Kreisler Manufacturing Corporation (the “Company”) is a Delaware business corporation which was incorporated on December 13, 1968. The Company succeeded a New Jersey business corporation, which was incorporated in New Jersey in 1940, and which succeeded a New York corporation which was incorporated in 1930. The Company and its wholly-owned subsidiaries, Kreisler Industrial Corporation (“Kreisler Industrial”), which was incorporated in New Jersey on July 3, 1956, and Kreisler Polska Sp. z o.o (“Kreisler Polska”), which was incorporated in Krakow, Poland in March 2005, manufacture precision metal components and assemblies for use in military and commercial aircraft engines and industrial gas turbines. Kreisler Industrial’s products primarily include tube and manifold assemblies of multiple sizes and configurations and are typically manufactured in accordance with customer designs and specifications. Kreisler Polska primarily provides machined components to Kreisler Industrial.

Products

The Company’s products include tube assemblies of multiple sizes and configurations as well as machined components. Assemblies are made of various materials, including titanium, nickel and stainless steel. These high quality engineered manifold assemblies transfer fuel for combustion, oil for lubrication and hydraulic fluid to activate thrust reversers.

Sales of products are made through an in-house sales staff. All products are manufactured to the designs and specifications of the particular customer. Orders are received through competitive proposals, which are made in response to requests for bids from contractors who supply engines to various branches of the United States Department of Defense or to commercial businesses.

Customers

Three commercial customers and the United States Government accounted for approximately 83% of the consolidated net sales of the Company for the fiscal year ended June 30, 2006. The concentration of sales with a small group of customers places the Company in an adverse position should any of these customers reduce their volume of sales orders with the Company. Please refer to Note H in the Notes to the Consolidated Financial Statements for additional information.

Competition

The markets in which the Company operates are highly competitive. The Company’s competitors include several enterprises which are substantially larger than the Company and possess greater financial, production and marketing resources, and numerous smaller privately-held companies. In addition, some of the Company’s customers and potential customers maintain manufacturing capabilities comparable to those of the Company. The principal bases of competition are price, quality, delivery and service. In today’s market, flexibility, quality, pricing and speed of delivery are required elements. The Company believes that it is competitive with respect to the above elements.

Sources of Supply

The Company does not have any long-term or fixed purchase agreements with its suppliers. Materials used in the Company’s products are purchased, as required, from various suppliers. At times, the Company’s customers require raw materials or components to be purchased from designated suppliers. The Company also uses a variety of raw materials in the manufacture of its products. During fiscal 2006,

increased delivery lead-times for some raw materials, particularly titanium and nickel-based alloys, were experienced along with significant price increases in the cost of those alloys. Smaller cost increases were also experienced in stainless steel alloys used by the Company. Future shortages or price fluctuations in raw materials could have a material adverse effect on the Company’s operations.

Production

Fabricated precision metal components and assemblies are manufactured and assembled by the Company to customer drawings and specifications. To meet the exacting requirements of its customers, the Company exercises strict quality and process controls and maintains third-party quality system accreditations including ISO 9001 and AS9100 as well as NADCAP (National Aerospace Defense Contractors Accreditation Program) special process accreditations.

Employees

At June 30, 2006, the Company employed approximately 155 persons, of whom 4 are part-time employees. Approximately 72 are subject to a collective bargaining agreement with the United Service Employees Union which terminates on December 4, 2006. Negotiations for a new collective bargaining agreement are expected to commence in October 2006. Management believes that labor relations in the Company have generally been satisfactory.

Government Regulations

The Company is subject to various Federal and State regulations concerning the conduct of its business including regulations under the Occupational Health and Safety Act, various acts dealing with the environment as well as export licenses for the manufacturer of military-related components in Poland.

A material portion of the business of the Company is subject to provisions which permit the termination of contracts at the election of the U.S Government or its prime contractors. Contracts with the U.S. Government and with suppliers to the U.S. Government generally provide for termination at any time for the convenience of the U.S. Government and its prime contractors, and upon such termination a contractor is entitled to receive payment for the work performed plus a pro rata portion of the profit it would have earned before the termination.

Compliance with Environmental Laws

The Company maintains a sewer use permit issued by the Passaic Valley Sewerage Commissioners (“PVSC”) authorizing the Company to discharge industrial effluent from its Kreisler Industrial manufacturing facility located at 180 Van Riper Avenue, Elmwood Park, New Jersey into the PVSC Waste Treatment facility. Kreisler Industrial followed the requirements of Federal Regulation 40 CFR 413 and Section 313.1 of the PVSC Rules and Regulations. In July 2005, the Company was notified by the PVSC that the Company was in violation of the daily maximum limit for nickel and total metals and, as a result, had incurred a serious violation. These violations occurred during the fiscal year ended June 30, 2005. The Company was also notified that it was in significant non-compliance and subject to enforcement action. The Company retained the services of an environmental remediation consultant and immediately removed the suspected cause of these violations from its industrial effluent discharge. The Company also retained legal counsel. The Company has implemented processes to eliminate the re-occurrence of this type of violation. The Company approved and executed a Settlement Agreement with the PVSC in January 2006. Upon receipt of a fully executed Settlement Agreement from the PVSC in February 2006, the Company paid a settlement amount of $21,500. Based on the previously estimated range of penalties, the Company accrued a charge against earnings of $37,500 for the year ended June 30, 2005. This amount was adjusted to the actual settlement amount of $21,500 during the year ended June 30, 2006.

In July 1999, the Company became aware of historical releases of hazardous substances at its manufacturing facility located at 180 Van Riper Avenue, Elmwood Park, New Jersey. The Company promptly notified the New Jersey Department of Environmental Protection (“NJDEP”) as required by the New Jersey Spill Compensation and Control Act (“Spill Act”), N.J.S.A. 58:10-23.11, and retained the services of environmental remediation consultants to perform a full site characterization in accordance with the NJDEP’s Technical Requirement for Site Remediation, N.J.A.C. 7:26E-1.1. In June 2001, the Company entered into a fixed price remediation agreement with Resource Control Corporation (“RCC”). The remaining cost estimated for remediation of the site under the fixed price remediation agreement with RCC is approximately $408,000, most of which is expected to be paid in fiscal 2010. As of June 30, 2006, the Company consulted with RCC and due to the delayed completion schedule for the remediation, the payment requirements under the fixed price remediation agreement will be made in fiscal 2010, rather than fiscal 2006 as originally estimated in fiscal 2001. The change in the expected timing of the remaining payments under the fixed priced remediation agreement resulted in a fiscal 2006 expense totaling $41,000.

Tax Contingency

In a letter dated February 23, 2006, the Company received a Notice of Assessment Related to Final Audit Determination from the New Jersey Division of Taxation that Kreisler Industrial’s Business Tax Returns for the fiscal years ended June 30, 2002 and June 30, 2001 are subject to additional income tax. The amount of the final audit determination totaled $89,591 of which $59,493 is additional income tax expense, $5,503 is for penalties and $24,595 is for interest through March 15, 2006. In accordance with the appropriate New Jersey statutes, the Company protested the final audit determination and requested an informal administrative conference with the Conference and Appeals Branch. As of September 15, 2006, no informal administrative conference has been scheduled by the Conference and Appeals Branch to meet with the Company. The amount of interest potentially due is dependent on the final settlement date and is subject to increase.

Forward-Looking Statements

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