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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-QSB



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(Mark One)

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



For the quarterly period ended September 30, 2004



| ̈ | 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)



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



180 Van Riper
Avenue, Elmwood Park, New Jersey 07407

(Address of principal executive offices)



(201) 791-0700

(Issuers telephone number)



5960 Central Avenue, St. Petersburg, Florida 33707

(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 September 30, 2004 was 1,762,447 shares.



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



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##### Table of Contents

Kreisler Manufacturing Corporation and Subsidiaries

Table of Contents



|        |  |                                                                                    |  |           
|------- |  | ---------------------------------------------------------------------------------- |  | ----------
|        |  |                                                                                    |  | PageNumber
|PART I  |  | Financial Information                                                              |  |           
|        |  |                                                                                   
|Item 1  |  | Financial Statements                                                               |  |           
|        |  |                                                                                   
|        |  | Consolidated Balance Sheets                                                        |  | 3         
|        |  |                                                                                   
|        |  | Consolidated Statements of Operations                                              |  | 4         
|        |  |                                                                                   
|        |  | Consolidated Statements of Cash Flows                                              |  | 5         
|        |  |                                                                                   
|        |  | Notes to Consolidated Financial Statements                                         |  | 6         
|        |  |                                                                                   
|Item 2  |  | Managements Discussion and Analysis for the Three Months Ended September 30, 2004 |  | 7         
|        |  |                                                                                   
|PART II |  | Other Information                                                                  |  |           
|        |  |                                                                                   
|Item 1  |  | Legal Proceedings                                                                  |  | 12        
|        |  |                                                                                   
|Item 2  |  | Unregistered Sales of Equity Securities and Use of Proceeds                        |  | 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                                                                           |  | 12        



2



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##### Table of Contents

PART I FINANCIAL INFORMATION

Item 1 Financial Statements



Kreisler Manufacturing Corporation and Subsidiaries

CONSOLIDATED BALANCE SHEETS



|                                                                                                                                      |  |                               |            |                   |   |           
|------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------- | ---------- | ----------------- | - | ----------
|                                                                                                                                      |  | (Unaudited)                   |            | (Audited)        
|                                                                                                                                      |  | First Quarter Ended09/30/2004 |            | Year Ended6/30/04
|Assets                                                                                                                                |  |                               |            |                   |   |           
|Cash and cash equivalents                                                                                                             |  | $                             | 3,783,362  |                   | $ | 3,367,494 
|Accounts receivable  trade, net: (Allowance $10,000 on September 30, 2004 and June 30, 2004)                                         |  |                               | 2,409,294  |                   |   | 2,563,526 
|Inventories                                                                                                                           |  |                               |            |                   |   |           
|Raw Materials                                                                                                                         |  |                               | 1,338,269  |                   |   | 1,393,224 
|Work in Process                                                                                                                       |  |                               | 693,032    |                   |   | 731,511   
|Finished Goods                                                                                                                        |  |                               | 358,465    |                   |   | 366,978   
|Income tax receivable                                                                                                                 |  |                               | 418,814    |                   |   | 437,422   
|Deferred tax asset, current                                                                                                           |  |                               | 127,000    |                   |   | 173,500   
|Split dollar life insurance receivable                                                                                                |  |                               | 235,450    |                   |   | 235,450   
|Other current assets                                                                                                                  |  |                               | 145,793    |                   |   | 180,849   
|                                                                                                                                      |  |                               |            |                   |   |           
|Total Current Assets                                                                                                                  |  |                               | 9,509,479  |                   |   | 9,449,954 
|                                                                                                                                      |  |                              
|Property, plant & equip., at cost less accumulated depreciation of $4,365,196 for September 30, 2004 and $4,297,653 for June 30,
2004 |  |                               | 873,857    |                   |   | 941,400   
|Deferred tax asset, non-current                                                                                                       |  |                               | 260,000    |                   |   | 264,900   
|                                                                                                                                      |  |                               |            |                   |   |           
|Total Non-Current Assets                                                                                                              |  |                               | 1,133,857  |                   |   | 1,206,300 
|                                                                                                                                      |  |                               |            |                   |   |           
|                                                                                                                                      |  | $                             | 10,643,336 |                   | $ | 10,656,254
|                                                                                                                                      |  |                               |            |                   |   |           
|Liabilities and Stockholders Equity                                                                                                  |  |                               |            |                   |   |           
|Liabilities                                                                                                                           |  |                               |            |                   |   |           
|Accounts payable  trade                                                                                                              |  | $                             | 595,071    |                   | $ | 528,099   
|Accrued expenses                                                                                                                      |  |                               | 147,986    |                   |   | 302,565   
|Accrued environmental cost                                                                                                            |  |                               | 156,528    |                   |   | 158,574   
|                                                                                                                                      |  |                               |            |                   |   |           
|Total Current Liabilities                                                                                                             |  |                               | 899,585    |                   |   | 989,238   
|                                                                                                                                      |  |                              
|Accrued environmental cost                                                                                                            |  |                               | 404,908    |                   |   | 443,369   
|                                                                                                                                      |  |                               |            |                   |   |           
|Stockholders Equity                                                                                                                  |  |                               |            |                   |   |           
|Common Stock, $.125 par value - 3,000,000 shares authorized; 1,762,447 shares issued and outstanding                                  |  |                               | 220,306    |                   |   | 220,306   
|Additional paid-in capital                                                                                                            |  |                               | 367,792    |                   |   | 367,792   
|Retained earnings                                                                                                                     |  |                               | 8,750,745  |                   |   | 8,635,549 
|                                                                                                                                      |  |                               |            |                   |   |           
|Total Stockholders Equity                                                                                                            |  |                               | 9,338,843  |                   |   | 9,223,647 
|                                                                                                                                      |  |                               |            |                   |   |           
|                                                                                                                                      |  | $                             | 10,643,336 |                   | $ | 10,656,254
|                                                                                                                                      |  |                               |            |                   |   |           



See
the accompanying notes.



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##### Table of Contents

Kreisler Manufacturing Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



|                                             |  |      |           |   |      |   |           |  
|-------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|Three Months Ended September 30              |  | 2004 |           |   | 2003 |  
|Revenues                                     |  | $    | 3,113,923 |   |      | $ | 2,837,256 |  
|                                             |  |      |           |   |      |   |           |  
|Cost of goods sold                           |  |      | 2,809,094 |   |      |   | 2,899,687 |  
|Selling, general and administrative expenses |  |      | 130,740   |   |      |   | 189,383   |  
|                                             |  |      |           |   |      |   |           |  
|                                             |  |      | 2,939,834 |   |      |   | 3,089,070 |  
|                                             |  |      |           |   |      |   |           |  
|Income (loss) from operations                |  |      | 174,089   |   |      |   | (251,814  | )
|                                             |  |     
|Other income:                                |  |      |           |   |      |   |           |  
|Interest                                     |  |      | 11,107    |   |      |   | 11,033    |  
|                                             |  |      |           |   |      |   |           |  
|Income (loss) before income taxes            |  |      | 185,196   |   |      |   | (240,781  | )
|                                             |  |     
|Income tax (provision) benefit               |  |      | (70,000   | ) |      |   | 89,089    |  
|                                             |  |      |           |   |      |   |           |  
|Net income (loss)                            |  | $    | 115,196   |   |      | $ | (151,692  | )
|                                             |  |      |           |   |      |   |           |  
|Income (loss) per share:                     |  |      |           |   |      |   |           |  
|Net income (loss)  basic shares             |  | $    | 0.07      |   |      | $ | (.09      | )
|Net income (loss)  diluted shares           |  | $    | 0.06      |   |      | $ | (.09      | )



See
the accompanying notes.



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##### Table of Contents

Kreisler Manufacturing Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                                     |  |      |           |   |      |   |           |  
|------------------------------------------------------------------------------------ |  | ---- | --------- | - | ---- | - | --------- | -
|Three Months Ended September 30                                                      |  | 2004 |           |   | 2003 |  
|Cash flows from Operating activities:                                                |  |      |           |   |      |   |           |  
|Net income (loss)                                                                    |  | $    | 115,196   |   |      | $ | (151,692  | )
|Adjustments to reconcile net income (loss) to cash provided by operating activities: |  |      |           |   |      |   |           |  
|Depreciation and amortization                                                        |  |      | 67,543    |   |      |   | 94,900    |  
|(Increase) decrease in operating assets:                                             |  |      |           |   |      |   |           |  
|Accounts receivable  trade                                                          |  |      | 154,232   |   |      |   | (175,184  | )
|Inventories                                                                          |  |      | 101,947   |   |      |   | (218,564  | )
|Income tax receivable                                                                |  |      | 18,608    |   |      |   |          |  
|Deferred tax asset                                                                   |  |      | 51,400    |   |      |   |          |  
|Other current assets                                                                 |  |      | 35,056    |   |      |   | 37,071    |  
|Increase (decrease) in operating liabilities:                                        |  |      |           |   |      |   |           |  
|Accounts payable  trade                                                             |  |      | 66,972    |   |      |   | (18,312   | )
|Accrued expenses                                                                     |  |      | (154,579  | ) |      |   | (4,771    | )
|Accrued environmental costs                                                          |  |      | (40,507   | ) |      |   | (26,926   | )
|                                                                                     |  |      |           |   |      |   |           |  
|Net cash provided by (used in) operating activities                                  |  |      | 415,868   |   |      |   | (463,478  | )
|                                                                                     |  |     
|Cash Flows from Investing Activities:                                                |  |      |           |   |      |   |           |  
|Purchase of property and equipment                                                   |  |      |          |   |      |   | (120,588  | )
|                                                                                     |  |      |           |   |      |   |           |  
|Net cash (used in) investing activities                                              |  |      |          |   |      |   | (120,588  | )
|                                                                                     |  |     
|Increase (decrease) in cash and cash equivalents                                     |  |      | 415,868   |   |      |   | (584,066  | )
|Cash and cash equivalents at beginning of year                                       |  |      | 3,367,494 |   |      |   | 4,650,187 |  
|Cash and cash equivalents at September 30                                            |  | $    | 3,783,362 |   |      | $ | 4,066,121 |  



See
the accompanying notes.



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Kreisler Manufacturing Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



1. Principles of Consolidation



The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after elimination of inter-company 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 consolidated 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 consolidated financial statements and notes are presented as
required by SEC Regulation S-B, and do not contain certain information included in the Companys annual consolidated 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, 2004.



2. Inventories



Inventory valuation for the quarters ending December 31 and June 30 is based on actual physical counts. For the quarters ending September 30 and March 31 inventory is based on internal perpetual inventory 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. For an historical perspective, the physical inventory material valuation as of June 30, 2004 was $34,300 lower than the perpetual inventory material valuation. The Company attributed a portion of this amount to the
difference between the estimated material scrap rate calculated for the perpetual inventory material valuation and the actual material scrap rate.



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 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 $561,000
(present value using a discount rate of 6.16%), most of which is to be incurred by the Company over the next two years. It is reasonably possible that the Companys recorded estimate of remediation cost may change in the near term.



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PART I

Item 2



Kreisler Manufacturing Corporation and
Subsidiaries



MANAGEMENTS DISCUSSION AND ANALYSIS

FOR THREE MONTHS ENDED SEPTEMBER 30, 2004



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. The Registrant succeeded a
New Jersey business corporation, which was incorporated in New Jersey in 1940, and which succeeded a New York corporation which was incorporated in 1930. The Registrant and its wholly-owned subsidiary, Kreisler Industrial Corporation, which was
incorporated in New Jersey on July 3, 1956 (collectively the Company), 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 primarily include tube and manifold assemblies of multiple sizes and configurations.



The Company markets its products to the commercial aircraft engine, military aircraft engine and industrial gas turbine industries. The Companys sales and profitability have been materially and adversely
impacted by the economic downturn in the commercial aviation and industrial gas turbine markets and the highly price competitive nature of its markets. The Company cannot predict when either market may improve.



The Company continues to pursue new programs to maintain and grow sales and is taking actions
to lower costs. During the first quarter of FY2005, the Company increased cash on-hand by approximately $416,000 and decreased inventory approximately $100,000 compared to June 30, 2004. The Company will continue to identify growth and cost
reduction opportunities while maintaining the resources needed to support our customers.



Results of Operations



2004 Compared to 2003 - Three Months ended September 30, 2004



Sales increased $277,000 or 10% to $3,114,000 for the quarter ended September 30, 2004 compared with $2,837,000 for the quarter ended September 30, 2003. The Companys sales and sales changes by industry segment are as follows:



|                       |  |       |           |      |                 |           |  |   |          |   |  |      |    |  |      |   |  |     |  
|---------------------- |  | ----- | --------- | ---- | --------------- | --------- |  | - | -------- | - |  | ---- | -- |  | ---- | - |  | --- | -
|                       |  | Sales |           |      | Percent ofSales |          
|Industry Segment       |  | 2005  |           | 2004 |                 | $ Change  |  |   | % Change |   |  | 2005 |    |  | 2004 |  
|Commercial             |  | $     | 1,348,000 |      | $               | 1,228,000 |  | $ | 120,000  |   |  | 10   | %  |  | 43   | % |  | 43  | %
|Military               |  |       | 1,489,000 |      |                 | 1,229,000 |  |   | 260,000  |   |  | 21   | %  |  | 48   | % |  | 43  | %
|Industrial Gas Turbine |  |       | 277,000   |      |                 | 380,000   |  |   | (103,000 | ) |  | (27  | )% |  | 9    | % |  | 14  | %
|Total                  |  | $     | 3,114,000 |      | $               | 2,837,000 |  | $ | 277,000  |   |  | 10   | %  |  | 100  | % |  | 100 | %



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The Companys sales of components used in military engine applications during the quarter ended September 30, 2004
increased $260,000 or 21% compared to the quarter ended September 30, 2003. The increase is primarily attributable to the achievement of steady-state production of components used on the F119 engine program (used on the F-22 Raptor). A smaller
portion of the growth in military-related sales is due to components used in military missile programs. These programs offset the declines in components required for the development of the F135 engine (used on the F-35 Joint Strike Fighter), in
spare part sales to the U.S. Government and to a customer performing fuel manifold overhaul and repair work for the U.S. Government. For the quarter ended September 30, 2004, development programs resulted in non-recurring engineering and tooling
charges paid to the Company of $37,000, a decrease of $55,000 compared to the quarter ended September 30, 2003.



The Companys sales for the quarter ended September 30, 2004 showed improvement in market demand for commercial aero-engines components. The Companys
commercial aero-engine sales increased $120,000 or 10% compared to the quarter ended September 30, 2003. Increased demand for CF34 engine components coupled with the shipment of development components for the GP7000 engine offset declines in demand
for AE3007, PW4000, and V2500 engine components.



For the quarter ended
September 30, 2004, the Company experienced a decline of $103,000 or 27% in sales of products to the industrial gas turbine industry as compared to the same period in 2003. This decline is predominantly the result of the continued reduction in
demand for 501 heavy industrial gas turbine components. A significant portion of this decline was offset by the settlement and payment receipt of $63,000 for terminated materials from a customer.



Cost of Goods Sold



Cost of goods sold was $2,809,000 for the quarter ended September 30, 2004 compared to
$2,900,000 for the quarter ended September 30, 2003, a decrease of $91,000 or 3%. Increases in factory supplies, utility costs, miscellaneous taxes & insurance, information technology outsourcing fees, shipping charges, office-related expenses
and employee training costs were offset by decreases in employee-related costs and benefits, tooling costs and miscellaneous accruals. This resulted in an overall reduction in cost of goods sold of $218,000. Workers compensation expense declined
$28,000 due to an insurance premium refund of $35,000. Material usage increased $319,000 for the period due to higher sales and increased purchased material content. Depreciation expenses declined $27,000. Revenue sharing expenses attributable to
the Roll-Royce AE3007 program declined $51,000 due to the completion of the Companys involvement in that program.



The Companys vacation accrual of $71,000 was $105,000 lower compared to September 30, 2003 due to the heavy vacation usage by employees in July, August and
September 2004. This amount is included as part of the $218,000 reduction referred to in the preceding paragraph. The vacation accrual amount is expected to increase for the remainder of the fiscal year as employees accrue vacation time at a faster
rate than used.



Miscellaneous accruals for the quarter ended September 30,
2004 decreased $89,000 compared to the quarter ended September 30, 2003. Of this reduction, $50,000 was attributable to a Supplemental Compensation Agreement with Wallace N. Kelly, a consultant to the Company and Chairman of the Companys Board
of Directors. Payment under the Supplemental Compensation Agreement totaled $110,000 and was paid in February 2004. The remaining $39,000 reduction in miscellaneous accruals was for forecasted accruals. The reduction in miscellaneous accruals will
total an additional $89,000 for the quarter ending December 31, 2004 as compared to the period ended December 31, 2003.



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##### Table of Contents

Selling, General and Administrative



Selling, general and administrative expenses decreased $59,000 or 31%, primarily as a result of decreased sales commissions, salaries, legal
fees, and interest expense associated with the environmental remediation agreement, offset by increases in audit fees.



The income from operations for the quarter ended September 30, 2004 of $174,000 was $426,000 higher than the loss from operations as of September 30, 2003 of $252,000.



Interest income of $11,000 for the quarter ended September 30, 2004 was
unchanged compared to the quarter ended September 30, 2003.



The earnings
before taxes for the quarter ended September 30, 2004 was $185,000 compared to the loss before income taxes for the same period in 2003 of $241,000.



Income tax expense for the quarter ended September 30, 2004 totaled approximately $70,000 compared to an income tax benefit of $89,000 for the same period in 2003.



Current backlog as of September 30, 2004 is approximately $12.3 million
compared to $14.0 million for the same period in the prior year. The backlog decreased $1.7 million or 12%. Backlog as of June 30, 2004 was $12.3 million. Backlogs are subject to change with reduced purchase order duration and terminations. As of
September 30, 2004, Kreisler has pending customer purchase order terminations of approximately $250,000 related to an industrial gas turbine program. This amount is expected to be collected by December 31, 2004. An additional $1.1 million in PW4000
commercial aircraft engine orders are under discussion with a customer for possible termination due to declines in market demand for the components. 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.



Capital Resources and Liquidity



Cash and cash
equivalents increased $416,000 or 12% from $3,367,000 at June 30, 2004 to $3,783,000 at September 30, 2004. The Company expects additional cash inflows of $250,000 related to customer order terminations, $235,000 representing a receivable for
split-dollar life insurance premiums paid on behalf of a deceased executive of the Company, and a FY2004 income tax refund of $419,000. Accounts receivable decreased $154,000 compared to June 30, 2004 due to lower quarterly sales. Working capital
was approximately $8,610,000 at September 30, 2004. The Company believes it has sufficient resources to meet operating requirements through the next 12 (twelve) months. Adequate liquidity is available to cover anticipated capital expenditures of
$200,000 for the year ending June 30, 2005. There were no capital expenditures during the quarter ended September 30, 2004.



Stockholders equity on basic shares was $5.30 per share as of September 30, 2004 compared to $5.23 as of June 30, 2004. This change represents an increase of $0.07
or 1% in book value.



Critical Accounting Policies



The Companys critical 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



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##### Table of Contents

remediation. For the periods ending September 30 and March 31 inventory is based on internal perpetual inventory records
as opposed to the physical inventories taken December 31 and June 30. Any substantial variance in the interim periods, as compared to the actual physical inventory, could significantly increase or decrease profits on June 30 and December 31.



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 are 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 is 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 net of an allowance for estimated uncollectible accounts of $10,000 for 2004 and 2003.



Property, Plant, and Equipment



Property, plant, and equipment are recorded at cost less accumulated depreciation. 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.



Income Taxes



The Company accounts for its income taxes in accordance with SFAS No. 109, Accounting for Income Taxes, which requires the establishment of a deferred tax asset or
liability for the recognition of the tax effect of future deductible or taxable amounts, operating loss, or tax credit carryforwards. Deferred tax expense or benefit is recognized as a result of the changes in the deferred assets and liabilities
during the year. Future tax benefits, such as net operating loss carryforwards, are recognized and reduced by a valuation allowance if it is more likely than not that some or all of a deferred tax asset will not be realized.



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 is computed as earnings divided by weighted average shares outstanding. Diluted earnings per share includes the dilutive effects of stock options and other
potentially dilutive securities.



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Controls and Procedures



The Company periodically reviews the design and effectiveness of its disclosure controls and internal controls, and their associated
procedures, over financial reporting. The Company makes modifications to improve the design and effectiveness of its disclosure controls and internal control structure, and may take corrective action, if its reviews identify a need for such
modifications or actions.



The Companys management, including the Chief
Executive Officer (CEO) and Chief Financial Officer (CFO), does not expect that its disclosure controls and procedures or its internal controls and procedures for financial reporting will prevent all error 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 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, 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.



An evaluation was carried out under the supervision and with the participation of the Companys management, including the CEO and CFO, of the effectiveness of the
Companys disclosure controls and procedures. Based on that evaluation, the CEO and CFO have concluded that as of the end of the period covered by this report, the Companys disclosure controls and procedures are effective to provide
reasonable assurance that material information required to be disclosed in reports that are filed or submitted under the Securities Exchange Act of 1934 are recorded, processed, summarized and reported on a timely basis as provided in the Securities
and Exchange Commission rules and forms. There have been no changes in the Companys internal controls and procedures over financial reporting that have materially affected, or are reasonably likely to materially affect, its internal control
over financial reporting.



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PART II OTHER INFORMATION



Item 1 Legal Proceedings



None



Item 2 Unregistered Sales of Equity Securities and Use of Proceeds



None



Item 3 Defaults Upon Senior Securities



None



Item 4 Submission of Matters to a Vote of Security Holders



None



Item 5 Other Information



None



Item 6 Exhibits



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



| | 11 | Statement regarding computation of per share earnings
| | -- | -----------------------------------------------------



| | 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
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------



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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/ Michael D. SternMichael D. Stern, Co-President & Chief Executive Officer/s/ Edward A. SternEdward A. Stern, Co-President & Chief Financial Officer




Date: November 12, 2004



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