EXHIBIT 13



2003 Annual Report

Kreisler Manufacturing
Corporation



Dear Fellow Shareholders,



Kreislers 2003 financial results reflect the ongoing
economic downturns in both the aerospace and the industrial gas turbine industries as September 11, 2001 continues to affect the airline industry. Similarly, overcapacity for electricity has affected the gas turbine industry.



Revenues for the fiscal year 2003 were $12.5 million compared to $18.3
million for fiscal year 2002. The 31.7% decline in revenues or $5.8 million for the year results primarily from a $6.3 million or 60% decline in overall orders (industrial and airline engines) from our primary customer.



Today we face the contradiction of reducing costs in our traditional business
and increasing costs to develop new programs for the F119, F135 and GP7000 engines. The F119 engine for the F22 fighter is currently in production. The F135 engine for the Joint Strike Fighter and the GP7000 engine for the A380 are at least six full
years away from production.



Spare parts have become an
important element with our primary customer as original engine manufacturing requirements declined for the 4000 engine. The production requirements for the industrial gas turbine GT8 has been extended. The schedule for the 501F gas turbine has been
reduced.



Given the above, our first concern is keeping the
Company healthy during this down cycle in the industries we serve. Our focus must be on conserving cash but not to the detriment of developing future programs. To create value for our shareholders, our approach must be conservative. There will be no
magic wand that will turn things around rapidly. Managements responsibility is to stay the course and create opportunities that will be long term and profitable. Short-term fixes with the market pressures for unprofitable pricing are not a
viable option.



We have been through difficult situations
before but each situation presents different challenges. I have confidence that our organization will meet and overcome these challenges. To increase the top line at the expense of the bottom line is not acceptable. To embark on high-risk programs
is also not acceptable. We will continue to explore new products and directions utilizing our present capabilities and if and when necessary modify those capabilities to meet the challenges of new programs. We will continue to dedicate ourselves to
making this a growth oriented and profitable company.



Thank
you for your continued support and may we continue to justify that support.



Sincerely,Edward L. SternChairman of the Board and President




1



---

Kreisler Manufacturing Corporation and Subsidiaries

Consolidated Balance Sheets

June 30, 2003 and 2002



|                                                                                                                     |  | 2003 |            | 2002      
|-------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ----------
|                                                                                                                     |  |      |            | (Restated)
|Assets                                                                                                               |  |      |            |           
|Cash and cash equivalents                                                                                            |  | $    | 4,650,187  |           
|Accounts receivabletrade (net)                                                                                      |  |      | 1,829,957  |           
|Insurance recovery                                                                                                   |  |      |           |           
|Inventories                                                                                                          |  |      | 2,455,508  |           
|Income tax receivable                                                                                                |  |      | 735,722    |           
|Deferred tax asset, current                                                                                          |  |      | 297,500    |           
|Other current assets                                                                                                 |  |      | 335,932    |           
|                                                                                                                     |  |      |            |           
|Total Current Assets                                                                                                 |  |      | 10,304,806 |           
|                                                                                                                     |  |     
|Split dollar life insurance receivable                                                                               |  |      | 235,450    |           
|Property, plant, and equipment, at cost less accumulated depreciation of $3,982,068 for 2003 and $3,571,737 for
2002 |  |      | 1,053,417  |           
|Deferred tax asset, non-current                                                                                      |  |      | 214,800    |           
|                                                                                                                     |  |      |            |           
|Total Non-current Assets                                                                                             |  |      | 1,503,667  |           
|                                                                                                                     |  |      |            |           
|                                                                                                                     |  | $    | 11,808,473 |           
|                                                                                                                     |  |      |            |           
|Liabilities and Stockholders Equity                                                                                 |  |      |            |           
|Liabilities                                                                                                          |  |      |            |           
|Accounts payabletrade                                                                                               |  | $    | 519,788    |           
|Accrued expenses                                                                                                     |  |      | 378,212    |           
|Accrued environmental cost                                                                                           |  |      | 517,793    |           
|                                                                                                                     |  |      |            |           
|Total Current Liabilities                                                                                            |  |      | 1,415,793  |           
|                                                                                                                     |  |     
|Accrued environmental cost                                                                                           |  |      | 510,785    |           
|                                                                                                                     |  |     
|Stockholders Equity                                                                                                 |  |      |            |           
|Common stock, $.125 par value for 2003 and 2002;                                                                     |  |      |            |           
|3,000,000 shares authorized; 1,762,447 and 1,992,547 shares issued and outstanding for 2003 and 2002, respectively   |  |      | 220,306    |           
|Additional paid-in capital                                                                                           |  |      | 367,792    |           
|Retained earnings                                                                                                    |  |      | 9,293,797  |           
|                                                                                                                     |  |      |            |           
|Total Stockholders Equity                                                                                           |  |      | 9,881,895  |           
|                                                                                                                     |  |      |            |           
|                                                                                                                     |  | $    | 11,808,473 |           
|                                                                                                                     |  |      |            |           



See
the accompanying notes.



2



---

Kreisler Manufacturing Corporation and Subsidiaries

Consolidated Statements of Income

Three years ended June 30, 2003



|                                                                                          |  | 2003 |            |   | 2002 |   |            | 2001 | 
|----------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- | 
|Revenues                                                                                  |  | $    | 12,504,049 |   |      | $ | 18,299,766 |      | 
|                                                                                          |  |      |           
|Cost of goods sold                                                                        |  |      | 13,057,363 |   |      |   | 15,974,013 |      | 
|Selling, general, and administrative expenses                                             |  |      | 765,467    |   |      |   | 791,320    |      | 
|Net gain on environmental remediationnet of insurance recovery and discount amortization |  |      | (105,376   | ) |      |   | (146,567   | )    | 
|                                                                                          |  |      |            |   |      |   |            |      | 
|                                                                                          |  |      | 13,717,454 |   |      |   | 16,618,766 |      | 
|                                                                                          |  |      |            |   |      |   |            |      | 
|(Loss) income from operations                                                             |  |      | (1,213,405 | ) |      |   | 1,681,000  |      | 
|Interest and other earnings                                                               |  |      | 102,603    |   |      |   | 164,337    |      | 
|                                                                                          |  |      |            |   |      |   |            |      | 
|(Loss) income before income taxes                                                         |  |      | (1,110,802 | ) |      |   | 1,845,337  |      | 
|Income tax benefit (expense)                                                              |  |      | 445,400    |   |      |   | (774,800   | )    | 
|                                                                                          |  |      |            |   |      |   |            |      | 
|Net (loss) income                                                                         |  | $    | (665,402   | ) |      | $ | 1,070,537  |      | 
|                                                                                          |  |      |            |   |      |   |            |      | 
|Earnings per share:                                                                       |  |      |            |   |      |   |            |      | 
|Net (loss) incomebasic shares                                                            |  | $    | (0.36      | ) |      | $ | 0.54       |      | 
|Net (loss) incomediluted shares                                                          |  | $    | (0.36      | ) |      | $ | 0.53       |      | 
|                                                                                          |  |      |            |   |      |   |            |      | 



Consolidated Statements of Changes
in Stockholders Equity

Three years ended June 30, 2003



|                                                    |  | CommonStock |         |   | AdditionalPaid-inCapital |   |            | RetainedEarnings |  |   | TotalStockholdersEquity |  
|--------------------------------------------------- |  | ----------- | ------- | - | ------------------------ | - | ---------- | ---------------- |  | - | ------------------------ | -
|                                                    |  |             |         |   |                          |   |            | Restated         |  |   |                          |  
|Balance June 30, 2000, as previously reported       |  | $           | 244,423 |   |                          | $ | 1,586,700  |                  |  | $ | 6,349,713                |  
|Adjustment for split dollar life insurance premiums |  |             |        |   |                          |   |           |                  |  |   | 235,450                  |  
|                                                    |  |             |         |   |                          |   |            |                  |  |   |                          |  
|Balance June 30, 2000 restated                      |  |             | 244,423 |   |                          |   | 1,586,700  |                  |  |   | 6,585,163                |  
|Exercised stock options                             |  |             | 1,334   |   |                          |   | 34,666     |                  |  |   |                         |  
|Net income                                          |  |             |        |   |                          |   |           |                  |  |   | 2,303,499                |  
|                                                    |  |             |         |   |                          |   |            |                  |  |   |                          |  
|Balance June 30, 2001                               |  |             | 245,757 |   |                          |   | 1,621,366  |                  |  |   | 8,888,662                |  
|Exercised stock options                             |  |             | 3,313   |   |                          |   | 29,813     |                  |  |   |                         |  
|Net income                                          |  |             |        |   |                          |   |           |                  |  |   | 1,070,537                |  
|                                                    |  |             |         |   |                          |   |            |                  |  |   |                          |  
|Balance June 30, 2002                               |  |             | 249,070 |   |                          |   | 1,651,179  |                  |  |   | 9,959,199                |  
|Purchased and retired stock                         |  |             | (28,764 | ) |                          |   | (1,283,387 | )                |  |   |                         |  
|Net loss                                            |  |             |        |   |                          |   |           |                  |  |   | (665,402                 | )
|                                                    |  |             |         |   |                          |   |            |                  |  |   |                          |  
|Balance June 30, 2003                               |  | $           | 220,306 |   |                          | $ | 367,792    |                  |  | $ | 9,293,797                |  
|                                                    |  |             |         |   |                          |   |            |                  |  |   |                          |  



See
the accompanying notes.



3



---

Kreisler Manufacturing Corporation and Subsidiaries

Consolidated Statements of Cash Flows

Three Years Ended June 30, 2003



|                                                                                            |  | 2003 |            |   | 2002 |   |           | 2001 | 
|------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | --------- | ---- | 
|Cash Flows From Operating Activities                                                        |  |      |            |   |      |   |           |      | 
|Net (loss) income                                                                           |  | $    | (665,402   | ) |      | $ | 1,070,537 |      | 
|                                                                                            |  |      |           
|Adjustments to reconcile net (loss) income to cash (used) provided by operating activities: |  |      |            |   |      |   |           |      | 
|Depreciation and amortization                                                               |  |      | 410,331    |   |      |   | 403,994   |      | 
|Decrease (increase) in operating assets:                                                    |  |      |            |   |      |   |           |      | 
|Accounts receivabletrade                                                                   |  |      | 567,585    |   |      |   | 1,924,402 |      | 
|Insurance recovery                                                                          |  |      | 243,000    |   |      |   | (243,000  | )    | 
|Inventories                                                                                 |  |      | 168,308    |   |      |   | 103,099   |      | 
|Income tax receivable                                                                       |  |      | (490,822   | ) |      |   | (244,900  | )    | 
|Deferred tax asset                                                                          |  |      | 32,700     |   |      |   | 281,200   |      | 
|Other current assets                                                                        |  |      | (117,490   | ) |      |   | (176,313  | )    | 
|Increase (decrease ) in operating liabilities:                                              |  |      |            |   |      |   |           |      | 
|Accounts payabletrade                                                                      |  |      | 310,118    |   |      |   | (451,795  | )    | 
|Accrued expenses                                                                            |  |      | (446,164   | ) |      |   | (326,088  | )    | 
|Accrued environmental cost                                                                  |  |      | (314,455   | ) |      |   | (473,967  | )    | 
|                                                                                            |  |      |            |   |      |   |           |      | 
|Net Cash (Used) Provided By Operating Activities                                            |  |      | (302,291   | ) |      |   | 1,867,169 |      | 
|                                                                                            |  |      |           
|Cash Flows From Investing Activities                                                        |  |      |            |   |      |   |           |      | 
|Purchase of property, plant, and equipment                                                  |  |      | (100,594   | ) |      |   | (588,951  | )    | 
|                                                                                            |  |      |            |   |      |   |           |      | 
|Net Cash Used by Investing Activities                                                       |  |      | (100,594   | ) |      |   | (588,951  | )    | 
|                                                                                            |  |      |           
|Cash Flows From Financing Activities                                                        |  |      |            |   |      |   |           |      | 
|Exercised stock options                                                                     |  |      |           |   |      |   | 33,126    |      | 
|Purchase of Company stock                                                                   |  |      | (1,312,151 | ) |      |   |          |      | 
|                                                                                            |  |      |            |   |      |   |           |      | 
|Net Cash (Used) Provided by Financing Activities                                            |  |      | (1,312,151 | ) |      |   | 33,126    |      | 
|                                                                                            |  |      |           
|(Decrease) increase in cash and cash equivalents                                            |  |      | (1,715,036 | ) |      |   | 1,311,344 |      | 
|                                                                                            |  |      |           
|Cash and cash equivalents at beginning of year                                              |  |      | 6,365,222  |   |      |   | 5,053,878 |      | 
|                                                                                            |  |      |            |   |      |   |           |      | 
|Cash and cash equivalents at end of year                                                    |  | $    | 4,650,186  |   |      | $ | 6,365,222 |      | 
|                                                                                            |  |      |            |   |      |   |           |      | 
|Income Taxes Paid                                                                           |  | $    | 245,269    |   |      | $ | 845,909   |      | 
|                                                                                            |  |      |            |   |      |   |           |      | 



See
the accompanying notes.



4



---

Kreisler Manufacturing Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2003



|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



Accounts receivable  trade is net of an allowance for estimated uncollectible accounts of $10,000 for 2003 and 2002.



Accounts Receivable are uncollateralized customer obligations due under normal trade terms generally requiring payment within 30 days from the invoice date. Follow-up
correspondence is made if unpaid accounts receivable go beyond 30 days.



Payments of accounts receivable are allocated to the specific invoices identified on the customers remittance advice.



Trade accounts receivable are stated at the amount management expects to collect from outstanding balances. The carrying amounts of accounts receivable is reduced by a
valuation allowance that reflects managements best estimate of the amounts that will not be collected. Management individually reviews all accounts receivable balances that exceed the due date and estimates the portion, if any, of the balance
that will not be collected. Management provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts. Balances that are still
outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to trade accounts receivable. Changes in the valuation allowance have not been material to the financial
statements.



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 required disclosures were amended in December 2002 with the issuance of SFAS No. 148, Accounting for Stock Based Compensation  Transition andDisclosure. The Company has adopted the disclosure requirements of SFAS No.123
as amended by SFAS No. 148, but will continue to account for stock-based compensation under APB 25.



At June 30, 2003, the Company has a stock based compensation plan which is more fully described in Note 7. No stock based employee compensation cost is reflected in the net (loss) income for years ended June 30, 2003,
2002, and 2001. The following table illustrates the effect on the net (loss)/income and (loss)/earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock based employee compensation.



|                                                                                                                                            |  | 2003 |          |   | 2002 |   |           | 2001 | 
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | --------- | ---- | 
|Net (loss) income, as reported                                                                                                              |  | $    | (665,402 | ) |      | $ | 1,070,537 |      | 
|Deduct: total stock-based employee compensation expense determined under fair value based method for all awards, net of related
tax effects |  | $    | (9,625   | ) |      | $ | (13,688   | )    | 
|Pro forma net (loss) income                                                                                                                 |  |      | (675,027 | ) |      |   | 1,056,849 |      | 
|(Loss) earnings per share:                                                                                                                  |  |      |          |   |      |   |           |      | 
|Basic  as reported                                                                                                                         |  |      | (.36     | ) |      |   | .54       |      | 
|Basic  pro forma                                                                                                                           |  |      | (.36     | ) |      |   | .53       |      | 
|Diluted  as reported                                                                                                                       |  |      | (.36     | ) |      |   | .53       |      | 
|Diluted  pro forma                                                                                                                         |  |      | (.36     | ) |      |   | .52       |      | 



5



---

Kreisler Manufacturing Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2003



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.



Prior Period Adjustments



The Companys retained earnings as of June 30, 2000 have been restated to reflect the
total amount of insurance premiums paid on behalf of an executive of the Company. The effect of the restatement is an increase to retained earnings and to establish a receivable to the Company from the insured totaling $235,450. Amounts paid
subsequent to June 30, 2000 are deemed immaterial (see Note 5).



Reclassification



Certain amounts in the 2002 financial
statements have been reclassified to conform with the 2003 presentation.



|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 $1,990,757 and $3,512,000 at June 30, 2003 and 2002, 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:



|                |  | 2003 |           | 2002
|--------------- |  | ---- | --------- | ----
|Raw materials   |  | $    | 1,367,918 |     
|Work in process |  |      | 724,893   |     
|Finished goods  |  |      | 362,697   |     
|                |  |      |           |     
|                |  | $    | 2,455,508 |     
|                |  |      |           |     



|4. |  | Property, Plant and Equipment
|-- |  | -----------------------------



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



|                              |  | 2003 |            |   | 2002 |  
|----------------------------- |  | ---- | ---------- | - | ---- | -
|Building improvements         |  | $    | 225,806    |   |      | $
|Machinery and equipment       |  |      | 4,809,679  |   |      |  
|                              |  |      |            |   |      |  
|                              |  |      | 5,035,485  |   |      |  
|Less accumulated depreciation |  |      | (3,982,068 | ) |      |  
|                              |  |      |            |   |      |  
|                              |  | $    | 1,053,417  |   |      | $
|                              |  |      |            |   |      |  



Depreciation expense was $410,331,
$403,994, and $168,276 for 2003, 2002, and 2001, respectively.



|5. |  | Split Dollar Life Insurance Receivable
|-- |  | --------------------------------------



Split dollar life insurance receivable represents annual life insurance premiums paid on behalf of an executive of the Company through March 31, 2002 and is non-interest
bearing.



These amounts are due to the Company upon the death of the executive.
If the policy is terminated, the Companys interest in the policy is the lesser of the total cash value of the policy or total premiums paid by the Company. The Company believes the cash value of the policy will approximate the receivable in
future years.



Any premiums paid by the Company on behalf of the insured
executive in the current and future years will be included as additional compensation to the insured in the year paid.



6



---

Kreisler Manufacturing Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2003



|6. |  | Income Taxes
|-- |  | ------------



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



|                     |  | 2003 |          |   | 2002 |   | 2001    | 
|-------------------- |  | ---- | -------- | - | ---- | - | ------- | 
|Federal Income Taxes |  |      |          |   |      |   |         | 
|Current              |  | $    | (478,100 | ) |      | $ | 454,400 | 
|Deferred             |  |      | 73,400   |   |      |   | 254,300 | 
|State Income Taxes   |  |      |          |   |      |   |         | 
|Current              |  |      |         |   |      |   | 39,200  | 
|Deferred             |  |      | (40,700  | ) |      |   | 26,900  | 
|                     |  |      |          |   |      |   |         | 
|Income Tax Expense   |  | $    | (445,400 | ) |      | $ | 774,800 | 
|                     |  |      |          |   |      |   |         | 



The actual income tax (benefit)
expense attributable to (loss) 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:



|                                                          |  | 2003 |          |   | 2002 |   | 2001   
|--------------------------------------------------------- |  | ---- | -------- | - | ---- | - | -------
|Computed expected tax expense                             |  | $    | (377,400 | ) |      | $ | 722,700
|State income tax expense, net of federal income reduction |  |      | (36,100  | ) |      |   | 45,000 
|Non-deductible expenses                                   |  |      | 2,100    |   |      |   | 7,100  
|Other                                                     |  |      | (34,000  | ) |      |   |       
|                                                          |  |      |          |   |      |   |        
|Provision for income taxes                                |  | $    | (445,400 | ) |      | $ | 774,800
|                                                          |  |      |          |   |      |   |        



Nondeductible expenses relate
primarily to 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:



|                               |  | 2003 |         | 2002
|------------------------------ |  | ---- | ------- | ----
|Current Deferred Tax Asset     |  |      |         |     
|Accrued environmental cost     |  | $    | 194,200 |     
|Other                          |  |      | 103,300 |     
|                               |  |      |         |     
|                               |  | $    | 297,500 |     
|                               |  |      |         |     
|Non-Current Deferred Tax Asset |  |      |         |     
|Accrued environmental cost     |  | $    | 191,500 |     
|Other                          |  |      | 23,300  |     
|                               |  |      |         |     
|                               |  | $    | 214,800 |     
|                               |  |      |         |     



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 it is more likely than not that the benefit will be fully
realized.



At June 30, 2003, the Company has a State of Florida net operating
loss carryforward of $151,079 and a State of New Jersey net operating loss carryforward of $718,919. The loss carryforwards expire in 2023 and 2010, respectively.



Income tax receivable is comprised of the following amounts at June 30:



|                              |  | 2003 |         | 2002
|----------------------------- |  | ---- | ------- | ----
|Federal income tax receivable |  | $    | 695,646 |     
|State income tax receivable   |  |      | 40,076  |     
|                              |  |      |         |     
|Total                         |  | $    | 735,722 |     
|                              |  |      |         |     



|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.



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.



7



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Kreisler Manufacturing Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2003



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.



|                                 |  | 2003    |  | 2002                      |      | 2001  
|-------------------------------- |  | ------- |  | ------------------------- | ---- | ------
|                                 |  | Shares  |  | Weighted AvgExercisePrice |      | Shares
|Stock Option Activity            |  |         |  |                           |      |       
|Outstanding, beginning of period |  | 105,501 |  | $                         | 2.00 |       
|                                 |  |         |  |                           |      |       
|Granted                          |  |        |  |                           |     |       
|Exercised                        |  |        |  |                           |     |       
|Expired or surrendered           |  |        |  |                           |     |       
|                                 |  |         |  |                           |      |       
|Outstanding, end of period       |  | 105,501 |  | $                         | 2.00 |       
|                                 |  |         |  |                           |      |       
|Exercisable, end of period       |  | 100,167 |  | $                         | 2.00 |       
|                                 |  |         |  |                           |      |       



The weighted average life of the
options is five years. The estimated fair value of stock options at the time of the grant using the Black-Scholes option pricing model was as follows:



|                                 |  | Fiscal Year Option Granted |       
|-------------------------------- |  | -------------------------- | ------
|                                 |  | 2001                       |       
|Fair value per option            |  | $                          | 4.80  
|Assumptions:                     |  |                            |       
|Annualized dividend yield        |  |                            | 0     
|Expected volatility              |  |                            | 105.49
|Risk free interest rate          |  |                            | 4.87  
|Expected option terms (in years) |  |                            | 5     



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



|                  |  | 2003 |           |   | 2002 |   | 2001     
|----------------- |  | ---- | --------- | - | ---- | - | ---------
|Basic EPS:        |  |      |           |   |      |   |          
|Net (loss) income |  | $    | (665,402  | ) |      | $ | 1,070,537
|Basic Shares      |  |      | 1,846,697 |   |      |   | 1,978,729
|Per Share         |  |      | (.36      | ) |      |   | .54      
|                  |  |      |           |   |      |   |          
|Diluted EPS:      |  |      |           |   |      |   |          
|Net (loss) income |  | $    | (665,402  | ) |      | $ | 1,070,537
|Effect of options |  |      | 68,484    |   |      |   | 60,200   
|Diluted shares    |  |      | 1,915,182 |   |      |   | 2,038,930
|Per Share         |  |      | (.36      | ) |      |   | .53      
|                  |  |      |           |   |      |   |          



At June 30, 2002, 18,667 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 2003, 2002 and 2001. Sales to and accounts receivable from
these customers for the past three years were as follows:



|     |  | U.S. Government |           | Industrial Customers
|---- |  | --------------- | --------- | --------------------
|     |  | Sales           |           | A/R                 
|2003 |  | $               | 2,859,052 |                     
|2002 |  | $               | 1,994,189 |                     
|2001 |  | $               | 1,220,713 |                     



|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 2003, 2002, and 2001
amounted to $239,470, $207,997, and $187,860, respectively. A schedule of the Companys minimum non-cancelable rental commitments as of June 30, 2003 follows:



|Year Ending June 30,
|--------------------
|2004                
|2005                
|2006                
|2007                



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.



8



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Kreisler Manufacturing Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2003



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 $1,029,000 (present value using a discount rate of 6.16%) to be incurred over the next four
years. It is reasonably possible that the Companys recorded estimate of remediation cost may change in the near term.



At June 30, 2003, estimated remediation payments are as follows:



|Year Ending June 30, |  |   |          
|-------------------- |  | - | ---------
|2004                 |  |   | 444,000  
|2005                 |  |   | 169,000  
|2006                 |  |   | 479,000  
|Thereafter           |  |   | 22,000   
|                     |  |   |          
|                     |  |   | 1,114,000
|Unamortized discount |  |   | (85,000  
|                     |  |   |          
|                     |  | $ | 1,029,000
|                     |  |   |          



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) |  | $ | 2,070,000  |  
|--------------------------------------------------------------------------------- |  | - | ---------- | -
|Insurance 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 |  | $ | 96,433   |  
|------------------------------ |  | - | -------- | -
|Insurance recovery             |  |   | (243,000 | )
|                               |  |   |          |  
|Net gain                       |  | $ | (146,567 | )
|                               |  |   |          |  



For the year ended June 30, 2003, the
Company reached an additional settlement with one of its insurance carriers in the amount of $160,000. The recorded amounts are as follows:



|Environmental management costs |  | $ | 54,624   |  
|------------------------------ |  | - | -------- | -
|Insurance recovery             |  |   | (160,000 | )
|                               |  |   |          |  
|Net gain                       |  | $ | (105,376 | )
|                               |  |   |          |  



|11. |  | Related Party Transactions
|--- |  | --------------------------



Consulting fees paid to a board member during 2003, 2002, and 2001 approximated $66,500, $91,000, and $241,000, respectively.



Amounts accrued to a board member approximated $0, $0, and $22,000 at June 30, 2003, 2002,
and 2001, respectively.



|12. |  | Current Liabilities in Excess of 5%
|--- |  | -----------------------------------



Liabilities other than trade payables that exceed 5% of current liabilities include, at June 30, 2003, payroll and vacation accruals of approximately $299,000 and at June
30, 2002, bonuses of approximately $232,500, payroll and vacation accruals of approximately $184,000, and a state tax liability of approximately $232,000.



9



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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, 2003 and
2002, 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, 2003. 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, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in
the period ended June 30, 2003 in conformity with accounting principles generally accepted in the United States of America.



Gregory, Sharer & Stuart, P.A.



LOGO

St. Petersburg, Florida

August 5,
2003



10



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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, manufacture 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 configuration, vane inserts, fuel rings and baffles.



The Company markets its products to the commercial aircraft, military
aircraft and industrial gas turbine industries. The commercial aircraft market is still recovering from the events of September 11, 2001. The Companys sales and profitability have been negatively impacted by these events and the resulting
economic conditions. For the year ended June 30, 2003 sales to the commercial aircraft industry have declined $4,368,000, or 37% compared to sales for the same period in the prior year. The Company cannot predict when the market for commercial
aircraft engines might improve.



The Company also saw a
decline of $1,407,000, or 39% in sales of products to the industrial gas turbine industry as a result of prevailing overcapacity of electricity in the market.



Partially offsetting the decline in sales of products to the commercial aircraft and industrial gas turbine markets was an
increase in sales to the military aircraft industry of $865,000, or 43% for the year ended June 30, 2003. The increase is primarily attributable to more sales of spare parts to the government.



Development of new programs will be a major focus for the Company in the
fiscal year ending June 30, 2004. Currently in production is the F119 engine for the F22 fighter. Other programs include the F135 engine for the Joint Strike Fighter and the GP7000 engine for the A380. Full production on these engines will not
commence for at least six years.



The uncertain economic
conditions of the industries in which the Company competes, make it difficult to forecast trends for products. Managements best assumption is that commercial engines will increase with new programs compared to the prior year. Management
believes that demand for military engines and industrial engine spare requirements will decline severely. For the year ending June 30, 2004 the Company estimates a 10% decrease in revenues compared to the prior year. Managements goal is to
improve cost controls, productivity, and inventory turnover.



11



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Kreisler Manufacturing Corporation and Subsidiaries

Managements Discussion and Analysis



As a make to print contractor, the Company is dependent on prime contractors whose requirements may change. Orders may increase, decrease or terminate. Some of Managements forecasting is based on the
anticipated requirements of prime contractors. The Companys backlog at June 30, 2003 was $14.4 million which reflects orders that have been received with delivery dates that are likely to change. Currently, the Companys strategy is to
explore new products and directions with our present capabilities and if necessary enhance those capabilities for new programs while maintaining a viable cash position.



Results of Operations



2003 Compared to 2002



A decrease in revenues of $5,796,000 from $18,300,000 to $12,504,000 or 32% is reflective of the airline industrys continued struggle to recover
from the effects of September 11, 2001. Less demand for commercial aircraft engines is evidenced by the decrease in orders from the Companys primary customer. Sales of products for industrial gas turbines, which were affected by overcapacity,
declined 39%. Government demands for spare parts increased $865,000 or 43%. Overall, the sales mix for the fiscal year ended June 30, 2003 is approximately 60% for commercial aircraft engines, 23% for military aircraft engines and 17% for industrial
gas turbines.



Selling, general and administrative expenses
decreased $26,000 or 4%, primarily as a result of decreased bonuses, professional fees, audit fees and interest paid, offset by increases in commissions paid on government sales, salaries and SEC administrative fees.



Loss from operations for the year ended June 30, 2003 was $1,213,000 or 10%
of revenues compared to income from operations as of June 30, 2002 of $1,681,000 or 9%. The difference is an unfavorable change of $2,894,000 or 172% when comparing 2003 to 2002. Actual expenses for direct labor, workers compensation
insurance, medical benefits paid and fees for environmental management all decreased for the year ended June 30, 2003, although not sufficiently to offset the decrease in revenues. As a result, these expense categories increased as a percent of
sales compared to the same period in the prior year, and were offset in part by decreases in bonuses, indirect labor and employer taxes.



Interest and other earnings declined $62,000 or 38% as the result of lower interest rates and lower cash balances in investment accounts since June 30,
2002. The lower cash balances are primarily the result of repurchased Company stock at a total cost of approximately $1,312,000 and negative operating cash flow, offset by insurance recovery on environmental remediation.



Loss before taxes for 2003 was $1,111,000 or 9% of revenues compared to
income before taxes in 2002 of $1,845,000 or 10% of revenues. Lower sales, higher expenses and reduced net gain on environmental remediation account for the decrease.



Income tax benefit for the year ended June 30, 2003 was $445,000 or 40% of loss before taxes. With the carryback of net
operating loss the company will recover $736,000 in state and federal income tax.



Current backlog as of June 30, 2003 is approximately $14.4 million compared to $17.7 million at the same time in the prior year. The backlog decreased $3.3 million or 19%. Backlogs are subject to change with
terminations, and delivery schedule changes.



12



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Kreisler Manufacturing Corporation and Subsidiaries

Managements Discussion and Analysis



Liquidity and Capital Resources



Cash and cash equivalents
decreased from $6,365,000 at June 30, 2002 to $4,650,000 at June 30, 2003. The decrease is $1,715,000 or 27%. Working capital was $8,827,000. The Company believes it has sufficient resources to meet operating requirements through the next 12
(twelve) months. Adequate liquidity is available to cover anticipated capital expenditures of $85,000 for the year ending June 30, 2004. Capital expenditures for 2003 were $100,594.



Stockholders equity on basic shares is $5.61 per share as of June 30, 2003 compared to $5.95 for the same period in
the prior year, as restated. This change represents a decrease of $.34 or 6% in book value.



Critical Accounting Policies



The Companys critical accounting and reporting policies include the Companys accounting for environmental remediation and inventory valuation. In particular, the accounting for these areas requires significant judgments to be
made by management. Specifically, with regard to environmental remediation, the assumption has been made that no new costs, above those identified in the original fixed price agreement, will be incurred as the project continues. The Company assumes
that there will be no future discoveries on the site that will require additional remediation. With respect to assumptions made in valuing inventory on interim statements, management believes that basing material usage on historical cost could
result in significant variances when physical inventories are performed at June 30 and December 31. Different assumptions in the application of these policies could result in material changes in the Companys consolidated financial position or
consolidated results of operations. See Note 1 in the Notes to Consolidated Financial Statements attached to this Annual Report for details regarding all of the Companys critical and significant accounting policies.



Compliance with Environmental Laws



Early in fiscal year 2000, the Company became 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 discovered that both the soil and
groundwater at the Facility, and possibly offsite, are contaminated with tetrachloroethylene (PCE). While the company cannot be 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 $1.0 million, to be incurred over the next four
years.



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 a total of $2.9 million from four insurance carriers. The Company does not anticipate any further recoveries.



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.



13



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Kreisler Manufacturing Corporation and Subsidiaries



Market for Registrants Common Equity and Related Stockholder Matters



The Companys common stock is traded on the NASDAQ Small Cap Market under the symbol
KRSL. There are approximately 150 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, 2003.



|                             |  | Fiscal Year 2003 |  | Fiscal Year 2002
|---------------------------- |  | ---------------- |  | ----------------
|Quarter                      |  | High             |  | Low             
|First Quarter  September 30 |  | 8.84             |  | 5.12            
|Second Quarter  December 31 |  | 6.94             |  | 5.00            
|Third Quarter  March 31     |  | 6.01             |  | 4.70            
|Fourth Quarter  June 30     |  | 5.90             |  | 4.75            



Directors and
Officers



|DIRECTORS                                                                                                                                                                                                        |  | AUDITORS                                                                                                                                                                                                                                                                                                                                               
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EDWARD L. STERN, Chairman of the Board, President, CEO, CFO Kreisler Manufacturing Corporation, and Kreisler Industrial CorporationMICHAEL L. GOLDBERG, Director JOHN W. POLING, Director                        |  | GREGORY, SHARER & STUART Certified
Public Accountants 100 Second Avenue South, Suite 600 St.
Petersburg, FL 33701                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                 | 
|OFFICERS                                                                                                                                                                                                         |  | TRANSFER AGENT                                                                                                                                                                                                                                                                                                                                         
|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 |  | American Stock Transfer and Trust Company 40
Wall Street New York, NY 10005                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                 | 
|                                                                                                                                                                                                                 |  | COUNSEL                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                 |  | BLANK ROME, 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, 2003, 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



14