10-K

================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   ----------

                                    FORM 10-K

[X]  Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934 for the fiscal year ended June 30, 2003
                                       OR
[_]  Transition Report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934 for the transition period from ________ to ________

                        Commission file number 000-49702

                                   ----------

                          MedSource Technologies, Inc.
             (Exact name of registrant as specified in its charter)

            Delaware                                   52-2094496
  (State or other jurisdiction of                   (I.R.S. Employer
   incorporation or organization)                  Identification No.)

     110 Cheshire Lane, Suite 100
        Minneapolis, Minnesota                           55305
(Address of principal executive offices)               (Zip Code)

                                 (952) 807-1234
              (Registrant's telephone number, including area code)

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                                                Name of Each Exchange on Which
      Title of Each Class                               Registered
- ------------------------------               -----------------------------------
Common stock, par value $0.01                      Nasdaq National Market
        per share

                                   ----------

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes  [X] No:  [_]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in part III of this Form 10-K or any amendment to this
Form 10-K: [_]

     Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes  [X] No:  [_]

     State the aggregate market value of the voting and non-voting common equity
stock held by non-affiliates computed by reference to the price at which the
common equity was last sold, or the average bid and asked price of such common
equity, as of the last business day of the registrant's most recently completed
second fiscal quarter: $119,721,094 approximately, based on the closing sales
price of $6.76 per share on the Nasdaq National Market on December 29, 2002.
Shares of common stock held by each executive officer, director, holders of
greater than 10% of the outstanding common stock of the registrant and persons
or entities known to the registrant to be affiliates of the foregoing as of such
date have been excluded in that such persons may have been deemed to be
affiliates. This assumption regarding affiliate status is not necessarily a
conclusive determination for other purposes.

     Indicate the number of shares outstanding of the registrant's common stock
as of September 5, 2003: 28,822,266 shares.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the registrant's proxy statement relating to the registrant's
2003 annual meeting of stockholders are incorporated by reference into Part III
of this Form 10-K.

================================================================================



                                TABLE OF CONTENTS

                                     PART I

Item 1.     Business...........................................................3
Item 2.     Properties........................................................25
Item 3.     Legal Proceedings.................................................25
Item 4.     Submission of Matters to a Vote of Security Holders...............25

                                     PART II

Item 5.     Market for Registrant's Common Stock and Related Stockholder
            Matters...........................................................26
Item 6.     Selected Financial Data...........................................27
Item 7.     Management's Discussion and Analysis of Financial Condition
            and Results of Operations.........................................29
Item 7A.    Quantitative and Qualitative Disclosures about Market Risk........40
Item 8.     Financial Statements and Supplementary Data.......................41
Item 9.     Changes in and Disagreements With Accountants on Accounting
            and Financial Disclosure..........................................71
Item 9A.    Controls and Procedures...........................................71

                                    PART III

Item 10.    Directors and Executive Officers of the Registrant................71
Item 11.    Executive Compensation............................................71
Item 12.    Security Ownership of Certain Beneficial Owners and Management....71
Item 13.    Certain Relationships and Related Transactions....................71
Item 14.    Principal Accountant Fees and Services............................71

                                     PART IV

Item 15     Exhibits, Financial Statement Schedules and Reports on Form 8-K...71

Signatures....................................................................78

                                      -2-



     Unless the context otherwise requires, all references to "we," "us," "our,"
"MedSource" or the "Company" include MedSource Technologies, Inc. and our
subsidiaries.

                           Forward-Looking Statements

     The following discussion contains "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. In many cases, you can identify
forward-looking statements by terminology such as may," "will," "should,"
"expect," "plan," "anticipate," "believe," "estimate, ""predict," "intend,"
"potential" or "continue" or the negative of these terms or other comparable
terminology. These forward-looking statements involve risks and uncertainties.
Our actual results could differ materially from those indicated in these
statements as a result of certain factors, as more fully discussed below and
under the heading "risk factors" contained elsewhere in this Annual Report on
Form 10-K. Readers should not place undue reliance on any such forward-looking
statements, which are made pursuant to the Private Securities Litigation Reform
Act of 1995 and, as such, speak only as of the date made. We do not assume any
obligation to update the forward-looking statements after the date hereof.

                                     PART I

ITEM 1.  BUSINESS

     We are an engineering and manufacturing services provider to the medical
device industry. Our customers include many of the largest medical device
companies in the world, such as Johnson & Johnson affiliates, Medtronic, and
Boston Scientific as well as other large and emerging medical device companies.
We provide engineering services, including product design, development and
technology transfer, and manufacturing services, including device assembly,
packaging, and precision component plastic and metal processing. In addition, we
provide supply chain management services, including the sourcing of components
that we do not manufacture internally, such as electronic circuitry, from third
party suppliers for the devices we assemble for our customers. Through these
products and services, we offer our customers an integrated outsourcing solution
for their device development and manufacturing needs, delivering accelerated
product development time and reduced costs, allowing them to focus on their core
competencies such as research and sales and marketing. Examples of the medical
devices and components we manufacture for our customers include minimally
invasive surgical instruments, components for pacemakers and defibrillators,
interventional catheters and guidewires, and orthopedic implants such as hips
and knees.

     We began operations during March 1999 through the acquisition of seven
companies with complementary capabilities and subsequently broadened our
capabilities by completing six additional acquisitions through June 30, 2003.
Since our launch, we have focused our efforts on integrating and growing our
business and have made significant investments in our product design and
development capabilities, sales and marketing teams, operations, quality systems
and information technology infrastructure to support that growth. As of June 30,
2003, we had multiple manufacturing facilities located in various states as well
as one located in Mexico with an aggregate of approximately 531,500 square feet
and approximately 1,500 employees.

                                      -3-



Our Products and Services

     We offer our customers a broad range of products and services for their
medical engineering and manufacturing needs, including:

     .    Engineering Services. Our program management, product design, design
          for manufacture and assembly, development and prototyping capabilities
          and manufacturing transfer services allow us to participate throughout
          the entire product development process to help reduce our customers'
          costs, accelerate product development times and secure ongoing
          manufacturing relationships. Equipping our facilities with rapid
          prototyping technologies and using these technologies across multiple
          disciplines (e.g., machining and plastic molding) is an important
          element of our product development services. In providing these
          services, our internal program management group, internal product
          design and development engineers and manufacturing transfer engineers
          provide our customers with expertise in desired disciplines.

     .    Component Manufacturing. Precision metal and plastics processing are
          core elements of our manufacturing capabilities. Our metal
          manufacturing capabilities include milling, lathe turning, drilling,
          grinding, polishing, lapping, laser cutting, sintering, wire forming,
          stamping and precision metal injection manufacturing with materials as
          diverse as stainless steel, titanium, and shape memory alloys. Trends
          in the medical industry towards minimally-invasive surgical techniques
          have made our micro-machining capabilities increasingly important.
          These micro-machining capabilities include computer numerically
          controlled, or CNC, multi-axis and Swiss-machining, as well as
          electric discharge machining, or EDM. Our plastics manufacturing
          capabilities include precision tubing (dip coating and extrusion),
          molding (injection, insert and thermoforming) and machining, with a
          wide range of engineering polymer materials.

     .    Product Assembly and Supply Chain Management Services. Our product
          assembly and supply chain management capabilities allow us to provide
          customers with completed medical devices and subassemblies. Our
          assembly capabilities include mechanical, electromechanical and
          instrumentation assembly, as well as functional testing, inspection,
          complex integration (with advanced materials), kitting and packaging.
          We utilize our supply chain management services to source components
          and services, either from internal operations or from third party
          suppliers, to facilitate our customers need for streamlined inbound
          logistics, as well as to provide vendor managed inventory services to
          facilitate outbound logistics management for our customers. Our
          assembly and supply chain management capabilities enable us to extend
          our vertically integrated manufacturing business and further
          distinguish us from suppliers with more limited capabilities.

     We provide our products and services to each of the following primary
target markets:

     .    Surgical Instrumentation - devices and components for both the
          minimally invasive and general surgery markets. Surgical devices are
          typically produced from metal or plastic components and, in the case
          of powered products, electronic components. We manufacture a variety
          of surgical device and component products for our customers for wound
          closure, endo-laparoscopy, electosurgery, arthoscopy, cardiac surgery,
          ophthalmology, and urogynecology applications.

                                      -4-



     .    Electro-Medical Implants - devices and components for active
          electronic implantable devices. These products are high precision and
          are typically produced from metal and plastic materials and electronic
          components. We manufacture a variety of component products and provide
          our customers with laser welding and device assembly services for use
          in cardiac rhythm management, or CRM, including pacemakers and
          defibrillators, neurostimulation, hearing assist, and implantable drug
          delivery markets.

     .    Interventional - devices and components for vascular intervention.
          These products are typically produced from a combination of metal and
          plastic materials. We manufacture a variety of interventional products
          and components for our customers, including stent delivery catheters,
          steerable guidewires, diagnostic and therapeutic catheters and
          accessory devices for use in the cardiology, radiology,
          neuroradiology, vascular access and electrophysiology markets.

     .    Orthopedics - implants and instruments for reconstructive, spinal and
          trauma procedures. We manufacture a variety of orthopedic implants
          from metal, plastic and ceramic materials for our customers, such as
          hips, knees, plates, rods, screws as well as procedural instruments
          for the placement of these implants.

Our Customer Solution

     Our medical engineering and manufacturing services enable our customers to
concentrate their internal resources on research and development for new
therapies and treatments and on marketing their product offerings. The key
components of our customer solution are:

     .    Provide an integrated outsourcing solution. By providing a
          comprehensive range of design, engineering, development, process
          technology, manufacturing and assembly and supply chain management
          capabilities, we offer our customers the ability to outsource all or
          part of the production of a device to a single provider. We have won
          several significant projects under which we design, manufacture and
          package finished devices for leading global medical device companies.
          In addition, we work closely with smaller, emerging medical device
          companies as their engineering and manufacturing partner.

     .    Accelerate product development cycle time. Our experience in design
          engineering, collaborative product development and rapid prototyping
          positions us as a valuable resource early in the new product
          development process and enables critical processes to occur
          simultaneously, which reduces the overall time-to-market. We employ
          over 130 engineers of whom approximately 70 are devoted to supporting
          our customers' new product introductions. Our engineers provide
          technical expertise to transform our customers' concepts into finished
          devices that can be efficiently manufactured on a commercial scale.

     .    Provide quality products and practices. Quality is of the highest
          importance to our customers due to the serious and costly consequences
          of product failure. We operate our facilities under a single
          integrated quality system. Each of these facilities has been certified
          by independent certification bodies to comply with the ISO 9001
          quality management standard and ISO 13485 medical device-specific
          standard. In addition, each of our facilities has been registered with
          the Food and Drug Administration, or FDA, as a contract manufacturing
          facility, which establishes good manufacturing practice

                                      -5-



          requirements for product design, manufacture, management, packaging,
          labeling, distribution and installation.

     .    Reduce costs for customers. We reduce our customers' total costs
          associated with manufacturing by:

          -    designing for manufacture and assembly;

          -    managing a streamlined supply chain; and

          -    delivering manufacturing processes that lower costs through
               increased efficiencies and continuous improvement efforts.

     In addition, by offering an integrated outsourcing solution encompassing
design, engineering, manufacturing, assembly, sterilization and packaging, we
are able to lower the total cost of the products that we deliver to our
customers by designing optimal manufacturing processes and reducing coordination
costs, redundant engineering and overhead related to quality and purchasing.

Our Strategy

     Our objective is to be the leading medical engineering and manufacturing
services provider to established, as well as emerging, medical device companies.
We expect to grow by focusing our sales and marketing teams on cross-selling our
design and engineering, manufacturing, assembly and supply chain management
services to both existing customers and new customers.

     The key elements of our business strategy include:

     .    Continue to grow within core markets. We are focused on continued
          growth within our four core markets: surgical instrumentation,
          electro-medical implants, interventional products, and orthopedic
          implants and instruments. We believe that these markets present a
          promising growth opportunity, and we will continue to use a
          market-focused sales strategy to further penetrate these markets. Our
          existing customer relationships provide a foundation for future
          growth, and we also look for opportunities to expand our scope of
          services in these markets to provide an enhanced offering.

     .    Strengthen our customer relationships by collaborating in the design
          and engineering of new products. Working closely with customers in the
          design and engineering of new products provides significant
          opportunity to anticipate customers' needs and secure ongoing
          manufacturing relationships. Increasingly, our customers provide only
          functional or system performance specifications and request that we
          provide much of the design and engineering specifications associated
          with new products or product modifications. Our ability to provide
          product design and development services enables us to secure long term
          manufacturing relationships for finished devices, sub-assemblies and
          components.

     .    Drive additional component manufacturing business by continuing to
          expand our device assembly services. As we increase our assembly
          business, we have the opportunity to also increase our manufacturing
          of components because the assembler, or sub-assembler, of a device
          typically controls the source of the components used in that device.
          Our manufacturing capabilities position us well to produce many of the
          components for the products we assemble.

                                      -6-



     .    Focus on business excellence. We are committed to continuous
          improvement of our business processes and services, which we believe
          have already distinguished us as a leading high quality medical
          engineering and manufacturing services provider. We are implementing a
          strategy founded on the principles of employee excellence, technology
          deployment, six sigma quality-driven operations, an integrated
          low-cost manufacturing network, lean manufacturing and customer
          satisfaction. Our engineering and manufacturing competencies are
          supported and extended through continued investment in advanced
          process technologies.

     .    Pursue product line transfers and acquisitions of customers'
          manufacturing assets. We believe that the transfer of the
          manufacturing responsibility for product lines and our acquisition of
          customer manufacturing facilities will provide a vehicle for
          substantial growth, as well as a mechanism to develop closer
          relationships with leading medical device companies. These
          transactions allow our customers to reduce capital employed and focus
          resources on their core competencies, including research and sales and
          marketing. We believe that product line transfers and asset
          acquisitions of this kind are becoming increasingly attractive to our
          customers. We have established a dedicated transfer team with well
          defined policies, procedures and protocols, which is staffed with
          experienced manufacturing engineers to support these activities.

     .    Selectively acquire new companies. We plan to make select acquisitions
          of complementary medical engineering and manufacturing services
          providers that bring desired capabilities, customers or geographic
          coverage and either strengthen our position in our target markets or
          provide us with a significant presence in a new market. We have
          experienced business development personnel capable of identifying
          acquisitions and integrating these acquisitions into our operations.
          Since our formation through the acquisition of seven companies in
          March 1999, we have completed six additional acquisitions. We believe
          that we can create a competitive advantage through our ability to
          acquire and integrate acquisitions.

     .    Increase competitiveness through operating cost reductions. We intend
          to pursue opportunities to lower our operating cost structure in an
          effort to become more profitable, which will allow us to pursue more
          growth opportunities. We plan to lower operating costs by increasing
          our plant utilization rates, which will reduce overhead expenses, and
          by transferring more manufacturing operations to our plant in Navojoa,
          Mexico. We believe that our operations in Navojoa, Mexico will provide
          us with a low cost growth platform.

     .    Offer financial stability. We believe the medical engineering and
          manufacturing services industry includes over 3,000 companies, many of
          which have annual revenues of less than $5.0 million in medical device
          products. We believe our customers prefer working with large and
          stable medical engineering and manufacturing service providers such as
          MedSource, who can ensure a continuous supply of products and
          services. Additionally, we have the financial capability to allow us
          to respond rapidly to our customers' requirements, such as higher
          production volumes.

     We intend to continue to build our brand name and deploy our sales and
marketing team, as well as to use our information technology infrastructure, to
further implement our strategy. In addition, we believe that our scale and
resources provide our customers with security and reliability.

                                      -7-



Sales and Marketing

     Our sales organization uses a team approach that integrates the activities
of approximately 40 account managers, technical service managers, customer
support managers and project managers. Our sales teams are organized around our
four major target markets. This team approach is designed to allow us to serve
our customers while providing both a high level of market expertise and a single
point of contact through each phase of a project. We believe this customer team
approach distinguishes us by enabling us to handle complex projects involving
outsourcing of completed medical devices from design to delivery.

     We have a group of technical service managers who are trained in our
various manufacturing technologies and processes. These managers assist our
customers' engineering groups and our sales professionals by specifying the best
manufacturing technology for a particular device or component. These managers
are supported by process experts in each of the facilities who provide
functional expertise in each of the various manufacturing processes.

     Our market development team provides strategic marketing support to our
sales and operations organizations. Market development helps align our sales and
application engineering resources across our four key target markets and aligns
their efforts with our manufacturing capabilities and capacity. In addition,
this team plays an important role in tailoring our broad product and service
offerings, including key account and market strategies, pricing strategies,
capability bundling strategies, marketing campaigns.

     We invest significant resources to develop the MedSource brand name by
participating in a number of medical related tradeshows, including medical
design and manufacturing shows in the United States and Europe and by
advertising our capabilities in a number of medical device and equipment
industry magazines and trade publications.

Customers

     We serve leading medical device companies as well as many other private and
public emerging medical device companies. During fiscal 2003, we had sales to
over 230 medical device companies, and our customers include seven of the
largest ten medical device companies (by revenues), including Johnson & Johnson
affiliates, Medtronic, and Boston Scientific. Johnson & Johnson affiliates,
Medtronic and Boston Scientific each accounted for more than 10% of our revenues
during our year ended June 30, 2003.

     We work with our customers on a product by product basis and often work
with many different divisions of our largest customers. To date, most of our new
sales have been made to existing customers that, we believe, have typically
ordered new products from us based upon their past experience and our
capabilities. The products that we manufacture are made to order based on the
customer's specifications and may be designed using our design and engineering
services. Our customers retain ownership of and the rights to their product's
design while we generally retain the rights to any of our proprietary
manufacturing processes.

Information Technology

     We believe that our use of information technology will be a competitive
advantage. We are installing the Oracle 11i enterprise resource planning, or
ERP, system in all of our facilities. We successfully completed the
implementation of the full ERP application at five sites, a company-wide order
management system at all sites and an integrated financial reporting system at
all locations. We are continuing to implement the full Oracle ERP application at
the remainder of our manufacturing sites and

                                      -8-



introduce new productivity tools within the Oracle 11i application as
appropriate. In addition, we have standardized our computer aided design, or
CAD, and computer aided manufacturing, or CAM, software at our facilities.

     We expect these systems to provide several key benefits to us, our
customers and our suppliers. The systems enable the sharing of customer,
supplier and engineering data across our company. We believe that this will
enable us to better understand and predict customer demand, take advantage of
economies of scale, provide greater flexibility to move product design between
sites and improve the accuracy of capturing and estimating our manufacturing and
engineering costs. In addition, the systems provide greater visibility into the
operations of the enterprise through integrated financial and management
reporting capabilities. This system also benefits our suppliers by giving them
more accurate and timely information about our requirements. Overall, these
systems will provide the infrastructure that will enable us to provide
additional value to our customers through improved supply chain management
capability, reduced costs and accelerated product development.

Manufacturing

     We combine advanced manufacturing technology, such as CAD/CAM, with
manufacturing techniques such as just-in-time manufacturing, and the "MedSource
Business Excellence initiative," which we implemented during fiscal 2003.
Just-in-time manufacturing is a production technique that minimizes
work-in-process inventory and manufacturing cycle time while enabling delivery
of products to customers in the quantities and time frame required. The
MedSource Business Excellence initiative is a continuous improvement effort
based on the principles of Six Sigma and lean manufacturing. We believe that the
application of these principles will reduce total costs, improve cycle times,
and improve working capital efficiency.

     To serve our market as a comprehensive manufacturing solution for medical
device companies, we address customers' requirements from a "quote-to-order,"
"order-to-fill" and an after sales service perspective. We have identified the
key processes within this structure and are currently implementing standard
operating procedures to create a seamless process within our organization
structure and with our customers. This approach to customer service is vital in
maintaining and developing customer relationships and differentiating us from
our competitors.

     We intend to continue to offer our customers advanced manufacturing process
technologies, which currently include computer integrated manufacturing, CNC
machines, laser cutting, injection molding, stamping, dip coating, extruding and
our patented precision metal injection manufacturing. Our flexible manufacturing
capability allows us to efficiently produce both high-volume products and
low-volume products. Our investment in new equipment will position us to
continue to provide efficient and flexible medical engineering and manufacturing
services to medical device companies.

     We operate a multi-facility manufacturing network strategically located
throughout the United States and in Mexico. We completed reviews of our
manufacturing operations and support functions in fiscal 2001 and again in
fiscal 2003. Based on our evaluation of the unique and common characteristics of
our various facilities, we determined that we could reduce operating costs by
closing several of our facilities, thus improving capacity utilization and
efficiency of the remaining facilities. Criteria in our evaluation included
current capacity utilization, uniqueness of manufacturing capabilities, current
operating costs, difficulty and cost associated with relocation and
recertification of key equipment, and customer supply requirements. We sold
facilities in Pittsfield and East Longmeadow, Massachusetts during our fiscal
year ended June 30, 2002. In addition, we initiated the shutdown of our facility
in Danbury, Connecticut during our fiscal year ended June 30, 2002. We closed
the Danbury facility during

                                      -9-



the fiscal year ended June 30, 2003. In conjunction with our plant
rationalization during fiscal 2003 and 2002, we initiated the expansion of our
manufacturing facilities located in Corry, Pennsylvania, Brooklyn Park,
Minnesota, Laconia, New Hampshire, and Navojoa, Mexico to accommodate the
transfer of selected products and product lines for specific medical companies.

     Overall, we have not experienced any significant capacity constraints
within our manufacturing network. We expect that we have adequate capacity to
meet future growth requirements.

Quality

     We believe that product quality is a critical success factor in the medical
engineering and manufacturing services market. We strive for continuous
improvement of our processes and have adopted a number of quality improvement
and measurement techniques to monitor our performance.

     We operate our facilities under a single integrated quality system and
comply with the ISO 9001 quality management standard and the ISO 13485 medical
device-specific quality management standard, and they are certified to such
standards by independent certification bodies. The ISO 9001 standard specifies
quality system requirements for product design and production. ISO 13485
establishes additional, more specific requirements for medical devices in
particular. Newly acquired facilities are promptly brought into conformity with
our integrated quality system, generally within six months to one year. We
believe our quality system also complies with FDA quality system regulations
with respect to all of our products, services and internal processes. With our
integrated company-wide quality system in place, customers are able to audit
select MedSource facilities knowing that every facility that has been integrated
into the system is subject to the same quality system and process controls, as
applicable to the facility's particular operations. This system can provide
significant time and cost savings for customers, as well as reduced risk of
non-conforming products resulting in customer dissatisfaction, product recall or
patient adverse events. The FDA quality system regulation establishes good
manufacturing practice requirements for product design, manufacture, management,
packaging, labeling, distribution and installation. We register each of our
facilities with the FDA as a contract manufacturing facility within one year of
acquisition.

Supply Arrangements

     We have established relationships with many of our materials providers.
However, most of the raw materials that are used in our products are subject to
fluctuations in market price. In particular, the prices of stainless steel,
titanium and platinum have historically fluctuated, and the prices that we pay
for these materials, and, in some cases, their availability, are dependent upon
general market conditions. In the short term, we generally cannot pass these
cost increases on to our customers.

     Our current internal manufacturing and engineering capabilities do not
include all elements that are required to satisfy all of our customers'
requirements. When we do not possess the appropriate manufacturing or
engineering capabilities internally, such as electronic circuitry manufacturing,
we subcontract with third party providers for the necessary components or
services. As we provide our customers with a fully integrated supply chain
solution, we will continue to rely on third party suppliers, subcontractors and
other outside sources for components or services that we cannot provide through
our internal resources.

     To date we have not experienced any difficulty obtaining necessary raw
materials or subcontractor services.

                                      -10-



Intellectual Property

     The products that we manufacture are made to order based on the customer's
specifications and may be designed using our design and engineering services.
Our customers retain ownership of and the rights to their product's design while
we generally retain the rights to any of our proprietary manufacturing
processes. We generally rely on know-how to manufacture products to our
customers' specifications.

     We use a combination of patents, licenses and trade secrets to establish
and protect the proprietary rights to our technologies and products used in
connection with precision metal injection manufacturing processes, guidewire
technology, plastic tubing manufacturing processes, surgical instrumentation
manufacturing processes, and surface texturing for implantable devices.

     We own an aggregate of two United States and one foreign patents in
connection with our precision metal injection manufacturing processes. We also
have five foreign pending patent applications at various stages of approval. The
United States patents relating to our precision metal injection manufacturing
processes expire in 2015, and our foreign patent expires in 2016. In addition,
we are a party to several license agreements with third parties pursuant to
which we have obtained, on varying terms, non-exclusive rights to patents held
by third parties in connection with precision metal injection manufacturing
technology.

     We own an aggregate of nine United States patents that we use in connection
with the manufacture of our guidewire products. We also have one United States
and six foreign pending patent applications at various stages of approval. The
United States patents relating to our guidewire products expire between 2010 and
2015.

     We own an aggregate of seven other United States patents that we use in
connection with other manufacturing processes. We also have one United States
pending patent application. The United States patents relating to these other
manufacturing processes expire between 2014 and 2019.

     We jointly own four United States patents in a surface texturing process to
improve bone adhesion of medical implants in which we have the selling rights.
These patents expire between 2010 and 2013. There is also a pending patent for a
specialized process in which a third party would have exclusive rights to the
process.

     In addition, we are a party to a license agreement with a third party
pursuant to which we have obtained exclusive manufacturing and marketing rights,
for the medical industry, to a patent in connection with the manufacture of thin
sheet alginate membrane structures. This patent expires in 2019.

     We do not believe that the expiration of any of our patents or the
termination of any of our licenses would have a material effect on our business.

     It is our policy to require all employees, consultants and other parties to
execute confidentiality agreements. These agreements prohibit disclosure of
confidential information to third parties except in specified circumstances. In
the case of employees and consultants, the agreements generally provide that all
confidential information relating to our business is the exclusive property of
MedSource.

     We have an agreement with one of our former employees that provides him
with an exclusive license to our precision metal injection technology for use
only outside the medical industry. This license is royalty-free. In addition, we
must obtain the former employee's consent if we desire to sublicense or exploit
this technology for non-medical applications.

                                      -11-



Competition

     We compete with different companies depending on the type of product or
service offered or the geographic area served. Our management believes that the
primary basis of competition in our targeted markets is existing customer
relationships, as well as reputation, quality, delivery, responsiveness, breadth
of capabilities and price.

     We have as customers many of the leading medical device companies in our
four target markets. In addition, we believe that our integrated quality system
and manufacturing network allow us to compete favorably in terms of breadth of
product and service offerings, quality, responsiveness and price. To remain
competitive, we must continue to provide a single source solution, accelerate
product development time, provide quality products and practices, reduce costs
for our customers and offer financial stability.

     Our existing or potential competitors include the internal operations of
medical device companies themselves and other medical engineering and
manufacturing services providers. Other medical engineering and manufacturing
services providers currently compete in some but not all of the same target
markets that we do. We believe that the medical engineering and manufacturing
services industry is highly fragmented with over 3,000 companies that have
limited manufacturing capabilities and limited sales and marketing expertise.
Many of these 3,000 companies have less than $5.0 million in annual revenues
from medical device companies.

Government Regulation

     We are a medical device and component engineering and manufacturing
services provider. Some of the products that we manufacture may be considered
finished medical devices, and the manufacturing processes used in the production
of finished medical devices are subject to FDA regulatory- inspection and
assessment, and must comply with FDA regulations, including its Quality System
Regulation. The FDA quality system regulation establishes good manufacturing
practice requirements for product design, manufacture, management, packaging,
labeling, distribution, and installation for medical devices. Additional FDA
regulations impose requirements for record keeping, reporting, facility and
product registration, product safety and effectiveness, and product tracking.
Failure to comply with these regulatory requirements may result in civil and
criminal enforcement actions, including financial penalties, seizures,
injunctions and other measures. Our products must also comply with state and
foreign regulatory requirements. Also, in order to comply with regulatory
requirements, our customers may wish to audit our operations to evaluate our
quality systems. Accordingly, we routinely permit audits by our customers.

     In addition, the FDA and state and foreign governmental agencies regulate
many of our customers' products as medical devices. FDA approval/clearance is
required for those products prior to commercialization in the United States, and
approval of regulatory authorities in other countries may also be required prior
to commercialization in those jurisdictions. Moreover, in the event that we
build or acquire additional facilities outside the United States, we will be
subject to the medical device manufacturing regulations of those countries. Some
other countries may rely upon compliance with United States regulations or upon
ISO certification as sufficient to satisfy certain of their own regulatory
requirements for a product or the manufacturing process for a product.

     Other than as described in the prior two paragraphs, our business is not
subject to direct governmental regulation other than the laws and regulations
generally applicable to businesses in the jurisdictions in which we operate,
including those federal, state and local environmental laws and regulations
governing the emission, discharge, use, storage and disposal of hazardous
materials and the

                                      -12-



remediation of contamination associated with the release of these materials at
our facilities and at off-site disposal locations. Our manufacturing activities
involve the controlled use of, and some of our products contain, small amounts
of hazardous materials. Liabilities associated with hazardous material releases
arise principally under the Clean Water Act, the Clean Air Act, the Resource
Conservation and Recovery Act and the Comprehensive Environmental Response,
Compensation and Liability Act and analogous state laws which impose strict,
joint and several liability on owners and operators of contaminated facilities
and parties that arrange for the off-site disposal of hazardous materials. We
are not aware of any material noncompliance with the environmental laws
currently applicable to our business and we are not subject to any material
claim for liability with respect to contamination at any company facility or any
off-site location. We cannot assure you, however, that we will not be subject to
such environmental liabilities in the future as a result of historic or current
operations.

Access to SEC Filings

     Our SEC filings are available through the SEC web site at
http://www.sec.gov, or through our web site at http://www.medsourcetech.com in
the Investor Relations section under SEC filings. The annual report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 are available free of charge
through our Internet web site as soon as reasonably practicable after they are
electronically filed with the SEC

                                  RISK FACTORS

     You should carefully consider the following risk factors together with all
of the other information contained in this Annual Report on Form 10-K before
making an investment decision with respect to our common stock. Any of the
following risks, as well as other risks and uncertainties described in this
Annual Report on Form 10-K, could harm our business, financial condition and
results of operations and could adversely affect the value of our common stock.

                          Risks Related to Our Business

Adverse trends or business conditions affecting the medical device industry or
our customers could harm our operating results.

     Our business depends on trends in the medical device industry, which is
subject to rapid technological changes, short product life-cycles, frequent new
product introductions and evolving industry standards, as well as economic
cycles. Conditions or technological innovations adversely affecting any of our
major customers, the medical device industry in general or the surgical
instrumentation, electro-medical implant, interventional and orthopedic markets
we target in particular, could adversely affect our operating results. For
example, the discovery and market acceptance of non-device treatments for
specific medical conditions could make the medical devices used to treat these
conditions obsolete. In addition, the products and services that we provide to
our customers generally are specific to a particular medical device being
developed or marketed by them. If a customer's medical device does not gain or
maintain market acceptance because of competing medical devices or treatments,
changing market conditions, unfavorable regulatory actions or other reasons, our
revenues from that customer and our results of operations would be adversely
affected.

Because a significant portion of our revenue comes from a few large customers,
any decrease in sales to these customers could harm our operating results.

                                      -13-



     The medical device industry is concentrated, with relatively few companies
accounting for a large percentage of sales in the surgical instrumentation,
electro-medical implant, interventional and orthopedic markets that we target.
Accordingly, our revenue and profitability are highly dependent on our
relationships with a limited number of large medical device companies. In fiscal
2003, our top four customers accounted for approximately 56% of our revenues,
with one customer accounting for 27% of our revenues, another accounting for 12%
and a third customer accounting for 11% of our revenues. In fiscal 2002, our top
four customers accounted for approximately 52% of our revenues, with one
customer accounting for 25% of our revenues and another accounting for 12% of
our revenues. In fiscal 2001, our top four customers accounted for approximately
41% of our revenues, with one customer accounting for 18% of our revenues and
another accounting for 12% of our revenues. We provide products and services to
several different divisions of our top customers. We are likely to continue to
experience a high degree of customer concentration, particularly if there is
further consolidation within the medical device industry. We cannot assure you
that there will not be a loss or reduction in business from one or more of our
major customers. In addition, we cannot assure you that revenues from customers
that have accounted for significant revenues in the past, either individually or
as a group, will reach or exceed historical levels in any future period. The
loss or a significant reduction of business from any of our major customers
would adversely affect our results of operations.

Our growth may be slow if the trend toward outsourcing by medical device
companies does not continue or if our customers decide to manufacture internally
products that we currently provide.

     To date, we have benefited from the growing trend of medical device
companies to outsource all or a portion of their engineering, product
development, manufacturing and assembly requirements. Although we expect medical
device companies to increase their outsourcing of these requirements in the
future, we cannot be certain that this trend will continue or that, if it
continues, we will benefit from it. Even if the outsourcing trend in the
industry continues, one or more of our principal customers could decide to
decrease its reliance on or use of outsourcing, which would reduce our customer
base.

     Also, as part of our growth strategy, we are seeking to accept full supply
chain management and manufacturing responsibility for selected product lines
from our customers and, in some cases, to acquire the related manufacturing
assets from these customers. While we believe that product line transfers and
asset acquisitions of this kind are becoming increasingly attractive to our
customers, we have only consummated one of these transactions to date. We cannot
be sure that opportunities of this nature will be available, especially if the
trend toward outsourcing does not continue.

We have few contracts with our customers that ensure us future business, and
cancellations, reductions or delays in customer orders could harm our operating
results.

     Generally, we work with our customers on a project-by-project or purchase
order-by-purchase order basis, without any long-term revenue, volume or other
commitments to ensure us future business. Customer orders typically may be
cancelled and volume levels may be changed or delayed at any time. We cannot
assure you that we can replace delayed, cancelled or reduced projects with new
business in a timely manner. Also, we may not fully recover our costs in
connection with cancelled, delayed or reduced projects.

Our quarterly operating results fluctuate significantly, and if we fail to meet
the expectations of securities analysts or investors, our stock price may
decrease.

                                      -14-



     Our operating results have fluctuated in the past from quarter to quarter
and are likely to fluctuate significantly in the future due to a variety of
factors, including:

     .    the timing of actual customer orders and the accuracy of our
          customers' forecasts of future production requirements;

     .    the introduction and market acceptance of our customers' new products
          and changes in demand for our customers' existing products;

     .    changes in the relative portion of our revenue represented by our
          various products, services and customers, including the relative mix
          of our business across our target markets;

     .    changes in competitive or economic conditions generally or in our
          customers' markets;

     .    changes in availability or costs of raw materials or supplies; and

     .    demand for our products and services, which, during our limited
          operating history, has been higher than average during the last
          quarter of our fiscal year and lower than average during the first
          quarter of our fiscal year.

     For all these reasons, our quarterly results are difficult to predict and
should not be relied upon as an indication of future performance. Fluctuations
in our quarterly results could result in our failing to meet the expectations of
the investment community, which could adversely affect the market price of our
common stock even if those fluctuations are unrelated to our long term operating
performance or prospects.

Risks relating to acquisitions, including failure to successfully manage our
growth and integrate acquired businesses, may adversely affect our financial
performance.

     We were formed in March 1999 through the acquisition of seven separate
businesses. In January 2000, we acquired the business of Tenax Corporation; in
February 2000, we acquired Apex Engineering; in May 2000, we acquired Thermat
Precision Technology, Inc.; in December 2000, we acquired ACT Medical, Inc.; in
January 2002, we acquired HV Technologies; and in September 2002, we acquired
Cycam, Inc. As a result, we are experiencing rapid growth that could strain our
managerial and other resources.

     We also plan to seek to make select acquisitions of complementary medical
engineering and manufacturing services providers that bring desired
capabilities, customers or geographic coverage and either strengthen our
position in our target markets or provide us with a significant presence in a
new market. The risks we may encounter in pursuing these acquisitions include
expenses associated with, and difficulties in identifying, potential targets,
costs associated with acquisitions we ultimately are unable to complete and
higher prices for acquired companies due to competition for attractive targets.
Completing acquisitions also may result in dilution to our existing stockholders
and may require us to seek additional capital, if available, including by
increasing our indebtedness.

     Once acquired, the successful integration and operation of a business
requires communication and cooperation among key managers, the transition of
customer relationships, the management of ongoing projects of acquired companies
and the management of new projects across previously independent facilities.
Acquisitions also involve a number of other risks, including:

                                      -15-



     .    the diversion of management attention;

     .    difficulties in integrating the operations and products of an acquired
          business or in realizing projected operational results, synergies and
          cost savings;

     .    inaccurate assessments of undisclosed liabilities; and

     .    potential loss of key customers or employees of the acquired
          businesses.

     Customer satisfaction or performance problems with an acquired company
could also harm our reputation as a whole, and any acquired business could
significantly underperform relative to our expectations. Because three of our
acquisitions were completed in the past 36 months, we are currently facing all
of these challenges and our ability to meet them over the long term has not been
established. For all these reasons, our pursuit of an overall acquisition
strategy or any individual completed, pending or future acquisition may
adversely affect the realization of our strategic goals.

     In addition, while we anticipate cost savings, operating efficiencies and
other synergies as a result of our acquisitions, the consolidation of functions
and the integration of departments, systems and procedures present significant
management challenges. We cannot assure you that we will:

     .    successfully accomplish those actions as rapidly as anticipated;

     .    achieve the cost savings and efficiencies that we expect from our
          acquisitions;

     .    successfully manage the integration of new locations or acquired
          operations;

     .    fully use new capacity; or

     .    enhance our business as a result of any past or future acquisition,
          including those mentioned above.

     The acquisition of new operations can also introduce new types of risks to
our business. For example, new acquisitions may require greater effort to
address United States Food and Drug Administration, or FDA, regulation or
similar foreign regulation.

We may face product liability claims that could result in costly litigation and
divert the attention of our management.

     We may be exposed to product liability claims and product recalls,
including those which may arise from misuse or malfunction of, or design flaws
in, our customers' products, whether or not such problems directly relate to the
products and services we have provided. In some circumstances, we have
agreements in place with our customers governing liability for product liability
and recalls. Even where we have agreements with customers that contain
provisions attempting to limit our damages, these provisions may not be
enforceable or may otherwise fail to protect us from liability. Product
liability claims or product recalls, regardless of their ultimate outcome, could
require us to spend significant time and money in litigation or require us to
pay significant damages. The occurrence of product liability claims or product
recalls could cause our results of operations to be adversely affected.

     We carry $20.0 million of product liability insurance coverage, which is
limited in scope. Our management believes that our insurance coverage is
adequate given the risks we face. We cannot assure

                                      -16-



you that we will be able to maintain this insurance or to do so at reasonable
cost and on reasonable terms. We also cannot assure you that this insurance will
be adequate to protect us against a product liability claim that may arise in
the future.

If we experience decreasing prices for our products and services and we are
unable to reduce our expenses, our results of operations will suffer.

     We may experience decreasing prices for the products and services we offer
due to:

     .    pricing pressure experienced by our customers from managed care
          organizations and other third-party payors;

     .    increased market power of our customers as the medical device industry
          consolidates; and

     .    increased competition among medical engineering and manufacturing
          services providers.

     If the prices for our products and services decrease for whatever reason
and we are unable to reduce our expenses, our results of operations will be
adversely affected.

If our manufacturing processes, products and services fail to meet the highest
quality standards, our reputation could be damaged and our results of operations
could be harmed.

     Quality is extremely important to us and our customers due to the serious
and costly consequences of product failure. Our success depends in part on our
ability to manufacture to exact design specifications precision engineered
plastic and metal components, subassemblies and finished devices from multiple
materials. If our products and services fail to meet the highest quality
standards or fail to adapt to evolution in those standards, our reputation could
be harmed and our competitive position could be damaged. In addition, our
quality systems and certifications are critical to the marketing success of our
products and services. If we fail to maintain our quality systems or
certifications, our reputation could be damaged and our results of operations
could be adversely affected.

Competition from our customers' internal operations as well as from other
medical engineering and manufacturing service providers could result in downward
pressure on prices, fewer new business opportunities and loss of market share.

     Our current and prospective customers often evaluate our product and
service offerings against the merits of internal design and engineering,
manufacturing, assembly and supply chain management. In this sense, we often
compete for business with the internal resources of our customers, many of whom
are leading medical device companies with long-standing internal design and
engineering, manufacturing and supply chain management capabilities. Our success
therefore depends heavily upon our ability to demonstrate and deliver cost
savings and accelerated time to market for our customers as compared to use of
internal resources, without loss of quality, confidentiality or reliability.

     In addition, we believe the medical engineering and manufacturing services
industry is very competitive and fragmented with over 3,000 companies, many of
which are specialized. To the extent that medical device companies seek to
outsource more of the design, prototyping and manufacturing of their products,
we will face increasing competitive pressures to broaden our capabilities and
grow our business in order to maintain our competitive position, and we may
encounter competition from other companies with design, technological and
manufacturing capabilities similar or superior to ours.

                                      -17-



If we fail to comply with the covenants under our senior credit facility or
other indebtedness, are unable to pay interest and principal when due or
experience increased interest costs, our operating results and financial
condition could be harmed.

     Failure to comply with the covenants under our senior credit facility or
with respect to any future indebtedness may result in an event of default. If an
event of default occurs and is not cured or waived, substantially all of our
indebtedness could become immediately due and payable. The ability to pay
interest and principal on our debt obligations will depend on our future
operating performance, which will be affected by prevailing economic conditions
and financial, business and other factors, many of which are beyond our control.
There can be no assurance that our operations will generate earnings in any
future period sufficient to cover the fixed charges. In addition, we may
experience variable financial results as a consequence of floating interest rate
debt. As interest rates fluctuate, we may experience increases in interest
expense, which may materially affect financial results.

If we cannot obtain the additional capital required to fund our operations and
finance acquisitions on favorable terms or at all, we may have to delay or
abandon our growth strategy.

     Our growth strategy will require additional capital for, among other
purposes, completing acquisitions of companies and customers' product lines and
manufacturing assets, integrating acquired companies and assets, acquiring new
equipment and maintaining the condition of existing equipment. If cash generated
internally is insufficient to fund capital requirements, if funds are not
available under our senior credit facility, or if we desire to make
acquisitions, we will require additional debt or equity financing. Adequate
financing may not be available or, if available, may not be available on terms
satisfactory to us. If we raise additional capital by issuing equity or
convertible debt securities, the issuances may dilute the share ownership of the
existing investors. In addition, we may grant future investors rights that are
superior to those of our existing investors. If we fail to obtain sufficient
additional capital in the future, we could be forced to curtail our growth
strategy by reducing or delaying capital expenditures and acquisitions, selling
assets or restructuring or refinancing our indebtedness.

Our growth may be limited and our competitive position may be harmed if we are
unable to identify and consummate future acquisitions.

     Our continued growth may depend on our ability to identify and acquire on
acceptable terms companies that complement or enhance our business. We may not
be able to identify or complete future acquisitions. Some of the risks that we
may encounter include expenses associated with, and difficulties in identifying,
potential targets, the costs associated with incomplete acquisitions and higher
prices for acquired companies because of competition for attractive acquisition
targets. If we fail to acquire additional capabilities, we may be unable to
compete with other companies in our industry that are able to provide more
complete outsourcing capabilities and services to medical device companies,
which could adversely affect our results of operations.

A substantial amount of our assets represents goodwill, and our net income will
be reduced if our goodwill becomes impaired.

     As of June 30, 2003, goodwill represented approximately $96.6 million, or
44%, of our total assets. Goodwill is generated in our acquisitions when the
cost of an acquisition exceeds the fair value of the net tangible and
identifiable intangible assets we acquire. We historically had recorded goodwill
on our balance sheet and amortized it, generally on a straight-line basis over
twenty years. We adopted Statement of Financial Accounting Standard, or SFAS,
No. 142, Goodwill and Other Intangible Assets, effective July 1, 2001. Goodwill
is no longer amortized under generally accepted accounting principles as

                                      -18-



a result of SFAS No. 142. Instead, goodwill is subject to an impairment analysis
at least annually based on the fair value of the reporting unit. We could be
required to recognize reductions in our net income caused by the write-down of
goodwill, if impaired, that if significant could materially and adversely affect
our results of operations. For example, in fiscal 2003 we recorded a goodwill
impairment charge of $37.7 million under SFAS No. 142. In addition, in fiscal
2001 we recognized a goodwill impairment charge of $2.6 million in conjunction
with our fiscal 2001 restructuring plan.

We depend on outside suppliers and subcontractors, and our production and
reputation could be harmed if they are unable to meet our volume and quality
requirements and alternative sources are not available.

     Our current capabilities do not include all elements that are required to
satisfy all of our customers' requirements. As we increasingly position
ourselves to provide our customers with a single source solution, we may rely
increasingly on third party suppliers, subcontractors and other outside sources
for components or services. Manufacturing problems may occur with these third
parties. A supplier may fail to develop and supply products and components to us
on a timely basis, or may supply us with products and components that do not
meet our quality, quantity or cost requirements. If any of these problems occur,
we may be unable to obtain substitute sources of these products and components
on a timely basis or on terms acceptable to us, which could harm our ability to
manufacture our own products and components profitably or on time. In addition,
if the processes that our suppliers use to manufacture products and components
are proprietary, we may be unable to obtain comparable components from
alternative suppliers.

If we are unable to maintain our expertise in manufacturing processes or if our
customers demand capabilities that we cannot provide, we will be unable to
compete successfully.

     We use highly engineered, proprietary processes and sophisticated machining
equipment to meet the specifications of our customers. Without the timely
incorporation of new processes and enhancements, particularly relating to
quality standards and cost-effective production, our manufacturing capabilities
would likely become outdated, which would cause us to lose customers. In
addition, new or revised technologies could render our existing process
technology less competitive or obsolete or could reduce demand for our products
and services. It is also possible that finished medical device products
introduced by our customers may require fewer of our components or may require
components that we lack the capabilities to manufacture or assemble. In
addition, we cannot assure you that any investment that we make in new
technologies will result in commercially viable processes for our business.
Although we anticipate that our manufacturing and marketing expertise will
enable us to successfully develop and market our capabilities, any failure by us
to anticipate or respond in a cost-effective and timely manner to technological
developments or changes in industry standards or customer requirements, or any
significant delays in capability development or introduction could adversely
affect our results of operations.

There are operational and financial risks associated with our new facility in
Mexico that could harm our operating results.

     We operate a manufacturing facility in Navojoa, Mexico and are in the
process of significantly expanding that facility. Our operations at this
facility currently comprise a small portion of our business; however, we expect
that these operations will increase as we expand our device assembly service
offering. Our operations in Mexico may expose us to risks and uncertainties that
are different from those we experience in the United States, including
political, social and economic instability, difficulties in staffing

                                      -19-



and managing international operations and controlling manufacturing quality,
product or material transportation delays or disruption, trade restrictions,
currency fluctuation and changes in tariffs, regulatory restrictions and import
and export license requirements. In addition, we will be subject to currency
fluctuations with respect to our labor and facilities costs in Mexico. If any of
these risks materializes, our business may be harmed.

Our cost of products sold may be harmed by fluctuations in the availability and
price of raw materials.

     Raw materials needed for our business are susceptible to fluctuations in
price and availability due to transportation costs, government regulations,
price controls, changes in economic climate or other unforeseen circumstances.
In particular, stainless steel, titanium and platinum are used in some of our
products and are in limited supply and subject to fluctuations in price. Our
cost of products sold may be adversely impacted by decreases in the availability
and increases in the market prices of the raw materials used in our
manufacturing processes. There can be no assurance that price increases in raw
materials can be passed on to our customers through increases in product prices.
Even when we are able to pass along all or a portion of our raw material price
increases, there is typically a lag time between the actual cost increase of raw
materials and the corresponding increase in the price of our products.

We and our customers are subject to governmental health, safety and consumer
product regulations that are burdensome and carry significant penalties for
noncompliance.

     We and our customers are subject to federal, state and local health and
safety and consumer product regulation, including regulation by the FDA, and to
similar regulatory requirements in other countries. These regulations govern a
wide variety of activities from product safety and effectiveness to design and
development to labeling, manufacturing, promotion, sales and distribution. We
believe that we are in compliance with the requirements of FDA, of state and
local authorities and, as applicable, of equivalent foreign authorities. In the
event that we build or acquire additional facilities outside the United States,
we will be subject to medical device manufacturing regulation in those
jurisdictions as well. Also, our customers' products are subject to regulation,
including manufacturing standards, of other countries in which they sell their
products. As a result, we also may be obliged to comply with these manufacturing
standards.

     To maintain manufacturing approvals, we are generally required, among other
things, to register certain of our manufacturing facilities with the FDA and
with certain state and foreign agencies, maintain extensive records and submit
to periodic inspections by the FDA and certain state and foreign agencies. We
may be required to incur significant expenses and to spend significant amounts
of time to comply with these regulations or to remedy violations of these
regulations. These efforts could be burdensome. In addition, any failure by us
to comply with applicable government regulations could result in cessation of
portions or all of our operations, imposition of fines and restrictions on our
ability to carry on or expand our operations. Compliance by our customers with
governmental regulations and their remedying of violations of these regulations
also may be time consuming, burdensome and expensive and could negatively affect
our customers' abilities to sell their products, which in turn could adversely
affect our ability to sell our products and services.

     The regulations to which we are subject are complex, change frequently and
have tended to become more stringent over time. In addition, future laws and
regulations may increase governmental involvement in healthcare and lead to
increased compliance costs.

Our facilities are subject to environmental regulation that exposes us to
potential financial liability.

                                      -20-



     Federal, state and local laws impose various environmental controls on the
management, handling, generation, manufacturing, transportation, storage, use
and disposal of hazardous chemicals and other materials used or generated in our
manufacturing activities. If we fail to comply with any present or future
environmental laws, we could be subject to future liabilities or the suspension
of production. We cannot assure you that our operations will not require
expenditures for clean-up in the future. Although we do not anticipate that
these remediation efforts will be material, we cannot assure you that the costs
associated with these efforts will not have an adverse effect on our business,
financial condition or results of operations. Changes in environmental laws may
impose costly compliance requirements on us or otherwise subject us to future
liabilities and additional laws relating to the management, handling,
generation, manufacture, transportation, storage, use and disposal of materials
used in or generated by the manufacture of our products may be imposed. In
addition, we cannot predict the effect that these potential requirements may
have on us or our customers.

Accidents at our facilities could delay production, adversely affect our
operations and expose us to financial liability.

     Our business involves complex manufacturing processes and hazardous
materials that can be dangerous to our employees. Although we employ safety
procedures in the design and operation of our facilities and we have not
experienced any serious accidents or deaths, there is a risk that an accident or
death could occur in one of our facilities. Any accident could result in
significant manufacturing delays or claims for damages resulting from injuries,
which would harm our operations and financial condition. The potential liability
resulting from any such accident or death could cause our business to suffer.
Any disruption of operations at any of our facilities could harm our business.

If we lose our key personnel, our ability to operate our company and our results
of operations may suffer.

     Our future success depends in part on our ability to attract and retain key
executive, engineering, marketing and sales personnel. Our key personnel include
Mr. Effress and our other executive officers and the loss of certain key
personnel could have a material adverse effect on us. We face intense
competition for these professionals from our competitors, our customers and
other companies operating in our industry. To the extent that the services of
members of our senior management team and key technical personnel would be
unavailable to us for any reason, we would be required to hire other personnel
to manage and operate our company and to develop our products and technology. We
cannot assure you that we would be able to locate or employ such qualified
personnel on acceptable terms.

If we are unable to attract additional qualified personnel, our growth strategy
could be adversely affected.

     Our success will depend in large part upon our ability to attract, train,
retain and motivate highly skilled employees and management. There is currently
aggressive competition for employees who have experience in the engineering and
technology used in our products and services. We compete intensely with other
companies to recruit and hire from this pool. The industries in which we compete
for employees are characterized by high levels of employee attrition. Although
we believe we offer competitive salaries and benefits, we may have to increase
spending in order to retain personnel.

Our business is indirectly subject to healthcare industry cost containment
measures that could result in reduced sales of medical devices containing our
components.

                                      -21-



     Our customers and the healthcare providers to whom our customers supply
medical devices may rely on third party payors, including government programs
and private health insurance plans, to reimburse some or all of the cost of the
procedures in which medical devices that incorporate components manufactured or
assembled by us are used. The continuing efforts of government, insurance
companies and other payors of healthcare costs to contain or reduce those costs
could lead to patients being unable to obtain approval for payment from these
third party payors. If that occurred, sales of finished medical devices that
include our components may decline significantly, and our customers may reduce
or eliminate purchases of our components.

We and our customers may be subject to infringement claims by third parties that
could subject us to financial liability or limit our product and service
offerings, and our competitive position could be harmed if we are unable to
protect our intellectual property.

     Litigation to enforce and defend patent and other intellectual property
rights is common in the medical device industry. Although we do not believe that
any of our products, services or processes infringe the intellectual property
rights of third parties, we may be accused of infringing the rights of others.
Our customers' products also may be the subject of third-party infringement
claims, which could seek damages from both the customer and from us. With most
of our customers, we do not have formal agreements governing allocation of
liability for such claims. Even where we do not have liability to third parties,
an infringement claim against one of our customers could result in reduced
demand for our products and services or increased pricing pressure. Any
infringement claim, significant charge or injunction against our products or
those of our customers could harm our business.

     We rely on a combination of patent, trade secret and trademark laws,
confidentiality procedures and contractual provisions to protect our
intellectual property, which relates principally to proprietary manufacturing
processes. We cannot be sure that the steps we take to protect our proprietary
rights will adequately deter unauthorized disclosure or misappropriation of our
intellectual property, technical knowledge, practice or procedures. We may be
required to spend significant resources to monitor and defend our intellectual
property rights, we may be unable to detect or defend against infringement of
these rights and we may lose any competitive advantage associated with these
rights.

    Risks Related to the Securities Markets and Ownership of Our Common Stock

Our stock price could be extremely volatile and, as a result, you may not be
able to resell your shares at or above the price you paid for them.

     Among the factors that could affect our stock price are:

     .    industry trends and the business success of our customers;

     .    loss of a key customer;

     .    fluctuations in our results of operations;

     .    our failure to meet the expectations of the investment community and
          changes in investment community recommendations or estimates of our
          future results of operations;

     .    strategic moves by our competitors, such as product announcements or
          acquisitions;

     .    regulatory developments;

                                      -22-



     .    litigation;

     .    general market conditions; and

     .    other domestic and international macroeconomic factors unrelated to
          our performance.

     The stock market has recently experienced extreme volatility that has often
been unrelated to the operating performance of particular companies. These broad
market fluctuations may adversely affect the market price of our common stock.

     In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted. If a securities class action suit is filed against us, we would
incur substantial legal fees and our management's attention and resources would
be diverted from operating our business in order to respond to the litigation.

Our principal stockholders and management own a significant percentage of our
company and will be able to exercise significant influence over our company and
their interests may differ from those of other stockholders.

     As of September 5, 2003, our executive officers and directors and principal
stockholders and their affiliated entities controlled approximately 24% of our
outstanding common stock. Accordingly, these stockholders, if they act together,
will likely be able to control the composition of our board of directors and
many other matters requiring stockholder approval and will continue to have
significant influence over our affairs. This concentration of ownership also
could have the effect of delaying or preventing a change in our control or
otherwise discouraging a potential acquirer from attempting to obtain control of
us.

Provisions in our charter documents and Delaware law may deter takeover efforts
that you feel would be beneficial to stockholder value.

     Our certificate of incorporation and bylaws and Delaware law contain
provisions which could make it difficult for a third party to acquire us without
the consent of our board of directors. These provisions include a classified
board of directors and limitations on actions by our stockholders. In addition,
our board of directors has the right to issue preferred stock without
stockholder approval that could be used to dilute a potential hostile acquiror.
Delaware law also imposes restrictions on mergers and other business
combinations between us and any holder of 15% or more of our outstanding common
stock. While we believe these provisions provide for an opportunity to receive a
higher bid by requiring potential acquirers to negotiate with our board of
directors, these provisions apply even if the offer may be considered beneficial
by some stockholders, and a takeover bid otherwise favored by a majority of our
stockholders might be rejected by our board of directors.

     Additionally, we have adopted a rights agreement, commonly referred to as a
"poison pill," that grants holders of our common stock preferential rights in
the event of an unsolicited takeover attempt. These rights are denied to any
stockholder involved in a takeover attempt, which has the effect of requiring
cooperation with our board of directors. This may also prevent an increase in
the market price of our common stock resulting from actual or rumored takeover
attempts. The rights agreement could also discourage potential acquirors from
making unsolicited acquisition bids.

                                      -23-



ITEM 2.  PROPERTIES

     As of June 30, 2003, our principal operations were conducted at the
following locations:

                                                        Approx.      Leased/
Location                                              Square Feet     Owned
- --------------------------------------------------    -----------   ---------
Brimfield, Massachusetts..........................         30,000       Owned
Brooklyn Park, Minnesota..........................         74,000      Leased
Corry, Pennsylvania...............................         67,000      Leased
Englewood, Colorado...............................         36,000      Leased
Laconia, New Hampshire............................         41,000      Leased
Minneapolis, Minnesota (a)........................          7,000      Leased
Navojoa, Mexico...................................         38,000      Leased
Newton, Massachusetts.............................         65,000      Leased
Norwell, Massachusetts............................         39,000      Leased
Orchard Park, New York............................         41,000      Leased
Santa Clara, California...........................         10,000      Leased
Trenton, Georgia..................................         16,000      Leased
Trenton, Georgia..................................         32,500       Owned
Pittsburgh, Pennsylvania..........................         35,000       Owned
                                                      -----------
   Total..........................................        531,500
                                                      ===========
- -----------
   (a)  Corporate offices.

     We believe these facilities and the manufacturing and assembly capacity
they provide are adequate for our current needs. We believe we can either expand
current facilities or acquire additional space when needed to meet increased
demand requirements.

ITEM 3.  LEGAL PROCEEDINGS

     From time to time, we are involved in legal proceedings in the ordinary
course of our business. We are not currently involved in any pending legal
proceedings that we believe could have a material adverse effect on our
financial position or results of operations.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

                                      -24-



                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
         MATTERS

Price Range of Common Stock

     Our common stock has traded on the Nasdaq National Market under the symbol
"MEDT" since our initial public offering on March 27, 2002. The following table
sets forth, for the periods indicated, the high and low sales prices per share
of our common stock as reported on the Nasdaq National Market:

                                                     High             Low
                                                  -----------      ----------
Fiscal Year 2002
- --------------------------------------------
Third quarter (beginning March 27, 2002)          $     13.00      $    12.96
Fourth quarter                                          15.11            9.91

Fiscal Year 2003
- --------------------------------------------
First quarter...............................            12.90            6.50
Second quarter..............................             9.34            6.45
Third quarter...............................             6.75            1.66
Fourth quarter..............................             4.53            1.46

     On September 5, 2003 there were approximately 200 holders of record of our
common stock. This does not include the number of persons whose stock is in
nominee or "street name" accounts through brokers. The last reported sale price
of our common stock on the Nasdaq National Market on that date was $5.49 per
share.

Dividend Policy

     We anticipate that we will retain future earnings, if any, to finance the
continued development and expansion of our business. In addition, our senior
credit facility restricts our payment of dividends. Any future determination
with respect to the payment of dividends will be dependent upon, among other
things, our earnings, capital requirements, the terms of our then existing
indebtedness, applicable requirements of Delaware corporate law, general
economic conditions and other factors considered relevant by our board of
directors.

Recent Sales of Unregistered Securities

     During March 2003, we issued an aggregate of 6,910 shares of our common
stock to five directors as payment of their $2,500 quarterly directors' fee. We
issued these securities in reliance on the exemption from registration provided
by Section 4(2) of the Securities Act on 1933 as transactions not involving any
public offering and Rule 506 thereunder.

     During June 2003, we issued an aggregate of 33,240 shares of our common
stock upon exercise of warrants issued to one of the investors who had purchased
our Series E preferred stock in 2001. The exercise price of the warrants was
$0.01 per share, and the investor used a "cashless" exercise provision that
enabled him to surrender the right to receive upon exercise of the warrants a
number of shares of common stock with a value equal to the aggregate exercise
price of the warrants and, as a result, surrendered the right to receive an
aggregate of 93 shares. We issued these securities in reliance on the

                                      -25-



exemption from registration provided by Section 4(2) of the Securities Act on
1933 as transactions not involving any public offering and Rule 506 thereunder.

ITEM 6.  SELECTED FINANCIAL DATA

     The following table sets forth selected statement of operations data for
our fiscal years ended June 30, 2003, June 30, 2002, June 30, 2001 and July 1,
2000 and for the period from March 31, 1999 (inception) through July 3, 1999 and
balance sheet data as of the end of each such fiscal year.



                                                                                                              Period from
                                                                                                                March 31,
                                                                    Fiscal Year Ended                             1999
                                                              ----------------------------                    (inception)
                                                June 30,        June 30,        June 30,        July 1,         through
                                                  2003            2002            2001           2000         July 3, 1999
                                              ------------    ------------    ------------    ------------    ------------
                                                            (In Thousands, Except Share and Per Share Amounts)
                                                                                               
Statement of Operations Data:
Revenues ..................................   $    177,298    $    158,899    $    128,462    $     89,352    $     21,968
Costs and expenses:
   Cost of products sold ..................        131,970         117,089          94,386          59,811          13,437
   Selling, general and administrative
    expense ...............................         33,495          29,876          26,199          21,167           4,458
   Amortization of goodwill and other
    intangibles ...........................            338             340           5,640           4,255           4,135
   Organization and start-up costs ........             --              --              --              --           4,981
   Impairment of intangible assets ........         40,000              --              --              --              --
   Restructuring charges ..................          3,724              --          11,464              --              --
                                              ------------    ------------    ------------    ------------    ------------
      Total costs and expenses ............        209,527         147,305         137,689          85,233          27,011
                                              ------------    ------------    ------------    ------------    ------------
Operating (loss) income ...................        (32,229)         11,594          (9,227)          4,119          (5,043)
Interest expense, net .....................         (2,669)         (7,671)        (10,213)        (10,682)         (2,658)
Loss on debt extinguishment ...............             --          (6,857)             --              --              --
Other (expense) income ....................           (100)         (4,782)             53              (7)           (289)
                                              ------------    ------------    ------------    ------------    ------------
Loss before income taxes ..................        (34,998)         (7,716)        (19,387)         (6,570)         (7,990)
Income tax (expense) benefit ..............           (267)            118             (70)            535           2,975
                                              ------------    ------------    ------------    ------------    ------------
Net loss ..................................        (35,265)         (7,598)        (19,457)         (6,035)         (5,015)
Preferred stock dividends and
 accretion of discount on preferred
 stock ....................................             --         (31,168)         (9,688)         (8,345)         (2,078)
                                              ------------    ------------    ------------    ------------    ------------
Net loss attributed to common
 stockholders .............................        (35,265)   $    (38,766)   $    (29,145)   $    (14,380)   $     (7,093)
                                              ============    ============    ============    ============    ============
Net loss per share attributed to
 common stockholders (basic and diluted) ..   $      (1.28)   $      (3.50)   $      (5.55)   $      (3.10)   $      (1.60)
                                               ============    ============    ============    ============    ============
Weighted average number of shares of
 common stock outstanding (basic and
 diluted) .................................     27,602,806      11,086,103       5,252,749       4,633,571       4,448,000
                                              ============    ============    ============    ============    ============

Balance Sheet Data (at end of period):
Cash and cash equivalents .................   $     10,781    $     38,268    $     20,289    $      2,210    $      1,808
Current assets ............................         64,426          85,204          58,242          28,282          18,109
Property and equipment, net ...............         52,752          42,045          38,873          34,956          21,550
Total assets ..............................        218,217         247,829         203,965         151,101         126,792
Total debt ................................         41,788          41,906          89,544          98,653          81,224
Mandatorily redeemable preferred stock                  --           1,974          98,867          22,293          16,250
Total stockholders equity (deficit) .......        156,081         186,320         (13,261)         15,072          21,248


                                      -26-



     We began operations on March 30, 1999 through the acquisition of seven
unaffiliated businesses, to whom we refer as our "predecessor companies." The
following tables set forth certain historical financial data of six of the
individual predecessor companies.

                                         Kelco          W.N. Rushwood, Inc.
                                      Industries,     d/b/a Hayden Precision
                                         Inc.              Industries
                                     -------------  ---------------------------
                                     Eleven Months                 Three Months
                                      Ended March    Year Ended    Ended March
                                          30,        December 31,      30,
                                         1999           1998          1999
                                     -------------  -------------  ------------
Statement of Operations Data
(in thousands):
Net sales..........................  $      22,877  $       9,777  $      2,227
Gross profit.......................          9,951          2,787           448
Operating expenses.................          2,784          1,072           195
                                     -------------  -------------  ------------
Operating income...................          7,167          1,715           253
Other income (expense).............             76           (241)         (100)
                                     -------------  -------------  ------------
Income before taxes................          7,243          1,474           153
Net income.........................  $       7,243  $       1,474  $        153
                                     =============  =============  ============
Balance Sheet Data (in thousands)
(at end of period)
Total assets.......................  $      18,962  $       7,066  $      7,206
Long-term debt.....................             --          3,174         3,744
Stockholders' equity...............         16,215          1,685         1,753



                                                                           National Wire and
                                      The MicroSpring Company, Inc.          Stamping, Inc.
                                      -----------------------------   ---------------------------
                                                      Three Months                   Three Months
                                       Year Ended      Ended March     Year Ended    Ended March
                                       December 31,        30,        December 31,        30,
                                          1998            1999            1998           1999
                                      -------------   -------------   ------------   ------------
                                                                         
Statement of Operations Data
(in thousands):
Net sales...........................  $      10,176   $       1,792   $      8,619   $      1,636
Gross profit........................          2,896             394          3,618            669
Operating expenses..................          3,343           1,314          3,057            800
                                      -------------   -------------   ------------   ------------
Operating (loss) income.............           (447)           (920)           561           (131)
Other income (expense)..............            (32)              1            126            125
                                      -------------   -------------   ------------   ------------
Income before taxes.................           (479)           (919)           687             (6)
Income taxes........................              7               3            264             45
                                      -------------   -------------   ------------   ------------
Net (loss) income...................  $        (486)  $        (922)  $        423   $        (51)
                                      =============   =============   ============   ============
Balance Sheet Data (in thousands)
(at end of period)
Total assets........................  $       3,984   $       3,895   $      4,373   $      3,250
Long-term debt......................            250              --            107             --
Stockholders' equity................          2,990           3,076          2,757          2,664




                                             Portlyn Corporation              Texcel, Inc.
                                      -----------------------------   ---------------------------
                                                      Three Months                   Three Months
                                       Year Ended      Ended March     Year Ended    Ended March
                                       December 31,        30,        December 31,        30,
                                          1998            1999            1998           1999
                                      -------------   -------------   ------------   ------------
                                                                         
Statement of Operations Data
(in thousands):
Net sales...........................  $       5,773   $       1,180   $      6,184   $      2,045
Gross profit........................          2,573             473          2,295            941
Operating expenses..................          2,572             522            952            270
                                      -------------   -------------   ------------   ------------
Operating income (loss).............              1             (49)         1,343            671
Other expense.......................            (74)            (14)           (68)           (11)
                                      -------------   -------------   ------------   ------------
Income before taxes.................            (73)            (63)         1,275            660
Income taxes........................             --              --             15             14
                                      -------------   -------------   ------------   ------------
Net income (loss)...................  $         (73)  $         (63)  $      1,260   $        646
                                      =============   =============   ============   ============

Balance Sheet Data (in thousands)
(at end of period)
Total assets........................  $       1,886   $       1,818   $      3,278   $      3,363
Long-term debt......................             82              75            451            770
Stockholders' equity................            578             514          2,009          1,265

                                      -27-



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

Overview

     We provide product development and design services, precision metal and
plastic part manufacturing, product assembly services and supply chain
management. We provide our products and services to each of the following
primary target markets:

     .    Surgical Instrumentation devices and components;

     .    Electro-Medical Implant devices and components;

     .    Interventional devices and components; and

     .    Orthopedic implants and instruments.

Company History

     During 1998, our co-founders, Richard J. Effress and William J. Kidd,
established MedSource to identify business opportunities in the medical
engineering and manufacturing services industry. During March 1999, with
additional equity capital from Whitney & Co., we acquired seven unaffiliated
businesses to begin our operations. The original seven acquisitions were Kelco
Industries, W.N. Rushwood d/b/a Hayden Precision Industries, National Wire and
Stamping, The MicroSpring Company, Portlyn, Texcel and Brimfield Precision. Our
first fiscal period, which ended July 3,1999, consisted of only three months of
consolidated results, which included material one-time expenses for business
combination and formation.

     Since our initial acquisitions, we had acquired six additional businesses
through June 30, 2003. We acquired Tenax in January 2000, Apex Engineering in
February 2000 and Thermat Precision in May 2000. The acquisition of Tenax
provided injection molding capability, the acquisition of Thermat added
injection molding and precision metal injection manufacturing capabilities to
our operations, enabling us to manufacture low cost precision stainless steel
components, and the acquisition of Apex Engineering provided mold design and
plastic injection molding and mold making capabilities. We acquired ACT Medical
in December 2000. The acquisition of ACT Medical enhanced our product design and
development engineering expertise and provided a low cost assembly operation in
Mexico. We acquired HV Technologies, or HVT, in January 2002. The acquisition of
HVT, a specialized manufacturer of polyimide and composite micro-tubing used in
interventional and minimally invasive catheters, delivery systems and
instruments, enabled us to expand our offering of proprietary manufacturing
capabilities to our customers in the interventional device market. We acquired
Cycam Inc. in September 2002. The acquisition of Cycam, a manufacturer of
reconstructive implants, provided us with complimentary capabilities of plastic
machining, surface coatings, near net shape forging and sterilized packaging and
kitting of orthopedic implants. Cycam also had strong relationships with several
leading orthopedic companies where we had only a minor presence. All of our
acquisitions were accounted for using the purchase method of accounting.

Restructuring Activity

     During fiscal 2003, we performed a comprehensive review of our
manufacturing operations and support functions to consolidate facilities in an
effort to achieve greater economies of scale. As a result of

                                      -28-



this analysis we identified opportunities to further restructure our operations.
We estimate the total cost of this restructuring plan will be approximately
$15.0 - $20.0 million and we expect to incur these charges through fiscal 2005.
As of June 30, 2003 we had incurred $1.3 million in charges related to this
restructuring plan. In addition, we estimate that we will invest $1.7 million in
plant and equipment to ensure the facility consolidation does not disrupt
operations. During fiscal 2004 and fiscal 2005, we expect to incur $5.8 - 8.3
million and 7.9 - $10.4 million, respectively, in restructuring charges related
to this plan. $5.8 - $8.3 million and $7.9 - $10.4

     During June 2001, we completed the first review of our manufacturing
operations and support functions. Based on our evaluation of the unique and
common characteristics of our various facilities, we determined that we could
achieve over-all cost savings by closing three of the facilities, thus improving
capacity utilization and efficiency of the remaining facilities. We sold our
facilities in Pittsfield and East Longmeadow, Massachusetts during our fiscal
year ended June 30, 2002. During fiscal 2003 we shut down our Danbury,
Connecticut facility. In addition, during fiscal 2003 management decided to
close a fourth facility located in Redwood City, California as part of this
restructuring plan. This decision led to additional restructuring charges during
fiscal 2003.

Results of Operations

     Revenues

     We primarily recognize product revenue at the time products are shipped.
Product shipments are supported by purchase orders from customers that indicate
the price for each product. For services, we recognize revenues primarily on a
time and materials basis. Service revenues are supported by customer orders or
contracts that indicate the price for the services being rendered. For fiscal
2003, service revenues were less than 10% of total revenues. Revenues for
product shipments and services rendered must also have reasonable assurance of
collectability from the customer. Reserves for returns and allowances are
recorded against revenues based on management's estimates and historical
experience.

     We target the sale of our products and services to medical device companies
in four target markets. As we have continued to focus on these markets, our
sales to nonmedical customers as a percentage of our total revenues have been
decreasing over time. Sales to nonmedical customers were approximately 2% of our
total revenues for the year ended June 30, 2003. We expect sales to nonmedical
customers as a percentage of our total revenues to continue to decrease in the
future.

     Historically, most of our revenues were derived from the manufacture of
components used in medical devices. However, in order to accelerate revenue
growth and better serve our customers, we aggressively pursued opportunities for
the assembly of completed devices. To support this effort, we have completed a
number of acquisitions to expand our product offerings and enhance our supply
chain services. Over time, we anticipate that revenues from the assembly of
completed devices will likely continue to grow as a percentage of our total
revenues. Nevertheless, we will continue to aggressively pursue component sales
opportunities.

     Our top four customers accounted for 56% of our revenues for the year ended
June 30, 2003, with one customer accounting for 27% of our revenues, another
accounting for 12%, and a third customer accounting for 11% of our revenues. For
the year ended June 30, 2002, our top four customers accounted for 52% of our
revenues, with one customer accounting for 25% of our revenues and another
accounting for 12% of our revenues. We expect revenues from our largest
customers to continue to constitute a significant portion of our total revenues.

                                      -29-



     We primarily derive our revenues from serving leading medical device
companies. These customers are typically large companies with substantial market
share in one or more of our four target markets, and we believe that expanding
our relationships with these customers represents our most important revenue
opportunity. As a result, we devote significant sales efforts to securing
additional business from the business units and product lines of the leading
medical device companies that we currently serve, as well as developing business
with other business units and product lines of these customers. As we
increasingly focus on serving customers and expanding our offerings to them by
developing or acquiring additional engineering and manufacturing capabilities,
we expect the percentage of revenues we derive from these customers to increase
over time, as compared with revenues from non-medical device companies. We also
intend to continue to selectively pursue promising opportunities with emerging
medical device companies.

     As discussed above, we have acquired six businesses since we began
operations during March 1999. A substantial portion of our revenue growth to
date has been attributable to the addition of these acquired companies'
revenues. In the periods following these acquisitions, we have grown our
revenues by offering our existing customers access to our newly acquired
engineering and manufacturing capabilities, as well as by offering the customers
of the acquired businesses access to our existing capabilities. We generally
have retained the medical device customers of the companies that we have
acquired, but have selectively discontinued business with customers of the
acquired businesses that did not fit our strategic focus of serving leading and
select emerging medical device companies in our four target markets or related
medical fields. We expect to continue to make select acquisitions of
complementary medical engineering and manufacturing services providers that
bring desired capabilities, customers and / or geographic coverage that either
strengthens our position in our target markets or provide us with a significant
presence in a new market.

     We generally do not have long-term volume commitments from our customers,
and they may cancel their orders or change or delay volume levels at any time.

     Cost and Expenses

     Cost of products sold includes expenses for raw materials, purchased
components, outside services, supervisory, engineering and direct production
manpower including benefits, production supplies, depreciation and other related
expenses to support product manufacturing. We purchase most of the raw materials
that are used in our products at prevailing market prices and, as a result, are
subject to fluctuations in the market price of those raw materials. In
particular, the prices of stainless steel, titanium and platinum have
historically fluctuated, and the prices that we pay for these materials, and, in
some cases, their availability, are dependent upon general market conditions.

     Gross margins as a percentage of revenues for the years ended June 30, 2003
and 2002 were 25.6% and 26.3%, respectively. Our margins are driven by sales mix
between devices and components as well as the respective product mixes within
our various product categories. Historically, our component business produced
strong gross margins. When we were initially formed during March 1999, we were
predominately a components supplier. However, in order to expand the scope of
our services and accelerate revenue growth, we aggressively pursued
opportunities for the assembly of completed devices, which generally have higher
material content and a lower value added content, resulting in slightly lower
gross margins but with lower capital investment.

     Selling, general and administrative expense includes support of our
facilities for production and shipments to the customer as well as strategic
investments in our sales and marketing, operations and quality teams, and our
corporate support staff.

                                      -30-



     We have accounted for all of our acquisitions by using the purchase method
of accounting. Through our year ended June 30, 2001, we amortized goodwill and
other intangibles attributable to our acquisitions and incurred associated
amortization expense. Effective July 1, 2001, in connection with our adoption of
SFAS No. 142," Goodwill and Other Intangibles," we no longer amortize goodwill.
Instead, we periodically test goodwill and intangibles for impairment and record
an expense if those assets become impaired, as further discussed under "--Recent
Accounting Pronouncements."

Comparison of Fiscal Years Ended June 30, 2003 and June 30, 2002

     Revenues for our fiscal year ended June 30, 2003 totaled $177.3 million
compared to $158.9 million for the fiscal year ended June 30, 2002, an increase
of 12%. Approximately 5% of this increase was due to the acquisition of Cycam,
with the other 7% due to internal growth. Our internal, or organic, growth was
primarily driven by strength in our surgical instrumentation market, orthopedics
market, and our electro-medical implant market. A small portion of our internal
growth also resulted from new surgical instrumentation and interventional
business that we secured by offering our existing customers additional
manufacturing capabilities that we acquired.

     Cost of products sold for the fiscal year ended June 30, 2003 totaled
$132.0 million compared to $117.1 million for the fiscal year ended June 30,
2002. The increase in cost of products sold resulted principally from the
increased revenues over the prior fiscal year.

     Gross margins for the fiscal year ended June 30, 2003 were 25.6% compared
to 26.3% for the year ended June 30, 2002. Our margins are driven by the sales
mix between devices and components and the respective product mixes within our
various product categories.

     Selling, general and administrative expense was $33.5 million, or 18.9% of
revenues, for the fiscal year ended June 30, 2003 and $29.9 million, or 18.8% of
revenues, for the fiscal year ended June 30, 2002. The $3.6 million fiscal 2003
increase was primarily the result of the Cycam acquisition, continued investment
in information technology systems, and new investments in engineering services
and business excellence programs.

     Amortization of intangibles was $0.3 million for the fiscal years ended
June 30, 2003 and June 30, 2002.

     During fiscal 2003, we reduced our revenue forecast. Since the reduction in
forecasted revenue indicated that our goodwill and intangible assets might be
impaired we performed an impairment test using the income approach. We compared
the present value of the estimated future cash flows of our business to the
carrying value of net assets. This analysis indicated that our goodwill and
intangible assets were impaired. Therefore, with the help of external sources,
we evaluated the fair value of our net assets as if we were being purchased in a
business combination. We recognized a $37.7 million goodwill impairment charge
and a $2.3 million impairment charge related to our intangible assets.

     Restructuring charges for the fiscal year ended June 30, 2003 were $3.7
million. These charges were related to our previously announced growth and
restructuring plan as well as additional charges incurred related to our fiscal
2001 restructuring plan. The additional charges related to our fiscal 2001
restructuring plan were caused by a decision to shutdown our Redwood City,
California plant. No such charges were incurred during fiscal 2002.

                                      -31-



     Net interest expense was $2.7 million for the fiscal year ended June 30,
2003, compared to $7.7 million for the fiscal year ended June 30, 2002. This
decrease was due primarily to the lower amounts outstanding under our senior
credit facility during the most recent fiscal year.

     During our fiscal year ended June 30, 2002, we also incurred a loss on debt
extinguishment of $6.9 million as a result of the repayment of our subordinated
debt and the debt under our old senior credit facility. The loss included a
write off of $5.5 million in unamortized financing costs and discounts and a
$1.4 million prepayment fee. No such loss was recorded during our fiscal year
ended June 30, 2003.

     Other expenses for fiscal 2003 totaled $0.1 million compared to other
expenses of $4.8 million for the prior year. During fiscal 2002 we incurred a
$1.9 million interest rate swap breakage fee associated with the repayment of
debt and $2.9 million for service agreements terminated in conjunction with our
initial public offering.

     We incurred charges related to the accrual of dividends and accretion of
discount on preferred stock of $31.2 million for our fiscal year ended June 30,
2002. This charge was mainly due to charges incurred in connection with the
conversion of these shares into common stock in conjunction with our initial
public offering.

     Net loss attributed to common stockholders for fiscal 2003 totaled $35.3
million, or $1.28 per share, while net loss attributed to common stockholders
for fiscal 2002 was $38.8 million, or $3.50 per share.

Comparison of Fiscal Years Ended June 30, 2002 and June 30, 2001

     Revenues for our fiscal year ended June 30, 2002 totaled $158.9 million
compared to $128.5 million for the fiscal year ended June 30, 2001, an increase
of 24%. Approximately 15% of this increase was due to the acquisitions of HVT
and ACT Medical, with the other 9% due to internal growth. Our internal, or
organic, growth was primarily driven by strength in our surgical instrumentation
market, orthopedics market, as well as strength in our electro-medical implant
market. A small portion of our internal growth also resulted from new surgical
instrumentation and interventional business that we secured by offering our
existing customers additional manufacturing capabilities that we acquired.

     Cost of products sold for the fiscal year ended June 30, 2002 totaled
$117.1 million compared to $94.4 million for the fiscal year ended June 30,
2001. The increase in cost of products sold resulted principally from the
increased revenues over the prior fiscal year.

     Gross margins for the fiscal year ended June 30, 2002 were 26.3% compared
to 26.5% for the year ended June 30, 2001. Our margins are driven by the sales
mix between devices and components and the respective product mixes within our
various product categories.

     Selling, general and administrative expense was $29.9 million, or 18.8% of
revenues, for the fiscal year ended June 30, 2002 and $26.2 million, or 20.4% of
revenues, for the fiscal year ended June 30, 2001. The $3.7 million increase was
due to the selling, general and administrative expense attributable to the
business of HVT, which we acquired during January 2002, and the business of ACT
Medical, which we acquired during fiscal 2001.

     Net interest expense was $7.7 million for the fiscal year ended June 30,
2002 compared to $10.2 million for the fiscal year ended June 30, 2001. This
decrease was due primarily to the lower amounts

                                      -32-



outstanding under our senior credit facility during the fourth quarter of our
fiscal year ended June 30, 2002.

     Other expense for the year totaled $4.8 million compared to other income of
$0.1 million for the prior year. The increase is a result of two charges, $1.9
million of interest rate swap breakage fees associated with the repayment of
debt and $2.9 million for service agreements terminated in conjunction with our
initial public offering.

     During our fiscal year ended June 30, 2002, we also incurred a loss on debt
extinguishment of $6.9 million as a result of the repayment of our subordinated
debt and the debt under our old senior credit facility. The loss included a
write off of $5.5 million in unamortized financing costs and discount and a $1.4
million prepayment fee.

     We incurred charges related to the accrual of dividends and accretion of
discount on preferred stock of $31.2 million for our fiscal year ended June 30,
2002, compared to $9.7 million for our fiscal year ended June 30, 2001. The
increase was mainly due to charges in connection with the conversion of these
shares into common stock in conjunction with our initial public offering.

     Net loss attributed to common stockholders for fiscal 2002 totaled $38.8
million, or $3.50 per share, while net loss attributed to common stockholders
for fiscal 2001 was $29.1 million, or $5.55 per share.

Liquidity and Capital Resources

     Our principal sources of liquidity are cash provided by operations and
borrowings under our senior credit facility, which includes a $15 million unused
revolving credit facility. Our cash is primarily used to finance acquisitions,
meet debt service requirements, finance capital expenditures, and fund working
capital requirements. We expect that these uses will continue in the future.

     Management believes that current cash balances and cash generated from
operations, combined with available borrowings under our senior credit facility,
will be adequate to fund requirements for working capital, capital expenditures,
and future expansion through fiscal 2004.

     Operating Activities

     Net cash provided by operating activities totaled $9.4 million for the year
ended June 30, 2003 compared to net cash used in operating activities of $7.8
million for the prior year. The increase in cash provided by operating
activities over the prior year period is primarily the result of an $8.2 million
improvement in net operating asset management, and a $8.6 million decrease in
net cash losses from operations.

     Investing Activities

     Cash used in investing activities was $35.3 million for the year ended June
30, 2003, compared to $14.7 million for the year ended June 30, 2002. This
increase was due to an increase in cash paid for acquisitions of $16.3 million
over the prior year period, as a result of the acquisition of Cycam in fiscal
2003. Cash paid for capital expenditures was up $4.2 million when compared to
the prior year period. We expect capital expenditures in fiscal 2004 to be
approximately $9.5 million.

                                      -33-



     Financing Activities

     Cash used in financing activities was $1.5 million for the year ended June
30, 2003 compared to $40.4 million provided by financing activities for the year
ended June 30, 2002. The $41.6 million decrease was primarily due to IPO
proceeds received during fiscal 2002. However, this decrease was partially
offset by $8.0 million of proceeds from our acquisition line and $3.8 million in
proceeds from a sale-leaseback of manufacturing equipment in fiscal 2003. No
transactions of this nature were recognized in fiscal 2002.

     Off-Balance Sheet Arrangements

     We do not have any "off-balance sheet arrangements" (as such term is
defined in Item 303 of Regulation S-K) that are reasonably likely to have a
current or future effect on our financial condition changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.

     Commitments

     As of June 30, 2003, we had the following future contractual cash
commitments:



                                                                            Payments Due by Period
                                                                            ----------------------
                                                   Total          1 Year        2-3 Years       4-5 Years      After 5 Years
                                               ------------    ------------    ------------    ------------    -------------
                                                                            (Dollars in Millions)
                                                                                                
Long-term debt (a) .........................   $     36,500    $      6,427    $     20,369    $      9,704    $          --
Capital lease obligations ..................          5,288           1,326           2,647           1,315               --
Operating leases ...........................         25,690           3,329           5,307           4,397           12,657
                                               ------------    ------------    ------------    ------------    -------------
Total future contractual cash obligations ..   $     67,478    $     11,082    $     28,323    $     15,416    $      12,657
                                               ============    ============    ============    ============    =============

(a)  All  long term debt is  described  below  under the  caption "-- Senior
     Credit Facility."


     As of June 30, 2003, we had $2.0 million of future commercial commitments,
related to our capital leases, that may result in future cash outflows. These
commitments are letters of credit and will expire in accordance with our capital
lease expiration dates.

     Senior Credit Facility

     In fiscal 2003, we amended our senior credit facility to provide relief
from certain of our debt covenants. The amendment reduced our revolving credit
facility to $15.0 million from $25.0 million. Prior to the amendment, we also
had a $40.0 million term loan and an $8.0 million acquisition loan under the
senior credit facility (earlier in fiscal 2003, we had borrowed $8.0 million
under the acquisition line (which is no longer available) to finance our
acquisition of Cycam). In conjunction with the amendment of the credit facility,
we made a payment of $7.5 million. Of the $7.5 million payment, $6.5 million
represented a payment on the $40.0 million term loan and the remainder was
applied toward the acquisition loan. All loans under our amended senior credit
facility will mature in fiscal 2007.

     During fiscal 2004, we will be required to make payments under the term
loan of $5.0 million payable in quarterly installments. During fiscal 2005,
fiscal 2006, and fiscal 2007, we will be required to make payments of $7.4
million, $9.2 million, and $7.9 million, respectively, each also payable in
quarterly installments. During fiscal 2004, we will also be required to make
payments under the acquisition loan of $1.4 million, also payable in quarterly
installments. During fiscal 2005, fiscal 2006, and fiscal 2007, we

                                      -34-



will be required to make payments of $1.6 million, $2.2 million, and $1.8
million on the acquisition loan, each also payable in quarterly installments.

     At our option, interest rates applicable to loans under our new senior
credit facility will be either:

     .    The greater of the bank's prime rate plus a margin, which depends upon
          our leverage ratio, ranging from 50 to 175 basis points, or

     .    LIBOR plus a margin, which depends upon our leverage ratio, ranging
          from 225 to 350 basis points.

     We have entered into an interest rate cap agreement to protect against
interest rate fluctuations with respect to the term loans outstanding under our
senior credit facility. This agreement, executed with a highly-rated financial
counter-party, provides for the counter-party to make payments to us in the
event that a reference floating rate index exceeds an agreed-upon fixed rate.
Changes in the fair value of the interest rate cap agreement are accounted for
as a cash flow hedge.

     The amended senior credit facility contains affirmative and negative
covenants and limitations, including, but not limited to, required minimum
coverage of our obligations to pay interest and incur fixed charges,
restrictions on our ability to pay dividends, make other payments and enter into
sale transactions, limitations on liens, limitations on our ability to incur
additional indebtedness and agreements that we use excess cash on hand and
proceeds from future equity issuances to pay down our senior credit facility.
Consistent with credit facilities of this type, if we do not comply with the
covenants in the credit facility, the maturity date of our obligations under the
credit facility could be accelerated. In addition, we also need the consent of
the lender's to make any acquisition in which we pay more than $10.0 million
(including more than $5.0 million in cash, deferred payments and the assumption
of debt) or pay more than $20.0 million (including more than $10.0 million in
cash, deferred payments and the assumption of debt) for all of the acquisitions
that we complete during any fiscal year.

     The amended senior credit facility is secured by all of our assets and
contains various events of default, including, but not limited to, defaults upon
the occurrence of a change of control of MedSource and defaults for non-payment
of principal interest or fees, breaches of warranties or covenants, bankruptcy
or insolvency, ERISA violations and cross-defaults to other indebtedness.

     Issuances of Preferred Stock for Cash

     In fiscal 2001, we received an aggregate of $5.5 million from the issuance
of our Series E preferred stock, and we received an additional $0.5 million in
January 2002. In connection with these issuances, we also issued warrants to
purchase an aggregate of 200,000 shares of our common stock at $0.01 per share.
The proceeds from the Series E preferred stock were used to help finance the
acquisition of HVT. During April 2002 we redeemed 4,065 shares of the 6,000
outstanding shares. The remaining 1,935 shares were redeemed during August 2002.

                                      -35-



Quarterly Results

     The following tables set forth selected unaudited quarterly consolidated
financial information for the eight quarters ended June 30, 2003. This unaudited
quarterly consolidated information, in the opinion of management, includes all
adjustments necessary for a fair presentation of such information in accordance
with generally accepted accounting principles. These quarterly results are not
necessarily indicative of future results, growth rates or quarter-to-quarter
comparisons.

     We have completed six acquisitions since July 1, 2000, but the quarterly
consolidated financial information set forth below is presented on an actual
historical basis, not on a pro forma basis for any of those acquisitions. The
increase in revenues over the periods presented resulted from both acquisitions
and growth in our base business. In addition, during our limited operating
history, excluding the impact of acquisitions, we have experienced higher than
average revenues during the last quarter of our fiscal year and lower than
average revenues during the first quarter of our fiscal year, but we cannot
predict whether this will continue.



                                                                 Quarter Ended
                                     September    December   March 30,    June 30,   September    December   March 30,    June 30,
                                     30, 2001     30, 2001     2002         2002     29, 2002     29, 2002     2003         2003
                                     ---------------------------------------------------------------------------------------------
                                                                             (In Millions)
                                                                                                 
Statement of Operations Data:
Revenues ..........................  $    33.9   $    38.3   $    42.2   $    44.6   $    41.0   $    44.6   $    44.5   $    47.2
Cost and expenses:
Cost of products sold .............       26.1        28.5        31.5        31.0        30.8        33.2        34.0        34.0
Selling, general and
   administrative expense .........        6.4         7.7         8.2         7.6         7.9         8.0         8.3         9.3
Amortization of
   goodwill and other intangibles..        0.1         0.1         0.1         0.1         0.1         0.1         0.1          --
Impairment of goodwill
   and other intangibles(a) .......         --          --          --          --          --          --        30.0        10.0
Restructuring charge(b) ...........         --          --          --          --          --          --         1.9         1.8
                                     ---------------------------------------------------------------------------------------------
Operating Income (loss) ...........        1.3         2.0         2.4         5.9         2.2         3.3       (29.8)       (7.9)
Interest expense, net .............       (2.5)       (2.4)       (2.3)       (0.4)       (0.5)       (0.7)       (0.6)       (0.9)
Extraordinary loss ................         --          --          --        (6.9)         --          --          --          --
Other expense .....................         --          --        (2.9)       (1.9)         --          --          --        (0.1)
Income tax benefit (expense) ......         --          --          --         0.1          --          --          --        (0.3)
Net loss ..........................  $    (1.2)  $    (0.4)  $    (2.8)  $    (3.2)  $     1.7   $     2.6   $   (30.4)  $    (9.2)
                                     =========   =========   =========   =========   =========   =========   =========   =========

- ----------


(a)  Effective at the beginning of fiscal 2002, we adopted the provisions of
     SFAS No. 142, Goodwill and Other Intangible Assets. During the third
     quarter of fiscal 2003 we performed an impairment test on our goodwill and
     certain other intangible assets because of the presence of impairment
     indicators. The impairment test indicated that a significant impairment of
     our goodwill and other intangible assets had occurred and as a result we
     recognized impairment charges of $30.0 million and $10.0 million in the
     third and fourth quarter of fiscal 2003, respectively.

(b)  In January 2003, we completed a strategic review of our manufacturing
     operations and support functions. Based on this review and with board
     approval, we began actions to eliminate redundant facilities. These actions
     resulted in pre-tax charges of $1.9 million and $1.8 million during the
     third and fourth quarter of fiscal 2003, respectively. The charges included
     employee termination benefits of $2.6 million and other exit costs of $1.1
     million.



                                      -36-



Critical Accounting Policies

     Certain of our accounting policies require the application of significant
judgment by management in selecting the appropriate assumptions for calculating
financial estimates. By their nature, these judgments are subject to an inherent
degree of uncertainty. These judgments are based on our historical experience,
terms of existing contracts, our observance of trends in the industry,
information provided by our customers, and information available from other
outside sources, as appropriate. Actual results may differ from these judgments
under different assumptions or conditions. Our accounting policies that require
management to apply significant judgment include:

     .    Allowances for doubtful accounts. We specifically analyze our accounts
          receivable, historical bad debts, customer concentrations, customer
          credit-worthiness, and current economic trends, when evaluating the
          adequacy of our allowance for doubtful accounts. The reserve
          requirements are based on the best facts available to us and are
          reevaluated and adjusted as additional information is received. We are
          not able to predict changes in our customers' financial condition. If
          the condition of our customers deteriorates we may have to update our
          estimates, which could have a material adverse effect on our financial
          condition. As of June 30, 2003, we had $0.8 million reserved against
          our accounts receivable.

     .    Excess and obsolete inventories. We state our inventory at the lower
          of first-in first-out cost or market. We regularly review inventory
          quantities on hand and record a provision for excess and obsolete
          inventory based primarily on our estimated forecast of product demand
          and production requirements for the next six to nine months.
          Generally, our inventory reserve requirements decrease as demand
          increases. Likewise, as demand decreases our inventory reserve
          requirements increase. Any significant unanticipated changes in demand
          due technological obsolescence, product life cycles, or declining
          market conditions could have a significant impact on the value of our
          inventory and our reported operating results.

     .    Impairment of goodwill and other intangibles. We adopted SFAS 142,
          Goodwill and Other Intangible Assets, during fiscal 2002. We are
          required to test goodwill for impairment annually or at other times if
          indicators of impairment exist that indicate the carrying value of our
          goodwill may not be recoverable. The impairment test for goodwill
          involves a two-step process: step one consists of a comparison of the
          fair value of a reporting unit with its carrying amount, including the
          goodwill associated with the reporting unit. If the carrying amount is
          in excess of the fair value, step two requires the comparison of the
          implied fair value of the reporting unit goodwill with the carrying
          value of the reporting unit goodwill. Any excess in the carrying
          amount of the reporting unit goodwill over the implied fair value of
          the reporting unit goodwill will be recorded as an impairment loss.
          Fair value of the reporting unit was determined using the income
          approach. Under the income approach, fair value is determined by
          estimating the present value of the future economic benefits to be
          derived from the reporting unit. We have concluded that we have one
          reporting unit for purposes of this impairment test. The income
          approach requires significant estimates of future cash flows. Future
          adverse changes in business or market conditions could negatively
          affect our future cash flows and impair the value of our goodwill. See
          Note 6 to the Consolidated Financial Statements in

                                      -37-



          Item 8 of this form 10-K for information about the results of the
          goodwill impairment tests. As of June 30, 2003, $96.6 million of
          goodwill remained on our balance sheet, which represents 44.3% of our
          total assets.

Recent Accounting Pronouncements

     In October 2001, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standard, or SFAS, No. 144, "Accounting for
the Impairment of Disposal of Long-Lived Assets," which replaced SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long -Lived Assets to Be
Disposed Of." Though SFAS No. 144 retained the basic guidance of SFAS No. 121,
regarding when and how to measure an impairment loss, it provided additional
implementation guidelines. We adopted this statement in the first quarter of
fiscal 2003 and do not believe its adoption will have a material impact on our
financial statements.

     In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statement
No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical
corrections. SFAS No. 145 required us to reclassify the fiscal 2002 $6.9 million
loss on debt extinguishment as a loss from continuing operations rather than an
extraordinary item. The provisions of SFAS No. 145 are effective for fiscal
years beginning after May 15, 2002. Accordingly, we adopted this standard
beginning in the first quarter of fiscal 2003. The reclassification will have no
impact on our net loss, cash flows or financial position.

     In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated
With Exit or Disposal Activities." SFAS No. 146 superseded Emerging Issues Task
Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." The principle difference between SFAS No.
146 and EITF 94-3 relates to when an entity can recognize a liability related to
exit or disposal activities. SFAS No. 146 requires that a liability be
recognized for cost associated with an exit or disposal activity when the
liability is incurred. EITF 94-3 allowed a liability related to an exit or
disposal activity to be recognized on the date the entity committed to an exit
plan. We adopted this standard on January 1, 2003, which was the standards
effective date. The standard did not materially impact our consolidated
financial results or financial position upon adoption, but will impact the
timing of when we recognize expected restructuring charges in future periods.

     In November of 2003, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of the Indebtedness of Others," which requires a guarantor to
recognize and measure certain types of guarantees at fair value. In addition,
Interpretation No. 45 requires the guarantor to make new disclosures for these
guarantees and other types of guarantees that are not subject to the initial
recognition and initial measurement provisions. The disclosure requirements are
effective for interim or annual periods ended after December 31, 2002, while the
recognition and measurement provisions are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002. We adopted the initial
recognition and measurement provisions as well as the disclosure provisions of
Interpretation No. 45 during the third quarter of fiscal 2003. The initial
recognition and measurement provisions did not have a material impact on our
consolidated financial results or financial condition.

     In December of 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." The provisions of SFAS
No. 148 amend SFAS No. 123, "Accounting for Stock Based Compensation," to
provide alternative methods of transitioning to a fair value-based method of
accounting for stock-based compensation. In addition, SFAS No. 148 also expands
the disclosure requirements of SFAS No. 123 by requiring more detailed
disclosure in both annual and

                                      -38-



interim financial statements. The transition provisions of SFAS No. 148 did not
have a material impact on our financial results, as we did not adopt the fair
value-based accounting provisions of SFAS No. 123, which is commonly referred to
as expensing the fair value of stock options. The disclosure provisions of SFAS
No. 148 are effective for interim periods beginning after December 15, 2002.
Accordingly, we adopted the disclosure provisions during the third quarter of
fiscal 2003.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Market risk represents the risk of changes in value of a financial
instrument, derivative or non-derivative, caused by fluctuations in interest
rates, foreign exchange rates or equity prices. Changes in these factors could
cause fluctuations in earnings and cash flows.

Interest Rate Risk

     For fixed rate debt, changes in interest rates generally affect the fair
market value of the debt instrument, but not earnings or cash flows. We do not
have any obligations under any fixed rate debt.

     For variable rate debt, changes in interest rates generally do not impact
the fair market value of the debt instrument, but do affect future earnings and
cash flows. We had $36.5 million of variable rate debt outstanding under our
senior credit facility at June 30, 2003. To reduce our exposure to interest rate
risk, we entered into an interest rate cap agreement to hedge our exposure to
interest rate risk under our new senior credit facility. The effect of a 10%
increase in interest rates would have resulted in an immaterial increase in
interest expense during our year ended June 30, 2003.

Foreign Currency Risk

     The majority of our sales and purchases are denominated in United States
dollars and as a result, we have relatively little exposure to foreign currency
exchange risk with respect to our sales. Accordingly, we do not use forward
exchange contracts to hedge exposures denominated in foreign currencies or any
other derivative financial instrument for trading or speculative purposes.

                                      -39-



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                TABLE OF CONTENTS

Report of independent auditors................................................41

Consolidated balance sheets...................................................42

Consolidated statements of operations.........................................43

Consolidated statement of changes in mandatory redeemable convertible
stock and stockholders' equity (deficit)......................................44

Consolidated statements of cash flows.........................................46

Notes to consolidated financial statements....................................47

                                      -40-



                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors
MedSource Technologies, Inc.

     We have audited the accompanying consolidated balance sheets of MedSource
Technologies, Inc. and subsidiaries as of June 30, 2003 and 2002, and the
related consolidated statements of operations, changes in mandatory redeemable
convertible stock and stockholders' equity (deficit), and cash flows for each of
the three years in the period ended June 30, 2003. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the 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 consolidated financial position of
MedSource Technologies, Inc. and subsidiaries at June 30, 2003 and the
consolidated 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.

                                        /s/ Ernst & Young LLP

Minneapolis, Minnesota
July 28, 2003

                                      -41-



                  MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                      (In Thousands, Except Share Amounts)
                                                       June 30,      June 30,
                                                         2003          2002
                                                     ------------  ------------
Assets
Current assets:
   Cash and cash equivalents                         $     10,781  $     38,268
   Accounts receivable, net of allowance of
   $818 in 2003 and $646 in 2002                           23,710        24,031
   Inventories                                             25,617        20,503
   Prepaid expenses and other current assets                4,318         2,402
                                                     ------------  ------------
         Total current assets                              64,426        85,204
Property, plant, and equipment, net                        52,752        42,045
Goodwill                                                   96,582       113,113
Other identifiable intangible assets, net                   1,432         4,092
Deferred financing costs                                    1,682         1,971
Other assets                                                1,343         1,404
                                                     ------------  ------------
            Total assets                             $    218,217  $    247,829
                                                     ============  ============
Liabilities and stockholders' equity
Current liabilities:
   Accounts payable                                  $     10,868  $      7,924
   Accrued compensation and benefits                        5,498         5,352
   Other accrued expenses                                   2,293         3,491
   Reserve for restructuring                                  958         2,381
   Current portion of obligations under capital
   leases                                                   1,326           439
   Current portion of long-term debt                        6,427         5,500
                                                     ------------  ------------
      Total current liabilities                            27,370        25,087
Obligations under capital leases                            3,962         1,467
Long-term debt, less current portion                       30,073        34,500
Other long-term liabilities                                   731           455
Stockholders' equity:
   6% Series E preferred stock, par value $0.01
   per share:
      Authorized shares--6,000
      Issued and outstanding shares-- none at
      2003 and 1,935 at 2002                                   --         1,974
   Common stock, par value $0.01 per share:
      Authorized shares-- 70,000,000 at 2003
      and 2002
      Issued shares-- 28,905,719 at 2003 and
      26,918,533 at 2002                                      289           269
   Additional paid-in capital                             277,791       268,455
   Treasury stock, 113,696 at 2003 and 97,576
   at 2002                                                 (1,463)       (1,282)
   Accumulated other comprehensive loss                      (288)           --
   Accumulated deficit                                   (118,326)      (83,025)
   Unearned compensation                                   (1,922)          (71)
                                                     ------------  ------------
         Total stockholders' equity                       156,081       186,320
                                                     ------------  ------------
         Total liabilities and stockholders' equity  $    218,217  $    247,829
                                                     ============  ============

                             See accompanying notes.

                                      -42-



                  MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
               (In Thousands, Except Share and Per Share Amounts)



                                                    Fiscal Year Ended June 30,
                                             --------------------------------------------
                                                 2003            2002            2001
                                             ------------    ------------    ------------
                                                                    
Revenues                                     $    177,298    $    158,899    $    128,462
Cost and expenses:
   Cost of products sold                          131,970         117,089          94,386
   Selling, general, and administrative
    expense                                        33,495          29,876          26,199
   Amortization of goodwill and other
    intangibles                                       338             340           5,640
   Impairment of intangible assets                 40,000              --              --
   Restructuring charges                            3,724              --          11,464
                                             ------------    ------------    ------------
   Total cost and expenses                        209,527         147,305         137,689
                                             ------------    ------------    ------------
Operating (loss) income                           (32,229)         11,594          (9,227)
Interest expense, net                              (2,669)         (7,671)        (10,213)
Loss on debt extinguishment                            --          (6,857)             --
Other (expense) income                               (100)         (4,782)             53
                                             ------------    ------------    ------------
Loss before income taxes                          (34,998)         (7,716)        (19,387)
Income tax (expense) benefit                         (267)            118             (70)
                                             ------------    ------------    ------------
Net loss                                          (35,265)         (7,598)        (19,457)
Preferred stock dividends and accretion of
 discount on preferred stock                           --         (31,168)         (9,688)
                                             ------------    ------------    ------------
Net loss attributed to common stockholders   $    (35,265)   $    (38,766)   $    (29,145)
                                             ============    ============    ============
Net loss per share attributed to common
 stockholders--basic and diluted             $      (1.28)   $      (3.50)   $      (5.55)
                                             ============    ============    ============
Weighted average common shares
 outstanding--basic and diluted                27,602,806      11,086,103       5,252,749
                                             ============    ============    ============


                             See accompanying notes.

                                      -43-



                  MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

            CONSOLIDATED STATEMENT OF CHANGES IN MANDATORY REDEEMABLE
              CONVERTIBLE STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
                                 (In Thousands)



                                                                                  Mandatory Redeemable Convertible Stock
                                                                             ------------------------------------------------
                                                                              Series B     Series C    Series D    Series F
                                                                             Preferred    Preferred   Preferred    Preferred
                                                                               Stock         Stock      Stock       Stock
                                                                             ----------   ----------  ----------  -----------
                                                                                                      
Balance at July 1, 2000                                                          22,293           --          --           --
Cumulative effect change due to implementation of SFAS No. 133                       --           --          --           --
Change in fair value of interest rate swaps                                          --           --          --           --
Net loss for the year                                                                --           --          --           --

Comprehensive loss for the period                                                    --           --          --           --
Sale and issuance of Series C preferred stock, net of costs of $3,061                --       37,239          --           --
Issuance of Series D preferred stock and options for acquired business               --           --      31,575           --
Issuance of stock pursuant to option exercises                                       --           --         374           --
Accretion of discounts on mandatory redeemable convertible preferred stock        2,379          275         391           --
Accrued dividends on mandatory redeemable convertible preferred stock             1,617        1,676       1,048           --
Amortization of unearned compensation                                                --           --          --           --
                                                                             ----------   ----------  ----------  -----------
Balance at June 30, 2001                                                         26,289       39,190      33,388           --
Change in fair value of interest rate swaps                                          --           --          --           --
Net loss for the period                                                              --           --          --           --

Comprehensive loss for the period                                                    --           --          --           --
Issuance of stock pursuant to option exercises                                       --           --          48           --
Sale of Series E preferred stock and common stock purchase warrants                  --           --          --           --
Accretion of discounts on mandatory redeemable convertible preferred stock          177          310         598           --
Accrued dividends on mandatory redeemable convertible preferred stock             1,276        2,415       1,571           --
Amortization of unearned compensation                                                --           --          --           --
Issuance of preferred and common stock for acquired business                         --           --          --        3,636
Conversion of Series Z to common stock                                               --           --          --           --
Conversion of Series A to common stock                                               --           --          --           --
Conversion of Series B to common stock                                          (22,980)          --          --           --
Conversion of Series D to common stock                                               --           --     (35,605)          --
Conversion of Series C to common stock                                               --      (41,915)         --           --
Payment of Series B dividend                                                     (4,762)          --          --           --
Sale of common stock, net of issuance costs                                          --           --          --           --
Amortization of discount on redeemable preferred stock                               --           --          --          364
Amortization of dividend on redeemable preferred stock                               --           --          --           63
Return on Series C preferred stock                                                   --           --          --           --
Termination of interest rate swap                                                    --           --          --           --
Redemption of Series F preferred stock                                               --           --          --       (4,063)
Redemption of Series E preferred stock                                               --           --          --           --
Shares received from sale of business                                                --           --          --           --
                                                                             ----------   ----------  ----------  -----------
Balance at June 30, 2002                                                             --           --          --           --
Change in fair value of interest rate cap                                            --           --          --           --
Net loss for the period                                                              --           --          --           --

Comprehensive loss for the period                                                    --           --          --           --
Common stock issued for acquired business                                            --           --          --           --
Redemption of Series E preferred stock                                               --           --          --           --
Sale of common stock, net of issuance costs                                          --           --          --           --
Issuance of restricted common stock                                                  --           --          --           --
Forfeiture of restricted common stock                                                --           --          --           --
Amortization of unearned compensation                                                --           --          --           --
                                                                             ----------   ----------  ----------  -----------
 Balance at June 30, 2003                                                    $       --   $       --  $       --  $        --
                                                                             ==========   ==========  ==========  ===========

                             See accompanying notes.

                                      -44-





                         Stockholders' Equity (Deficit)
- ----------------------------------------------------------------------------------------------------------------------------------
 Series A    Series E                                                        Accumulated                                 Total
Convertible Convertible  Series Z Number of           Additional                Other                                Stockholders'
 Preferred   Preferred  Preferred  Common     Common    Paid-In   Treasury  Comprehensive  Accumulated   Unearned       Equity
   Stock      Stock       Stock    Shares     Stock     Capital     Stock       Loss         Deficit   Compensation    (Deficit)
- ----------- ----------- --------- --------- --------- ----------- --------- ------------- ------------ ------------- -------------
                                                                                        
         --          --         1     5,235        52      33,591        --            --      (18,572)           --        15,072
         --          --        --        --        --          --        --         1,097           --            --         1,097
         --          --        --        --        --          --        --        (2,657)          --            --        (2,657)
         --          --        --        --        --          --        --            --      (19,457)           --       (19,457)
                                                                                                                     -------------
         --          --        --        --        --          --        --            --           --            --       (22,114)
         --          --        --        --        --          --        --            --           --            --            --
         --          --        --        --        --          --        --            --           --          (286)         (286)
         --          --        --        21        --         284        --            --           --            --           284
         --          --        --        --        --          --        --            --       (3,045)           --        (3,045)
         --          --        --        --        --          --        --            --       (4,341)           --        (4,341)
         --          --        --        --        --          --        --            --           --            72            72
- ----------- ----------- --------- --------- --------- ----------- --------- ------------- ------------ ------------- -------------

         --          --         1     5,256        52      33,875        --        (1,560)     (45,415)         (214)      (13,261)
         --          --        --        --        --          --        --          (374)          --            --          (374)
         --          --        --        --        --          --        --            --       (7,598)           --        (7,598)
                                                                                                                     -------------
         --          --        --        --        --          --        --            --           --            --        (7,972)
         --          --        --        --        --          19        --            --           --            --            19
         --       4,168        --        --        --       1,832        --            --           --            --         6,000
         --          --        --        --        --          --        --            --       (1,085)           --        (1,085)
         --          --        --        --        --          --        --            --       (5,262)           --        (5,262)
         --          --        --        --        --          --        --            --           --           143           143
         --          --        --       824         8       9,883        --            --           --            --         9,891
         --          --        (1)      650         7          (6)       --            --           --            --            --
         --          --        --     1,919        19         (19)       --            --           --            --            --
         --          --        --     3,327        33      22,947        --            --           --            --        22,980
         --          --        --     1,770        18      35,587        --            --           --            --        35,605
         --          --        --     3,906        39      41,876        --            --           --            --        41,915
         --          --        --        --        --          --        --            --           --            --            --
         --          --        --     9,266        93     101,174        --            --           --            --       101,267
         --       1,832        --        --        --          --        --            --       (2,196)           --          (364)
         --         119        --        --        --          --        --            --         (182)           --           (63)
         --          --        --        --        --      21,287        --            --      (21,287)           --            --
         --          --        --        --        --          --        --         1,934           --            --         1,934
         --          --        --        --        --          --        --            --           --            --            --
         --      (4,145)       --        --        --          --        --            --           --            --        (4,145)
         --          --        --        --        --          --    (1,282)           --           --            --        (1,282)
- ----------- ----------- --------- --------- --------- ----------- --------- ------------- ------------ ------------- -------------

         --       1,974        --    26,918       269     268,455    (1,282)           --      (83,025)          (71)      186,320
         --          --        --        --        --          --        --          (288)          --            --          (288)
         --          --        --        --        --          --        --            --      (35,265)           --       (35,265)
                                                                                                                     -------------
         --          --        --        --        --          --        --            --           --            --       (35,553)
         --          --        --       667         7       5,997        --            --           --            --         6,004
         --      (1,974)       --        --        --          --        --            --          (36)           --        (2,010)
         --          --        --       430         4         926        --            --           --            --           930
         --          --        --       875         9       2,413        --            --           --        (2,422)           --
         --          --        --        16        --          --      (181)           --           --           159           (22)
         --          --        --        --        --          --        --            --           --           412           412
- ----------- ----------- --------- --------- --------- ----------- --------- ------------- ------------ ------------- -------------
$        -- $        -- $      --    28,906 $     289 $   277,791 $  (1,463)$        (288) $  (118,326) $     (1,922) $    156,081
=========== =========== ========= ========= ========= =========== ========= ============= ============ ============= =============

                             See accompanying notes.

                                      -45-



                  MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In Thousands)



                                                                Fiscal Year Ended June 30,
                                                      --------------------------------------------
                                                           2003            2002            2001
                                                      ------------    ------------    ------------
                                                                             
Operating activities
Net loss                                              $    (35,265)   $     (7,598)   $    (19,457)
Adjustments to reconcile net loss to net cash
 provided by (used in) operating activities:
   Depreciation                                              8,648           7,791           6,555
   Amortization of goodwill and other intangibles              338             340           5,640
   Amortization of deferred financing costs and
    discount on long-term debt                                 658           6,157           1,122
   Amortization of unearned compensation                       412             143              72
   Impairment of intangible assets                          40,000              --              --
   Restructuring charges                                        --              --          11,464
   Loss (gain) on sale of equipment                            926              --             (29)
   Changes in operating assets and liabilities, net
    of effect of businesses acquired:
      Accounts and notes receivable                          1,221          (1,682)         (4,296)
      Inventories                                           (4,676)         (6,889)         (1,775)
      Prepaid expenses and other current assets             (1,494)            768            (836)
      Interest escrow fund                                      --           1,849           2,500
      Accounts payable, accrued compensation and
       benefits, accrued expenses, and other                  (926)         (7,514)            476
      Other                                                   (484)         (1,120)           (183)
                                                      ------------    ------------    ------------

Net cash provided by (used in) operating activities          9,358          (7,755)          1,253
Investing activities
Acquisition of businesses, net of cash acquired            (22,617)         (6,312)           (378)
Other additions to plant and equipment, net                (12,783)         (8,598)        (11,491)
Proceeds from sale of equipment                                 80             245             242
                                                      ------------    ------------    ------------

Net cash used in investing activities                      (35,320)        (14,665)        (11,627)
Financing activities
Proceeds from sale and leaseback of equipment                3,818              --              --
Proceeds from issuance of long-term debt, net of
 financing costs, and interest escrow fund                   8,000          37,939             105
Payments of long-term debt                                 (12,307)        (91,890)         (5,549)
Proceeds from sale of Series C and D preferred
 stock, net of costs                                            --              --          37,897
Proceeds from sale of Series E preferred stock and
 common stock, net of costs                                    974         107,286              --
Payments of Series B dividends                                  --          (4,762)             --
Redemption of Series E and F preferred stock                (2,010)         (8,208)             --
Net payments on lines of credit                                 --              --          (4,000)
Other                                                           --              34              --
                                                      ------------    ------------    ------------
Net cash (used in) provided by financing activities         (1,525)         40,399          28,453
                                                      ------------    ------------    ------------
(Decrease) increase in cash and cash equivalents           (27,487)         17,979          18,079
Cash and cash equivalents at beginning of period            38,268          20,289           2,210
                                                      ------------    ------------    ------------
Cash and cash equivalents at end of period            $     10,781    $     38,268    $     20,289
                                                      ============    ============    ============
Supplemental disclosure of cash flow information
Cash paid for interest                                $      2,672    $      7,018    $      9,319
                                                      ============    ============    ============
Cash paid for income taxes                            $         --    $        108    $        150
                                                      ============    ============    ============
Preferred and common stock issued for acquisitions    $      6,004    $     13,527    $     31,289
                                                      ============    ============    ============

                             See accompanying notes.

                                      -46-



                  MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Organization and Description of Business

     MedSource Technologies, Inc. (the "Company") was formed as a Delaware
corporation on April 14, 1998. For the period from April 14, 1998 through March
30, 1999 (inception of operations), the Company had no employees or other
operations.

     The Company and its subsidiaries operate in one business segment and
provide product development and design services, precision metal and plastic
part manufacturing, product assembly services and supply chain management
primarily for the medical device industry. The Company's operations and customer
base are located primarily in North America.

2.   Significant Accounting Policies

     Principles of Consolidation

     The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.

     Cash Equivalents

     Cash equivalents include money market mutual funds and other highly liquid
investments purchased with maturities of three months or less. The cash
equivalents are carried at cost, which approximates market.

     Allowances for doubtful accounts.

     We specifically analyze our accounts receivable, historical bad debts,
customer concentrations, customer credit-worthiness, and current economic
trends, when evaluating the adequacy of our allowance for doubtful accounts. The
reserve requirements are based on the best facts available to us and are
reevaluated and adjusted as additional information is received. We are not able
to predict changes in our customers' financial condition. If the condition of
our customers deteriorates we may have to update our estimates, which could have
a material adverse effect on our financial condition. As of June 30, 2003, we
had $0.8 million reserved against our accounts receivable.

     Inventories

     Inventories include material, labor and overhead and are stated at the
lower of cost, using the FIFO (first-in, first-out) method, or market. In
assessing the ultimate realization of inventories, we are required to make
judgments as to future demand requirements compared to current or committed
inventory levels. Our reserve requirements generally increase as demand
decreases due to changes in among other things, market conditions, product life
cycles, and technological obsolescence.

     Property, Plant, and Equipment

     Property, plant, and equipment are recorded at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets. Amortization of capital leases and leasehold improvements is provided on
a straight-line basis over the lives of the related assets or the life of the
lease, whichever is shorter, and is included with depreciation expense.

                                      -47-



                  MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     Goodwill and Other Intangible Assets

     Goodwill represents the cost in excess of the fair value of the tangible
and identifiable intangible assets of the businesses acquired and, prior to July
1, 2001, was being amortized on a straight-line basis over 20 years based on the
operating histories and market niches of these businesses. Effective July 1,
2001, the Company adopted Statement of Financial Accounting Standard (SFAS) No.
142, Goodwill and Other Intangible Assets. Under SFAS No. 142, goodwill must be
tested for impairment annually, or more often if an event occurs or
circumstances change that would more likely than not reduce the fair value of a
reporting unit below its carrying amount, using a two-step approach. Step one is
to compare the fair value of a reporting unit with its carrying amount,
including goodwill. If the carrying amount of a reporting unit exceeds its fair
value, the second step of the goodwill impairment test will be performed to
measure the amount of impairment loss, if any. Step two compares the implied
fair value of the reporting unit's goodwill with the carrying amount of that
goodwill. The implied fair value of goodwill is determined in the same manner as
the amount of goodwill recognized in a business combination is determined. If
the carrying amount of a reporting unit's goodwill exceeds the implied fair
value of that goodwill, an impairment loss is recognized in an amount equal to
that excess. The Company has one operating segment consisting of multiple
manufacturing facilities with similar economic characteristics producing goods
for a similar set of customers (i.e., the medical device industry). Thus the
Company has concluded that it currently has one reporting unit for purposes of
the goodwill impairment test. The Company estimates the present value of its
estimated future cash flows or other market valuation techniques to measure the
fair value of the reporting unit.

     The identifiable intangible assets consist mainly of patents and are
amortized over the life of the patents.

     See Note 6--Goodwill and Other Intangible Assets for a more detailed
discussion of the fiscal 2003 impairment test and $40.0 million impairment
charge.

     Impairment of Long-Lived Assets

     The Company evaluates long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If the Company plans to continue to use the assets in ongoing
operations, the estimated future cash flows (undiscounted and without interest
charges) from the use of the assets are compared to the current carrying amount.
If the current carrying value of the assets is greater than the assets' fair
market value, an impairment charge is recognized equal to the difference. If the
Company plans to dispose of the assets via sale, estimates of fair market value
are taken from appropriate external sources. If the asset's carrying value
exceeds the asset's fair market value an impairment charge is recognized equal
to the difference, and the asset is reclassified on the consolidated balance
sheet to the assets held for sale category.

     Deferred Financing Costs

     Costs incurred in connection with arranging the Company's long-term debt
agreements are capitalized and amortized over the life of the related debt
issuance using the effective interest method. Accumulated amortization was $0.7
million at June 30, 2003, $0.1 million at June 30, 2002 and $1.9 million at June
30, 2001. See Note 7 - Long-Term Debt for a detailed description of our
long-term debt transactions.

                                      -48-



                  MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     Deferred Income Taxes

     Deferred income taxes are determined using the liability method, which
gives consideration to the future tax consequences associated with differences
between the financial accounting and tax basis of assets and liabilities. This
method also gives immediate effect to changes in income tax laws.

     Revenue Recognition

     The Company recognizes revenue when persuasive evidence of a final
agreement exists, delivery has occurred, the selling price is fixed or
determinable, and collectability is reasonably assured. Revenue from product
sales is primarily recognized at the time of shipment. Product shipments are
supported by purchase orders from customers that indicate the price for each
product. For services, we recognize revenue primarily on a time and materials
basis. Service revenues are supported by customer orders or contracts that
indicate the price for the services being rendered. For fiscal 2003, 2002, and
2001 service revenues were less than 10% of total revenues.

     Shipping and Handling Costs

     The Company includes shipping and handling costs in the cost of products
sold.

     Stock-Based Compensation

     The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees, in the primary financial
statements and to provide the supplemental disclosures required by SFAS No. 148,
Accounting for Stock-Based Compensation - Transition and Disclosure. Stock
compensation is awarded to key employees in the form of stock options and
restricted stock. All stock options are issued at fair market value on the date
of grant. Accordingly, we did not recognize stock compensation expenses for
stock options granted during the periods presented. In determining the fair
value of options granted during fiscal 2003, the Company used the Black-Scholes
option-pricing model with the following weighted average assumptions: expected
volatility factor of 94.5%; risk-free interest rate of 1.975%; dividend yield of
zero; and an expected option life of four years. For options granted prior to
fiscal 2003, we determined the fair value of options granted using the minimum
value option pricing model with the following weighted average assumptions:
risk-free interest rate of 5.5%; dividend yield of zero; and an expected option
life of four years. The change in option pricing methodologies in fiscal 2003 is
the result of being a public traded company during the entire fiscal year. The
minimum value-option pricing model is not permitted for publicly traded
companies under SFAS No. 123. The following table summarizes what our operating
results would have been if we had utilized the fair value method of accounting
for stock options (in thousands):



                                                          FY2003          FY2002          FY2001
                                                       ------------    ------------    ------------
                                                                              
Net loss as reported                                   $    (35,265)   $    (38,766)   $    (29,145)
Stock compensation expense - fair value based method         (1,721)         (1,022)           (482)
                                                       ------------    ------------    ------------
Pro forma net loss                                     $    (36,986)   $    (39,788)   $    (29,627)
                                                       ============    ============    ============
Loss per share as reported (basic and diluted)         $      (1.28)   $      (3.50)   $      (5.55)
                                                       ============    ============    ============
Pro forma loss per share (basic and diluted)           $      (1.34)   $      (3.59)   $      (5.64)
                                                       ============    ============    ============


                                      -49-



                  MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     We have issued restricted stock as part of employee incentive plans. The
fair market value of the restricted stock is amortized over the projected
remaining vesting period. During the fiscal year ended June 30, 2003, we
incurred $0.3 million of non-cash stock compensation expenses related to
restricted stock issuances. No such charges were incurred in fiscal 2002 and
fiscal 2001. (see Note 10--Mandatory Redeemable Convertible Stock and
Stockholders' Equity).

     Concentration of Credit Risks

     Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents and accounts
receivable. The Company performs ongoing credit evaluations of its customers,
does not generally require collateral or other security, and maintains an
allowance for potential credit losses.

     Significant Customers

     Customers that accounted for more than 10% of consolidated revenues are as
follows:

                                Year Ended June 30,
                                -------------------
                                2003   2002   2001
                                ----   ----   -----
Customer A...................     27%    25%     18%
Customer B...................     12     12      12
Customer C...................     11     --      --

     At June 30, 2003 and 2002 receivables from these customers represented 37%
and 17% respectively, of total accounts receivable.

     Fair Value of Financial Instruments

     The Company's financial instruments consist primarily of cash equivalents,
accounts receivable, accounts payable, and debt instruments. The carrying
amounts of financial instruments other than the debt instruments are
representative of their fair values due to their short maturities. The Company's
principal long-term debt agreements bear interest at market rates; thus,
management believes their carrying amounts approximate fair value. Management
believes the carrying amount of the remaining loans is not materially different
from estimated fair value.

     Net Loss Per Common Share

     Net loss per common share attributed to common stockholders is based on the
net loss for the period adjusted for dividend requirements on all preferred
stock and accretion of discounts on mandatory redeemable preferred stock. The
resulting net loss attributed to common stockholders is divided by the weighted
average number of shares of common stock outstanding during the period to arrive
at the basic net loss per share attributed to common stockholders. For all
periods presented, the impact of the assumed exercise of certain options,
warrants, and unvested restricted stock was anti-dilutive, and those securities
were therefore excluded from the computation.

     Hedging Activities

     The Company accounts for its derivative financial instruments in accordance
with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.
The statement requires the Company to

                                      -50-



                  MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

recognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through earnings. If the
derivative is a hedge, depending on the nature of the hedge, changes in the fair
value of derivatives will either be offset against the change in fair value of
the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings.

     We have a derivative financial instrument to hedge our exposure to changes
in interest rates. The financial instrument is marked-to-market each financial
statement date. The change in the hedge's fair market value was recognized in
other comprehensive income. Upon payment of the underlying note payable the
unrealized gain or loss recognized in accumulated comprehensive income will be
reclassified as a realized gain or loss in our operating results. (See Note
7--Long-Term Debt.)

     Reclassification

     Certain prior year amounts have been reclassified to conform with the
current year presentation.

     Use of Estimates

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
consolidated financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

     Recent Accounting Pronouncements

     In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment of Disposal of Long-Lived Assets," which replaced SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long -Lived Assets to Be
Disposed Of." Though SFAS No. 144 retained the basic guidance of SFAS No. 121,
regarding when and how to measure an impairment loss, it provides additional
implementation guidelines. The Company adopted this statement in the first
quarter of fiscal 2003 and its adoption did not have a material impact on the
Company's financial statements.

     In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statement
No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical
corrections. SFAS No. 145 required us to reclassify the fiscal 2002 $6.9 million
loss on debt extinguishment as a loss from continuing operations rather than an
extraordinary item. The provisions of SFAS No. 145 are effective for fiscal
years beginning after May 15, 2002. Accordingly, we adopted this standard
beginning in the first quarter of fiscal 2003. The reclassification had no
impact on our net loss, cash flows or financial position.

     In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated
With Exit or Disposal Activities." SFAS No. 146 superseded Emerging Issues Task
Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." The principal difference between SFAS No.
146 and EITF 94-3 relates to when an entity can recognize a liability related to
exit or disposal activities. SFAS No. 146 requires that a liability be
recognized for cost associated with an exit or disposal activity when the
liability is incurred. EITF 94-3 allowed a liability related to an exit or
disposal activity to be recognized on the date the entity commits to an exit
plan. We adopted this standard on January 1, 2003,

                                      -51-



                  MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

which was the standard's effective date. The standard did not materially impact
our consolidated financial results or financial position upon adoption, but will
affect the timing of when we recognize expected restructuring charges in future
periods.

     In November of 2003, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of the Indebtedness of Others," which requires a guarantor to
recognize and measure certain types of guarantees at fair value. In addition,
Interpretation No. 45 requires the guarantor to make new disclosures for these
guarantees and other types of guarantees that are not subject to the initial
recognition and initial measurement provisions. The disclosure requirements are
effective for interim or annual periods ended after December 31, 2002, while the
recognition and measurement provisions are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002. We adopted the initial
recognition and measurement provisions as well as the disclosure provisions of
Interpretation No. 45 during the third quarter of fiscal 2003. The initial
recognition and measurement provisions did not have a material impact on our
consolidated financial results or financial condition.

     In December of 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." The provisions of SFAS
No. 148 amend SFAS No. 123, "Accounting for Stock Based Compensation," to
provide alternative methods of transitioning to a fair value-based method of
accounting for stock-based compensation. In addition, SFAS No. 148 also expands
the disclosure requirements of SFAS No. 123 by requiring more detailed
disclosure in both annual and interim financial statements. The transition
provisions of SFAS No. 148 did not have a material impact on our financial
results, as we did not adopt the fair value-based accounting provisions of SFAS
No. 123, which is commonly referred to as expensing of stock options. The
disclosure provisions of SFAS No. 148 are effective for interim periods
beginning after December 15, 2002. Accordingly, we adopted the disclosure
provisions during the third quarter if fiscal 2003.

3.   Acquisitions

Fiscal 2003

     On September 4, 2002, the Company acquired Cycam, Inc. ("Cycam"), a company
located in Houston, Pennsylvania that manufactures reconstructive implants and
instruments. The total purchase price was approximately $24.4 million, which
included $18.4 million in cash and 667,175 shares of common stock valued at $6.0
million. The fair market value of the shares issued in connection with the Cycam
acquisition was based on the market price of our common stock on the date of
issuance. The acquisition was recorded using the purchase method of accounting.
The purchase price allocation was $5.9 million to net tangible assets and $18.5
million to goodwill. In conjunction with the acquisition, the Company drew $8.0
million from the acquisition line under the Company's existing credit facility.
The effect of the acquisition on our historical financial position and results
of operations is not material, and therefore no pro forma data of this
acquisition is presented. Cycam's operating results have been included in our
consolidated operating results since the date of acquisition.

     The acquisition of Cycam expanded our capacity and capabilities in the
metal machining of orthopedic reconstructive implants. In addition, Cycam
provided us with the complimentary capabilities of plastic machining, surface
coatings, near net shape forging, and sterilized packaging and kitting of
orthopedic implants. Cycam also had strong relationships with several leading
orthopedic companies where we had only a minor presence.

                                      -52-



                  MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Fiscal 2002

     During our fiscal year ended June 30, 2002, the Company completed the
acquisition of HV Technologies, Inc. ("HV Technologies"), a company located in
Trenton, Georgia that manufactures polyimide and composite micro-tubing used in
interventional and minimally invasive catheters, delivery systems and
instruments. The total purchase price was approximately $19.1 million, including
cash of $5.6 million, 4,000 shares of Series F preferred stock valued at $3.6
million, and 824,255 shares of common stock valued at $9.9 million. The results
of HVT are included in the Company's consolidated Statement of Operations from
the date of acquisition and were not material.

     To help provide financing for the acquisition, the Company issued 6,000
shares of its 6% Series E preferred stock (the "Series E preferred stock") and
warrants to purchase an aggregate of 200,000 shares of its common stock. The
Company had agreed that the total number of shares issuable upon exercise of the
warrants would increase on each of the first five anniversaries of the date of
issuance of the Series E Preferred Stock by an aggregate of 45,000 shares per
year for each year that the Series E preferred stock remained outstanding.
However, as discussed below, the Company redeemed all of the Series E preferred
stock before the first anniversary of its issuance. The Company recorded a
discount of $1.8 million to the carrying value of the Series E preferred stock
equal to the consideration allocated to the warrants.

     The Series E preferred stock and the Series F preferred stock accrued
dividends at $60 per year during the first year from issuance, payable at the
discretion of the Board of Directors, and at the rate of $160 per year on a
retroactive basis after the first anniversary of issuance. The Company redeemed
the Series F preferred stock and 4,065 shares of the Series E preferred stock in
April 2002, at a price equal to $1,000 per share plus accrued and unpaid
dividends. During fiscal 2003, the Company redeemed the remaining 1,935 shares
of Series E preferred stock at a price equal to $1,000 per share plus accrued
and unpaid dividends.

     In connection with the Company's issuance of Series E preferred stock, the
Company obtained the consent of the holders of its $20.0 million of Senior
Subordinated Promissory Notes (the "Notes") to complete the acquisition of HV
Technologies and changed some of the covenants to which the Company was subject
under an agreement between the Company and those holders. At the same time, the
Company agreed to increase by $1.0 million the amount payable by the Company
upon redemption of the Notes. As of April 2, 2002 the Company repaid the Notes,
including the prepayment fees.

     The Company allocated the purchase price as follows: $2.7 million for fair
value of tangible assets acquired, net of liabilities assumed, and deferred
taxes and $16.4 million for goodwill.

Fiscal 2001

     During fiscal 2001, the Company completed the acquisition of ACT Medical,
Inc., a Massachusetts company with additional facilities in Santa Clara,
California and a contract for production and assembly services in Navojoa,
Mexico. The acquisition was completed by the issuance of 33,423 shares of 6%
Series D cumulative convertible redeemable preferred stock, rollover of options
for an additional 6,920 shares of Series D preferred stock, and cash payments of
$1.0 million to stockholders electing to receive cash instead of stock. The
rollover of options represented replacement of outstanding options to purchase
the common stock of ACT Medical that had been issued under a plan sponsored by
ACT Medical with options to purchase the Series D preferred stock of the
Company. The fair value of the options to purchase the Series D preferred stock
of the Company of $3.4 million was included in the

                                      -53-



                  MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

purchase price, and the intrinsic value related to the unvested options was
recorded as unearned compensation. The acquisition was recorded using the
purchase method of accounting, and the operating results are included in the
Company's consolidated statements of operations since the date of acquisition
(December 30, 2000). The total purchase price was allocated as follows (in
thousands):

Fair value of tangible assets acquired, net of liabilities
assumed, and deferred taxes.......................................  $      1,649
Identifiable intangible assets, net of deferred taxes.............         3,648
Goodwill..........................................................        28,440
                                                                    ------------
                                                                    $     33,737
                                                                    ============

     The following unaudited pro forma summary presents the consolidated results
of operations as if the acquisition had occurred at the beginning of the fiscal
2001 (in thousands, except per share):

Net revenues.....................................................   $   141,248
Loss before taxes................................................       (20,750)
Net loss.........................................................       (20,820)
Net loss attributed to common stockholders.......................       (31,825)
                                                                    -----------
Net loss per share attributed to common stockholders.............   $     (6.06)
                                                                    ===========

4.   Inventories

     Inventories consist of the following (in thousands):

                                                          June 30,     June 30,
                                                            2003         2002
                                                         ----------   ----------

Raw materials..........................................  $   13,806   $   10,638
Work in progress.......................................       8,389        6,529
Finished goods.........................................       3,422        3,336
                                                         ----------   ----------
Total..................................................  $   25,617   $   20,503
                                                         ==========   ==========

                                      -54-



                  MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

5.   Property, Plant, and Equipment

     Property, plant, and equipment consists of the following (in thousands):



                                                            Estimated
                                                           Useful Lives     June 30,      June 30,
                                                             (Years)         2003           2002
                                                           ------------   -----------   -----------
                                                                               
Land...................................................                   $       569   $       169
Buildings and improvements.............................         1 to 20         2,106            46
Leasehold improvements.................................         2 to 20         7,461         6,320
Machinery and equipment................................         3 to 15        52,880        39,796
Furniture and fixtures.................................          1 to 7        10,259         6,136
Automobiles............................................          2 to 3            34            82
Software...............................................          3 to 8         1,016           626
Construction in progress...............................                         5,986         6,410
                                                                          -----------   -----------
Total..................................................                        80,311        59,585
Less accumulated depreciation and amortization.........                       (27,559)      (17,540)
                                                                          -----------   -----------
Net property, plant, and equipment.....................                   $    52,752   $    42,045
                                                                          ===========   ===========


As of June 30, 2003 capital leases with a gross amount of $6.3 million were
included in machinery and equipment. The assets have $0.7 million of accumulated
depreciation and are reported at a net book value of $5.6 million.

6.   Goodwill and Other Identifiable Intangible Assets

     In June 2001, the FASB issued SFAS No. 141, Business Combinations, and No.
142, Goodwill and Other Intangible Assets, effective for fiscal years beginning
after December 15, 2001 with early adoption permitted for companies with fiscal
years beginning after March 15, 2001. Under the new rules, goodwill and
intangible assets deemed to have indefinite lives are not amortized but instead
are subject to an impairment test annually or at other times if indicators of
impairment exist. Other intangible assets will continue to be amortized over
their useful lives.

     The Company adopted these standards beginning in the first quarter of
fiscal 2002. Amounts previously recorded as separately identifiable intangibles
for acquired work force and customer base have been subsumed to goodwill in
accordance with SFAS No. 141, increasing goodwill by $34.5 million as of the
date of adoption. Effective with the July 1, 2002 adoption of SFAS No. 142,
goodwill is no longer amortized but is instead subject to an impairment test
annually or at other times if indicators of impairment exist.

     During fiscal 2003, we reduced our revenue forecast. Since the reduction in
forecasted revenue indicated that our goodwill and intangible assets might be
impaired we performed an impairment test using the income approach. We compared
the present value of the estimated future cash flows of our business to the
carrying value of net assets. This analysis indicated that our goodwill and
intangible assets were impaired. Therefore, with the help of external sources,
we evaluated the fair value of our net assets as if we were being purchased in a
business combination. We recognized a $37.7 million goodwill impairment charge
and a $2.3 million impairment charge related to our intangible assets. Goodwill
represents a substantial portion of our assets. Therefore, future adverse
changes in business or market conditions may

                                      -55-



                  MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

result in additional goodwill impairment charges, which could have a material
adverse effect on our financial results and financial position.

     Goodwill and other identifiable intangible assets resulting from
acquisitions of businesses and the formation of the Company consist of the
following (in thousands):



                                                        June 30,          June 30,
                                                          2003              2002
                                                     --------------    --------------
                                                                 
Goodwill at beginning of period...................   $      113,113    $       62,210
   SFAS No. 142 reclassification..................               --            34,530
   Acquisitions...................................           21,130            16,373
   Impairment charges.............................          (37,661)               --
                                                     --------------    --------------
Goodwill at end of period.........................   $       96,582    $      113,113
                                                     ==============    ==============
Other identifiable intangibles:
   Patents and intellectual properties............            1,441             4,383
   Covenants not to compete.......................               --               476
                                                     --------------    --------------
                                                              1,441             4,859
Less accumulated amortization.....................               (9)             (767)
                                                     --------------    --------------
                                                     $        1,432    $        4,092
                                                     ==============    ==============


     The $2.7 million net decrease in other identifiable intangibles was
primarily related to the impairment charges mentioned above. Of the $37.7
million goodwill impairment charge, $30.0 million was recognized during the
third quarter of fiscal 2003 and the remainder was recognized during the fourth
quarter of fiscal 2003. The entire $2.7 million patent impairment was recognized
during the fourth quarter of fiscal 2003. The patents and intellectual
properties have a remaining estimated useful life of 12 years. We expect to
incur approximately $0.1 million of amortization expense per year over the
remaining life of the intangible assets.

     With the adoption of SFAS No. 142, the Company ceased amortization of
goodwill as of July 1, 2001. The following table presents the results of the
Company for all periods presented on a comparable basis (in thousands, except
per share data):

                                      -56-






                  MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                                          Fiscal Year Ended
                                             --------------------------------------------
                                               June 30,        June 30,        June 30,
                                                 2003            2002            2001
                                             ------------    ------------    ------------
                                                                    
Net loss attributed to common
 stockholders, as reported ...............   $    (35,265)   $    (38,766)   $    (29,145)
Add back goodwill, workforce, and customer
 base amortization (net of tax) ..........             --              --           5,268
                                             ------------    ------------    ------------
Adjusted net loss attributed to common
 stockholders ............................   $    (35,265)   $    (38,766)   $    (23,877)
                                             ============    ============    ============
Basic and diluted net loss per share:
   Net loss attributed to common
    stockholders, as reported ............   $      (1.28)   $      (3.50)   $      (5.55)
   Goodwill, workforce, and customer
    base amortization (net of tax) .......             --              --            1.00
                                             ------------    ------------    ------------
Adjusted net loss attributed to common
   stockholders ..........................   $      (1.28)   $      (3.50)   $      (4.55)
                                             ============    ============    ============


7.   Long-Term Debt

     Long-term debt consists of the following (in thousands):

                                                   June 30,         June 30,
                                                     2003             2002
                                               ---------------   --------------
Notes payable................................  $        29,455   $       40,000
Acquisition loans............................            7,045               --
Obligations under capital leases.............            5,288            1,906
                                               ---------------   --------------
                                                        41,788           41,906
Less:
   Current portion...........................           (7,753)          (5,939)
                                               ---------------   --------------
                                               $        34,035   $       35,967
                                               ===============   ==============

                                      -57-



                  MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)

Credit Agreement

     In fiscal 2003, we amended our senior credit facility. We originally
entered into the senior credit facility in fiscal 2002 after paying off the
entire outstanding balance of our former credit facility with proceeds received
from our initial public offering ("IPO"). The amendment reduced our revolving
credit facility to $15.0 million from $25.0 million. Prior to the amendment, we
also had a $40.0 million term loan and an $8.0 million acquisition loan under
the senior credit facility (earlier in fiscal 2003, we had borrowed $8.0 million
under the acquisition line (which is no longer available) to finance our
acquisition of Cycam). In conjunction with the amendment of the credit facility,
we made a payment of $7.5 million. Of the $7.5 million payment, $6.5 million
represented a payment on the $40.0 million term loan, and the remainder was
applied toward the acquisition line term loan. All loans under our amended
senior credit facility will mature in fiscal 2007.

     During fiscal 2004, we will be required to make payments under the term
loan of $5.0 million, payable in quarterly installments. During fiscal 2005,
fiscal 2006, and fiscal 2007, we will be required to make payments of $7.4
million, $9.2 million, and $7.9 million, respectively, each payable in quarterly
installments. During fiscal 2004, we will also be required to make payments
under the acquisition loan of $1.4 million, also payable in quarterly
installments. During fiscal 2005, fiscal 2006, and fiscal 2007, we will be
required to make payments of $1.6 million, $2.2 million, and $1.8 million on the
acquisition line term loan, each also payable in quarterly installments.

     Concurrent with receipt of funds from the Company's IPO on April 2, 2002,
the Company repaid the entire $66.3 million outstanding under its former senior
credit facility and the entire $21.4 million outstanding (including a $1.4
million pre-payment fee) under its former Senior Subordinated Notes. As a result
of repaying our former senior subordinated debt the Company recognized a loss of
$6.9 million, inclusive of a $5.5 million write-off of unamortized financing
costs and discount and a $1.4 million prepayment fee. The Company also
recognized a charge of $1.9 million for terminating the interest rate swap
agreements that was recognized as interest expense.

     At the Company's option, interest rates applicable to loans under its new
senior credit facility will be either:

     .   The greater of the bank's prime rate plus a margin, which depends upon
         the Company's leverage ratio, ranging from 50 to 175 basis points, or

     .   LIBOR plus a margin, which depends upon our leverage ratio, ranging
         from 225 to 350 basis points.

     The Company has entered into an interest rate cap agreement to protect
against interest rate fluctuations with respect to the term loans outstanding
under its new senior credit facility. This agreement, executed with a
highly-rated financial counter-party, requires the counter-party to make
payments to the Company in the event that a reference floating rate index
exceeds an agreed upon fixed rate. Changes in the fair value of the cap
agreement are accounted for as a cash flow hedge.

     The amended senior credit facility contains affirmative and negative
covenants and limitations, including, but not limited to, required minimum
coverage of the Company's obligations to pay interest and incur fixed charges,
restrictions on its ability to pay dividends, make other payments and enter into
sale transactions, limitations on liens, limitations on its ability to incur
additional indebtedness and agreements that the Company use excess cash on hand
and proceeds from future equity issuances to pay down its

                                      -58-



                  MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)

senior credit facility. In addition, the Company also needs the lender's consent
to make any acquisition in which it pays more than $10.0 million (including more
than $5.0 million in cash, deferred payments and the assumption of debt) or to
pay more than $20.0 million (including more than $10.0 million in cash, deferred
payments and the assumption of debt) for all of the acquisitions that the
Company completes during any fiscal year.

     The senior credit facility is secured by all of the Company's assets and
contains various events of default, including, but not limited to, defaults upon
the occurrence of a change of control of the Company and defaults for
non-payment of principal interest or fees, breaches of warranties or covenants,
bankruptcy or insolvency, ERISA violations and cross-defaults to other
indebtedness.

     We are involved in several capital leases related to our machinery and
equipment. As of June 30, 2003, we have obligations totaling $5.3 million under
capital leases, of which $1.3 million will be paid before the end of fiscal
2004. These leases will expire in fiscal 2007. The interest rate incurred on
these capital leases ranges from 7.1% - 9.2%. The leases expire beginning in
fiscal 2005 through fiscal 2007.

     Maturities of long-term debt outstanding and obligations under capital
leases at June 30, 2003, are summarized by fiscal year as follows (in
thousands):

2004..........................................     $      7,753
2005..........................................           10,292
2006..........................................           12,724
2007..........................................           11,019
                                                   ------------
                                                   $     41,788
                                                   ============

8.   Related-Party Transactions

     Closing Fees and Management Fees

     The Company had entered into management services agreements ("MSAs") with
entities associated with certain of the Company's directors and stockholders
whereby the Company paid fees plus reimbursement of out-of-pocket expenses for
management services rendered. As of April 2002, all MSAs were terminated. Fees
incurred for the years ended June 30, 2002, and 2001 totaled $1.5 million, and
$1.7 million, respectively. In addition, pursuant to the MSAs, the Company paid
fees based on a percentage of the aggregate consideration of each future
business acquisition, plus reimbursement of out-of-pocket expenses. Such fees
and expenses totaled $0.3 million and $0.6 million, relating to the acquisitions
made in the years ended June 30, 2002 and 2001, respectively.

     Real Estate Leases

     Certain of the Company's subsidiaries lease their facilities from related
parties as a result of acquisitions. Total rent expense under these leases for
the years ended June 30, 2003, June 30, 2002 and July 1, 2001 was approximately
$0.2 million, $0.6 million, and $0.7 million, respectively. Future minimum lease
commitments at June 30, 2003 in connection with these related-party leases are
approximately $0.2 million per year with a total future commitment of $1.8
million.

                                      -59-



                  MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)

9.   Income Taxes

     Income tax benefit (expense) consists of the following (in thousands):

                                               Year Ended June 30,
                                   --------------------------------------------
                                        2003           2002            2001
                                   ------------    ------------    ------------
Current:
   Federal .....................   $         --    $        208    $         --
   State .......................           (267)            (90)            (70)
                                   ------------    ------------    ------------
                                           (267)            118             (70)
Deferred:
   Federal .....................             --              --              --
   State .......................             --              --              --
                                   ------------    ------------    ------------
                                             --              --              --
                                   ------------    ------------    ------------
                                   $       (267)   $        118    $        (70)
                                   ============    ============    ============

     Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
deferred tax assets and liabilities are as follows (in thousands):



                                                            June 30,      June 30,     June 30,
                                                             2003          2002          2001
                                                          ----------    ----------    ----------
                                                                             
Deferred tax assets:
   Organization costs .................................   $      516    $      889    $    1,798
   Nondeductible reserves and current liabilities .....        1,189           900         1,335
   Restructuring reserve ..............................          373         1,330         3,704
   Net operating loss carryforwards ...................       18,005        16,838         8,708
   Valuation reserve ..................................      (11,143)      (12,805)       (6,147)
                                                          ----------    ----------    ----------
      Total deferred tax assets .......................        8,940         7,132         9,398
Deferred tax liabilities:
   Identified intangible assets .......................         (485)       (1,450)       (6,187)
   Property, plant, and equipment .....................       (2,860)       (1,666)       (1,530)
   Goodwill ...........................................       (5,394)       (4,013)       (1,662)
   Other ..............................................         (201)           (3)          (19)
                                                          ----------    ----------    ----------
      Total deferred tax liabilities ..................       (8,940)       (7,132)       (9,398)
                                                          ----------    ----------    ----------
Net deferred tax liabilities ..........................   $       --    $       --    $       --
                                                          ==========    ==========    ==========


     The Company has U.S. net operating loss carryforwards of approximately
$45.0 million, subject to certain limitations, which expire at different times
beginning in 2019 and extending through 2023.

                                      -60-



                  MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)

     A reconciliation between the income tax benefit computed at the federal
statutory rate and the recorded income tax benefit (expense) is as follows (in
thousands):



                                                                      June 30,        June 30,        June 30,
                                                                       2003            2002            2001
                                                                   ------------    ------------    ------------
                                                                                          
Income tax benefit computed at the federal statutory rate ......   $     12,250    $      2,698    $      6,785
State income taxes, net of federal benefit .....................          1,482             315             899
Goodwill impairment, not deductible for tax purposes ...........        (15,058)             --              --
Restructuring reserve, portion not deductible for tax purposes .             --              --            (882)
Amortization of goodwill, not deductible for tax purposes ......             --              --            (401)
Valuation reserve ..............................................          1,069          (3,108)         (6,462)
Other ..........................................................            (10)            213              (9)
                                                                   ------------    ------------    ------------
Income tax benefit (expense) ...................................   $       (267)   $        118    $        (70)
                                                                   ============    ============    ============


10   Mandatory Redeemable Convertible Stock and Stockholders' Equity

     Mandatory Redeemable Convertible Stock

     Series B

     On March 30, 1999, the Company sold 300,000 shares of 6% Series B
Cumulative Convertible Redeemable Preferred Stock (the "Series B preferred
stock"), $0.01 par value per share, for cash in a private placement. On May 14,
1999, the Company sold an additional 32,728 shares for cash in a private
placement. All Series B preferred stock was converted in connection with the
Company's IPO on April 2, 2002. As a result of the conversion, the Company paid
$4.8 million in accrued dividends.

     Series C

     On October 24, 2000, the Company sold 40,000 shares of 6% Series C
Cumulative Convertible Redeemable Preferred Stock (the "Series C preferred
stock"), $0.01 par value per share, for cash in a private placement. On April
18, 2001, the Company sold an additional 300 shares for cash in a private
placement. In addition to the shares purchased at a price of $1,000 per share,
each purchaser also received an option to purchase an additional .2857 shares at
a price of $1,000 per share for each share acquired. The option was exercisable
prior to or coincident with the earlier to occur of (i) a qualified public
offering (as defined) and (ii) October 24, 2001. The options were not exercised
and expired on October 24, 2001. All Series C preferred stock was converted in
connection with the Company's IPO on April 2, 2002. Additionally, on February
27, 2001, the Company issued a warrant to purchase 525 shares of Series C
preferred stock for $1,000 per share to the placement agent it had used in
connection with the issuance of the Series C preferred stock on October 24,
2000. The warrant was exercised upon the completion of the IPO.

     In connection with the Company's initial public offering, our Series C
preferred stock converted into a number of shares of our common stock based upon
the initial public offering price of our common stock. The Company's net loss
for the fiscal year ending June 30, 2002 includes a deemed preferred stock
dividend of approximately $21.3 million for the value of the additional shares
of our common stock issued to the holders of our Series C preferred stock upon
conversion and to reflect the beneficial conversion feature.

                                      -61-



                  MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)

     Series D

     In conjunction with the acquisition of ACT Medical, Inc. (see Note 3), the
Company issued 33,423 shares of 6% Series D Cumulative Convertible Redeemable
Preferred Stock (the "Series D preferred stock"), $0.01 par value per share, and
rolled over options for an additional 6,920 shares of Series D preferred stock.
All Series D preferred stock was converted in connection with the Company's IPO
on April 2, 2002.

     Other Preferred and Common Stock

     Series A

     On March 30, 1999, the Company issued 37,440 shares of Series A Preferred
Stock (the "Series A preferred stock"), $.01 par value per share, in connection
with the acquisition of businesses. In addition, the Company also issued 600
shares of Series A preferred stock to key employees of an acquired company in
conjunction with the acquisition. The fair value of these shares totaled
approximately $201,000 and was included in the Company's organization and
start-up costs in the period ended July 3, 1999. Subsequent to March 30, 1999,
the Company sold an additional 330 shares of Series A preferred stock to key
employees for cash at fair value as determined at March 30, 1999. All Series A
preferred stock was converted in connection with the Company's IPO on April 2,
2002.

     Series Z

     On March 30, 1999, the Company sold 65,000 shares of Series Z Convertible
Nominal Value Redeemable Preferred Stock (the "Series Z preferred stock"), $0.01
par value per share, for cash in a private placement. The Series Z preferred
stock had no dividend rights and was senior only to the common stock with
respect to rights on liquidation. The Series Z preferred stock was convertible
at the option of the holder into common stock at any time. The initial
conversion rate was one share of Series Z preferred stock for 10 shares of
common stock, subject to anti-dilution provisions. All Series Z preferred stock
were converted in connection with the Company's IPO on March 27, 2002.

     Series E

     On fiscal 2002, the Company issued 6,000 shares of its 6% Series E
Preferred Stock (the "Series E preferred stock"), $.01 par value per share, for
cash in a private placement (see Note 3--Acquisitions). The Series E preferred
stock accrues dividends at $60 per year during the first year from issuance,
payable at the discretion of the Board of Directors, and at the rate of $160 per
year on a retroactive basis after the first anniversary of issuance. During
April 2002, 4,065 shares of the Series E preferred stock were redeemed for
$1,000 per share plus accumulated dividends. During fiscal 2003, the remaining
1,935 shares of Series E preferred stock were redeemed.

     Common Stock

     On April 14, 1998, the Company was incorporated with the sale of 100 shares
of common stock at $1 per share. In February 1999, an additional 65 shares were
sold to individuals at $1,000 per share. On March 30, 1999, in conjunction with
the acquisitions and the commencement of business operations, the stock was
split 2,209-for-1 (adjusting the pre-split shares to 363,594 shares) and an
additional 38,706

                                      -62-



                  MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)

shares were sold for cash to existing stockholders. The amount paid for the
common stock was based on fair value. Also on March 30, 1999, 42,500 shares of
common stock were issued in connection with the acquisition of a business. In
January 2000, the Company's common stock was split 10-for-1 and all share
references to common stock have been adjusted to give effect to the split. The
adjusted post-split outstanding common shares was 4,448,000.

     On March 27, 2002, the Company commenced its IPO in which it initially sold
8,340,000 shares of common stock at a price of $12.00 per share. The net
proceeds of the IPO, which the Company received on April 2, 2002, after
deducting underwriting discounts, were approximately $93.1 million. The Company
used these proceeds to pay down senior debt in the amount of $66.3 million,
extinguish senior subordinated debt in the amount of $21.4 million (including a
$1.4 million pre-payment fee), redeem Series E preferred stock in the amount of
$4.1 million (including dividends), redeem Series F preferred stock in the
amount of $4.1 million (including dividends), pay accrued and unpaid dividends
on Series B preferred stock in the amount of $4.8 million and to pay fees under
service agreements with Kidd & Co. and Whitney Mezzanine Management Company. The
Company also incurred approximately $2.0 million in other expenses related to
the IPO. Additionally, in April 2002, the Company's underwriters exercised their
option to purchase an additional 1,251,000 shares of common stock at $12.00 per
share, with 926,000 shares sold by the Company and 325,000 shares sold by two
stockholders. This resulted in additional net proceeds, which the Company
received on April 17, 2002, of $10.3 million after deducting underwriting
discounts.

     Upon consummation of the IPO all shares of the Company's Series A, Series
B, Series C, Series D and Series Z preferred stock converted to common stock.
The conversion amounts of common shares were as follows:

Series A............................................1,918,500
Series B............................................3,327,279
Series C............................................3,934,870
Series D............................................1,769,549
Series Z..............................................650,000
Series C Warrant........................................2,916

     Accumulated Unpaid Dividends

     During fiscal 2003, the remaining 1,935 shares of Series E Preferred Stock
were redeemed for $1,000 per share plus accumulated unpaid dividends. Therefore,
as of June 30, 2003 there were no accumulated unpaid dividends.

     Stock Compensation

     The Company originally had reserved 4,430,000 shares of its common stock
for issuance to directors, officers, employees, and consultants under the 1999
Stock Plan (the Plan). The table below shows the activity in the Plan:

                                      -63-



                  MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)

                                                                     Weighted
                                                                      Average
                                                                      Initial
                                      Options          Shares        Exercise
                                    Outstanding       Reserved        Price
                                    -----------      ----------    ------------
Balance at July 1, 2000 ...........   1,441,070         308,930
   Reserved .......................          --       1,680,000
   Granted ........................   1,555,660      (1,555,660)   $      17.13
   Exercised ......................     (20,308)             --           13.99
   Canceled .......................    (401,038)        401,038           14.40
                                    -----------      ----------
Balance at June 30, 2001 ..........   2,575,384         834,308           15.54
   Reserved .......................          --       1,000,000
   Granted ........................     739,624        (739,624)          16.96
   Exercised ......................        (400)             --           12.00
   Canceled .......................    (461,996)        461,996           17.58
                                    -----------      ----------
Balance at June 30, 2002 ..........   2,852,612       1,556,680           15.58
   Reserved .......................          --              --              --
   Granted ........................     671,750        (671,750)          10.33
   Exercised ......................          --              --              --
   Canceled .......................  (3,082,149)      3,082,149           15.00
                                    -----------      ----------
Balance at June 30, 2003 ..........     442,213       3,967,079    $      13.00
                                    ===========      ==========

     The options outstanding at June 30, 2003 include 34,000 options with an
initial exercise price of $2.25 per share, 222,018 options with an initial
exercise price of $8.25-$12.00 per share, 100,305 options with an exercise price
of $13.19-$16.24 per share, and 85,890 options with an exercise price of
$17.00-$20.00. Options granted through June 30, 2003 are exercisable for 10
years from date of grant and vest 25% each year. The initial exercise price of
the options applies to the options vesting at the first anniversary date. The
initial exercise price remains fixed for all options granted after June 30,
2001. Prior to June 30, 2001, all options had variable exercise prices equal to
110%, 121% and 131.1% of the initial exercise price on the second, third and
fourth grant date anniversary, respectively, except options granted at $16.24 in
fiscal 2001, which had a fixed exercise price. There were 201,337 options
outstanding with an initial exercise price between $12.00-$14.00 per share and
75,560 options outstanding with an initial exercise price between $16.24-$20.00
per share that were fully vested and exercisable at June 30, 2003. The weighted
average grant date fair values of options to purchase common stock granted in
fiscal years 2003, 2002 and 2001 were $6.91, $3.35 and $3.38, respectively.

     During fiscal 2003, we implemented a stock option exchange program. The
exchange program was offered to all employees and non-employee directors. Under
the stock option exchange program, employees were eligible to cancel outstanding
stock options under the 1999 stock plan in exchange for new options that will be
awarded six months and a day after the cancellation date, which was June 6,
2003. The number of shares subject to the new option will be equal to one half
the number of shares subjected to cancelled options. The new options will vest
in four annual installments, with respect to employees, or three annual
installments, with respect to non-employee directors. A total of 2,243,786
options were cancelled on June 6, 2003 in conjunction with the stock option
exchange program.

     The Company also has 106,978 options outstanding that were assumed in
connection with the ACT Medical acquisition (see Note 3 - Acquisitions).

                                      -64-



                  MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)

     All stock options and unvested restricted stock were antidilutive due to
the net loss incurred in fiscal 2003. In addition, if we had net income certain
shares of common stock and unvested restricted stock would have been
antidilutive because they had an exercise price greater than the average market
price during the year. If we had net income for fiscal 2003 diluted weighted
average commons shares outstanding would have increased by 647,414 shares.

     In addition to stock options, we have issued restricted stock as part of
employee incentive plans. The fair market value of the restricted stock is
amortized over the vesting period. During the fiscal year ended June 30, 2003 we
incurred $0.3 million of non-cash stock compensation expenses related to
restricted stock issuances. No such charges were incurred during fiscal 2002 and
2001. During fiscal 2003 we issued 824,442 and 50,407 shares of restricted stock
at a grant date market value of $2.25 and $11.25 per share, respectively. As of
June 30, 2003, we had 854,952 shares of restricted stock outstanding, all of
which were granted under the 1999 Stock Plan.

     Reserved Shares of Common Stock

     The Company has reserved the following shares of common stock as of June
     30, 2003:

1999 Stock Plan ........................      3,548,550
Series D Options .......................        106,978
Series E Warrants ......................         66,329
Employee Stock Purchase Plan ...........        273,773
                                              ---------
   Total ...............................      3,995,630
                                              =========

     The number of shares reserved for issuance under the Employee Stock
Purchase Plan is subject to an annual increase on the first day of each fiscal
year equal to the lower of 750,000 shares of common stock, 2.5% of the number of
shares of common stock outstanding on that date or such lesser amount that may
be determined by the Company's board of directors.

     The 3,548,550 shares of common stock reserved for issuance under the 1999
Stock Plan as of June 30, 2003, reflects the 860,742 shares of restricted stock
that were issued under the plan during fiscal 2003, net of forfeited shares due
to employee terminations.

     Employee Stock Purchase Plan

     We have an employee stock purchase plan that is available to substantially
all employees. Eligible employees may purchase our common stock through payroll
deductions. Employees can purchase our common stock at a price equal to the
lower of 85% of the closing market price of our common stock at the beginning or
end of each stock purchase period. We issued 0.2 million shares of common stock
during fiscal 2003 in connection with our employee stock purchase plan. Prior to
fiscal 2003, no common stock was issued in connection with the employee stock
purchase plan.

11.  Employee Benefits

     401(k) Plan

     The Company offers their qualified employees the opportunity to participate
in a defined contribution retirement plan qualifying under the provisions of
Section 401(k) of the Internal Revenue

                                      -65-



                  MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)

Code. Expenses recorded by the Company with respect to 401(k) plan for the years
ended June 30, 2003, June 30, 2002 and June 30, 2001 were $1.2 million, $1.6
million, and $0.6 million, respectively.

12.  Leases

     The Company has operating leases relating principally to its buildings.
Total rent expense the for the years ended June 30, 2003, June 30, 2002, and
June 30, 2001 (including amounts to related parties--see Note 8--Related-Party
Transactions) was approximately $3.9 million, $2.5 million and $3.5 million,
respectively. Future minimum lease commitments at June 30, 2003, for leases with
initial or remaining terms of more than one year, including amounts due to
related parties, are summarized by fiscal year as follows (in thousands):

2004 ...................................   $      3,329
2005 ...................................          2,923
2006 ...................................          2,384
2007 ...................................          2,253
2008 ...................................          2,144
Thereafter .............................         12,657
                                           ------------
                                           $     25,690
                                           ============

13.  Restructuring Charge

     In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated
With Exit or Disposal Activities." SFAS No. 146 superseded Emerging Issues Task
Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." The principle difference between SFAS No.
146 and EITF 94-3 relates to when an entity can recognize a liability related to
exit or disposal activities. SFAS No. 146 requires that a liability be
recognized for costs associated with an exit or disposal activity when the
liability is incurred. EITF 94-3 allowed a liability related to an exit or
disposal activity to be recognized on the date the entity commits to an exit
plan. We adopted this standard on January 1, 2003, which was the standard's
effective date. The standard did not materially impact our consolidated
financial results or financial position upon adoption, but did affect the timing
of when we recognized restructuring charges related to the fiscal 2003
restructuring plan.

     In fiscal 2003, we implemented our second restructuring plan to reconfigure
our resources in an effort to meet our customer's needs and lower our cost of
operations. The restructuring plan includes facility consolidations, employee
terminations, and other activities. Based on an evaluation of the unique and
common characteristics of the various facilities, management determined that it
could achieve overall cost savings by closing several facilities, thus improving
capacity utilization and efficiency at the remaining facilities. Criteria in
this evaluation included: current capacity utilization; uniqueness of
manufacturing capabilities; current operating costs; difficulty and cost
associated with relocation and revalidation of key processes and equipment; and
customer supply requirements. We estimate the total cost of this restructuring
plan will be $15.0 - $20.0 million and to complete the plan by the end of fiscal
2005. In addition to these charges, we will invest $1.7 million in plant and
equipment to ensure the facility consolidation does not disrupt operations. The
estimate is based on the best available facts at this time. These estimates may
change as new information becomes available. The following table contains
detailed

                                      -66-



                  MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)

information about the charges incurred to date, recorded in accordance with SFAS
No. 146, related to the fiscal 2003 restructuring plan (in millions):

                                                            Fiscal    Estimate
                                               Estimated     2003     Remaining
             Description                        Charges    Charges     Charges
- ---------------------------------------        ---------   --------   ---------

Employee termination                           $     4.8   $    0.7   $     4.1
Facility consolidation                               4.6         --         4.6
Property, plant and equipment disposals              2.2         --         2.2
Other direct costs                                   6.7        0.6         6.1
                                               ---------   --------   ---------
Total                                          $    18.3   $    1.3   $    17.0
                                               =========   ========   =========

     Employee termination charges represent the cost of reducing our workforce
in conjunction with facility consolidations. During fiscal 2003 we terminated 43
people in as a result of the fiscal 2003 restructuring plan. We estimate that a
total of approximately 270 people will be terminated as a result of this
restructuring plan. Facility consolidation charges represent the direct costs of
moving property, plant and equipment to new facilities. Property, plant and
equipment disposals represents the write-off of redundant assets that will no
longer be used in ongoing operations as a result of our facility consolidation
initiative.

     The following table contains information regarding our restructuring
liability as of June 30, 2003 (in millions):



                                                 Beginning                                      Ending
               Description                        Balance       Additions       Payments        Balance
- ----------------------------------------        ------------   ------------   ------------   ------------
                                                                                 
Employee termination                            $         --   $        0.7   $        0.2   $        0.5
Facility consolidation                                    --             --             --             --
Property, plant and equipment disposals                   --             --             --             --
Other direct costs                                        --            0.6            0.6             --
                                                ------------   ------------   ------------   ------------
Total                                           $         --   $        1.3   $        0.8   $        0.5
                                                ============   ============   ============   ============


     We estimate that we will incur $5.8 - $8.3 million and $7.9 - $10.4 million
of charges in fiscal 2004 and fiscal 2005, respectively, related to the fiscal
2003 restructuring plan.

     In June 2001, the Company completed a strategic review of its manufacturing
operations and support functions. Based on this review and with approval of the
Board of Directors, management implemented its first restructuring plan and
began actions to eliminate redundant facilities. We recognized an $11.5 million
restructuring charge in accordance with EITF 94-3 "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)."

     Information relating to the fiscal 2001 restructuring charges is as follows
(in millions):

                                      -67-



                  MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)



                                                                                                    Payments   Balance
                                                                                                    through      at
                                                               Initial    Reclass-     Additional   June 30,   June 30,
                                                               Accrual    ification     Accrual       2003       2003
                                                               --------   ---------    ----------   --------   --------
                                                                                                
Impairment of goodwill and other intangibles ...............   $    3.6   $      --    $       --   $    3.6   $     --
Impairment of property, plant and equipment ................        1.9         2.3            --        4.2         --
Employee termination benefits ..............................        3.8        (1.2)          1.9        4.0        0.5
Other direct costs .........................................        2.2        (1.1)          0.5        1.6         --
                                                               --------   ---------    ----------   --------   --------
                                                               $   11.5   $      --    $      2.4   $   13.4   $    0.5
                                                               ========   =========    ==========   ========   ========


     Facilities at Danbury, Connecticut, Pittsfield, Massachusetts, and East
Longmeadow, Massachusetts were identified to be closed or sold with production
absorbed into existing facilities in Pennsylvania, Minnesota, New Hampshire, and
Mexico. During fiscal 2002 the Company sold the Pittsfield and East Longmeadow
facilities. The Danbury facility was closed during fiscal 2003. In addition,
management decided to close its Redwood City, California facility as part of
this restructuring plan. This decision led to additional restructuring charges,
which are reflected in the "additions" column in the table above.

     Because management expected that it would not retain all of the customers
served by these four facilities, a portion of the customer base intangible asset
($0.5 million) was written off as well as the entire remaining acquired
workforce intangible for each facility ($0.5 million). In addition, because
management believed the residual goodwill recorded at each acquisition was
significantly related to the local operations, it concluded that goodwill was
impaired by the closure of the facilities and wrote off the related goodwill
($2.6 million). Other recorded charges related to the restructuring include
employee termination benefits expected to be paid based on the Company's
announced termination benefits policy ($3.3 million), costs of plant and
equipment not expected to be recovered ($4.2 million), and other exit costs
($1.6 million), including costs related to lease terminations, facilities
restoration, equipment dismantlement and disposal, legal costs, and other costs.
Costs related to realignment of leadership positions in the corporate support
organization also were accrued at June 30, 2002 ($1.2 million). A
reclassification in the allocation of the reserve as shown in the table above
was a result of selling the Pittsfield and East Longmeadow facilities as opposed
to closing them.

     Employee termination benefits consist of payments to employees based on the
Company's severance policy of two weeks pay for each year of credited service
with a minimum of six weeks payment and outplacement consultation services. The
$3.3 million accrual for employee termination benefits was based on
approximately 225 individuals estimated to be affected, actual credited service,
and actual compensation. The $1.2 million accrual for corporate management
severance benefits included salary continuation, outplacement consultation
services and legal cost for seven individuals employed by the Company's
corporate headquarters operations whose positions were eliminated as a result of
the Company-wide restructuring. The charge for other direct costs which
aggregated $1.6 million was comprised of estimated costs for (1) lease
terminations, real estate taxes and property insurance of $0.5 million, (2)
plant shut down costs and restoration of facilities to pre-lease conditions of
$0.5 million, (3) dismantlement and disposal of obsolete equipment of $0.3
million, (4) legal costs of $0.2 million and (5) other related shut down costs
of $0.1 million.

14.  Comprehensive Income (Loss)

     Comprehensive income (loss) represents net loss attributed to common
stockholders plus the results of any stockholders' equity changes related to the
Company's previous interest rate swaps and

                                      -68-



                  MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

current interest rate cap agreements. For fiscal 2003, 2002 and 2001
comprehensive loss, net-of-tax, was $35.6 million, $8.0 million, and $22.1
million, respectively.

15. Quarterly Financial Data (Unaudited)  (In thousands, except share and per
    share amounts)



                                      First Quarter    Second Quarter   Third Quarter       Fourth Quarter          Total
                                      --------------   --------------   --------------      --------------      --------------
                                                                                                 
2003
Net sales                             $       41,003   $       44,621   $       44,511      $       47,163      $      177,298
Cost of sales                                 30,812           33,170           34,007              33,981             131,970
Income (loss) before income taxes              1,681            2,707          (30,413)             (8,973)            (34,998)
Income tax (expense) benefit                      (2)             (13)             (12)               (240)               (267)
                                      --------------   --------------   --------------      --------------      --------------
Net loss                              $        1,679   $        2,694   $      (30,425)     $       (9,213)     $      (35,265)
                                      ==============   ==============   ==============      ==============      ==============
Average common shares outstanding
basic                                     27,135,481       27,652,413       27,639,127          27,856,085          27,602,806
                                      ==============   ==============   ==============      ==============      ==============
Average common shares outstanding
diluted                                   27,453,441       27,862,127       27,639,127          27,856,085          27,602,806
                                      ==============   ==============   ==============      ==============      ==============
Income (loss) per share basic and
diluted                               $         0.06   $         0.10   $        (1.10)(1)  $        (0.33)(2)  $        (1.28)
                                      ==============   ==============   ==============      ==============      ==============
2002
Net sales                             $       33,865   $       38,290   $       42,150      $       44,594      $      158,899
Cost of sales                                 26,107           28,509           31,483              30,990             117,089
Loss before income taxes                      (1,223)            (400)          (2,836)             (3,257)             (7,716)
Income tax benefit                                --               --                3                 115                 118
                                      --------------   --------------   --------------      --------------      --------------
Net loss                              $       (1,223)  $         (400)  $       (2,833)     $       (3,142)     $       (7,598)
Net loss attributed to common
stockholders                                  (3,884)          (3,061)         (28,650)             (3,171)            (38,766)
                                      ==============   ==============   ==============      ==============      ==============
Average common shares outstanding -
basic and diluted                          5,255,755        5,256,155        7,146,444          26,779,727          11,086,103
                                      ==============   ==============   ==============      ==============      ==============
Loss per share basic and diluted      $        (0.74)  $        (0.58)  $        (4.01)     $        (0.12)     $        (3.50)
                                      ==============   ==============   ==============      ==============      ==============


(1)  Includes $30.0 million goodwill impairment charge, and $1.9 million
     restructuring charges.

(2)  Includes $10.0 million goodwill and other intangible asset impairment
     charges, and $1.8 million restructuring charges.



                                      -69-



ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

     None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

     We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in the reports that we are required to
file under the Securities and Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms, and that such information is accumulated and communicated to our
management, including our principal executive officer and our principal
financial officer, as appropriate, to allow timely decisions regarding required
disclosure. Management necessarily applied its judgment in assessing the costs
and benefits of such controls and procedures, which, by their nature, can
provide only reasonable assurance regarding management's control objectives.
Management believes that there are reasonable assurances that our controls and
procedures will achieve management's control objectives.

     We have carried out an evaluation, under the supervision and with the
participation of our management, including our Chairman of the Board and Chief
Executive Officer and our Senior Vice President - Finance and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Exchange Act Rule 13a-15 as of June 30,
2003. Based upon the foregoing, our Chairman of the Board and Chief Executive
Officer and our Senior Vice President - Finance and Chief Financial Officer
concluded that our disclosure controls and procedures are effective in timely
alerting them to material information relating to MedSource (and its
consolidated subsidiaries) required to be included in our Exchange Act reports.

Changes in Internal Controls Over Financial Reporting

     The evaluation referred to above did not identify any changes in our
internal controls over financial reporting that occurred during our quarter
ended June 30, 2003 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.

                                    PART III

     The information called for by Part III (Items 10, 11, 12, 13, and 14) of
Form 10-K is incorporated herein by reference to such information, which will be
contained in our definitive proxy statement relating to our 2003 annual meeting
of stockholders, to be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended, within 120 days after the end of the fiscal
year covered by this Form 10-K.

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT, SCHEDULES, AND REPORTS ON FORM 8-K

(a)  1.   Financial statements:

     All financial statements are filed in Part II of this report under Item 8
- -- "Financial Statements and Supplementary Data."

                                      -70-



     2.   Financial statement schedules:

     Schedule II -- Valuation and Qualifying Accounts for the three fiscal years
     ended June 30, 2003.

     All other schedules are omitted as the required information is inapplicable
or the information is presented in our consolidated financial statements and
notes thereto in Item 8 above.

     3.   Exhibits:

     The following exhibits are filed herewith or are incorporated by reference
to exhibits previously filed with the SEC. We will furnish copies of the
exhibits for a reasonable fee (covering the expense of furnishing copies) upon
request:

Exhibit
 Number                               Description
- -------   ----------------------------------------------------------------------
    2.1   Asset Purchase Agreement dated December 18, 1998 among the registrant,
          Brimfield Acquisition Corp., Brimfield Precision, Inc. and Image
          Guided Technologies, Inc. (incorporated by reference to Exhibit 2.1
          filed as part of the registrant's registration statement on Form S-1,
          Registration No. 333-76842)
    2.2   Asset Contribution and Exchange Agreement dated January 25, 1999 among
          the registrant, Kelco Acquisition LLC, Kelco Industries, Inc., Paul D.
          Kelly, individually and as trustee of the Paul D. Kelly 1997 Annuity
          Trust, and Wayne A. Kelly (incorporated by reference to Exhibit 2.2
          filed as part of the registrant's registration statement on Form S-1,
          Registration No. 333-76842)
    2.3   Stock Contribution and Exchange Agreement dated March 11, 1999 among
          the registrant, MedSource Technologies, LLC, Laurence S. Derose, as
          Special Trustee of the Laurence S. Derose Trust, Barbara M. Derose, as
          Trustee of the BMD Irrevocable Trust of 1998, Jeffrey L. Derose, as
          Trustee of the Jeffrey L. Derose Irrevocable Trust and Kevin L.
          Derose, as Trustee of the Kevin L. Derose Irrevocable Trust
          (incorporated by reference to Exhibit 2.3 filed as part of the
          registrant's registration statement on Form S-1, Registration No.
          333-76842)
    2.4   Asset Contribution and Exchange Agreement dated March 22, 1999 among
          the registrant, Hayden Acquisition LLC, W.N. Rushwood, Inc., d/b/a/
          Hayden Precision Industries, William H. Heywood, William B. Heywood,
          Nancy A. Heywood, individually and as trustee of the Trust for the
          benefit of Michele Lynn Dunbar, and Michele Lynn Dunbar, as trustee of
          the Trust for the benefit of Michele Lynn Dunbar (incorporated by
          reference to Exhibit 2.4 filed as part of the registrant's
          registration statement on Form S-1, Registration No. 333-76842)
    2.5   Stock Contribution and Exchange Agreement dated March 22, 1999 among
          the registrant, MedSource Technologies, LLC, Peter J. Neidecker, Peter
          J. Neidecker Limited Partnership, Peter C. Neidecker Irrevocable
          Trust, Sally N. Morris and Sylvia N. Coors (incorporated by reference
          to Exhibit 2.5 filed as part of the registrant's registration
          statement on Form S-1, Registration No. 333-76842)
    2.6   Asset Contribution and Exchange Agreement dated March 24, 1999 among
          the registrant, Portlyn Acquisition LLC, Portlyn Corporation, David E.
          Porter, Ronald V. Porter, Ronald V. Porter Amended and Restated
          Revocable Trust d/t/d 9/7/95, Porter Family 1997 Irrevocable Trust
          d/t/d 7/8/97 and Shirley J. Porter Amended and Restated Revocable
          Trust d/t/d 9/7/95 (incorporated by reference to Exhibit 2.6 filed as
          part of the registrant's registration statement on Form S-1,
          Registration No. 333-76842)

                                      -71-



Exhibit
 Number                               Description
- -------   ----------------------------------------------------------------------
    2.7   Asset Contribution and Exchange Agreement dated as of March 24, 1999
          among the registrant, The MicroSpring Company, LLC, The MicroSpring
          Co., Inc., George Fowle, William S. Hodgson, Paul J. Dobson, James F.
          Marten, David G. Lubrano, Katherine Griswold, Mary Dashiell, Julie
          Parsons, Donald E. Milley, Louisa J. Dekkers, Joseph Keller, Robert F.
          Coughlin, Benjamin B. Brock, Patricia A. Van Blarcom, William T.
          McDonough, Kevin K. Gee, Carmine Sammarco and In Sup Choi, M.D.
          (incorporated by reference to Exhibit 2.7 filed as part of the
          registrant's registration statement on Form S-1, Registration No.
          333-76842)
    2.8   Asset Purchase Agreement dated as of January 11, 2000 by and among the
          registrant, Bespak Inc., Tenax Corporation and Tenax, LLC
          (incorporated by reference to Exhibit 2.8 filed as part of the
          registrant's registration statement on Form S-1, Registration No.
          333-76842)
    2.9   Agreement and Plan of Merger dated January 31, 2000 among the
          registrant, A.P.X. Acquisition Corp., Apex Engineering, Inc., Donald
          R. Rochelo and Donna L. Rochelo (incorporated by reference to Exhibit
          2.9 filed as part of the registrant's registration statement on Form
          S-1, Registration No. 333-76842)
   2.10   Agreement and Plan of Merger dated May 15, 2000 among the registrant,
          Thermat Acquisition Corp., Thermat Precision Technology, Inc., Thomas
          J. Roche and Karl Frank Hens (incorporated by reference to Exhibit
          2.10 filed as part of the registrant's registration statement on Form
          S-1, Registration No. 333-76842)
   2.11   Agreement and Plan of Merger dated as of December 8, 2000 among the
          registrant, ACT Acquisition Corp., ACT Medical, Inc., The Tolkoff
          Family Limited Partnership and M. Joshua Tolkoff (incorporated by
          reference to Exhibit 2.11 filed as part of the registrant's
          registration statement on Form S-1, Registration No. 333-76842)
   2.12   Agreement and Plan of Merger dated December 31, 2001 among the
          registrant, MedSource Trenton, Inc., HV Technologies, Inc. and Rudolph
          E. Carlson (incorporated by reference to Exhibit 2.12 filed as part of
          the registrant's registration statement on Form S-1, Registration No.
          333-76842)
   2.13   Stock and Asset Purchase Agreement dated as of August 31, 2002 among
          the registrant, MedSource Technologies, LLC, MedSource Technologies
          Pittsburgh, Inc., Cycam, Inc., ELX, Inc., Wagner ELX and Donald J.
          Wagner (incorporated by reference to Exhibit 10.2 to the registrant's
          quarterly report on Form 10-Q for the quarter ended September 29,
          2002, Commission File No. 000-49702, filed with the SEC on November 4,
          2002)
    3.1   Form of registrant's restated certificate of incorporation
          (incorporated by reference to Exhibit 3.1 filed as part of the
          registrant's registration statement on Form S-1, Registration No.
          333-76842)
    3.2   Form of registrant's amended and restated bylaws (incorporated by
          reference to Exhibit 3.2 filed as part of the registrant's
          registration statement on Form S-1, Registration No. 333-76842)
    3.3   Certificate of the registrant's Designation of Rights, Preferences and
          Privileges of Series G Participating Preferred Stock (incorporated by
          reference to Exhibit 3.3 to the registrant's Form 8-A for registrant
          of certain classes of securities pursuant to Section 12(b) or (g) of
          the Securities Exchange Act of 1934, Commission File No. 000-49702,
          filed with the SEC on August 19, 2003)
    4.1   Specimen certificate representing the registrant's common stock
          (incorporated by reference to Exhibit 4.1 filed as part of the
          registrant's registration statement on Form S-1, Registration No.
          333-76842)

                                      -72-



Exhibit
 Number                               Description
- -------   ----------------------------------------------------------------------
    4.2   Credit Agreement among the registrant, MedSource Technologies, LLC,
          the domestic subsidiaries of the registrant from time to time party
          thereto, the lenders party thereto, First Union National Bank, as
          administrative agent, and First Union Securities, Inc., as lead
          arranger (incorporated by reference to Exhibit 4.2 filed as part of
          the registrant's registration statement on Form S-1, Registration No.
          333-76842)
    4.3   Waiver and Second Amendment to Credit Agreement dated as of May 9,
          2003 among the registrant, its subsidiaries, Wachovia Bank, National
          Association, and the lenders named therein (incorporated by reference
          to Exhibit 10.1 to the registrant's quarterly report on Form 10-Q for
          the quarter ended March 30, 2003, Commission File No. 000-49702, filed
          with the SEC on May 14, 2003)
    4.4   Rights Agreement dated as of August 12, 2003 between the registrant
          and Wachovia Bank, National Association, including the Certificate of
          Designation, the form of Rights Certificate and the Summary of Rights
          attached thereto as Exhibit A, B and C, respectively (incorporated by
          reference to Exhibit 4.1 to the registrant's current report on Form
          8-K dated (date of earliest event reported) August 12, 2003,
          Commission File No. 000-49702, filed with the SEC on August 19, 2003)
   10.1   Registration Rights Agreement dated as of March 30, 1999 among the
          registrant, William J. Kidd, Carla G. Kidd, Edward R. Mandell, as
          Trustee under the Catherine M. Kidd Trust, Edward R. Mandell, as
          Trustee under the Cara E. Kidd Trust, Edward R. Mandell, as Trustee
          under the Thomas C. Kidd Trust, Clarice E. Webb, John P. Neafsey,
          Richard J. Effress, Andrew D. Lipman, Adam D. Lehrhoff, John C.
          Hertig, William Altieri, J.H. Whitney Mezzanine Fund, L.P., Whitney
          Strategic Partners, III, L.P., J.H. Whitney III, L.P. and German
          American Capital Corporation (incorporated by reference to Exhibit
          10.1 filed as part of the registrant's registration statement on Form
          S-1, Registration No. 333-76842)
   10.2   Registration Rights Agreement dated as of March 30, 1999 among the
          registrant, William J. Kidd, Carla G. Kidd, Edward R. Mandell, as
          Trustee under the Catherine M. Kidd Trust, Edward R. Mandell, as
          Trustee under the Cara E. Kidd Trust, Edward R. Mandell, as Trustee
          under the Thomas C. Kidd Trust, Clarice E. Webb, John P. Neafsey,
          Richard J. Effress, Andrew D. Lipman, Adam D. Lehrhoff, John C.
          Hertig, William Altieri, Portlyn Corporation, Kelco Industries, Inc.,
          The MicroSpring Company, Inc., Laurence S. Derose Trust, BMD
          Irrevocable Trust of 1998, Jeffrey L. Derose Irrevocable Trust, Kevin
          L. Derose Irrevocable Trust, W.N. Rushwood, Inc. d/b/a Hayden
          Precision Industries, Peter J. Neidecker, Peter J. Neidecker Limited
          Partnership, Peter C. Neidecker Irrevocable Trust, Sally N. Morris and
          Sylvia N. Coors (incorporated by reference to Exhibit 10.2 filed as
          part of the registrant's registration statement on Form S-1,
          Registration No. 333-76842)
   10.3   Registration Rights Agreement dated as of May 14, 1999 between the
          registrant and IndoSuez MST Partners (incorporated by reference to
          Exhibit 10.3 filed as part of the registrant's registration statement
          on Form S-1, Registration No. 333-76842)
   10.4   Registration Rights Agreement dated as of October 25, 2000 among the
          registrant, The 1818 Fund III, L.P., William J. Kidd, Carla G. Kidd,
          Edward R. Mandell, as trustee under the William J. Kidd Grantor Trust,
          Richard J. Effress, Andrew D. Lipman, John W. Galiardo and Manire
          Limited Partnership (incorporated by reference to Exhibit 10.6 filed
          as part of the registrant's registration statement on Form S-1,
          Registration No. 333-76842)
   10.5   Registration Rights Agreement dated as of February 27, 2001 between
          the registrant and Thomas Weisel Partners LLC (incorporated by
          reference to Exhibit 10.8 filed as part of the registrant's
          registration statement on Form S-1, Registration No. 333-76842)
   10.6   Registration Rights Agreement dated as of January 2, 2002 among the
          registrant and each of the investors in its Series E Preferred Stock
          (incorporated by reference to Exhibit 10.9 filed as part of the
          registrant's registration statement on Form S-1, Registration No.
          333-76842)
   10.7   Registration Rights Agreement dated as of January 2 2002 among the
          registrant and each of the former stockholders of HV Technologies,
          Inc. (incorporated by reference to Exhibit 10.10 filed as part of the
          registrant's registration statement on Form S-1, Registration No.
          333-76842)

                                      -73-



Exhibit
 Number                               Description
- -------   ----------------------------------------------------------------------
  *10.8   1999 Stock Plan of the registrant (as amended and restated through
          December 14, 2001) (incorporated by reference to Exhibit 10.11 filed
          as part of the registrant's registration statement on Form S-1,
          Registration No. 333-76842)
  *10.9   Omnibus Stock Plan of ACT Medical, Inc. (as amended and restated
          through April 4, 2000) (incorporated by reference to Exhibit 10.12
          filed as part of the registrant's registration statement on Form S-1,
          Registration No. 333-76842)
 *10.10   2001 Employee Stock Purchase Plan of the registrant (incorporated by
          reference to Exhibit 10.13 filed as part of the registrant's
          registration statement on Form S-1, Registration No. 333-76842)
 *10.11   Employment agreement dated as of August 8, 2000 between the registrant
          and Richard J. Effress (incorporated by reference to Exhibit 10.14
          filed as part of the registrant's registration statement on Form S-1,
          Registration No. 333-76842)
 *10.12   Employment Severance and Termination Agreements, each dated as of
          March 2002 between the registrant and Richard J. Effress (incorporated
          by reference to Exhibit 10.22 filed as part of the registrant's
          registration statement on Form S-1, Registration No. 333-76842)
 *10.13   Employment agreement between the registrant and William Ellerkamp
          (incorporated by reference to Exhibit 10.16 filed as part of the
          registrant's registration statement on Form S-1, Registration No.
          333-76842)
 *10.14   Employment agreement between the registrant and William Ellerkamp
          (incorporated by reference to Exhibit 10.18 filed as part of the
          registrant's registration statement on Form S-1, Registration No.
          333-76842)
 *10.15   Employment agreement dated as of April 1, 1999 between the registrant
          and Ralph Polumbo (incorporated by reference to Exhibit 10.19 filed as
          part of the registrant's registration statement on Form S-1,
          Registration No. 333-76842)
 *10.16   Employment Severance and Termination Agreements, each dated as of
          March 2002 between the registrant and Ralph Polumbo (incorporated by
          reference to Exhibit 10.28 filed as part of the registrant's
          registration statement on Form S-1, Registration No. 333-76842)
 *10.17   Employment Severance and Termination Agreements, each dated as of
          March 2002 between the registrant and Dan Croteau (incorporated by
          reference to Exhibit 10.24 filed as part of the registrant's
          registration statement on Form S-1, Registration No. 333-76842)
 *10.18   Employment Severance and Termination Agreements, each dated as of
          March 2002 between the registrant and Robert R. Snider (incorporated
          by reference to Exhibit 10.29 filed as part of the registrant's
          registration statement on Form S-1, Registration No. 333-76842)
 *10.19   Form of Employment Severance and Termination Agreement between the
          registrant and William J. Kullback (incorporated by reference to
          Exhibit 10.1 to the registrant's quarterly report on Form 10-Q for the
          quarter ended December 29, 2002, Commission File No. 000-49702, filed
          with the SEC on February 10, 2003)
 *10.20   Form of Employment Severance and Termination Agreement between the
          registrant and Rolf Dahl (incorporated by reference to Exhibit 10.2 to
          the registrant's quarterly report on Form 10-Q for the quarter ended
          December 29, 2002, Commission File No. 000-49702, filed with the SEC
          on February 10, 2003)
 *10.21   Form of Restricted Stock Award Contract entered into by the registrant
          with certain of its executive officers (incorporated by reference to
          Exhibit 10.1 to the registrant's quarterly report on Form 10-Q for the
          quarter ended September 29, 2002, Commission File No. 000-49702, filed
          with the SEC on November 4, 2002)
  10.22   Business Conduct Policy and form of acknowledgement for the
          registrant's employees (incorporated by reference to Exhibit 10.30
          filed as part of the registrant's registration statement on Form S-1,
          Registration No. 333-76842)

                                      -74-



Exhibit
 Number                               Description
- -------   ----------------------------------------------------------------------
  10.23   Form of Confidentiality Agreement for the registrant's employees
          (incorporated by reference to Exhibit 10.31 filed as part of the
          registrant's registration statement on Form S-1, Registration No.
          333-76842)
  10.24   Form of Disclosure Policy and acknowledgement for the registrant's
          employees (incorporated by reference to Exhibit 10.32 filed as part of
          the registrant's registration statement on Form S-1, Registration No.
          333-76842)
 *10.25   The registrant's Management Bonus Plan description (incorporated by
          reference to Exhibit 10.40 filed as part of the registrant's
          registration statement on Form S-1, Registration No. 333-76842)
  10.26   Share Transfer Agreement dated as of March 30, 1999 among the
          registrant, J.H. Whitney III, L.P., Whitney Strategic Partners III,
          L.P. and the stockholders of the registrant named therein, and
          amendment thereto dated June 2000 (incorporated by reference to
          Exhibit 10.41 filed as part of the registrant's registration statement
          on Form S-1, Registration No. 333-76842)
  10.27   Share Escrow Agreement dated as of March 30, 1999 among the
          registrant, J.H. Whitney III, L.P., Whitney Strategic Partners III,
          L.P. and the stockholders of the registrant named therein
          (incorporated by reference to Exhibit 10.42 filed as part of the
          registrant's registration statement on Form S-1, Registration No.
          333-76842)

   21.1   List of Subsidiaries
   23.1   Consent of Ernst & Young LLP
   24.1   Power of attorney (set forth on signature page)
   31.1   Certification of Chief Executive Officer pursuant to Rule
          13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as
          amended
   31.2   Certification of Chief Financial Officer pursuant to Rule
          13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as
          amended
   32.1   Certificate of Chief Executive Officer pursuant to 18 U.S.C. 1350, as
          adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   32.2   Certificate of Chief Financial Officer pursuant to 18 U.S.C. 1350, as
          adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

- ----------
*    Management contract, compensation plan or arrangement.

(b)  Reports on Form 8-K

     On April 29, 2003, we filed a Report on Form 8-K to file a press release
announcing our financial results for the third quarter ended March 30, 2003.

                                      -75-



                                                                     Schedule II

                  MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES
                        Valuation and Qualifying Accounts



                                      Balance      Charged
                                        at        to Costs    Charged to                           Balance
                                     Beginning      and         Other                             at End of
                                     of Period    Expense      Accounts        Deductions           Period
                                    ----------   ----------   ----------       -----------        ----------
                                                                                   
Year ended June 30, 2003:
   Deduct from asset accounts:
      Allowance for doubtful
       accounts ................... $      646   $      355   $       88/(2)/  $      (271)/(1)/  $      818
Year ended June 30, 2002:
   Deduct from asset accounts:
      Allowance for doubtful
       accounts ................... $      596   $      530           --       $      (480)/(1)/  $      646
Year ended June 30, 2001:
   Deduct from asset accounts:
      Allowance for doubtful
       accounts ................... $      427   $      101   $      295/(2)/  $      (227)/(1)/  $      596


(1)  Deductions were for write-offs against the allowance.

(2)  Represents allowances from acquired companies.



                                      -76-



                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on September 26, 2003.

                                         MEDSOURCE TECHNOLOGIES, INC.


                                         By:   /s/ Richard J. Effress
                                            ------------------------------------
                                               Name: Richard J. Effress
                                               Title: Chairman and CEO


                                POWER OF ATTORNEY

     Each person whose signature appears below hereby constitutes and appoints
Richard J. Effress and William J. Kullback and each one of them, acting
individually and without the other, as his attorney-in-fact, each with full
power of substitution, for him in any and all capacities, to sign any and all
amendments to this Annual Report on Form 10-K and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes may do or cause
to be done by virtue hereof.

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

         Signatures                       Title                     Date
- -----------------------------  ----------------------------   ------------------

  /s/ Richard J. Effress       Chairman of the Board of       September 26, 2003
- -----------------------------  Directors and Chief
     Richard J. Effress        Executive Officer
                               (Principal Executive
                               Officer)

  /s/ William J. Kullback      Senior Vice President and      September 26, 2003
- -----------------------------  Chief Financial Officer
    William J. Kullback        (Principal Financial Officer
                               and Principal Accounting
                               Officer)

                                         Director
- -----------------------------
     Joseph Ciffolillo

   /s/ Paul E. Fulchino                  Director             September 26, 2003
- -----------------------------
      Paul Fulchino

   /s/ John W. Galiardo                  Director             September 26, 2003
- -----------------------------
      John Galiardo

   /s/ William J. Kidd                   Director             September 26, 2003
- -----------------------------
      William J. Kidd

                                      -77-



        Signatures                       Title                     Date
- -----------------------------  ----------------------------   ------------------

   /s/ T. Michael Long                   Director             September 26, 2003
- -----------------------------
      T. Michael Long

   /s/ Ross Manire                       Director             September 26, 2003
- -----------------------------
      Ross Manire

   /s/ Carl S. Sloane                    Director             September 26, 2003
- -----------------------------
      Carl Sloane

                                      -78-

EX-21.1

                                                                    Exhibit 21.1

Subsidiaries of MedSource Technologies, Inc.:*

                                             Jurisdiction of
                Subsidiary                     Organization
- ------------------------------------------------------------
MedSource Technologies, LLC                      Delaware
   Brimfield Precision, LLC                      Delaware
   Hayden Precision Industries, LLC              Delaware
   Kelco Acquisition LLC                         Delaware
   MedSource Technologies Newton, Inc.           Delaware
   MedSource Technologies Pittsburgh, Inc.       Delaware
   MedSource Trenton, Inc.                       Delaware
   The MicroSpring Company, LLC                  Delaware
   National Wire and Stamping, Inc.              Colorado
   Portlyn, LLC                                  Delaware
   Tenax, LLC                                    Delaware
   Texcel, Inc.                               Massachusetts
   Thermat Acquisition Corp.                     Delaware

*Subsidiaries of subsidiaries are indicated by indentation.

EX-23.1

                                                                    Exhibit 23.1

                         Consent of Independent Auditors

We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-92176) pertaining to the 1999 Stock Plan, 1998 ACT Medical Stock
Plan, and 2001 Employee Stock Purchase Plan of MedSource Technologies, Inc. of
our report dated July 28, 2003, with respect to the consolidated financial
statements included in this Annual Report (Form 10-K) of MedSource Technologies,
Inc. for the year ended June 30, 2003.

Our audit also included the financial statement schedule of MedSource
Technologies, Inc. listed in Item 15(a). This schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audit. In our opinion, the financial statement schedule referenced above,
when considered in relation to the basic financial statements as a whole,
presents fairly, in all material respects, the information set forth therein.

                              /s/ Ernst & Young LLP

Minneapolis, Minnesota
September 25, 2003

EX-31.1

                                                                    Exhibit 31.1

                       SECTION 302 CERTIFICATION STATEMENT

I, Richard J. Effress, certify that:

     1.   I have reviewed this annual report on Form 10-K of MedSource
          Technologies, Inc.;
     2.   Based on my knowledge, this annual report does not contain any untrue
          statement of a material fact or omit to state a material fact
          necessary to make the statements made, in light of the circumstances
          under which such statements were made, not misleading with respect to
          the period covered by this report;
     3.   Based on my knowledge, the financial statements, and other financial
          information included in this report, fairly present in all material
          respects the financial condition, results of operations and cash flows
          of the registrant as of, and for, the periods presented in this
          report;
     4.   The registrant's other certifying officer(s) and I are responsible for
          establishing and maintaining disclosure controls and procedures (as
          defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
          registrant and have:
               (a)  designed such disclosure controls and procedures, or caused
                    such disclosure controls and procedures to be designed under
                    our supervision, to ensure that material information
                    relating to the registrant, including its consolidated
                    subsidiaries, is made known to us by others within those
                    entities, particularly during the period in which the annual
                    report is being prepared;
               (b)  [omitted pursuant to the transition rules of SEC Release
                    Nos. 33-8238 and 34-47986;]
               (c)  evaluated the effectiveness of the registrant's disclosure
                    controls and procedures and presented in this report our
                    conclusions about the effectiveness of the disclosure
                    controls and procedures as of the end of the period covered
                    by this report based on such evaluation;
               (d)  disclosed in this report any change in the registrant's
                    internal control over financial reporting that occurred
                    during the registrant's most recent fiscal quarter (the
                    registrant's fourth fiscal quarter in the case of an annual
                    report) that has materially affected, or is reasonably
                    likely to materially affect, the registrant's internal
                    control over financial reporting; and
     5.   The registrant's other certifying officer(s) and I have disclosed,
          based on our most recent evaluation of internal control over financial
          reporting, to the registrant's auditors and the audit committee of the
          registrant's board of directors (or persons performing equivalent
          functions):
               (a)  all significant deficiencies and material weaknesses in the
                    design or operation of internal control over financial
                    reporting which are reasonably likely to adversely affect
                    the registrant's ability to record, process, summarize, and
                    report financial information; and
               (b)  any fraud, whether or not material, that involves management
                    or other employees who have a significant role in the
                    registrant's internal control over financial reporting.

Date: September 26, 2003                /s/ Richard J. Effress
                                        ----------------------------------------
                                        Richard J. Effress
                                        Chairman of the Board and Chief
                                         Executive Officer

EX-31.2

                                                                    Exhibit 31.2

                       SECTION 302 CERTIFICATION STATEMENT

I, William J. Kullback, certify that:

     1.   I have reviewed this annual report on Form 10-K of MedSource
          Technologies, Inc.;
     2.   Based on my knowledge, this annual report does not contain any untrue
          statement of a material fact or omit to state a material fact
          necessary to make the statements made, in light of the circumstances
          under which such statements were made, not misleading with respect to
          the period covered by this report;
     3.   Based on my knowledge, the financial statements, and other financial
          information included in this report, fairly present in all material
          respects the financial condition, results of operations and cash flows
          of the registrant as of, and for, the periods presented in this
          report;
     4.   The registrant's other certifying officer(s) and I are responsible for
          establishing and maintaining disclosure controls and procedures (as
          defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
          registrant and have:
               (a)  designed such disclosure controls and procedures, or caused
                    such disclosure controls and procedures to be designed under
                    our supervision, to ensure that material information
                    relating to the registrant, including its consolidated
                    subsidiaries, is made known to us by others within those
                    entities, particularly during the period in which the annual
                    report is being prepared;
               (b)  [omitted pursuant to the transition rules of SEC Release
                    Nos. 33-8238 and 34-47986;]
               (c)  evaluated the effectiveness of the registrant's disclosure
                    controls and procedures and presented in this report our
                    conclusions about the effectiveness of the disclosure
                    controls and procedures as of the end of the period covered
                    by this report based on such evaluation;
               (d)  disclosed in this report any change in the registrant's
                    internal control over financial reporting that occurred
                    during the registrant's most recent fiscal quarter (the
                    registrant's fourth fiscal quarter in the case of an annual
                    report) that has materially affected, or is reasonably
                    likely to materially affect, the registrant's internal
                    control over financial reporting; and

     5.   The registrant's other certifying officer(s) and I have disclosed,
          based on our most recent evaluation of internal control over financial
          reporting, to the registrant's auditors and the audit committee of the
          registrant's board of directors (or persons performing equivalent
          functions):
               (a)  all significant deficiencies and material weaknesses in the
                    design or operation of internal control over financial
                    reporting which are reasonably likely to adversely affect
                    the registrant's ability to record, process, summarize, and
                    report financial information; and
               (b)  any fraud, whether or not material, that involves management
                    or other employees who have a significant role in the
                    registrant's internal control over financial reporting.

Date: September 26, 2003                /s/ William J. Kullback
                                        ----------------------------------------
                                        William J. Kullback
                                        Senior Vice President -- Finance and
                                         Chief Financial Officer

EX-32.1

                                                                    Exhibit 32.1

 CERTIFICATION PURSUANT TO 18 U.S.C. SS.1350, AS ADOPTED PURSUANT TO SECTION 906
                        OF THE SARBANES-OXLEY ACT OF 2002


     In connection with the Annual Report of MedSource Technologies, Inc., (The
"Company") on Form 10-K for the period ended June 30, 2003, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I Richard
J. Effress, Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 that, to the best of my knowledge:

          1.   The Report fully complies with the requirements of Section 13(a)
               or 15(d) of the Securities and Exchange Act of 1934; and

          2.   The information contained in the Report fairly presents, in all
               material respects, the financial condition and results of
               operations of the Company.

     A signed original of this written statement required by Section 906 has
been provided to the Company and furnished to the Securities and Exchange
Commission or its staff upon request.

Dated: September 26, 2003


                                        /s/ Richard J. Effress
                                        ----------------------------------------
                                        Richard J. Effress
                                        Chairman of the Board and Chief
                                           Executive Officer

EX-32.2

                                                                    Exhibit 32.2

 CERTIFICATION PURSUANT TO 18 U.S.C. SS.1350, AS ADOPTED PURSUANT TO SECTION 906
                       OF THE SARBANES-OXLEY ACT OF 2002


     In connection with the Annual Report of MedSource Technologies, Inc., (The
"Company") on Form 10-K for the period ended June 30, 2003, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I William
J. Kullback, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 that, to the best of my knowledge:

          1.   The Report fully complies with the requirements of Section 13(a)
               or 15(d) of the Securities and Exchange Act of 1934; and

          2.   The information contained in the Report fairly presents, in all
               material respects, the financial condition and results of
               operations of the Company.

     A signed original of this written statement required by Section 906 has
been provided to the Company and furnished to the Securities and Exchange
Commission or its staff upon request.

Dated: September 26, 2003


                                        /s/ William J. Kullback
                                        ----------------------------------------
                                        William J. Kullback
                                        Senior Vice President - Finance and
                                         Chief Financial Officer