Exhibit 1.01 Conflict Minerals Report
Espey Mfg.
& Electronics Corp.
Conflict
Minerals Report
For The
Year Ended December 31, 2017
This Conflict Minerals Report for Espey Mfg.
& Electronics Corp. for the year ended December 31, 2017 is presented to comply with Rule 13p-1 under the Securities Exchange
Act of 1934 (“the Rule”). The Rule was adopted by the Securities and Exchange Commission (SEC) to implement reporting
and disclosure requirements related to conflict minerals as directed by the Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010 (Dodd-Frank Act). The Rule imposes certain reporting obligations on SEC registrants whose manufactured products contain
conflict minerals which are necessary to the functionality or production of their products. Conflict Minerals are defined as cassiterite,
columbite-tantalite, gold, wolframite, and their derivatives, which are limited to tin, tantalum, tungsten, and gold (3TG) for
the purposes of this assessment.
This disclosure has been prepared by management of Espey Mfg. &
Electronics Corp., (herein referred to as “Espey” the “Company,” “we,” “us,” or
“our”). 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. All design, manufacturing,
and testing is performed in our 150,000+ square foot facility located at 233 Ballston Ave Saratoga Springs, New York 12866.
During the reporting period from January 1, 2017 to December 31,
2017, Espey identified the following products that may contain conflict minerals:
Power Supplies, Power Converters, Filters, Power Transformers, Magnetic
Components, Power Distribution Equipment, UPS Systems, and High Power Radar Systems.
| 3. | Due Diligence Process - Reasonable Country of Origin Inquiry (RCOI) |
The company’s due diligence framework has been designed to
conform to the Organization for Economic Co-operation and Development (“OECD”) Due Diligence Guidance for Responsible
Supply Chains of Minerals from Conflict-Affected and High-Risk Areas and the related supplements for Conflict Minerals. This process
contains the following five steps:
Step 1: Establish strong company management systems.
Step 2: Identify and assess risks in the supply chain.
Step 3: Design and implement a strategy to respond to identified
risks.
Step 4: Carry out independent third-party audit of supply chain
due diligence at identified points in the supply chain.
Step 5: Report on supply chain due diligence.
In conducting our RCOI due diligence, Espey issued letters to our
current and active suppliers that provide components or engage in manufacturing activities that are likely to contain conflict
minerals. This letter explained the rules outlined by the SEC, and respectfully requested our suppliers forward their completed
Conflict Materials Reporting Template (CMRT), which is an industry-standard template for conflict mineral reporting developed by
the Conflict-Free Sourcing Initiative (CFSI). The following documents were attached to this mailing to all active Espey product
related suppliers:
| |
· |
Conflict Minerals Reporting Template CMRT 4.20 |
| |
· |
A list of frequently asked questions & answers to assist suppliers |
Step 1: Establish strong company management systems.
Espey has established a management system for complying with the
applicable SEC rules. The Espey management team is led by the Director, Strategic Sourcing & QC which includes a team of subject
matter experts from relevant functional areas; such as, purchasing, quality control, engineering and manufacturing. This Director
level position is responsible for implementing the conflict minerals compliance strategy and briefing senior management on a regular
basis regarding the results of our due diligence efforts.
Regarding the OECD requirement to strengthen engagement with suppliers,
Espey ensures that all Purchase Orders contain a mandatory flow-down statement requiring our suppliers to certify that their products
containing conflict minerals are not sourced from DRC or any adjoining country. Espey has established a rigorous compliance process
consisting of supplier documentation and a related records retention mechanism to ensure Espey can accurately report findings,
support an outside audit, and demonstrate SEC compliance.
Step 2: Identify and assess risk in the supply chain.
The supply chain team analyzed and identified the suppliers, who
during calendar year 2017, provided product and component parts or who were suspected of engaging in manufacturing activities that
are likely to contain conflict minerals necessary to the functionality or production of products manufactured.
Step 3: Design and implement a strategy to respond to identified
risks.
Espey issued a survey (Conflict Minerals Reporting Template CMRT
4.2) to only those current and active suppliers identified as having provided product and component parts or who were suspected
of engaging in manufacturing activities that are likely to contain conflict minerals during calendar year 2017. The survey is used
as a means to identify what conflict minerals were used by the supplier and the source of those conflict minerals identified as
having been used. A letter provided to the supplier explained the rules outlined by the SEC, and respectfully requested our suppliers
forward their completed Conflict Materials Reporting Template (CMRT), which is an industry-standard template for conflict mineral
reporting developed by the Conflict-Free Sourcing Initiative (CFSI). The following documents were attached to this mailing to all
active Espey product related suppliers:
| · | Conflict Minerals Reporting Template CMRT 4.20 |
| · | A list of frequently asked questions & answers to assist suppliers |
Espey shall continue to conduct a RCOI with our supply base as part
of our due diligence process by collecting and evaluating supplier responses using the industry established conflict minerals reporting
templates.
As part of the Espey Purchase order flow-down requirements, our
suppliers whose products contain conflict minerals are required to establish their own policies and perform their due diligence
with their supply base by maintaining a management systems consistent with the Organization for Economic Co-operation and Development
(OECD) Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict- Affected and High Risk-Areas.
Espey believes in establishing and maintaining long-term relationships
with suppliers whenever possible. However, if Espey determines that a supplier is a risk, or a reasonable risk exists that it may
be violating this policy, Espey shall require the supplier to undertake a suitable corrective action plan to remove the source
and move to a conflict free source. If suitable action is not taken, Espey shall procure product from an alternative and compliant
source of supply. In addition, if Espey determines that any of the components within our product line contain minerals from a mine
or facility that is “non-conflict free,” Espey shall transition to products that are “conflict free.” As
such, Espey shall fully disclose and comply with any and all SEC reporting requirements.
Step 4: Carry out independent third-party audit of supply chain
due diligence at identified points in the supply chain.
Espey does not have any direct relationships with 3TG smelters and
refiners, nor do we perform direct audits of these entities that provide our supply chain with the 3TG component. Tracing materials
back to their mine of origin is a complex aspect of responsible sourcing that resides in our supply chain. By adopting joint industry
programs and outreach initiatives with our suppliers, Espey has determined that the smelters and refiners within our supply chain
represent the most reasonable known mine of origin information available.
Step 5: Report on supply chain due diligence.
The Company’s Form SD and this report are publicly available
via the investor relations section of the Company’s website at www.espey.com
Espey has conducted an analysis of our products
related to SEC defined “conflict minerals,” which are tin, tantalum, tungsten, and gold (3TG) and based on Espey’s
reasonable country of origin inquiry (RCOI) efforts, Espey has determined that we have conducted our due diligence to the risk
but due to the complexity of our Supply Chain and our high dependency on distribution networks, Espey is unable to definitively
determine that we are DRC Conflict Free but are confident that Espey has insured a compliant supply chain and will continue to
enforce and audit our process as described above.
In support of this statement Espey is providing
the supporting metrics outlining the results of our due diligence efforts. Espey identified key suppliers where the products supplied
are incorporated into our final product. This this criteria we identified 224 suppliers selected for audit and issued Conflict
Minerals Reporting Template CMRT 4.20 to all 224. Espey has had an initial response rate of 66% of the suppliers that accounted
for 86% of the material received during this period (Exhibit 1). In order to achieve these results Espey leveraged supplier responses,
supplier websites and expanded to top suppliers that certified the previous reporting period.
Exhibit 1
| |
Questionaires Sent |
Responses Aquired |
| Totals: |
224 |
147 |
| % of Total Sent: |
100.0% |
65.6% |
| % Spent of Totals: |
100.0% |
85.8% |
As stated above, Espey RCOI due diligence efforts included utilizing
the standard Conflict Minerals reporting templates (CMRT) established by the Conflict-Free Sourcing Initiative (CFSI), and those
templates and relevant information were communicated to and returned from our suppliers allowing Espey to evaluate 224 Suppliers
in the following manner (Exhibit 2):
Exhibit 2
| CMRT Question #3 |
Yes |
No |
Unknown |
| Do any of the smelters in their supply chain source the 3TG from the covered countries? |
20 |
33 |
25 |
| |
|
|
|
| CMRT Question #4 |
Yes |
No |
Unknown |
| Does 100 percent of the 3TG originate from recycled or scrap sources? |
3 |
58 |
17 |
| |
|
|
|
| CMRT Question #5 |
Yes |
No |
|
| Have you received data/info from each 3TG from all relevant suppliers? |
40 |
37 |
| |
|
|
|
| CMRT Question #6 |
Yes |
No |
Unknown |
| Have you identified all the smelters supplying the 3TG to your supply chain? |
40 |
29 |
9 |
Although Espey did not receive a 100% response rate from our suppliers
and there are some “unknowns” that remain in our database, Espey has concluded that our supply base is compliant with
the SEC reporting and disclosure requirements for calendar year 2017.
Espey shall continue to conduct a RCOI with our supply base as part
of our due diligence process by collecting and evaluating supplier responses using the industry established conflict minerals reporting
templates.
| 5. | Additional Risk Mitigation |
As we continue to enhance our due diligence program, Espey shall
take the following steps to continue to mitigate any possible risk that could possibly support and benefit armed groups in the
DRC or adjoining countries:
| · | Enhance supplier communications and training, as required; |
| · | Follow-up with suppliers who failed to respond to the Espey surveys,
or whose responses were incomplete; |
| · | Identify and assess possible risks in the supply chain. |
