QUARTERLY Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company:

At May 11, ~~2016,~~2017, there were ~~2,364,684~~2,371,321 shares outstanding of the registrant's Common stock, $.33-1/3 par value.

ESPEY MFG. & ELECTRONICS CORP.

Quarterly Report on Form 10-Q

I N D E X

PART I	FINANCIAL INFORMATION		PAGE

	Item 1	Financial Statements:

		Balance Sheets - March 31, ~~2016~~2017 (Unaudited) and June 30, ~~2015~~2016		1

		Statements of Comprehensive Income (Unaudited) ~~- Three~~-Three and Nine Months Ended March 31, ~~2016~~2017 and ~~2015~~2016		2

		Statements of Cash Flows (Unaudited) ~~- Nine~~-Nine Months Ended March 31, ~~2016~~2017 and ~~2015~~2016		3

		Notes to Financial Statements (Unaudited)		4

	Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations		9

	Item 3	Quantitative and Qualitative Disclosures ~~about~~About Market Risk		1214

	Item 4	Controls and Procedures		1214


PART II	OTHER INFORMATION			15

	Item 1	Legal Proceedings		1315

	Item 2	Unregistered Sales of Equity Securities		1315

	Item 3	Defaults upon Senior Securities		1315

	Item 4	Mine Safety Disclosures		1315

	Item 5	Other Information		1315

	Item 6	Exhibits		1315

	SIGNATURES			1416

Index

PART I: FINANCIAL INFORMATION

ESPEY MFG. & ELECTRONICS CORP.

Balance Sheets

March 31, ~~2016~~2017 (Unaudited) and June 30, ~~2015~~2016

	March 31, 2016			June 30, 2015			March 31, 2017			June 30, 2016
ASSETS:
Cash and cash equivalents	$	9,547,801		$	8,859,405		$	9,386,048		$	10,031,644
Investment securities		5,393,116			4,159,057			9,210,421			5,580,059
Trade accounts receivable, net of allowance of $3,000		4,852,417			6,694,401			3,374,256			4,957,464
Income taxes receivable		172,459			—
Income tax receivable								230,753			329,298

Inventories:
Raw materials		1,369,959			1,481,792			1,361,409			1,418,862
Work-in-process		638,271			561,682			643,703			504,674
Costs relating to contracts in process, net of advance
payments of $18,313 at March 31, 2016 and
$19,626 at June 30, 2015		9,392,537			9,542,423
Costs related to contracts in process, net of advance
payments of $16,692 and $18,313 at March 31, 2017
and June 30, 2016, respectively								6,837,320			8,810,145
Total inventories		11,400,767			11,585,897			8,842,432			10,733,681
Deferred income taxes		214,534			334,681
Deferred tax assets								201,944			252,558
Prepaid expenses and other current assets		260,765			211,940			343,446			219,688
Total current assets		31,841,859			31,845,381			31,589,300			32,104,392

Property, plant and equipment, net		2,314,311			2,498,863			2,356,502			2,348,525
Total assets	$	34,156,170		$	34,344,244		$	33,945,802		$	34,452,917

LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable	$	672,517		$	976,112		$	635,502		$	552,787
Accrued expenses:
Salaries and wages		306,277			332,387			98,963			357,910
Vacation		733,106			690,833			721,635			704,761
ESOP payable		254,865			—			274,585			—
Dividend payable		—			590,672
Other		301,779			548,817			156,611			196,631
Payroll and other taxes withheld		50,855			47,082			46,822			49,353
Income taxes payable		—			2,716
Total current liabilities		2,319,399			3,188,619			1,934,118			1,861,442
Deferred tax liability		157,444			224,751
Deferred tax liabilities								201,959			203,237
Total liabilities		2,476,843			3,413,370			2,136,077			2,064,679
Commitments and contingencies (see Note 5)
Common stock, par value $.33-1/3 per share.
Common stock, par value $.33-1/3 per share
Authorized 10,000,000 shares; Issued 3,029,874 shares
on March 31, 2016 and June 30, 2015. Outstanding
2,361,084 and 2,362,687 on March 31, 2016 and
June 30, 2015, respectively (includes 66,042 and
79,167 Unearned ESOP shares, respectively)		1,009,958			1,009,958
as of March 31, 2017 and June 30, 2016. Outstanding
2,371,321 and 2,364,684 as of March 31, 2017
and June 30, 2016, respectively (includes 49,167
and 61,667 Unearned ESOP shares, respectively)								1,009,958			1,009,958
Capital in excess of par value		17,003,266			16,785,604			17,437,877			17,253,072
Accumulated other comprehensive income (loss)		845			(4,386	)
Accumulated other comprehensive loss								(2,911	)		(1,408	)
Retained earnings		22,642,154			21,865,951			22,034,983			22,820,938
		40,656,223			39,657,127			40,479,907			41,082,560
Less: Unearned ESOP shares		(1,143,957	)		(1,143,957	)		(891,083	)		(891,083	)
Treasury shares, cost of 668,790 and 667,187 shares on
March 31, 2016 and June 30, 2015, respectively		(7,832,939	)		(7,582,296	)
Cost of 658,553 and 665,190 shares of common stock
in treasury as of March 31, 2017 and
June 30, 2016, respectively								(7,779,099	)		(7,803,239	)
Total stockholders’ equity		31,679,327			30,930,874			31,809,725			32,388,238
Total liabilities and stockholders' equity	$	34,156,170		$	34,344,244		$	33,945,802		$	34,452,917

~~See~~The accompanying notes toare an integral part of the financial statements.

Index

ESPEY MFG. & ELECTRONICS CORP.

Statements of Comprehensive Income (Unaudited)

Three and Nine Months Ended March 31, ~~2016~~2017 and ~~2015~~2016

Three Months Ended Nine Months Ended
March 31, March 31,
2016 2015 2016 2015

Net sales $ 7,217,922 $ 6,470,286 $ 20,739,378 $ 17,860,841
Cost of sales 5,069,699 5,032,752 15,034,792 12,354,493
     Gross profit 2,148,223 1,437,534 5,704,586 5,506,348

Selling, general and administrative expenses 781,248 765,900 2,285,856 1,997,279
     Operating income 1,366,975 671,634 3,418,730 3,509,069

Other income
     Interest income 4,240 9,362 22,303 26,416
     Other 12,712 5,024 57,263 25,618
     Total other income 16,952 14,386 79,566 52,034

Income before income taxes 1,383,927 686,020 3,498,296 3,561,103

Provision for income taxes 411,459 179,651 1,032,871 924,431

     Net income $ 972,468 $ 506,369 $ 2,465,425 $ 2,636,672

Other comprehensive income, net of tax:
     Unrealized gain (loss) on investment securities 4,357 (259 ) 5,231 (1,672 )

     Total comprehensive income $ 976,825 $ 506,110 $ 2,470,656 $ 2,635,000

Net income per share:

     Basic $ 0.43 $ 0.22 $ 1.08 $ 1.16
     Diluted $ 0.43 $ 0.22 $ 1.08 $ 1.15

Weighted average number of shares outstanding:

     Basic 2,259,529 2,271,105 2,273,401 2,269,157
     Diluted 2,274,781 2,297,071 2,290,927 2,286,312

Dividends per share: $ 0.25 $ 0.25 $ 0.75 $ 0.75

	Three Months Ended					Nine Months Ended
	March 31,					March 31,
	2017			2016		2017			2016

Net sales	$	5,324,104		$	7,217,922	$	17,060,411		$	20,739,378
Cost of sales		4,195,599			5,069,699		13,508,014			15,034,792
Gross profit		1,128,505			2,148,223		3,552,397			5,704,586

Selling, general and administrative expenses		784,589			781,248		2,307,636			2,285,856
Operating income		343,916			1,366,975		1,244,761			3,418,730

Other income
Interest income		39,911			4,240		63,385			22,303
Other		7,488			12,712		21,691			57,263
Total other income		47,399			16,952		85,076			79,566

Income before provision for income taxes		391,315			1,383,927		1,329,837			3,498,296

Provision for income taxes		112,142			411,459		385,761			1,032,871

Net income	$	279,173		$	972,468	$	944,076		$	2,465,425

Other comprehensive income, net of tax:
Unrealized (loss) gain on investment securities		(247	)		4,357		(1,503	)		5,231

Total comprehensive income	$	278,926		$	976,825	$	942,573		$	2,470,656


Net income per share:

Basic	$	0.12		$	0.43	$	0.41		$	1.08
Diluted	$	0.12		$	0.43	$	0.41		$	1.08

Weighted average number of shares outstanding:

Basic		2,317,838			2,259,529		2,309,771			2,273,401
Diluted		2,327,797			2,274,781		2,323,431			2,290,927

Dividends per share:	$	0.25		$	0.25	$	0.75		$	0.75

~~See~~The accompanying notes toare an integral part of the financial statements.

Index

ESPEY MFG. & ELECTRONICS CORP.

Statements of Cash Flows (Unaudited)

Nine Months Ended March 31, ~~2016~~2017 and ~~2015~~2016

	March 31, 2016			March 31, 2015			March 31, 2017			March 31, 2016
Cash Flows from Operating Activities:
Net income	$	2,465,425		$	2,636,672		$	944,076		$	2,465,425

Adjustments to reconcile net income to net cash
provided by operating activities:
Excess tax benefits from share-based compensation		(15,021	)		(26,835	)		(9,070	)		(15,021	)
Stock-based compensation		74,533			42,051			93,293			74,533
Depreciation		324,745			336,403			323,710			324,745
ESOP compensation expense		334,031			333,389			320,835			334,031
Loss on disposal of assets		147			233			—			147
Deferred income tax expense		55,656			63,715			50,146			55,656
Changes in assets and liabilities:
Decrease (increase) in trade receivable, net		1,841,984			(984,778	)
(Increase) decrease in income taxes receivable		(172,459	)		774,880
Decrease (increase) in inventories, net		185,130			(2,172,380	)
Decrease in trade receivable, net								1,583,208			1,841,984
Decrease (increase) income taxes receivable								107,615			(172,459	)
Decrease in inventories, net								1,891,249			185,130
Increase in prepaid expenses and other current assets		(48,825	)		(67,950	)		(123,758	)		(48,825	)
(Decrease) increase in accounts payable		(303,595	)		959,648
Increase (decrease) in accounts payable								82,715			(303,595	)
Decrease in accrued salaries and wages		(26,110	)		(104,707	)		(258,947	)		(26,110	)
Increase (decrease) in vacation accrual		42,273			(48,633	)
Increase in vacation accrual								16,874			42,273
Decrease in ESOP payable		(79,166	)		(73,125	)		(46,250	)		(79,166	)
Decrease in other accrued expenses		(247,038	)		(437,007	)		(40,020	)		(247,038	)
Increase (decrease) in payroll and other taxes withheld		3,773			(1,010	)
(Decrease) increase in payroll and other taxes withheld								(2,531	)		3,773
Increase in income taxes payable		12,305			26,835			—			12,305
Net cash provided by operating activities		4,447,788			1,257,401			4,933,145			4,447,788

Cash Flows from Investing Activities:
Additions to property, plant and equipment		(140,340	)		(162,822	)		(331,686	)		(140,340	)
Purchase of investment securities		(3,575,584	)		(2,599,572	)		(7,606,900	)		(3,575,584	)
Proceeds from sale/maturity of investment securities		2,343,942			3,262,397			3,974,224			2,343,942
Net cash (used in) provided by investing activities		(1,371,982	)		500,003
Net cash used in investing activities								(3,964,362	)		(1,371,982	)

Cash Flows from Financing Activities:
Dividends on common stock		(2,279,895	)		(1,698,306	)		(1,730,031	)		(2,279,895	)
Purchase of treasury stock		(355,418	)		(320,504	)		(44,335	)		(355,418	)
Proceeds from exercise of stock options		232,882			115,556			150,917			232,882
Excess tax benefits from share-based compensation		15,021			26,835			9,070			15,021
Net cash used in financing activities		(2,387,410	)		(1,876,419	)		(1,614,379	)		(2,387,410	)

Increase in cash and cash equivalents		688,396			(119,015	)
(Decrease) increase in cash and cash equivalents								(645,596	)		688,396
Cash and cash equivalents, beginning of period		8,859,405			9,556,891			10,031,644			8,859,405
Cash and cash equivalents, end of period	$	9,547,801		$	9,437,876		$	9,386,048		$	9,547,801

Supplemental Schedule of Cash Flow Information:
Income taxes paid	$	1,143,000		$	59,000		$	228,000		$	1,143,000

~~See~~The accompanying notes toare an integral part of the financial statements.

Index

ESPEY MFG. & ELECTRONICS CORP.

Notes to Financial Statements (Unaudited)

Note 1. Basis of Presentation

In the opinion of management the accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the results for such periods. The results for any interim period are not necessarily indicative of the results to be expected for the full fiscal year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles have been condensed or omitted. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, inventories, income taxes, and stock-based compensation. Management bases its estimates on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. These financial statements should be read in conjunction with the Company's most recent audited financial statements included in its report on Form 10-K for the year ended June 30, ~~2015.~~2016. Certain reclassifications may have been made to the prior year financial statements to conform to the current year presentation.

Note 2. Investment Securities and Fair Value of Financial ~~Instruments and~~ Investments

ASC 820 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The carrying amounts of financial instruments, including cash and cash equivalents, short term ~~investments,~~investment securities, accounts receivable, accounts payable and accrued expenses, approximated fair value as of March 31, ~~2016~~2017 and June 30, ~~2015,~~2016 because of the immediate or short-term maturity of these financial instruments.

Investment securities at March 31, ~~2016~~2017 and June 30, ~~2015,~~2016 consist of certificates of deposit and municipal bonds which are classified as available-for-sale securities and have been determined to be level 1 assets. The cost, gross unrealized gains, gross unrealized losses and fair value of available-for-sale securities by major security type at March 31, ~~2016~~2017 and June 30, ~~2015,~~2016 are as follows:

			Gross		Gross							Gross		Gross
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
March 31, 2016
March 31, 2017
Certificates of deposit	$	4,663,000	$	—	$	—		$	4,663,000	$	8,901,000	$	—	$	—		$	8,901,000
Municipal bonds		728,816		1,300		—			730,116		310,268		53		(900	)		309,421
Total investment securities	$	5,391,816	$	1,300	$	—		$	5,393,116	$	9,211,268	$	53	$	(900	)	$	9,210,421

June 30, 2015
June 30, 2016
Certificates of deposit	$	3,272,000	$	—	$	—		$	3,272,000	$	4,871,000	$	—	$	—		$	4,871,000
Municipal bonds		893,804		1,288		(8,035	)		887,057		707,593		1,466		—			709,059
Total investment securities	$	4,165,804	$	1,288	$	(8,035	)	$	4,159,057	$	5,578,593	$	1,466	$	—		$	5,580,059

The portfolio is diversified and highly liquid and primarily consists of investment grade fixed income instruments. At March 31, ~~2016,~~2017, the Company did not have any investments in individual securities that have been in a continuous loss position considered to be other than temporary.

Index

As of March 31, ~~2016~~2017 and June 30, ~~2015,~~2016, the contractual maturities of available-for-sale securities were as follows:

	Years to Maturity						Years to Maturity
	Less than		One to				Less than		One to
	One Year		Five Years		Total		One Year		Five Years		Total
March 31, 2016
March 31, 2017
Available-for-sale	$	5,043,116	$	350,000	$	5,393,116	$	8,846,312	$	364,109	$	9,210,421

June 30, 2015
June 30, 2016
Available-for-sale	$	3,522,728	$	636,329	$	4,159,057	$	4,811,511	$	768,548	$	5,580,059

Note 3. Net Income per Share

Basic net income per share excludes dilution and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the income of the Company. The computation of weighted-average common shares outstanding, assuming dilution, excluded options to purchase ~~92,400~~152,150 and ~~25,250~~92,400 shares of our common stock for the three and nine months ended March 31, ~~2016~~2017 and ~~March 31, 2015,~~2016, respectively, as the effect of including them would be anti-dilutive. As Unearned ESOP shares are released or committed-to-be-released the shares become outstanding for earnings-per-share computations.

Note 4. Stock Based Compensation

The Company follows ASC 718 in establishing standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, as well as transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. ASC 718 requires that the cost resulting from all share-based payment transactions be recognized in the financial statements based on the fair value of the share-based payment. ASC 718 establishes fair value as the measurement objective in accounting for share-based payment transactions with employees, except for equity instruments held by employee share ownership plans.

Total stock-based compensation expense recognized in the statements of comprehensive income for the three-month ~~period~~periods ended March 31, 2017 and 2016 was $40,245 and ~~2015, was~~ $22,284, ~~and $15,993,~~ respectively, before income taxes. The related total deferred tax ~~benefit was~~benefits were approximately ~~$1,765~~$3,769 and ~~$1,371~~$1,765 for the same periods. Total stock-based compensation expense recognized in the statements of comprehensive income for the nine-month ~~period~~periods ended March 31, 2017 and 2016, was $93,293 and ~~2015, was~~ $74,533, ~~and $42,051, respectively, before income taxes.~~respectively. The related total deferred tax benefit was approximately ~~$6,206~~$7,893 and ~~$4,113~~$6,206 for the same periods. ASC 718 requires the tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options to be classified and reported as both an operating cash outflow and a financing cash inflow.

As of March 31, ~~2016,~~2017, there was approximately ~~$103,223~~$153,700 of unrecognized compensation cost related to stock option awards that is expected to be recognized as expense over the next 21.75 years. The total deferred tax benefit related to these awards is expected to be approximately ~~$8,530.~~$14,184.

The Company has one employee stock option plan under which options may be granted, the 2007 Stock Option and Restricted Stock Plan (the "2007 Plan"). approved by the Company’s shareholders at the Company’s Annual Meeting on November 30, 2007. The Board of Directors may grant options to acquire shares of common stock to ~~Directors and~~ employees of the Company at the fair market value of the common stock on the date of grant. Generally, options granted have a two-year vesting period based on two years of continuous service and have a ten-year contractual life. Option grants provide for accelerated vesting if there is a change in control. Shares issued upon the exercise of options are from those held in Treasury. ~~The 2007 Plan was approved by the Company's shareholders at the Company's Annual Meeting on November 30, 2007 and supersedes the Company's 2000 Stock Option Plan (the "2000 Plan").~~ Options covering 400,000 shares ~~were~~are authorized for issuance under the 2007 Plan, of which ~~235,650~~278,300 have been granted and ~~162,250~~199,650 are outstanding as of March 31, ~~2016. While no further grants of options may be made under the 2000 Plan, as of March 31, 2016, 10,800 options remain outstanding, vested and exercisable from the 2000 Plan.~~2017.

ASC 718 requires the use of a valuation model to calculate the fair value of stock-based awards. The Company has elected to use the Black-Scholes option valuation model, which incorporates various assumptions including those for volatility, expected life and interest rates.

Index

The table below outlines the weighted average assumptions that the Company used to calculate the fair value of the option award for the nine months ended March 31, 2017 and 2016, ~~and 2015.~~respectively.

	March 31, 2016		March 31, 2015		March 31, 2017		March 31, 2016
Dividend yield		3.85%		3.77%		3.85%		3.85%
Expected stock price volatility		28.09%		29.11%		29.70%		28.09%
Risk-free interest rate		1.33%		0.99%		1.84%		1.33%
Expected option life (in years)		4.1 yrs		4.0 yrs		4.6 yrs		4.1 yrs
Weighted average fair value per share of options granted during the period	$	4.149	$	4.296
Weighted average fair value per share					$	4.640	$	4.149
of options granted during the period

The Company ~~pays~~declares dividends quarterly and paid cash dividends totaling $0.75 ~~per share~~ for the nine months ended March 31, ~~2016~~2017 and ~~2015.~~2016. Our Board of Directors assesses the Company’s dividend policy periodically. There is no assurance that the Board of Directors will ~~either~~ maintain the amount of the regular cash ~~dividend or declare a special dividend during any future years.~~dividend. Expected stock price volatility is based on the historical volatility of the Company’s stock. The risk-free interest rate is based on the implied yield available on U.S. Treasury issues with an equivalent term approximating the expected life of the options. The expected option life (in years) represents the estimated period of time until exercise and is based on actual historical experience.

The following table summarizes stock option activity during the nine months ended March 31, ~~2016:~~2017:

Employee Stock Options Plan
Weighted
Number of Weighted Average
Shares Average Remaining Aggregate
Subject Exercise Contractual Intrinsic
To Option Price Term Value
Balance at July 1, 2015 187,500 $ 23.38 6.26
Granted 1,500 $ 26.03 9.82
Exercised (12,700 ) $ 18.34 —
Forfeited or expired (3,250 ) $ 25.99 —
Outstanding at March 31, 2016 173,050 $ 23.72 5.83 $ 311,241
Vested or expected to vest at March 31, 2016 166,673 $ 23.62 5.70 $ 311,241
Exercisable at March 31, 2016 128,750 $ 22.87 4.69 $ 311,241

	Employee Stock Options Plan
						Weighted
	Number of			Weighted		Average
	Shares			Average		Remaining		Aggregate
	Subject			Exercise		Contractual		Intrinsic
	To Options			Price		Term		Value
Balance at July 1, 2016		170,450		$	23.84		5.73
Granted		41,150		$	26.25		9.68
Exercised		(8,300	)	$	18.18		—
Forfeited or expired		(3,650	)	$	23.12		—
Outstanding at March 31, 2017		199,650		$	24.59		6.13	$	151,064
Vested or expected to vest at March 31, 2017		188,853		$	24.50		5.96	$	151,064
Exercisable at March 31, 2017		124,950		$	23.66		4.39	$	151,064

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the closing sale price of the Company’s common stock as reported on the NYSE MKT on March 31, ~~2016,~~2017 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders if all option holders had exercised their options on March 31, ~~2016.~~2017. This amount changes based on the fair market value of the Company’s common stock. The total intrinsic values of the options exercised during the nine months ended March 31, 2017 and 2016 were $20,769 and ~~2015, was~~ $36,374, ~~and $53,242,~~ respectively.

The following table summarizes changes in non-vested stock options during the nine months ended March 31, ~~2016:~~2017:

	Weighted Number			Average Grant		Weighted Number			Average Grant
	of Shares			Date Fair		of Shares			Date Fair
	Subject to Option			Value (per Option)		Subject to Option			Value (per Option)
Non-Vested at July 1, 2015		69,300		$	4.310
Non-vested at July 1, 2016							45,800		$	4.564
Granted		1,500		$	4.149		41,150		$	4.640
Vested		(25,250	)	$	3.777		(10,000	)	$	4.296
Forfeited or expired		(1,250	)	$	4.710		(2,250	)	$	4.694
Non-Vested at March 31, 2016		44,300		$	4.598
Non-vested at March 31, 2017							74,700		$	4.638

Note 5. Commitments and Contingencies

The Company at certain times enters into standby letters of credit agreements with financial institutions primarily relating to the guarantee of future performance on certain contracts. Contingent liabilities on outstanding standby letters of credit agreements aggregated to zero at March 31, ~~2016~~2017 and ~~2015.~~June 30, 2016. The Company, as a U.S. Government contractor, is subject to audits, reviews, and investigations by the U.S. ~~government~~Government related to its negotiation and performance of government contracts and its accounting for such contracts. Failure to comply with applicable U.S. Government standards by a contractor may result in suspension from eligibility for award of any new government contract and a guilty plea or conviction may result in debarment from eligibility for awards. The government may, in certain cases, also terminate existing contracts, recover damages, and impose other sanctions and penalties.

~~Index~~

Note 6. Recently Issued Accounting Standards

In ~~May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,~~” which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). Early adoption is permitted for annual periods beginning after December 15, 2016, and interim periods therein. We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our financial statements and have not yet determined the method by which we will adopt the standard in fiscal 2019.

In July 2015, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued ~~ASU~~Accounting Standards Update (“ASU”) No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of ~~Inventory”.~~Inventory.” ASU No. 2015-11 requires inventory measured using any method other than last-in, first out or the retail inventory method to be subsequently measured at the lower of cost and net realizable value, rather than at the lower of cost or market. Net realizable value is defined as the estimated selling price, less the estimated costs to complete, dispose, and transport such inventory. ASU No. 2015-11 will be effective for fiscal years and interim periods beginning after December 15, 2016. ASU No. 2015-11 is required to be applied prospectively and early adoption is permitted. The Company’s adoption of ASU No. 2015-11 is not expected to have a material impact on the Company’s financial position or results of operations.

Index

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,”which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU No. 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU No. 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP.

In subsequent periods, the FASB issued additional ASUs intended to clarify specific aspects related to the interpretation and implementation of ASU No. 2014-09. In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers – Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” to provide guidance on principal versus agent considerations by an entity as discussed in ASU No. 2014-09. ASU No. 2016-08 provides criteria to be assessed by an entity when determining whether it is the principal or agent in relation to the goods or services which the Company is contractually obligated to provide to the customer. Among these considerations are; identifying the unit of account at which the entity should assess whether it is a principal or an agent, identifying the nature of the good or service provided to the customer; applying the control principle to certain types of transactions; and, interaction of the control principle with the indicators provided to assist in the principle versus agent evaluation. In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers – (Topic 606): Identifying Performance Obligations and Licensing” to provide implementation guidance related to the necessary judgements required in identifying performance obligations of a contract and guidance related to recognition of licensing revenues. In May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers – (Topic 606): Narrow-Scope Improvements and Practical Expedients” to provide guidance related to the implementation of ASU No. 2014-09 in the following areas; assessing collectability for contracts that do not meet Step 1 of revenue recognition, presentation of sales taxes, noncash consideration, contract modifications at transition, and completed contracts at transition.

These standards are effective for annual periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU No. 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). Early adoption is permitted for annual periods beginning after December 15, 2016 and interim periods therein. We are currently evaluating the impact of our pending adoption of ASU No. 2014-09 on our financial statements and have not yet determined the method by which we will adopt the standard in fiscal 2019 beginning July 1, 2018.

In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes”. The guidance requires the classification of deferred tax assets and liabilities as ~~non-current~~noncurrent in a classified balance sheet. The current requirement that deferred tax assets and liabilities of a ~~tax-paying~~taxpaying component of an entity be offset and presented as a single amount is not affected by this update. ASU No. 2015-17 will be effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. ASU No. 2015-17 may be applied prospectively or retrospectively, and early adoption is permitted. Adoption of ASU No. 2015-17 would have the following impact on the Company’s financial statements at March 31, ~~2016;~~2017: a decrease in current assets ~~of $214,534,~~and a decrease in ~~non-current~~noncurrent liabilities of ~~$157,444 and an increase~~$201,944, resulting in ~~non-current assets~~a net noncurrent liability of ~~$57,090.~~

$15.

In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”. The amendments in this Update address certain aspects of recognition, measurement, presentation and disclosure of financial instruments (primarily equity securities) in order to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. ASU No. 2016-01 will be effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. The Company is evaluating the impact that ASU No. 2016-01 will have on the Company's financial statements.

In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers – Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”. ASU 2016-08 provides guidance on principal versus agent considerations by an entity as discussed in ASU 2014-09, issued May 2014. ASU 2016-08 provides criteria to be assessed by an entity when determining whether it is the principal or agent in relation to the goods or services which the company is contractually obligated to provide to the customer. Among these considerations are; Identifying the unit of account at which the entity should assess whether it is a principal or an agent, Identifying the nature of the good or service provided to the customer; Applying the control principle to certain types of transactions; and, Interaction of the control principle with the indicators provided to assist in the principle versus agent evaluation. The effective date and transition requirements for the amendments in this Update are consistent with the effective date and transition requirements of Update 2014-09. The Company’s adoption of ASU 2016-08 is not expected to have a material impact on the Company’s financial position or results of operations.

In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”. The areas for simplification in this ~~Update~~update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Additionally, this ASU allows an entity to make an accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures as they occur. ASU No. 2016-09 will be effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. ASU No. 2016-09 may be applied prospectively or retrospectively, and early adoption is permitted. The Company is evaluating the impact that ASU No. 2016-09 will have on the Company's financial statements.

Index

In March 2017, the FASB issued ASU No. 2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities”. The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. ASU No. 2017-08 will be effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. The Company is evaluating the impact that ASU No. 2017-08 will have on the Company's financial statements.

The Company sponsors a leveraged employee stock ownership plan (the "ESOP") that covers all ~~nonunion~~non-union employees who work 1,000 or more hours per year and are employed on June 30. The Company makes annual contributions to the ESOP equal to the ESOP's debt service less dividends on unallocated shares received by the ESOP. All dividends on unallocated shares received by the ESOP are used to pay debt service. Dividends on allocated ESOP shares are recorded as a reduction of retained earnings. As the debt is repaid, shares are released and allocated to active employees, based on the proportion of debt service paid in the year. The Company accounts for its ESOP in accordance with FASB ASC 718-40. Accordingly, the shares purchased by the ESOP are reported as Unearned ESOP ~~Shares~~shares in the statement of financial position. As shares are released or committed-to-be-released, the Company reports compensation expense equal to the current average market price of the shares, and the shares become outstanding for earnings-per-share (EPS) computations. ESOP compensation expense was ~~$109,856~~$103,959 and ~~$124,712~~$109,856 for the three-month periods ended March 31, ~~2016~~2017 and ~~2015,~~2016, respectively. ESOP compensation expense was ~~$334,031~~$320,835 and ~~$333,389~~$334,031 for the nine-month periods ended March 31, 2017 and 2016, ~~and 2015,~~ respectively.

During the three and nine months ended March 31, 2017 the Company repurchased 0 and 1,663 shares previously held in the ESOP for $0 and $44,336, respectively. During the three and nine months ended March 31, 2016 the Company repurchased 0 and 14,303 shares previously held in the ESOP for $0 and $355,418, respectively. ~~During the three and nine months ended March 31, 2015, the Company repurchased 0 and 13,553 shares previously held in the ESOP for $0 and $320,504, respectively.~~

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

Espey Mfg. & Electronics Corp. (“Espey”) is a power electronics design and original equipment manufacturing (OEM) company with a long history of developing and delivering highly reliable products for use in military and severe environment applications. Design, manufacturing, and testing is performed in our 150,000+ square foot facility located at 233 Ballston Ave, Saratoga Springs, New York. Espey is classified as a “smaller reporting company” for purposes of the reporting requirements under the Securities Exchange Act of 1934, as amended. Espey’s common stock is publicly-traded on the NYSE MKT under the symbol “ESP.”

Espey began operations after incorporation in New York in 1928. We strive to remain competitive as a leader in high power energy conversion and transformer solutions through the design and manufacture of new and improved products by using advanced and “cutting edge” electronics technologies.

Espey is ISO 9001:2008 and AS9100:2009 certified. Our primary products are power supplies, power converters, filters, power transformers, magnetic components, power distribution equipment, UPS systems, antennas and high power radar systems. The applications of these products include AC and DC locomotives, shipboard power, shipboard radar, airborne power, ground-based radar, and ground mobile power.

Espey services include design and development to specification, build to print, design services, design studies, environmental testing services, metal fabrication, painting services, and development of automatic testing equipment. Espey is vertically integrated, meaning that the Company produces individual components (including inductors), populates printed circuit boards, fabricates metalwork, paints, wires, qualifies, and fully tests items, mechanically, electrically and environmentally, in house. Portions of the manufacturing and testing process are subcontracted to vendors from time to time.

The Company markets its products primarily through its own direct sales organization and through outside sales representatives. Business is solicited from large industrial manufacturers and defense companies, the government of the United States, foreign governments and major foreign electronic equipment companies. In certain countries the Company has external sales representatives to help solicit and coordinate foreign contracts. Espey is also on the eligible list of contractors with the United States Department of Defense and generally is automatically solicited by Defense Department procurement agencies for their needs falling within the major classes of products produced by the Company. In addition, the Company directly pursues opportunities from the United States Department of Defense for prime contracts. Espey contracts with the Federal Government under cage code 20950 as Espey Mfg. & Electronics Corp.

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

Our business is not seasonal. However, the concentration of our business in the rail industry, and in equipment for ~~industrial and~~ military applications ~~and~~including our customer concentrations, expose us to on-going associated risks including, without limitation, dependence on appropriations from the United States Government and the governments of foreign nations, program allocations, ~~of a single customer, and~~ the potential of governmental termination of orders for ~~convenience.~~convenience, and the general health of our largest customers.

Uncertainty in federal defense spending and ~~competition~~the current decline in ~~our industrial customer base~~the rail industry continues to ~~be a concern. Based upon discussions during contract negotiations with our major customers over the past several years, we believe that many~~drive competition. Many of our competitors have been aggressively investing in upfront product design costs and lowering profit margins as a strategic means of maintaining existing business and enhancing market share at the expense of short term profit. This ~~change in the market place~~ has put pressure on the pricing of our current products and ~~will~~is expected to result in lower margins on new business and some of our legacy business. In order to compete effectively for new business, in some cases we invest in upfront design costs, thereby reducing initial profitability as a means of procuring new long-term programs. Accordingly, we ~~have adjusted~~adjust our pricing strategy in order to achieve a balance which enables us both to retain repeat programs while being more competitive in bidding on new programs. This trend will continue beyond the current fiscal year as we continue to invest in new programs and aggressively quote long-term programs in an effort to grow the business.

In order to maintain a balanced business, we are continuing to place an emphasis on securing “build to print” opportunities, which will allow production work to go directly to the manufacturing floor, limiting the impact on our engineering staff. This effort will keep our manufacturing team busy while the products being developed transition to production. We have had some success with build to print opportunities. The selection of vendors by the potential customers to whom we have submitted quotations is taking longer than we originally anticipated. We will be unable to assess whether our initiative has been successful until the end of this fiscal year.

The Company's backlog was approximately $38.7 million at March 31, 2017 which includes $20.4 million from two significant customers compared to $41.6 million at March 31, 2016 which ~~includes~~included $26.2 million from two significant ~~customers, compared to $38.4 million at March 31, 2015, which included $24.4 million from two significant~~ customers. The backlog at March 31, 2016, also includes a $10.1 million delivery order attributable to an award of a significant contract from the Federal Government. Revenues under this contract are not expected to be realized until fiscal year 2017. The backlog for the Company represents the estimated remaining sales value of work to be performed under firm contracts. This includes items that have been authorized and appropriated by Congress and/or funded by the customer. The unfunded portions of the backlog at March 31, 2016 and 2015, were $0 and $2.3 million, respectively, representing firm multi-year orders for which funding had not yet been appropriated by Congress or funded by our customer. While there is no guarantee that future budgets and appropriations will provide funding for a given program, management ~~has included~~includes in unfunded backlog only those programs that it believes are likely to receive funding based on discussions with customers and program status. There were no unfunded portions of the backlog at March 31, 2017 and 2016. In April, subsequent to the end of the third quarter we received a long-term contract for $8.4 million that brought our backlog over $47 million. The new contract award has been initially funded for $933,000 with additional funding expected to be released quarterly over the next 4 years.

Management expects revenues in fiscal year 2017 to be less than revenues during fiscal 2016. This is primarily due to a decline we are experiencing in our industrial sector. As reported in our report on Form 10-K for the fiscal year ended June 30, 2016, a significant customer in the rail market advised us of its expectations for a scaled-back purchase plan due to ~~increase~~falling demand for locomotives. For the nine months ended March 31, 2017, shipments to this significant customer declined by 43% as compared with ~~fiscal year 2015 revenues. Current expectations~~the same period in 2016 and new orders received from this significant customer declined by 92% as compared with the same period in 2016. We are working closely with our rail industry partners to secure long-term agreements that will allow us to support them through this downturn and provide for ~~gross margins~~a resumption of business for the Company upon a rail industry recovery assuming we can remain competitive as a supplier.

The revenue stream decline from the locomotive industry may be offset in future periods by the shipment of a new product in the military market where the design development and qualification testing has been successfully completed. Full-rate production will commence during the fourth quarter with shipments expected to be ~~lower compared~~released toward the end of such quarter. The Company is waiting on the approval, printing, and delivery of the product technical manual from our customer which is required to ~~prior year due to product mix, competitive pricing pressures, new program investments, and~~be included with each shipped unit. In addition, the Company has also launched two additional military power supply designs in fiscal 2016, each for a ~~one-time reduction to cost of sales~~different customer. While both designs have proceeded into qualification testing, we are experiencing some delays in the ~~prior year discussed within~~qualification testing on one of these programs and expect future production orders to be delayed as a result. However, we expect both of these new products to have significant multi-year production runs post qualification, although the ~~Results~~amount of ~~Operations, below.~~ revenues remains uncertain.

New orders received in the ~~first~~ nine months of fiscal ~~2016~~2017 were approximately ~~$26.0~~$16.8 million as compared to ~~$20.5~~$26.0 million of new orders received in the first nine months of fiscal ~~2015.~~ 2016, which included a $10.1 million initial production delivery order attributable to an award of a significant contract from the Federal Government for a power supply we have designed and has been qualified. While we expect future procurements under this contract, due to the contract’s nature future procurements are not guaranteed and require the approval and allocation of funds by the Federal Government. The next procurement installment of the multi-year contract award is not expected until the product enters full-rate production, currently scheduled to commence in the fourth quarter of fiscal 2017. Each new order could be in the $10 million range.

It is presently anticipated that a minimum of ~~$6million~~$5.4 million of orders comprising the March 31, ~~2016,~~2017 backlog will be filled during the last quarter of the fiscal year ending June 30, ~~2016.~~2017. The minimum of $6$5.4 million does not include any shipments, which may be made against orders subsequently received during the fiscal year ending June 30, ~~2016.~~2017. The estimate of the March 31, 2017 backlog to be shipped in fiscal 2017 is subject to future events, which may cause the amount of the backlog actually shipped to differ from such estimate.

In addition to the backlog, the Company currently has outstanding opportunities representing in excess of ~~$51~~$53 million in the aggregate as of ~~May 11, 2016,~~April 26, 2017 for both repeat and new programs.The outstanding quotations encompass various new and previously manufactured power supplies, transformers, and subassemblies. However, there can be no assurance that the Company will acquire any of the anticipated orders described above, many of which are subject to allocations of the United States defense spending and factors affecting the defense industry and industrial locomotive power supply procurement ~~of a single customer.~~generally.

Management continues to evaluate our sales strategy including the professional and technical resources necessary to keep pace with the changing market conditions and needs of our customers. The Company has added to and re-aligned current sales and engineering resources, in order to focus on penetrating opportunities with new and existing customers. The Company continues quoting current and new customers for programs of varying sizes.

Net sales to ~~four~~two significant customers represented ~~68.6%~~40.7% of the Company's total sales for the three-month period ended March 31, ~~2016,~~2017, and net sales to ~~two~~four significant customers represented ~~63.8%~~68.6% of the Company’s total sales for the three-month period ended March 31, ~~2015.~~2016. Net sales to two significant customers represented ~~49.5% of the Company's total sales for the nine-month period ended March 31, 2016,~~43.2% and ~~net sales to three significant customers represented 59.5%~~49.5% of the Company’s total sales for the nine-month ~~period~~periods ended March 31, ~~2015.~~2017 and 2016, respectively. This high concentration level with these customers presents significant risk. A loss of one of these customers or programs related to these customers could significantly impact the Company. Historically, a small number of customers have accounted for a large percentage of the Company’s total sales in any given fiscal year. Management continues to pursue opportunities with current and new customers with an overall objective of lowering the concentration of sales and mitigating excessive reliance upon a single major product of a particular program or minimizing the impact of the loss of a single significant customer.

Management believes our most critical accounting policies include revenue recognition and cost ~~estimates to completion.~~estimation on our contracts.

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

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

Net sales ~~increased~~decreased for the three months ended March 31, ~~2016,~~2017, to ~~$7,217,922~~$5,324,104 as compared to ~~$6,470,286~~$7,217,922 for the same period in ~~2015.~~2016. Net sales for the nine months ended March 31, ~~2016, increased~~2017, decreased to ~~$20,739,378~~$17,060,411 as compared to ~~$17,860,841~~$20,739,378 for the same period in ~~2015.~~2016. For the three months ended March 31, ~~2016,~~2017, the ~~increase~~decrease in net sales is primarily due to ~~increased magnetics~~the decrease in magnetic shipments ~~offset~~and power supply shipments resulting from the completion of a customer contract and the scaled-back procurement by a ~~decrease in power supplies shipped.~~significant customer, respectively. For the nine months ended March 31, ~~2016,~~2017, the ~~increase~~decrease in net sales is primarily due to ~~increased~~the decrease in shipments ~~of magnetics and~~in power supplies ~~offset~~resulting from the scaled-back procurement by a ~~decline in spare part sales.~~significant customer due to falling demand.

For the three months ended March 31, ~~2016~~2017 and ~~2015,~~2016, gross profits were ~~$2,148,223~~$1,128,505 and ~~$1,437,534,~~$2,148,223, respectively. Gross profit as a percentage of sales was ~~29.8%~~21.2% and ~~22.2%~~29.8%, for the three months ended March 31, ~~2016~~2017 and ~~2015,~~2016, respectively. For the nine months ended March 31, ~~2016~~2017 and ~~2015,~~2016, gross profits were ~~$5,704,586~~$3,552,397 and ~~$5,506,348,~~$5,704,586, respectively. Gross profit as a percentage of sales was ~~27.5%~~20.8% and ~~30.8%~~27.5%, for the nine months ended March 31, ~~2016~~2017 and ~~2015,~~2016, respectively. The primary factors in determining the change in gross profit and net income are overall sales levels and product mix. The gross profits on mature products and build to print contracts are typically higher as compared to products which are still in the engineering development stage or in early stages of production. In the case of the latter, the Company ~~incurs~~can incur what it refers to as “loss contracts,” meaning engineering design contracts in which the Company invests with the objective of developing future product sales. In any given accounting period the mix of product shipments between higher margin programs and less mature programs, and expenditures associated with loss contracts, has a significant impact on gross profit and net income. The gross profit percentage ~~increased~~decreased in the three and nine months ended March 31, ~~2016,~~2017 as compared to the same period ~~ended March 31, 2015~~in 2016 due to product mix and an increase in expenditures related to engineering design investments, specifically, one of the ~~impact of higher margins resulting from product mix.~~military power supplies discussed above. The design investment resulted in a 2.1% and 3.1% decline in the gross profit percentage decreased for the nine months ended March 31, 2016, as compared to the nine months ended March 31, 2015 due to a favorable one-time reduction to cost of sales that occurred during the nine months ended March 31, 2015. The prior year reduction totaled $560,000 for a contract settlement related to a previously cancelled program.

Selling, general and administrative expenses were $781,248 for the three months ended March 31, 2016; an increaseof $15,348, compared to the three months ended March 31, 2015. Selling, general and administrative expenses were $2,285,856 for the nine months ended March 31, 2016; an increase of $288,577 compared to the nine months ended March 31, 2015. The increase for the three and nine months ended March 31, ~~2015~~2017, respectively.

Selling, general and administrative expenses were $784,589 for the three months ended March 31, 2017; an increase of $3,341, compared to the three months ended March 31, 2016. Selling, general and administrative expenses were $2,307,636 for the nine months ended March 31, 2017; an increase of $21,780 compared to the nine months ended March 31, 2016. The increase for the three months ended March 31, 2017 relates primarily to an increase in professional services and incurred travel offset by a decrease in compensations costs. The increase for the nine months ended March 31, 2017 relates primarily to increased compensation costs ~~due to pay increases~~ and ~~an increase~~incurred travel offset by a decrease in ~~the number of employees.~~professional services and employee training expenditures.

Other income for the three months ended March 31, 2017 and 2016, was $47,399 and ~~2015, was~~ $16,952, ~~and $14,386,~~ respectively. Other income for the nine months ended March 31, 2017 and 2016, was $85,076 and ~~2015, was~~ $79,566, ~~and $52,034,~~ respectively. The increase is primarily due to an increase in interest income resulting from the increase in investment securities, partially offset by a reduction in scrap ~~metal~~ sales.

The Company’s effective tax rates for the three and nine months ended March 31, ~~2016,~~2017, were ~~29.7%~~28.7% and ~~29.5%~~29.0%, respectively, compared to ~~26.2%~~29.7% and ~~26.0%~~29.5% for the three and nine months ended March 31, ~~2015, respectively.~~2016. The effective tax rate is less than the statutory tax rate mainly due to the benefit the Company receives on its “qualified production activities” under The American Jobs Creation Act of 2004 and the benefit derived from the ESOP dividends paid on allocated shares. ~~The increase in the effective tax rate for March 31, 2016, is primarily due to a reduced benefit caused by the reduction in dividends deductible for income tax purposes.~~

Net income for the three months ended March 31, ~~2016,~~2017, was ~~$972,468~~$279,173 or ~~$0.43~~$0.12 per share both basic and diluted, respectively compared to ~~$506,369~~$972,468 or ~~$0.22~~$0.43 per share both basic and diluted, for the three months ended March 31, ~~2015.~~2016. Net income for the nine months ended March 31, ~~2016,~~2017, was $944,076 or $0.41 per share both basic and diluted compared to $2,465,425 or $1.08 per share both basic and diluted ~~compared to $2,636,672 or $1.16 and $1.15 per share, basic and diluted, respectively,~~ for the nine months ended March 31, ~~2015. The increase in net income per share for the three months ended March 31, 2016, was primarily due to higher sales and higher margins resulting from product mix.~~2016. The decrease in net income per share for the three and nine months ended March 31, 2017 compared to the same period in 2016 was mainly due to ~~higher selling, general~~lower gross profit resulting from lower sales and ~~administrative expenses~~lower gross profit percentage resulting from product mix and ~~a higher effective income tax rate offset by an~~the increase in ~~sales. Also, impacting~~expenditures related to engineering design investments made by the ~~comparison is a prior year favorable one-time $560,000 reduction to cost of sales referred to above.~~Company.

The Company's working capital is an appropriate indicator of the liquidity of its business, and during the past two fiscal years, the Company, when possible, has funded all of its operations with cash flows resulting from operating activities and when necessary from its existing cash and investments. The Company did not borrow any funds during the last two fiscal years. Management has available a $3,000,000 line of credit to help fund further growth or working capital and letter of credit needs, if necessary, but does not anticipate the need for any borrowed funds in the foreseeable future. Contingent liabilities on outstanding standby letters of credit agreements aggregated to zero at March 31, ~~2016~~2017 and ~~2015.~~June 30, 2016.

The Company's working capital as of March 31, ~~2016~~2017 and ~~2015,~~2016 was approximately $29.7 million and $29.5 million, respectively. During the three and ~~$28.1 million, respectively.~~nine-months ended March 31, 2017 the Company repurchased 0 and 1,663 shares previously held in the ESOP for $0 and $44,336. During the three and nine months ended March 31, 2016 the Company repurchased 0 and 14,303 shares of its common stock from the Company’s Employee Retirement Plan and Trust (”ESOP”) for a purchased price of $0 and $355,418, respectively. During the three and nine months ended March 31, 2015 the Company repurchased 0 and 13,553 shares of its common stock, respectively, from the ESOP for a purchase price of $0 and ~~$320,504,~~$355,418, respectively. Under existing authorizations from the ~~Company’s~~Company's Board of Directors, as of March 31, ~~2016,~~2017, management is authorized to purchase an additional ~~$1,030,326~~$985,991 of Company ~~Stock.~~

The table below presents the summary of cash flow information for the ~~periods~~fiscal years indicated:

Net cash provided by operating activities fluctuates between periods primarily as a result of differences in sales and net income, provisions for income taxes, the timing of the collection of accounts receivable, purchase of inventory, and payment of accounts ~~payable~~.payable. The increase in ~~net~~ cash provided by operating activities primarily relates to ~~an increase~~a decrease in ~~trade receivable collections~~net income offset by the reduction in payments for inventory purchases for the period and a ~~decline~~decrease in ~~inventory purchases due to the timing of production jobs, offset by an increase in cash paid for both federal income tax deposits and payments to vendors.~~accounts receivable. Net cash ~~provided~~used by investing activities ~~decreased~~increased in the first nine months of fiscal ~~2016~~2017 due to an increase in the ~~timing and reinvestment~~purchase of ~~matured~~ investment securities. The ~~increase~~decrease in cash used in financing activities is due primarily to the ~~dividend payable at June 30, 2015, paid in~~fact that fewer shares were purchased from the Company’s ESOP during the nine months ended March 31, 2017 compared with the same period in 2016. In addition, cash expended for the nine months ended March 31, 2016 included the dividend payable at June 30, 2015.

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

During the nine months ended March 31, ~~2016~~2017 and ~~2015,~~2016, the Company expended ~~$140,340~~$331,686 and ~~$162,822,~~$140,340, respectively, for plant improvements and new equipment. The Company has budgeted approximately ~~$250,000~~$750,000 for new equipment and plant improvements in fiscal ~~2016.~~2017. Management anticipates that the funds required will be available from current operations.

Management also believes that the Company's reserve for bad debts of $3,000 is adequate given the customers with whom the Company does business. Historically, bad debt expense has been minimal.

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE

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

The Company is a smaller reporting company as defined under Securities and Exchange Commission Rule 12b-2. Pursuant to the exemption available to smaller reporting company issuers under Item 305 of Regulation S-K, quantitative and qualitative disclosures about market risk, the Company is not required to provide the information for this item.

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

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

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

£Large accelerated filer	£Non-accelerated filer
£Accelerated ~~file~~filer	SSmaller reporting company

	March 31, 2016		March 31, 2015
Allocated Shares		423,568		441,531
Committed-to-be-released shares		13,125		13,750
Unreleased shares		66,042		83,750
Total shares held by the ESOP		502,735		539,031
Fair value of unreleased shares	$	1,624,633	$	2,480,675

	March 31, 2017		March 31, 2016
Allocated shares		439,432		423,568
Committed-to-be-released shares		12,500		13,125
Unreleased shares		49,167		66,042

Total shares held by the ESOP		501,099		502,735

Fair value of unreleased shares	$	1,130,841	$	1,624,633

Purchases of Equity Securities
			Total Number	Maximum Number
			of Shares	(or Approximate
			Purchased	Dollar Value)
			as Part of	of Shares
	Total	Average	Publicly	that May Yet
	Number	Price	Announced	Be Purchased
	of Shares	Paid	Plan or	Under the Plan
Period	Purchased	per Share	Program	or Program (1)
				$~~1,030,326~~985,991

	ESPEY MFG. & ELECTRONICS CORP.


	/s/Patrick Enright Jr.
	Patrick Enright Jr.
	President and Chief Executive Officer

	/s/David ~~O’Neil~~O'Neil
	David O'Neil
	Treasurer and Principal Financial Officer

	Nine Months Ended March 31,
	2016			2015
Net cash provided by operating activities	$	4,447,788		$	1,257,401
Net cash (used in) provided by investing activities		(1,371,982	)		500,003
Net cash used in financing activities		(2,387,410	)		(1,876,419	)