
                                                                                 ============

LIABILITIES AND STOCKHOLDERS' EQUITY:

          Accounts payable                                                       $    998,863
          Accrued expenses:
                  Salaries, wages and commissions                                     154,630
                  Vacation                                                            546,149
                  ESOP payable                                                        220,842
                  Other                                                                47,135
          Payroll and other taxes withheld and accrued                                 54,208
          Income taxes payable                                                        116,136
                                                                                 ------------
                                    Total current liabilities                       2,137,963
                                                                                 ------------
          Deferred income taxes                                                       181,248
                                                                                 ------------
                                    Total liabilities                               2,319,211
                                                                                 ------------

          Common stock, par value $.33-1/3 per share.
              Authorized 10,000,000 shares; issued 3,029,874 shares
              on March 31, 2007. Outstanding 2,313,293 (includes
               255,417 Unearned ESOP Shares) on March 31, 2007                      1,009,958
          Capital in excess of par value                                           12,737,251
          Retained earnings                                                        26,552,825

          Less: Unearned ESOP Shares                                               (3,961,079)
                Treasury shares, cost of 716,581 shares on March 31, 2007          (6,326,617)
                                                                                 ------------
                                    Total stockholders' equity                     30,012,338
                                                                                 ------------

                                    Total liabilities and stockholders' equity   $ 32,331,549
                                                                                 ============
</table>

See accompanying notes to the financial statements.

                                              1
<page>
<table>
<caption>

                                       ESPEY MFG. & ELECTRONICS CORP.
                                      Statements of Income (Unaudited)
                             Three and Nine Months Ended March 31, 2007 and 2006


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

                                              <c>            <c>             <c>            <c>
Net sales                                        $  8,059,695   $  4,677,808    $ 20,250,921   $ 14,294,465
Cost of sales                                       6,443,561      3,635,543      15,979,258     11,424,550
                                                 ------------   ------------    ------------   ------------
       Gross profit                                 1,616,134      1,042,265       4,271,663      2,869,915

Selling, general and
   administrative expenses                            697,740        649,101       2,137,463      1,985,260
                                                 ------------   ------------    ------------   ------------

       Operating income                               918,394        393,164       2,134,200        884,655
                                                 ------------   ------------    ------------   ------------

Other income (expense)

       Interest and dividend income                   151,896        121,213         447,285        331,123
       Other                                            9,589           (213)         43,939         (8,650)
                                                 ------------   ------------    ------------   ------------
                                                      161,485        121,000         491,224        322,473
                                                 ------------   ------------    ------------   ------------

Income before income taxes                          1,079,879        514,164       2,625,424      1,207,128

Provision for income taxes                            365,849        149,107         888,433        350,067
                                                 ------------   ------------    ------------   ------------

                  Net income                     $    714,030   $    365,057    $  1,736,991   $    857,061
                                                 ============   ============    ============   ============

Net income per share:

       Basic                                     $       0.35   $       0.18    $       0.85   $       0.43
       Diluted                                   $       0.34   $       0.18    $       0.84   $       0.42
                                                 ------------   ------------    ------------   ------------

Weighted average number of shares outstanding:

       Basic                                        2,053,545      2,010,173       2,044,839      2,010,580
       Diluted                                      2,077,994      2,041,443       2,069,730      2,048,022
                                                 ------------   ------------    ------------   ------------

Dividends per share:                             $       0.15   $       0.09    $       0.41   $       0.25
                                                 ============   ============    ============   ============
</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)
                               Nine Months Ended March 31, 2007 and 2006
<table>
<caption>
                                                                                    March 31,
                                                                               2007           2006
                                                                            -----------    -----------

                                                                               <c>           <c>
Cash Flows From Operating Activities:
       Net income                                                           $ 1,736,991    $   857,061

       Adjustments to reconcile net income to net
          cash provided by operating activities:
       Tax effect on stock options                                               64,636             --
       Stock option compensation                                                119,856             --
       Depreciation                                                             363,833        403,191
       ESOP compensation expense                                                333,250        332,248
       Loss on disposal of assets                                                 5,404         26,741
       Deferred income tax                                                      (54,867)       (52,500)
       Changes in assets and liabilities:
           (Increase) Decrease in trade receivable, net                        (363,816)       135,720
           Decrease (Increase) in other receivables                               3,528         (5,100)
           Decrease (Increase) in inventories                                   720,318     (2,202,770)
           Increase in prepaid expenses and other current assets                (91,540)      (359,336)
           Increase in accounts payable                                         383,277      1,359,487
           Increase in accrued salaries, wages and commissions                   26,623         30,857
           (Decrease) Increase in other accrued expenses                         (4,265)         4,042
           Increase in vacation accrual                                             726         11,674
           Increase in payroll and other taxes withheld and accrued              13,611          9,334
           Decrease in income taxes payable                                    (538,082)      (164,257)
           Decrease in ESOP payable                                            (112,408)       (75,750)
                                                                            -----------    -----------
                      Net cash provided by operating activities               2,607,075        310,642
                                                                            -----------    -----------

Cash Flows From Investing Activities:
       Unearned ESOP Shares                                                          --     (4,335,000)
       Additions to property, plant and equipment                              (371,701)      (360,464)
       Proceeds on sale of assets, net                                               10            500
       Purchase of short term investments                                    (3,648,000)    (5,280,000)
       Maturity of short term investments                                     3,360,000      4,224,000
                                                                            -----------    -----------
                      Net cash used in investing activities                    (659,691)    (5,750,964)
                                                                            -----------    -----------

Cash Flows From Financing Activities:
       Sale of treasury stock                                                        --      4,396,423
       Dividends on common stock                                               (836,111)      (505,631)
       Purchase of treasury stock                                              (298,064)      (679,808)
       Proceeds from exercise of stock options                                  252,260        153,055
                                                                            -----------    -----------
                      Net cash (used in) provided by financing activities      (881,915)     3,364,039
                                                                            -----------    -----------

Increase (Decrease) in cash and cash equivalents                              1,065,469     (2,076,283)
Cash and cash equivalents, beginning of period                                7,072,615      9,803,507
                                                                            -----------    -----------
Cash and cash equivalents, end of period                                      8,138,084      7,727,224
                                                                            ===========    ===========

Supplemental disclosures of cash flow information:
       Income Taxes Paid                                                    $ 1,417,038    $   591,345
                                                                            ===========    ===========
</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 2006 Form 10-KSB.

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

Prior to July 1, 2006, the Company  accounted for its  stock-based  compensation
plan under the recognition and measurement  provisions of Accounting  Principles
Board Opinion No. 25,  "Accounting for Stock Issued to Employees"  ("APB Opinion
No. 25") and related  interpretations,  as permitted by the Financial Accounting
Standards Board's ("FASB") Statement of Financial  Accounting Standards ("SFAS")
No. 123,  Accounting for Stock-Based  Compensation,  as amended by SFAS No. 148,
Accounting  for   Stock-Based   Compensation   -  Transition   and   Disclosure.
Accordingly, no stock-based compensation expense was recognized in the Statement
of Income for the three and nine  months  ended March 31,  2006,  as all options
granted  under  the  Company's  stock-based  employee  compensation  plan had an
exercise price equal to the market value of the  underlying  common stock on the
date of grant. As permitted by SFAS No. 123,  stock-based  compensation  expense
was included as a pro forma  disclosure in the Notes to the Company's  financial
statements for the three and nine months ended March 31, 2006.

Effective  July  1,  2006,  the  Company  adopted  the  fair  value  recognition
provisions  of  SFAS  No.  123(R),   Share-Based  Payment,  using  the  modified
prospective  transition method. Under that transition method,  compensation cost
recognized  during  the three and nine  months  ended  March 31,  2007  includes
compensation  expense for all stock-based  compensation awards granted prior to,
but not yet  vested  as of July 1,  2006,  based on the  grant-date  fair  value
estimated in accordance  with the provisions of SFAS No. 123.  Results for prior
periods have not been  restated,  as allowed for under the modified  prospective
transition method. No new grants have been awarded since July 1, 2006.

Total stock-based compensation expense recognized in the Statement of Income for
the three and nine months  ended  March 31,  2007,  was  $43,836  and  $119,856,
respectively,  before income taxes.  The related total  deferred tax benefit was
approximately  $3,470 and $9,462,  for the three and nine months ended March 31,
2007,  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  March  31,  2007  there  was  approximately   $221,866  of  unrecognized
compensation  cost  related  to  stock  option  awards  that is  expected  to be
recognized as expense over a period of 2 years.

The 2000 Stock Option Plan is the Company's only stock option 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.

                                        4
<page>

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
March 31, 2007, of the options authorized for issuance, 149,400 were granted and
are outstanding,  41,000 of which are vested and exercisable.  Options available
for future grants at March 31, 2007 total 68,400.

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 and nine months
ended March 31, 2007:

                                          Three Months Ended   Nine Months Ended
                                            March 31, 2007      March 31, 2007
                                            --------------      --------------
 Dividend yield                                   2.40%              2.53%
 Expected stock price volatility                 22.29%             21.80%
 Risk-free interest rate                          4.54%              4.42%
 Expected option life (in years)                  5.0                5.0
 Weighted average fair value per share
    of options granted during the period         $3.284             $3.284

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 illustrates the effect on net income per share for the three
and nine  months  ended  March 31,  2006 as if the  Company had applied the fair
value   recognition   provisions  of  SFAS  No.  123  to  stock-based   employee
compensation:

<table>
<caption>
                                              Three Months Ended  Nine Months Ended
                                                March 31, 2006     March 31, 2006
                                                --------------     --------------

                                             <c>                <c>
Net income, as reported                         $      365,057     $      857,061
Deduct: Total stock-based employee
        compensation expense determined
        under fair value based method for all
        awards, net of related income taxes            (20,926)           (46,710)
                                                --------------     --------------
Pro forma net income                            $      344,131     $      810,351
                                                ==============     ==============

Income per share:
Basic - as reported                             $          .18     $          .43
Basic - pro forma                               $          .17     $          .40
Diluted - as reported                           $          .18     $          .42
Diluted - pro forma                             $          .17     $          .40

</table>

The table below outlines the weighted average  assumptions as if the Company had
applied the fair value  recognition  provisions  of SFAS No. 123 to  stock-based
employee compensation for the three and nine months ended March 31, 2006:

                                        5

<page>


                                           Three Months Ended  Nine Months Ended
                                             March 31, 2006     March 31, 2006
                                             --------------     --------------
  Dividend yield                                   2.46%              2.46%
  Expected stock price volatility                 23.26%             23.26%
  Risk-free interest rate                          4.00%              4.00%
  Expected option life (in years)                  5.0                5.0
  Weighted average fair value per share
     of options granted during the period         --                 $4.221

The following  table  summarizes  stock option  activity  during the nine months
ended March 31, 2007:

                                             Employee Stock Options Plan
                                         ------------------------------------
                                                                   Weighted
                                          Number of    Weighted     Average
                                            Shares      Average    Remaining
                                           Subject      Exercise  Contractual
                                          To Option      Price       Term
                                         ------------------------------------
    Balance at July 1, 2006                 146,200      $14.02        8
    Granted                                  37,800       18.29       10
    Exercised                               (25,000)      10.09       --
    Forfeited or expired                     (9,600)      14.44       --
                                         ------------------------------------
    Balance at March 31, 2007               149,400       15.73        8
                                         ====================================
    Exercisable at March 31, 2007            41,000       10.15        6
                                         ====================================

The  intrinsic  value of stock options  exercised was $106,108,  during the nine
months ended March 31, 2007.  The intrinsic  value of stock options  outstanding
and exercisable as of March 31, 2007 was $389,485.

Note 4.  Commitments and Contingencies

The Company at times,  enters into  standby  letters of credit  agreements  with
financial institutions primarily relating to the guarantee of future performance
on certain contracts.  The Company has no outstanding  standby letters of credit
agreements  at March 31,  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.

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 and an
adjustment  to tax  liabilities  in the  period  of  adoption.  FIN 48  will  be
effective  beginning  July 1,  2007.  The  adoption  of FIN 48 will  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.

                                       6
<page>

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
$114,625 for the quarter  ended March 31, 2007 and  $333,250 for the  nine-month
period  ending  March 31,  2007.  The ESOP  shares as of March 31,  2007 were as
follows:

         Allocated Shares                                       426,296
         Committed-to-be-released shares                         18,750
         Unreleased shares                                      255,417
                                                             ----------

         Total shares held by the ESOP                          700,463
                                                             ==========

         Fair value of unreleased shares at March 31, 2007   $5,018,944
                                                             ==========


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. As a result of the stock split, common stock
was increased and retained earnings was decreased by $504,979.

                                       7
<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.

The sales  backlog of  approximately  $32.1  million at March 31, 2007 gives the
Company a solid base of future sales. Management continues to expect an increase
in sales for fiscal 2007 as compared to fiscal 2006. In addition to the backlog,
the Company  currently has  outstanding  quotations  representing  approximately
$39.6  million in the  aggregate  for both repeat and new  programs.  New orders
received  in the  first  nine  months of fiscal  2007 were  approximately  $14.7
million compared to approximately $23.7 in the first nine months of fiscal 2006.
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.  Although
the sales  backlog and new orders  booked are down as compared to the same point
in fiscal  2006,  many  potential  orders  are  currently  being  discussed  and
negotiated  with our customers and management  expects to book several orders in
the final  quarter of the fiscal  year.  Management  is  currently in the latter
stage of  negotiations  with its customers on potential  orders  representing in
excess of $20  million in the  aggregate  and  expects to  increase  the backlog
significantly  by June 30,  2007.  These new orders  should allow the Company to
maintain current sales levels for fiscal 2008.

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 $32.1  million at March 31, 2007,  down $9
million as compared to March 31, 2006,  represents the estimated remaining sales
value of work to be  performed  under firm  contracts  and  includes  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 March 31, 2007 is approximately  $27.8 million.  This
includes items that have been  authorized and  appropriated  by Congress  and/or
funded by the customer.  The unfunded backlog is approximately  $4.3 million and
represents firm multi-year orders

                                       8
<page>

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.  The unfunded  backlog at March
31, 2006 was $8.3 million.

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 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

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 March 31, 2007 were  $8,059,695 as compared
to $4,677,808 for the same period in 2006,  representing a 72.3%  increase.  Net
sales for the nine months ended March 31, 2007 were  $20,250,921  as compared to
$14,294,465  for the  same  period  in  2006,  representing  a  41.7%  increase.
Generally,  these increases 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.  The increase in sales for the three and nine
months ended March 31, 2007 is largely  attributable to an increase in shipments
to two customers for military and industrial power supplies.

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 March 31, 2007 and 2006 gross profits were $1,616,134
and  $1,042,265,  respectively.  Gross profit as a percentage of sales was 20.1%
and 22.3%, for the three months ended March 31, 2007 and 2006, respectively. For
the nine months ended March 31, 2007 and 2006 gross profits were  $4,271,663 and
$2,869,915,  respectively.  Gross profit as a percentage  of sales was 21.1% and
20.1%,  for the  nine  months  ended  March  31,  2007 and  2006,  respectively.
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  obtained and executed.  Employment of full
time  equivalents  at March 31,  2007 was 181 people  compared  to 173 people at
March 31, 2006.

Selling,  general and administrative expenses were $697,740 for the three months
ended March 31, 2007, an increase of $48,639  compared to the three months ended
March 31, 2006. Selling, general and administrative expenses were $2,137,463 for
the nine months  ended March 31, 2007,  an increase of $152,203  compared to the
nine months  ended March 31,  2006.  The  increase for the three and nine months
ended March 31, 2007,  is  primarily  due to employee  training and  recruitment
fees, stock option expense and an increase in selling expenses.

                                       9
<page>

Other  income  for three and nine  months  ended  March 31,  2007  increased  as
compared  to the three and nine months  ended  March 31,  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
March 31, 2007 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 March 31,  2007 and 2006 was 33.8% and 29.0%,
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 March 31, 2007,  was $714,030 or $.35 and
$.34 per share,  basic and diluted,  respectively,  compared to $365,057 or $.18
per share,  both basic and  diluted,  for the three months ended March 31, 2006.
Net income for the nine months ended March 31, 2007,  was $1,736,991 or $.85 and
$.84 per share,  basic and diluted,  respectively,  compared to $857,061 or $.43
and $.42 per share, basic and diluted,  respectively,  for the nine months ended
March 31, 2006.  The  increase in net income per share was due to higher  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 March 31,  2007 was  approximately  $27.3
million.  During the three  months  ended  March 31,  2007 and 2006 the  Company
repurchased  10,196 and 0 shares,  respectively,  of its  common  stock from the
Company's  Employee  Retirement  Plan and Trust  ("ESOP"),  for a total purchase
price of $187,861 and $0,  respectively.  During the nine months ended March 31,
2007 and 2006 the Company repurchased 16,269 and 38,746 shares, respectively, of
its  common  stock  for  a  total  purchase  price  of  $298,064  and  $679,808,
respectively.   Under  existing  authorizations  from  the  Company's  Board  of
Directors,  as of March 31,  2007,  management  is  authorized  to  purchase  an
additional $701,936 of Company stock.

<table>
<caption>
                                                        Nine Months Ended March 31,
                                                            2007          2006
                                                        -----------    -----------

                                                     <c>            <c>
Net cash provided by operating activities               $2,607,075     $  310,642
Net cash used in investing activities                     (659,691)    (5,750,964)
Net cash (used in) provided by financing activities       (881,915)     3,364,039

</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 decreased in the first
nine months of fiscal 2007 due to the purchase of short-term investments and the
ESOP described in note 6. The decrease in cash provided by financing  activities
is due primarily to the sale of treasury shares to the ESOP in the first half of
fiscal 2007.

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 nine  months  ended March 31,  2007 and 2006,  the  Company  expended
$371,701 and $360,464,  respectively,  for plant improvements and new equipment.
The Company has  budgeted  approximately  $500,000 for new  equipment  and plant
improvements  in fiscal 2007 and  expects to spend  slightly  over the  budgeted
amount.  Management  presently  anticipates  that  the  funds  required  will be
available from current operations.

The Company on occasion,  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 were $0 at March 31, 2007.

                                       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) 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>
              March 1 to
              March 31, 2007            10,196          $18.425         10,196              $701,936
</table>

              (1)  Pursuant to a prior Board of Directors  authorization,  as of
              March 31, 2007 the Company  can  repurchase  up to $701,936 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

                                       12
<page>

Item 6.  Exhibits

         (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




                               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

May 10, 2007
------------
   Date


                                       13