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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





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 March 31, 2008



| ̈ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
|- | ---------------------------------------------------------------

For the transition period from  to

Commission file number: 0-04036





Kreisler Manufacturing
Corporation

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







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 22-1047792                          
|(State or 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)

Not Applicable

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





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

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

The number of shares outstanding of the issuers common stock, par value $.125 per share, as of May 14, 2008 was 1,867,948 shares.

Transitional Small Business Disclosure Format (Check one):     ̈  Yes    x  No









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Table of Contents



|        |  |                                                                                    |  |            
|------- |  | ---------------------------------------------------------------------------------- |  | -----------
|        |  |                                                                                    |  | Page Number
|PART I  |  | Financial Information                                                              |  |            
|        |  |                                                                                   
|Item 1  |  | Financial Statements                                                               |  |            
|        |  |                                                                                   
|        |  | Consolidated Balance Sheets                                                        |  | 4          
|        |  |                                                                                   
|        |  | Consolidated Statements of Operations                                              |  | 5          
|        |  |                                                                                   
|        |  | Consolidated Statement of Changes in Stockholders Equity and Comprehensive Income |  | 6          
|        |  |                                                                                   
|        |  | Consolidated Statements of Cash Flows                                              |  | 7          
|        |  |                                                                                   
|        |  | Notes to the Interim Consolidated Financial Statements                             |  | 8          
|        |  |                                                                                   
|Item 2  |  | Managements Discussion and Analysis or Plan of Operation                          |  | 14         
|        |  |                                                                                   
|Item 3  |  | Controls and Procedures                                                            |  | 27         
|        |  |                                                                                   
|PART II |  | Other Information                                                                  |  |            
|        |  |                                                                                   
|Item 1  |  | Legal Proceedings                                                                  |  | 28         
|        |  |                                                                                   
|Item 2  |  | Unregistered Sales of Equity Securities and Use of Proceeds                        |  | 28         
|        |  |                                                                                   
|Item 3  |  | Defaults Upon Senior Securities                                                    |  | 28         
|        |  |                                                                                   
|Item 4  |  | Submission of Matters to a Vote of Security Holders                                |  | 28         
|        |  |                                                                                   
|Item 5  |  | Other Information                                                                  |  | 28         
|        |  |                                                                                   
|Item 6  |  | Exhibits                                                                           |  | 28         



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Forward-Looking Statements

Certain oral statements made by management of Kreisler Manufacturing Corporation (the Company) from time-to-time and certain statements contained herein or in other 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, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, with
respect to results of operations and the business of the Company. All such statements, other than statements of historical facts, including those regarding market trends, the Companys financial position and results of operations, business
strategy, projected costs, and plans and objectives of management for future operations, are forward-looking statements. In general, such statements are identified by the use of forward-looking words or phrases including, but not limited to,
estimates, intends, will, should, may, believes, expects and anticipates, 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.



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PART I FINANCIAL INFORMATION

|Item 1 | Financial Statements
|------ | --------------------

Kreisler Manufacturing Corporation and Subsidiaries

Consolidated Balance Sheets



|                                                                                                                                          |  |                      |            |           |   |           
|----------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------- | ---------- | --------- | - | ----------
|                                                                                                                                          |  | (Unaudited)3/31/2008 |            | 6/30/2007
|Assets                                                                                                                                    |  |                      |            |           |   |           
|Cash and cash equivalents                                                                                                                 |  | $                    | 7,521,971  |           | $ | 5,068,325 
|Short-term investments                                                                                                                    |  |                      |           |           |   | 550,000   
|Accounts receivable  trade (net of $20,000 allowance for uncollectible accounts at March 31, 2008 (unaudited) and June 30,
2007)         |  |                      | 2,494,058  |           |   | 2,366,177 
|Inventories                                                                                                                               |  |                      | 6,581,027  |           |   | 5,546,983 
|Deferred tax asset                                                                                                                        |  |                      | 192        |           |   | 96,312    
|Other current assets                                                                                                                      |  |                      | 1,172,975  |           |   | 66,200    
|                                                                                                                                          |  |                      |            |           |   |           
|Total current assets                                                                                                                      |  |                      | 17,770,223 |           |   | 13,693,997
|                                                                                                                                          |  |                      |            |           |   |           
|Property, plant and equipment, net                                                                                                        |  |                      | 1,805,776  |           |   | 2,425,098 
|Long-term investments                                                                                                                     |  |                      | 700,000    |           |   |          
|Deferred tax asset                                                                                                                        |  |                      | 123,942    |           |   | 123,942   
|                                                                                                                                          |  |                      |            |           |   |           
|Total non-current assets                                                                                                                  |  |                      | 2,629,718  |           |   | 2,549,040 
|                                                                                                                                          |  |                      |            |           |   |           
|TOTAL ASSETS                                                                                                                              |  | $                    | 20,399,941 |           | $ | 16,243,037
|                                                                                                                                          |  |                      |            |           |   |           
|                                                                                                                                          |  |                     
|Liabilities and Stockholders Equity                                                                                                      |  |                      |            |           |   |           
|Liabilities                                                                                                                               |  |                      |            |           |   |           
|Accounts payable  trade                                                                                                                  |  | $                    | 1,721,159  |           | $ | 1,130,990 
|Accrued expenses                                                                                                                          |  |                      | 863,997    |           |   | 520,540   
|Deferred tax liability                                                                                                                    |  |                      | 139,720    |           |   |          
|Deferred revenue                                                                                                                          |  |                      | 1,657,812  |           |   | 500,000   
|Product warranties                                                                                                                        |  |                      |           |           |   | 148,185   
|Income taxes payable                                                                                                                      |  |                      | 124,711    |           |   |          
|Obligations under capital leases, current portion                                                                                         |  |                      | 125,234    |           |   | 115,731   
|                                                                                                                                          |  |                      |            |           |   |           
|Total current liabilities                                                                                                                 |  |                      | 4,632,633  |           |   | 2,415,446 
|                                                                                                                                          |  |                      |            |           |   |           
|Obligations under capital leases, net of current portion                                                                                  |  |                      | 161,192    |           |   | 258,343   
|Accrued environmental cost                                                                                                                |  |                      | 440,085    |           |   | 426,117   
|                                                                                                                                          |  |                      |            |           |   |           
|Total long-term liabilities                                                                                                               |  |                      | 601,277    |           |   | 684,460   
|                                                                                                                                          |  |                      |            |           |   |           
|Stockholders Equity                                                                                                                      |  |                      |            |           |   |           
|Common stock, $0.125 par value  6,000,000 shares authorized; 1,867,948 shares issued and outstanding at March 31, 2008 and
June 30, 2007 |  |                      | 233,494    |           |   | 233,494   
|Additional paid-in capital                                                                                                                |  |                      | 1,032,993  |           |   | 909,625   
|Retained earnings                                                                                                                         |  |                      | 13,563,673 |           |   | 11,928,989
|Accumulated other comprehensive income                                                                                                    |  |                      | 335,871    |           |   | 71,023    
|                                                                                                                                          |  |                      |            |           |   |           
|Total stockholders equity                                                                                                                |  |                      | 15,166,031 |           |   | 13,143,131
|                                                                                                                                          |  |                      |            |           |   |           
|TOTAL LIABILITIES & STOCKHOLDERS EQUITY                                                                                                  |  | $                    | 20,399,941 |           | $ | 16,243,037
|                                                                                                                                          |  |                      |            |           |   |           

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



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Kreisler Manufacturing Corporation and Subsidiaries

Consolidated Statements of Operations

(Unaudited)



|                                             |  |      |            |   |      |   |            |  
|-------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|Three Months Ended March 31,                 |  | 2008 |            |   | 2007 |  
|Net sales                                    |  | $    | 7,445,087  |   |      | $ | 6,247,219  |  
|Cost of goods sold                           |  |      | 5,977,364  |   |      |   | 5,261,352  |  
|Selling, general and administrative expenses |  |      | 507,768    |   |      |   | 540,520    |  
|                                             |  |      |            |   |      |   |            |  
|Total costs and expenses                     |  |      | 6,485,132  |   |      |   | 5,801,872  |  
|                                             |  |      |            |   |      |   |            |  
|Income from operations                       |  |      | 959,955    |   |      |   | 445,347    |  
|Interest and other income                    |  |      | 76,774     |   |      |   | 45,886     |  
|Interest and other expenses                  |  |      | (25,305    | ) |      |   | (6,315     | )
|                                             |  |      |            |   |      |   |            |  
|Income before income taxes                   |  |      | 1,011,424  |   |      |   | 484,918    |  
|Income taxes                                 |  |      | (406,019   | ) |      |   | (176,794   | )
|                                             |  |      |            |   |      |   |            |  
|Net income                                   |  | $    | 605,405    |   |      | $ | 308,124    |  
|                                             |  |      |            |   |      |   |            |  
|Net income per common share:                 |  |      |            |   |      |   |            |  
|Net income  basic                           |  | $    | 0.32       |   |      | $ | 0.17       |  
|Net income  diluted                         |  | $    | 0.32       |   |      | $ | 0.16       |  
|Weighted average common shares  basic       |  |      | 1,867,948  |   |      |   | 1,842,792  |  
|Weighted average common shares  diluted     |  |      | 1,881,431  |   |      |   | 1,881,523  |  
|                                             |  |     
|Nine Months Ended March 31,                  |  | 2008 |            |   | 2007 |  
|Net sales                                    |  | $    | 21,708,880 |   |      | $ | 17,345,535 |  
|Cost of goods sold                           |  |      | 17,507,707 |   |      |   | 13,938,815 |  
|Selling, general and administrative expenses |  |      | 1,626,698  |   |      |   | 1,320,777  |  
|                                             |  |      |            |   |      |   |            |  
|Total costs and expenses                     |  |      | 19,134,405 |   |      |   | 15,259,592 |  
|                                             |  |      |            |   |      |   |            |  
|Income from operations                       |  |      | 2,574,475  |   |      |   | 2,085,943  |  
|Interest and other income                    |  |      | 202,060    |   |      |   | 131,309    |  
|Interest and other expenses                  |  |      | (43,973    | ) |      |   | (37,800    | )
|                                             |  |      |            |   |      |   |            |  
|Income before income taxes                   |  |      | 2,732,562  |   |      |   | 2,179,452  |  
|Income taxes                                 |  |      | (1,097,878 | ) |      |   | (871,794   | )
|                                             |  |      |            |   |      |   |            |  
|Net income                                   |  | $    | 1,634,684  |   |      | $ | 1,307,658  |  
|                                             |  |      |            |   |      |   |            |  
|Net income per common share:                 |  |      |            |   |      |   |            |  
|Net income  basic                           |  | $    | 0.88       |   |      | $ | 0.71       |  
|Net income  diluted                         |  | $    | 0.86       |   |      | $ | 0.71       |  
|Weighted average common shares  basic       |  |      | 1,867,948  |   |      |   | 1,834,781  |  
|Weighted average common shares  diluted     |  |      | 1,893,508  |   |      |   | 1,853,960  |  

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



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Kreisler Manufacturing Corporation and Subsidiaries

Consolidated Statement of Changes in Stockholders Equity and
Comprehensive Income

Nine months ended March 31, 2008



|                                           |  |                         |  |                          |         |                  |   |                                     |  |                          |            |  |   |         |  |   |           
|------------------------------------------ |  | ----------------------- |  | ------------------------ | ------- | ---------------- | - | ----------------------------------- |  | ------------------------ | ---------- |  | - | ------- |  | - | ----------
|                                           |  | Common StockOutstanding |  | AdditionalPaid-inCapital |         | RetainedEarnings |   | AccumulatedOtherComprehensiveIncome |  | TotalStockholdersEquity
|                                           |  | Shares                  |  | Amounts                  |         |                  |   |                                    
|Balances, June 30, 2007                    |  | 1,867,948               |  | $                        | 233,494 |                  | $ | 909,625                             |  | $                        | 11,928,989 |  | $ | 71,023  |  | $ | 13,143,131
|Comprehensive income:                      |  |                         |  |                          |         |                  |   |                                     |  |                          |            |  |   |         |  |   |           
|Net income                                 |  |                         |  |                          |         |                  |   |                                     |  |                          | 1,634,684  |  |   |         |  |   | 1,634,684 
|Foreign currency translation adjustment(1) |  |                         |  |                          |         |                  |   |                                     |  |                          |            |  |   | 264,848 |  |   | 264,848   
|                                           |  |                         |  |                          |         |                  |   |                                     |  |                          |            |  |   |         |  |   |           
|Total comprehensive income                 |  |                         |  |                          |         |                  |   |                                     |  |                          |            |  |   |         |  |   | 1,899,532 
|                                           |  |                         |  |                          |         |                  |   |                                     |  |                          |            |  |   |         |  |   |           
|Stock-based compensation                   |  |                         |  |                          |         |                  |   | 123,368                             |  |                          |            |  |   |         |  |   | 123,368   
|                                           |  |                         |  |                          |         |                  |   |                                     |  |                          |            |  |   |         |  |   |           
|Balances, March 31, 2008 (unaudited)       |  | 1,867,948               |  | $                        | 233,494 |                  | $ | 1,032,993                           |  | $                        | 13,563,673 |  | $ | 335,871 |  | $ | 15,166,031
|                                           |  |                         |  |                          |         |                  |   |                                     |  |                          |            |  |   |         |  |   |           



|(1) | Net of tax expense of $176,566
|--- | ------------------------------

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



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Kreisler Manufacturing Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)



|                                                                                         |  |      |            |   |      |   |            |  
|---------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|Nine Months Ended March 31,                                                              |  | 2008 |            |   | 2007 |  
|Cash Flows from Operating Activities:                                                    |  |      |            |   |      |   |            |  
|Net income                                                                               |  | $    | 1,634,684  |   |      | $ | 1,307,658  |  
|Adjustments to reconcile net income to net cash provided by operating activities:        |  |      |            |   |      |   |            |  
|Depreciation and amortization                                                            |  |      | 510,982    |   |      |   | 454,741    |  
|Deferred tax expense (benefit)                                                           |  |      | 59,273     |   |      |   | (2,547     | )
|Stock-based compensation                                                                 |  |      | 123,368    |   |      |   | 14,027     |  
|Increase (decrease) in cash attributable to changes in operating assets and liabilities: |  |      |            |   |      |   |            |  
|Accounts receivable  trade, net                                                         |  |      | (99,900    | ) |      |   | 1,353,238  |  
|Inventories                                                                              |  |      | (1,026,132 | ) |      |   | (1,585,512 | )
|Other current assets                                                                     |  |      | (1,074,520 | ) |      |   | (6,499     | )
|Accounts payable  trade                                                                 |  |      | 580,110    |   |      |   | 688,593    |  
|Accrued expenses                                                                         |  |      | 349,157    |   |      |   | 125,372    |  
|Deferred revenue                                                                         |  |      | 1,157,812  |   |      |   |           |  
|Product warranties                                                                       |  |      | (148,185   | ) |      |   | 235,000    |  
|Income taxes payable                                                                     |  |      | 124,711    |   |      |   | (34,314    | )
|Accrued environmental costs                                                              |  |      | 13,968     |   |      |   |           |  
|                                                                                         |  |      |            |   |      |   |            |  
|Net Cash Provided by Operating Activities                                                |  |      | 2,205,328  |   |      |   | 2,549,757  |  
|                                                                                         |  |      |            |   |      |   |            |  
|Cash Flows from Investing Activities:                                                    |  |      |            |   |      |   |            |  
|Foreign grant for property and equipment placed in service                               |  |      | 448,817    |   |      |   | (550,000   | )
|Purchases of property and equipment                                                      |  |      | (155,790   | ) |      |   | (835,697   | )
|Purchase of investments                                                                  |  |      | (150,000   | ) |      |   |           |  
|                                                                                         |  |      |            |   |      |   |            |  
|Net Cash Provided by (Used in) Investing Activities                                      |  |      | 143,027    |   |      |   | (1,385,697 | )
|                                                                                         |  |      |            |   |      |   |            |  
|Cash Flows from Financing Activities:                                                    |  |      |            |   |      |   |            |  
|Repayment of obligations under capital leases                                            |  |      | (87,648    | ) |      |   | (126,920   | )
|Repayment of line of credit                                                              |  |      |           |   |      |   | (54,810    | )
|Proceeds from exercise of stock options                                                  |  |      |           |   |      |   | 93,544     |  
|                                                                                         |  |      |            |   |      |   |            |  
|Net Cash (Used in) Financing Activities                                                  |  |      | (87,648    | ) |      |   | (88,186    | )
|                                                                                         |  |      |            |   |      |   |            |  
|Effect of foreign currency translation                                                   |  |      | 192,939    |   |      |   | 34,155     |  
|                                                                                         |  |      |            |   |      |   |            |  
|Increase in cash and cash equivalents                                                    |  |      | 2,453,646  |   |      |   | 1,110,029  |  
|Cash and cash equivalents, beginning of period                                           |  |      | 5,068,325  |   |      |   | 3,295,947  |  
|                                                                                         |  |      |            |   |      |   |            |  
|Cash and cash equivalents, end of period                                                 |  | $    | 7,521,971  |   |      | $ | 4,405,976  |  
|                                                                                         |  |      |            |   |      |   |            |  
|Supplemental Disclosure of Cash Flow Information                                         |  |      |            |   |      |   |            |  
|Cash paid during the periods for:                                                        |  |      |            |   |      |   |            |  
|Income taxes                                                                             |  | $    | 824,000    |   |      | $ | 899,050    |  
|Interest                                                                                 |  | $    | 20,488     |   |      | $ | 28,893     |  
|Supplemental Schedule of Non-cash Investing and Financing Activities:                    |  |      |            |   |      |   |            |  
|Equipment acquired under capital leases                                                  |  |      |           |   |      | $ | 67,241     |  
|                                                                                         |  |      |            |   |      |   |            |  

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



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Kreisler Manufacturing Corporation and Subsidiaries

Notes to the Interim Consolidated Financial Statements

(Unaudited)

1. Principles of Consolidation

The interim consolidated financial statements include the accounts of Kreisler Manufacturing Corporation and its wholly-owned subsidiaries, Kreisler
Industrial Corporation (Kreisler Industrial) and Kreisler Polska Sp. z o.o (Kreisler Polska), after the elimination of inter-company transactions and accounts. Unless the context indicates otherwise, the use of
we, us, our or the Company refers to Kreisler Manufacturing Corporation and its subsidiaries. The preparation of financial statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that affect the amounts reported in the interim 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 interim consolidated financial statements have been included. Interim results are not necessarily indicative of results for a full year.

The interim 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 on Form 10-KSB of the
Company for the fiscal year ended June 30, 2007.

2. Recently Issued Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 141R, Business Combinations (SFAS 141R). SFAS 141R replaces SFAS 141 and establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any non-controlling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business
combination. Acquisition costs associated with the business combination will generally be expensed as incurred. SFAS 141R is effective for business combinations occurring in the fiscal years beginning on or after December 15, 2008, which
will require us to adopt these provisions for business combinations occurring in fiscal 2010 and thereafter.

In December 2007, FASB
issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51, (SFAS No. 160), which changes the accounting and reporting for minority interests. Minority
interests will be recharacterized as noncontrolling interests and will be reported as a component of equity separate from the parents equity, and purchases or sales of equity interests that do not result in a change in control will be
accounted for as equity transactions. In addition, net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement and, upon a loss of control, the interest sold, as well as any
interest retained, will be recorded at fair value with any gain or loss recognized in earnings. SFAS No. 160 is effective for financial statements issued for fiscal years beginning on or after December 15, 2008 and will apply
prospectively, except for the presentation and disclosure requirements, which will apply retroactively. The adoption of SFAS No. 160 is not expected to have a significant impact on our financial position, results of operations or cash flows
occurring in fiscal 2010 and thereafter.

3. Contingencies

Certain federal and state laws authorize the United States Environmental Protection Agency (EPA) and similar state agencies 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.



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In July 1999, we became aware of historical releases of hazardous substances at our Kreisler Industrial
manufacturing facility located at 180 Van Riper Avenue, Elmwood Park, New Jersey. We promptly notified the New Jersey Department of Environmental Protection (NJDEP) as required by the New Jersey Spill Compensation and Control Act
(Spill Act) and retained the services of environmental remediation consultants to perform a full site characterization in accordance with the NJDEPs Technical Requirement for Site Remediation. In June 2001, we entered into a Fixed
Price Remediation Agreement (FPRA) with Resource Control Corporation (RCC). At March 31, 2008, the remaining cost estimated for remediation of the site under the FPRA with RCC was approximately $440,000 (the present
value at an interest rate of 6.16%, per annum), virtually all of which is expected to be paid by us in fiscal 2010, provided that RCC achieves specific milestones contained in the FPRA.

On May 13, 2008, we received an updated remediation status report from RCC indicating that the original remediation cost of $2,115,122, as specified
in the FPRA, will be exceeded by approximately $392,000. Subject to the terms of the FPRA, RCC, not us, is responsible for any unexpected or unanticipated remediation cost increases. We monitor the project status and believe that RCC is capable of
meeting RCCs contractual obligations under the FPRA.

At March 31, 2008, estimated remediation payments were as follows:



|                                                 |  |   |         |  
|------------------------------------------------ |  | - | ------- | -
|Estimated Remediation Payments at March 31, 2008 | 
|2008                                             |  | $ |        |  
|2009                                             |  |   |        |  
|2010                                             |  |   | 467,630 |  
|2011                                             |  |   | 14,700  |  
|                                                 |  |   |         |  
|                                                 |  |   | 482,330 |  
|Unamortized discount                             |  |   | (42,245 | )
|                                                 |  |   |         |  
|Total                                            |  | $ | 440,085 |  
|                                                 |  |   |         |  

In a letter dated February 23, 2006, we received a Notice of Assessment Related to Final
Audit Determination from the New Jersey Division of Taxation that Kreisler Industrials Business Tax Returns for the fiscal years ended June 30, 2002 and June 30, 2001 are subject to additional income tax. The amount of the final
audit determination totaled $103,781 of which $59,493 is additional income tax expense, $5,503 is for penalties and an estimated amount of $38,785 is for interest through March 31, 2008. In accordance with the appropriate New Jersey statutes,
we protested the final audit determination and requested an informal administrative conference with the Conference and Appeals Branch. On April 29, 2008, we participated in an informal administrative hearing with the Conference and Appeals
Branch. We anticipate a ruling on our appeal by June 30, 2008. The amount of interest potentially due is dependent on the final settlement date and is subject to increase.

4. Inventories

At March 31, 2008 and June 30, 2007, inventories consisted of the
following:



|                |  |                |           |               |   |          
|--------------- |  | -------------- | --------- | ------------- | - | ---------
|                |  | (unaudited)    |           |              
|                |  | March 31, 2008 |           | June 30, 2007
|Raw materials   |  | $              | 4,030,820 |               | $ | 3,463,696
|Work in process |  |                | 2,083,618 |               |   | 1,567,170
|Finished goods  |  |                | 466,589   |               |   | 516,117  
|                |  |                |           |               |   |          
|                |  | $              | 6,581,027 |               | $ | 5,546,983
|                |  |                |           |               |   |          

We periodically evaluate inventory to determine the likely future usage of those items in
inventory. As a result, we will typically record a charge against inventory that has historical limited usage. We also make judgments as to future demand requirements based upon customer orders in backlog or the propensity of a customer to order a
component from us. If such future demand requirements are unlikely, we will record a charge against inventory.



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5. Net Income per Common Share

Basic net income per common share is computed by dividing net income by the weighted-average common shares outstanding. Diluted net income per common share is computed by dividing net income by the weighted-average
common shares outstanding plus shares issuable upon the exercise of employee stock options net of shares assumed purchased with option proceeds.



|                                                      |  |                             |           |                            |   |           |  |      |           |  |   |          
|----------------------------------------------------- |  | --------------------------- | --------- | -------------------------- | - | --------- |  | ---- | --------- |  | - | ---------
|(Unaudited)                                           |  | Three Months EndedMarch 31, |           | Nine Months EndedMarch 31,
|                                                      |  | 2008                        |           | 2007                       |   | 2008      |  | 2007
|Net income                                            |  | $                           | 605,405   |                            | $ | 308,124   |  | $    | 1,634,684 |  | $ | 1,307,658
|                                                      |  |                             |           |                            |   |           |  |      |           |  |   |          
|Weighted-average shares outstanding                   |  |                             | 1,867,948 |                            |   | 1,842,792 |  |      | 1,867,948 |  |   | 1,834,781
|Dilutive impact of stock options                      |  |                             | 13,483    |                            |   | 38,731    |  |      | 25,560    |  |   | 19,179   
|                                                      |  |                             |           |                            |   |           |  |      |           |  |   |          
|Weighted-average shares outstanding assuming dilution |  |                             | 1,881,431 |                            |   | 1,881,523 |  |      | 1,893,508 |  |   | 1,853,960
|                                                      |  |                             |           |                            |   |           |  |      |           |  |   |          
|Net income per common share:                          |  |                             |           |                            |   |           |  |      |           |  |   |          
|Basic                                                 |  | $                           | 0.32      |                            | $ | 0.17      |  | $    | 0.88      |  | $ | 0.71     
|Diluted                                               |  | $                           | 0.32      |                            | $ | 0.16      |  | $    | 0.86      |  | $ | 0.71     

6. Segment Information

We manage our business based principally upon geographic areas. We evaluate performance and allocate resources based on net sales, operating income (loss) and net assets employed. Net sales are attributed to
geographic areas based on the location of the assets producing the sales.

Geographic information regarding our net sales and long-lived
assets for the three and nine months ended March 31, 2008 and 2007, respectively, was as follows:

Selected Financial Results by Geographic Segment
(unaudited)



|                                  |  |               |            |   |        |   |           |       |  |   |            |  
|--------------------------------- |  | ------------- | ---------- | - | ------ | - | --------- | ----- |  | - | ---------- | -
|Three Months Ended March 31, 2008 |  | United States |            |   | Poland |   |           | Total | 
|Sales to unaffiliated customers   |  | $             | 7,333,732  |   |        | $ | 111,355   |       |  | $ | 7,445,087  |  
|Income from operations            |  |               | 854,071    |   |        |   | 105,884   |       |  |   | 959,955    |  
|Interest and other income         |  |               | 69,759     |   |        |   | 7,015     |       |  |   | 76,774     |  
|Interest and other expense        |  |               | (24,912    | ) |        |   | (393      | )     |  |   | (25,305    | )
|                                  |  |               |            |   |        |   |           |       |  |   |            |  
|Income before income tax expense  |  |               | 898,918    |   |        |   | 112,506   |       |  | $ | 1,011,424  |  
|                                  |  |               |            |   |        |   |           |       |  |   |            |  
|Segment assets                    |  | $             | 17,743,790 |   |        | $ | 2,656,151 |       |  | $ | 20,399,941 |  
|Depreciation                      |  | $             | 92,549     |   |        | $ | (57,648   | )     |  | $ | 34,901     |  



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|                                  |  |               |            |   |        |   |           |  |   |            |  
|--------------------------------- |  | ------------- | ---------- | - | ------ | - | --------- |  | - | ---------- | -
|Three Months Ended March 31, 2007 |  | United States |            |   | Poland |   | Total     | 
|Sales to unaffiliated customers   |  | $             | 6,225,014  |   |        | $ | 22,205    |  | $ | 6,247,219  |  
|Income from operations            |  |               | 407,817    |   |        |   | 37,530    |  |   | 445,347    |  
|Interest and other income         |  |               | 45,154     |   |        |   | 732       |  |   | 45,886     |  
|Interest and other expense        |  |               | (8,952     | ) |        |   | 2,637     |  |   | (6,315     | )
|                                  |  |               |            |   |        |   |           |  |   |            |  
|Income before income tax expense  |  | $             | 444,019    |   |        | $ | 40,899    |  | $ | 484,918    |  
|                                  |  |               |            |   |        |   |           |  |   |            |  
|Segment assets                    |  | $             | 13,097,846 |   |        | $ | 2,263,698 |  | $ | 15,361,544 |  
|Depreciation                      |  | $             | 105,884    |   |        | $ | 91,057    |  | $ | 196,941    |  



|                                        |  |               |            |   |        |   |           |       |  |   |            |  
|--------------------------------------- |  | ------------- | ---------- | - | ------ | - | --------- | ----- |  | - | ---------- | -
|Nine Months Ended March 31, 2008        |  | United States |            |   | Poland |   |           | Total | 
|Sales to unaffiliated customers         |  | $             | 21,507,591 |   |        | $ | 201,289   |       |  | $ | 21,708,880 |  
|Income (loss) from operations           |  |               | 2,649,411  |   |        |   | (74,936   | )     |  |   | 2,574,475  |  
|Interest and other income               |  |               | 190,583    |   |        |   | 11,477    |       |  |   | 202,060    |  
|Interest and other expense              |  |               | (43,520    | ) |        |   | (453      | )     |  |   | (43,973    | )
|                                        |  |               |            |   |        |   |           |       |  |   |            |  
|Income (loss) before income tax expense |  |               | 2,796,474  |   |        |   | (63,912   | )     |  | $ | 2,732,562  |  
|                                        |  |               |            |   |        |   |           |       |  |   |            |  
|Segment assets                          |  | $             | 17,743,790 |   |        | $ | 2,656,151 |       |  | $ | 20,399,941 |  
|Depreciation                            |  | $             | 270,386    |   |        | $ | 240,596   |       |  | $ | 510,982    |  



|                                        |  |               |            |   |        |   |           |       |  |   |            |  
|--------------------------------------- |  | ------------- | ---------- | - | ------ | - | --------- | ----- |  | - | ---------- | -
|Nine Months Ended March 31, 2007        |  | United States |            |   | Poland |   |           | Total | 
|Sales to unaffiliated customers         |  | $             | 17,307,274 |   |        | $ | 38,261    |       |  | $ | 17,345,535 |  
|Income (loss) from operations           |  |               | 2,150,246  |   |        |   | (64,303   | )     |  |   | 2,085,943  |  
|Interest and other income               |  |               | 126,679    |   |        |   | 4,630     |       |  |   | 131,309    |  
|Interest and other expense              |  |               | (28,593    | ) |        |   | (9,207    | )     |  |   | (37,800    | )
|                                        |  |               |            |   |        |   |           |       |  |   |            |  
|Income (loss) before income tax expense |  | $             | 2,248,332  |   |        | $ | (68,880   | )     |  | $ | 2,179,452  |  
|                                        |  |               |            |   |        |   |           |       |  |   |            |  
|Segment assets                          |  | $             | 13,097,846 |   |        | $ | 2,263,698 |       |  | $ | 15,361,544 |  
|Depreciation                            |  | $             | 315,738    |   |        | $ | 139,003   |       |  | $ | 454,741    |  



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7. Significant Customers and Suppliers

Net sales to two commercial customers (Commercial Customers A & B) and the United States Government represented the following percentages
of net sales:

Percentage of Net Sales (unaudited)



|                             |  |      |    |  |      |  
|---------------------------- |  | ---- | -- |  | ---- | -
|Three Months Ended March 31, |  | 2008 |    |  | 2007 |  
|Commercial Customer A        |  | 50   | %1 |  | 64   | %
|Commercial Customer B        |  | 12   | %  |  | 1    | %
|U.S. Government              |  | 7    | %  |  | 3    | %
|                             |  |     
|Nine Months Ended March 31,  |  | 2008 |    |  | 2007 |  
|Commercial Customer A        |  | 53   | %1 |  | 58   | %
|Commercial Customer B        |  | 10   | %  |  | 6    | %
|U.S. Government              |  | 6    | %  |  | 4    | %



|1 | The sales amount includes $342,000 of deferred revenue recognized in connection with UTC MOU, as defined below. See the
Liquidity and Capital Resources sub-section of Part I, Item 2 Managements Discussion and Analysis or Plan of Operation for a description of the UTC MOU.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Net sales to Commercial Customers A & B and the United States Government were as follows:

Net Sales (unaudited)



|                             |  |      |            |   |      |   |           
|---------------------------- |  | ---- | ---------- | - | ---- | - | ----------
|Three Months Ended March 31, |  | 2008 |            |   | 2007
|Commercial Customer A        |  | $    | 3,740,000  | 1 |      | $ | 3,973,000 
|Commercial Customer B        |  |      | 873,000    |   |      |   | 51,000    
|U.S. Government              |  |      | 535,000    |   |      |   | 164,000   
|                             |  |     
|Nine Months Ended March 31,  |  | 2008 |            |   | 2007
|Commercial Customer A        |  | $    | 11,561,000 | 1 |      | $ | 10,143,000
|Commercial Customer B        |  |      | 2,209,000  |   |      |   | 995,000   
|U.S. Government              |  |      | 1,390,000  |   |      |   | 674,000   



|1 | The sales amount includes $342,000 of deferred revenue recognized in connection with the UTC MOU. See the
Liquidity and Capital Resources sub-section of Part I, Item 2 Managements Discussion and Analysis or Plan of Operation for a description of the UTC MOU.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Accounts receivable from Commercial Customers A & B and the United States Government at March 31, 2008 and 2007 were as follows:

Accounts Receivable (unaudited)



|                      |  |                |         |   |                |   |          
|--------------------- |  | -------------- | ------- | - | -------------- | - | ---------
|                      |  | March 31, 2008 |         |   | March 31, 2007
|Commercial Customer A |  | $              | 263,000 | 1 |                | $ | 1,479,000
|Commercial Customer B |  |                | 553,000 |   |                |   | 85,000   
|U.S. Government       |  |                | 126,000 |   |                |   | 113,000  



|1 | Excludes $500,000 in deferred revenue under the UTC MOU which was invoiced by Kreisler Industrial during March 2008 but
not paid by the customer. The $500,000 is included in other current assets.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We purchased more than 10% of detail
components used in the products manufactured by us from each of three outside suppliers during the nine months ended March 31, 2008 and from two suppliers during the nine months ended March 31, 2007. Alternative suppliers of these
components are available and we believe that the loss of any of these suppliers would not have a long-term material impact on our operations.



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##### Table of Contents

We do not have any long-term or fixed purchase agreements with our suppliers. Materials used in our
products are purchased, as required, from various suppliers. While two suppliers represented approximately 14% and 11%, respectively, of our purchased materials cost during the nine months ended March 31, 2008, we believe that alternative
suppliers of these components are available such that the loss of either of these suppliers would not have a long-term material impact on us. At times, our customers require raw materials or components to be purchased from designated suppliers. We
procure approximately 10% of our purchased material components from the third supplier, a designated supplier of proprietary components. Should this supplier no longer be able to provide proprietary components, an alternative supplier of these
proprietary components is available to us, which may have longer delivery lead-times and higher prices. We also use a variety of raw materials in the manufacture of our products. Increased delivery lead-times for some raw materials, particularly
titanium and nickel-based alloys, have been experienced along with significant price increases in the cost of those alloys. Smaller cost increases were also experienced in stainless steel alloys used by us. We were able to mitigate some of the
effects of longer lead-times and rising raw material costs through an increase in quoted lead-times, forward planning and a partial pass through of cost increases to customers. Future shortages or price fluctuations in raw materials could have a
material adverse effect on our operations.

8. Product Warranty Expense

During April 2007, Kreisler Industrial was informed by a customer that industrial gas turbine components provided by Kreisler Industrial during fiscal
2006 needed to be replaced due to a quality discrepancy specific to this customer, which was subsequently rectified by Kreisler. As a result, we incurred a charge for the three months ended March 31, 2007 of $235,000, which was the estimated
replacement cost of the components. Kreisler Industrial completed shipment of replacement components, at no additional cost to this customer, as of October 22, 2007.



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##### Table of Contents

|Item 2 | Managements Discussion and Analysis or Plan of Operation
|------ | ---------------------------------------------------------

Overview

Kreisler Manufacturing Corporation and its wholly owned subsidiaries, Kreisler Industrial Corporation
(Kreisler Industrial) and Kreisler Polska Sp. z o.o (Kreisler Polska), manufacture precision metal components and assemblies primarily for use in military and commercial aircraft engines and in industrial gas turbines. Unless
the context indicates otherwise, the use of we, us, our or the Company refers to Kreisler Manufacturing Corporation and its subsidiaries. Our products include tube assemblies of multiple sizes and
configurations as well as machined components and are typically manufactured to the designs and specifications of the particular customer. Our products may be made of various materials, including titanium, nickel and stainless steel. These
high-quality engineered tube assemblies transfer fuel, oil, water, air and hydraulic fluids. Orders are received through competitive proposals, which are made in response to requests for bids from contractors who supply engines or engine components
to various branches of the United States Department of Defense or to commercial businesses. This section should be read in conjunction with our unaudited interim consolidated financial statements and notes to such financial statements included in
this Quarterly Report on Form 10-QSB

Our sales for the three and nine months ended March 31, 2008 were $7,445,000 and $21,709,000,
respectively, compared to our sales for the three and nine months ended March 31, 2007 of $6,247,000 and $17,346,000, respectively. Our net income for the three and nine months ended March 31, 2008 was $605,000 and $1,635,000,
respectively, compared to our net income for the three and nine months ended March 31, 2007 of $308,000 and $1,308,000, respectively. Our results for the three and nine months ended March 31, 2007 included a charge of $235,000 attributable
to a since-resolved customer product warranty claim (see Note 8 to the Notes to the Interim Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional information). Our costs, such as overhead and purchased
material costs, remained in line with our expectations though such costs may rise if we create new managerial positions to support continued growth.

We believe that we are unique among most tube and pipe fabricators in our markets due to our public company status, sales size and international presence. Our strategy is to focus on (i) expanding our global
footprint and capitalizing on emerging strategic opportunities; (ii) continuing to improve our product quality to increase customer satisfaction and lower costs; and (iii) developing the expertise of our employees. We also continue to
target organic sales opportunities while seeking to manage our costs growth at a rate below sales growth. As in the past, we are concerned about continuing customer pricing pressure and intend to continue our focus on controlling future costs
through (i) the introduction of long-term agreements with our suppliers, (ii) increased use of economic order quantities with our suppliers and (iii) improved manufacturing productivity at both Kreisler Industrial and Kreisler Polska.

We expect the renovation of Kreisler Polskas tube and pipe facility to be completed on or about June 30, 2008 and to be
operational in the second half of calendar year 2008. We believe this will increase our capacity and attract new customers outside the United States. We will again have a sales and marketing presence at the bi-annual Farnborough Air Show outside
London in July 2008.

We provide, under a Memorandum of Understanding (MOU) between Kreisler Industrial and United Technologies
Corporation (UTC), the majority of tube and manifold components used on the F119 engine (2 engines per F-22 aircraft) which is the only engine currently certified for use on the F-22 Raptor. As a result, sales of F119 engine components
represent an important part of our military sales for the current and next two fiscal years. Effective January 1, 2008, we began to recognize deferred revenue under the MOU. For the three months ended March 31, 2008, we recognized $342,000
in deferred revenue and received $1,500,000 in advance payments out of the total amount of $2,000,000. See the sub-section Liquidity and Capital Resources below for a description of the MOU.

As of March 31, 2008, we held $700,000 of long-term investments. These long-term investments represent AAA-rated auction rate securities and have
been affected by the ability of the financial markets to trade such securities. See the sub-section Liquidity and Capital Resources below for a further description of these auction rate securities.



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##### Table of Contents

We monitor global economic conditions that could affect us, and we believe that we are prepared to
respond accordingly if an economic slowdown should have the potential to affect us.

Results of Operations

Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007

Sales

Sales increased $1,198,000, or 19%, to $7,445,000 for the three months ended
March 31, 2008 compared with sales of $6,247,000 for the three months ended March 31, 2007. Our sales and sales changes by industry market area for the three months ended March 31, 2008 and 2007, respectively, were as follows:



|                             |      |       |           |  |                  |           |  |          |           |   |      |     |    |      |     |   |  |     |  
|---------------------------- | ---- | ----- | --------- |  | ---------------- | --------- |  | -------- | --------- | - | ---- | --- | -- | ---- | --- | - |  | --- | -
|Three Months Ended March 31, |     
|Industry Market Area         |      | Sales |           |  | Percent of Sales |          
|                             | 2008 |       | 2007      |  | $ Change         |           |  | % Change |           |   | 2008 |     |    | 2007 |    
|Commercial                   |      | $     | 2,680,000 |  | $                | 2,874,000 |  | $        | (194,000  | ) |      | (7  | )% |      | 36  | % |  | 46  | %
|Military                     |      |       | 3,723,000 |  |                  | 2,999,000 |  |          | 724,000   |   |      | 24  | %  |      | 50  | % |  | 48  | %
|Industrial Gas Turbine       |      |       | 1,042,000 |  |                  | 374,000   |  |          | 668,000   |   |      | 179 | %  |      | 14  | % |  | 6   | %
|Total                        |      | $     | 7,445,000 |  | $                | 6,247,000 |  | $        | 1,198,000 |   |      | 19  | %  |      | 100 | % |  | 100 | %

Our commercial aircraft engine sales of $2,680,000 for the three months ended March 31, 2008
decreased $194,000, or 7%, compared to our sales for the three months ended March 31, 2007. Our sales decline for commercial components was primarily attributable to lower after-market demand for PW4000 aircraft engine components partially
offset by increased customer demand for components used in the V2500, GP7000 and CF34 aircraft engines (used on the Airbus A320, Airbus A380 and 70 to 122 passenger regional jet aircraft, respectively).

Our sales of components used in military engine applications of $3,723,000 for the three months ended March 31, 2008 increased $724,000, or 24%,
compared to sales of $2,999,000 for the three months ended March 31, 2007. Most of the sales increase was attributable to increased sales of components for the F135 (used on the F-35 Lightning II aircraft), F100 (used on the F-15 and F-16
aircraft) aircraft engines as well as higher spare parts sales to the U.S. Department of Defense which were partially offset by lower demand for components used in the F119 aircraft engine (used on the F-22 Raptor).

For the three months ended March 31, 2008, our sale of products to the industrial gas turbine industry increased to $1,042,000 compared to sales of
$374,000 for the three months ended March 31, 2007. This $668,000, or 179%, increase was primarily attributable to increased demand for components used in Siemens 501F large industrial gas turbines. The demand for these components is affected
by after-market demand and new turbine requirements.

Cost of Goods Sold and Gross Margin

Cost of goods sold for the three months ended March 31, 2008 was 80.3% of sales, or $5,977,000, compared to 84.2% of sales, or $5,261,000, for the
three months ended March 31, 2007.

Our cost of goods sold and gross margins for the three months ended March 31, 2008 and 2007,
respectively, were as follows:



|                             |  |      |           |   |      |   |           |          |  |          |           |  |      |  
|---------------------------- |  | ---- | --------- | - | ---- | - | --------- | -------- |  | -------- | --------- |  | ---- | -
|Three Months Ended March 31, |  | 2008 |           |   | 2007 |   |           | $ Change |  | % Change |          
|Sales                        |  | $    | 7,445,000 |   |      | $ | 6,247,000 |          |  | $        | 1,198,000 |  | 19.2 | %
|Cost of goods sold (COGS)  |  |      | 5,977,000 |   |      |   | 5,261,000 |          |  |          | 716,000   |  | 13.6 | %
|COGS percentage of sales     |  |      | 80.3      | % |      |   | 84.2      | %        |  |          |           |  |      |  
|Gross margin                 |  | $    | 1,468,000 |   |      | $ | 986,000   |          |  | $        | 482,000   |  | 48.9 | %
|Gross margin percent         |  |      | 19.7      | % |      |   | 15.8      | %        |  |          |          |  |      |  



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##### Table of Contents

Our increase in cost of goods sold was primarily attributable to an increase in purchased materials due
to higher sales as well as an increase in employee-related costs and benefits due to an overall increase in the number of production-related employees at Kreisler Industrial and Kreisler Polska. We also benefited from an adjustment to Kreisler
Polskas depreciation expense which was primarily attributable to adjusting the underlying cost and accumulated depreciation of our capital expenditures associated with the APFC, as defined below. This resulted in a $58,000 depreciation expense
benefit for the three months ended March 31, 2008. See the sub-section Liquidity and Capital Resources below for a further description of the APFC. Our gross margin increased almost four percentage points to 19.7% for the three
months ended March 31, 2008 compared to a gross margin of 15.8% for the three months ended March 31, 2007. Our gross margin improvement was primarily attributable to a $235,000 product warranty expense incurred during the three months
ended March 31, 2007 and no corresponding expense during the three months ended March 31, 2008.

Selling, General and Administrative
Expenses

Our selling, general and administrative expenses for the three months ended March 31, 2008 were 6.8% of sales, or
$508,000, compared to 8.7% of sales, or $541,000, for the three months ended March 31, 2007, a decrease of $33,000, or 6.1%.

Our
selling, general and administrative expenses for the three months ended March 31, 2008 and 2007, respectively, were as follows:



|                                                      |  |      |           |   |      |   |           |          |  |   |           |   |  |      |   
|----------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -------- |  | - | --------- | - |  | ---- | --
|Three Months Ended March 31,                          |  | 2008 |           |   | 2007 |   |           | $ Change |  |   | % Change  |  
|Sales                                                 |  | $    | 7,445,000 |   |      | $ | 6,247,000 |          |  | $ | 1,198,000 |   |  | 19.2 | % 
|Selling, general and administrative expenses (SG&A) |  |      | 508,000   |   |      |   | 541,000   |          |  |   | (33,000   | ) |  | (6.1 | )%
|SG&A percentage of sales                              |  |      | 6.8       | % |      |   | 8.7       | %        |  |   |          |   |  |     |   

Most of our decrease in selling, general and administrative expenses was the result of amounts
paid during the three months ended March 31, 2007 associated with the exercise of stock options under our now-expired 1997 Stock Option Plan which had no similar expense during the three months ended March 31, 2008 as well as lower legal
fees, accounting fees and bonus accrual amounts which were partially offset by stock based compensation expenses in accordance with SFAS No. 123 (revised 2004), Share-Based Payments (SFAS No. 123R) totaling $37,000 as well as
increased professional fees associated with employee training.

Income, Interest Expense and Taxes

Summarized below are the income, interest expense and tax amounts and period-over-period change for the three months ended March 31, 2008 and 2007,
respectively.



|                             |  |      |           |   |      |   |           |          |  |          |           |  |       |  
|---------------------------- |  | ---- | --------- | - | ---- | - | --------- | -------- |  | -------- | --------- |  | ----- | -
|Three Months Ended March 31, |  | 2008 |           |   | 2007 |   |           | $ Change |  | % Change |          
|Sales                        |  | $    | 7,445,000 |   |      | $ | 6,247,000 |          |  | $        | 1,198,000 |  | 19.2  | %
|Total costs and expenses     |  |      | 6,485,000 |   |      |   | 5,802,000 |          |  |          | 683,000   |  | 11.8  | %
|                             |  |      |           |   |      |   |           |          |  |          |           |  |       |  
|Income from operations       |  |      | 960,000   |   |      |   | 445,000   |          |  |          | 515,000   |  | 115.7 | %
|Interest & other income      |  |      | 77,000    |   |      |   | 46,000    |          |  |          | 31,000    |  | 67.4  | %
|Interest & other expense     |  |      | (26,000   | ) |      |   | (6,000    | )        |  |          | 20,000    |  | 333.3 | %
|                             |  |      |           |   |      |   |           |          |  |          |           |  |       |  
|Income before income taxes   |  |      | 1,011,000 |   |      |   | 485,000   |          |  |          | 526,000   |  | 108.5 | %
|Income tax expense           |  |      | (406,000  | ) |      |   | (177,000  | )        |  |          | 229,000   |  | 129.4 | %
|                             |  |      |           |   |      |   |           |          |  |          |           |  |       |  
|Net income                   |  | $    | 605,000   |   |      | $ | 308,000   |          |  | $        | 297,000   |  | 96.4  | %
|                             |  |      |           |   |      |   |           |          |  |          |           |  |       |  

Income from operations for the three months ended March 31, 2008 was $960,000, an increase of
$515,000, or 116%, compared to $445,000 for the three months ended March 31, 2007. Income from operations for the three months ended March 31, 2007 was affected by a $235,000 product warranty expense and a $129,000 sales reduction
attributable to a cancelled U.S. Government sales order. We did not experience any corresponding warranty expense and did not experience sales order cancellations during the three months ended March 31, 2008.



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Interest and other income of $77,000 for the three months ended March 31, 2008 was $31,000 higher,
or 67.4%, compared to the three months ended March 31, 2007 and was primarily attributable to higher cash balances due to faster customer payments in accordance with the Kreisler Industrial and Citibank Supplier Agreement (the Supplier
Agreement) and the advance payments under the MOU between Kreisler Industrial and UTC. The Supplier Agreement and MOU are described below in the sub-section Liquidity and Capital Resources.

Income before income taxes for the three months ended March 31, 2008 of $1,011,000 was $526,000 higher, or 108.5%, compared to income before income
taxes for the three months ended March 31, 2007 of $485,000.

Income tax expense for the three months ended March 31, 2008 of
$406,000 was $229,000 higher, or 129.4%, compared to income tax expense for the three months ended March 31, 2007 of $177,000. Our effective tax rate of 40.2% for the three months ended March 31, 2008 was higher than our 36.5% tax rate for
the three months ended March 31, 2007 due to a change in the estimate of our overall annual tax expense during fiscal 2007.

Net
income for the three months ended March 31, 2008 was $605,000, an increase of $297,000, or 96.4%, compared to net income for the three months ended March 31, 2007 of $308,000.

Nine Months Ended March 31, 2008 Compared to Nine Months Ended March 31, 2007

Sales

Sales increased $4,363,000, or 25%, to $21,709,000 for the nine months ended March 31, 2008 compared with sales of $17,346,000 for the
nine months ended March 31, 2007. Our sales and sales changes by industry market area for the nine months ended March 31, 2008 and 2007, respectively, were as follows:



|                            |      |       |            |  |                  |            |          |   |           |      |    |   |      |     |   |  |     |  
|--------------------------- | ---- | ----- | ---------- |  | ---------------- | ---------- | -------- | - | --------- | ---- | -- | - | ---- | --- | - |  | --- | -
|Nine Months Ended March 31, |     
|Industry Market Area        |      | Sales |            |  | Percent of Sales |           
|                            | 2008 |       | 2007       |  | $ Change         |            | % Change |   |           | 2008 |    |   | 2007 |    
|Commercial                  |      | $     | 7,873,000  |  | $                | 7,459,000  |          | $ | 414,000   |      | 6  | % |      | 36  | % |  | 43  | %
|Military                    |      |       | 10,855,000 |  |                  | 8,153,000  |          |   | 2,702,000 |      | 33 | % |      | 50  | % |  | 47  | %
|Industrial Gas Turbine      |      |       | 2,981,000  |  |                  | 1,734,000  |          |   | 1,247,000 |      | 72 | % |      | 14  | % |  | 10  | %
|Total                       |      | $     | 21,709,000 |  | $                | 17,346,000 |          | $ | 4,363,000 |      | 25 | % |      | 100 | % |  | 100 | %

Our commercial aircraft engine sales of $7,873,000 for the nine months ended March 31, 2008
increased $414,000, or 6%, compared to sales for the nine months ended March 31, 2007. Our sales growth continues to be primarily attributable to an increased need for components used in the V2500 and CF34 aircraft engines as well as short-term
increases in GP7000 components. These increases were partially offset by reduced requirements for various other commercial engine programs.

Our sales of components used in military engine applications of $10,855,000 for the nine months ended March 31, 2008 increased $2,702,000, or 33%, compared to our sales of $8,153,000 for the nine months ended March 31, 2007. We
experienced increased sales of components for the F119 and F100 aircraft engines as well as increased sales of spare parts to the U.S Government. These increases were partially offset by lower shipments of development components for the F135
aircraft engine.

For the nine months ended March 31, 2008, our sales of products to the industrial gas turbine industry increased to
$2,981,000 compared to sales of $1,734,000 for the nine months ended March 31, 2007. This $1,247,000, or 72%, increase was primarily attributable to increased demand for components used in large industrial gas turbines such as the Siemens 501F.



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Cost of Goods Sold and Gross Margin

Cost of goods sold for the nine months ended March 31, 2008 was 80.6% of sales, or $17,508,000, compared to 80.4% of sales, or $13,939,000, for the
nine months ended March 31, 2007.

Our cost of goods sold and gross margins for the nine months ended March 31, 2008 and 2007,
respectively, were as follows:



|                            |  |      |            |   |      |   |            |          |  |          |           |  |      |  
|--------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -------- |  | -------- | --------- |  | ---- | -
|Nine Months Ended March 31, |  | 2008 |            |   | 2007 |   |            | $ Change |  | % Change |          
|Sales                       |  | $    | 21,709,000 |   |      | $ | 17,346,000 |          |  | $        | 4,363,000 |  | 25.2 | %
|                            |  |      |            |  
|Cost of goods sold (COGS) |  |      | 17,508,000 |   |      |   | 13,939,000 |          |  |          | 3,569,000 |  | 25.6 | %
|COGS percentage of sales    |  |      | 80.6       | % |      |   | 80.4       | %        |  |          |           |  |      |  
|                            |  |      |            |  
|Gross margin                |  | $    | 4,201,000  |   |      | $ | 3,407,000  |          |  | $        | 794,000   |  | 23.3 | %
|Gross margin percent        |  |      | 19.4       | % |      |   | 19.6       | %        |  |          |          |  |     |  

Our increase in cost of goods sold was primarily attributable to an increase in purchased
materials due to higher sales as well as an increase in employee-related costs and benefits due to an overall increase in the number of production-related employees at Kreisler Industrial and Kreisler Polska. Our gross margin decreased two tenths of
a percentage points to 19.4% for the nine months ended March 31, 2008 compared to a gross margin of 19.6% for the nine months ended March 31, 2007.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the nine months ended
March 31, 2008 were 7.5% of sales, or $1,627,000, compared to 7.6% of sales, or $1,321,000, for the nine months ended March 31, 2007. Selling, general and administrative expenses for the nine months ended March 31, 2008 increased
$306,000, or 23.2%, compared to the nine months ended March 31, 2007.

Our selling, general and administrative expenses for the nine
months ended March 31, 2008 and 2007, respectively, were as follows:



|                                                      |  |      |            |   |      |   |            |          |  |          |           |  |      |  
|----------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -------- |  | -------- | --------- |  | ---- | -
|Nine Months Ended March 31,                           |  | 2008 |            |   | 2007 |   |            | $ Change |  | % Change |          
|Sales                                                 |  | $    | 21,709,000 |   |      | $ | 17,346,000 |          |  | $        | 4,363,000 |  | 25.2 | %
|                                                      |  |      |            |  
|Selling, general and administrative expenses (SG&A) |  |      | 1,627,000  |   |      |   | 1,321,000  |          |  |          | 306,000   |  | 23.2 | %
|SG&A percentage of sales                              |  |      | 7.5        | % |      |   | 7.6        | %        |  |          |          |  |     |  

The majority of our increase in selling, general and administrative expenses during the nine
months ended March 31, 2008 was the result of higher employee-related costs and benefits at Kreisler Industrial and Kreisler Polska, including stock based compensation expenses in accordance with SFAS No. 123R totaling $107,000 as well as
higher sales commissions and professional fees. These cost increases were partially offset by lower Board of Director fees due to a change in the timing of director compensation payments compared to the prior fiscal year, lower bonus accrual amounts
and lower sales & marketing costs during the period.



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Income, Interest Expense and Taxes

Summarized below are the income, interest expense and tax amounts and period-over-period change for the nine months ended March 31, 2008 and 2007,
respectively.



|                            |  |      |            |   |      |   |            |          |  |          |           |  |      |  
|--------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -------- |  | -------- | --------- |  | ---- | -
|Nine Months Ended March 31, |  | 2008 |            |   | 2007 |   |            | $ Change |  | % Change |          
|Sales                       |  | $    | 21,709,000 |   |      | $ | 17,346,000 |          |  | $        | 4,363,000 |  | 25.2 | %
|Total costs and expenses    |  |      | 19,134,000 |   |      |   | 15,260,000 |          |  |          | 3,874,000 |  | 25.4 | %
|                            |  |      |            |   |      |   |            |          |  |          |           |  |      |  
|Income from operations      |  |      | 2,575,000  |   |      |   | 2,086,000  |          |  |          | 489,000   |  | 23.4 | %
|                            |  |      |            |  
|Interest & other income     |  |      | 202,000    |   |      |   | 131,000    |          |  |          | 71,000    |  | 54.2 | %
|Interest & other expense    |  |      | (44,000    | ) |      |   | (38,000    | )        |  |          | 6,000     |  | 15.8 | %
|                            |  |      |            |   |      |   |            |          |  |          |           |  |      |  
|Income before income taxes  |  |      | 2,733,000  |   |      |   | 2,179,000  |          |  |          | 554,000   |  | 25.4 | %
|                            |  |      |            |  
|Income tax expense          |  |      | (1,098,000 | ) |      |   | (871,000   | )        |  |          | 227,000   |  | 26.1 | %
|                            |  |      |            |   |      |   |            |          |  |          |           |  |      |  
|Net income                  |  | $    | 1,635,000  |   |      | $ | 1,308,000  |          |  | $        | 327,000   |  | 25   | %
|                            |  |      |            |   |      |   |            |          |  |          |           |  |      |  

Income from operations for the nine months ended March 31, 2008 was $2,575,000, an increase
of $489,000, or 23.4%, compared to $2,086,000 for the nine months ended March 31, 2007. Income from operations for the nine months ended March 31, 2007 was affected by a $235,000 product warranty expense and a $129,000 sales reduction
attributable to a cancelled U.S. Government sales order. We did not experience any corresponding warranty expense and did not experience sales order cancellations during the nine months ended March 31, 2008.

Interest and other income of $202,000 for the nine months ended March 31, 2008 was $71,000 higher, or 54.2%, compared to the nine months ended
March 31, 2007 and was primarily attributable to higher cash balances due to faster customer payments in accordance with the Supplier Agreement and the advance payments under the MOU between Kreisler Industrial and UTC. The Supplier Agreement
and MOU are described below in the sub-section Liquidity and Capital Resources.

Income before income taxes for the nine months
ended March 31, 2008 of $2,733,000 was $554,000 higher, or 25.4%, compared to income before income taxes for the nine months ended March 31, 2007 of $2,179,000.

Income tax expense for the nine months ended March 31, 2008 of $1,098,000 was $227,000 higher, or 26.1%, compared to income tax expense for the nine months ended March 31, 2007 of $871,000. Our effective tax
rate of 40.2% for the nine months ended March 31, 2008 was slightly higher than our 40.0% tax rate for the nine months ended March 31, 2007.

Net income for the nine months ended March 31, 2008 was $1,635,000, an increase of $327,000, or 25%, compared to net income for the nine months ended March 31, 2007 of $1,308,000.

Backlog

Our total backlog as of March 31, 2008
was $32,400,000 compared to $29,689,000 at March 31, 2007, an increase of $2,711,000, or 9%. Up to approximately 74% of the current backlog is scheduled for delivery over the next 12 months. There can be no assurances, however, that the current
backlog will be delivered during that time or at all. Backlog as of June 30, 2007 was $29,900,000. Backlog is subject to change with reduced purchase order duration and terminations. Orders that have already been terminated by a customer are
excluded from the backlog even if the amount owed by a customer to us for the termination has not been paid.



|                    |  |                |            |                |   |            |  |          |           |  |    |  
|------------------- |  | -------------- | ---------- | -------------- | - | ---------- |  | -------- | --------- |  | -- | -
|                    |  | March 31, 2008 |            | March 31, 2007 |   | $ Change   |  | % Change |          
|Kreisler Industrial |  | $              | 31,200,000 |                | $ | 29,000,000 |  | $        | 2,200,000 |  | 8  | %
|Kreisler Polska(1)  |  |                | 1,200,000  |                |   | 689,000    |  |          | 511,000   |  | 74 | %
|                    |  |                |            |                |   |            |  |          |           |  |    |  
|Total Backlog       |  | $              | 32,400,000 |                | $ | 29,689,000 |  | $        | 2,711,000 |  | 9  | %
|                    |  |                |            |                |   |            |  |          |           |  |    |  



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|(1) | Kreisler Polska March 31, 2008 backlog of 2,658,000 Polish
zloty converted at the exchange rate at March 31, 2008 compared to 1,998,000 Polish zloty converted at the exchange rate at March 31, 2007.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Liquidity and Capital Resources

During the three and nine months ended March 31, 2008, we
relied on our operating cash flow and cash on-hand to fund our capital expenditures and working capital requirements. We anticipate using operating cash flow, cash on-hand, special funding programs (as available), and external financing sources such
as bank debt and lines of credit for future capital expenditures, acquisitions and working capital requirements. As a result, we believe that sufficient liquidity is available from operating cash flow as well as cash on-hand to cover expected
capital expenditures of approximately $1,000,000 for the 12 month period ending March 31, 2009.

Three programs that have contributed
to our increased liquidity are (i) the Additional Project Funding Contract (APFC) between Kreisler Polska and the Polish Enterprise Development Agency (PEDA); (ii) the Supplier Agreement between Kreisler Industrial
and Citibank N.A. (Citibank) and (iii) the advance payments under the MOU between Kreisler Industrial and UTC. These three agreements are described in more detail below.

Additional Project Funding Contract

The APFC between Kreisler Polska and PEDA allowed Kreisler
Polska to receive additional funding from the PEDA based on completed capital expenditures. The program contributed approximately 40% or 1,191,000 Polish zloty (approximately $449,000 at the exchange rate as of the transaction date of
September 30, 2007) of the total qualified capital expenditure cost of 2,988,000 Polish zloty (approximately $1,127,000 at the exchange rate as of the transaction date of September 30, 2007). The funding was received by Kreisler Polska in
September 2007 and was used by Kreisler Polska to fund working capital requirements and purchase additional capital equipment.

Kreisler
Polska entered into a Declaration of Blank Bill Issuer (also known as a Bill of Exchange) as part of the APFC between Kreisler Polska and the PEDA. The Declaration of a Blank Bill Issuer is provided as security for the execution of the APFC and
authorizes the PEDA to reclaim its funding portion should Kreisler Polska violate the terms of the APFC. As of March 31, 2008, Kreisler Polska was in compliance with the terms of the APFC. The primary ongoing contractual requirements under the
APFC, include, but are not limited to: (i) providing information on Kreisler Polskas investment program status to various Polish governmental entities and (ii) maintaining the investment in capital equipment for a period of 5 years
from the date Kreisler Polska submitted the project completion report to the appropriate Polish government entity. The confirmed receipt date of the project completion report by the appropriate Polish government entity was July 27, 2007. Under
certain circumstances, as specified in the APFC, such APFC may be terminated by the PEDA and Kreisler Polska would be obligated to repay any additional funding received from the PEDA and/or will not be eligible to receive additional funding from the
PEDA for a period of 3 years after the termination of the contract.

Should Kreisler Polska be unable to meet the requirements of the APFC,
Kreisler Polska will be obligated to repay the PEDA the total amount of the funding of 1,191,000 Polish zloty (approximately $449,000 at the exchange rate as of the transaction date of September 30, 2007) plus interest. If Kreisler Polska meets
all requirements set forth in the APFC, the PEDA will return, without interest, the Declaration of a Blank Bill Issuer to Kreisler Polska after a period of 5 years has elapsed from the completion of the Project.

Citibank Supplier Agreement

On February 8,
2007, Kreisler Industrial entered into the Supplier Agreement with Citibank. Pursuant to the Supplier Agreement, Citibank provides payment to Kreisler Industrial for accounts receivable owed Kreisler Industrial from UTC customers. The sale of the
accounts receivable by Kreisler Industrial to Citibank is made without recourse to Kreisler Industrial. The primary effect of the Supplier Agreement is to accelerate the payment of outstanding accounts receivable from approximately 60 days to
approximately 10 days. All payments from Citibank to Kreisler Industrial are subject to a discount charge. The discount rate used to calculate the discount charge is the 60-day LIBOR rate plus 1.25%. The discount charge during the three and nine
months ended March 31, 2008 averaged approximately 1% of the invoice amount.



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The Supplier Agreement can be terminated at any time and with immediate effect upon 30 days prior written
notice by either party to the other party. Either Kreisler Industrial or Citibank may terminate the Supplier Agreement with immediate effect upon 5 days prior written notice if the other party is in breach or fails to perform any of its material
obligations under the Supplier Agreement.

UTC MOU

On April 20, 2007, Kreisler Industrial entered into the MOU with UTC for the delivery of F119 engine components. The estimated 2008 to 2010 sales value of components included in the MOU is approximately
$12,000,000. The F119 engine is the sole source engine used on the F-22 Raptor aircraft. Under the MOU, UTC is obligated to provide $2,000,000 of advance payments against future deliveries of F119 engine components from Kreisler Industrial. As of
March 31, 2008, we received $1,500,000 of the expected $2,000,000 of advance payments. The remaining $500,000 has been invoiced by us but not yet paid by the customer. We have used or expect to use the $2,000,000 advance payment to increase our
global production capacity and capabilities, including equipment, working capital and productivity enhancements, of aircraft engine components.

Pursuant to the MOU, Kreisler Industrial lowered current unit prices, starting January 1, 2008, in order to provide UTC with $1,000,000 in incremental cost savings over the term of the agreement. In addition, component selling prices
under the MOU may be adjusted, either up or down, based on increases or decreases in the market prices paid by Kreisler Industrial for raw materials, castings, forgings and proprietary fittings. Other summary material terms of the MOU are as
follows:



| |  |  | Three year agreement from January 1, 2008 through December 31, 2010; and
| | - |  | ------------------------------------------------------------------------



| |  |  | If Kreisler Industrial is unable to deliver components to UTC due to financial difficulties or quality discrepancies solely attributable to Kreisler Industrial, UTC
will be permitted to recover any remaining portion of the $2,000,000 of advance payment along with the incremental cost savings of $1,000,000.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Because Kreisler Industrial and UTC did not enter into the long-term agreement by December 31, 2007, the MOU became binding on both parties. We are currently in negotiations with UTC to enter into a long-term
agreement and expect such negotiations to be completed by December 31, 2008.

Cash and Cash Equivalents

Our cash and cash equivalents at March 31, 2008 of $7,522,000 increased $2,454,000 or 48%, compared to cash and cash equivalents of $5,068,000 at
June 30, 2007. Our increase in cash and cash equivalents was attributable to our receipts of $449,000 (approximately 1,191,000 Polish zloty at the exchange rate as of the transaction date of September 30, 2007) by Kreisler Polska under the
APFC and $1,500,000 from UTC under the MOU. This increase was also attributable to faster collection of accounts receivable as a result of the Supplier Agreement with Citibank.

Long-Term Investments

At March 31, 2008, we held approximately $700,000 of long-term
investments, with an auction reset feature (auction rate securities) whose underlying assets were generally real estate investments or student loans. Auctions have failed for some of these auction rate securities and there is no
assurance that successful auctions on the other auction rate securities in our investment portfolio will succeed and, as a result, our ability to liquidate our investment and fully recover the carrying value of our long-term investment in the near
term may be limited or not exist. An auction failure means that the party wishing to sell auction rate securities could not consummate the sale. All of our auction rate securities, including those subject to the failure, are currently rated AAA, the
highest rating, by a rating agency. If the issuers are unable to successfully close future auctions and/or the security credit ratings deteriorate, we may in the future



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be required to record an impairment charge on these investments. Although there is no assurance, we believe we will be able to liquidate our investment
without significant loss and we currently believe these securities are not significantly impaired; however, it could take until the final maturity of the underlying notes (up to 34 years) to realize the value of these securities. Although there is
no assurance, based on our expected operating cash flows, working capital of $13,100,000 at March 31, 2008 and other sources of cash, we do not anticipate that the lack of liquidity on these investments will affect our ability to execute our
current business plan. Although there is no assurance, we also believe that, should it become necessary, we would be able to borrow against these securities. However, the terms of such borrowings may not be favorable to us.

We do not maintain investments in equities, commodities or derivatives and do not presently enter into transactions denominated in currencies other than
the U.S. dollar. With the exception of the auction rate securities discussed above, we have minimal interest rate risk on investments or other assets.

We are exposed to market risks primarily from changes in interest rates. We do not engage in financial transactions for trading or speculative purposes.

Net Cash Provided by Operating Activities

Net cash provided by operating activities for the nine
months ended March 31, 2008 was $2,205,000 compared to $2,550,000 for the nine months ended March 31, 2007.



|                                          |  |                             |           |      |   |          
|----------------------------------------- |  | --------------------------- | --------- | ---- | - | ---------
|                                          |  | Nine Months Ended March 31,
|                                          |  | 2008                        |           | 2007
|Net cash provided by operating activities |  | $                           | 2,205,000 |      | $ | 2,550,000

The decrease in net cash provided by operating activities was primarily attributable to increases
in inventory, accounts receivable and other current assets partially offset by increases in our deferred revenue (associated with the Kreisler Industrial/UTC MOU), net income, accounts payable and accrued expenses and a decrease in product
warranties. During the nine months ended March 31, 2008, we benefited from the receipt of $1,500,000 in advance payments under the UTC MOU described in Liquidity and Capital Resources sub-section above. We have increased our
inventory levels and, as a result, we believe these increases contributed to improvements in our customer on-time delivery performance. Our increase in current assets was primarily attributable to a prepayment for capital equipment and leasehold
improvements.

Net Cash Provided by (Used in) Investing Activities

Net cash provided by investing activities for the nine months ended March 31, 2008 was $143,000 and was primarily attributable to $449,000 received from the PEDA offset by $156,000 used for the purchase of
capital equipment and $150,000 used to purchase long-term investments.



|                                                    |  |                             |         |      |   |            |  
|--------------------------------------------------- |  | --------------------------- | ------- | ---- | - | ---------- | -
|                                                    |  | Nine Months Ended March 31, |        
|                                                    |  | 2008                        |         | 2007 |  
|Net cash provided by (used in) investing activities |  | $                           | 143,000 |      | $ | (1,386,000 | )

Net Cash (Used in) Financing Activities

Net cash flows used in financing activities totaled $88,000 for the nine months ended March 31, 2008 and consisted of the payment of obligations
under capital leases.



|                                        |  |                             |         |   |      |   |         |  
|--------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                        |  | Nine Months Ended March 31, |        
|                                        |  | 2008                        |         |   | 2007 |  
|Net cash (used in) financing activities |  | $                           | (88,000 | ) |      | $ | (88,000 | )



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General Information

The creation of Kreisler Polska exposes us to gains and losses due to fluctuations of a foreign currency. As of March 31, 2008, the accumulated other comprehensive income amounted to $335,871. The net effect
after adjusting for a tax expense of $176,566 resulted in an increase in stockholders equity of $264,848 at March 31, 2008.

Working capital at March 31, 2008 totaled $13,138,000. We believe this level is sufficient to support our working capital needs during the next 12 months. Our long-term liabilities at March 31, 2008 were comprised of obligations
under capital leases and accrued environmental expenses totaling $161,000 and $440,000, respectively.

Contingencies

In July 1999, we became aware of historical releases of hazardous substances at our Kreisler Industrial manufacturing facility located at 180 Van Riper
Avenue, Elmwood Park, New Jersey. We promptly notified the New Jersey Department of Environmental Protection (NJDEP) as required by the New Jersey Spill Compensation and Control Act (Spill Act) and retained the services of
environmental remediation consultants to perform a full site characterization in accordance with the NJDEPs Technical Requirement for Site Remediation. In June 2001, we entered into a Fixed Price Remediation Agreement (FPRA) with
Resource Control Corporation (RCC). At March 31, 2008, the remaining cost estimated for remediation of the site under the FPRA with RCC was approximately $440,000 (the present value at an interest rate of 6.16%, per annum),
virtually all of which is expected to be paid by us in fiscal 2010, provided that RCC achieves specific milestones contained in the FPRA.

On May 13, 2008, we received an updated remediation status report from RCC indicating that the original remediation cost of $2,115,122, as specified in the FPRA, will be exceeded by approximately $392,000. Subject to the terms of the
FPRA, RCC, not us, is responsible for any unexpected or unanticipated remediation cost increases. We monitor the project status and believe that RCC is capable of meeting RCCs contractual obligations under the FPRA.

In a letter dated February 23, 2006, we received a Notice of Assessment Related to Final Audit Determination from the New Jersey Division of
Taxation that Kreisler Industrials Business Tax Returns for the fiscal years ended June 30, 2002 and June 30, 2001 are subject to additional income tax. The amount of the final audit determination totaled $103,781 of which $59,493 is
additional income tax expense, $5,503 for penalties and an estimated amount of $38,785 for interest expense through March 31, 2008. In accordance with the appropriate New Jersey statutes, we protested the final audit determination and requested
an informal administrative conference with the Conference and Appeals Branch. On April 29, 2008, we participated in an informal administrative hearing with the Conference and Appeals Branch. We anticipate a ruling on our appeal by June 30,
2008. The amount of interest potentially due is dependent on the final settlement date.

Critical Accounting Policies and Estimates

Our critical accounting policies and estimates require significant accounting judgments to be made by us. Note A in the Notes to the Consolidated
Financial Statements in our Annual Report on Form 10-KSB for fiscal year ended June 30, 2007 filed with the SEC provides additional details regarding all of our critical and significant accounting policies.

Principles of Consolidation

The consolidated
financial statements include our accounts and the accounts of our subsidiaries, all of which are wholly owned. All intercompany transactions and accounts have been eliminated in consolidation.



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Revenue Recognition

Revenue from the sale of products is recognized at the time title and the risks and rewards of ownership pass to the customer. This is typically when the products are shipped per the customers instructions, the
sales price is fixed and determinable, and collections are reasonably assured. In those instances in which customer quality and product acceptance are performed at the customers location, we have a high degree of certainty, based on historical
performance, that the product will be accepted by the customer. Our manufacturing cycle time is typically between two and four weeks.

Kreisler Industrial entered into the MOU with UTC for the delivery of F119 engine components. Under the MOU, UTC agreed to provide a $2,000,000 advance payment against future deliveries of F119 engine components, subject to certain
conditions. As of March 31, 2008, Kreisler Industrial received $1,500,000 in advance payments. Prior to January 1, 2008, we deferred recognizing sales from these advance payments. Deferred sales are recognized based on the difference
between the baseline selling price and the actual selling price. The baseline selling price is defined as the price in effect prior to any discounts agreed to in the MOU. Starting January 1, 2008, we recognized deferred sales associated with
the advance payments. For the three months ended March 31, 2008, such deferred sales totaled $342,000.

Cash, Cash Equivalents and Short-Term
Investments

All investments purchased with an original maturity of three months or less are considered to be cash equivalents. All of
our short-term investments are classified as available-for-sale at the respective balance sheet dates. We account for our investment portfolio at fair value. The investments classified as available-for-sale are recorded at fair value based upon
quoted market prices, and any material temporary differences between the cost and fair value of an investment is presented as a separate component of accumulated other comprehensive income. The specific identification method is used to determine the
realized gains and losses on investments. Gross unrealized gains and losses on short-term investments were not material at March 31, 2008.

Cash, cash equivalents and short-term investments at March 31, 2008 and June 30, 2007 consisted of the following:

Cash, cash equivalents and short-term investments



|                                                  |  |                |           |               |   |          
|------------------------------------------------- |  | -------------- | --------- | ------------- | - | ---------
|                                                  |  | March 31, 2008 |           | June 30, 2007
|Money market and bank deposits                    |  | $              | 7,521,971 |               | $ | 5,068,325
|Corporate and municipal bonds                     |  |                |          |               |   | 550,000  
|                                                  |  |                |           |               |   |          
|Cash, cash equivalents and short-term investments |  | $              | 7,521,971 |               | $ | 5,618,325
|                                                  |  |                |           |               |   |          

Accounts Receivable-Trade

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

Accounts receivable - trade is stated at the amount we expect to collect from outstanding balances. The carrying amounts of accounts receivable is
reduced by a valuation allowance that reflects our best estimate of the amounts that will not be collected. We individually review all accounts receivable balances that exceed the due date and estimate the portion, if any, of the balance that will
not be collected. We provide for potentially 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 we
have used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable- trade.

Accounts receivable - trade is presented net of an allowance for estimated uncollectible accounts of $20,000 at March 31, 2008 and 2007. We may adjust the allowance, either up or down, as necessary to adjust for estimated uncollectible
accounts.



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Property, Plant, and Equipment

Property, plant, and equipment are recorded at cost less accumulated depreciation and amortization. Maintenance and repairs are charged to operations as incurred. Asset and related accumulated depreciation amounts are
relieved from the accounts for retirements or dispositions. Depreciation on machinery and equipment is computed using the double-declining method. Estimated useful lives of three to ten years are used for machinery and equipment, while leasehold
improvements are amortized, using the straight-line method, over the shorter of either their economic useful lives or the term of the leases.

Property, plant and equipment as of March 31, 2008 were as follows:



|                                       |  |   |            |  
|-------------------------------------- |  | - | ---------- | -
|Property, plant and equipment, at cost |  | $ | 8,240,624  |  
|Less  accumulated depreciation        |  |   | (6,434,848 | )
|                                       |  |   |            |  
|Property, Plant and Equipment, net     |  | $ | 1,805,776  |  
|                                       |  |   |            |  

Long-Term Investments

All investments purchased with an original maturity greater than twelve months are considered to be long-term investments. All of our long-term investments are classified as available-for-sale at the respective
balance sheet dates. We account for our investment portfolio at fair value. The investments classified as available-for-sale are recorded at fair value based upon quoted market prices, and any material temporary differences between the cost and fair
value of an investment is presented as a separate component of accumulated other comprehensive income. The specific identification method is used to determine the realized gains and losses on investments. Gross unrealized gains and losses on
long-term investments were not material at March 31, 2008.

As of March 31, 2008, we held $700,000 of long-term investments.
These long-term investments are held in AAA-rated auction rate securities and have been affected by the ability of the financial markets to trade such securities. See the sub-section Liquidity and Capital Resources for a further
description of these auction rate securities.

Long-term investments at March 31, 2008 and June 30, 2007 consisted of the
following:

Long-term investments



|                              |  |                |         |               |  
|----------------------------- |  | -------------- | ------- | ------------- | -
|                              |  | March 31, 2008 |         | June 30, 2007
|Corporate and municipal bonds |  | $              | 700,000 |               | 
|                              |  |                |         |               |  

Foreign Currency Translation

We comply with SFAS No. 52, Foreign Currency Translation,and accordingly balance sheet accounts are translated at the exchange rate in effect at each balance sheet date; income and expense
accounts are translated at the average rates of exchange prevailing during the period. Gains and losses on foreign currency transactions denominated in a currency other than the functional currency are included in the statement of operations within
selling, general and administrative expenses. Adjustments related to foreign currency translations are reflected in the accumulated other comprehensive income (loss) component of the statement of changes in stockholders equity and
comprehensive income in accordance with SFAS No. 130, Reporting Comprehensive Income. The national currency of the foreign subsidiary is the functional currency.



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Inventories

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

We periodically evaluate inventory to determine the likely future usage of those items in inventory. As a
result, we will typically record a charge against inventory that has historical limited usage. We also make judgments as to future demand requirements based upon customer orders in backlog or the propensity of a customer to order a component from
us. If such future demand requirements are unlikely, we will record a charge against inventory.

Income Taxes

We comply with SFAS No. 109, Accounting for Income Taxes, which requires an asset and liability approach to financial reporting of income
taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and
rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce the deferred income tax assets to the amount expected to be realized.

We also comply with FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement
No. 109 (FIN 48), which provides criteria for the recognition, measurement, presentation, and disclosure of uncertain tax positions. A tax benefit from an uncertain position may be recognized only if it is more likely than
not that the position is sustainable based on its technical merits.

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

Earnings per Common Share

We comply with SFAS
No. 128, Earnings Per Share. SFAS No. 128 requires dual presentation of basic and diluted income per common share for all periods presented. Basic income per common share excludes dilution and is computed by dividing
income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted income per common share reflects the potential dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in the issuance of common stock that then share in our income. The difference between the number of shares used to compute basic income per common share and diluted income per common
share relates to additional shares to be issued upon the assumed exercise of stock options and, if applicable, warrants, net of shares hypothetically repurchased at the average market price with the proceeds of exercise.

Certain Relationships and Related-Party Transactions

On July 1, 2005, we entered into a letter agreement (the Consulting Agreement) with Wallace N. Kelly, our Chairman of the Board, setting forth the terms of our engagement of Mr. Kelly to render technical advisory
services to us in the areas of process engineering, product development, strategic planning, customer and marketing support, as directed by our Chief Executive Officer.

We agreed to pay Mr. Kelly $1,000 for each full (eight hours or greater) day that he performs such services during the term of the Consulting Agreement. For days that Mr. Kelly performs services of less than
eight hours, the fee is based on the fraction of actual hours during which the services were performed to eight hours.

We also agreed to
reimburse Mr. Kelly for all reasonable out-of-pocket expenses incurred during the term of the Consulting Agreement, including, but not limited to, Mr. Kellys commute to or from his home residence, living expenses while on site in New
Jersey and certain business travel and entertainment expenses.



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The Consulting Agreement became effective on July 1, 2005 and continues until thirty days following
a written termination notice by either party to the Consulting Agreement.

For the three and nine months ended March 31, 2008, we paid
Mr. Kelly $28,000 and $83,750 for technical advisory services and $6,854 and $12,449 for his net out-of-pocket expenses. For the three and nine months ended March 31, 2007, the Company paid Mr. Kelly $31,000 and $110,000 for technical
advisory services and $6,165 and $19,805 for his out of pocket expenses.



|Item 3 | Controls and Procedures
|------ | -----------------------

We periodically review the
design and effectiveness of our disclosure controls and procedures. We make modifications to improve the design and effectiveness of our disclosure controls and procedures and may take corrective action if our reviews identify a need for such
modifications or actions.

Our management, including the Chief Executive Officer (CEO) and Chief Financial Officer
(CFO), does not expect that our disclosure controls and procedures or our internal control over financial reporting 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 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 our 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 a simple error or mistake.

Additionally, controls can be circumvented by the individual acts of some persons or by collusion of two or more people. 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 our management, including the CEO and CFO, of the effectiveness of our
disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the CEO and CFO have concluded that as of the end of the period covered by this report, our disclosure controls and procedures were
effective to provide assurance that information required to be disclosed in reports that are filed or submitted under the Securities Exchange Act of 1934, as amended, is (i) recorded, processed, summarized and reported, within the time periods
specified in the Commissions rules and forms and (ii) accumulated and communicated to our management, including the CEO (i.e., the principal executive officer) and CFO (i.e., the principal financial officer), or persons performing similar
functions, as appropriate to allow timely decisions regarding the required disclosure.

There have been no changes in our internal control
over financial reporting during our last fiscal quarter (or our fourth fiscal quarter in the case of an annual report) that have materially affected, or are reasonably likely to materially affect, our 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
|------ | --------



11

Statement regarding computation of per share earnings incorporated by reference to Note 5 to Interim Consolidated Financial Statements included in this Quarterly Report on Form
10-QSB31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 193431.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 193432.1

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350




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SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, as amended, 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: May 14, 2008



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EXHIBIT INDEX



|     |  |                                                                                                                                                                                        
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|11   |  | Statement regarding computation of per share earnings incorporated by reference to Note 5 to Interim Consolidated Financial Statements included in this Quarterly Report on Form
10-QSB
|     | 
|31.1 |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934                                                                          
|     | 
|31.2 |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934                                                                          
|     | 
|32.1 |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350                                                                                



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