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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-QSB



(Mark One)

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



For the quarterly period ended December 31, 2003



| ̈ | Transition Report under Section 13 or 15 (d) of the Exchange Act
|- | ----------------------------------------------------------------



For the transition period from
 to



Commission File Number: 0-4036



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Kreisler Manufacturing Corporation

(Exact name of small business issuer as
specified in its charter)



|                                |  |                    
|------------------------------- |  | -------------------
|Delaware                        |  | 22-1044792         
|(State of other jurisdiction of |  | (I.R.S. employer   
|incorporation or organization)  |  | Identification No.)



5960 Central Avenue,
Suite H., St. Petersburg, Florida 33707

(Address of principal executive offices)



(727) 347-1144

(Issuers telephone number)



Not Applicable

(Former name, former address and former fiscal year, if changed since last
report)



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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



The number of shares outstanding of issuers Common Stock, par value $.125 per share, as of December 31, 2003 was 1,762,447 shares.



Transitional small business disclosure format (check one): Yes ̈No x



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1



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Kreisler Manufacturing Corporation and Subsidiaries

Table of Contents



|        |  |                                                                                       |  |   
|------- |  | ------------------------------------------------------------------------------------- |  | --
|PART I  |  | Financial Information                                                                 |  | 3 
|Item 1  |  | Financial Statements                                                                  |  | 3 
|        |  | Consolidated Balance Sheets                                                           |  | 3 
|        |  | Consolidated Statements of Operations                                                 |  | 4 
|        |  | Consolidated Statements of Cash Flows                                                 |  | 5 
|        |  | Notes To Financial Statements                                                         |  | 6 
|Item 2  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 7 
|        |  |                                                                                      
|PART II |  | Other Information                                                                     |  | 12
|Item 1  |  | Legal Proceedings                                                                     |  | 12
|Item 2  |  | Changes in Securities                                                                 |  | 12
|Item 3  |  | Defaults Upon Senior Securities                                                       |  | 12
|Item 4  |  | Submission of Matters to Vote of Security Holders                                     |  | 12
|Item 5  |  | Other Information                                                                     |  | 12
|Item 6  |  | Exhibits and Reports of Form 8-K                                                      |  | 12



2



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PART I FINANCIAL INFORMATION



Item 1 Financial Statements



Kreisler
Manufacturing Corporation and Subsidiaries

CONSOLIDATED BALANCE SHEETS



|                                                                                                                                            |  |                 |            |              |   |           
|------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | ---------- | ------------ | - | ----------
|                                                                                                                                            |  | (Unaudited)     |            | (Audited)   
|                                                                                                                                            |  | AS OF12/31/2003 |            | AS OF6/30/03
|Assets                                                                                                                                      |  |                 |            |              |   |           
|Cash and cash equivalents                                                                                                                   |  | $               | 4,480,019  |              | $ | 4,650,187 
|Accounts receivable  trade net: (Allowance $10,000 on December 31, 2003 and June 30, 2003)                                                 |  |                 | 1,465,926  |              |   | 1,829,957 
|Inventories                                                                                                                                 |  |                 |            |              |   |           
|Raw Materials                                                                                                                               |  |                 | 1,580,285  |              |   | 1,367,918 
|Work in Process                                                                                                                             |  |                 | 767,543    |              |   | 724,893   
|Finished Goods                                                                                                                              |  |                 | 304,858    |              |   | 362,697   
|                                                                                                                                            |  |                 |            |              |   |           
|                                                                                                                                            |  |                 | 2,652,686  |              |   | 2,455,508 
|Income tax receivable                                                                                                                       |  |                 | 493,440    |              |   | 735,722   
|Deferred tax asset                                                                                                                          |  |                 | 297,500    |              |   | 297,500   
|Other current assets                                                                                                                        |  |                 | 196,222    |              |   | 335,932   
|                                                                                                                                            |  |                 |            |              |   |           
|Total current assets                                                                                                                        |  |                 | 9,585,793  |              |   | 10,304,806
|                                                                                                                                            |  |                 |            |              |   |           
|Split dollar life insurance receivable                                                                                                      |  |                 | 235,450    |              |   | 235,450   
|Property, plant & equip., at cost, less accumulated depreciation of $4,171,868 for December 31, 2003 and $3,982,068 for June 30,
2003       |  |                 | 1,007,521  |              |   | 1,053,417 
|Deferred tax asset, non-current                                                                                                             |  |                 | 236,005    |              |   | 214,800   
|                                                                                                                                            |  |                 |            |              |   |           
|Total Non-current Assets                                                                                                                    |  |                 | 1,478,976  |              |   | 1,503,667 
|                                                                                                                                            |  |                 |            |              |   |           
|Total Assets                                                                                                                                |  | $               | 11,064,769 |              | $ | 11,808,473
|                                                                                                                                            |  |                 |            |              |   |           
|Liabilities and Stockholders Equity                                                                                                        |  |                 |            |              |   |           
|Liabilities                                                                                                                                 |  |                 |            |              |   |           
|Accounts payable  trade                                                                                                                    |  | $               | 281,961    |              | $ | 519,788   
|Accrued expenses                                                                                                                            |  |                 | 431,482    |              |   | 378,212   
|Accrued environmental cost                                                                                                                  |  |                 | 398,141    |              |   | 517,793   
|                                                                                                                                            |  |                 |            |              |   |           
|Total current liabilities                                                                                                                   |  |                 | 1,111,584  |              |   | 1,415,793 
|                                                                                                                                            |  |                 |            |              |   |           
|Accrued environmental cost                                                                                                                  |  |                 | 581,638    |              |   | 510,785   
|                                                                                                                                            |  |                 |            |              |   |           
|Total Liabilities                                                                                                                           |  |                 | 1,693,222  |              |   | 1,926,578 
|                                                                                                                                            |  |                 |            |              |   |           
|Stockholders Equity                                                                                                                        |  |                 |            |              |   |           
|Common Stock, $.125 par value - 3,000,000 shares authorized; 1,762,447 shares issued and outstanding on December 31, 2003 and June 30,
2003 |  |                 | 220,306    |              |   | 220,306   
|Additional paid-in capital                                                                                                                  |  |                 | 367,792    |              |   | 367,792   
|Retained earnings                                                                                                                           |  |                 | 8,783,449  |              |   | 9,293,797 
|                                                                                                                                            |  |                 |            |              |   |           
|Total Stockholders Equity                                                                                                                  |  |                 | 9,371,547  |              |   | 9,881,895 
|                                                                                                                                            |  |                 |            |              |   |           
|Total Liabilities and Stockholders Equity                                                                                                  |  | $               | 11,064,769 |              | $ | 11,808,473
|                                                                                                                                            |  |                 |            |              |   |           



See
the accompanying notes.



3



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Kreisler Manufacturing Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



|                                                                        |  |      |            |   |      |   |                   |  
|----------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ----------------- | -
|Three Months Ended December 31                                          |  | 2003 |            |   | 2002 |  
|Revenues                                                                |  | $    | 2,815,241  |   |      | $ | 3,259,558         |  
|                                                                        |  |      |            |   |      |   |                   |  
|Cost of goods sold Provision for environmental remediation  recoveries |  |      | 3,195,103 |   |      |   | 3,468,740(160,000 | )
|Selling, general and administrative expenses                            |  |      | 204,066    |   |      |   | 235,078           |  
|                                                                        |  |      |            |   |      |   |                   |  
|                                                                        |  |      | 3,399,169  |   |      |   | 3,543,818         |  
|                                                                        |  |      |            |   |      |   |                   |  
|(Loss) from operations                                                  |  |      | (583,928   | ) |      |   | (284,260          | )
|Other income:                                                           |  |      |            |   |      |   |                   |  
|Interest                                                                |  |      | 14,633     |   |      |   | 27,675            |  
|                                                                        |  |      |            |   |      |   |                   |  
|(Loss) before income taxes                                              |  |      | (569,295   | ) |      |   | (256,585          | )
|Income tax benefit                                                      |  |      | 210,639    |   |      |   | 94,257            |  
|                                                                        |  |      |            |   |      |   |                   |  
|Net (loss)                                                              |  | $    | (358,656   | ) |      | $ | (162,328          | )
|                                                                        |  |      |            |   |      |   |                   |  
|(Loss) per share:                                                       |  |      |            |   |      |   |                   |  
|Net (loss)  basic shares                                               |  | $    | (.20       | ) |      | $ | (.09              | )
|Net (loss)  diluted shares                                             |  | $    | (.20       | ) |      | $ | (.09              | )
|                                                                        |  |      |            |   |      |   |                   |  
|                                                                        |  |     
|Six Months Ended December 31                                            |  | 2003 |            |   | 2002 |  
|Revenues                                                                |  | $    | 5,652,497  |   |      | $ | 7,003,181         |  
|                                                                        |  |      |            |   |      |   |                   |  
|Cost of goods sold                                                      |  |      | 6,094,791  |   |      |   | 6,664,020         |  
|Provision for environmental remediation - recoveries                    |  |      |           |   |      |   | (160,000          | )
|Selling, general and administrative expenses                            |  |      | 393,449    |   |      |   | 412,958           |  
|                                                                        |  |      |            |   |      |   |                   |  
|                                                                        |  |      | 6,488,240  |   |      |   | 6,916,978         |  
|                                                                        |  |      |            |   |      |   |                   |  
|(Loss) income from operations                                           |  |      | (835,743   | ) |      |   | 86,203            |  
|Other income                                                            |  |      |            |   |      |   |                   |  
|Interest income                                                         |  |      | 25,667     |   |      |   | 49,592            |  
|                                                                        |  |      |            |   |      |   |                   |  
|(Loss) income before income taxes                                       |  |      | (810,076   | ) |      |   | 135,795           |  
|Income tax benefit (expense)                                            |  |      | 299,728    |   |      |   | (50,923           | )
|                                                                        |  |      |            |   |      |   |                   |  
|Net (loss) income                                                       |  | $    | (510,348   | ) |      | $ | 84,872            |  
|                                                                        |  |      |            |   |      |   |                   |  
|(Loss) income per share:                                                |  |      |            |   |      |   |                   |  
|Net (loss) income - basic shares                                        |  | $    | (.29       | ) |      | $ | .04               |  
|Net (loss) income - diluted shares                                      |  | $    | (.29       | ) |      | $ | .04               |  
|                                                                        |  |      |            |   |      |   |                   |  



See
the accompanying notes.



4



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Kreisler Manufacturing Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                                     |  |      |           |   |      |   |            |  
|------------------------------------------------------------------------------------ |  | ---- | --------- | - | ---- | - | ---------- | -
|Six Months Ended December 31                                                         |  | 2003 |           |   | 2002 |  
|Cash flows from Operating activities:                                                |  |      |           |   |      |   |            |  
|Net (loss) income                                                                    |  | $    | (510,348  | ) |      | $ | 84,872     |  
|Adjustments to reconcile net (loss) income to cash provided by operating activities: |  |      |           |   |      |   |            |  
|Depreciation and amortization                                                        |  |      | 189,800   |   |      |   | 194,800    |  
|(Increase) decrease in operating assets:                                             |  |      |           |   |      |   |            |  
|Accounts receivable  trade                                                          |  |      | 364,032   |   |      |   | 990,341    |  
|Inventories                                                                          |  |      | (197,178  | ) |      |   | 80,422     |  
|Deferred tax benefit                                                                 |  |      | (21,205   | ) |      |   | 103,000    |  
|Insurance recoveries                                                                 |  |      |          |   |      |   | 83,000     |  
|Other assets                                                                         |  |      | 381,993   |   |      |   | (96,574    | )
|                                                                                     |  |     
|Increase (decrease) in operating liabilities:                                        |  |      |           |   |      |   |            |  
|Accounts payable  trade                                                             |  |      | (237,827  | ) |      |   | (55,997    | )
|Accrued expenses                                                                     |  |      | 53,271    |   |      |   | (538,166   | )
|Accrued environmental costs                                                          |  |      | (48,799   | ) |      |   | (242,966   | )
|                                                                                     |  |      |           |   |      |   |            |  
|Net cash (used) provided by operating activities                                     |  |      | (26,261   | ) |      |   | 602,732    |  
|                                                                                     |  |     
|Cash Flows from Investing Activities:                                                |  |      |           |   |      |   |            |  
|Purchase of property and equipment                                                   |  |      | (143,906  | ) |      |   | (72,274    | )
|                                                                                     |  |      |           |   |      |   |            |  
|Net cash (used) by investing activities                                              |  |      | (143,906  | ) |      |   | (72,274    | )
|                                                                                     |  |     
|Cash Flows from Financing Activities:                                                |  |      |           |   |      |   |            |  
|Purchase of Treasury Stock                                                           |  |      |          |   |      |   | (1,137,800 | )
|                                                                                     |  |      |           |   |      |   |            |  
|Net cash (used) by financing activities                                              |  |      |          |   |      |   | (1,137,800 | )
|                                                                                     |  |      |           |   |      |   |            |  
|(Decrease) in cash and cash equivalents                                              |  |      | (170,167  | ) |      |   | (607,342   | )
|Cash and cash equivalents at beginning of year                                       |  |      | 4,650,186 |   |      |   | 6,365,222  |  
|                                                                                     |  |      |           |   |      |   |            |  
|Cash and cash equivalents at December 31                                             |  | $    | 4,480,019 |   |      | $ | 5,757,880  |  
|                                                                                     |  |      |           |   |      |   |            |  



See
the accompanying notes.



5



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Kreisler Manufacturing Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|1. | Principles of Consolidation
|-- | ---------------------------



The financial statements include the accounts of the Company and its wholly-owned subsidiaries after elimination of intercompany transactions. The preparation of
financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ
from those estimates. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Interim results are not necessarily indicative of results for a full year.



The financial statements and notes are presented as required by SEC Rule S-B, and do not
contain certain information included in the Companys annual financial statements and notes. Accordingly, these statements should be read in conjunction with the consolidated financial statements and notes thereto appearing in the Annual Report
of the Company for the fiscal year ended June 30, 2003.



|2. | Inventories
|-- | -----------



Inventory valuation for the periods ending December 31 and June 30 is based on actual physical counts. For the periods ending September 30 and March 31 inventory is based on internal perpetual records. For the two
quarters for which an inventory is not taken, raw materials, work in process and finished goods are adjusted to the same percentage of total inventory as existed at the time of the most recent physical inventory. Any substantial variance in the
three components for the interim periods, as compared to the actual physical inventory at that time, could significantly increase or decrease profits because direct labor and overhead amounts are only adjusted when physical inventories are taken on
June 30 and December 31.



|3. | 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 these substances are or were produced or handled which contain
constituents classified hazardous. 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 facility located at 180 Van Riper Avenue, Elmwood Park, New Jersey
(Facility). The Company promptly notified the New Jersey Department of Environmental Protection (Department) 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 Departments Technical Requirements for Site Remediation, N.J.A.C. 7:26E-1.1.



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The site characterization was completed and a $2.1 million fixed price remediation agreement was signed. A total of $1.1
million has already been paid under the contract, with the remaining cost for remediation of $1.0 million to be paid over the next four years. Environmental remediation is slightly behind schedule, as approvals have taken longer than anticipated. No
additional contingencies have been identified that would negatively impact the estimated cost of remediation. The Company has received a total of approximately $2.9 million from its insurance carriers with respect to the remediation.



PART I



Item 2



Kreisler Manufacturing Corporation and
Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS FOR THREE

MONTHS AND SIX MONTHS ENDED DECEMBER 31, 2003



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, 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.



Description of Business



Kreisler Manufacturing Corporation (the
Registrant) 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. The Company and its wholly-owned subsidiary, Kreisler Industrial Corporation (collectively the Company) that was incorporated in New Jersey on July 3, 1956, manufactures precision metal components and assemblies in
Elmwood Park, New Jersey for use in military and commercial aircraft engines and industrial gas turbines. These products include tube assemblies of multiple sizes and configurations, vane inserts, fuel rings and baffles.



The Company markets its products to the commercial aircraft, military
aircraft and industrial gas turbine industries. The Companys sales and profitability have been materially and adversely impacted by



7



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the economic downturn in the commercial aviation and industrial gas turbine markets as well as a decline in military orders. For the quarter ended December
31, 2003 sales of the Companys products declined approximately $445,000 or 14%, compared to sales for the quarter ended December 31, 2002, and for the six months ended December 31, 2003 revenues declined approximately $1,351,000 or 19%
compared to the same period in the prior year. It is impossible to predict when the commercial and industrial gas turbine industries will recover. A continued downturn in these markets could have a material adverse effect on the Companys
revenues and net income for future reporting periods. It is anticipated that the quarter ending March 31, 2004 will continue to be weak.



Results of Operations



2003 Compared to 2002



Three months
ended December 31, 2003



Revenues decreased from
approximately $3,260,000 for the quarter ended December 31, 2002 to approximately $2,815,000 for the quarter ended December 31, 2003. The decrease is approximately $445,000 or 14%. Revenues from sales to the military decreased approximately $605,000
or 63% compared to military sales for the same period in the prior year. Revenues from sales of parts for commercial aircraft engines increased approximately $640,000 or 40% and industrial gas turbine parts sales declined approximately $480,000 or
70% compared to sales for the second quarter of 2002. For the quarter ended December 31, 2003, sales of products for commercial aircraft engines, military aircraft engines and industrial gas turbine engines accounted for 80%, 13% and 7% of revenues
respectively.



Cost of goods sold decreased approximately
$274,000 or 8%, from approximately $3,469,000 for the quarter ended December 31, 2002 to approximately $3,195,000 for the quarter ended December 31, 2003. The decrease was primarily due to reduced materials usage of $355,000 a result of reduced
sales, offset by an overall increase in factory expenses. Increases in tooling costs for new programs, utility costs, an additional accrual for a supplemental employment agreement, and a one time environmental management charge for additional fill
needed at the remediation site, offset by decreases in environmental legal fees, medical insurance premiums and shipping were approximately $98,000. The negative gross margin resulted from slower completion of development work with increased costs
and decreased shipments.



For the quarter ended
December 31, 2003, selling, general and administrative expenses were approximately $204,000, which was $31,000 less than the approximately $235,000 reported in the same quarter of the prior year, a decrease of 13%. Decreased professional fees
related to services provided by Oasis Ventures in 2002, along with decreased general administrative costs and bonus accrual, partially offset by an increase in audit fees, account for most of the decrease.



The loss from operations, for the quarter ended December 31, 2003 was
approximately $584,000 compared to loss from operations of approximately $284,000 for the quarter ended December 31, 2002, a change of approximately $300,000.



Other income declined from approximately $28,000 for the quarter ended December 31, 2002 to approximately $15,000 for the quarter ended December 31,
2003. The $13,000 or 46% decline is the result of lower interest rates and lower cash balances in investment accounts.



Loss before taxes, for the quarter ended December 31, 2003 was approximately $569,000 compared to loss before taxes of approximately $257,000 for the
quarter ending December 31, 2002, a total change of $312,000.



8



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Income tax benefit for the quarter ended December 31, 2003 was approximately $211,000 as compared to
income tax benefit of approximately $94,000 for the quarter ended December 31, 2002, a total change of $117,000.



Lower revenues were the primary cause of the December 31, 2003 net loss of approximately $359,000 compared to net loss of approximately $162,000 for the
quarter ended December 31, 2002, a total change of $197,000.



Second quarter basic and diluted loss per share at December 31, 2003 was ($.20) compared to basic and diluted loss per share of ($.09) for the second quarter of the prior year.



Six months ended December 31, 2003



Revenues for the six months ended December 31, 2003 declined approximately $1,351,000 or 19% compared to the same period in the prior year. Revenue for
the six months ended December 31, 2003 was approximately $5,652,000 compared to approximately $7,003,000 ended December 31, 2002. Revenues from sales of parts for commercial engines increased approximately $540,000 or 16%, revenues for military
engines declined 52% or $951,000 and industrial gas turbine engines revenues declined 50% or $914,000 compared to the same period in the prior year. For the six months ended December 31, 2003 sales of products for commercial aircraft engines,
military aircraft engines and industrial gas turbine engines accounted for 70%, 15% and 15% of revenue respectively.



Cost of goods sold decreased approximately $409,000 or 6%, from approximately $6,504,000 for the six months ended December 31, 2002 to approximately
$6,095,000 for the six months ended December 31, 2003. The decrease was primarily due to reduced materials usage of $754,000 a result of reduced sales, offset by an overall increase in factory expenses. Increases in tooling costs for new programs,
utility costs, medical insurance premiums, an additional accrual for a supplemental employment agreement, and a one time environmental management charge for additional fill needed at the remediation site, offset by decreases in environmental legal
fees, bonus accruals, supplies, and shipping were approximately $103,000. For the six months ended December 31, 2002 expenses were reduced by $160,000 upon receipt of an environmental insurance payment. The negative gross margin resulted from slower
completion of development work with increased costs and decreased shipments.



For the six months ended December 31, 2003, selling, general and administrative expenses were approximately $393,000, which was $20,000 less than the approximately $413,000 reported in the six months of the prior
year, a decrease of 5%. Decreased professional fees, along with decreased general administrative costs and bonus accrual, partially offset by an increase in audit fees, account for most of the decrease.



The loss from operations, for the six months ended December 31, 2003 was
approximately $836,000 compared to income from operations of approximately $86,000 for the six months ended December 31, 2002, a change of approximately $922,000.



Other income declined from approximately $50,000 for the six months ended December 31, 2002 to approximately $26,000 for the
six months ended December 31, 2003. The $24,000 or 48% decline is the result of lower interest rates and lower cash balances in investment accounts.



9



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Loss before taxes, for the six months ended December 31, 2003 was approximately $810,000 compared to
income before taxes of approximately $136,000 for the six months ending December 31, 2002, a total change of $946,000.



Income tax benefit for the six months ended December 31, 2003 was approximately $300,000 as compared to income tax benefit of approximately $51,000 for
the six months ended December 31, 2002, a total change of $249,000.



Lower revenues were the primary cause of the December 31, 2003 net loss of approximately $510,000 compared to net income of approximately $85,000 for the six months ended December 31, 2002, a total change of $595,000.



Six month basic and diluted loss per share at December 31, 2003 was ($.29)
compared to basic and diluted earnings per share of $.04 for the same six months of the prior year.



Current backlog as of December 31, 2003 is approximately $13.9 million compared to $14.4 million at June 30, 2003. Backlog for commercial aircraft
products represents 91% of the total; military is 5% and gas turbine product backlog is 4%. Backlogs are subject to change with terminations and delivery schedule changes.



Capital Resources



Cash and cash equivalents decreased from approximately $4,650,000 at June 30, 2003 to approximately $4,480,000 at December 31, 2003. The decrease of
approximately $170,000 or 4% is primarily the result of cash being used to fund operating activities, offset by the receipt of a Federal Income Tax refund of approximately $521,000. Accounts receivable decreased approximately $364,000 since June 30,
2003 as customers paid some of their aged balances at the end of the calendar year.



Stockholder equity on basic shares at December 31, 2003 was $5.32 per share in book value compared to $5.61 on June 30, 2003, a decrease of $.29 or 5%.



Liquidity



The Company believes it has sufficient resources to meet operating requirements through the next 12 (twelve) months.



Critical Accounting Policies



The Companys critical and significant accounting and reporting
policies include the Companys accounting for environmental remediation and inventory valuation. In particular, the accounting for these areas requires significant judgments to be made by management. Specifically, 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. With respect to assumptions made in valuing inventory on interim statements, management believes estimating material



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usage, work in process and finished goods could result in significant variances in both inventory and operating results when physical inventories are
performed at June 30 and December 31. Different assumptions in the application of these policies could result in material changes in the Companys consolidated financial position or consolidated results of operations. Refer to Note 1 in the
Notes to Consolidated Financial Statements in the Companys Annual Report on Form 10-KSB on file with the Securities and Exchange Commission for details regarding all of the Companys critical and significant accounting
policies.



Controls and Procedures



Quarterly evaluation of the Companys Disclosure Controls and
Internal Controls. Within the 90 days prior to the date of this Quarterly Report on Form 10-QSB, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures (Disclosure
Controls). This evaluation (Controls Evaluation) was done under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer (CEO/CFO).



Limitations on the Effectiveness of Controls. The Companys
management, including the CEO/CFO, does not expect that its Disclosure Controls and/or its internal controls and procedures for financial reporting (Internal Controls) will prevent all errors and all fraud. A 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 constraints on financial
resources, 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; and over time, controls 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.



Conclusions. Based upon the Controls Evaluation, the CEO/CFO has
concluded that, subject to the limitations noted above, the Disclosure Controls were effective to provide reasonable assurance that material information relating to the Company is made known to management, including CEO/CFO, particularly during the
period when its periodic reports are being prepared.



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PART II OTHER INFORMATION



Item 1 Legal Proceedings



None



Item 2 Changes in Securities



None



Item 3 Defaults Upon Senior Securities



None



Item 4 Submission of Matter to a Vote of Security Holders



None



Item 5 Other Information



None



Item 6 Exhibits and Reports on Form 8K



|(a) | Part I  Exhibits
|--- | -----------------



|   |  |                                                                                                                       
|-- |  | ----------------------------------------------------------------------------------------------------------------------
|11 |  | Statement regarding computation of per share earnings.                                                                
|   | 
|31 |  | Certification pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.                                      
|   | 
|32 |  | Certification pursuant to 18 U.S.C. Section 1350 as Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



|(b) | Reports on 8K
|--- | -------------



No reports on Form 8K were filed during the last period covered by this report.



SIGNATURES



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



KREISLER MANUFACTURING CORPORATIONBy:

/s/ Edward L. SternEdward L. Stern, President, Chief Executive Officer and Chief Financial Officer




Date: February 12, 2004



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