UNITED STATES
                                         SECURITIES AND EXCHANGE COMMISSION
                                                Washington, DC  20549

                                                      FORM 10-K

[X]  Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of
     1934 [Fee Required]
     For the fiscal year ended June 30, 1997
[  ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act
     of 1934 [Fee Required]
     For the transition period from ________________ to ______________
Commission File No. 1-4383
                                  ESPEY MFG. & ELECTRONICS CORP.       
                     (Exact name of registrant as specified in its charter)
              New York                            14-1387171                 
(State or other jurisdiction of               (IRS Employer Identification No.)
incorporation or organization)
                233 Ballston Avenue, Saratoga Springs, NY          12866
       (Address of principal executive offices)                  (Zip Code) 
Registrant's telephone number, including area code:          (518) 584-4100
Securities registered pursuant to Section 12(b) of the Act:
                                                         Name of Each Exchange
            Title of Each Class                         on Which Registered  
Common Stock $.33-1/3 par value                         American Stock Exchange
Common Stock Purchase Rights                            American Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days  
[X]  Yes      [  ] No 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.       [X]

State the aggregate market value of the voting stock held by non-affiliates of
the registrant: $13,175,490.71 as of September 19, 1997 based upon the closing
sale price of $16 5/8 on the American Stock Exchange on September 19, 1997.

Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date.
             Class                            Outstanding at September 19, 1997
Common Stock, $.33-1/3 par value                            1,111,220

<PAGE>
                                             PART I


Item 1.       Business.

General

     Espey Mfg. & Electronics Corp. (the "Company") was incorporated in 1928. 
The Company presently operates a one segment business.  A significant portion of
the Company's business is the production of military and industrial electronic
equipment for use by the United States Government, its agencies, and certain
industrial customers.  

     In fiscal year ended June 30, 1997 (referred to herein as "1997"), the
Company's total sales were $15,166,075.  Sales made to the United States
Government and its agencies are primarily on a subcontract basis.  Sales to two
domestic customers accounted for 19.9% and 61.4%, respectively, of total sales
in 1997.  Sales to two domestic customers and one foreign customer accounted for
28.9%, 22.8% and 17.8%, respectively, of total sales in 1996.  Sales to two
domestic customers and one foreign customer accounted for 31.5%, 24.2% and
16.2%, respectively, of total sales in 1995. 

     Export sales in 1997 were not significant.  Export sales in 1996 and 1995
aggregated approximately $3,073,000 and $2,602,000, respectively.

Products

     The Company has been and intends to continue to be engaged principally in
the development, design, production and sales of specialized electronic power
conditioning apparatus (electronic power supplies), a wide variety of
transformers and other types of iron-core components, and electronic systems. 
In some cases, the Company manufactures such products in accordance with
pre-developed mechanical and electrical requirements.  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.

     The electronic power supplies and components manufactured by the Company
find application principally in (i) computers, (ii) aircraft, shipboard and land
based radar, (iii) missile guidance and control systems, (iv) short, medium
range and global communication systems, (v) navigation systems for aircraft,
(vi) nuclear submarine control systems, (vii) locomotives, and (viii) land-based
military vehicles.  The electronic systems manufactured by the Company include
antenna systems and high power radar transmitters.  These systems utilize the
Company's own electronic power supplies, transformers, and other iron-core
components and mechanical assemblies.  The Company's iron-core components
include (i) transformers of the audio, power and pulse types, (ii) magnetic
amplifiers, and (iii) audio filters.
                                         2
<PAGE>
     The following tabulation shows the percentage of the Company's total sales
represented by sales of each class of similar products during one or more of the
last three fiscal years.

Fiscal Year Ended June 30
 
                                   1997               1996               1995 
     

Electronic Power Supplies           82%                81%                84%
              

Iron-Core Components                11%                15%                11%
              

Electronic Systems and Assemblies    7%                4%                  5% 
              
Raw Materials

     The Company has never experienced any significant delay or shortage with
respect to the purchase of raw materials and components used in the manufacture
of its products, and has at least two potential sources of supply for all raw
materials used by it.

Sales Backlog

     The total amount of backlog orders believed to be firm as of June 30, 1997
was approximately $9,037,000 as compared to approximately $16,297,000 as of
June 30, 1996. This decrease resulted primarily from the consolidation and
relocation of the facilities and personnel of one of the Company's major
customers.  The transition stage of this consolidation has caused delays in both
ongoing and newly proposed programs.  At the present time, the Company does not
know what effect, if any, this will have on the receipt of currently pending new
business from this customer.  The Company is hopeful that any further delays
will be minimal.  

     It is presently anticipated that a minimum of $8,000,000 of orders
comprising the June 30, 1997 backlog will be filled during the fiscal year
ending June 30, 1998.  This is in addition to any shipments which may be made
against orders subsequently received during the fiscal year ending June 30,
1998.  The forward-looking estimate of the firmness of the 1997 backlog to be
shipped is subject to future events which may cause the amount of the backlog
actually shipped to change. 

                                     3
<PAGE>



Military Contracts

     The Company, as well as other companies primarily engaged in supplying
equipment for military use, is subject to various risks, including, without
limitation, dependence on government appropriations and program allocations, the
competition for available military business, and termination of orders for
convenience.

Marketing and Competition

     The Company is on the eligible list of contractors of many agencies of the
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 both the
Department of Defense and other United States Government agencies for prime
contracts.  Subcontract work for government end use is solicited from major
electronic and aircraft companies, primarily by the Company's own employees and
sales representatives.

     There is competition in all classes of products manufactured by the
Company, from divisions of the largest electronic companies in the country, as
well as many small companies.  The Company's sales do not represent a
significant portion of the industry's production of any class of products made
by the Company.  The principal methods of competition for electronic products of
both a military and industrial nature include, among other factors, price and
product performance and the experience of the particular company and history of
its dealings in such products. 

     The Company's business is not considered to be of a seasonal nature.

Research and Development

     The Company has increased its expenditures for research and development
over the past three fiscal years.  In 1997, approximately $223,000 was expended
for this type of effort.  In 1996 and 1995, the Company spent $205,000 and
$141,000, respectively, on research and development.  Some of the Company's
professional employees spend varying degrees of time in either development of
new products or improvement of existing products.

Employees

     The number of persons employed by the Company as of September 19, 1997 was
166.


                                     4
<PAGE>



Government Regulations

  Compliance with federal, state and local provisions that have been enacted or
adopted to regulate the discharge of materials into the environment, or
otherwise relating to the protection of the environment, did not in 1997, and
the Company believes will not in fiscal year ending June 30, 1998 or the
succeeding fiscal year, have a material effect upon the capital expenditures,
earnings or competitive position of the Company.

Item 2.       Properties.

    The Company's principal manufacturing and all of its engineering facilities
are at its plant in Saratoga Springs, New York, which the Company owns.  The
Company initially occupied the plant in 1952, and in 1955 consolidated all of
its manufacturing operations at the plant when it terminated its manufacturing
operations in New York, New York.
     
     The Saratoga Springs plant was originally constructed about 1900 and
consists of various closely adjoining one-story buildings.  The plant has a
sprinkler system throughout and contains approximately 138,000 square feet of
floor space, of which 60,000 is used for manufacturing, 23,000 for engineering,
33,000 for shipping and climatically secured storage, and 3,000 for offices.
The offices and engineering area are air conditioned and approximately 1,000
square feet of "white rooms" are completely climatically controlled.  In
addition to assembly and wiring operations, the plant includes facilities for
varnishing, potting, impregnation, and spray painting operations, in addition
to complete machine shop and sheet metal fabrication facilities adequate for
substantially all of the Company's current operations.  During fiscal year 1995,
the Company expended about $800,000 for the upgrading of its plating department
to more uniformly conform to the environmental standards set by the Federal
Government and established a new plating division, called Saratoga
Electro-Finishing.  Besides normal test equipment, the Company maintains a
sophisticated on-site environmental test facility.  A fully staffed Automatic
Data Processing Center is also on-site.

    The Company maintains additional manufacturing facilities in a three-story,
fully sprinklered building of approximately 4,000 square feet at 146 Fulton
Street, Gloversville, New York.  The facility is used primarily for subcomponent
wiring and assembly.

     The Company maintains a sales office in a modern office building at 445
Northern Boulevard, Great Neck, New York.  This space, comprising approximately
750 square feet, is leased from a non-affiliated person for a term expiring on
September 9, 2001.

                                      5
<PAGE>
Item 3.       Legal Proceedings.

              Not applicable.

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

              Not applicable.


                                        PART II

Item 5.       Market for the Registrant's Common Equity and Related Stockholder
              Matters.

Price Range of Common Stock

     The table below shows the range of high and low prices for the Company's
common stock on the American Stock Exchange, the principal market for trading in
the common stock, for each quarterly period for the last two fiscal years ended
June 30:

         1997                                High                          Low  
                        
      First Quarter                          15 7/8                       15 5/8
      Second Quarter                         17 7/8                       14 5/8
      Third Quarter                          19 1/4                       15 1/2
      Fourth Quarter                         18 1/8                       17 

         1996                                High                          Low
     First Quarter                          16 1/4                       14 1/4
     Second Quarter                         14 1/2                       13 3/8
     Third Quarter                          14 1/4                       12 7/8
     Fourth Quarter                         14 1/4                       13 3/4

Holders

     The approximate number of holders of the common stock was 209 on 
September 19, 1997.  Included in this number are shares held in "nominee" or
"street" name and, therefore, the number of beneficial owners of the common
stock are believed to be substantially in excess of the foregoing number.
                                     6
<PAGE>
Dividends
              
   On September 19, 1997 the Board of Directors declared a cash dividend of $.70
per share to be paid on November 21, 1997 to shareholders of record on October
24, 1997.  The Company paid a cash dividend on the common stock of $.70 per
share for its fiscal year ended June 30, 1996 and $.70 per share for its fiscal
year ended June 30, 1995.

<TABLE>
<CAPTION>
Item 6.             Selected Financial Data.

                                                         ESPEY MFG. & ELECTRONICS CORP.

                                                          Five Years Ended June 30, 1997

Selected Income Statement Data
                                                 
                                                                  Year ended June 30,                                          
                                       1997             1996             1995            1994            1993
<S>                                  <C>              <C>              <C>             <C>             <C>     
Net Sales                            $ 15,166,075      16,800,200       14,574,097      14,678,303      15,206,921
Operating income                          342,177         209,226           24,064       1,502,470       2,234,782
Other income, net                         525,046         575,006          726,073         435,238         396,891
Cumulative effect of change in
accounting principle                         --              --               --           201,653           -- 

Net earnings                              563,128         522,737           491,767      1,343,877       1,594,290

Earnings per common share:
    Earnings before cumulative
    effect of change in
    accounting principle             $       .51               .41                .37        .85            1.18

Cumulative effect of change in
accounting principle                         --                  --                --        .15             --      
            Net earnings             $       .51               .41                .37       1.00            1.18

Selected Balance Sheet Data

                                                          Year ended June 30,                                             
                                       1997               1996            1995         1994            1993

Current assets                      $ 21,819,899       21,499,805     25,243,909   25,364,435      24,160,510

Current liabilities                      599,180          623,908        983,401      722,170         681,101

Working capital                       21,220,719       20,875,897     24,260,508   24,642,265      23,479,409

Total assets                          25,199,951       24,950,043     28,839,718   28,474,536      27,608,660

Long-term liabilities (deferred                  
income taxes)                              --                --           30,697      124,619         446,934

Stockholders' equity                  24,600,771       24,326,135     27,825,620   27,627,747      26,480,625 

Cash dividends declared and
paid per common share             $          .70              .70            .60          .60             .60

                                                           7
<PAGE>
</TABLE>

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

Results of Operations

        The Company presently operates a one segment manufacturing business.  It
principally manufactures power supplies and components for military and
industrial use. Sales volume is primarily dependent on product mix in any given
fiscal period.  This mix is in turn subject to the dictates of customer needs
and delivery requirements.  These factors principally account for any variation
in sales and operating income from year to year.

    Sales for fiscal years ended June 30, 1997, 1996, and 1995 were $15,166,075,
$16,800,200, and $14,574,097, respectively.  This decrease in sales resulted
primarily from the consolidation and relocation of the facilities and personnel
of one of the Company's major customers.  This consolidation has caused delays
in both ongoing and newly proposed programs. 

     The corresponding cost of sales during these fiscal years were 86%, 89%,
and 90%, respectively.  Although sales in 1997 decreased by approximately 10%
over the previous year, the gross profit percentage increased.  Many of the
contracts shipped in the fiscal year called for a somewhat higher gross profit
margin than those shipped in the prior year.  As a result, cost of sales for the
current period dropped to 86% compared to the 89% reflected last year.  This
factor was the primary reason for the increase in net profits, although there
was a decrease in sales.  A pretax write-off of $385,000 relating to
inventory was taken in the fourth quarter.  This write-off caused the net
loss per share during the current fourth quarter.
                                                               
          Selling, general and administrative expenses increased approximately
12% for the 1997 fiscal year.  This is primarily due to the transfer of a high
level employee from a manufacturing position to an administrative position, in
addition to an increase in legal expenses through the Company's efforts to
obtain patents on a number of its products. Earnings before income taxes
increased in 1997 to $867,223 from $784,237 in 1996.  Net earnings per share
increased to $.51 from $.41.
                                     8
<PAGE>

    The Company's inventories have decreased from $11,033,346 to $8,201,875.  As
noted above, this decrease resulted primarily from the reduction of the
Company's backlog.  The change in the ratio of work-in-process to costs relating
to contracts in process is primarily attributable to the allocation of
approximately $2,300,000 to a project for one customer in contemplation of the
execution of a contract.  The execution of a firm contract with this customer
would bring the ratio to its fiscal year 1996 level. 
Negotiations with the customer are in progress; however, there is no guarantee
that the contract will be signed.
                                                               
Business Outlook

    Customer order patterns are inherently difficult to predict.  As previously
disclosed, one of the Company's major customers has announced the consolidation
and relocation of several of its facilities and various personnel.  The
transition stage of this consolidation has caused delays in both ongoing and
newly proposed programs.  At the present time, the Company does not know what
effect, this will have on the receipt of currently pending new business from
this customer.  The Company is hopeful that any further delays will be minimal.
The Company believes that in the long term it will continue to obtain contracts
consistent with its past experience  as a result of the Company's projected
customer base.  The Company currently has outstanding quotations
well in excess of $30,000,000 for both repeat and new programs, in addition to
increase option clauses in various existing contracts.  Whether these quotations
and options will result in firm contracts will depend on the outcome of the
consolidation mentioned above and certain competitive factors.  There can be no
assurance that the Company will acquire contracts consistent with past
experience since such a forward-looking statement is subject to future events
and market conditions which may affect the number of firm contracts acquired.  

     As was the case in fiscal 1996, the Company has been accepting orders with
reduced profit margins because of the increasingly competitive nature of the
marketplace.  The Company is making efforts to resolve this situation by
expanding its efforts to develop technologies and products of a more proprietary
nature for sale in the commercial and military marketplace.  The Company's
efforts and investment in the advancement and refinement of both military and
industrial technologies has resulted in the Company receiving notices of
allowability for the following three patents:  (i) Dental Implant for promoting
bone growth, (ii) "Quiet" transformer for Naval application, and (iii) Dual
Dipole Antenna for military communications applications.  Current demographics
indicate a need for the products for which the Company has received patents,
particularly in the military marketplace, as well as a worldwide need for the
Company's long-range radar transmitters and components for high power AC
locomotives.  The management currently anticipates that the course of action the
Company has taken will enhance the Company's revenues and profitability in
future periods based on these indicated needs.
                                     9
<PAGE>

Liquidity and Capital Expenditures

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, including financing activities, with
cash flows resulting from operating activities.  The Company did not borrow any
funds during the last three fiscal years and does not currently anticipate that
it will borrow any funds during fiscal year 1998.

  The Company's working capital for fiscal years ended June 30, 1997, 1996, and
1995 was $21,220,719, $20,875,897, and $24,260,508, respectively.  The principal
reason for the decrease in working capital between 1996 and 1995 was the
repurchase by the Company of its common stock during 1996 in the total amount of
$3,696,340.  On March 7, 1996, the Company purchased a combined total of 219,400
shares of common stock from the Entwistle Company and Global Securities at a
total cost of $3,620,100.  In addition, the Company purchased 7,426 shares of
common stock from the Company's ESOP during 1997 for a total purchase price of
$116,031.  Under existing authorizations, as of August 31, 1997, funds in the
amount of $1,884,000 were available for the continuing repurchase of the
Company's shares of common stock. 

   In the statement of cash flows, the increasein net cash provided by operating
activities between fiscal years 1996 and 1997 was due primarily to a decrease in
material purchases in keeping with the reduction in the Company's current
backlog. The decrease in net cash provided by investing activities between
fiscal years 1996 and 1997 was a result of the decrease in the investment base
for the purchase of the Company's common stock as set forth in paragraph above.

          The Company's combined investment in both short-term investments and
marketable investment securities was (i) $12,226,531 as of June 30, 1993,
(ii) $13,290,888 as of June 30, 1994, (iii) $12,022,004 as of June 30, 1995,
(iv) $7,505,507 as of June 30, 1996, and (v) $10,706,782 as of June 30, 1997. 
The short-term investments consisted of Certificates of Deposit and United
States Treasury Bills.  During fiscal years 1993 through 1997, interest rates on
short-term investments ranged from 6.00% to 2.10%. 
This factor accounts, along with the changes in the overall balances of
short-term investments and marketable investment securities, for the fluctuation
of interest income during much of the five-year period.  Interest income was
$718,785 in fiscal 1995, $556,565 in fiscal 1996, and $514,822 in fiscal 1997.
Interest income in fiscal 1996 and 1997, however, was affected by the decrease
in the Company's investment base arising from the capital expenditures of
$1,080,000 in 1995 and purchase of the Company's common stock in the amount of
$3,696,340 during fiscal 1996 as set forth above.  A majority of the Company's
investment base is represented by Certificates of Deposit, United States
Government Treasury Securities  and a Money Market account. Consequently, the
Company does not feel that there is any significant risk associated with its
investment policy.
                                      10
<PAGE>                                    
          Management feels that the Company's reserve for bad debts of $3,000 is
adequate, since given the customers with whom the Company deals, particularly
the United States Government and its agencies, the amount of bad debts over the
years has been minimal.

          The Company does not currently offer, nor does management currently
contemplate offering in the future, any post-retirement or employment benefits.


Consequently, no accruals or liabilities have been provided for in the financial
statements.
                                                               
  During fiscal year 1997, the Company expended approximately $353,000 for plant
improvements and new equipment.  The Company plans to expend approximately
$400,000 for new equipment and plant improvements in fiscal 1998.  Management
presently anticipates that the funds required will be available from current
operations.

Changes in Accounting Principles and Policies

    The Company has adopted SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities", as of July 1, 1994, the effects of which are
described in the Notes to the Financial Statements set forth in Item 8 of this
Annual Report.

      The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of", as of July 1, 1995, the effects of
which are described in the Notes to the Financial Statements set forth in Item 8
of this Annual Report.  The adoption of this accounting standard had no effect
on the financial position or results of operations of the Company.          


Other Matters

          An Employee Retirement Plan and Trust ("ESOP") was established for the
eligible non-union employees of the Company and was effective as of July 1,
1988.  The ESOP used the proceeds of a loan from the Company to purchase 316,224
shares of the Company's common stock for approximately $8.4 million, and the
Company contributed approximately $400,000 to the ESOP, which was used by the
ESOP to purchase an additional 15,000 shares of the Company's common stock.

        Each year the Company makes contributions to the ESOP which are used to
make loan interest and principal payments.  With each loan and interest payment,
a portion of the common stock will be allocated to participating employees. 
As of June 30, 1997, there were 152,451 shares allocated to participants. 
Dividends attributable to allocated shares were likewise allocated to the
participants' accounts, whereas the dividends on unallocated shares were used as
part of the loan repayment, thus reducing the Company's required contribution.
                                     11
<PAGE>
   The loan from the Company to the ESOP is repayable in annual installments of
$1,039,605, including interest through June 30, 2004.  Interest is payable at a
rate of 9% per annum.  The Company's receivable from the ESOP is recorded as
common stock subscribed in the accompanying balance sheets.  In 1997 and 1996,
7,426 and 5,402 shares of the Company's common stock, respectively, was
purchased from the ESOP, representing distributions taken by participants.

Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995
          
  It should be noted that certain statements in this Management's Discussion and
Analysis of Financial Condition and Results of Operations are "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and
are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995.  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, as well as supply and manufacturing constraints
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.                                

                                     12
<PAGE>

Item 8.            Financial Statements and Supplementary Data.


                                          INDEX TO FINANCIAL STATEMENTS



                                                                          Page

Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . . . 14

Balance Sheets at June 30, 1997 and 1996. . . . . . . . . . . . . . . . . . 15

Statements of Earnings for the years ended June 30, 1997, 1996 and 1995 . . 17

Statements of Changes in Stockholders' Equity for the years ended June 30, 
  1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . ....... . . . . . 18

Statements of Cash Flows for the years ended June 30, 1997, 1996 and 1995 . 19

Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 20






                                     13
<PAGE>







Independent Auditors' Report


The Board of Directors and Stockholders
Espey Mfg. & Electronics Corp.:


We have audited the financial statements of Espey Mfg. & Electronics Corp. as
listed in the accompanying index.  In connection with our audits of the
financial statements, we also have audited the financial statement schedule as
listed in the accompanying index. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Espey Mfg. & Electronics Corp.
as of June 30, 1997 and 1996, and the results of its operations and its cash
flows for each of the years in the three-year period ended June 30, 1997, in
conformity with generally accepted accounting principles. Also in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly,in all material
respects, the information set forth therein.


/s/ KPMG Peat Marwick LLP

Albany, New York
August 29, 1997

                                    14
<PAGE>
[CAPTION]

ESPEY MFG. & ELECTRONICS CORP.

Balance Sheets

June 30, 1997 and 1996
<TABLE>



            Assets                                  1997                1996
<S>                                              <C>              <C>                                 
Current assets:
  Cash                                             $1,416,801       1,112,767
  Short-term investments, at cost (market value -
   $10,746,731 in 1997 and $4,577,305 in 1996)     10,706,782       4,484,312
         Total cash and short-term investments     12,123,583       5,597,079

    Marketable investment securities (note 2)       --              3,021,195

 Trade accounts receivable, net of $3,000 allowance
 in 1997 and 1996                                   1,142,599       1,556,404
     Other receivables                                 21,231          18,177
              Net receivables                       1,163,830       1,574,581

 Inventories:
   Raw materials and supplies                         449,416         499,900
    Work in process                                 3,225,657       1,561,742
    Costs relating to contracts in process
   (notes 3 and 4)                                  4,526,802       8,971,704
              Net inventories                       8,201,875      11,033,346

     Deferred income taxes (note 8)                   137,758             796
     Prepaid expenses and other current assets        192,853         272,808
              Total current assets                 21,819,899      21,499,805

Deferred income taxes (note 8)                         74,671           9,088

Property, plant and equipment, at cost (note 5)    12,043,850      11,813,137
     Less accumulated depreciation                 (8,738,469)     (8,371,987)
              Net property, plant and equipment     3,305,381       3,441,150
                                                 $ 25,199,951      24,950,043

</TABLE>
                                        15

(Continued)
<PAGE>
[CAPTION]
<TABLE>
ESPEY MFG. & ELECTRONICS CORP.

Balance Sheets, Continued

June 30, 1997 and 1996



 <S>                                         <C>                  <C>                      
   Liabilities and Stockholders' Equity          1997                 1996

Current liabilities:
     Accounts payable                        $  245,803              158,631
     Accrued expenses:
         Salaries, wages and commissions        107,640              116,351
         Employee insurance costs                40,573               54,739
         Other                                    8,994               17,440
  Payroll and other taxes withheld and accrued   47,564              156,890
  Income taxes payable                          148,606              119,857
                   Total current liabilities    599,180              623,908

Stockholders' equity:
 Common stock, par value $.33-1/3 per share
 (note 11) Authorized 2,250,000 shares;
 issued 1,514,937 shares in 1997 and 1996       504,979             504,979
     Capital in excess of par value          10,496,287          10,496,287
     Retained earnings                       24,148,405          24,316,400
                                             35,149,671          35,317,666
     Less:
  Common stock subscribed (note 12)          (3,910,636)         (4,469,299)
  Cost of 403,717 shares in 1997
  and 396,291 shares in 1996 of common
   stock in treasury                         (6,638,264)         (6,522,232)
    Total stockholders' equity               24,600,771          24,326,135

Commitments (note 14)

                                           $ 25,199,951          24,950,043
</TABLE>

See accompanying notes to financial statements.
 
                                           16
<PAGE>
<TABLE>
<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.

Statements of Earnings

Years ended June 30, 1997, 1996 and 1995




                                            1997                1996                 1995
<S>                                    <C>                    <C>                  <C>                         
Net sales                             $  15,166,075           16,800,200           14,574,097
Cost of sales                            13,015,436           14,973,018           13,074,247
         Gross profit                     2,150,639            1,827,182            1,499,850

 selling,general and
 administrative expenses                  1,808,462            1,617,956            1,475,786
 Operating income                           342,177              209,226               24,064

Other income:
     Interest income                        514,822              556,565              718,785
     Sundry income                           10,224               18,441                7,288
                                            525,046              575,006              726,073

   Earnings before income taxes             867,223              784,232              750,137

Provision for income taxes (note 8)         304,095              261,495              258,370
              Net earnings             $    563,128              522,737              491,767

Earnings per common share (note 9):
       Net earnings per common share   $       .51                 .41                 .37  


See accompanying notes to financial statements.

                                          17
<PAGE>
<CAPTION>
                                   ESPEY MFG. & ELECTRONICS CORP.
 
                             Statements of Changes in Stockholders' Equity

                                Years ended June 30, 1997, 1996 and 1995




                                                                   
                                                            Capital                       Common                        Total
                                               Common      in excess       Retained      stock        Treasury     stockholders'
                                               stock      of par value     earnings     subscribed       stock          equity
<S>                                         <C>          <C>            <C>           <C>            <C>            <C>
Balance at June 30, 1994                      504,979     10,496,287     24,945,412    (5,586,624)    (2,732,307)   27,627,747
     
Dividends paid on common stock $.60 per share   --            --           (809,041)        --           --           (809,041)
Net earnings - 1995                             --            --            491,767         --           --            491,767
Tax effect of dividends on unallocated 
ESOP shares(note 8)                             --            --             50,070         --           --             50,070
Purchase of treasury stock (7,260 shares)       --            --                --          --          (93,585)       (93,585)
Reduction of common stock subscribed            --            --                --       558,662         --            558,662

Balance at June 30, 1995                      504,979     10,496,287     24,678,208    (5,027,962)   (2,825,892)    27,825,620
     
Dividends paid on common stock $.70 per share   --            --           (937,119)        --           --           (937,119)
Net earnings - 1996                             --            --            522,737         --           --            522,737
Tax effect of dividends on unallocated 
ESOP shares(note 8)                             --            --             52,574         --           --             52,574
Purchase of treasury stock (224,802 shares)     --            --                --          --       (3,696,340)    (3,696,340)
Reduction of common stock subscribed            --            --                --        558,663        --            558,663

Balance at June 30, 1996                      504,979     10,496,287     24,316,400    (4,469,299)   (6,522,232)    24,326,135 
     
Dividends paid on common stock $.70 per share   --            --           (777,855)        --           --           (777,855)
Net earnings - 1997                             --            --            563,128         --           --            563,128
Tax effect of dividends on unallocated 
ESOP shares(note 8)                             --            --             46,732         --           --             46,732
Purchase of treasury stock (7,426 shares)       --            --                --          --         (116,032)      (116,032)
Reduction of common stock subscribed            --            --                --        558,663        --            558,663
                                         
Balance at June 30, 1997                 $    504,979     10,496,287     24,148,405    (3,910,636)   (6,638,264)    24,600,771
                          
see accompanying notes to financial statements
                                                                18
<PAGE>
<CAPTION>
                           ESPEY MFG. & ELECTRONICS CORP.

                             Statements of Cash Flows

                     Years ended June 30, 1997, 1996 and 1995

                                                                        1997                 1996            1995
Cash flows from operating activities:                                 
<S>                                                                 <C>                  <C>             <C>
Net earnings                                                       $   563,128              522,737         491,767
Adjustments to reconcile net earnings to net cash 
provided by operating activities:
Tax effect of dividends on unallocated ESOP shares                      46,732               52,574          50,070
Depreciation                                                           488,617              503,160         493,735
Gain on sale of marketable investment securities                          --                 (5,796)            --
Deferred income tax benefit                                           (202,545)            (116,496)        (87,651)
Change in assets and liabilities:
 Decrease (increase) in receivables, net                               410,751              371,824        (774,451)
 Decrease (increase) in inventories, net                              2,831,471            (785,021)        (69,763)
 Decrease (increase) in income tax refund receivable                      --                410,467         (52,049)
 Decrease (increase) in prepaid expenses and other current assets        79,955             112,225        (199,116)
 Increase (decrease) in accounts payable                                 87,172            (438,192)        259,941
 Increase (decrease) in accrued salaries, wages and commissions         (8,711)              12,082           4,717
 Increase (decrease) in accrued employee insurance costs               (14,166)               4,446          (7,979)
 Increase (decrease) in other accrued expenses                          (8,446)               2,852          (2,430)
 Increase (decrease) in payroll and other taxes withheld and accrued  (109,326)              15,377             711
 Increase in income taxes payable                                        28,749             119,857            --        
      Net cash provided by operating activities                       4,193,381             782,096         107,502

Cash flows from investing activities:
 Proceeds from maturity of marketable investment securities          27,695,753          10,454,464       3,887,307
 Additions to property, plant and equipment                            (352,848)           (348,501)     (1,079,443)
 Reduction of common stock subscribed                                   558,663             558,663         558,662
 Proceeds from sale of marketable investment securities                    --             3,866,542             --       
     Purchases of marketable investment securities                  (24,674,558)         (6,781,941)    (14,341,771)
     Net cash provided by (used in) investing activities              3,227,010           7,749,227     (10,975,245)

Cash flows from financing activities:
 Dividends on common stock                                             (777,855)           (937,119)       (809,041)
 Purchase of treasury stock                                            (116,032)         (3,696,340)       ( 93,585)
     Net cash used in financing activities                             (893,887)         (4,633,459)       (902,626)

Increase (decrease) in cash and short-term investments                 6,526,504          3,897,864     (11,770,369)
Cash and short-term investments, beginning of year                     5,597,079          1,699,215      13,469,584
Cash and short-term investments, end of year                  $       12,123,583          5,597,079       1,699,215

Supplemental disclosures of cash flow information:
     Income taxes paid (refund)                                $         431,160            (204,907)       348,000
<FN>
<F1>
See accompanying notes to financial statements.See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>

ESPEY MFG. & ELECTRONICS CORP.

Notes to Financial Statements

June 30, 1997, 1996 and 1995



(1)    Summary of Significant Accounting Policies

       (a)    Nature of Operations

       Espey Mfg. & Electronics Corp. (the Company) is a manufacturer of
       electronic equipment used primarily in military applications.  The 
       principal markets for the Company's products have been the United States 
       and Israel.
       
       (b)    Inventory Valuation and Income Recognition

              Raw materials are valued at cost, principally on the first-in,
              first-out method.
            
              Inventoried work relating to contracts in process and work in
              process is valued at actual production cost, including factory 
              overhead and initial set-up costs incurred to date, reduced by
              amounts identified with revenue recognized on units shipped and
              billed. Work in process represents spare units and parts and other
              inventory items acquired or produced to service units previously
              sold or to meet anticipated future orders. Provision for losses on
              contracts is made when existence of such losses becomes evident.
              The costs attributed to units delivered under contracts are based
              on the estimated average cost of all units expected to be
              produced. Certain contracts are expected to extend beyond twelve
              months.
              
              The cost elements of contracts in process consist of production 
              costs of goods and services currently in process and overhead
              relative to those contracts where such costs are reimbursable 
              under the terms of the contracts. General and administrative 
              expenses are charged to operations in the period in which they are
              incurred.
              
              Revenue is recognized on contracts and orders in the period in 
              which the units are shipped and billed (unit-of-delivery method).

       (c)    Depreciation

              Depreciation of plant and equipment is computed generally on a 
              straight-line basis over the estimated useful lives of the assets
              for book purposes and on an accelerated method for tax purposes.
             
       (d)    Income Taxes

              The Company follows the provisions of Statement of Financial
              Accounting Standards (SFAS) No. 109,"Accounting for Income Taxes".
<PAGE>
(1), Continued
             
              Under the provisions of SFAS No. 109, deferred tax assets and
              liabilities are recognized for the future tax consequences 
              attributable to differences between the financial statement 
              carrying amounts of existing assets and liabilities and their 
              respective tax bases.  Deferred tax assets and liabilities are 
              measured using enacted tax rates expected to apply to taxable 
              income in the years in which those temporary differences are 
              expected to be recovered or settled.  In addition, SFAS No. 109
              requires that the tax benefit of tax deductible dividends on
              unallocated ESOP shares be recorded as a direct addition to 
              retained earnings rather than as a reduction of income tax
              expense.
       
       (e)    Short-Term Investments and Cash Equivalents

              All short-term investments, consisting of certificates of deposit,
              money market accounts, and U.S. Treasury bills, maturing within 
              three months are considered cash equivalents for purposes of the 
              statements of cash flows.
       
       (f)    Marketable Investment Securities

              Marketable investment securities at June 30, 1996 consist of U.S.
              Treasury securities. The Company classifies Marketable Investment
              Securities as held-to-maturity.  Held-to-maturity securities are
              those securities that the Company has the ability and intent to
              hold until their maturity.  Held-to-maturity securities are 
              recorded at amortized cost.
              
              A decline in the market value of any held-to-maturity security 
              below cost that is deemed other than temporary is charged to
              earnings resulting in the establishment of a new cost basis for
              the security.
              
              Premiums and discounts are amortized or accreted over the life of
              the related held-to-maturity security as an adjustment to yield
              using the effective interest method. Interest income is recognized
              when earned.
       
       (g)    Management Estimates

              The preparation of financial statements in conformity with 
              generally accepted accounting principles requires management to
              make estimates and assumptions that affect the reported amount of
              assets and liabilities and disclosure of contingent assets and 
              liabilities at the date of the financial statements and the
              reported amounts of revenues and expenses during the reporting
              period.  Actual results could differ from those estimates.
              
       (h)    Investment Tax Credits

              Investment tax credits are accounted for as a reduction of income
              tax expense in the year taxes payable are reduced.

<PAGE>
              
       (1), Continued

       (i)    Accounting for the Impairment of Long-Lived Assets
       
              The Company adopted the provisions of SFAS No. 121, "Accounting 
              for the Impairment of Long-Lived Assets and for Long-Lived Assets
              to Be Disposed Of", as of July 1, 1995.  This accounting standard 
              requires that certain long-lived assets reviewed for impairment
              when events or circumstances indicate that the carrying amount of 
              the assets may not be recoverable.  If such review indicates that 
              the carrying amount of an asset exceeds the sum of its expected
              future cash flows, the asset's carrying value is written down to 
              fair value.  Long-lived assets to be disposed of are reported at 
              the lower of carrying amount or fair value less cost to sell. The
              adoption of this accounting standard had no effect on the
              financial position or results of operations of the Company.


(2)    Marketable Investment Securities

       Marketable investment securities at June 30, 1996, consist of U.S.
       Treasury securities, which are classified as held-to-maturity securities,
       and recorded at amortized cost.  There were no gross unrealized gains or 
       losses on U.S. Treasury securities at June 30, 1997 or 1996.  The
       difference between cost and fair market value for the U.S. Treasury 
       securities represents interest income, which has been recognized and is
       included in accrued interest receivable.
       
       Maturities of investment securities classified as held-to-maturity were
       as follows:
<TABLE>

       
                                                                          Amortized           Fair
                                                                            Cost              Value
      <S>                                                                <C>                <C>              
       At June 30, 1997:
              Due after three months through 1 year                      $     -                -       
       
       At June 30, 1996:
              Due after three months through 1 year                      $   3,021,195       3,134,458
</TABLE>
       
       
(3)    Inventories and Cost of Sales

       Included in costs relating to contracts in process at June 30, 1997, 1996
       and 1995 are costs of $368,687,$1,504,409, and $1,023,945, respectively, 
       relative to contracts that may not be completed within the ensuing year. 
       Under the unit-of-delivery method, the related sale and cost of sales 
       will not be reflected in the statement of earnings until the units under 
       contract are shipped.

<PAGE>
(4)    Contracts in Process

       Contracts in process at June 30, 1997 and 1996 are as follows:
<TABLE>
       
                                                                    1997          1996
       <S>                                                    <C>             <C>                                                
         Gross contract value                                  $  9,037,572    16,297,193

         Carrying value of contracts in process included in
                  current assets                               $  4,526,802     8,971,704
</TABLE>

(5)    Property, Plant and Equipment

       A summary of property, plant and equipment at June 30, 1997 and 1996 is
       as follows:
<TABLE>
       
                                                                                              1997                   1996
            <S>                                                                    <C>                        <C>                 
              Land                                                                   $         50,000                50,000
              Buildings and improvements                                                    3,863,413             3,828,650
              Machinery and equipment                                                       7,807,631             7,614,027
              Furniture, fixtures and office equipment                                        322,806               320,460
                                                                                     $     12,043,850            11,813,137

       The estimated useful lives of depreciable assets are as follows:

                 Buildings and improvements                                                 20 - 25 years      
                 Machinery and equipment                                                         10 years
                 Furniture, fixtures and office equipment                                        10 years
                 Autos and trucks                                                                 5 years
</TABLE>

(6)    Research and Development Costs

       Research and development costs charged to operations during the years 
       ended June 30, 1997, 1996 and 1995 were approximately $223,000, $205,000 
       and $141,000, respectively.


(7)    Pension Expense

       Under terms of a negotiated union contract, the Company is obligated to
       make contributions to a union-sponsored defined benefit pension plan 
       covering eligible employees. Such contributions are based upon hours
       worked at a specified rate and amounted to $66,642 in 1997, $79,282 in 
       1996 and $65,500 in 1995.

<PAGE>

(8)    Provision for Income Taxes 

       A summary of the components of the provision for income taxes for the 
       years ended June 30, 1997, 1996 and 1995 is as follows:
<TABLE>
                                                                                 1997     1996      1995
       <S>                                                                   <C>         <C>      <C>     
         Current tax expense - Federal                                        $ 481,729   366,108  324,021
         Current tax expense - State                                             24,911    11,883   22,000
         Deferred tax benefit                                                  (202,545) (116,496) (87,651)
                                                                              $ 304,095   261,495  258,370
       
       Total income tax expense for the years ended June 30, 1997, 1996 and 1995
       was allocated as follows:
                                                                                    1997           1996          1995

         Earnings from operations                                             $     304,095        261,495      258,370
         Stockholders' equity, for tax effect of dividends on unallocated ESOP
             shares                                                                 (46,732)       (52,574)     (50,070)
                                                                              $     257,363        208,921      208,300
</TABLE>
       
       Deferred income taxes reflect the impact of "temporary differences" 
       between the amount of assets and liabilities for financial reporting 
       purposes and such amounts measured by tax laws and regulations. These
       "temporary differences" are determined in accordance with SFAS No. 109.
       
       The combined U.S. Federal and state effective income tax rates of 35.1%,
       33.3% and 34.4% for 1997, 1996 and 1995, respectively, differed from the 
       statutory U.S. Federal income tax rate for the following reasons:
<TABLE>
                                                                                      1997          1996         1995
        <S>                                                                        <C>           <C>        
         U.S. statutory tax rate                                                      34.0%         34.0%        34.0%
         Increase (reduction) in rate resulting from:
              Dividends received deduction                                             (.3)          (.3)         (.3)
              State franchise tax, net of Federal income tax benefit                   1.9           1.0          1.9
              Other                                                                    (.5)         (1.4)        (1.2)
         Effective tax rate                                                            35.1%        33.3%        34.4%(8), Continued
</TABLE>
<PAGE>       
       For the year ended June 30, 1997 deferred income tax benefit of $202,545 
       results from the changes in temporary differences for the year.  The tax 
       effects of temporary differences that give rise to deferred tax assets
       and deferred tax liabilities as of June 30, 1997 and 1996 are presented
       below:
<TABLE>
                                                                                      1997          1996
         <S>                                                                       <C>           <C>          
         Deferred tax assets:
         
              Inventory - differences in valuation methods                           179,533       180,421
         
              Common stock subscribed-due to difference in interest recognition      475,493       510,198
         
         Total gross deferred tax assets                                             655,026       690,619
         
         Deferred tax liabilities:
              Property, plant and equipment - principally due to differences in
              depreciation methods                                               $   400,822       501,110
              Inventory - effect of uniform capitalization                            41,775       179,625
         
         Total gross deferred tax liabilities                                        442,597       680,735
         
         Net deferred tax asset                                                  $   212,429         9,884
</TABLE>
       
       In assessing the realizability of deferred tax assets, management
       considers whether it is more likely than not that some portion or all of 
       the deferred tax assets will be realized.  The ultimate realization of 
       deferred tax assets is dependent upon the generation of future taxable 
       income during the periods in which those temporary differences become 
       deductible.  Management considers the scheduled reversal of deferred tax 
       liabilities, projected future taxable income, and tax planning strategies
       in making this assessment.  Based upon the level of historical taxable
       income and projection for future taxable income over the period in which 
       the deferred tax assets are deductible, management believes it is more
       likely than not that the Company will realize the benefits of these
       temporary differences without consideration of a valuation allowance.
       
       The Company's Federal income tax returns have been audited and accepted
       without change through June 30, 1989.


(9)    Common Stock and Earnings Per Share

       Earnings per share information is based on the weighted average number of
       common shares outstanding during the respective periods. The weighted 
       average number of shares used in the computation was 1,112,074 in 1997,
       1,269,467 in 1996, and 1,346,757 in 1995.
<PAGE>

(10)   Segment Reporting

       A significant portion of the Company's business is the production of
       military and industrial electronic equipment for use by the U.S.
       Government and its agencies and certain industrial customers.  Sales made
       to the U.S. Government and its agencies are primarily on a subcontract
       basis.  Sales to two domestic customers accounted for 19.9%, and 61.4%, 
       respectively, of total sales in 1997.  Sales to two domestic customers 
       and one foreign customer accounted for 28.9%, 22.8% and 17.8%, 
       respectively, of total sales in 1996. Sales to two domestic customers and
       one foreign customer accounted for 31.5%, 24.2%, and 16.2%, respectively,
       of total sales in 1995.
       
       Export sales in 1997 were not significant.  Export sales in 1996 and 1995
       aggregated approximately $3,073,000 and $2,602,000, respectively.


(11)   Stock Rights Plan

       During 1989, the Company adopted a Shareholder Rights Plan in which 
       common stock purchase rights were distributed as a dividend at the rate 
       of one right for each share of common stock outstanding as of or issued 
       subsequent to April 14, 1989. Each right entitles the holder thereof to
       buy one-half share of common stock of the Company at an exercise price of
       $75 per share subject to adjustment. The rights are exercisable only if a
       person or group acquires beneficial ownership of 25% or more of the 
       Company's common stock or commences a tender or exchange offer which, if
       consummated, would result in the offer or, together with all affiliates
       and associates thereof, being the beneficial owner of 30% or more of the
       Company's common stock.
       
       If a 25% or larger shareholder should engage in certain self-dealing 
       transactions or a merger with the Company in which the Company is the 
       surviving corporation and its shares of common stock are not changed or 
       converted into equity securities of any other person, or if any person 
       were to become the beneficial owner of 30% or more of the Company's 
       common stock, than each right not owned by such shareholder or related 
       parties of such shareholder (all of which will be void) will entitle its 
       holder to purchase, at the right's then current exercise price, shares of
       the Company's common stock having a value of twice the right's exercise 
       price. In addition, if the Company is involved in any other merger or
       consolidation with, or sells 50% or more of its assets or earning power 
       to, another person, each right will entitle its holder to purchase, at 
       the right's then current exercise price, shares of common stock of such 
       other person having a value of twice the right's exercise price.
       
       The Company generally is entitled to redeem the rights at one cent per 
       right at any time until the 15th day (or 25th day if extended by the 
       Company's Board of Directors) following public announcement that a 25%
       position has been acquired or the commencement of a tender or exchange 
       offer which, if consummated, would result in the offer or, together with 
       all affiliates and associates thereof, being the beneficial owner of 30% 
       or more of the Company's common stock.

<PAGE>
(12)   Employee Stock Ownership Plan

       In 1989, the Company established an Employee Stock Ownership Plan (ESOP) 
       for eligible non-union employees. The ESOP used the proceeds of a loan 
       from the Company to purchase 316,224 shares of the Company's common stock
       for approximately $8.4 million and the Company contributed approximately 
       $400,000 in 1989 to the ESOP which was used by the ESOP to purchase an 
       additional 15,000 shares of the Company's common stock.  Since inception 
       of the Plan, the ESOP has sold or distributed 31,690 shares of the 
       Company's common stock to pay benefits to participants. At June 30,1997, 
       the ESOP held a total of 299,534 shares of the Company's common stock,of 
       which 152,450 shares were allocated to participants in the Plan.
       
       The loan from the Company to the ESOP is repayable in annual installments
       of $1,039,605, including interest, through June 30, 2004. Interest is 
       payable at a rate of 9% per annum. The Company's receivable from the ESOP
       is recorded as common stock subscribed in the accompanying balance 
       sheets.  The company recognizes the principal payments of the ESOP debt, 
       on a straight-line basis over the term of the note, as compensation 
       expense.
       
       Each year, the Company makes contributions to the ESOP which are used to 
       make loan payments. With each loan payment,a portion of the common stock 
       is allocated to participating employees. In 1997, the Company's required 
       contribution of $1,039,605 was reduced by $117,667, which represents the 
       dividends paid on the unallocated ESOP shares.  The resulting payment of 
       $921,938 includes $440,996 classified as compensation expense.  In 1996, 
       the Company's required contribution of $1,039,605 was reduced by 
       $132,376, which represents the dividends paid on the unallocated ESOP 
       shares. The resulting payment of $907,229 includes $426,287 classified as
       compensation expense.  In 1995, the Company's required contribution  of 
       $1,039,605 was reduced by $126,072, which represents the dividends paid 
       on the unallocated ESOP shares.  The resulting payment of $913,533 
       includes $432,590 classified as compensation expense.


(13)   Financial Instruments/Concentration of Credit Risk

       The carrying amounts of financial instruments, including cash, short-term
       investments, marketable investment securities, accounts receivable and 
       accounts payable, approximated fair value as of June 30, 1997 and 1996 
       because of the relatively short maturity of these instruments.
       
       Financial instruments that potentially subject the Company to
       concentrations of credit risk consist principally of cash and short-term 
       investments and accounts receivable. The Company maintains cash and 
       short-term investments with various financial institutions. At times 
       such investments may be in excess of FDIC insurance limits.  As 
       disclosed in note 10,a significant portion of the Company's sales are
       made to the U.S. Government and its agencies and certain industrial 
       customers. The related accounts receivable balance represented 66.7% and 
       54% of the Company's total trade accounts receivable balance at June 30, 
       1997 and 1996, respectively.

<PAGE>

(13), Continued
       
       Although the Company's exposure to credit risk associated with nonpayment
       of these balances is affected by conditions or occurrences within the 
       U.S. Government, the Company believes that its trade accounts receivable
       credit risk exposure is limited .  The Company performs ongoing credit 
       evaluations of its customers' financial conditions and requires 
       collateral, such as progress payments, in certain circumstances.  The 
       Company establishes an allowance for doubtful accounts based upon factors
       surrounding the credit risk of specific customers, historical trends and
       other information.
       
       
(14)   Commitments

       The Company under an operating lease agreement rents a sales office in 
       Great Neck, New York.  This lease, which expires on September 9, 2001,
       requires future minimum lease payments of $50,792 payable as follows:
       
                 Year ending June 30,
                          1998                                   $      12,190
                          1999                                          12,190
                          2000                                          12,190
                          2001                                          12,190
                          2002                                           2,032
                                                                  $     50,792
                 
       Rent expense for the years ended June 30, 1997, 1996 and 1995 was
       $14,156, $22,624, and $22,235, respectively.

<PAGE>
<TABLE>
(15)   Quarterly Financial Information (Unaudited)

                                                     First                Second           Third            Fourth
                                                    Quarter               Quarter         Quarter           Quarter
      <S>                               <C>                          <C>               <C>     
       
       1997:
       
       Net sales                             $      4,586,892           4,066,386        3,805,569        2,707,228
       Gross profit                                   698,018             729,221          544,037          179,363
       Net earnings                                   228,719             244,126          127,370          (37,087)
       
       Net earnings per share                $            .21                 .21              .12             (.03)
       
       1996:
       
       Net sales                             $      4,000,805            4,434,896       4,352,275         4,012,224
       Gross profit                                   404,675              486,916         533,557           402,034
       Net earnings                                    98,440              125,906         169,479           128,912
       
       Net earnings per share                $            .07                  .09             .13               .12
       
       1995:
       
       Net sales                             $      4,161,569            2,814,595       3,496,584         4,101,349
       Gross profit                                   614,354              293,631         267,462           324,403
       Net earnings                                   174,765               33,407          74,149           209,446
       
       Net earnings per share                $            .13                  .02             .06               .16
       
</TABLE>
       
       Financial information for the fourth quarter of 1997 reflects a pre-tax 
       write off of approximately $385,000 related to inventory for which the 
       Company expected to receive orders during the year.In the fourth quarter 
       of 1997, management's assessment of this inventory resulted in the
       aforementioned write-off as previously anticipated orders did not
       materialize.

<PAGE>









Item 9.         Changes in and Disagreements with Accountants on
                Accounting and Financial Disclosure.

        Not Applicable.


                                                           PART III

Item 10.     Directors and Executive Officers of the Registrant.

Identification of Directors
<TABLE>
                        Date Present Term                Other Positions                      
                        Expires and Period               and Offices Held
Name                    Served as Director               With Registrant              Age
<S>                 <C>                              <C>                            <C>     
Joseph Canterino        Annual Meeting in                President and                 72   
                        December 1998                    Chief Executive 
                        Director since                   Officer
                        December 11, 1992
     
Paul J. Corr            Annual Meeting in                None                         53                       
                        December 1999                           
                        Director since 
                        April 3, 1992

William P. Greene       Annual Meeting in                None                         67
                        December 1998                           
                        Director since 
                        April 3, 1992

Barry Pinsley           Annual Meeting in                Vice President-               55                               
                        December 1999                    Investor Relations                   
                        Director since                   and Human Resources
                        March 25, 1994
     
Howard Pinsley          Annual Meeting in                Executive Vice President      57
                        December 1997                          
                        Director since                                                      
                        December 11, 1992
     
Sol Pinsley             Annual Meeting in                    Chairman of               84
                        December 1997                        the Board
                        Director since 1950                    
     
                                                               (continued)
</TABLE>
<PAGE>

<TABLE>
                        Date Present Term                      Other Positions
                        Expires and Period                     and Offices Held
Name                    Served as Director                     With Registrant         Age
<S>                  <C>                                    <C>                      <C>         
Seymour Saslow          Annual Meeting in                      Senior Vice President   76
                        December 1998                          
                        Director since
                        December 11, 1992

Michael W. Wool         Annual Meeting in                      None                    51
                        December 1999                          
                        Director since 1990

Identification of Executive Officers

                        Positions and
                        Offices Held                           Period Served As
Name                    With Company                           Executive Officer       Age

Sol Pinsley             Chairman of the                        President and Chief     84
                        Board and                              Executive Officer for
                        Director                               more than the past five
                                                               years prior to taking 
                                                               present position on
                                                               August, 1996; Treasurer 
                                                               from August 4, 1988 to
                                                               September 10, 1993

Seymour Saslow          Senior Vice President                  Served as Vice          76
                        and Director                           President from April 3,
                                                               1992 until being elected
                                                               to present position on
                                                               December 6, 1997                     
                        
Joseph Canterino        President and Chief                    Since April 3, 1992;    72
                        Executive Officer and                  Vice President-
                        Director                             Manufacturing prior 
                                                             to present position
</TABLE>
<PAGE>
                                                                  (continued)
<TABLE>
                                                                                            
                     Positions and
                     Offices Held                  Period Served As
Name                 With Company                  Executive Officer        Age
<S>               <C>                           <C>                       <C>     
Howard Pinsley       Executive Vice President      Served as Vice President- 57
                     and Director                  Special Power Supplies
                                                   from April 3, 1992 until
                                                   being elected to present
                                                   position on December 6,
                                                   1997               

Barry Pinsley        Vice President-               Served as Vice President- 55
                     Investor Relations            Special Projects from                           
                     and Human Resources           March 25, 1994 until
                     and Director                  being elected to present
                                                   position on December 6,
                                                   1997    
                        
John J. Pompay, Jr.  Vice President-               Since December 6, 1996    62
                     Marketing and Sales

Herbert Potoker      Treasurer and Principal       Since September 10,       68
                     Financial Officer             1993

Garry M. Jones       Assistant Treasurer           Since August 4, 1988;     57
                     and Principal Accounting      Principal Financial
                     Officer                       Officer from August 4,
                                                   1988 to September 10, 
                                                   1993

Reita Wojtowecz      Secretary                     Since June 27, 1994       68
</TABLE>
     Each officer's term is at the will of the Board of Directors, except for 
     Sol Pinsley and John J. Pompay, Jr.  The term of Mr. Pinsley's employment 
     is subject to the provisions of an Employment Agreement, dated January 1,
     1995.  The term of Mr. Pompay's employment is subject to the provision of 
     an Employment Agreement, dated December 6, 1996.  See "Executive 
     Compensation-Employment Contracts and Termination of Employment and Change 
     in Control Agreements."  

<PAGE>



Family Relationships                                                        
     Sol Pinsley is the father of Barry Pinsley and uncle of Howard Pinsley. 
     Barry Pinsley and Howard Pinsley are cousins. Howard Pinsley and Herbert 
     Potoker are cousins.

Business Experience of Directors and Officers  

     Joseph Canterino has been President and Chief Executive Officer since Sol 
     Pinsley retired from these positions on August 1, 1996.  Prior to his 
     election to his present position, Mr. Canterino served as Vice President-
     Manufacturing since April 3, 1992 and Plant Manager for more than five
     years prior to being elected Vice President-Manufacturing.
                                                               
     Paul J. Corr is a Certified Public Accountant and currently a partner at
     the Latham, New York accounting firm of Richter & Company.  Mr. Corr was a 
     partner of the accounting firm of Corr & Company from 1982 to 1993.  Since 
     1981 to date, Mr. Corr has been professor of Business at Skidmore College 
     in Saratoga Springs, New York.  Mr. Corr currently holds the position of
     Associate Professor.  

     William P. Greene has been employed as Vice President of Operations for 
     National Library of Music since August, 1997.  Prior to his present 
     position, Mr. Greene was employed as Vice President of Operations for Bulk 
     Materials International Co., Newton, Connecticut from 1994 to August,1997. 
     From 1991 to 1994, Mr. Greene was Associate Professor of Finance and
     International Business at Pennsylvania State University, Kutztown, 
     Pennsylvania.  From 1985 to 1990, he was Associate Dean at the School of
     Business, United States International University in San Diego, California. 
     From 1982 to 1985, he was Chairman, Department of Business, Skidmore
     College, Saratoga Springs, New York.  Prior to that time, he had been 
     employed as an officer with several financial institutions.  
                                                               
     Garry M. Jones for more than the past five years has been employed by the
     Company on a full time basis as Senior Accountant prior to being elected 
     Assistant Treasurer and Principal Financial and Accounting Officer on 
     August 4, 1988.   

     Barry Pinsley is a Certified Public Accountant who for five years acted as 
     a consultant to the Company prior to his election as a Vice President-
     Special Projects on March 25, 1994.  On December 6, 1997, Mr. Pinsley was 
     elected to his present position of Vice President-Investor Relations and 
     Human Resources.  Mr. Pinsley has been a practicing Certified Public 
     Accountant in Saratoga Springs, New York since 1975.  

     Howard Pinsley for more than the past five years has been employed by the
     Company on a full time basis as Program Director prior to being elected 
     Vice President-Special Power Supplies on April 3, 1992.  On December 6, 
     1996, Mr. Pinsley was elected to his present position of Executive Vice 
     President.

<PAGE>  

     Sol Pinsley has been for more than the past five years employed on a full 
     time basis as the President and Chief Executive Officer of the Company. 
     Mr. Pinsley retired from these positions effective August 1, 1996.  He has
     remained with the Company as Chairman of the Board. 

     Herbert Potoker for more than the past five years has been employed by the
     Company on a full time basis in a senior financial management position 
     prior to being elected Treasurer and Principal Financial Officer on 
     September 10, 1993.  Mr. Potoker previously had been the Treasurer and 
     Principal Financial and Accounting Officer of the Company until August 4, 
     1988.  

     Seymour Saslow has been Senior Vice President since December 6, 1996.  
     Prior to being elected to his present position, Mr. Saslow served as Vice 
     President-Engineering since April 3, 1992.
                                                               
     Reita Wojtowecz has been Secretary of the Company since June 27, 1994. 
     She has been employed by the Company as Director of Human Resources for 
     more than the past five years.

     Michael W. Wool has been an attorney in private practice and a partner in 
     the law firm of Langrock, Sperry & Wool in Burlington, Vermont for more 
     than the past five years.

     John J. Pompay, Jr. for more than the past five years has been employed by
     the Company on a full-time basis as Director of Marketing and Sales prior 
     to being elected Vice President-Marketing and Sales on December 6, 1996.

Directorships  

     None of the directors holds a directorship in any other company with a 
     class of securities registered pursuant to Section 12 of the Exchange Act 
     or subject to the requirements of Section 15(d) of that Act or any company 
     registered as an Investment company under the Investment Company Act of 
     1940.
                                                               
Legal Proceedings

     None of the directors or executive officers of the Company were involved 
     during the past five years in any of the legal proceedings specified under 
     Item 401(f) of Regulation S-K.
                                                               
<PAGE>





Item 11.     Executive Compensation.                 

Executive Compensation Table  

     The following table summarizes the annual compensation for each of the 
     fiscal years ended June 30, 1997, June 30, 1996 and June 30, 1997 received 
     by the Company's Chief Executive Officer, the other five highest paid 
     executive officers of the Company who were such as of June 30, 1997, and 
     Sol Pinsley, for whom disclosure would have been required but for the fact 
     Mr. Pinsley resigned as President and Chief Executive Officer in August, 
     1996:
<TABLE>
                                                  SUMMARY COMPENSATION TABLE

Name and                          Fiscal              Annual                             All Other
Principal Position                Year                Salary             Bonus           Compensation(1)
<S>                           <C>                 <C>               <C>                 
Sol Pinsley (2)                   1997                $156,670           $25,000         $14,969
Chairman of                       1996                $193,900           $25,000         $14,129
the Board                         1995                $189,000           $25,000         $ 9,968
                                      
Seymour Saslow                    1997                $117,075           $25,000         $15,353
Senior Vice President             1996                $112,900           $25,000         $15,063
                                  1995                $108,000           $25,000         $10,393

Joseph Canterino                  1997                $133,880           $25,000         $16,536
President and Chief               1996                $103,180           $25,000         $15,819
Executive Officer                 1995                $ 98,280           $25,000         $11,320

Howard Pinsley                    1997                $109,600           $25,000         $16,455
Executive Vice                    1996                $ 93,350           $20,000         $15,567
President                         1995                $ 90,450           $12,000         $11,042

Herbert Potoker                   1997                $109,855           $25,000         $13,289
Treasurer and                     1996                $107,680           $25,000         $11,892
Principal Financial Officer       1995                $101,280           $25,000         $ 9,320

Barry Pinsley                     1997                $  85,050          $12,000         $13,338
Vice President-                   1996                $  84,675          $10,000         $12,389
Investor Relations and            1995                $  79,500          $10,000         $ 8,083             
Human Resources

John J. Pompay, Jr.               1997                $172,963(3)        $   0           $13,289
Vice President-Sales
</TABLE>
<PAGE>
_______________

(1)     Represents (a) the cash and market value of the shares allocated for the
respective fiscal years under the Company's Employee Retirement Plan and Trust
("ESOP") to the extent to which each named executive officer is vested, and (b)
directors' fees except for Mr. Potoker and Mr. Pompay.

(2)     Effective August 1, 1996, Mr. Pinsley retired from the positions of 
President and Chief Executive Officer.  In accordance with the terms of his 
Employment Agreement,Mr. Pinsley has remained as Chairman of the Board and as a 
non-executive officer of the Company at a reduced salary.  See "Executive 
Compensation - Employment Contracts and Termination of Employment and Change in 
Control Agreements."

(3)     Represents wages as an executive officer and non-executive officer 
during fiscal year ending June 30, 1997.

Insurance

          The executive officers of the Company are covered under group life and
medical and health plans which do not discriminate in favor of the officers or 
directors of the Company and which are available generally to all salaried 
employees.

         The Company maintains insurance coverage, as authorized by Section 727 
of the New York Business Corporation Law, providing for(a)reimbursement of the 
Company for payments it makes to indemnify officers and directors of the 
Company, and (b) payment on behalf of officers and directors of the Company for 
losses, costs and expenses incurred by them in actions. 

Employee Retirement Plan and Trust

         Under the Company's Employee Retirement Plan and Trust ("ESOP"), 
approved by the Board of Directors on June 2, 1989, effective July 1, 1988, all 
non-union employees of the Company, including the Company's executive officers, 
five of whom, Sol Pinsley, Seymour Saslow, Joseph Canterino, Barry Pinsley and 
Howard Pinsley, are also directors of the Company, are eligible to participate. 
The ESOP is a non-contributory plan which is designed to invest primarily in 
shares of common stock of the Company.  Reference is made to, and there is 
incorporated by reference, the description of the ESOP, its implementation and
pertinent documents attached as exhibits in the Company's Form 8-K dated 
June 16, 1989, filed with the Commission on June 20, 1989,and to the amendments 
thereto filed as an Exhibit to the 10-K Report for the fiscal year ended 
June 30, 1991.  Certain technical amendments not considered material were 
adopted during the year effective as of June 30, 1994.

         Of the 152,451 shares of common stock of the Company allocated to 
participants

<PAGE>
of the ESOP as of June 30, 1997, 2,816.19 shares were allocated to Sol Pinsley, 
4,921.19 shares were allocated to each Joseph Canterino, Herbert Potoker and 
John J. Pompay, Jr., 4,602.21 shares were allocated to Howard Pinsley, 4,620.19 
shares were allocated to Seymour Saslow and 1,499.21 shares were allocated to 
Barry Pinsley.
                                                               
Compensation of Directors  

         The Company's standard arrangement compensates each director of the 
Company a fee in the amount of $500 for each meeting of the Board of Directors 
attended by such director.  No amount in excess of such fee per meeting of the 
Board of Directors was paid to any director during the last fiscal year for 
services as a director.Each member of the Audit Committee is compensated in the 
amount of $500 for each Committee meeting attended.  Michael W. Wool, Paul J. 
Corr and William P. Greene were paid $1,000, $3,170 and $3,600, respectively, 
for additional services in connection with their duties as directors for the 
fiscal year ended June 30, 1997.
                                                               
Employment Contracts and Termination of Employment and Change in Control
Agreements  

         There has been in effect, since July 1, 1973, a full-time employment 
contract with Sol Pinsley, who was President, Chief Executive Officer and a 
director of the Company until August 1, 1996.  The most recent employment 
contract was entered into by the Company with Mr. Pinsley on June 12, 1995 
pursuant to prior authorization given by the Board of Directors on March 24,
1995. This employment contract, which was approved and ratified by the Board of 
Directors on June 17, 1995, is dated and effective as of January 1, 1995 for a 
term expiring December 31, 1998, and covers Mr. Pinsley's employment as 
President (or Chairman of the Board) and Chief Executive Officer and also as a 
non-executive officer employee should Mr. Pinsley elect to become a 
non-executive officer employee.  The agreement provided a minimum base annual
compensation of $182,000 for each calendar year commencing 1995 and the Board of
Directors in its discretion may increase such compensation for any calendar 
year and/or award Mr. Pinsley a bonus for any calendar year.  The foregoing 
compensation is to be reduced by $40,000 per annum in the event Mr. Pinsley 
elects to become a non-executive officer employee.  The employment agreement 
further provides that in the event of his disability the foregoing compensation 
shall continue to be paid to Mr. Pinsley until the expiration date of the
agreement, and, in the event of his death, such compensation shall be paid to 
his estate until the expiration date of the agreement or 187 days after his
death, whichever is later. The agreement provides for (i)a restrictive covenant 
of non-competition by Mr. Pinsley, and (ii) his covenant not to divulge or use, 
other than for the registrant,confidential information concerning the registrant
during and for 18 months after the expiration date of the agreement.

         Effective August 1, 1996, Mr. Pinsley retired from the positions of
President and Chief Executive Officer.  In accordance with the terms of the 
above agreement, Mr. 

<PAGE>

Pinsley has remained as Chairman of the Board and as a non-executive officer of 
the Company at a reduced salary.

         The Company has entered into an employment contract with John J. 
Pompay, Jr. in connection with his duties as Vice President-Marketing and Sales.
The contract is dated and effective as of December 6, 1996 and terminates on 
December 31, 1998.  The contract provides for a minimum base annual salary of
$10,400 plus commissions at the rate of 3% on all payments received by the 
Company against Mr. Pompay's open orders as of the date of the contract and 
those orders booked up to and including December 31, 1996,and 1% on all payments
received against orders booked by the Company between January 1, 1997 and
December 31, 1998. The contract further provides that if Mr. Pompay's employment
is terminated by the Company prior to the expiration date, other than for cause,
he will continue to receive his full salary for one year after the termination
date and the Company will pay him commissions on all orders received during the 
year after termination whenever shipped and paid.  The contract also provides 
for a restrictive covenant of non-competition by Mr. Pompay for a period of two 
years upon termination for cause or termination of the contract by Mr. Pompay. 

Item 12.         Security Ownership of Certain Beneficial Owners and Management.

Security Ownership of Certain Beneficial Owners

         The following information is furnished as of September 19, 1997 (unless
otherwise indicated) with respect to any person (including any "group" as that 
term is used in Section 13(d)(3) of the Act) who is known to the Company to be 
the beneficial owner of more than five percent of any class of the Company's 
voting securities:
<TABLE>
                                                               Amount and
                                                               Nature of
Title of               Name and Address                        Beneficial                     Percent of
 Class                 of Beneficial Owner                     Ownership                             Class        
<S>                <C>                                     <C>                            <C>     
Common Stock           Sol Pinsley                             80,261.00  -Direct             7.4762%
$.33-1/3 p.v.          P.O. Box 422                             2,816.19  -Indirect (1)                  
                       Saratoga Springs,
                       NY  12866
                                                               
   "                   Dimensional Fund                        74,400.00  -Direct   (2)       6.6953%
                       Advisors Inc.
                       1299 Ocean Avenue
                       11th Floor
                       Santa Monica, CA  90401
  
   "                   Franklin Resources, Inc.                 96,300.00  -Direct   (3)      8.6662%

</TABLE>
<PAGE>
                      
                       777 Mariners Island Blvd.
                       P.O. Box 7777
                       San Mateo, CA 94403-7777                   (continued)
                       
<TABLE>
                                                      Amount and
                                                      Nature of
Title of               Name and Address               Beneficial                         Percent of
 Class                 of Beneficial Owner            Ownership                           Class        
<S>                 <S>                           <S>                       
Common Stock           The Adirondack Trust           299,297.00  -Direct   (4)          26.9340%
$.33-1/3 p.v.          Company, as Trustee of
                       the Company's Employee
                       Retirement Plan and Trust
                       473 Broadway
                       Saratoga Springs, 
                       NY  12866
</TABLE>
(1)      Does not include 4,200 shares of common stock of the Company owned by 
         the testamentary trust of the deceased spouse of Sol Pinsley, Ruth 
         Pinsley, beneficial ownership of which is disclaimed by Mr. Pinsley.  
         The shares listed as indirectly owned by Sol Pinsley are the shares 
         allocated to him as of June 30, 1997 as a participant in the Company's 
         ESOP.  Mr. Pinsley has the right under the ESOP to direct the manner in
         which such shares allocated to him are to be voted by the ESOP Trustee.

(2)      The information as to the number of shares of common stock of the 
         Company that may be deemed beneficially owned by Dimensional Fund 
         Advisors Inc.("Dimensional") is from the Schedule 13G dated February 5,
         1997 filed with the Securities and Exchange Commission.  Dimensional, a
         registered investment advisor, is deemed to have beneficial ownership 
         of 74,400 shares of Espey Mfg. & Electronics Corp. stock as of December
         31, 1996, all of which shares are held in portfolios of DFA Investment 
         Dimensions Group, Inc., a registered open-end investment company, or in
         series of the DFA Investment Trust Company, a Delaware business trust, 
         or the DFA Group Trust and DFA Participation Group Trust, investment 
         vehicles for qualified employee benefit plans, all of which Dimensional
         Fund Advisors Inc. serves as investment manager.  Dimensional disclaims
         beneficial ownership of all such shares.  Dimensional reported sole 
         voting power with respect to 49,500 shares. 

(3)      The information as to the number of shares of common stock of the 
         Company that may be deemed beneficially owned by Franklin Resources, 
         Inc. ("Franklin") is from the Schedule 13G, dated February 12, 1997 
         filed with the Securities and Exchange Commission.  The Franklin 
         statement indicated that Franklin's investment advisory subsidiary, 
         Franklin Advisory Services, Inc. ("Franklin

<PAGE>

         Advisory") has sole voting and dispositive power with respect to all of
         the shares of common stock shown in the table above for Franklin.  The 
         Franklin statement indicates that the common stock set forth in the 
         table is beneficially owned by one or more open or closed-end 
         investment companies or other managed accounts which are advised by 
         direct and indirect Franklin investment advisory subsidiaries,including
         Franklin Advisory.  The statement also indicated that it filed the    
         Schedule 13G on behalf of itself, Franklin Advisory, and Franklin's 
         principal shareholders, Charles B. Johnson and Rupert H. Johnson, Jr. 
         (the "Principal Shareholders"), all of which are deemed beneficial 
         owners of the shares of common stock shown in the above table for 
         Franklin.  Franklin, the Principal Shareholders and Franklin Advisory 
         disclaim any economic interest or beneficial ownership in any of the 
         common stock shown in the table for Franklin.

(4)      This information is from the Form 4 dated August 29, 1997, filed with 
         the Securities and Exchange Commission by the Trustee on behalf of the 
         Company's Employee Retirement Plan and Trust ("ESOP"). The ESOP Trustee
         has sole voting power with respect to unallocated common shares owned 
         by the Trust, 147,083 shares as of August 28, 1997, as directed by the 
         Plan Administrator appointed by the Company's Board of Directors. As to
         the common shares allocated to participants,152,214 shares as of August
         28,1997, the ESOP Trustee has the power to vote such shares as directed
         by such Plan Administrator to the extent the participants do not direct
         the manner in which such shares are to be voted.

Security Ownership of Management

        The following information is furnished as of September 19, 1997 (unless 
        otherwise indicated), as to each class of equity securities of the 
        Company beneficially owned by all the Directors and by Directors and 
        Officers of the Company as a Group:
<TABLE>
                                                               Amount and
                                                               Nature of
Title of               Name of                                 Beneficial                 Percent of
 Class                 Beneficial Owner                        Ownership                   Class   
<S>                 <S>                                    <S>                         <S> 
Common Stock
$.33-1/3 p.v.          Paul J. Corr                             500.00    -Direct          .0450%

   "                   William P. Greene                        100.00    -Direct          .0090% 


   "                   Michael W. Wool                          100.00    -Direct          .0090%  

   "                   Sol Pinsley                           80,261.00    -Direct         7.4762% 
                                                              2,816.19    -Indirect (1)(2)               
</TABLE>
                                                                  (continued)   
<PAGE>
<TABLE>
                                                                     

                                                            Amount and
                                                            Nature of
Title of               Name of                              Beneficial                     Percent of
 Class                 Beneficial Owner                     Ownership                       Class   
<S>                 <C>                                   <C>                             <C>              
Common Stock           Seymour Saslow                        301.00    -Direct              .4429%   
$.33-1/3 p.v.                                              4,620.19    -Indirect (2)                  
   
   "                   Joseph Canterino                    7,500.00    -Direct             1.1178%
                                                           4,921.19    -Indirect (2)                  
                                                               
   "                   John J. Pompay, Jr.                 4,921.19    -Indirect (2)        .4429%                     
   "                   Howard Pinsley                     39,134.00    -Direct             3.9359%
                                                           4,602.21    -Indirect (2)                  

   "                   Barry Pinsley                       1,000.00    -Direct              .6029%
                                                           5,699.21    -Indirect (2)(3)(4)            

   "                   Herbert Potoker                     6,490.00    -Direct             1.0270% 
                                                           4,921.19    -Indirect (2)(5)                  

   "                   Garry M. Jones                      2,279.94    -Indirect (2)        .2052%
                                                                   
   "                   Reita Wojtowecz                     1,558.97    -Indirect (2)        .1403%
                                                                   
   "                   Officers and Directors            135,286.00    -Direct            15.4449%
                       as a Group                         36,340.28    -Indirect (6)                  
</TABLE>
_____________

(1)      Excludes 4,200 shares owned by a testamentary trust of Ruth Pinsley,
         the deceased spouse of Sol Pinsley.  Beneficial ownership of the shares
         owned by the trust is disclaimed by Mr. Pinsley. 
                                                               
(2)      Shares allocated to named officer as of June 30, 1997 as a participant 
         in the Company's ESOP.  Each such person has the right to direct the
         manner in which such shares allocated to him or her are to be voted by 
         the ESOP Trustee.

(3)      Excludes 1,300 shares owned by Barry Pinsley's spouse, as to which 
         beneficial ownership is disclaimed by Mr. Pinsley.

(4)      Includes 4,200 shares owned by a testamentary trust of Ruth Pinsley, 
         the deceased

<PAGE>

         spouse of Sol Pinsley. As trustee of the trust, Barry Pinsley is deemed
         the beneficial owner, as defined in Rule 13d-3, of the shares held by 
         the trust.

(5)      Excludes 300 shares owned by Herbert Potoker's spouse, as to which 
         beneficial ownership is disclaimed by Mr. Potoker.

(6)      Shares allocated to all officers as a group as of June 30, 1997 who 
         participate in the Company's ESOP.  Each such person has the right to 
         direct the manner in which such shares allocated to him or her are to 
         be voted by the ESOP Trustee.

         There are no arrangements known to the Company the operation of which 
         may at a subsequent date result in change of control of the Company.
                                                               
Item 13.           Certain Relationships and Related Transactions.

         For the fiscal year ended June 30, 1997, Christopher Canterino, who is 
         a full time employee of the Company and the son of Joseph Canterino, 
         President and Chief Executive Officer of the Company, received 
         compensation as such employee of $84,650.00, as well as an ESOP 
         allocation of Company Stock and dividends thereon totaling $10,626.00.
                                                               
         As previously reported, the Company established and sold to the ESOP 
         Trust on June 5, 1989, 331,224 shares of the Company's treasury stock 
         at a price of $26.50 per share, which purchase price was funded by the 
         Company making a cash contribution and loan.  Each year, the Company 
         makes contributions to the ESOP which are used to make loan interest 
         and principal payments to the Company.  With each such payment, a
         portion of the common stock held by the ESOP is allocated to 
         participating employees. As of June 30, 1997, there were 152,451 shares
         allocated to participants.  The loan from the Company to the ESOP is 
         repayable in annual installments of $1,039,605, including interest,
         through June 30, 2004.  Officers of the Company, including five (Sol 
         Pinsley, Seymour Saslow, Joseph Canterino, Howard Pinsley and Barry 
         Pinsley)who are also directors, are eligible to participate in the ESOP
         and to have shares and cash allocated to their accounts and distributed
         to them in accordance with the terms of the ESOP.

         The Company paid the law firm of Langrock, Sperry & Wool, of which 
         Michael W. Wool, a director of the Company, is a partner, a total of 
         $42,000 for legal services during the fiscal year ended June 30, 1997.
         The Company believes the services provided to it by Langrock, Sperry & 
         Wool were provided to it at a cost comparable to that which the Company
         would have been required to pay for comparable services from an
         unaffiliated third party.
                                                               
<PAGE>


                                                            PART IV

Item 14.     Exhibits, Financial Statement Schedules, and Reports on Form 8-K

 (a)  1.     Financial Statements

             Included in Part II of this report:
 
                        Independent Auditors' Report
              
                        Balance Sheets at June 30, 1997 and 1996

                        Statements of Earnings for the years ended June 30, 
                        1997, 1996 and  1995

                        Statements of Changes in Stockholders' Equity for the 
                        years ended June 30, 1997, 1996 and 1995

                        Statements of Cash Flows for the years ended June 30,
                        1997, 1996 and 1995
 
                        Notes to Financial Statements

     2.       Financial Statement Schedules

              Included in Part IV of this report:                           Page

                        Schedule II - Valuation and Qualifying Accounts      46

              Other schedules are omitted because of the absence of 
              conditions under which they are required or because the 
              required information is given in the financial statements 
              or notes thereto.

     3.       Exhibits                     
                                                                            Page

              10.1      Employment Agreement dated December 6, 1996          48 
                        between John J. Pompay, Jr. and Espey Mfg. & 
                        Electronics Corp.                                     
              11.1      Statement re: Computation of Per Share Earnings      50

     
              27        Financial Data Schedule (for electronic filing      N/A
                        purposes only)
                                                               
<PAGE>

(b)           Reports on Form 8-K  

              No reports on Form 8-K were filed during the quarter ended June 
              30, 1997.
                                                               
                                                     S I G N A T U R E S 


     Pursuant to the requirements of Section 13 and 15(d) 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/ Joseph Canterino          
                                                 Joseph Canterino, President and
                                                     Chief Executive Officer


     Pursuant to the requirements of the Securities Exchange Act of 1934, this 
     report is signed below by the following persons on behalf of the Registrant
     and in the capacities and on the dates indicated.
     
                                           President
                                           (Principal Executive Officer)
/s/ Joseph Canterino                       September 29, 1997
Joseph Canterino


                                           Treasurer (Principal Financial
                                           Officer)
/s/ Herbert Potoker                        September 29, 1997
Herbert Potoker

     
                                           Assistant Treasurer
                                           (Principal Accounting Officer)
/s/ Garry M. Jones                         September 29, 1997
Garry M. Jones

                                                                             
                                           Vice President and Director
/s/ Howard Pinsley                         September 29, 1997
Howard Pinsley                    


                                           (signatures continued)

<PAGE>

                                           Vice President and Director
/s/ Barry Pinsley                          September 29, 1997
Barry Pinsley                     

                                           Chairman of the Board and Director
/s/ Sol Pinsley                            September 29, 1997
Sol Pinsley                                

                                           Vice President and Director
/s/ Seymour Saslow                         September 29, 1997
Seymour Saslow

                                           Director
/s/ Michael W. Wool                        September 29, 1997
Michael W. Wool                            

                                           Director
/s/ Paul J. Corr                           September 29, 1997
Paul J. Corr                               

                                           Director
/s/ William P.Greene                       September 29, 1997
William P. Greene                          

<PAGE>

<TABLE>
<CAPTION>

                                                          SCHEDULE II

                                            ESPEY MFG. & ELECTRONICS CORP.

                                          Valuation and Qualifying Accounts

                                      Years ended June 30, 1997, 1996 and 1995



                             Balance at    Additions     Deductions   Balance at
                             beginning     to            from         end of
     Description             of period     reserve       reserve      period
<S>                          <C>          <C>           <C>          <C>         
     Allowance for 
     doubtful accounts:

     1997                    $   3,000       -              -          3,000
     
     1996                    $   3,000       -              -          3,000

     1995                    $   3,000       -              -          3,000
</TABLE>
<PAGE>

                                       EXHIBIT INDEX                      
     
Exhibit No.                                                              Page

     10.1     Employment Agreement dated December 6, 1996                 48 
              between John J. Pompay, Jr. and Espey Mfg. & 
              Electronics Corp.                                         

     11.1     Statement re: Computation of Per Share Earnings             50   

     27       Financial Data Schedule (for electronic filing              N/A 
                        purposes only)                                         

<PAGE>


                                    EXHIBIT 10.1

     The following is an agreement between John J. Pompay, Jr. and Espey Mfg. &
Electronics Corp. (the company).

     This agreement supersedes and replaces all previous understandings.

     We will pay you a salary of $200.00 a week.

     Your job title and duties will be Vice President-Sales.  As such you will 
     have the responsibilities and authority to create an outside sales force of
     representatives as needed.  You shall establish the terms of remuneration 
     to these representatives, subject to the prior approval of the President.  
     You shall also have the authority to establish an internal contracts
     department to support your responsibilities. You will receive a commission 
     at 3% on all payments received by Espey against your current open written 
     orders and those written orders booked by you thru 12/31/96.

     You will receive a commission at 1% on all payments received against
     written orders  booked by the Company between 12/31/96 and 12/31/98.  
     The 1% commission shall be in lieu of the prior 3% commission.

     Expenses incurred by you in the performance of your duties will be 
     reimbursed by our company.  These expenses must fall under the ethics 
     guidelines of the U.S. Government.

     In the event you voluntarily terminate your employment with the Company, or
     we terminate you for cause other than as set forth in the following 
     paragraph, we will pay you commissions, at the rate then prevailing as 
     provided herein, on your written orders in the house at the time of such 
     termination, when such orders are shipped and paid. Your salary will cease 
     upon leaving our employ.

     In the event you voluntarily leave our employ or are terminated for cause, 
     for a period of two years from the date of termination you will not, 
     directly or indirectly, compete with Espey or accept employment or 
     independent contractor status or participate as an owner or otherwise with 
     any competitor of Espey.  If you do, Espey's obligation to make any 
     payments under this agreement will terminate.

     In the event we terminate your employment, for other than cause, we will 
     pay you commissions, at the rate then prevailing on all your orders then in
     the house.  We will continue to pay your salary for one year and we will 
     pay you commissions at the agreed rates on all orders received during the 
     year after termination whenever shipped and paid.

     The same terms as the paragraph above will apply if you die or become 
     permanently disabled.  This agreement shall terminate on 12/31/98.

<PAGE>

     Commission, when payable pursuant to this agreement, shall be based on our 
     net billing price; that is, our billing price less freight, discount, 
     Federal or State taxes. Commissions are payable only when shipment has 
     actually been made and full payment received by our company.  Payment of
     commissions will be made to you, in the month following receipt of full 
     payment from our customer.  Our company will, between the 10th and 20th of 
     each month, forward to you a statement of each account and each amount 
     collected for the previous month and, at the same time, a check will be 
     delivered to you for the amount of commissions to which you are entitled.

     It may be or become necessary that our company issue credits to customers 
     on invoices which have been paid.  Such credits are issuable at the sole 
     discretion of our company and when such credits are issued you agree that 
     your commission account will be charged back for any commissions previously
     paid to you based on paid invoices. Such charge-backs for commissions will 
     be shown on the statement of account forwarded to you.

     We agree to furnish you with data on all orders accepted as above outlined 
     and data on all invoices in connection with shipments on all such orders.

     This agreement shall be strictly personal to and with you, and it is 
     specifically understood that you shall not sell, assign or encumber the 
     same or in any way sell, assign or encumber any monies due to you unless 
     you have the prior written approval of our company, which approval must be 
     signed by the President of our company.  You will work exclusively for our 
     company.

     This agreement may not be modified orally.  It may be modified only in 
     writing, signed by you on your behalf and by the President of our company. 
     This understanding shall be governed by and interpreted under the Laws of 
     the State of New York.

     If the above is acceptable to you,please sign a copy at the place indicated
     below for your signature.

                                           Very truly yours,

Dated:  December 6, 1996                   ESPEY MFG. & ELECTRONICS CORP.

ACCEPTED:                                  By: /s/ Joseph Canterino, President 
                                                JOSEPH CANTERINO, PRESIDENT
/s/ John J. Pompay, Jr.
JOHN J. POMPAY, JR.
                                           
<PAGE>
[CAPTION]


                                                       EXHIBIT 11.1

                                              ESPEY MFG. & ELECTRONICS CORP.

                                           Computation of per Share Earnings as
                                             Disclosed in Item 14 of Form 10-K

                                              Five years ended June 30, 1997
<TABLE>

                                  1997               1996               1995              1994             1993
<S>                            <C>                <C>                <C>               <C>               <C>     
Computation of earnings per
  share:
     Number of shares
     issued at
     beginning of year          1,514,937          1,514,937          1,514,937         1,514,937        1,514,937
          
     Monthly weighted             
     average number of
     treasury shares            (402,863)           (245,470)         (168,180)          (164,229)       (159,897)
                    
     Weighted average
     number of primary
     shares outstanding         1,112,074           1,269,467          1,346,757        1,350,708        1,355,040

     Net earnings              $  563,128             522,737           491,767         1,343,877        1,594,290
                    
     Per share                 $      .51                 .41                 .37            1.00             1.18


<PAGE>






                                                                         

</TABLE>