EXHIBIT 13







12




---




2002 Annual Report


Kreisler Manufacturing Corporation





To Our Stockholders:





Kreislers fiscal year 2002, was impacted by September 11, 2001 as was the nation. The airline industry continues its battle to
recover.





The results of operations for the six months ended December 31,2001 were outstanding with revenues of
$10.8 million and net income of $1,149,000 or $.56 per diluted share. However, for the second six months of the fiscal year revenues declined to $7.5 million resulting in a loss of $79,000 or $.03 per diluted share.





The lower sales in the second half of the year reflects the uncertainties created in the commercial airline industry by the events of
September 11. Delivery dates for orders were changed and some orders were terminated. Compared to the same period in the prior year the companys backlog increased $2.1 million or 13.2% but could change with economic instability.





In fiscal year ended June 30, 2002 revenue decreased $362,000 or 1.9% compared to the fiscal year ended June 30, 2001. Income
from operations declined $1,717,000 or 50% compared to the same period in the prior year. A decrease in revenues, increase in expenses and decrease in net gain for environmental remediation were the primary reasons for these changes. Diluted
earnings per share for the fiscal year ended June 30, 2002 was $.53 compared to $1.13 for the same period in the prior year.





Under present market conditions with a competitive and cost conscious market it is essential that Kreisler evaluate and identify areas of improvement where significant gains can be made in productivity, effectiveness and
profitability.





Historically Kreisler has been able to overcome a challenging and complex business environment and
I believe it will continue to be able to do so.





The companys return to higher profitability will greatly
depend on the economy. Kreisler has a favorable balance sheet to overcome market volatility and rapidly changing demands.





Thank you for your continued interest in Kreisler in a difficult climate. We will make every effort to justify your support.





Sincerely,





Edward L. Stern


President


Kreisler Manufacturing
Corporation




---



KREISLER MANUFACURING CORPORATION AND SUBSIDIARIES





CONSOLIDATED BALANCE SHEETS





June 30, 2002
and 2001







2002

2001AssetsCash and cash equivalents

$
6,365,222

$
5,053,878Accounts receivabletrade (net)


2,397,542


4,321,944Insurance recovery


243,000


Inventories


2,623,816


2,726,915Deferred tax asset, current


284,500


355,000Other current assets


463,343


42,130Total Current Assets


12,377,423


12,499,867Property, plant, and equipment, at cost less accumulated depreciation of $3,571,737 for 2002 and $3,167,743 for
2001


1,363,152


1,178,194Deferred tax asset, non-current


260,500


471,200Total Non-current Assets


1,623,652


1,649,394$
14,001,075

$
14,149,261Liabilities and Stockholders' EquityLiabilitiesAccounts payabletrade

$
209,667

$
661,460Accrued expenses


824,377


1,150,466Accrued environmental cost


667,383


858,000Total Current Liabilities


1,701,427


2,669,926Accrued environmental cost


675,650


959,000Stockholders' EquityCommon stock, $.125 par value for 2002 and 2001; 3,000,000 shares authorized; 1,992,547 and 1,966,047 shares issued and
outstanding for 2002 and 2001, respectively


249,070


245,757Additional paid-in capital


1,651,179


1,621,366Retained earnings


9,723,749


8,653,212Total Stockholders' Equity


11,623,998


10,520,335$
14,001,075

$
14,149,261








See the accompanying notes.




1




---



KREISLER MANUFACURING CORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF INCOME





Three
years ended June 30, 2002







2002


2001


2000Revenues

$
18,299,766


$
18,661,956


$
14,321,777Cost of goods sold


15,974,013



15,123,548



13,027,450Selling, general, and administrative expenses


791,320



570,498



1,021,022Net gain on environmental remediationnet of insurance recovery and discount amortization


(146,567
)


(430,000
)


16,618,766



15,264,046



14,048,472Income from operations


1,681,000



3,397,910



273,305Interest and other earnings


164,337



276,689



228,912Income before income taxes


1,845,337



3,674,599



502,217Income tax expense


(774,800
)


(1,371,100
)


(197,700
)Net Income

$
1,070,537


$
2,303,499


$
304,517Earnings per share:Net incomebasic shares

$
0.54


$
1.18


$
0.16Net incomediluted shares

$
0.53


$
1.13


$
0.15CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITYThree years ended June 30, 2002Common Stock

Additional Paid-in Capital


Retained Earnings


Total Stockholders' EquityBalance June 30, 1999

$
243,756

$
1,580,701


$
6,045,196


$
7,869,653Exercised stock options


667


5,999







6,666Net income









304,517



304,517Balance June 30, 2000


244,423


1,586,700



6,349,713



8,180,836Exercised stock options


1,334


34,666







36,000Net income









2,303,499



2,303,499Balance June 30, 2001


245,757


1,621,366



8,653,212



10,520,335Exercised stock options


3,313


29,813







33,126Net income









1,070,537



1,070,537Balance June 30, 2002

$
249,070

$
1,651,179


$
9,723,749


$
11,623,998








See the accompanying notes.




2




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KREISLER MANUFACURING CORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS





Three Years Ended June 30, 2002







2002


2001


2000Cash Flows From Operating ActivitiesNet income

$
1,070,537


$
2,303,499


$
304,517Adjustments to reconcile net income to cash provided by operating activities:Allowance for bad debt










(10,000
)Depreciation and amortization


403,994



168,276



119,340Decrease (increase) in operating assets:Accounts receivabletrade


1,924,402



(1,747,445
)


(15,678
)Insurance recovery


(243,000
)






Inventories


103,099



(385,716
)


(160,032
)Deferred tax asset


281,200



(799,600
)


46,400Other current assets


(421,213
)


2,837



2,072(Decrease ) increase in operating liabilities:Accounts payabletrade


(451,793
)


86,332



(108,557
)Accrued expenses


(326,088
)


403,950



(82,706
)Accrued environmental cost


(473,967
)


1,817,000



Net Cash Provided By Operating Activities


1,867,171



1,849,133



95,356Cash Flows From Investing ActivitiesProceeds from redemption of certificates of deposit










600,723Purchase of property, plant, and equipment


(588,952
)


(876,778
)


(226,602
)Net Cash (Used) Provided by Investing Activities


(588,952
)


(876,778
)


374,121Cash Flows From Financing ActivitiesExercised stock options


33,125



36,000



6,666Increase in cash and cash equivalents


1,311,344



1,008,355



476,143Cash and cash equivalents at beginning of year


5,053,878



4,045,523



3,569,380Cash and cash equivalents at end of year

$
6,365,222


$
5,053,878


$
4,045,523Income Taxes Paid

$
845,909


$
1,748,304


$
381,319








See the accompanying notes.




3




---



KREISLER MANUFACTURING CORPORATION AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





June 30, 2002







1.Summary of Significant Accounting Policies


Operations


Kreisler Manufacturing Corporation
and its wholly-owned subsidiary, Kreisler Industrial Corporation (collectively the company) manufactures precision metal components and assemblies at Elmwood Park, New Jersey primarily for use in military and commercial aircraft engines
and industrial gas turbine engines. These products include tube assemblies of multiple sizes and configuration, vane inserts, fuel rings and baffles.





Principles of Consolidation


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





Accounts ReceivableTrade


Accounts receivabletrade is net of an allowance for
uncollectible accounts of $10,000 for 2002 and 2001.





Property, Plant and Equipment


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





Stock-Based Compensation


In October 1995, the FASB issued SFAS No.
123, Accounting for Stock-Based Compensation which provides companies an alternative to accounting for stock-based compensation as prescribed under APB Opinion No. 25


(APB 25).





SFAS No. 123 encourages but does not require companies to recognize compensation
expense for stock-based awards based on their fair market value at the date of grant. SFAS No. 123 allows companies to continue to follow existing accounting rules (intrinsic value method under APB 25) provided that pro-forma disclosures are made of
what net income and earnings per share would have been had the new fair value method been used. The company has elected to adopt the disclosure requirements of SFAS No. 123 but will continue to account for stock-based compensation under


APB 25.





Inventories


Inventories are stated at the lower of cost or market, cost being determined on a first-in, first-out basis.





Income Taxes


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





Earnings Per Share


The company adopted SFAS No. 128, Earnings Per Share, during 1998, which requires disclosure of basic and diluted earnings per share. Under
SFAS No. 128, basic earnings per share is computed as earnings divided by weighted average shares outstanding. Diluted earnings per share includes the dilutive effects of stock options and other potentially dilutive securities.





Use of Estimates


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





2.Concentration of Credit Risk





The company
maintains cash balances at several financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $100,000. Uninsured balances approximated $3,512,000 and $1,984,000 at June 30, 2002 and 2001,
respectively. The company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash.





3.Inventories





Inventories consist of the
following at June 30:





2002

2001Raw materials

$
1,467,634

$
1,649,954Work in process


845,361


892,713Finished goods


310,821


184,248$
2,623,816

$
2,726,915




4




---



KREISLER MANUFACTURING CORPORATION AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







4.Property, Plant and Equipment





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





2002


2001Building improvements

$
224,911


$
213,867Machinery and equipment


4,709,978



4,132,0704,934,889



4,345,937Less accumulated depreciation


(3,571,737
)


(3,167,743
)$
1,363,152


$
1,178,194





Depreciation expense was $403,994, $168,276, and $119,340 for 2002,
2001, and 2000, respectively.





5.Income Taxes





The company and its subsidiaries file a consolidated federal income tax return. The provision for income tax expense from continuing
operations was as follows for the year ended June 30:





2002

2001


2000Federal Income TaxesCurrent

$
454,400

$
1,897,900


$
143,300Deferred


254,300


(693,000
)


37,300State Income TaxesCurrent


39,200


272,800



8,000Deferred


26,900


(106,600
)


9,100Income Tax Expense

$
774,800

$
1,371,100


$
197,700





The actual income tax expense attributable to earnings for the
years ended June 30 differed from the amounts computed by applying the statutory tax rates to pretax income as a result of the following:





2002

2001

2000Computed expected tax expense

$
722,700

$
1,249,000

$
172,200State income tax expense, net of federal income reduction


45,000


115,400


18,500Non-deductible expenses


7,100


6,700


7,000Provision for income taxes

$
774,800

$
1,371,100

$
197,700





Nondeductible expenses relate primarily to life insurance payments
and meals and entertainment that are not deductible for income tax purposes.





The deferred tax asset in the
accompanying consolidated balance sheets includes the following components as of June 30:





2002

2001Current Deferred Tax AssetAccrued environmental cost

$
243,100

$
297,900Other


41,400


57,100$
284,500

$
355,000Non-Current Deferred Tax AssetAccrued environmental cost

$
260,500

$
471,200





The deferred income tax consequences have been computed based on
the currently enacted income tax rates expected to apply as temporary differences reverse. Management has not accrued a valuation allowance, as they believe the benefit will be fully realized.





6.Interest and Other Earnings





The components of interest and other earnings are as follows for the year ending June 30:





2002

2001

2000Interest income

$
163,971

$
274,689

$
220,460Miscellaneous Income


366


2,000


8,452Total

$
164,337

$
276,689

$
228,912





7.Stock Option Plan





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





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




5




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KREISLER MANUFACURING CORPORATION AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







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





On August 5, 1997, Incentive Stock Options and Nonqualified Options (1997 options) to purchase 20,000 and 112,000 shares, respectively, at a price of $1.25 per share were granted. The quoted market price of the companys stock
at that time was $1.46 per share. The term of the granted options is ten years. On October 19, 1998, the company granted Nonqualified Options (1998 options) to purchase 8,000 shares at a price of $5.50 per share. The quoted market price of the
company stock at that time was $5.50 per share. The term of the granted options is ten years. Additionally, on April 17, 2001, the company granted Nonqualified Options (2001 options) to purchase 16,000 shares at a price of $5.50 per share. The
quoted market price of the company stock at that time was $6.00 per share. The following table summarizes option activity.





Granted


ExercisableOptions


Exercise Price


Options


Exercise Price$1.25 per share optionsGranted on 8/5/97

132,000


$
165,000





$
Outstanding at 6/30/98

132,000



165,000






Exercisable on 8/5/98








44,000



55,000Exercised on 10/21/98

(7,998
)


(9,998
)

(7,998
)


(9,998
)Exercisable on 8/5/99








44,000



55,000Exercised on 11/12/99

(2,667
)


(3,333
)

(2,667
)


(3,333
)Exercised on 12/14/99

(2,666
)


(3,333
)

(2,666
)


(3,333
)Exercisable on 8/5/00








44,000



55,000Exercised on 11/14/00

(2,668
)


(3,335
)

(2,668
)


(3,335
)Exercised on 1/11/01

(2,667
)


(3,334
)

(2,667
)


(3,334
)Exercised on 12/7/01

(8,000
)


(10,000
)

(8,000
)


(10,000
)Exercised on 12/7/01

(8,000
)


(10,000
)

(8,000
)


(10,000
)Exercised on 1/24/02

(4,000
)


(5,000
)

(4,000
)


(5,000
)Exercised on 2/21/02

(2,500
)


(3,125
)

(2,500
)


(3,125
)Exercised on 3/29/02

(4,000
)


(5,000
)

(4,000
)


(5,000
)Outstanding at 6/30/02

86,834



108,542


86,834



108,542$5.50 per share optionsGranted 10/19/98

8,000



44,000






Outstanding at 6/30/99

8,000



44,000






Exercisable on 10/19/99








2,667



14,669Exercisable on 10/19/00








2,666



14,665Exercised on 4/21/01

(5,333
)


(29,334
)

(5,333
)


(29,334
)Exercisable on 10/19/01








2,667



14,668Outstanding at 6/30/02

2,667



14,666


2,667



14,668$5.50 per share optionsGranted 4/17/01

16,000



88,000






Exercisable on 4/17/02








5,333



29,332Outstanding at 6/30/02

16,000



88,000


5,333



29,332Total outstanding at 6/30/02

105,501


$
211,208


94,834


$
152,542





The weighted average exercise price of options outstanding at
6/30/02 is $2.00 per share. The weighted average life of the options is approximately 6 years.





The fair value of
the 1997, 1998, and 2001 options was estimated at $.67, $4.10, and $4.80, respectively, using the Black-Scholes option pricing model. The following assumptions were used: (1) risk free interest rate of 6.13% (1997 options), 4.06% (1998 options) and
4.87% (2001 options; (2) dividend yield of 0%; (3) expected lives of 5 years; and (4) volatility of 32.18% (1997 options), 96.23% (1998 options), and 105.49% (2001 options). Compensation cost under FAS No. 123 is $21,900 (or $.011 per basic and
diluted share) for the year ended June 30, 2002 and $24,200 (or $.012 per basic and diluted share) for the years ended June 30, 2001 and 2000, respectively. Compensation cost under APB No. 25 is approximately $1,600 for the year ended June 30, 2002
and $5,500 for the years ended June 30, 2001 and 2000.





|8. |  | Earnings Per Share
|-- |  | ------------------




2002

2001

2000Basic EPS:Net Income

$
1,070,537

$
2,303,499

$
304,517Basic Shares


1,978,729


1,959,413


1,953,187Per Share


.54


1.18


.16Diluted EPS:Net Income

$
1,070,537

$
2,303,499

$
304,517Effect of options


60,200


84,004


92,714Diluted shares


2,038,930


2,043,417


2,045,901Per Share


.53


1.13


.15





At June 30, 2001 and 2000, 18,667, and 8,000 stock options were
excluded from diluted EPS because they were anti-dilutive.





|9. |  | Significant Customers
|-- |  | ---------------------




A substantial portion of the companys sales were to three industrial customers and the U.S. Government in 2002 and 2001 and two industrial customers and the U.S. Government in 2000. Sales to and
accounts receivable from these customers for the past three years were as follows:





U.S. Government

Industrial CustomersSales

A/R

Sales

A/R2002

$
1,994,189

$
541,990

$
11,416,362

$
1,225,7532001

$
1,220,713

$
86,395

$
11,078,848

$
2,645,5782000

$
1,727,000

$
245,000

$
8,573,995

$
1,455,000




6




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KREISLER MANUFACTURING CORPORATION AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS







10.Commitments and Contingencies





Leases





The company conducts its operations from leased facilities, which include a manufacturing plant and office. The manufacturing plant lease expires in September 2006. Total rental expense for 2002, 2001,
and 2000 amounted to $207,997, $187,860, and $91,869, respectively. A schedule of the companys minimum non-cancelable rental commitments as of June 30, 2002 follows:





Year Ending June 30,2003

$
227,4992004


234,0002005


234,0002006


243,7472007


61,749





Contingencies





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





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





In July 1999, the company became aware of historical releases of hazardous substances at its leased manufacturing facility located at 180 Van Riper Avenue, Elmwood Park, New Jersey (Facility). The Company promptly notified the New
Jersey Department of Environmental Protection (Department) as required by the New Jersey Spill Compensation and Control Act (Spill Act), N.J.S.A. 58:10-23.11, and retained the services of environmental remediation consultants to perform a full site
characterization in accordance with the Departments Technical Requirements for Site Remediation, N.J.A.C. 7:26E-1.1. The site characterization has been completed. The remaining cost estimated for remediation of the site is approximately
$1,475,000 (present value using a discount rate of 6.16%) to be incurred over the next five years. It is reasonably possible that the companys recorded estimate of remediation cost may change in the near term.





At June 30, 2002, estimated remediation payments are as follows:





Year Ending June 30,2003

$
593,0002004


169,0002005


169,0002006


522,00022,000Thereafter


1,475,000Unamortized discount


(132,000
)$
1,343,000





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





Accrued estimated environmental cost(including $78,000 of discount amortization)

$
2,070,000Insurance recovery


(2,500,000
)Net gain

$
(430,000
)





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





Environmental management costs

$
96,433Insurance recovery


(243,000
)Net gain

$
(146,567
)





11.Related Party Transactions





Approximately $ 91,000 in professional fees were paid to Oasis Ventures, LLC during the year ended June 30,
2002 in connection with the exploration of merger and acquisition possibilities. Oasis Ventures, LLC is owned by one of the companys board members.





Consulting fees paid to a board member during 2001 and 2000 approximated $241,000 and $227,000, respectively.





Amounts accrued to a board member approximated $0, $22,000, and $322,000 at June 30, 2002, 2001, and 2000, respectively.





12.Current Liabilities in Excess of 5%





Liabilities other than trade payables that exceed 5% of current liabilities include bonuses of approximately $232,500 and payroll and vacation accruals of approximately $184,000 at June 30, 2002, and bonuses of approximately
$357,000, and payroll and vacation accruals of approximately $171,000 at June 30, 2001.




7




---

Report Of Independent Certified Public Accountants





To the Board of Directors and Stockholders


Kreisler Manufacturing Corporation





We have audited the accompanying consolidated balance sheets of Kreisler Manufacturing Corporation (a Delaware corporation) and its
subsidiaries as of June 30, 2002 and 2001, and the related consolidated statements of income, changes in stockholders equity, and cash flows for each of the three years in the period ended June 30, 2002. These consolidated financial statements
are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.





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





In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Kreisler Manufacturing Corporation and its subsidiaries as of June 30, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2002
in conformity with accounting principles generally accepted in the United States of America.





Gregory, Sharer & Stuart, P.A.





LOGO


St. Petersburg, Florida


August 1, 2002




---




Kreisler Manufacturing Corporation and Subsidiaries


Managements Discussion and Analysis





Forward Looking Statements





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





Description of Business





Kreisler Manufacturing Corporation is a Delaware business corporation which was incorporated on December 13, 1968 which succeeded a New Jersey business corporation which
was incorporated in New Jersey in 1940, which succeeded a New York corporation which was incorporated in 1930. Kreisler Manufacturing Corporation and its wholly-owned subsidiary, Kreisler Industrial Corporation (collectively the company)
which was incorporated in New Jersey on July 3, 1956, manufactures precision metal components and assemblies at Elmwood Park, New Jersey for use in military and commercial aircraft engines and industrial gas turbines. These products include tube
assemblies of multiple sizes and configurations, vane inserts, fuel rings and baffles. For the fiscal year ended June 30, 2002, sale of products for commercial aircraft engines, industrial gas turbine engines and military aircraft engines accounted
for 69%, 20% and 11% of revenues respectively.





The company markets its products to the commercial aircraft,
military aircraft and industrial gas turbine industries. The tragic events of September 11, 2001 have materially impacted the commercial airline industry, with airline passenger traffic off considerably and some airlines having filed for bankruptcy.
The weak commercial aircraft market has had a negative impact on the companys sales and profitability. For the year ended June 30, 2002 sales of the companys products to the commercial aircraft industry declined $2,535,000, or 17%,
compared to sales for the year ended June 30, 2001. It is impossible to predict when the commercial aircraft industry may recover. A continued downturn in this market could have a material adverse effect on the companys revenues and net income
for the year ending June 30, 2003.





Offsetting the decline in sales of products to the commercial aircraft
industry, were increases in sales of products to the military aircraft industry and gas turbine industry. Sales of products to the military aircraft industry increased $773,000 or 63%, from $1,221,000 for the fiscal year ended June 30, 2001 to
$1,994,000 for the fiscal year ended June 30, 2002. Sales of products to the gas turbine industry increased $1,400,000 or 64%, from $2,200,000 for the fiscal year ended June 30, 2001 to $3,600,000 for the fiscal year ended June 30, 2002. The company
does not believe that increases in sales of products to the industrial gas turbine industry is sustainable and, based on current demand in the industry, believes that sales of product to the industrial gas turbine market will decline during the year
ending June 30, 2003.





The companys strategy is to expand its sales to the industrial gas turbine
market. While the company will continue to strengthen its core competencies in aerospace it will make a concentrated and accelerated effort towards improving technology and people skills for rapid growth in the industrial gas turbine market. This
strategy will require time. In most respects the industrial gas turbine products are compatible in manufacturing flow with the companys other products. Under present market conditions with a competitive and cost conscious market it is
essential that Kreisler evaluate and identify areas of improvement where significant gains can be made in productivity, effectiveness and profitability.




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Kreisler Manufacturing Corporation and Subsidiaries


Managements Discussion and Analysis(Continued)





Results of Operations





2002 Compared to 2001





Revenues decreased from $18,662,000 to $18,300,000. The revenue decline of $362,000, or 1.9%, reflects the effect of September 11, 2001
with less demand for commercial aircraft engines. Sales of products for industrial gas turbines increased approximately 50% to offset the decline in sales of products for commercial aircraft engines. For the fiscal year ended June 30, 2002, sales of
products for commercial aircraft engines, military aircraft engines and industrial gas turbines accounted for approximately 65%, 15% and 20% of revenues, respectively.





Selling, general and administrative expenses increased $221,000 or 39%, primarily as a result of increased sales commissions, professional fees, audit and accounting fees.





Income from operations, for the year ended June 30, 2002 was $1,681,000 or 9% of revenue compared to $3,398,000
or 18% of revenue as of June 30, 2001.The $1,717,000, or 50% decrease in operating income compared to the same period in the prior year was due to increased material costs as a percent of sales, increased expenses in health insurance, indirect
labor, office salaries, direct labor and depreciation and a decrease in net gain for environmental remediation.





Interest and other earnings declined $112,000 or 41% due to reduced interest rates.





Income before
taxes for 2002 was $1,845,000 or 10% of revenues compared to $3,675,000 or 20% of revenues in 2001. Lower revenues, higher expenses and reduced net gain on environmental remediation account for the decrease.





Income tax expense for the year ended June 30, 2002 was $775,000 or 42% of income before taxes.





Current backlog as of June 30, 2002 is approximately $17.7 million compared to $15.8 million at the same time in the prior year. The
backlog increased $2.1 million or 13.2%. Backlogs are subject to change with terminations, and delivery schedule changes.




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Kreisler Manufacturing Corporation and Subsidiaries


Managements Discussion and Analysis(Continued)





2001 Compared to 2000





Revenues increased from $14,322,000
to $18,662,000. The revenue increase of $4,340,000, or 30%, reflects a $2.3 million increase in sales to the industrial gas turbine market and a $2.0 million increase in sales to the aerospace market.





Selling, general and administrative expense decreased $450,000 or 44% primarily due to less professional fees.





Income from operations increased $3,125,000, including a $430,000 net gain on environmental remediation, as a result of increased sales
and higher product margins.





Interest and other earnings increased $48,000 or 21%. Total other income in 2001 was
$277,000 compared to $229,000 in the prior year. Higher balances in cash and cash equivalents during the year resulted in the increase.





Income before taxes for 2001 was $3,675,000 or 19.7% of revenues versus $502,000 or 3.5% of revenues in 2000.





Liquidity and Capital Resources





Cash and cash equivalents increased $1,311,000 or
26% from $5,054,000 June 30, 2001 to $6,365,000 June 30, 2002. Working capital was $10,675,996. Adequate liquidity is available to cover anticipated capital expenditures of less than $100,000 for the year ending June 30, 2003. Capital expenditures
for 2002 was $589,000.





Stockholders equity on basic shares is $5.87 per share as of June 30, 2002 compared
to $5.32 per share for the same period in the prior year or a 10% increase in book value.





Compliance with
Environmental Laws





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





Promptly after learning of this condition, the company notified the New Jersey Department of Environmental Protection (Department) as required by the New Jersey Spill Compensation and Control Act (Spill Act),
N.J.S.A. 58:10-23.11, and retained the services of Pleasant Hill Consultants and The Whitman Companies to perform a full site characterization in accordance with the Departments Technical Requirements for Site Remediation, N.J.A.C. 7:26E-1.1.
The site characterization is completed, and an agreement has been reached with the remaining cost for remediation of $1.47 million, to be incurred over the next five years. Environmental remediation is slightly behind schedule as approvals have
taken longer that anticipated. No additional problems have been discovered to negatively impact the estimated cost of remediation.





The company has notified its liability insurance carriers which issued liability policies to the company during the period from 1959 to 1985 and has received $2.7 million from three insurance carriers, and anticipates
recovery from one other insurance carrier.





At this time, the company believes, based upon the facts as
currently known, that its liability policies will cover at least most of the remediation expenses and other liabilities




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KREISLER MANUFACURING CORPORATION AND SUBSIDIARIES





Quarterly Common Stock Data







The companys common stock is traded on the NASDAQ Small Cap
Market under the symbol KRSL. There are approximately 125 shareholders of record. The company does not anticipate the payment of cash dividends this year. The table below presents the high and low per share sales prices of the
companys common stock on the NASDAQ Small Cap Market for each quarter for the two year period ended June 30, 2002.





Fiscal Year 2002



Fiscal Year 2001Quarter

High

Low



High

LowFirst Quarter  September 30

7.50

4.74



4.75

3.50Second Quarter  December 31

9.52

5.65



4.00

3.25Third Quarter  March 31

10.77

7.05



7.13

3.50Fourth Quarter  June 30

10.50

7.65



7.00

4.95





Directors and Officers





DIRECTORS

AUDITORSEDWARD L. STERN, Chairman of the Board, President,CEO, CFO Kreisler Manufacturing Corporation, andKreisler
Industrial Corporation WALLACE N.KELLY, Executive Vice President, Chief Operations Officer, Kreisler Industrial
Corporation ROBERT S. KRUPP, Financial Consultant EDWARD A. STERN, Vice President, Kreisler Industrial Corporation

GREGORY, SHARER & STUART Certified Public Accountants 100 Second Avenue South, Suite 600 St. Petersburg, FL 33701MICHAEL D. STERN, Vice President, Kreisler Industrial Corporation R. JAMES CUDD, Vice-President, Honeywell International WILLIAM A. KERR, RetiredFormerly Vice President Pratt & Whitney

TRANSFER AGENT American Stock Transfer and Trust Company 40 Wall Street New York, NY 10005OFFICERS EDWARD L. STERN, Chairman of the Board, President, Chief Executive Officer WALLACE N. KELLY, Executive Vice
President, Chief Operations Officer EDWARD A. STERN, Vice President MICHAEL D. STERN, Vice President

COUNSEL BLANK ROME COMISKY & McCAULEY LLP One Logan Square Philadelphia, PA 19103-6998    ADDITIONAL INFORMATION Stockholders may
obtain, free of charge, a copy of Kreislers annual report on Form 10-KSB filed with the Securities and Exchange Commission for the year ended June 30, 2002, by written or telephone request to the Secretary of Kreisler Manufacturing
Corporation, 5960 Central Ave, Suite H, St. Petersburg, Florida, 33707 Telephone727-347-1144





CORPORATE OFFICES: 5960 CENTRAL AVENUE, SUITE H, ST. PETERSBURG, FL 33707




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