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, 2006

      [ ] 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 08, 2006
              -----                                 ---------------------------
Common stock, $.33-1/3 par value                          2,298,562 shares


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


<PAGE>

                         ESPEY MFG. & ELECTRONICS CORP.
                          Quarterly Report on Form 10-Q
                                    I N D E X
<TABLE>
<CAPTION>

PART I   FINANCIAL INFORMATION                                                   PAGE
<S>                                                                              <C>

         Item 1      Financial Statements:

                         Balance Sheet (Unaudited)  - March 31, 2006               1

                         Statements of Income (Unaudited) -
                         Three and Nine Months Ended March 31, 2006 and 2005       2

                         Statements of Cash Flows (Unaudited)-
                         Nine Months Ended March 31, 2006 and 2005                 3

                         Notes to Financial Statements (Unaudited)                 4

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

         Item 3      Controls and Procedures                                      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, 2006
<TABLE>
<CAPTION>

ASSETS:

<S>                                                                      <C>
          Cash and cash equivalents                                       $   7,727,224
          Short term investments                                              4,128,000
          Trade accounts receivable, net                                      2,857,520
          Other receivables                                                       8,273

          Inventories:
                  Raw materials and supplies                                  1,769,400
                  Work-in-process                                             2,377,807
                  Costs relating to contracts in process, net of advance
                    payments of  $397,991 at March 31, 2006                   8,423,115
                                                                           ------------
                                    Total inventories                        12,570,322

          Deferred income taxes                                                 135,997
          Prepaid expenses and other current assets                             695,331
                                                                           ------------
                                    Total current assets                     28,122,667
                                                                           ------------
          Property, plant and equipment, net                                  2,914,869
                                                                           ------------

                                    Total assets                           $ 31,037,536
                                                                           ============

LIABILITIES AND STOCKHOLDERS' EQUITY:

          Accounts payable                                                 $  1,738,258
          Accrued expenses:
                  Salaries, wages and commissions                                93,135
                  Vacation                                                      509,689
                  ESOP payable                                                  256,498
                  Other                                                          57,825
          Payroll and other taxes withheld and accrued                           45,311
          Income taxes payable                                                  147,871
                                                                           ------------
                               Total current liabilities                      2,848,587
                                                                           ------------
          Deferred income taxes                                                 245,557
                                                                           ------------
                               Total liabilities                              3,094,144
                                                                           ------------

          Common stock, par value $.33-1/3 per share
              Authorized 10,000,000 shares; issued 3,029,874 shares
              on March 31, 2006. Outstanding 2,297,762 (includes
               280,626 Unearned ESOP Shares) on March 31, 2006                1,009,958
          Capital in excess of par value                                     12,429,727
          Retained earnings                                                  25,131,005

          Less:   Unearned ESOP Shares                                       (4,335,000)
                  Cost of 732,112 Treasury shares on March 31, 2006          (6,292,298)
                                                                           ------------
                               Total stockholders' equity                    27,943,392
                                                                           ------------

                                        Total liabilities and
                                        stockholders' equity               $ 31,037,536
                                                                           ============
</TABLE>

See accompanying notes to the financial statements.

                                       1
<PAGE>

                         ESPEY MFG. & ELECTRONICS CORP.
                        Statements of Income (Unaudited)
               Three and Nine Months Ended March 31, 2006 and 2005

<TABLE>
<CAPTION>

                                                         Three Months                   Nine Months
                                                      2006            2005          2006            2005
                                                 ----------------------------   ----------------------------
<S>                                              <C>             <C>            <C>             <C>
Net sales                                        $  4,677,808    $  4,219,861   $ 14,294,465    $ 13,846,929
Cost of sales                                       3,635,543       3,568,971     11,424,550      11,774,510
                                                 ------------    ------------   ------------    ------------
       Gross profit                                 1,042,265         650,890      2,869,915       2,072,419

Selling, general and
   administrative expenses                            649,101         565,145      1,985,260       1,746,362
                                                 ------------    ------------   ------------    ------------

       Operating income                               393,164          85,745        884,655         326,057
                                                 ------------    ------------   ------------    ------------

Other income (expense)

       Interest and dividend income                   121,213          66,420        331,123         144,908
       Other                                             (213)          7,816         (8,650)         14,182
                                                 ------------    ------------   ------------    ------------
                                                      121,000          74,236        322,473         159,090
                                                 ------------    ------------   ------------    ------------

Income before income taxes                            514,164         159,981      1,207,128         485,147

Provision for income taxes                            149,107          47,994        350,067         145,544
                                                 ------------    ------------   ------------    ------------

                  Net income                     $    365,057    $    111,987   $    857,061    $    339,603
                                                 ============    ============   ============    ============

Net income per share:

       Basic                                     $       0.18    $       0.06   $       0.43    $       0.17
       Diluted                                   $       0.18    $       0.05   $       0.42    $       0.17
                                                 ------------    ------------   ------------    ------------

Weighted average number of shares outstanding:

           Basic                                    2,010,173       2,021,342      2,010,580       2,023,488
           Diluted                                  2,041,443       2,046,606      2,048,022       2,045,116
                                                 ------------    ------------   ------------    ------------

Dividends per share:                             $     0.0900    $     0.0750   $     0.2525    $     0.2250
                                                 ============    ============   ============    ============
</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, 2006 and 2005

<TABLE>
<CAPTION>

                                                                                      March 31,
                                                                                2006             2005
                                                                            ------------    ------------
<S>                                                                         <C>             <C>
Cash Flows From Operating Activities:
       Net income                                                           $    857,061    $    339,603

       Adjustments to reconcile net income to net
       cash provided by operating activities:
       Depreciation                                                              403,191         411,499
       ESOP compensation expense                                                 332,248              --
       Loss on disposal of assets                                                 26,741              --
       Deferred income tax                                                       (52,500)         32,194
       Changes in assets and liabilities:
           Decrease (Increase) in trade receivable, net                          135,720        (517,664)
           Increase in other receivables                                          (5,100)         (6,256)
           (Increase) decrease in inventories                                 (2,202,770)        157,586
           Increase in prepaid expenses and other current assets                (359,336)       (138,370)
           Increase in accounts payable                                        1,359,487         326,195
           Increase in accrued salaries, wages and commissions                    30,857          15,507
           Decrease in accrued employees' insurance costs                             --          (7,487)
           Increase in vacation accrual                                           11,674           4,984
           Increase in other accrued expenses                                      4,042           4,286
           Increase in payroll and other taxes withheld and accrued                9,334          17,503
           Decrease in income taxes payable                                     (164,257)       (123,552)
           Decrease in ESOP payable                                              (75,750)             --
                                                                            ------------    ------------
                      Net cash provided by operating activities                  310,642         516,028
                                                                            ------------    ------------

Cash Flows From Investing Activities:
       Unearned ESOP Shares                                                   (4,335,000)             --
       Additions to property, plant and equipment                               (360,464)       (380,305)
       Proceeds on sale of assets, net                                               500              --
       Purchase of short term investments                                     (5,280,000)     (2,304,000)
       Maturity of short term investments                                      4,224,000         672,000
                                                                            ------------    ------------
                      Net cash used in investing activities                   (5,750,964)     (2,012,305)
                                                                            ------------    ------------

Cash Flows From Financing Activities:
       Sale of treasury stock                                                  4,396,423              --
       Dividends on common stock                                                (505,631)       (455,042)
       Purchase of treasury stock                                               (679,808)       (215,366)
       Proceeds from exercise of stock options                                   153,055          15,500
                                                                            ------------    ------------
                      Net cash provided by (used in) financing activities      3,364,039        (654,908)
                                                                            ------------    ------------

Decrease in cash and cash equivalents                                         (2,076,283)     (2,151,185)
Cash and cash equivalents, beginning of period                                 9,803,507      12,310,972
                                                                            ------------    ------------
Cash and cash equivalents, end of period                                       7,727,224      10,159,787
                                                                            ============    ============

Supplemental disclosures of cash flow information:
       Income Taxes Paid                                                    $    591,345    $    236,902
                                                                            ============    ============
</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 plans. 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      Nine Months Ended
                                               March 31,              March 31,
                                           2006        2005        2006        2005
                                        ---------   ---------   ---------   ---------
<S>                                     <C>         <C>         <C>         <C>
Net income as reported                  $ 365,057   $ 111,987   $ 857,061   $ 339,603

Deduct: Total stock-based employee
compensation expense determined
under fair value based method for all
awards, net of related  tax effects       (20,926)     (8,286)    (46,710)    (26,660)
                                        ---------   ---------   ---------   ---------

Pro forma net income                    $ 344,131   $ 103,701   $ 810,351   $ 312,943
                                        =========   =========   =========   =========

Net Income per share:
    Basic-as reported                   $     .18   $     .06   $     .43   $     .17
                                        =========   =========   =========   =========

    Basic-pro forma                     $     .17   $     .05   $     .40   $     .15
                                        =========   =========   =========   =========

    Diluted-as reported                 $     .18   $     .05   $     .42   $     .17
                                        =========   =========   =========   =========

    Diluted-pro forma                   $     .17   $     .05   $     .40   $     .15
                                        =========   =========   =========   =========
</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  $246,625 at March 31, 2006. 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  to  predict  the  outcome  of such  actions.
Currently the Company has no claims or assertions against it.

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 (see note 3).

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  in 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 above ESOP information has not been adjusted
for the stock split described in note 7.

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 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.

                                       5
<PAGE>

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
$104,948 for the quarter  ended March 31, 2006 and  $332,248 for the  nine-month
period  ending March 31,  2006.  The ESOP shares as of March 31 (after the stock
split described in note 7) were as follows:

         Allocated Shares                                       420,585
         Committed-to-be-released shares                         19,374
         Unreleased shares                                      280,626
                                                             ----------

         Total shares held by the ESOP                          720,585
                                                             ==========

         Fair value of unreleased shares at March 31, 2006   $4,447,922
                                                             ==========

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,  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 nine
months of fiscal 2006, the Company received  approximately  $23.7 million in new
orders.  These orders  include both follow-on  production  quantities for mature
products,  and engineering  development  orders which will enable the Company to
utilize its engineering  expertise in developing new customer specific products.
Some of these  products,  once  developed,  will be  produced  in the  Company's
manufacturing  facility  and are  expected  to provide  large  production  order
quantities  over  several  years.  These  orders are in line with the  Company's
strategy of being  involved in long-term  high quantity  military and industrial
products.

The sales  backlog of  approximately  $41.2  million at March 31, 2006 gives the
Company a solid  base of future  sales  and,  therefore,  management  expects an
increase in sales for fiscal 2006 as compared to fiscal 2005. In addition to the
backlog,   the  Company  currently  has  outstanding   quotations   representing
approximately  $21.2  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 $41.2  million at March 31, 2006, up $26.9
million over March 31, 2005,  represents the estimated  remaining sales value of
work to be performed under firm contracts. The funded portion of this backlog at
March 31, 2006 is  approximately  $32.9  million.  This includes items that have
been authorized and appropriated by Congress and/or funded by the customer.  The
unfunded  backlog is  approximately  $8.3 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.  The unfunded  backlog at March
31, 2005 was zero.  The backlog at March 31, 2006 as discussed  above,  includes
significant orders

                                       7
<PAGE>

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

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

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

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

Results of Operations

Net sales for the three months ended March 31, 2006 were  $4,677,808 as compared
to $4,219,861 for the same period in 2005,  representing a 10.9%  increase.  Net
sales for the nine months ended March 31, 2006 were  $14,294,465  as compared to
$13,846,929  for  the  same  period  in  2005,  representing  a  3.2%  increase.
Generally,  this increase 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 last two quarters of fiscal 2005 began to be
recognized  in net  sales.  This trend is  expected  to  continue  into the next
several  quarters.  New orders  received in the first nine months of fiscal 2006
were approximately  $23.7 million compared to approximately $12.7 million in the
first nine months 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 March 31, 2006 and 2005 gross profits were $1,042,265
and $650,890,  respectively. Gross profit as a percentage of sales was 22.3% and
15.4%, for the three months ended March 31, 2006 and 2005, respectively. For the
nine months  ended March 31, 2006 and 2005 gross  profits  were  $2,869,915  and
$2,072,419,  respectively.  Gross profit as a percentage  of sales was 20.1% and
15.0%,  for the nine months  ended March 31,  2006 and 2005,  respectively.  The
improved  gross profit  percentage  in the three and nine months ended March 31,
2006,  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 $83,958 for the three  months  ended  March 31,  2006,  and
$265,799 for the nine months ended March 31,  2006,  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 March 31, 2006 was 173 people compared to
171 people at March 31, 2005.

Selling,  general and administrative expenses were $649,101 for the three months
ended March 31, 2006; an increase of $83,956  compared to the three months ended
March 31, 2005. Selling, general and administrative expenses were $1,985,260 for
the nine months  ended March 31, 2006;  an increase of $238,898  compared to the
nine months ended

                                       8
<PAGE>

March 31, 2005.  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 nine  months  ended  March 31,  2006  increased  as
compared  to the three and nine months  ended  March 31,  2005 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, 2006 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,  2006 and 2005 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 March 31, 2006,  was $365,057 or $.18 per
share,  both basic and diluted,  respectively,  compared to $111,987 or $.06 and
$.05 per share,  basic and  diluted,  for the three months ended March 31, 2005.
Net income for the nine months  ended March 31,  2006,  was $857,061 or $.43 and
$.42 per share, basic and diluted,  compared to $339,603 or $.17 per share, both
basic and diluted, for the nine months ended March 31, 2005. 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 March 31,  2006 was  approximately  $25.3
million.  During the three  months  ended  March 31,  2006 and 2005 the  Company
repurchased  0 and 9,420  shares,  respectively,  of its  common  stock from the
Company's  Employee  Retirement  Plan and Trust  ("ESOP"),  for a total purchase
price of $0 and $125,051,  respectively.  During the nine months ended March 31,
2006 and 2005 the Company repurchased 38,746 and 17,448 shares, respectively, of
its  common  stock  for  a  total  purchase  price  of  $679,808  and  $215,366,
respectively.   Under  existing  authorizations  from  the  Company's  Board  of
Directors,  as of March 31,  2006,  management  is  authorized  to  purchase  an
additional $737,876 of Company stock.

<TABLE>
<CAPTION>
                                                       Nine Months Ended March 31,
                                                         2006              2005
                                                      ----------        ----------
<S>                                                   <C>               <C>
Net cash provided by operating activities             $  310,642        $  516,028
Net cash used in investing activities                 (5,750,964)       (2,012,305)
Net cash provided by (used in) financing activities    3,364,039          (654,908)

</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
nine months 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.

During the nine  months  ended March 31,  2006 and 2005,  the  Company  expended
$360,464 and $380,305,  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.

                                       9
<PAGE>

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  $246,620 at March 31, 2006. 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 above ESOP  information has
not been adjusted for the stock split described in note 7.

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 March 31,  2006,  there  were  420,585  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  nine-month  periods
                        ended March 31,  2006,  1,000 and 16,400  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  nine-month  periods ended March 31, 2006.
                        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

                                                 Purchases of Equity Securities

<TABLE>
<CAPTION>
                                                                     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>
              March 1 to
              March 31, 2006               --              --             --                $737,876

</TABLE>

              (1)  Pursuant to a prior Board of Directors  authorization,  as of
              March 31, 2006 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

              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 08, 2006
------------
    Date



                                       13