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		13
Item 3		Controls and Procedures		24
PART II		Other Information
Item 1		Legal Proceedings		26
Item 2		Unregistered Sales of Equity Securities and Use of Proceeds		26
Item 3		Defaults Upon Senior Securities		26
Item 4		Submission of Matters to a Vote of Security Holders		26
Item 5		Other Information		26
Item 6		Exhibits		27

 

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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,” “intended,” “will,” “should,” “may,” “believes,” “expects,” “expected,” “anticipates,” and “anticipated” or the negative thereof or variations thereon or similar terminology. These forward-looking statements are based on the Company’s current expectations. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. These forward-looking statements represent the Company’s current judgment. The Company disclaims any intent or obligation to update its forward looking statements. Because forward-looking statements involve risks and uncertainties, the Company’s actual results could differ materially from those set forth in or underlying the forward-looking statements.

 

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PART I FINANCIAL INFORMATION

Item 1

Financial Statements

Kreisler Manufacturing Corporation and Subsidiaries

Consolidated Balance Sheets

 

		(Unaudited)
		12/31/2007			6/30/2007
Assets
Cash and cash equivalents		$	7,448,818		$	5,068,325
Short-term investments			550,000			550,000
Accounts receivable – trade, net (net of $20,000 allowance for uncollectible accounts at December 31, 2007 and June 30, 2007)			2,570,081			2,366,177
Inventories			5,655,761			5,546,983
Deferred tax asset			—			96,312
Other current assets			567,631			66,200
Total current assets			16,792,291			13,693,997
Property, plant and equipment, net			1,759,617			2,425,098
Deferred tax asset			123,942			123,942
Total non-current assets			1,883,559			2,549,040
TOTAL ASSETS		$	18,675,850		$	16,243,037

 

Liabilities and Stockholders’ Equity
Liabilities
Accounts payable – trade		$	1,269,279		$	1,130,990
Accrued expenses			571,404			520,540
Deferred tax liability			45,402			—
Deferred revenue			1,500,000			500,000
Product warranties			—			148,185
Income taxes payable			161,692			—
Obligations under capital leases, current portion			114,754			115,731
Total current liabilities			3,662,531			2,415,446
Obligations under capital leases, net of current portion			201,466			258,343
Accrued environmental cost			435,463			426,117
Total long-term liabilities			636,929			684,460
Commitments and contingencies
Stockholders’ Equity
Common stock, $0.125 par value—6,000,000 shares authorized; 1,867,948 shares issued and outstanding at December 31, 2007 and June 30, 2007			233,494			233,494
Additional paid-in capital			989,946			909,625
Retained earnings			12,958,268			11,928,989
Accumulated other comprehensive income			194,682			71,023
Total stockholders’ equity			14,376,390			13,143,131
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY		$	18,675,850		$	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 December 31,		2007				2006
Net sales		$	7,566,846			$	6,015,331
Cost of goods sold			6,081,882				4,512,828
Selling, general and administrative expenses			633,786				481,661
Total costs and expenses			6,715,668				4,994,489
Income from operations			851,178				1,020,842
Interest and other income			61,571				37,314
Interest and other expenses			(6,311	)			(17,926	)
Income before income taxes			906,438				1,040,230
Income taxes			(363,919	)			(433,000	)
Net income		$	542,519			$	607,230
Net income per common share:
Net income – basic		$	0.29			$	0.33
Net income – diluted		$	0.29			$	0.33
Weighted average common shares – basic			1,867,948				1,831,279
Weighted average common shares – diluted			1,896,086				1,854,337
Six Months Ended December 31,		2007				2006
Net sales		$	14,263,793			$	11,098,316
Cost of goods sold			11,530,343				8,677,463
Selling, general and administrative expenses			1,118,930				780,257
Total costs and expenses			12,649,273				9,457,720
Income from operations			1,614,520				1,640,596
Interest and other income			125,286				85,423
Interest and other expenses			(18,668	)			(31,485	)
Income before income taxes			1,721,138				1,694,534
Income taxes			(691,859	)			(695,000	)
Net income		$	1,029,279			$	999,534
Net income per common share:
Net income – basic		$	0.55			$	0.55
Net income – diluted		$	0.54			$	0.54
Weighted average common shares – basic			1,867,948				1,830,863
Weighted average common shares – diluted			1,898,283				1,854,493

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

Six months ended December 31, 2007

 

													Accumulated Other Comprehensive Income
		Common Stock					Additional Paid-in Capital									Total Stockholders’ Equity
		Outstanding								Retained Earnings
		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											1,029,279						1,029,279
Foreign currency translation adjustment(1)														123,659			123,659
Total comprehensive income																	1,152,938
Stock-based compensation								80,321									80,321
Balances, December 31 , 2007 (unaudited)		1,867,948		$	233,494		$	989,946		$	12,958,268		$	194,682		$	14,376,390

 

(1)	Net of tax expense of $82,441

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)

 

Six Months Ended December 31,		2007				2006
Cash Flows from Operating Activities:
Net income		$	1,029,279			$	999,534
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			476,081				297,800
Deferred tax asset			13,872				72,521
Stock-based compensation			80,321				14,027
Increase (decrease) in cash attributable to changes in operating assets and liabilities:
Accounts receivable – trade, net			(236,403	)			407,320
Inventories			(106,631	)			(598,101	)
Other current assets			(445,994	)			20,228
Accounts payable – trade			272,974				144,599
Accrued expenses			(88,324	)			(103,769	)
Deferred tax liability			45,402				—
Deferred revenue			1,000,000				—
Product warranties			(148,185	)			—
Income taxes payable			161,692				178,516
Accrued environmental costs			9,346				—
Net Cash Provided by Operating Activities			2,063,430				1,432,675
Cash Flows from Investing Activities:
Foreign grant for property and equipment placed in service			448,817				—
Purchases of property and equipment			(155,800	)			(778,305	)
Net Cash Provided by (Used in) Investing Activities			293,017				(778,305	)
Cash Flows from Financing Activities:
Repayment of obligations under capital leases			(57,854	)			(55,392	)
Repayment of line of credit			—				(54,810	)
Proceeds from exercise of stock options			—				3,543
Net Cash (Used in) Financing Activities			(57,854	)			(106,659	)
Effect of foreign currency translation			81,900				30,145
Increase in cash and cash equivalents			2,380,493				577,856
Cash and cash equivalents, beginning of period			5,068,325				3,295,947
Cash and cash equivalents, end of period		$	7,448,818			$	3,873,803
Supplemental Disclosure of Cash Flow Information
Cash paid during the periods for:
Income taxes		$	450,900			$	466,050
Interest		$	13,935			$	44,299
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,” “ours” 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

Effective July 1, 2007, we adopted the provisions of the Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”). There were no unrecognized tax benefits as of July 1, 2007 and as of December 31, 2007. FIN 48 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Our management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position. The adoption of the provisions of FIN 48 did not have a material impact on our financial position, results of operations and cash flows.

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.

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”), N.J.S.A. 58:10-23.11, and retained the services of environmental remediation consultants to perform a full site characterization in accordance with the NJDEP’s Technical Requirement for Site Remediation, N.J.A.C. 7:26E-1.1. In June 2001, we entered into a Fixed Price Remediation Agreement (“FPRA”) with Resource Control Corporation (“RCC”). At December 31, 2007, the remaining cost estimated for remediation of the site under the FPRA with RCC was approximately $435,000 (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 February 4, 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 $382,000. 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.