##### Table of Contents

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-KSB



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(Mark One)

|x | Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ------------------------------------------------------------------------------



For the fiscal year ended June 30, 2005



| ̈ | Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------



For the transition period from  to



Commission File Number: 0-4036



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Kreisler Manufacturing Corporation

(Name of small business issuer in its charter)



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|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Delaware                                                       |  | 22-1044792                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. employer Identification Number)



180 Van Riper
Avenue, Elmwood Park, New Jersey 07407

(Address of principal executive offices) (zip code)



Issuers telephone number: 201-791-0700



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Securities registered pursuant to Section 12(b) of the Exchange Act:



Not applicable



Securities registered pursuant to Section 12(g) of the Exchange Act:



Common Stock, $.125 par value per share

(Title of Class)



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Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes ̈No



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ̈Yes  x  No



Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB.  x



The Issuers revenues for its most recent fiscal year were $14,447,801.



The aggregate market value of the voting and non-voting common equity held by non-affiliates of the issuer is approximately
$4,697,464(1)



The number of shares of Common Stock outstanding as of June 30, 2005 was 1,826,447 shares.



DOCUMENTS INCORPORATED BY REFERENCE



Certain portions of the registrants Proxy Statement to be filed in connection with its 2005 Annual Meeting of Shareholders are incorporated by reference in Part
III of this Report.



Transitional Small Business Disclosure Format (check
one) ̈Yes    x  No



(1)The aggregate dollar amount of the voting and non-voting common equity stock set forth equals the number of shares of Common Stock outstanding, reduced by the number of shares of Common Stock held by
executive officers, directors and stockholders owning in excess of 10% of the registrants Common Stock multiplied by the last closing price for the Common Stock as quoted on the NASDAQ Small Cap Market on September 14, 2005. The information
provided shall in no way be construed as an admission that any person whose holdings are excluded from this figure is an affiliate of the registrant or that any person whose holdings are included in this figure is not an affiliate of the registrant
and any such admission is hereby disclaimed. The information provided herein is included solely for record keeping purposes of the Securities and Exchange Commission.



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##### Table of Contents

TABLE OF CONTENTS



FORM 10-KSB ANNUAL
REPORT



KREISLER MANUFACTURING CORPORATION



|         |  |          |  |                                                                                                                 |  |         
|-------- |  | -------- |  | --------------------------------------------------------------------------------------------------------------- |  | --------
|         |  |          |  |                                                                                                                 |  | PAGE NO.
|PART I   |  |          |  | 1                                                                                                              
|         |  |          | 
|         |  | ITEM 1.  |  | DESCRIPTION OF BUSINESS                                                                                         |  | 1       
|         |  | ITEM 2.  |  | DESCRIPTION OF PROPERTY                                                                                         |  | 3       
|         |  | ITEM 3.  |  | LEGAL PROCEEDINGS                                                                                               |  | 3       
|         |  | ITEM 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                             |  | 4       
|         |  |         
|PART II  |  |          |  | 4                                                                                                              
|         |  |          | 
|         |  | ITEM 5.  |  | MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                                                    |  | 4       
|         |  | ITEM 6.  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                           |  | 5       
|         |  | ITEM 7.  |  | FINANCIAL STATEMENTS                                                                                            |  | 12      
|         |  | ITEM 8.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                            |  | 29      
|         |  | ITEM 8A. |  | CONTROLS AND PROCEDURES                                                                                         |  | 29      
|         |  | ITEM 8B. |  | OTHER INFORMATION                                                                                               |  | 29      
|         |  |         
|PART III |  |          |  | 29                                                                                                             
|         |  |          | 
|         |  | ITEM 9.  |  | DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT |  | 29      
|         |  | ITEM 10. |  | EXECUTIVE COMPENSATION                                                                                          |  | 30      
|         |  | ITEM 11. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS                  |  | 30      
|         |  | ITEM 12. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                                  |  | 30      
|         |  | ITEM 13. |  | EXHIBITS                                                                                                        |  | 30      
|         |  | ITEM 14. |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                          |  | 31      



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##### Table of Contents

PART I



ITEM 1. DESCRIPTION OF BUSINESS



Kreisler
Manufacturing Corporation is a Delaware business corporation, which was incorporated on December 13, 1968, which succeeded a New Jersey business corporation, which was incorporated in New Jersey in 1940, which succeeded a New York corporation, which
was incorporated in 1930. Kreisler Manufacturing Corporation includes two wholly-owned subsidiaries, Kreisler Industrial Corporation and Kreisler Polska Sp. z o.o. (collectively Kreisler or the Company). Kreisler Industrial
Corporation (KIC) was incorporated in New Jersey on July 3, 1956 and manufactures precision metal components and assemblies at Elmwood Park, New Jersey primarily for use in military and commercial aircraft engines and in industrial gas
turbine engines. In March 2005, the Company formed Kreisler Polska Sp. z o.o (KP or Kreisler Polska), a wholly-owned Polish limited liability corporation. KP is located in Krakow, Poland and will initially provide machined
components to KIC with the expectation of sales to other companies in the future. Product shipments from KP to KIC began in June 2005.



Products



The Company manufactures precision metal components and assemblies primarily for use in military and commercial aircraft engines and in industrial gas turbine engines. The Companys products include tube
assemblies of multiple sizes and configurations as well as machined components. Assemblies may be made of various materials, including titanium, nickel and stainless steel. These high quality engineered manifold assemblies transfer fuel for
combustion, oil for lubrication and hydraulic fluid to activate thrust reversers.



Sales of products are made through an in-house sales staff. All products are manufactured to the blueprints and specifications of the particular customer. Orders are received through competitive proposals which are made in response to
requests for bids from contractors who supply engines to various branches of the United States Department of Defense or to commercial businesses.



Customers



Three commercial customers and the United States Government accounted for 84% of the consolidated net sales of the Company in the fiscal year ended June 30, 2005. The concentration of sales with a small group of
customers places the Company in a material adverse position if any of these customers reduce their volume of sales orders with the Company.



Competition



The markets in which the Company operates are highly competitive. The Companys competitors include several enterprises which are substantially larger than the Company and possess greater financial, production
and marketing resources, and numerous smaller companies. In addition, some of the Companys customers and potential customers maintain manufacturing capabilities comparable to the Companys. The Company is not a significant factor in its
markets. The principal sources of competition are price, quality, delivery and service. In todays market, flexibility, quality, pricing and speed of delivery are required elements. The Company believes that it is competitive on all the above
elements.



Sources of Supply



The Company does not have any long-term or fixed requirement agreements with its suppliers.



Materials used in the Companys products are purchased, as required, from
various suppliers. At times, the Companys customers require products to be purchased from designated suppliers. The Company also uses a



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variety of raw materials in the manufacture of its products. In fiscal 2005, shortages and increased delivery lead-times for some raw materials, particularly
titanium and nickel-based alloys, were experienced along with significant price increases in the cost of those alloys. Lower magnitude cost increases were also experienced in stainless steel alloys used by the Company. Future shortages or price
fluctuations in raw materials could have a material adverse effect on the Company.



Production



Fabricated precision metal components or
assemblies are manufactured and assembled by the Company to customer drawings and specifications. To meet the exacting requirements of its customers, the Company exercises strict quality and process controls and maintains third-party quality system
accreditations such as ISO 9001 and AS9100 as well as NADCAP (National Aerospace Defense Contractors Accreditation Program) special process accreditations.



Employees



At June 30, 2005, the Company employed approximately 124 persons, of whom 9 are part-time employees. Approximately 66 are subject to a collective bargaining agreement with the United Service Employees Union which
terminates on December 4, 2006. Management believes that labor relations in the Company have generally been satisfactory.



Government Regulations



The Company is subject to various Federal and State regulations concerning the conduct of its business including regulations under the Occupational Health and Safety Act and various acts dealing with the environment.



A material portion of the business of the Company is subject to provisions
which permit the termination of contracts at the election of the U.S Government or its prime contractors. Contracts with the U.S. Government and with suppliers to the U.S. Government generally provide for termination at any time for the convenience
of the U.S. Government and its prime contractors, and upon such termination a contractor is entitled to receive payment for the work performed plus a pro rata portion of the profit it would have earned before the termination.



Compliance with Environmental Laws



The Company maintains a sewer use permit issued by the Passaic Valley Sewerage Commissioners
(PVSC) authorizing the Company to discharge industrial effluent from its KIC manufacturing facility located at 180 Van Riper Avenue, Elmwood Park, New Jersey into the PVSC Waste Treatment facility. KIC follows the requirements of Federal
Regulation 40 CFR 413 and Section 313.1 of the PVSC Rules and Regulations. In July 2005, the Company was notified by the PVSC that the Company was in violation of the daily maximum limit for nickel and total metals and, as a result, had incurred a
Serious Violation. These violations occurred during the fiscal year ended June 30, 2005. The Company was also notified that it is in Significant Non-Compliance and subject to enforcement action. The Company retained the services of an environmental
remediation consultant and immediately removed the suspected cause of these violations from its industrial effluent discharge. The Company has also retained legal counsel. With the assistance of the environmental remediation consultant, the Company
is evaluating alternatives to eliminate the potential for future violations. The Company has implemented procedures to prevent the re-occurrence of this type of violation. The estimated cost of these procedures is approximately $10,000 per year.
Alternative procedures are in the preliminary stages of consideration. Although there is no definitive method to estimate the fines or penalties which may be imposed on the Company in the resolution of this matter, the estimated range of such fines
or penalties is $25,000 to $50,000. The Company has included a charge against earnings of $37,500 for the year ended June 30, 2005.



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In July 1999, the Company became aware of historical releases of hazardous substances at its leased manufacturing
facility located at 180 Van Riper Avenue, Elmwood Park, New Jersey. The Company promptly notified the New Jersey Department of Environmental Protection (NJDEP) as required by the New Jersey Spill Compensation and Control Act (Spill Act), N.J.S.A.
58:10-23.11, and retained the services of environmental remediation consultants to perform a full site characterization in accordance with the NJDEPs Technical Requirement for Site Remediation, N.J.A.C. 7:26E-1.1. The site characterization has
been completed. The remaining cost estimated for remediation of the site is approximately $443,000, most of which is to be incurred over the next year. It is reasonably possible that the Companys recorded estimate of remediation cost may
change in the near term.



Forward Looking Statements



Certain oral statements made by management of the Company from time to time and certain
statements contained herein or in periodic reports filed by the Company with the Securities and Exchange Commission are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, as amended, with respect to results of operations and the business of the Company. All such statements, other than statements of historical facts, including those regarding market trends, the Companys financial
position and results of operations, business strategy, projected costs, and plans and objectives of management for future operations, are forward-looking statements. In general, such statements are identified by the use of forward-looking words or
phrases including, but not limited to, estimates, intended, will, should, may, believes, expects, expected, anticipates, and
anticipated or the negative thereof or variations thereon or similar terminology. These forward-looking statements are based on the Companys current expectations. Although the Company believes that the expectations reflected in
such forward looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. These forward-looking statements represent the Companys current judgment. The Company disclaims any intent or obligation
to update its forward-looking statements. Because forward-looking statements involve risks and uncertainties, the Companys actual results could differ materially from those set forth in or underlying the forward-looking statements.



ITEM 2. DESCRIPTION OF PROPERTY



The
Companys corporate office is located at the Kreisler Industrial Corporation manufacturing facility in Elmwood Park, New Jersey. The Companys Kreisler Polska subsidiary operates from a facility located in Krakow, Poland. The
Companys New Jersey location consists of 52,000 square feet of leased space. The facility is approximately 50 years old and the facility lease expires September 30, 2006. At June 30, 2005, the remaining balance on the lease was $305,496. The
Companys Poland location operates in a newly renovated facility with a monthly lease requiring six months notice of cancellation by either party.



During fiscal year 2005, capital expenditures totaled $932,000 of which $484,000 of equipment was purchased using the Companys available cash resources and $448,000
of equipment was acquired under capital leases. The average age of equipment located in the New Jersey and Poland facilities are approximately seven years and one year, respectively. Management believes that the Companys present industrial
plant facilities are suitable for the Companys current and near term operations and are adequately covered by insurance.



The Companys principal corporate office was located in St. Petersburg, Florida. The Company vacated this office as of October 1, 2004 and relocated the corporate
office to Elmwood Park, New Jersey.



ITEM 3. LEGAL PROCEEDINGS



The Company may be
subject to legal proceedings related to an environmental matter. The Company maintains a sewer use permit issued by the Passaic Valley Sewerage Commissioners (PVSC) authorizing the Company to discharge industrial effluent from its
location at 180 Van Riper Avenue, Elmwood Park, New Jersey into the PVSC Waste Treatment facility. In July 2005, the Company was notified by the PVSC that the Company was in violation of the daily maximum limit for nickel and total metals and, as a
result, had incurred a Serious Violation. These violations occurred during the fiscal year ended June 30, 2005. The Company was also notified that it is in Significant Non-Compliance and subject to enforcement action. The Company retained the
services of an environmental remediation consultant and immediately removed the suspected cause of these violations from its industrial effluent discharge. With the assistance of the environmental remediation consultant, the Company is evaluating
alternatives to eliminate the potential for future violations.



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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



None.



PART II



ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS



The Companys Common Stock is traded on the NASDAQ Small Cap Market under the symbol KRSL. The following table sets forth the high and low per share sales prices for the Common Stock on the NASDAQ
Small Cap Market for each quarter in the two-year period ended June 30, 2005.



|                             |  |                  |       |                  |   |      |  |     |      |  |   |     
|---------------------------- |  | ---------------- | ----- | ---------------- | - | ---- |  | --- | ---- |  | - | ----
|                             |  | Fiscal Year 2005 |       | Fiscal Year 2004
|Quarter                      |  | High             |       | Low              |   | High |  | Low
|First Quarter - September 30 |  | $                | 8.06  |                  | $ | 5.48 |  | $   | 5.99 |  | $ | 4.71
|Second Quarter - December 31 |  |                  | 7.46  |                  |   | 4.90 |  |     | 5.49 |  |   | 4.80
|Third Quarter - March 31     |  |                  | 6.50  |                  |   | 4.90 |  |     | 6.48 |  |   | 4.92
|Fourth Quarter - June 30     |  |                  | 10.15 |                  |   | 4.59 |  |     | 7.85 |  |   | 4.95



The Company has not paid any dividends
during the last two fiscal years. The holders of the Companys Common Stock are entitled to receive dividends when, and if declared by the Board of Directors out of funds legally available therefore. It is the Companys current policy not
to pay dividends and to retain earnings for future growth of the Company.



At
June 30, 2005, the company had approximately 115 stockholders of record.



The
following table reflects information for the companys equity compensation plan as of June 30, 2005.



Equity Compensation Plan Information



|                                                           |  |                                                                                       |  |                                                                         |      |                                                                                                                          |        
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------- | ---- | ------------------------------------------------------------------------------------------------------------------------ | -------
|                                                           |  | (a)                                                                                   |  | (b)                                                                     |      | (c)                                                                                                                     
|                                                           |  | Number ofSecurities to beIssued uponExercise ofoutstandingoptions, warrantsand rights |  | Weighted-averageexercise price ofoutstandingoptions, warrantsand rights |      | Number ofsecuritiesremaining forfuture issuanceunder equitycompensationplans (excludingsecuritiesreflected incolumn
(a))
|Plan Category                                              |  |                                                                                       |  |                                                                         |      |                                                                                                                          |        
|Equity compensation plans approved by security holders     |  | 41,501                                                                                |  | $                                                                       | 2.97 |                                                                                                                          | 124,000
|Equity compensation plans not approved by security holders |  |                                                                                      |  |                                                                         |     |                                                                                                                          |       
|                                                           |  |                                                                                       |  |                                                                         |      |                                                                                                                          |        
|Total                                                      |  | 41,501                                                                                |  | $                                                                       | 2.97 |                                                                                                                          | 124,000
|                                                           |  |                                                                                       |  |                                                                         |      |                                                                                                                          |        





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ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Overview



The Company manufactures precision metal components and assemblies primarily for use in military and commercial aircraft engines and in industrial gas turbine engines. The Companys products include tube
assemblies of multiple sizes and configurations as well as machined components. Assemblies may be made of various materials, including titanium, nickel and stainless steel. These high quality engineered manifold assemblies transfer fuel for
combustion, oil for lubrication and hydraulic fluid to activate thrust reversers.



Sales of products are made through an in-house sales staff. All products are manufactured to the blueprints and specifications of the particular customer. Orders are received through competitive proposals which are made in response to
requests for bids from contractors who supply engines to various branches of the United States Department of Defense or to commercial businesses.



Kreisler returned to positive sales growth and overall profitability in fiscal 2005 as the Company benefited from growth in its core aerospace market. New military
programs continued to represent a significant portion of the Companys sales while new commercial programs coupled with resurgent demand for existing commercial programs enabled solid growth in that segment. The industrial gas turbine markets
remained soft in fiscal 2005.



In March 2005 the Company created a new
subsidiary in Poland called Kreisler Polska Sp. z o.o. Kreisler Polska (KP) operates from a leased facility located in Krakow. KP became operational in June 2005 and is presently manufacturing machined components for another Company
subsidiary, Kreisler Industrial Corporation (KIC). Coupled with a skilled management team and workforce, KP is expected to provide a new growth opportunity for the Company.



KIC continued the implementation of lean processes in production with the goal of reducing operating costs and increasing productivity. This
has resulted in the creation of new manufacturing cells to increase product throughput, improve organization and reduce waste. Using a combination of KIC employees, customer-provided experts and outside consultants, process improvements continue to
be made on the shop floor.



The Company relies on a network of suppliers to
provide raw materials, machined components and factory supplies. In order to achieve the best possible managerial and competitive advantages, the Company is developing a web-based system for Supply Chain Management. The purpose of this system is to
enable the Company to efficiently access and manage its existing supply chain and to help identify new suppliers who can meet its cost, quality and delivery requirements. The Company anticipates that this system will become fully operational during
the fiscal 2006.



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Results of Operations 2005 Compared to 2004



Sales increased $2,152,000 or 18% to $14,448,000 for the year ended June 30, 2005 compared
with $12,296,000 for the year ended June 30, 2004. The Companys sales and sales changes by industry segment are as follows:



|                       |      |       |            |  |                  |            |          |   |           |      |    |   |      |     |   |  |     |  
|---------------------- | ---- | ----- | ---------- |  | ---------------- | ---------- | -------- | - | --------- | ---- | -- | - | ---- | --- | - |  | --- | -
|Industry Segment       |      | Sales |            |  | Percent of Sales |           
|                       | 2005 |       | 2004       |  | $ Change         |            | % Change |   |           | 2005 |    |   | 2004 |    
|Commercial             |      | $     | 5,546,000  |  | $                | 5,164,000  |          | $ | 382,000   |      | 7  | % |      | 38  | % |  | 42  | %
|Military               |      |       | 7,864,000  |  |                  | 6,111,000  |          |   | 1,753,000 |      | 29 | % |      | 55  | % |  | 50  | %
|Industrial Gas Turbine |      |       | 1,038,000  |  |                  | 1,021,000  |          |   | 17,000    |      | 2  | % |      | 7   | % |  | 8   | %
|                       |      |       |            |  |                  |            |          |   |           |      |    |   |      |     |   |  |     |  
|Total                  |      | $     | 14,448,000 |  | $                | 12,296,000 |          | $ | 2,152,000 |      | 18 | % |      | 100 | % |  | 100 | %
|                       |      |       |            |  |                  |            |          |   |           |      |    |   |      |     |   |  |     |  



Kreislers sales for the year
ended June 30, 2005 were positively impacted by an increase in market demand for commercial aero-engines for which the Company is a supplier of components. The Companys commercial aero-engine sales increased $382,000 or 7% compared to the year
ended June 30, 2004. Increased or new demand for commercial engine programs such as the CF-34, GP7000 and PW4000 more than offset the declines associated with the conclusion of Kreislers involvement on the AE3007 engine.



The Companys sales of components used in military engine applications during fiscal
2005 increased $1,753,000 or 29% compared to fiscal 2004. This increase is primarily attributable to the increased production of components used in the F119 and F135 engine programs and offset the declines in F100 engine component demand. The F119
and F135 engines power the F/A-22 Raptor and the F-35 Joint Strike Fighter. The F/A-22 is currently in production while the F-35 is in the development phase with production to start in 2009. F/A-22 requirements beyond fiscal 2006 remain uncertain
given the objective of its manufacturer to move components currently produced by the Company to manufacturing sites outside of the United States as well as Congressional concerns regarding the overall cost of the F/A-22 aircraft which may result in
further reductions in the number purchased. Spare parts sales to the U.S. Government remained relatively flat.



For the year ended June 30, 2005, Company sales to the gas turbine industry of $1,038,000 were $17,000, or 2%, higher compared to the prior fiscal year. Excluding the effect of the settlement of terminated purchase
orders from an industrial gas turbine customer totaling $312,000 ($63,000 and $249,000 received in the first and second quarters of fiscal 2005, respectively), shipments of industrial gas turbine components totaled $726,000 as this market remained
soft.



Cost of goods sold for fiscal 2005 was 96% of sales or $13,848,000
compared to 103.5% of sales or $12,723,000 for fiscal 2004, resulting in an increased gross margin of 7.5%. Increases in information technology outsourcing fees, shipping charges, office-related expenses and employee training costs were offset by
decreases in employee-related costs and benefits, certain insurance costs as well as lower tooling costs. The net $307,000 decrease in costs of goods sold for these items was offset by higher purchased material costs as well as start-up costs for
Kreisler Polska. Material usage increased $1,397,000 for fiscal 2005 due to higher sales and increased purchased material content. Depreciation expenses increased $67,000. Revenue sharing expenses attributable to the Rolls-Royce AE3007 engine
program declined $183,000 due to the completion of the Companys involvement in that program.



Selling, general and administrative expenses for fiscal 2005 were 2.5% of sales or $356,000 compared to 5.5% of sales or $680,000 for the prior fiscal year. This decrease of $324,000, or 48%, is primarily the result
of decreased administrative salaries and sales commissions, offset by increases in legal, director and accounting fees.



The income from operations for the year ended June 30, 2005 was $243,000 compared to the loss from operations as of June 30, 2004 of $1,107,000 .



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Interest income for fiscal 2005 increased $24,000 or 48% to $74,000 from $50,000 for fiscal year 2004. The increase is
the result of higher interest rates and increased cash investment.



The income
before taxes for 2005 was $317,000 compared to the loss before income taxes in 2004 of $1,057,000.



Income tax expense for the year ended June 30, 2005 was $148,000 compared to income tax benefit for the year ended June 30, 2004 of $399,000. The components of income tax expense/(benefit) are discussed in Note F to
the Companys consolidated financial statements.



Current backlog as of
June 30, 2005 is approximately $16.8 million compared to $12.3 million at June 30, 2004. The backlog increased $4.5 million or 37%. Backlogs are subject to change with reduced purchase order duration and terminations. Purchase order terminations of
approximately $312,000 related to an industrial gas turbine program were realized during fiscal year 2005. An additional $1.1 million in orders for PW4000 commercial aircraft engine components are under discussion with a customer for possible
termination due to declines in market demand. Orders that have already been terminated by a customer are excluded from the backlog even if the amount owed by a customer to the Company for the termination has not been paid.



Results of Operations 2004 Compared to 2003



Sales decreased $208,000 or 2% to $12,296,000 for the year ended June 30, 2004 compared with
$12,504,000 for the year ended June 30, 2003. The Companys sales and sales changes by industry segment are as follows:



|                       |      |       |            |  |                  |            |  |          |            |   |      |     |    |      |     |   |  |     |  
|---------------------- | ---- | ----- | ---------- |  | ---------------- | ---------- |  | -------- | ---------- | - | ---- | --- | -- | ---- | --- | - |  | --- | -
|Industry Segment       |      | Sales |            |  | Percent of Sales |           
|                       | 2004 |       | 2003       |  | $ Change         |            |  | % Change |            |   | 2004 |     |    | 2003 |    
|Commercial             |      | $     | 5,164,000  |  | $                | 7,502,000  |  | $        | (2,338,000 | ) |      | (31 | %) |      | 42  | % |  | 60  | %
|Military               |      |       | 6,111,000  |  |                  | 2,876,000  |  |          | 3,235,000  |   |      | 112 | %  |      | 50  | % |  | 23  | %
|Industrial Gas Turbine |      |       | 1,021,000  |  |                  | 2,126,000  |  |          | (1,105,000 | ) |      | (52 | %) |      | 8   | % |  | 17  | %
|                       |      |       |            |  |                  |            |  |          |            |   |      |     |    |      |     |   |  |     |  
|Total                  |      | $     | 12,296,000 |  | $                | 12,504,000 |  | $        | (208,000   | ) |      | (2  | %) |      | 100 | % |  | 100 | %
|                       |      |       |            |  |                  |            |  |          |            |   |      |     |    |      |     |   |  |     |  



The Companys sales for the year
ended June 30, 2004 were negatively impacted by a reduction in market demand for commercial aero-engines for which the Company is a supplier of components. The Companys commercial aero-engine sales declined $2,338,000 or 31% compared to the
year ended June 30, 2003. Increased or new demand for commercial engine programs such as the AE3007, CF-34 and PW6000 were offset by declines in historically higher demand components for the PW4000 engine and CRJ700 airframe.



For the year ended June 30, 2004, the Company experienced a decline of $1,105,000 or 52% in
sales of products to the industrial gas turbine industry as a result of reduced demand for the 501 heavy industrial gas turbine. A portion of this decline was offset by increased requirements of $226,000 from a customer and the sale of $64,000 in
terminated materials to a customer.



Partially offsetting the decline
in sales of products to the commercial aircraft and industrial gas turbine markets was an increase in sales of components used in military engine applications totaling $3,235,000 or 112% for the year ended June 30, 2004. The increase is primarily
attributable to the ramp up of product deliveries for the F119 engine program (used on the F-22 Raptor) and product deliveries related to the development of the F135 engine (used on F-35 Joint Strike Fighter). For the year ended June 30, 2004,
development programs resulted in $195,000 of non-recurring engineering and tooling charges paid to the Company, an increase of $172,000 compared to June 30, 2004. These programs offset the decline in spare parts sales to the U.S. Government and to a
customer performing TF-39 overhaul and repair work for the U.S. Government.



7



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##### Table of Contents

Cost of goods sold for fiscal 2004 was 103.5% of sales or $12,723,000 compared to 104.4% of sales or $13,057,000 for the
year ended June 30, 2003, a decrease of $334,000. Increases in tooling for new programs, utility costs, costs for a supplemental employment agreement and information technology outsourcing fees, offset by decreases in employee costs, environmental
legal fees, supplies, travel costs and shipping resulted in an overall reduction of $95,300. Material usage declined $204,000 for the period due to lower sales and purchased material content. Depreciation expenses declined $95,000. Environmental
management expenses were higher by $157,000 due to the receipt of an environmental insurance settlement for the year ended June 30, 2003.



Selling, general and administrative expenses for fiscal 2004 were 6% of sales or $680,000 compared to 6% of sales or $765,000 for the year ended June 30, 2003, a decrease
of $85,000, primarily as a result of decreased sales commissions, consulting fees, directors fees and interest expense associated with the environmental remediation agreement, offset by increases in salary, legal, and audit fees.



The loss from operations for the year ended June 30, 2004 of $1,107,000 was $106,000 or 9%
lower than the loss from operations as of June 30, 2003 of $1,213,000.



Interest income declined from $103,000 for the year ended June 30, 2003 to $50,000 for the year ended June 30, 2004. The $53,000 or 51% decline is the result of lower interest rates and lower balances in cash investment accounts.



The loss before taxes for 2004 was $1,057,000 compared to loss before income
taxes in 2003 of $1,111,000.



Income tax benefit for the year ended June 30,
2004 was $399,000. With the carryback of net operating loss the company recovered $437,000 in federal income tax compared to a federal income tax benefit of $445,000 in fiscal year 2003.



Liquidity and Capital Resources



Cash and cash equivalents at June 30, 2005 increased $42,000, or 1%, to $3,409,000 compared to cash and cash equivalents at June 30, 2004.



Cash provided by operating activities for the year ended June 30, 2005 was $236,000 which was
primarily attributable to the Companys net income of $170,000 as well as increases to accounts payable and depreciation and amortization. The Company also received an income tax refund of $437,000. These inflows were partially offset by
increases in accounts receivable, inventories and other current assets as well as reductions in accrued expenses and accrued environmental expenses.



Through June 30, 2005, the Company provided Kreisler Polska with equity investment totaling approximately $384,000, a loan of approximately $34,000 and amounts due for
provided goods and services totaling approximately $35,000. The Company expects to increase its equity investment in Kreisler Polska during fiscal year 2006 by approximately $250,000, a portion of which will be for capital expenditures.



Cash used in investing activities for the year ended June 30, 2005 amounted to $509,000
and is attributable to the purchase of assets by the Company as well as capital lease payments on machining equipment. Capital expenditures for fiscal 2005 totaled $932,000 of which $484,000 was for equipment purchased using the Companys
available cash resources and $448,000 was for equipment acquired under capital leases. Capital lease payments for the year ended June 30, 2005 totaled $25,000. The Company believes that adequate liquidity is available from operating cash flow as
well as cash on-hand to cover anticipated capital expenditures of $350,000 for the year ending June 30, 2006.



Cash flows from financing activities for the year ended June 30, 2005 totaled $315,000 and is due to the exercise of 64,000 stock options under the Companys 1997 Stock Option Plan and $235,000 associated with
collection of the split dollar life insurance policy receivable.



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##### Table of Contents

The creation of Kreisler Polska exposes the Company to gains and losses due to fluctuations of a foreign currency. As of
June 30, 2005 the translation adjustment amounted to $40,000. The net effect after adjusting for a tax benefit of $15,401 is a reduction in stockholders equity of $24,985. Current period realized foreign currency gains and losses are included
as part of selling, general and administrative expenses. As of June 30, 2005, this loss amounted to $7,300.



The Companys working capital was approximately $8,158,000. The Company believes it has sufficient resources to meet operating requirements through the next fiscal year.



Contractual Obligations



The Company is obligated to make future payments under various contracts such as operating or capital lease agreements. The following table
represents the Companys contractual cash obligations as of June 30, 2005 and the estimated timing of future cash payments:



|                 |  |       |           |        |   |         |  |        |         |        |   |         |  |            |         |  |   |        |  |       
|---------------- |  | ----- | --------- | ------ | - | ------- |  | ------ | ------- | ------ | - | ------- |  | ---------- | ------- |  | - | ------ |  | ------
|                 |  | Total |           | FY2006 |   | FY2007  |  | FY2008 |         | FY2009 |   | FY2010  |  | Thereafter
|Capital Leases   |  | $     | 506,999   |        | $ | 107,102 |  | $      | 107,102 |        | $ | 107,102 |  | $          | 107,102 |  | $ | 78,591 |  |      
|Operating Leases |  |       | 354,503   |        |   | 273,518 |  |        | 76,905  |        |   | 4,080   |  |            |        |  |   |       |  |      
|Environmental(1) |  |       | 501,000   |        |   | 479,000 |  |        |        |        |   | 7,300   |  |            |        |  |   |       |  | 14,700
|                 |  |       |           |        |   |         |  |        |         |        |   |         |  |            |         |  |   |        |  |       
|Total            |  | $     | 1,362,502 |        | $ | 859,620 |  | $      | 184,007 |        | $ | 118,482 |  | $          | 107,102 |  | $ | 78,591 |  | 14,700
|                 |  |       |           |        |   |         |  |        |         |        |   |         |  |            |         |  |   |        |  |       

---

|(1) | Environmental remediation costs in accordance with the contract between the Company and Resource Control Corporation
|--- | --------------------------------------------------------------------------------------------------------------------



Critical Accounting Policies



The Companys critical accounting policies and estimates include the Companys
accounting for environmental remediation, inventory valuation, revenue recognition, accounts receivable and accounting for deferred income taxes. In particular, the accounting for these areas requires significant judgments to be made by management.



Environmental Remediation



With regard to environmental remediation, the assumption has been made that no new costs,
above those identified in the original fixed price agreement, will be incurred as the project continues. The Company assumes that there will be no future discoveries on the site that will require additional remediation.



Inventory Valuation



Inventory valuation for the periods ending December 31 and June 30 is based on actual physical inventory counts. For the periods ending
September 30 and March 31 inventory valuation is based on internal perpetual records. The Company compares the physical inventory valuation for the periods ending December 31 and June 30 with the perpetual inventory record valuation. At June 30,
2005 the comparison resulted in a valuation difference of 1%, a difference which the Company believes is primarily attributable to the material scrap rate percentage. Any substantial variance in the actual material scrap rate percentage could
significantly increase or decrease profits due to changes in the costs of goods sold.



Revenue Recognition



Revenue from sales of products is
recognized at the time title and the risks and rewards of ownership pass. This is when the products are shipped per customers instructions, the sales price is fixed and determinable, and collections are reasonably assured.



Accounts Receivable-Trade and Allowance for Uncollectible Accounts



Accounts receivable-trade represents uncollateralized customer obligations due under normal
trade terms generally requiring payment within 30-90 days from the invoice date. Follow-up correspondence is made if unpaid accounts receivable go beyond the invoice due date. Payments of accounts receivable are allocated to the specific invoices
identified on the customers remittance advice.



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##### Table of Contents

Accounts receivable  trade (net) are stated at the amount management expects to collect from outstanding balances.
The carrying amounts of accounts receivable-trade is reduced by a valuation allowance that reflects managements best estimate of the amounts that will not be collected. Management individually reviews all accounts receivable balances that
exceed the due date and estimates the portion, if any, of the balance that will not be collected. Management provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on its assessment of
the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable- trade.



Accounts receivable  trade is net of an allowance for estimated
uncollectible accounts of $10,000 for 2005 and 2004.



Income
Taxes



Income tax expense is recognized at applicable U.S.
or international tax rates. Certain revenue and expense items may be recognized in one period for financial statement purposes and in a different period for income tax reporting. The tax effects of such differences are reported as deferred income
taxes.



Essentially all earnings of the Companys foreign subsidiary
 Kreisler Polska - are expected to be reinvested in overseas expansion. Since no foreign earnings currently exist, an incremental U.S. or foreign tax on repatriation of such earnings cannot be estimated.



Refer to Note A in the Notes to Consolidated Financial Statements included in
Item 7 Financial Statements for other information regarding the Companys accounting policies.



Compliance with Environmental Laws



The Company maintains a sewer use permit issued by the Passaic Valley Sewerage Commissioners (PVSC) authorizing the Company to discharge industrial effluent from its location at 180 Van Riper Avenue, Elmwood Park, New Jersey
into the PVSC Waste Treatment facility. The permit specifies that the Company comply with the requirements of Federal Regulation 40 CFR 413 and Section 313.1 of the PVSC Rules and Regulations. In order to ensure compliance with the permit
requirements, the Company tests the industrial effluent each month for certain constituents and reports the test results to the PVSC. In July 2005, the Company was notified by the PVSC that the Company was in violation of its permit for the daily
maximum limit for nickel and total metals and, as a result, had incurred a Serious Violation. These violations occurred during the fiscal year ended June 30, 2005. The Company was also notified that it is in Significant Non-Compliance and subject to
enforcement action. The Company retained the services of an environmental remediation consultant, Pleasant Hill Consultants, and immediately removed the suspected cause of these violations from its industrial effluent discharge. The Company has also
retained legal counsel. With the assistance of the environmental remediation consultant, the Company is evaluating alternatives to eliminate the potential for future violations. The Company has implemented procedures to prevent the re-occurrence of
this type of violation. The estimated cost of these procedures is approximately $10,000 per year. Alternative procedures are in the preliminary stages of consideration. Although there is no definitive method to estimate the fines or penalties which
may be imposed on the Company in the resolution of this matter, the estimated range of such fines or penalties is $25,000 to $50,000. The Company has included a charge against earnings of $37,500 for the year-ended June 30, 2005.



Early in fiscal year 2000, the Company became aware of historical releases of hazardous
substances at the facility located at 180 Van Riper Avenue, Elmwood Park, New Jersey (hereinafter the Facility). Based on the results of tests conducted at the Facility, the company discovered that both the soil and groundwater at the
Facility, and possibly offsite, were contaminated with tetrachloroethylene (PCE). While the Company cannot be certain about the source of this condition, the company used PCE for degreasing and other similar purposes from about 1959,
when it commenced operation at the Facility, until approximately 1985, when it replaced PCE with another cleaning solution.



10



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##### Table of Contents

Promptly after learning of this condition, the Company notified the New Jersey Department of Environmental Protection
(NJDEP) as required by the New Jersey Spill Compensation and Control Act (Spill Act), N.J.S.A. 58:10-23.11, and retained the services of Pleasant Hill Consultants and The Whitman Companies to perform a full site characterization in accordance with
the NJDEPs Technical Requirements for Site Remediation, N.J.A.C. 7:26E-1.1.



The site characterization was completed and an agreement was signed with Resource Control Corporation for the remediation of the site. The remaining cost for remediation is approximately $443,000, most of which will be incurred by the
Company over the next year (see Note J to the Companys consolidated financial statements).



The Company notified its liability insurance carriers which issued liability policies to the Company during the period from 1959 to 1985 and received a total of $2.9 million from four insurance carriers. The Company
does not anticipate any further recoveries. The Company believes, based upon the facts as currently known, that its recoveries from its liability policies will cover substantially all of the remediation expenses and other liabilities associated with
the releases.



11



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##### Table of Contents

ITEM 7. FINANCIAL STATEMENTS



The following
consolidated financial statements of the Company and its subsidiaries and the Auditors Report are incorporated herein:



Consolidated Balance Sheets - June 30, 2005 and 2004



Consolidated Statements of Operations - Three Years Ended June 30, 2005



Consolidated Statements of Changes in Stockholders Equity and Comprehensive Income - Three Years Ended June 30, 2005



Consolidated Statements of Cash Flows - Three Years Ended
June 30, 2005



Notes to the Consolidated Financial Statements



Report of Independent Registered Public Accounting Firm



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##### Table of Contents

Kreisler Manufacturing Corporation and Subsidiaries

Consolidated Balance Sheets

June 30, 2005 and 2004



|                                                                                                                         |  |      |            |   |      |   |           
|------------------------------------------------------------------------------------------------------------------------ |  | ---- | ---------- | - | ---- | - | ----------
|                                                                                                                         |  | 2005 |            |   | 2004
|Assets                                                                                                                   |  |      |            |   |      |   |           
|                                                                                                                         |  |     
|Cash and cash equivalents                                                                                                |  | $    | 3,409,552  |   |      | $ | 3,367,494 
|Accounts receivable - trade (net)                                                                                        |  |      | 3,201,376  |   |      |   | 2,563,526 
|Inventories                                                                                                              |  |      | 2,817,894  |   |      |   | 2,491,713 
|Income tax receivable                                                                                                    |  |      |           |   |      |   | 437,422   
|Deferred tax asset, current                                                                                              |  |      | 166,000    |   |      |   | 173,500   
|Split dollar life insurance receivable                                                                                   |  |      |           |   |      |   | 235,450   
|Other current assets                                                                                                     |  |      | 229,551    |   |      |   | 180,849   
|                                                                                                                         |  |      |            |   |      |   |           
|Total Current Assets                                                                                                     |  |      | 9,824,373  |   |      |   | 9,449,954 
|                                                                                                                         |  |     
|Property, plant, and equipment, at cost less accumulated depreciation of $4,659,160 for 2005 and $4,297,653 for 2004     |  |      | 1,491,166  |   |      |   | 941,400   
|Deferred tax asset, non-current                                                                                          |  |      | 261,800    |   |      |   | 264,900   
|                                                                                                                         |  |      |            |   |      |   |           
|Total Non-current Assets                                                                                                 |  |      | 1,752,966  |   |      |   | 1,206,300 
|                                                                                                                         |  |      |            |   |      |   |           
|                                                                                                                         |  | $    | 11,577,339 |   |      | $ | 10,656,254
|                                                                                                                         |  |      |            |   |      |   |           
|Liabilities and Stockholders Equity                                                                                     |  |      |            |   |      |   |           
|                                                                                                                         |  |     
|Liabilities                                                                                                              |  |      |            |   |      |   |           
|Accounts payable - trade                                                                                                 |  | $    | 1,049,613  |   |      | $ | 528,099   
|Accrued expenses                                                                                                         |  |      | 112,837    |   |      |   | 302,565   
|Obligation under capital leases                                                                                          |  |      | 76,869     |   |      |   |          
|Accrued environmental cost                                                                                               |  |      | 426,825    |   |      |   | 158,574   
|                                                                                                                         |  |      |            |   |      |   |           
|Total Current Liabilities                                                                                                |  |      | 1,666,144  |   |      |   | 989,238   
|                                                                                                                         |  |     
|Obligation under capital leases                                                                                          |  |      | 345,978    |   |      |   |          
|Accrued environmental cost                                                                                               |  |      | 16,541     |   |      |   | 443,369   
|                                                                                                                         |  |      |            |   |      |   |           
|Total long-term liabilities                                                                                              |  |      | 362,519    |   |      |   | 443,369   
|                                                                                                                         |  |     
|Stockholders Equity                                                                                                     |  |      |            |   |      |   |           
|Common stock, $.125 par value; 3,000,000 shares authorized; 1,826,447 shares and 1,762,447 shares issued and outstanding |  |      | 228,306    |   |      |   | 220,306   
|Additional paid-in capital                                                                                               |  |      | 540,216    |   |      |   | 367,792   
|Retained earnings                                                                                                        |  |      | 8,805,139  |   |      |   | 8,635,549 
|Accumulated other comprehensive loss                                                                                     |  |      | (24,985    | ) |      |   |          
|                                                                                                                         |  |      |            |   |      |   |           
|Total Stockholders Equity                                                                                               |  |      | 9,548,676  |   |      |   | 9,223,647 
|                                                                                                                         |  |      |            |   |      |   |           
|                                                                                                                         |  | $    | 11,577,339 |   |      | $ | 10,656,254
|                                                                                                                         |  |      |            |   |      |   |           



The accompanying notes are an integral
part of these consolidated financial statements.



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##### Table of Contents

Kreisler Manufacturing Corporation and Subsidiaries

Consolidated Statements of Operations

Three years ended June 30, 2005



|                                             |  |      |            |   |      |   |            |      |  |   |            |  
|-------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                             |  | 2005 |            |   | 2004 |   |            | 2003 | 
|Revenues                                     |  | $    | 14,447,801 |   |      | $ | 12,295,688 |      |  | $ | 12,504,049 |  
|Cost of goods sold                           |  |      | 13,848,357 |   |      |   | 12,722,800 |      |  |   | 13,057,363 |  
|Selling, general and administrative expenses |  |      | 356,395    |   |      |   | 679,726    |      |  |   | 765,467    |  
|Net gain on environmental remediation        |  |      |           |   |      |   |           |      |  |   | (105,376   | )
|                                             |  |      |            |   |      |   |            |      |  |   |            |  
|Total Costs and Expenses                     |  |      | 14,204,752 |   |      |   | 13,402,526 |      |  |   | 13,717,454 |  
|                                             |  |      |            |   |      |   |            |      |  |   |            |  
|Income (loss) from operations                |  |      | 243,049    |   |      |   | (1,106,838 | )    |  |   | (1,213,405 | )
|                                             |  |      |           
|Interest and other earnings                  |  |      | 74,141     |   |      |   | 49,990     |      |  |   | 102,603    |  
|                                             |  |      |            |   |      |   |            |      |  |   |            |  
|Income (loss) before income taxes            |  |      | 317,190    |   |      |   | (1,056,848 | )    |  |   | (1,110,802 | )
|                                             |  |      |           
|Income tax (expense)/benefit                 |  |      | (147,600   | ) |      |   | 398,600    |      |  |   | 445,400    |  
|                                             |  |      |            |   |      |   |            |      |  |   |            |  
|Net Income (Loss)                            |  | $    | 169,590    |   |      | $ | (658,248   | )    |  | $ | (665,402   | )
|                                             |  |      |            |   |      |   |            |      |  |   |            |  
|Earnings per share:                          |  |      |            |   |      |   |            |      |  |   |            |  
|Net Income (loss) - basic                    |  | $    | 0.10       |   |      | $ | (0.37      | )    |  | $ | (0.36      | )
|Net Income (loss) - diluted                  |  | $    | 0.10       |   |      | $ | (0.37      | )    |  | $ | (0.36      | )
|Average common shares - basic                |  |      | 1,762,973  |   |      |   | 1,762,447  |      |  |   | 1,846,697  |  
|Average common shares - diluted              |  |      | 1,783,305  |   |      |   | 1,831,043  |      |  |   | 1,915,181  |  



Consolidated Statements of Changes
in Stockholders Equity and Comprehensive Income

Three years ended June 30, 2005



|                                              |  |             |         |   |                          |   |            |                  |  |   |                                   |   |  |                          |         |   |  |   |            |  
|--------------------------------------------- |  | ----------- | ------- | - | ------------------------ | - | ---------- | ---------------- |  | - | --------------------------------- | - |  | ------------------------ | ------- | - |  | - | ---------- | -
|                                              |  | CommonStock |         |   | AdditionalPaid-inCapital |   |            | RetainedEarnings |  |   | AccumulatedOtherComprehensiveLoss |   |  | TotalStockholdersEquity |        
|Balance June 30, 2002                         |  | $           | 249,070 |   |                          | $ | 1,651,179  |                  |  | $ | 9,959,199                         |   |  | $                        |        |   |  | $ | 11,859,448 |  
|Purchased & retired stock                     |  |             | (28,764 | ) |                          |   | (1,283,387 | )                |  |   |                                  |   |  |                          |        |   |  |   | (1,312,151 | )
|Net Loss                                      |  |             |        |   |                          |   |           |                  |  |   | (665,402                          | ) |  |                          |        |   |  |   | (665,402   | )
|                                              |  |             |         |   |                          |   |            |                  |  |   |                                   |   |  |                          |         |   |  |   |            |  
|Balance June 30, 2003                         |  | $           | 220,306 |   |                          | $ | 367,792    |                  |  | $ | 9,293,797                         |   |  | $                        |        |   |  | $ | 9,881,895  |  
|Net Loss                                      |  |             |        |   |                          |   |           |                  |  |   | (658,248                          | ) |  |                          |        |   |  |   | (658,248   | )
|                                              |  |             |         |   |                          |   |            |                  |  |   |                                   |   |  |                          |         |   |  |   |            |  
|Balance June 30, 2004                         |  | $           | 220,306 |   |                          | $ | 367,792    |                  |  | $ | 8,635,549                         |   |  | $                        |        |   |  |   | 9,223,647  |  
|Comprehensive Income:                         |  |             |        |   |                          |   |           |                  |  |   |                                  |   |  |                          |        |   |  |   |           |  
|Net Income                                    |  |             |        |   |                          |   |           |                  |  |   | 169,590                           |   |  |                          |        |   |  |   | 169,590    |  
|Foreign currency translation adjustment(1)    |  |             |        |   |                          |   |           |                  |  |   |                                  |   |  |                          | (24,985 | ) |  |   | (24,985    | )
|                                              |  |             |         |   |                          |   |            |                  |  |   |                                   |   |  |                          |         |   |  |   |            |  
|Total Comprehensive Income                    |  |             |         |   |                          |   |            |                  |  |   |                                   |   |  |                          |         |   |  |   | 144 605    |  
|                                              |  |             |         |   |                          |   |            |                  |  |   |                                   |   |  |                          |         |   |  |   |            |  
|Exercise of stock options(2)                  |  |             | 8,000   |   |                          |   | 72,000     |                  |  |   |                                  |   |  |                          |        |   |  |   | 80,000     |  
|Tax benefit from exercise of stock options(2) |  |             |        |   |                          |   | 100,424    |                  |  |   |                                  |   |  |                          |        |   |  |   | 100,424    |  
|                                              |  |             |         |   |                          |   |            |                  |  |   |                                   |   |  |                          |         |   |  |   |            |  
|Balance June 30, 2005                         |  | $           | 228,306 |   |                          | $ | 540,216    |                  |  | $ | 8,805,139                         |   |  | $                        | (24,985 | ) |  | $ | 9,548,676  |  
|                                              |  |             |         |   |                          |   |            |                  |  |   |                                   |   |  |                          |         |   |  |   |            |  

---

|(1) | Net of tax benefit of $15,401
|--- | -----------------------------

|(2) | Issued June 28, 2005, 64,000 shares at par value of $0.125
|--- | ----------------------------------------------------------



The accompanying notes are an integral part of these consolidated financial statements.



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##### Table of Contents

Kreisler Manufacturing Corporation and Subsidiaries

Consolidated Statements of Cash Flows

Three Years Ended June 30, 2005



|                                                                                            |  |      |           |   |      |   |            |      |  |   |            |  
|------------------------------------------------------------------------------------------- |  | ---- | --------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                                            |  | 2005 |           |   | 2004 |   |            | 2003 | 
|Cash Flows From Operating Activities                                                        |  |      |           |   |      |   |            |      |  |   |            |  
|                                                                                            |  |      |          
|Net income (loss)                                                                           |  | $    | 169,590   |   |      | $ | (658,248   | )    |  | $ | (665,402   | )
|Adjustments to reconcile net income (loss) to cash provided (used) by operating activities: |  |      |           |   |      |   |            |      |  |   |            |  
|Depreciation and amortization                                                               |  |      | 382,454   |   |      |   | 315,585    |      |  |   | 410,331    |  
|Tax benefit from exercise of stock options                                                  |  |      | 100,424   |   |      |   |            |      |  |   |            |  
|Deferred tax asset                                                                          |  |      | 10,600    |   |      |   | 73,900     |      |  |   | 32,700     |  
|Decrease (increase) in operating assets:                                                    |  |      |           |   |      |   |            |      |  |   |            |  
|Accounts receivable - trade                                                                 |  |      | (662,835  | ) |      |   | (733,569   | )    |  |   | 567,585    |  
|Insurance recovery                                                                          |  |      |          |   |      |   |           |      |  |   | 243,000    |  
|Inventories                                                                                 |  |      | (326,181  | ) |      |   | (36,205    | )    |  |   | 168,308    |  
|Income tax receivable                                                                       |  |      | 437,422   |   |      |   | 298,300    |      |  |   | (490,822   | )
|Other current assets                                                                        |  |      | (48,702   | ) |      |   | 155,083    |      |  |   | (117,490   | )
|Increase (decrease ) in operating liabilities:                                              |  |      |           |   |      |   |            |      |  |   |            |  
|Accounts payable - trade                                                                    |  |      | 521,514   |   |      |   | 8,311      |      |  |   | 310,118    |  
|Accrued expenses                                                                            |  |      | (189,728  | ) |      |   | (75,647    | )    |  |   | (446,164   | )
|Accrued environmental cost                                                                  |  |      | (158,577  | ) |      |   | (426,635   | )    |  |   | (314,455   | )
|                                                                                            |  |      |           |   |      |   |            |      |  |   |            |  
|Net Cash Provided (Used) By Operating Activities                                            |  |      | 235,981   |   |      |   | (1,079,125 | )    |  |   | (302,291   | )
|                                                                                            |  |      |          
|Cash Flows From Investing Activities                                                        |  |      |           |   |      |   |            |      |  |   |            |  
|Purchase of property, plant, and equipment                                                  |  |      | (484,150  | ) |      |   | (203,568   | )    |  |   | (100,593   | )
|Repayment of obligation under capital leases                                                |  |      | (25,223   | ) |      |   |            |      |  |   |            |  
|                                                                                            |  |      |           |   |      |   |            |      |  |   |            |  
|Net Cash Used by Investing Activities                                                       |  |      | (509,373  | ) |      |   | (203,568   | )    |  |   | (100,593   | )
|                                                                                            |  |      |          
|Cash Flows From Financing Activities                                                        |  |      |           |   |      |   |            |      |  |   |            |  
|Receipt of split-dollar life insurance receivable                                           |  |      | 235,450   |   |      |   |           |      |  |   |           |  
|Exercised stock options                                                                     |  |      | 80,000    |   |      |   |           |      |  |   |           |  
|Purchase of Company Stock                                                                   |  |      |          |   |      |   |           |      |  |   | (1,312,151 | )
|                                                                                            |  |      |           |   |      |   |            |      |  |   |            |  
|Net Cash Provided (Used) by Financing Activities                                            |  |      | 315,450   |   |      |   |           |      |  |   | (1,312,151 | )
|Increase (decrease) in cash and cash equivalents                                            |  |      | 42,058    |   |      |   | (1,282,693 | )    |  |   | (1,715,035 | )
|                                                                                            |  |      |          
|Cash and cash equivalents at beginning of year                                              |  |      | 3,367,494 |   |      |   | 4,650,187  |      |  |   | 6,365,222  |  
|                                                                                            |  |      |           |   |      |   |            |      |  |   |            |  
|Cash and cash equivalents at end of year                                                    |  | $    | 3,409,552 |   |      | $ | 3,367,494  |      |  | $ | 4,650,187  |  
|                                                                                            |  |      |           |   |      |   |            |      |  |   |            |  
|Supplemental Disclosure of Cash Flow Information                                            |  |      |           |   |      |   |            |      |  |   |            |  
|Income Taxes Paid                                                                           |  | $    |          |   |      | $ |           |      |  | $ | 245,269    |  
|Interest paid                                                                               |  | $    | 22,129    |   |      |   |           |      |  |   |           |  
|                                                                                            |  |      |           |   |      |   |            |      |  |   |            |  
|Non-cash Investing and Financing Activities:                                                |  |      |           |   |      |   |            |      |  |   |            |  
|Obligation under capital leases in exchange for equipment                                   |  | $    | 448,070   |   |      |   |            |      |  |   |            |  



The accompanying notes are an integral
part of these consolidated financial statements.



15



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##### Table of Contents

Notes to the Consolidated Financial Statements



A. Operations and Summary of Significant Accounting Policies



Operations



Kreisler Manufacturing Corporation and its wholly-owned subsidiaries, Kreisler Industrial
Corporation and Kreisler Polska Sp. z o.o. (collectively Kreisler or the Company), manufacture precision metal components and assemblies at facilities located in Elmwood Park, New Jersey and Krakow, Poland primarily for use
in military and commercial aircraft engines and in industrial gas turbine engines. These products include tube assemblies of multiple sizes and configuration as well as machined components.



Principles of Consolidation



The consolidated financial statements include the accounts of Kreisler Manufacturing
Corporation and its subsidiaries, all of which are wholly-owned. Inter-company transactions and accounts have been eliminated.



Revenue Recognition



Revenue from sales of products is recognized at the time title and the risks and rewards of ownership pass. This is when the products are shipped per customers instructions, the sales price is fixed and
determinable, and collections are reasonably assured.



Cash and Cash
Equivalents



The Company considers all highly liquid investments with a
maturity of three months or less at the date of acquisition to be cash equivalents.



Accounts Receivable - Trade



Accounts receivable  trade
represent uncollateralized customer obligations due under normal trade terms generally requiring payment within 30-90 days from the invoice date. Follow-up correspondence is made if unpaid accounts receivable go beyond the invoice due date. Payments
of accounts receivable are allocated to the specific invoices identified on the customers remittance advice.



Accounts receivable  trade are stated at the amount management expects to collect from outstanding balances. The carrying amounts of accounts receivable is reduced
by a valuation allowance that reflects managements best estimate of the amounts that will not be collected. Management individually reviews all accounts receivable balances that exceed the due date and estimates the portion, if any, of the
balance that will not be collected. Management provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts. Balances that are
still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable- trade.



Accounts receivable  trade is presented net of an allowance for estimated uncollectible accounts of $10,000 for 2005 and 2004.



Property, Plant, and Equipment



Property, plant, and equipment are recorded at cost less accumulated depreciation. The
Company has entered into capital leases for machining equipment. Maintenance and repairs, which do not improve efficiency or extend the useful life, are charged to operations as incurred. Asset and related accumulated depreciation amounts are
relieved from the accounts for retirements or dispositions. Resulting gains or losses are reflected in earnings. Depreciation is computed using accelerated methods over the estimated useful lives of three to ten years for machinery and equipment,
while the straight line method is used over the term of leases for building improvements.



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##### Table of Contents

Foreign Currency Transactions and Translation



Balance sheet accounts are translated at the exchange rate in effect at each balance sheet date; income and expense accounts are translated
at the average rates of exchange prevailing during the period. Gains and losses on foreign currency transactions denominated in a currency other than the functional currency are included in the statement of operations within selling, general and
administrative expenses. Adjustments related to foreign currency translations are reflected in the accumulated other comprehensive loss component of the statement of changes in stockholders equity and comprehensive income. The national
currency of the foreign subsidiary is the functional currency.



Long-Lived
Assets



The Company reviews long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The Company assesses the recoverability of the cost of the asset based on a review of projected undiscounted cash flows. In the event an
impairment loss is identified, it is recognized based on the amount by which the carrying value exceeds the estimated fair value of the long-lived asset.



Stock-Based Compensation



At June 30, 2005, the Company has a stock-based compensation plan created in 1997 which is more fully described in Note G. No stock-based employee compensation cost is
reflected in the net income (loss) for years ended June 30, 2005, 2004, and 2003. The following table illustrates the effect on the net income (loss) and earnings (loss) per share if the Company had applied the fair value recognition provisions of
SFAS No. 123 to stock-based employee compensation.



|                                                                                                                                            |  |      |         |   |      |   |          |      |  |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                                                                            |  | 2005 |         |   | 2004 |   |          | 2003 | 
|Net income (loss), as reported                                                                                                              |  | $    | 169,590 |   |      | $ | (658,248 | )    |  | $ | (665,402 | )
|Deduct: total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |      | (16,000 | ) |      |   | (16,000  | )    |  |   | (16,000  | )
|                                                                                                                                            |  |      |         |   |      |   |          |      |  |   |          |  
|Pro forma net income (loss)                                                                                                                 |  | $    | 153,590 |   |      | $ | (674,248 | )    |  | $ | (681,402 | )
|                                                                                                                                            |  |      |         |   |      |   |          |      |  |   |          |  
|Basic  as reported                                                                                                                         |  | $    | 0.10    |   |      | $ | (0.37    | )    |  | $ | (0.36    | )
|Basic  pro forma                                                                                                                           |  |      | 0.09    |   |      |   | (0.38    | )    |  |   | (0.39    | )
|Diluted  as reported                                                                                                                       |  |      | 0.10    |   |      |   | (0.37    | )    |  |   | (0.36    | )
|Diluted  pro forma                                                                                                                         |  |      | 0.09    |   |      |   | (0.38    | )    |  |   | (0.39    | )



In December, 2004, the Financial
Accounting Standards Board (FASB) finalized Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004) (SFAS No. 123R), Share Based Payments. SFAS No. 123R requires that the compensation
cost relating to share-based payment transactions be recognized in financial statements with the cost measured based on the estimated fair value of the equity or liability instruments issued. SFAS No. 123R allows for either prospective recognition
of compensation expense or retrospective recognition, which may be back to the original issuance of SFAS No. 123 or in the year of adoption. The effective date of SFAS No. 123R is the first quarter of the first fiscal year beginning after December
15, 2005. For the Company, this would require compliance for the quarter beginning July 1, 2006. The Company has not estimated the after-tax stock option expense and intends to provide such an estimate during the second half of fiscal 2006.



Inventories



Inventories are stated at the lower of cost or market. Raw materials cost is determined on a
first-in, first-out basis. Work in process and finished goods are determined on an average cost basis which is not materially different from a first-in, first-out basis.



17



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##### Table of Contents

Income Taxes



Income tax expense is recognized at applicable U.S. or international tax rates. Certain revenue and expense items may be recognized in one
period for financial statement purposes and in a different period for income tax reporting. The tax effects of such differences are reported as deferred income taxes.



Essentially all earnings of the Companys foreign subsidiary  Kreisler Polska - are expected to be reinvested in overseas
expansion. Since no foreign earnings currently exist, an incremental U.S. or foreign tax on repatriation of such earnings cannot be estimated.



Earnings Per Share



During 1998, the Company adopted SFAS No. 128, Earnings Per Share which requires disclosure of basic and diluted earnings per share. Under SFAS No. 128, basic
earnings per share are computed as earnings divided by weighted average shares outstanding. Diluted earnings per share include the dilutive effects of stock options and other potentially dilutive securities.



Comprehensive Income



Comprehensive income consists of two components, net income and other comprehensive loss. Other comprehensive loss refers to gains and
losses that under accounting principles generally accepted in the United States of America are recorded as an element of shareholders equity but are excluded from net income. The Companys other comprehensive loss is comprised solely of
foreign currency translation adjustments from its Polish subsidiary, which does not use the U.S. dollar as its functional currency.



Use of Estimates



The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.



Reclassification



Certain amounts in prior years financial statements have been reclassified to conform to the 2005 presentation.



New Accounting Standards



In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an Amendment of ARB No. 43, Chapter 4. The standard requires that abnormal amounts of idle
capacity and spoilage costs should be excluded from the cost of inventory and expensed when incurred. SFAS No. 151 is effective for fiscal years beginning after June 15, 2005. The Company does not expect the adoption of this standard to have a
material effect on its financial position or result of operations.



In June
2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections. SFAS No. 154 replaces Accounting Principles Board Opinion (APB) No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim
Financial Statements. Among other changes, SFAS No. 154 requires that a voluntary change in accounting principle be applied retroactively with all prior period financial statements presented on the basis of the new accounting principle, unless it is
impracticable to do so. SFAS No. 154 also provides that (1) a change in method of depreciating or amortizing a long-lived non-financial asset must be accounted for as a change in estimate (prospectively) that was affected by a change in accounting
principle, and (2) correction of errors in previously issued financial statements should be termed a restatement. The new standard is effective for accounting changes and correction of errors made in fiscal years beginning after December
15, 2005. Early adoption of this standard is permitted for accounting changes and correction of errors made in fiscal years beginning after June 1, 2005.



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##### Table of Contents

In March 2005, the FASB issued FASB Interpretation No. 47, Accounting for Conditional Asset Retirement
Obligations, an interpretation of SFAS No. 143 (FIN 47), which clarifies the term conditional asset retirement obligation as used in SFAS No. 143, Accounting for Asset Retirement Obligations. FIN 47 provides
that an asset retirement obligation is conditional when either the timing and/or method of settling the obligation is conditioned on a future event. Accordingly, an entity is required to recognize a liability for the fair value of a conditional
asset retirement obligation if the fair value of the liability can be reasonably estimated. Uncertainty about the timing and/or method of settlement of a conditional asset retirement obligation should be considered in the measurement of the
liability when sufficient information exists. This interpretation also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective for fiscal years ending
after December 15, 2005. The Company does not believe that FIN 47 will have a material effect on its financial position, results of operations and cash flows.



In December, 2004, the Financial Accounting Standards Board (FASB) finalized Statement of Financial Accounting Standards (SFAS) No. 123
(revised 2004) (SFAS No. 123R), Share Based Payments. SFAS No. 123R requires that the compensation cost relating to share-based payment transactions be recognized in financial statements with the cost measured based on the
estimated fair value of the equity or liability instruments issued. SFAS No. 123R allows for either prospective recognition of compensation expense or retrospective recognition, which may be back to the original issuance of SFAS No. 123 or in the
year of adoption. The effective date of SFAS No. 123R is the first quarter of the first fiscal year beginning after December 15, 2005.



In December 2004, the FASB issued SFAS No. 153, Exchange of Non-monetary Assets, which amends a portion of the guidance in APB No. 29, Accounting for
Non-monetary Transactions. Both SFAS No. 153 and APB No. 29 require that exchanges of non-monetary assets should be measured based on fair value of the assets exchanged. APB No. 29 allowed for non-monetary exchanges of similar productive
assets. SFAS No. 153 eliminates that exception and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. A non-monetary exchange has commercial substance if the future cash flows of the
entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Any non-monetary asset exchanges will be accounted for
under SFAS No. 153. The Company does not expect SFAS No. 153 to have a material effect on its financial position, results of operations or cash flows.



B. Concentration of Credit Risk



The Company maintains cash balances at several financial institutions. Accounts at each domestic institution are insured by the Federal Deposit Insurance Corporation up
to $100,000. Uninsured balances approximated $2,325,000 and $1,979,000 at the end of fiscal years 2005 and 2004, respectively. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk
on cash.



C. Inventories



Inventories consist of the following at June 30:



|                |  |      |           |      |   |          
|--------------- |  | ---- | --------- | ---- | - | ---------
|                |  | 2005 |           | 2004
|Raw materials   |  | $    | 1,606,347 |      | $ | 1,393,224
|Work in process |  |      | 855,100   |      |   | 731,511  
|Finished Goods  |  |      | 356,447   |      |   | 366,978  
|                |  |      |           |      |   |          
|                |  | $    | 2,817,894 |      | $ | 2,491,713
|                |  |      |           |      |   |          



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##### Table of Contents

D. Property, Plant, and Equipment



Property, plant, and equipment consist of the following at June 30:



|                              |  |      |            |   |      |   |            |  
|----------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                              |  | 2005 |            |   | 2004 |  
|Building improvements         |  | $    | 266,951    |   |      | $ | 225,806    |  
|Machinery and equipment       |  |      | 5,883,375  |   |      |   | 5,013,247  |  
|                              |  |      |            |   |      |   |            |  
|                              |  |      | 6,150,326  |   |      |   | 5,239,053  |  
|Less accumulated depreciation |  |      | (4,659,160 | ) |      |   | (4,297,653 | )
|                              |  |      |            |   |      |   |            |  
|                              |  | $    | 1,491,166  |   |      | $ | 941,400    |  
|                              |  |      |            |   |      |   |            |  



Depreciation expense was $382,454,
$315,585 and $410,331 for 2005, 2004, and 2003, respectively.



E. Split
Dollar Life Insurance Receivable



Split dollar life insurance
receivable represents annual life insurance premiums paid on behalf of an executive of the Company through March 31, 2002. Premiums paid by the Company on behalf of the insured executive subsequent to March 31, 2002 were included as additional
compensation to the insured in the year paid. Due to the June 2004 death of the insured executive officer, the Company collected $235,450 during fiscal year 2005 in death benefit proceeds under the life insurance contract.



F. Income Taxes



The components of income tax expense/(benefit) as shown in the Consolidated Statements of Operations are as follows:



|                                     |  |      |         |   |      |   |          |      |  |   |          |  
|------------------------------------ |  | ---- | ------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                     |  | 2005 |         |   | 2004 |   |          | 2003 | 
|Current tax expense/(benefit)        |  |      |         |   |      |   |          |      |  |   |          |  
|Federal                              |  | $    | 18,600  |   |      | $ | (472,500 | )    |  | $ | (478,100 | )
|State                                |  |      | 13,100  |   |      |   |         |      |  |   |         |  
|Foreign                              |  |      |        |   |      |   |         |      |  |   |         |  
|                                     |  |      |         |   |      |   |          |      |  |   |          |  
|Total current tax expense/(benefit)  |  | $    | 31,700  |   |      | $ | (472,500 | )    |  | $ | (478,100 | )
|                                     |  |      |        
|Deferred tax expense/(benefit)       |  |      |         |   |      |   |          |      |  |   |          |  
|Federal                              |  |      | 121,600 |   |      |   | 93,000   |      |  |   | 73,400   |  
|State                                |  |      | 13,500  |   |      |   | (19,100  | )    |  |   | (40,700  | )
|Foreign                              |  |      | (19,200 | ) |      |   |         |      |  |   |         |  
|                                     |  |      |         |   |      |   |          |      |  |   |          |  
|Total deferred tax expense/(benefit) |  |      | 115,900 |   |      |   | 73,900   |      |  |   | 32,700   |  
|                                     |  |      |         |   |      |   |          |      |  |   |          |  
|Income tax expense/(benefit)         |  | $    | 147,600 |   |      | $ | (398,600 | )    |  | $ | (445,400 | )
|                                     |  |      |         |   |      |   |          |      |  |   |          |  



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##### Table of Contents

The components of earnings from operations before income taxes consisted of the following:



|              |  |      |         |   |      |   |            |      |  |   |            |  
|------------- |  | ---- | ------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|              |  | 2005 |         |   | 2004 |   |            | 2003 | 
|U.S.          |  | $    | 415,766 |   |      | $ | (1,056,848 | )    |  | $ | (1,110,802 | )
|International |  |      | (98,576 | ) |      |   |           |      |  |   |           |  
|              |  |      |         |   |      |   |            |      |  |   |            |  
|Total         |  | $    | 317,190 |   |      | $ | (1,056,848 | )    |  | $ | (1,110,802 | )
|              |  |      |         |   |      |   |            |      |  |   |            |  



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##### Table of Contents

The tax-effected components of deferred income tax assets and liabilities consisted of the following:



|                                                             |  |      |          |   |      |   |        
|------------------------------------------------------------ |  | ---- | -------- | - | ---- | - | -------
|                                                             |  | 2005 |          |   | 2004
|Accrued environmental cost                                   |  | $    | 177,347  |   |      | $ | 225,729
|Federal, foreign, and state net operating loss carryforwards |  |      | 310,847  |   |      |   | 169,316
|Other items, net                                             |  |      | 76,100   |   |      |   | 105,844
|                                                             |  |      |          |   |      |   |        
|Gross deferred tax assets                                    |  |      | 564,294  |   |      |   | 500,889
|                                                             |  |     
|Valuation allowance                                          |  |      | (102,342 | ) |      |   |       
|                                                             |  |      |          |   |      |   |        
|Deferred tax assets                                          |  |      | 461,952  |   |      |   | 500,889
|Basis difference in fixed assets                             |  |      | 29,051   |   |      |   | 45,591 
|Other items, net                                             |  |      | 5,101    |   |      |   | 16,898 
|                                                             |  |      |          |   |      |   |        
|Deferred tax liabilities                                     |  |      | 34,152   |   |      |   | 62,489 
|                                                             |  |      |          |   |      |   |        
|Net deferred tax assets                                      |  | $    | 427,800  |   |      | $ | 438,400
|                                                             |  |      |          |   |      |   |        



|                                    |  |      |         |      |   |        
|----------------------------------- |  | ---- | ------- | ---- | - | -------
|                                    |  | 2005 |         | 2004
|Net deferred tax assets consist of: |  |      |         |      |   |        
|Current deferred tax asset          |  | $    | 166,000 |      | $ | 173,500
|Non-current deferred tax asset      |  |      | 261,800 |      |   | 264,900
|                                    |  |      |         |      |   |        
|Net deferred tax asset              |  | $    | 427,800 |      | $ | 438,400
|                                    |  |      |         |      |   |        



As of June 30, 2005, the Company had
approximately $303,000 of Federal, $3,231,000 of state, and $94,000 of foreign net operating loss carryforwards. The Federal and state net operating loss carryforwards begin to expire in 2023 and 2012, respectively, and the foreign net operating
loss carryforward will expire in 2010. The valuation allowance has been developed to reduce the deferred tax asset to an amount that is more likely than not to be realized, and is based upon the uncertainty of realization of certain state deferred
tax assets related to net operating loss carryforwards.



Income tax benefits
related to the exercise of stock options increased additional paid-in capital by $100,424 in 2005.



The following is a reconciliation of income taxes at the Federal statutory rate to the provision for income taxes:



|                                                 |  |      |         |      |   |          |      |  |   |          |  
|------------------------------------------------ |  | ---- | ------- | ---- | - | -------- | ---- |  | - | -------- | -
|                                                 |  | 2005 |         | 2004 |   |          | 2003 | 
|Federal tax computed at statutory rate           |  | $    | 107,800 |      | $ | (359,300 | )    |  | $ | (377,400 | )
|State taxes, net of Federal benefit              |  |      | 22,100  |      |   | (37,000  | )    |  |   | (36,100  | )
|Foreign income taxed at rates other than Federal |  |      | 15,200  |      |   |         |      |  |   |         |  
|Other items, net                                 |  |      | 2,500   |      |   | (2,300   | )    |  |   | (31,900  | )
|                                                 |  |      |         |      |   |          |      |  |   |          |  
|Income tax expense/(benefit)                     |  | $    | 147,600 |      | $ | (398,600 | )    |  | $ | (445,400 | )
|                                                 |  |      |         |      |   |          |      |  |   |          |  



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##### Table of Contents

G. Stock Option Plan



The Companys Stock Option Plan (Plan) was approved by the shareholders of the Company in November 1997, effective August 5, 1997. A
maximum of 280,000 shares of the Companys common stock may be issued under the Plan. The term for all stock options granted is ten years and optionees vest in the options over a three-year period. In the event of a change of control, as
defined in the Plan, optionees become fully vested in their unexercised options.



The purpose of the Plan is to provide additional incentives to officers, other key employees, directors of, and important consultants to the Company by encouraging them to invest in shares of the Companys common stock and, thereby,
acquire a proprietary interest in the Company and an increased personal interest in the Companys continued success and progress.



Options under the Plan may be options which qualify under Section 422 of the Internal Revenue Code (Incentive Stock Options) or options which do not qualify under Section
422 (Nonqualified Options).



On August 5, 1997, Incentive Stock Options and
Nonqualified Options (1997 options) to purchase 20,000 and 112,000 shares, respectively, at a price of $1.25 per share were granted. The quoted market price of the Companys stock at that time was $1.46 per share. On October 19, 1998, the
Company granted Nonqualified Options (1998 options) to purchase 8,000 shares at a price of $5.50 per share. The quoted market price of the Company stock at that time was $5.50 per share. On April 17, 2001, the Company granted Nonqualified Options
(2001 options) to purchase 16,000 shares at a price of $5.50 per share. The 2001 options expired in fiscal 2004 due to resignations of the two board members to whom those options were granted. The quoted market price of the Company stock at that
time was $6.00 per share. Additionally, on December 23, 2003, the Company granted Nonqualified Options (2004 options) to purchase 16,000 shares at a price of $5.00 per share. The quoted market price of the Company stock at that time was also $5.00
per share. The following table summarizes option activity:



|                                 |  |         |   |      |                               |      |        |         |   |                               |   |        |  |                               |  |   |     
|-------------------------------- |  | ------- | - | ---- | ----------------------------- | ---- | ------ | ------- | - | ----------------------------- | - | ------ |  | ----------------------------- |  | - | ----
|                                 |  | 2005    |   | 2004 |                               | 2003
|                                 |  | Shares  |   |      | Weighted AverageExercisePrice |      | Shares |         |   | Weighted AverageExercisePrice |   | Shares |  | Weighted AverageExercisePrice
|Stock Option Activity            |  |         |   |      |                               |      |        |         |   |                               |   |        | 
|Outstanding, beginning of period |  | 105,501 |   |      | $                             | 1.93 |        | 105,501 |   |                               | $ | 2.00   |  | 105,501                       |  | $ | 2.00
|                                 |  |         |   |      |                               |      |        |         |   |                               |   |        |  |                               |  |   |     
|Granted                          |  |         |   |      |                               |      |        | 16,000  |   |                               | $ | 5.00   |  |                              |  |   |    
|Exercised                        |  | (64,000 | ) |      | $                             | 1.25 |        |        |   |                               |   |       |  |                              |  |   |    
|Expired or surrendered           |  |         |   |      |                               |      |        | (16,000 | ) |                               | $ | 5.50   |  |                              |  |   |    
|                                 |  |         |   |      |                               |      |        |         |   |                               |   |        |  |                               |  |   |     
|Outstanding, end of period       |  | 41,501  |   |      | $                             | 2.97 |        | 105,501 |   |                               | $ | 1.93   |  | 105,501                       |  | $ | 2.00
|                                 |  |         |   |      |                               |      |        |         |   |                               |   |        |  |                               |  |   |     
|Exercisable, end of period       |  | 30,834  |   |      | $                             | 2.27 |        | 89,501  |   |                               | $ | 1.38   |  | 100,167                       |  | $ | 1.81
|                                 |  |         |   |      |                               |      |        |         |   |                               |   |        |  |                               |  |   |     



The weighted average life of the
options is five years. The estimated fair value of stock options at the time of the grant using the Black-Scholes option pricing model was as follows:



|                              |  |                            |       |   |      |   |        |      |  |   |       |   |  |   |       |  
|----------------------------- |  | -------------------------- | ----- | - | ---- | - | ------ | ---- |  | - | ----- | - |  | - | ----- | -
|                              |  | Fiscal Year Option Granted |      
|                              |  | 2004                       |       |   | 2001 |   |        | 1998 |  |   | 1997  |  
|Fair value per option         |  | $                          | 5.00  |   |      | $ | 4.80   |      |  | $ | 4.10  |   |  | $ | .67   |  
|Assumptions:                  |  |                            |       |   |      |   |        |      |  |   |       |   |  |   |       |  
|Annualized dividend yield     |  |                            | 0     | % |      |   | 0      | %    |  |   | 0     | % |  |   | 0     | %
|Expected volatility           |  |                            | 27.17 | % |      |   | 105.49 | %    |  |   | 96.23 | % |  |   | 32.18 | %
|Risk free interest rate       |  |                            | 3.22  | % |      |   | 4.87   | %    |  |   | 4.06  | % |  |   | 6.13  | %
|Expected option terms (years) |  |                            | 5     |   |      |   | 5      |      |  |   | 5     |   |  |   | 5     |  



23



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##### Table of Contents

H. Earnings Per Share



|                      |  |      |           |      |   |           |      |  |   |           |  
|--------------------- |  | ---- | --------- | ---- | - | --------- | ---- |  | - | --------- | -
|                      |  | 2005 |           | 2004 |   |           | 2003 | 
|Basic EPS:            |  |      |           |      |   |           |      |  |   |           |  
|Net Income (Loss)     |  | $    | 169,590   |      | $ | (658,248  | )    |  | $ | (665,402  | )
|Basic Shares          |  |      | 1,762,973 |      |   | 1,762,447 |      |  |   | 1,846,697 |  
|Per Share             |  | $    | 0.10      |      | $ | (0.37     | )    |  |   | (0.36     | )
|                      |  |      |           |      |   |           |      |  |   |           |  
|Diluted EPS:          |  |      |           |      |   |           |      |  |   |           |  
|Net Income (Loss)     |  | $    | 169,590   |      | $ | (658,248  | )    |  | $ | (665,402  | )
|Effect of options     |  | $    | 20,332    |      | $ | 68,596    |      |  | $ | 68,485    |  
|Diluted shares        |  |      | 1,783,305 |      |   | 1,831,043 |      |  |   | 1,915,181 |  
|Anti-dilutive options |  |      |          |      | $ | (68,596   | )    |  | $ | (68,484   | )
|Per Share             |  | $    | 0.10      |      | $ | (0.37     | )    |  | $ | (0.36     | )
|                      |  |      |           |      |   |           |      |  |   |           |  



I. Significant Customers



In 2005, 2004 and 2003, a substantial portion of the Companys
sales were to three industrial customers and the U.S. Government. Sales to, and accounts receivable from, these customers for the past three years were as follows:



|     |  |                 |           |                      |   |         |  |     |            |  |   |          
|---- |  | --------------- | --------- | -------------------- | - | ------- |  | --- | ---------- |  | - | ---------
|     |  | U.S. Government |           | Industrial Customers
|     |  | Sales           |           | A/R                  |   | Sales   |  | A/R
|2005 |  | $               | 1,497,104 |                      | $ | 461,810 |  | $   | 10,731,335 |  | $ | 2,430,227
|2004 |  |                 | 1,631,427 |                      |   | 397,973 |  |     | 7,985,789  |  |   | 1,550,654
|2003 |  |                 | 2,859,052 |                      |   | 417,909 |  |     | 7,614,277  |  |   | 1,029,095



J. Commitments and Contingencies



Leases



The Company conducts its operations from leased facilities, which include manufacturing
plants. The New Jersey manufacturing plant lease expires in September 2006. The Poland facility is a monthly lease requiring six months notice of cancellation by either party. The Company has also entered into capital leases for five pieces of
manufacturing equipment. The equipment is included in June 30, 2005 property and equipment with a cost of $448,070 and accumulated depreciation of $38,978. Future minimum lease commitments for each of the next five years and in aggregate as of June
30, 2005 are as follows:



|                                                    |  |               |         |   |                 |   |        
|--------------------------------------------------- |  | ------------- | ------- | - | --------------- | - | -------
|                                                    |  | CapitalLeases |         |   | OperatingLeases
|Year ending June 30,                                |  |               |         |   |                 |   |        
|2006                                                |  | $             | 107,102 |   |                 | $ | 273,518
|2007                                                |  |               | 107,102 |   |                 |   | 76,905 
|2008                                                |  |               | 107,102 |   |                 |   | 4,080  
|2009                                                |  |               | 107,102 |   |                 |   |       
|2010                                                |  |               | 78,591  |   |                 |   |       
|Thereafter                                          |  |               |        |   |                 |   |       
|                                                    |  |               |         |   |                 |   |        
|                                                    |  | $             | 506,999 |   |                 | $ | 354,503
|                                                    |  |               |         |   |                 |   |        
|Less amount representing interest                   |  |               | (84,152 | ) |                 |   |        
|                                                    |  |               |         |   |                 |   |        
|Present value of net minimum capital lease payments |  |               | 422,847 |   |                 |   |        
|Less current maturities                             |  |               | (76,869 | ) |                 |   |        
|                                                    |  |               |         |   |                 |   |        
|Long term capital lease obligation                  |  | $             | 345,978 |   |                 |   |        
|                                                    |  |               |         |   |                 |   |        



24



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##### Table of Contents

Total rental expense for 2005, 2004, and 2003 amounted to $243,437, $245,862, and $239,470, respectively.



Contingencies



Certain federal and state laws authorize the United States Environmental Protection Agency (EPA) to issue orders and bring enforcement
actions to compel responsible parties to take investigative and remedial actions at any site that is determined to present an imminent and substantial danger to the public or the environment because of an actual or threatened release of one or more
hazardous substances.



These statutory provisions impose joint and several
responsibility without regard to fault on all responsible parties, including the generators of the hazardous substances, for certain investigative and remedial costs at sites where substances that are classified as hazardous are or were produced or
handled. The Company generally provides for the disposal or processing of such substances through licensed, independent contractors.



In July 1999, the Company became aware of historical releases of hazardous substances at its leased manufacturing facility located at 180 Van Riper Avenue, Elmwood Park,
New Jersey. The Company promptly notified the New Jersey Department of Environmental Protection (NJDEP) as required by the New Jersey Spill Compensation and Control Act (Spill Act), N.J.S.A. 58:10-23.11, and retained the services of environmental
remediation consultants to perform a full site characterization in accordance with the NJDEPs Technical Requirements for Site Remediation, N.J.A.C. 7:26E-1.1. The site characterization has been completed. The remaining cost estimated for
remediation of the site is approximately $443,000, most of which is expected to be incurred by the Company over the next year. It is reasonably possible that the Companys recorded estimate of remediation cost may change in the near term.



At June 30, 2005, estimated remediation payments are as follows:



|                     |  |   |         |  
|-------------------- |  | - | ------- | -
|Year Ending June 30, |  |   |         |  
|2006                 |  | $ | 479,000 |  
|2008                 |  |   | 7,300   |  
|Thereafter           |  |   | 14,700  |  
|                     |  |   |         |  
|                     |  |   | 501,000 |  
|Unamortized discount |  |   | (58,000 | )
|                     |  |   |         |  
|                     |  | $ | 443,000 |  
|                     |  |   |         |  



The Company notified its liability
insurance carriers which issued liability policies to the Company during the period 1959 to 1985. In 2001, the Company reached a settlement with one of its insurance carriers in the amount of $2,500,000. The recorded amounts for the year ended June
30, 2001 were as follows:



|                                                                                  |  |   |            |  
|--------------------------------------------------------------------------------- |  | - | ---------- | -
|Accrued estimated environmental cost (including $78,000 of discount amortization) |  | $ | 2,070,000  |  
|Insurance recovery                                                                |  |   | (2,500,000 | )
|                                                                                  |  |   |            |  
|Net gain                                                                          |  | $ | (430,000   | )
|                                                                                  |  |   |            |  



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##### Table of Contents

For the year ended June 30, 2002, the Company reached an additional settlement with two of its insurance carriers in the
amount of $243,000. The recorded amounts were as follows:



|                               |  |   |          |  
|------------------------------ |  | - | -------- | -
|Environmental management costs |  | $ | 96,433   |  
|Insurance recovery             |  |   | (243,000 | )
|                               |  |   |          |  
|Net gain                       |  | $ | (146,567 | )
|                               |  |   |          |  



For the year ended June 30, 2003, the
Company reached an additional settlement with one of its insurance carriers in the amount of $160,000. The recorded amounts were as follows:



|                               |  |   |          |  
|------------------------------ |  | - | -------- | -
|Environmental management costs |  | $ | 54,624   |  
|Insurance recovery             |  |   | (160,000 | )
|                               |  |   |          |  
|Net gain                       |  | $ | (105,376 | )
|                               |  |   |          |  



The Company maintains a sewer use
permit issued by the Passaic Valley Sewerage Commissioners (PVSC) authorizing the Company to discharge industrial effluent from its KIC manufacturing facility located at 180 Van Riper Avenue, Elmwood Park, New Jersey into the PVSC Waste
Treatment facility. KIC follows the requirements of Federal Regulation 40 CFR 413 and Section 313.1 of the PVSC Rules and Regulations. In July 2005, the Company was notified by the PVSC that the Company was in violation of the daily maximum limit
for nickel and total metals and, as a result, had incurred a Serious Violation. These violations occurred during the fiscal year ended June 30, 2005. The Company was also notified that it is in Significant Non-Compliance and subject to enforcement
action. The Company retained the services of an environmental remediation consultant and immediately removed the suspected cause of these violations from its industrial effluent discharge. The Company has also retained legal counsel. With the
assistance of the environmental remediation consultant, the Company is evaluating alternatives to eliminate the potential for future violations. The Company has implemented procedures to prevent the re-occurrence of this type of violation. The
estimated cost of these procedures is approximately $10,000 per year. Alternative procedures are in the preliminary stages of consideration. Although there is no definitive method to estimate the fines or penalties which may be imposed on the
Company in the resolution of this matter, the estimated range of such fines or penalties is $25,000 to $50,000. The Company has included a charge against earnings of $37,500 for the year ended June 30, 2005.



K. Segment Information



SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information,
supersedes SFAS No. 14, Financial Reporting for Segments of a Business Enterprise, in reporting information about a public business enterprises operating segments. Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by Management in deciding how to allocate resources and in assessing performance.



SFAS No. 131 requires that a public business enterprise report a measure of segment profit or loss, certain specific revenue and expense items, and segment assets. It
requires reconciliations of total segment revenues, total segment profit or loss, total segment assets, and other amounts disclosed for segments to corresponding amounts in the enterprises general-purpose financial statements. It requires that
all public businesses report information about the revenues derived from the enterprises products or services (or groups of similar products and services), about the countries in which the enterprise earns revenues and holds assets, and about
major customers regardless of whether that information is used in making operating decisions. However, this statement does not require an enterprise to report information that is not prepared for internal use if reporting it would be impracticable.



26



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##### Table of Contents

The Company has elected to organize its businesses based principally upon geographic areas. The Company evaluates
performance and allocates resources based on revenues, operating income (loss) and net assets employed. The accounting policies of the reportable segments are the same as those described in Summary of Significant Accounting Policies.
There are no material inter-segment sales. Net sales are attributed to geographic areas based on the location of the assets producing the revenues. Geographic information regarding the Companys net sales and long-lived assets is as follows:



|                                        |  |               |            |                            |   |         |       |  |   |           
|--------------------------------------- |  | ------------- | ---------- | -------------------------- | - | ------- | ----- |  | - | ----------
|                                        |  | United States |            | InceptionMarch, 2005Poland |   |         | Total
|2005                                    |  |               |            |                            |   |         |       |  |   |           
|Sales to unaffiliated customers         |  | $             | 14,445,974 |                            | $ | 1,827   |       |  | $ | 14,447,801
|Income (loss) from operations           |  |               | 341,687    |                            |   | (98,638 | )     |  |   | 243,049   
|Interest income                         |  |               | 74,079     |                            |   | 62      |       |  |   | 74,141    
|                                        |  |               |            |                            |   |         |       |  |   |           
|Income (loss) before income tax expense |  |               | 415,766    |                            |   | (98,576 | )     |  |   | 317,190   
|                                        |  |               |            |                            |   |         |       |  |   |           
|Segment assets                          |  |               | 11,300,374 |                            |   | 276,965 |       |  |   | 11,577,339
|Depreciation                            |  |               | 363,976    |                            |   | 18,478  |       |  |   | 382,454   



L. Related Party Transactions



There were no fees paid to related parties in fiscal years 2005 and
2004. Consulting fees paid to one of the Companys former board members during fiscal 2003 approximated $66,500.



M. Liabilities in Excess of 5% of Current Liabilities



Liabilities other than trade payables that exceed 5% of current liabilities include accrued environmental costs of $427,000 at June 30, 2005 and $293,000 of payroll and
vacation accruals as well as $159,000 of accrued environmental cost at June 30, 2004.



N. Employee Benefit Plan



Beginning April 1, 2005 the
Company established an employee savings plan that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. All employees, except those covered by a collective bargaining agreement, are eligible to participate in
the plan after completing one year of service. The employer may, in its sole discretion, contribute and allocate to each eligible participants account a percentage of the participants elective deferrals. Matching contributions, if any,
shall be determined as of the end of the plan year. No matching contributions were made to the 401(k) plan during fiscal 2005. The plan does not offer employees an option to invest in the shares of the Company.



27



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##### Table of Contents

Report of Independent Registered Public Accounting Firm



To the Board of Directors and Stockholders

Kreisler Manufacturing Corporation



We have audited the accompanying consolidated balance sheets of Kreisler Manufacturing Corporation (a Delaware corporation) and its subsidiaries as of June 30, 2005 and
2004, and the related consolidated statements of operations, changes in stockholders equity and comprehensive income, and cash flows for each of the years in the three-year period ended June 30, 2005. These consolidated financial statements
are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.



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



In our
opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Kreisler Manufacturing Corporation and its subsidiaries as of June 30, 2005 and 2004, and the results of their
operations and their cash flows for each of the years in the three-year period ended June 30, 2005 in conformity with accounting principles generally accepted in the United States of America.



Gregory, Sharer &Stuart, P.A.



LOGO



St. Petersburg, Florida

September 22, 2005



28



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##### Table of Contents

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE



None.



ITEM 8A. CONTROLS AND PROCEDURES



Quarterly evaluation of the Companys Disclosure and Internal ControlsThe Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures (Disclosure Controls)
as of the end of the period covered by this Form 10-KSB and any changes in internal controls over financial reporting that occurred during the last quarter of its fiscal year. This evaluation (Controls Evaluation) was done under the
supervision and with the participation of management, including the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO).



Limitations on the Effectiveness of ControlsA control system, no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people,
or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost
effective control system, misstatements due to error or fraud may occur and not be detected. The Company conducts periodic evaluations of its internal controls to enhance, where necessary, its procedures and controls.



Conclusions Based upon the Controls Evaluation, the CEO and CFO have
concluded that the Disclosure Controls are effective in reaching a reasonable level of assurance that management is timely alerted to material information relating to the Company during the period when its periodic reports are being prepared. In
accordance with SEC requirements, the CEO and CFO conducted an evaluation of the Companys internal control over financial reporting (Internal Controls) to determine whether there have been changes in Internal Controls occurred
during the quarter that have materially affected or which are reasonable likely to materially affect Internal Controls. Based on this evaluation, there have been no such changes in Internal Controls during the quarter covered by this report.



ITEM 8B. OTHER INFORMATION



None.



PART III



ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT



Incorporated by reference to the registrants Proxy Statement relating to the 2005 Annual Meeting of Stockholders.



29



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##### Table of Contents

ITEM 10. EXECUTIVE COMPENSATION



Incorporated by
reference to the registrants Proxy Statement relating to the 2005 Annual Meeting of Stockholders.



ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS



Incorporated by reference to the registrants Proxy Statement relating to the 2005 Annual Meeting of Stockholders.



ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



Incorporated by reference to the registrants Proxy Statement relating to the 2005 Annual Meeting of Stockholders.



ITEM 13. EXHIBITS



The following exhibits are
filed with this Report.



|     |  |                                                                                                                                                                                                                                  
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Certificate of Incorporation, including amendments(1)                                                                                                                                                                            
|     | 
|3.2  |  | Bylaws(1)                                                                                                                                                                                                                        
|     | 
|10.1 |  | 1997 Stock Option Plan(1)+                                                                                                                                                                                                       
|     | 
|10.2 |  | Lease Agreement between Kreisler Manufacturing Corporation and T&T Investments dated October 1, 2000.(2)                                                                                                                         
|     | 
|10.3 |  | Remediation Contract between Kreisler Manufacturing Corporation and Resource Control Corporation dated June 15, 2001.(2)                                                                                                         
|     | 
|10.4 |  | Supplemental Compensation Agreement between Kreisler Manufacturing Corporation and Wallace Kelly dated July 11, 2001.(2)+                                                                                                        
|     | 
|10.5 |  | Letter dated July 23, 2003 acknowledging termination of previous Supplemental Compensation Agreement between Kreisler Manufacturing Corporation and Wallace Kelly (July 11, 2001) and New
Supplemental Compensation Agreement.(3)
|     | 
|10.6 |  | Union Agreement between Kreisler Industrial Corporation, a Division of Kreisler Manufacturing Corporation, and Local 377, RWSDU, affiliated with AFL-CIO dated December 5, 2003.(4)                                              
|     | 
|10.7 |  | Consulting Agreement between Kreisler Manufacturing Corporation and Wallace N. Kelly.(5)+                                                                                                                                        
|     | 
|11   |  | Statement regarding computation of per share earnings.                                                                                                                                                                           
|     | 
|21   |  | Subsidiaries of the registrant.                                                                                                                                                                                                  
|     | 
|31.1 |  | Certification of Chief Executive Officer Pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.                                                                                                                      



30



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##### Table of Contents

|     |  |                                                                                                                                                  
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|31.2 |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.                                      
|     | 
|32.1 |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|     | 
|32.2 |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

---

|(1) | Incorporated by reference to the registrants Form 10-KSB for the year ended June 30, 1997 (SEC File Number 000-04036)
|--- | ----------------------------------------------------------------------------------------------------------------------

|(2) | Incorporated by reference to the registrants Form 10-KSB for the year ended June 30, 2001
|--- | ------------------------------------------------------------------------------------------

|(3) | Incorporated by reference to the registrants Form 10-KSB for the year ended June 30, 2004
|--- | ------------------------------------------------------------------------------------------

|(4) | Incorporated by reference to the registrants Form 10-QSB for the quarter ended March 31, 2004
|--- | ----------------------------------------------------------------------------------------------

|(5) | Incorporated by reference to the registrants Form 10-K filed on September 19, 2005
|--- | -----------------------------------------------------------------------------------

|+ | Compensatory plan or arrangement
|- | --------------------------------



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES



Incorporated by reference to the registrants Proxy Statement relating to the 2005 Annual Meeting of Stockholders.



31



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##### Table of Contents

SIGNATURES



In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.



KREISLER MANUFACTURING
CORPORATION



|                                                       
|-------------------------------------------------------
|/s/ Edward A. Stern                                    
|Edward A. Stern, Co-President & Chief Financial Officer
|                                                       
|Date: September 24, 2005                               



In accordance with the Securities
Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



|                        |  |                                                                                     |  |                   
|----------------------- |  | ----------------------------------------------------------------------------------- |  | ------------------
|NAME                    |  | TITLE                                                                               |  | DATE              
|                        |  |                                                                                    
|/s/ Michael D. Stern    |  | Co-President & Chief Executive Officer (Principal Executive Officer)                |  | September 24, 2005
|Michael D. Stern        |  |                                                                                     | 
|                        |  |                                                                                    
|/s/ Edward A. Stern     |  | Co-President & Chief Financial Officer (Principal Financial and Accounting Officer) |  | September 24, 2005
|Edward A. Stern         |  |                                                                                     | 
|                        |  |                                                                                    
|/s/ Wallace N. Kelly    |  | Director, Chairman of the Board                                                     |  | September 24, 2005
|Wallace N. Kelly        |  |                                                                                     |  |                   
|                        |  |                                                                                    
|/s/ Michael L. Goldberg |  | Director                                                                            |  | September 24, 2005
|Michael L. Goldberg     |  |                                                                                     |  |                   
|                        |  |                                                                                    
|/s/ John W. Poling      |  | Director                                                                            |  | September 24, 2005
|John W. Poling          |  |                                                                                     |  |                   
|                        |  |                                                                                    
|/s/ Ronald Nussle, Jr.  |  | Director                                                                            |  | September 24, 2005
|Ronald Nussle, Jr.      |  |                                                                                     |  |                   



32



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EXHIBIT INDEX



|     |  |                                                                                                                                                                                                                                  
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Certificate of Incorporation, including amendments(1)                                                                                                                                                                            
|     | 
|3.2  |  | Bylaws(1)                                                                                                                                                                                                                        
|     | 
|10.1 |  | 1997 Stock Option Plan(1)+                                                                                                                                                                                                       
|     | 
|10.2 |  | Lease Agreement between Kreisler Manufacturing Corporation and T&T Investments dated October 1, 2000(2)                                                                                                                          
|     | 
|10.3 |  | Remediation Contract between Kreisler Manufacturing Corporation and RCC dated June 15, 2001(2)                                                                                                                                   
|     | 
|10.4 |  | Supplemental Compensation Agreement between Kreisler Manufacturing Corporation and Wallace Kelly dated July 11, 2001.(2)+                                                                                                        
|     | 
|10.5 |  | Letter dated July 23, 2003 acknowledging termination of previous Supplemental Compensation Agreement between Kreisler Manufacturing Corporation and Wallace Kelly (July 11, 2001) and New
Supplemental Compensation Agreement.(3)
|     | 
|10.6 |  | Union Agreement between Kreisler Industrial Corporation, a Division of Kreisler Manufacturing Corporation, and Local 377, RWSDU, affiliated with AFL-CIO dated December 5, 2003.(4)                                              
|     | 
|10.7 |  | Consulting Agreement between Kreisler Manufacturing Corporation and Wallace N. Kelly.(5)+                                                                                                                                        
|     | 
|11   |  | Statement regarding computation of per share earnings.                                                                                                                                                                           
|     | 
|21   |  | Subsidiaries of the registrant.                                                                                                                                                                                                  
|     | 
|31.1 |  | Certification of Chief Executive Officer Pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.                                                                                                                      
|     | 
|31.2 |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.                                                                                                                      
|     | 
|32.1 |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                
|     | 
|32.2 |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                

---

|(1) | Incorporated by reference to the registrants Form 10-KSB for the year ended June 30, 1997 (SEC File Number 000-04036)
|--- | ----------------------------------------------------------------------------------------------------------------------

|(2) | Incorporated by reference to the registrants Form 10-KSB for the year ended June 30, 2001
|--- | ------------------------------------------------------------------------------------------



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##### Table of Contents

|(3) | Incorporated by reference to the registrants Form 10-KSB for the year ended June 30, 2003
|--- | ------------------------------------------------------------------------------------------

|(4) | Incorporated by reference to the registrants Form 10-QSB for the quarter ended March 31, 2004
|--- | ----------------------------------------------------------------------------------------------

|(5) | Incorporated by reference to the registrants Form 10-K filed on September 19, 2005
|--- | -----------------------------------------------------------------------------------

|+ | Compensatory plan or arrangement
|- | --------------------------------



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