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

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K
(MARK ONE)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                  For the fiscal year ended December 31, 2005
                                            -----------------

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
     1934

      For the transition period from ________________ to ________________

                         Commission file number 0-14870

                                  Quipp, Inc.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

          Florida                                                59-2306191
--------------------------------                             -------------------
(State or other jurisdiction of                                (IRS Employer
incorporation or organization)                               Identification No.)

  4800 NW 157th Street, Miami, Florida                             33014
----------------------------------------                         ----------
(Address of principal executive offices)                         (Zip code)

Registrant's telephone number, including area code  (305) 623-8700

           Securities registered pursuant to Section 12(g) of the Act;

                          Common Stock, $.01 par value
                          ----------------------------
                                (Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes _ No X_ Indicate by check mark if
the registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act.
Yes  [ ]  No  [X]

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 the Form 10-K or any amendment to this
Form 10-K. [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act.

    Large accelerated filer ___ accelerated filer ___ Non-accelerated filer X

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes [ ] No [X]

The aggregate market value of voting stock held by non-affiliates of the
Registrant on June 30, 2005 was approximately $16,478,000*. The number of shares
of the Registrant's common stock, $.01 par value, outstanding at March 10, 2006
was 1,423,775.
                       DOCUMENTS INCORPORATED BY REFERENCE

                              Document Incorporated

Portions of the Quipp, Inc. Proxy Statement relating to the 2005 Annual Meeting
of Shareholders (to be filed not later than 120 days after the close of the
fiscal year covered by this report on Form 10-K).

                               Where Incorporated
                                    Part III

*Calculated by excluding all shares held by executive officers and directors of
Registrant without conceding that all such persons are "affiliates" of
Registrant for purposes of the federal securities laws.

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<PAGE>

                                   QUIPP, INC.

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                    PAGE
                                                                                                    ----
<S>          <C>                                                                                     <C>
                                     PART I
Item 1.      Business............................................................................    3
Item 1A.     Risk Factors........................................................................    6
Item 1B.     Unresolved Staff Comments...........................................................    8
Item 2.      Properties..........................................................................    8
Item 3.      Legal Proceedings...................................................................    8
Item 4.      Submission of Matters to a Vote of Security Holders.................................    8

                                     PART II
Item 5.      Market for Registrant's Common Equity and Related Stockholder Matters...............    11
Item 6.      Selected Financial Data ............................................................    12
Item 7.      Management's Discussion and Analysis of Financial Condition and Results of
             Operations..........................................................................    13
Item 7A.     Quantitative and Qualitative Disclosures about Market Risk..........................    20
Item 8.      Financial Statements and Supplementary Data.........................................    20
Item 9.      Changes in and Disagreements with Accountants on Accounting and Financial
             Disclosure..........................................................................    21
Item 9A.     Controls and Procedures.............................................................    21

                                    PART III
Item 10.     Directors and Executive Officers of the Registrant..................................    21
Item 11.     Executive Compensation..............................................................    21
Item 12.     Security Ownership of Certain Beneficial Owners and Management and Related
             Stockholder Matters.................................................................    21
Item 13.     Certain Relationships and Related Transactions......................................    21
Item 14.     Principal Accountant Fees and Services..............................................    21


                                     PART IV
Item 15.     Exhibits and Financial Statement Schedules..........................................    23
</TABLE>


<PAGE>

                                     PART I

ITEM 1 - BUSINESS

Through our wholly owned subsidiaries, Quipp Systems, Inc. ("Quipp Systems") and
Newstec, Inc. ("Newstec"), we design, manufacture, sell, and install material
handling equipment and systems that automate the post-press production process
for newspaper publishers. In the post-press stage of newspaper operations,
newspapers move from the pressroom in a continuous stream and are assembled,
stacked, bundled and transferred to shipping docks, from which they are loaded
into delivery trucks, or loaded into carts or stored on pallets for further
distribution. Our equipment and control systems facilitate the automated
movement of newspapers from the printing press to the delivery truck.

Our product line includes the following equipment, which we sell individually or
as part of integrated post-press system installations that include several of
our products and, in some instances, products of other manufacturers.

NEWSPAPER STACKERS - The Series 500 Stacker counts and batches stacks of
newspapers at maximum speeds of 85,000 copies per hour. The Series 500C Stacker
can be adjusted to count and stack a variety of newspaper sizes. The Quipp
Off-Press counter stacker, marketed to smaller volume newspapers, counts and
batches stacks of newspapers at maximum speeds of 30,000 copies per hour.

VIPER BOTTOMWRAPPER - The Quipp Viper applies wrapping paper to the bottom or
three sides of a newspaper bundle to protect against product damage. The Viper
can be equipped with an inkjet printing device that provides delivery location
and copy count information on the wrapping paper.

PACKMAN PACKAGING SYSTEM - The Quipp Packman packaging system combines a
stacker, bottomwrapper, ink-jet printer and a strapping unit into one integrated
machine. The Quipp Packman can be used in press and insert applications and can
stack, wrap, strap, and provide text messages on each bundle of newspapers at a
rate of up to 40 bundles per minute.

IN-LINE INSERTER - The Quipp In-Line inserting system automates the process of
inserting sections of newspapers or advertisements into the main section of the
newspaper. The In-Line inserting system has been designed to handle inserting
requirements primarily for small to medium sized newspaper operations and can
insert documents ranging from 3" x 5" cards or coupon books to full broadsheets
at a machine speed up to 12,000 copies per hour.

NEWSTEC SLS 1000(R) - With maximum machine speeds up to 25,000 copies per hour,
the NEWSTEC SLS-1000(R) is designed to handle inserting requirements for medium
and large newspaper operations.

AUTOMATIC CART LOADING SYSTEM - This system loads strapped bundles of newspapers
into carts for transportation to remote distribution centers. Quipp's Automatic
Cart Loading System handles bundles of various shapes and sizes. Upon completion
of loading, the cart is discharged from the cart loader and placed in a truck
for delivery to the distribution site.

AUTOMATIC PALLETIZER SYSTEM - The palletizer system receives newspaper bundles
from conveyors, stacks the bundles onto a pallet and places stretch wrap film
around the pallet and newspapers to prevent movement during transportation to a
distribution site.

NEWSPAPER CONVEYOR SYSTEMS - Our conveyor systems, including the Quipp-Gripp
III, Quipp Twin-Trak and Quipp Rollerslat, transport newspapers from pressrooms
to various locations throughout the post-press operation. The conveyor systems
include both horizontal and vertical conveyor modules, which can be integrated
with directional switches and special purpose components to accommodate the
layout of the newspaper plant. The Quipp-Gripp III uses a series of grippers
mounted on an articulating chain to pick up and transport newspapers. Each
Quipp-Gripp III gripper carries a single copy of the product. The Quipp
Twin-Trak is a twin-belt newspaper conveyor that transports newspapers in an
overlapping stream with maximum surface speeds of approximately 80,000
newspapers per hour. The Quipp Rollerslat conveyor employs an array of
independently rotating rollers and is used in the processing of newspaper stacks
prior to bundling.

                                       3
<PAGE>

OTHER PRODUCTS - We manufacture other products for post-press operations,
including stream aligners, centering pacers, fold compressors, newspaper
sensors, press production monitors, automated waste handling systems and other
equipment.

AFTERMARKET SPARE PARTS AND SERVICE - We provide spare and repair parts and
services for our products.

ORIGINAL EQUIPMENT MANUFACTURERS' (OEM) EQUIPMENT - We also sell OEM products to
complement our product line. Our primary market includes newspaper publishers
with circulation exceeding 50,000 copies daily.

With our recent acquisition of Newstec, we have a more complete post-press
product offering, enabling us to offer complete systems to meet the needs for
most post-press applications and provide our customers a single source for
integrated post-press material handling systems. With the Quipp In-Line inserter
and Quipp Off-Press counter stacker, we have also focused sales and marketing
efforts on newspapers with daily circulation under 50,000, and on newspapers and
commercial printers that print weekly or monthly publications.

Our equipment prices range from $5,000 to $1,200,000, and post-press systems,
which usually include an integration of equipment, software, and controls, can
be priced much higher. Equipment and basic system orders normally require a
lead-time from six to 13 weeks from order date to installation date. Complex
systems may require lead-times of up to 26 weeks.

Our manufacturing activities consist primarily of the assembly of purchased
components, the fabrication of mechanical and conveyor frames and the testing of
completed products. We use approximately 300 vendors to supply parts, materials
and components for our various products. We believe that alternative sources of
supply are available for all required components. If necessary, certain parts
could be manufactured in our in-house machine shop, which is used primarily for
custom engineering and development of prototype equipment.

We market, install and service our products both domestically and
internationally. All of our products have a minimum one-year warranty, and our
staff of technicians or outside vendors provide installation and repair
services. In addition to the manufacture and sale of products, we sell spare
parts for our equipment. In 2005, 2004, and 2003, spare parts sales accounted
for approximately 10%, 9%, and 10% of our net sales, respectively.

We sell most of our products to newspaper publishers in the United States. Our
foreign sales accounted for 7%, 9%, and 11% of total sales in 2005, 2004, and
2003, respectively. The following table indicates the amount of sales by
geographic area during the past three years:


         SALES BY GEOGRAPHIC AREA

                                 2005            2004             2003
                  -------------------------------------------------------

         United States      $24,096,107      $22,517,519      $17,353,571
         Canada                 564,362        1,821,042        1,478,233
         Latin America          613,421          302,213          400,462
         Europe                   1,354               --          130,681
         Other                  507,635           49,281          157,746
                            -----------      -----------      -----------

                            $25,782,879      $24,690,055      $19,520,693

                  -------------------------------------------------------

As of December 31, 2005, our backlog of orders was approximately $13,524,000 as
compared to $8,631,000 on December 31, 2004. In addition to orders in process at
our production facility, our backlog includes orders that have been shipped to
customers but, in accordance with our revenue recognition policy, are not yet
reflected in net sales (see note 1 to the consolidated financial statements
included in this report). We expect to ship all orders included in our December
31, 2005 backlog within the next 12 months. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Overview" in Item 7.

                                       4
<PAGE>

For the years ended December 31, 2005, 2004, and 2003, no single newspaper
customer accounted for ten percent or more of our net sales. A number of our
newspaper customers are part of large newspaper chains, including newspaper
chains that are part of larger media groups. Management believes that purchase
decisions regarding individual pieces of equipment are made by the individual
newspapers, while decisions regarding the purchase of complex systems involve
input from the corporate office of the newspaper chain or media group.
Newspapers owned by Gannett Co, Inc. and The New York Times Company each
accounted for 11% of our net sales in 2005. Newspapers owned by Gannett Co, Inc.
and Advance Publications, Inc. accounted for 17% and 10% of our net sales in
2004, respectfully. Newspapers owned by Advance Publications, Inc. and Gannett
Co, Inc. accounted for 15% and 10% of our net sales in 2003, respectively. Since
our equipment is designed to have an extended life, our largest individual
newspaper customers usually change from year to year.

OEM sales accounted for approximately 6.3%, 4.5%, and 7.1% of our total sales in
2005, 2004, and 2003, respectively.


COMPETITION
The newspaper industry has experienced a decrease in size in recent years, as
the number of newspapers in the country has declined and ownership of newspapers
has been consolidated. Moreover, in recent years, there has been consolidation
among manufacturers of newspaper material handling equipment, as well as new
entrants into the market. These developments have increased competition in the
industry, and some of our competitors have much greater financial resources than
ours.

We believe we have two principal competitors for the newspaper post-press system
business in the United States: the post-press division of Goss International
Corporation, a U.S. company and GMA, a domestic subsidiary of Muller-Martini
Versand-Systeme AG, a Swiss company. In addition, there are several companies
that compete with respect to certain of our products. We have experienced
competition on the basis of price with respect to most of our products and
anticipate that price competition will continue, although product performance
and customer service are also important competitive factors.

MARKETING
In North America, we sell our products through direct sales representatives. We
use international dealers to market and sell our products in the rest of the
world. Domestically, we market products by direct solicitation, trade shows and
national and regional trade journal advertising. International marketing efforts
are coordinated through foreign dealers. Some of the international dealers are
commissioned, while others purchase our products for resale. Advertising costs
totaled $75,495, $71,182, and $82,001 in 2005, 2004, and 2003, respectively.

PATENTS AND TRADEMARKS
We hold 34 U.S. and foreign patents, which expire during the period from 2006 to
2021. We have one patent pending and continue to apply for patent protection
when deemed advisable; however, we believe that the success of our products
ultimately is dependent upon performance, reliability and engineering, and that
our patents are not material to our business. "Quipp" is a registered trademark
of Quipp, Inc.

RESEARCH AND DEVELOPMENT
Research and development costs totaled $393,600, $707,147, $581,121 in 2005,
2004, and 2003, respectively. In 2005, we continued to develop and test our
In-Line-C inserting/collating system with poly-wrapping capabilities and
commenced development of new controls for some of our equipment. In 2004, we
focused much of our research and development efforts on our new In-Line C
inserting/collating system with poly-wrapping capabilities. Additionally, we
expended research and development resources to redesign our gripper conveyor to
enhance the performance of the product in certain applications, and completed
the software for the Quipp Packman packaging system. In 2003, we focused much of
our engineering and technical efforts on the development of the Quipp Packman
packaging system.

                                       5

<PAGE>

EMPLOYEES
As of December 31, 2005, we had 120 full-time employees. None of our employees
are represented by a union, and we consider our employee relations to be good.

RECENT DEVELOPMENTS
On February 28, 2006, we announced that our Board of Directors has decided to
evaluate strategic alternatives to determine whether a strategic transaction,
including a possible sale of Quipp, is feasible and desirable. We have engaged
Capitalink L.C., of Coral Gables, Florida, to assist us in this endeavor.
Capitalink has previously rendered investment banking serves to us, including in
connection with our acquisition of Newstec.

We have not determined to sell our company. It is possible that, as a result of
the Board's evaluation, we will conclude that a sale is not in our best interest
and will determine to continue our current mode of operations, or consider other
alternatives. Moreover, we are not modifying our previously disclosed
acquisition strategy and will maintain management focus on expanding our
business while strategic options are being reviewed.

In order to facilitate the effectiveness of the evaluation process, our Board
has extended, for another 18 months, the expiration date of our Shareholder
Rights Plan, which was adopted in March 2003 and had been scheduled to expire on
March 2, 2006. The new expiration date is September 4, 2007. We believe that
this extension will help to ensure the orderly completion of the evaluation
process.



SLS 1000(R) is a registered trademark of GMA, Inc.


ITEM 1A - RISK FACTORS

OUR OPERATIONS ARE LARGELY DEPENDENT ON THE NEWSPAPER INDUSTRY; ADVERSE
CONDITIONS IN THE NEWSPAPER INDUSTRY ADVERSELY AFFECT OUR BUSINESS.

Virtually all of our sales are to newspapers or to other companies servicing the
newspaper industry. We believe that capital spending decisions by newspapers are
affected by their operating performance. In periods of decline in the newspaper
industry, we have experienced a decline in orders, which has adversely affected
our sales and net income.

The newspaper industry is very mature, and has been experiencing reductions in
circulation in recent years. Moreover, a series of circulation copy count
restatements at some newspapers also adversely affected the newspaper industry.
These factors have contributed to increasing challenges for newspapers in
maintaining or increasing advertising revenues. As a result of conditions
generally in the newspaper industry over the past several years, we have been
unable to approach the level of net sales and net income we realized in 2000. We
are attempting to address these constraints by pursuing an acquisition program
designed to expand our presence in the post press market and to enable us to
enter into complimentary markets. However, we cannot predict if these efforts
will be successful and, in any event, an extended decline in the financial
performance of the newspaper industry would materially adversely affect our
business.


WE FACE FORMIDABLE COMPETITION FROM A NUMBER OF COMPANIES, SOME OF WHICH HAVE
MUCH GREATER RESOURCES THAN WE HAVE.

We confront aggressive competition in the sale of post-press equipment. Our two
largest competitors are the post press division of Goss International
Corporation and GMA, a subsidiary of Muller-Martini Verstand Systems AG. The
corporate organizations of which these competitors are a part are far larger
than we are and have much greater financial and marketing resources than we
have. We also compete with some smaller companies, usually when projects involve
the sale of individual machines rather than systems. Our inability to
successfully compete in the post press equipment market would harm our business.

                                       6

<PAGE>

CONSOLIDATION IN THE NEWSPAPER INDUSTRY COULD HAVE A SIGNIFICANT NEGATIVE IMPACT
ON OUR BUSINESS IF A NEWSPAPER GROUP DETERMINES TO TERMINATE THE RELATIONSHIP OF
ITS NEWSPAPERS WITH US.

In the past several years, there has been a good deal of consolidation in the
newspaper industry. While decision making with regard to capital equipment
traditionally has been made at the individual newspaper level, we are
experiencing a greater degree of centralized control from media groups in
connection with larger post press system orders. Therefore, if a newspaper chain
were to determine to curtail the business relationship between us and its
newspapers, our business would be harmed.


WE HAVE INCREASINGLY BEEN SUBJECT TO ORDER VOLATILITY, WHICH HAS CAUSED OUR
OPERATING RESULTS TO BE LESS STABLE.

Our order flow in recent years has become increasingly volatile, and we have
experienced periods where a healthy order flow in one quarter has been followed
by a relatively low level of orders in the next quarter. Among the causes for
the irregular order flow are decisions of media groups that own a variety of
communications outlets other than newspapers to divert capital resources
elsewhere (for example, to online media) or decisions of newspaper chains or
media groups simply to reduce or defer capital spending for newspapers. Another
factor is the effect on total order flow of larger system installations. An
order involving a large system can result in a spike in our order flow that is
typically followed by an order flow decline because we have not received such
orders on a consistent basis. The variability in our order flow has, at times,
impaired our ability to absorb fixed overhead costs and fully utilize our
engineering and other resources. For example, as a result of slow incoming
orders during the third quarter of 2004, our overhead absorption was negatively
affected by a one-week plant shutdown and shortened work-weeks for production
personnel. As a result, our operating results may fluctuate markedly from
quarter to quarter.


IF WE ARE UNABLE TO SUCCESSFULLY IDENTIFY ACQUISITION CANDIDATES OR INTEGRATE
ACQUIRED BUSINESSES, OUR BUSINESS AND GROWTH PROSPECTS WILL BE ADVERSELY
AFFECTED.

We previously have announced our acquisition program designed to expand our
product portfolio and increase our market share in the post-press market, as
well as facilitate expansion into complementary markets. The acquisition of
Newstec was a major step in our pursuit of this program.

Fundamental to the success of our acquisition program is our ability to identify
companies that, if acquired, will contribute to our profitable growth. In
connection with our acquisition of Newstec, we engaged in a detailed review
process, with the assistance of investment bankers and accounting consultants,
before determining to proceed with the acquisition. We anticipate that similar
efforts will be utilized in connection with meaningful future acquisitions.
Nevertheless, Newstec, or any other acquisition we may engage in, may not
contribute to our operations and financial results as anticipated. Moreover, we
may be unable to identify additional suitable candidates for acquisition. Either
of these events could adversely affect our prospects for growth. In addition,
the success of the Newstec acquisition, and any subsequent acquisitions we may
complete, will be dependent largely on our ability to successfully integrate the
acquired business. Successful integration will require conversion of some or all
the acquired entity's information technology and other systems. Moreover, in the
case of acquisitions such as Newstec, integration requires successful
maintenance of manufacturing and marketing capabilities during the course of
consolidation of operations. We confront the risk that integration difficulties
may delay or prevent the realization of contemplated benefits of the transition.
Moreover, inefficiencies associated with integration could result in higher
costs than anticipated. These developments could adversely affect our business
and growth prospects.

                                       7

<PAGE>

IF WE ARE UNABLE TO ACHIEVE CONTINUED ENHANCEMENT OF OUR SOFTWARE DEVELOPMENT
CAPABILITIES OUR ABILITY TO COMPETE EFFECTIVELY WILL BE IMPAIRED.

Our manufacturing and marketing efforts are increasingly focused on our being a
systems supplier rather than a supplier of discrete post-press components. The
manufacture of post-press systems requires the development of sophisticated
control software that facilitates the efficient assembly, stacking, bundling and
movement of newspapers for shipment. We have focused on improving our software
capabilities internally and through the use of third party consultants. In
addition, our acquisition of Newstec enabled us to acquire additional software
development capabilities. Nevertheless, our ability to compete effectively,
especially with regard to the sale of inserters and post-press systems, will be
dependent, to a considerable degree, on our ability to continue to upgrade our
control software. We have, in the past, relied on third party software
consultants when our internal capabilities were not sufficient to handle
development requirements. While we anticipate that third party consulting
assistance will be available to augment our internal development capabilities
when necessary, we must be able to correctly gauge the need for such assistance
sufficiently in advance to be able to supply upgrades on a timely basis. If we
are unable to effectively upgrade software to meet customer requirements, our
business will suffer.


TRADING IN OUR COMMON STOCK HAS BEEN SPORADIC, AND OUR STOCK PRICE COULD
POTENTIALLY BE SUBJECT TO SUBSTANTIAL FLUCTUATIONS.

Our common stock is listed on the Nasdaq National Market, but generally is not
actively traded. Our stock price could be affected substantially by a relatively
modest volume of transactions.


ITEM 1B - UNRESOLVED STAFF COMMENTS

NOT APPLICABLE.


ITEM 2 - PROPERTIES

Our headquarters and operations are located at our Miami, Florida 63,170 square
foot facility, of which approximately 48,300 square feet are utilized for
manufacturing operations and 14,870 square feet are used for administrative
functions. In February 2006, we entered into a three year lease on a 6,020
square feet facility in Miami, Florida to warehouse Newstec equipment that was
shipped to Miami in connection with the closure of Newstec's former Walpole,
Massachusetts facility. The additional leased space may also be used for the
assembly of equipment. As of March 1, 2006, all Newstec operations were
transferred to our Miami facilities. We believe our properties are adequate and
suitable for current operations.

ITEM 3 - LEGAL PROCEEDINGS

Not applicable


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

Not applicable

                                       8

<PAGE>

EXECUTIVE OFFICERS OF THE REGISTRANT

The names, business experience and ages of the executive officers of Quipp are
listed below:
<TABLE>
<CAPTION>
          NAME                         BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS                             AGE
---------------------               ----------------------------------------------------                          ---
<S>                                 <C>                                                                           <C>
MICHAEL S. KADY                     Mr. Kady became President and Chief Executive                                  56
                                    Officer of Quipp in February 2002 and President of Quipp
                                    Systems, in March 2002. Mr. Kady was President of GMP
                                    Metal Products, a manufacturer of components supplied to major
                                    original equipment manufacturers in the agricultural equipment,
                                    construction machinery and transportation equipment markets,
                                    from January 2000 to January 2001.  From May 1999 to January
                                    2000, Mr. Kady was a private consultant engaged in strategy
                                    development for privately held companies.  From May 1996
                                    to May 1999, he was President and Chief Operating Officer
                                    of Shuttleworth, Inc., a designer and builder of automated
                                    material handling systems and equipment for the electronics,
                                    automotive, food and beverage and printing industries.

JOHN (SKIP) CONNORS                 Mr. Connors is President of Newstec, a wholly owned                            44
                                    subsidiary of Quipp acquired in August 2005.  He has
                                    been President of Newstec since August 1998 and Quipp's
                                    Vice President of Corporate Development since August
                                    2005.  Prior to his involvement with Newstec, Mr. Connors served
                                    in a variety of sales and marketing positions with Graphics
                                    Management Associates, Inc. (GMA), a manufacturer of inserting
                                    and material handling equipment for the newspaper industry.

CHRISTER A. SJOGREN                 Mr. Sjogren, Executive Vice President of Quipp Systems                         63
                                    since 1994, has served Quipp or Quipp Systems in various
                                    capacities since 1983.  He is currently responsible for our
                                    research and development activities.

DAVID SWITALSKI                     Mr. Switalski, Vice President of Operations of Quipp                           46
                                    Systems since July 2000, has served Quipp or Quipp
                                    Systems in various capacities since 1984. He
                                    is currently responsible for production,
                                    electrical and mechanical engineering and
                                    information systems.

ANGEL ARRABAL                       Mr. Arrabal, Vice President of Sales and Marketing of                          46
                                    Quipp Systems since 2003, has served Quipp or Quipp
                                    Systems in various capacities since 1986.  He is currently
                                    responsible for worldwide sales and marketing.
</TABLE>

                                       9

<PAGE>
<TABLE>
<CAPTION>

          NAME                         BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS                             AGE
---------------------               ----------------------------------------------------                          ---
<S>                                 <C>                                                                           <C>
MOHAMMED JAMIL                      Mr. Jamil, Vice President of Customer Service of Quipp                         53
                                    Systems since 2001 has served Quipp or Quipp
                                    Systems in various capacities since 1984.  He is currently
                                    responsible for preparation of quotations, product testing,
                                    installations, customer support and project management.

ERIC BELLO                          Mr. Bello has been Director of Finance and Treasurer of Quipp                  42
                                    since February 2002, Vice President of Finance and CFO of Quipp
                                    Systems, Inc. since February 2005 and Treasurer of Newstec, Inc.
                                    since August 2005.  He has served Quipp and  Quipp Systems
                                    Inc. in various capacities since 1999.  Prior to joining Quipp, he served
                                    as Corporate Controller of Med-Waste, Inc., a company involved
                                    in medical waste management; Controller of Nature's Products, Inc.,
                                    a vitamin manufacturer; and Controller of the U.S. Division of
                                    Althin Medical, Inc., a medical device manufacturer. Mr. Bello,
                                    who is a Certified Public Accountant, also was on the auditing staff
                                    of KPMG Peat Marwick (now KPMG LLP).
</TABLE>












                                       10

<PAGE>

                                     PART II

ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS

Our Common Stock, $.01 par value, is traded on the Nasdaq National Market under
the symbol, "QUIP." The following table sets forth the high and low sales prices
of our Common Stock as reported by Nasdaq for each calendar quarter in 2005 and
2004:

         -----------------------------------------------------------------------
                                         2005                      2004

                                HIGH            LOW         High           Low
         -----------------------------------------------------------------------

         FIRST QUARTER          $13.20        $11.50       $19.49        $11.50
         SECOND QUARTER          18.49          9.62        16.00         13.88
         THIRD QUARTER           15.40         10.93        14.97         13.04
         FOURTH QUARTER          12.21          9.79        14.00         12.45

         -----------------------------------------------------------------------



We did not pay any dividends in 2005 or 2004. However, we have commenced the
payment of quarterly dividends in 2006.






















                                       11

<PAGE>

ITEM 6 - SELECTED FINANCIAL DATA

The selected consolidated financial data for each of the years in the five-year
period ended December 31, 2005 are derived from the audited financial statements
of the Company. The following data should be read in conjunction with the
financial statements and related notes and with Management's Discussion and
Analysis of Financial Condition and Results of Operations, which are included
elsewhere in this Annual Report on Form 10-K.

                             SELECTED FINANCIAL DATA
                 (IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED                                                2005          2004          2003           2002           2001
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>           <C>            <C>            <C>            <C>
STATEMENT OF OPERATION INFORMATION:
Net sales                                                 $25,783       $24,690        $19,521        $16,530        $21,669
  Gross profit                                              6,271         6,437          5,579          4,133          5,250
  Selling, general and administrative expenses              6,000         5,271          4,832          4,143          5,061
  Research and development                                    394           707            581            458            379
  Operating profit (loss)                                   (122)           459            166          (469)          (191)
  Other income (expense), net                                 174           307            141            289            461
--------------------------------------------------------------------------------------------------------------------------------
  Net income (loss)                                           254           486            201          (106)            190
--------------------------------------------------------------------------------------------------------------------------------
PER SHARE AMOUNTS:
  Net income (loss) per share (basic)                         .18           .34            .14          (.07)            .12
  Net income (loss) per share (diluted)                       .18           .34            .14          (.07)            .11
  Book value per share                                       8.50          8.38           8.04           7.91           8.00
  Market price per share (unaudited) - high                 18.49         19.49          13.36          15.10          26.44
                                     - low                   9.62         11.50           9.00           8.25          12.31

--------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET INFORMATION
  Current assets                                          $15,885       $18,441        $17,109        $14,723        $15,029
  Total assets                                             23,099        20,901         19,793         16,902         17,839
  Current liabilities                                      10,675         8,623          7,894          5,139          5,854
  Long-term liabilities                                       264           350            450            550            650
  Shareholders' equity                                     12,161        11,928         11,450         11,212         11,336
Weighted average number of equivalent
shares outstanding                                      1,429,929     1,425,497      1,422,707      1,417,682      1,658,296

--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

In August 2005, we acquired 100% of the stock of Newstec, a company located in
Walpole Massachusetts that manufactures and sells inserters and controls to
newspaper publishers and companies that service newspaper publishers. Our 2005
selected financial data reflects operations from the date of the acquisition.
See note 6 to the consolidated financial statements for the unaudited pro forma
results prepared for comparative purposes.

In May 2001, we purchased 550,000 shares of our common stock for $11,000,000 in
a modified "Dutch auction" tender offer. We also incurred $461,136 in related
fees and expenses.


                                       12

<PAGE>

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

OVERVIEW

NEWSPAPER INDUSTRY CONSIDERATIONS
Our financial performance reflects, to a meaningful extent, conditions in the
newspaper industry. We believe that our customers' spending for capital
investment, and therefore, demand for our equipment, are affected by
fluctuations in advertising revenue and newsprint cost. Specifically, we believe
the growth in our business is somewhat reflective of the growth in newspaper
advertising revenues, offset by any increases in newsprint costs. Similarly, we
believe that a decline in advertising revenues generally will adversely affect
capital equipment spending by newspapers and, as a result, will adversely affect
our financial performance. On a longer-term basis, we believe that capital
investment patterns have been, and will continue to be, affected by reduction in
newspaper circulation and industry consolidation. According to published
reports, newspaper circulation in the United States has decreased by an average
of approximately 1% each year from 1987 to 2004. According to statistics from
the Audit Bureau of Circulation, daily newspaper circulation declined 2.6% for
the six months ending September 30, 2005 compared to the same period in 2004.
The sharp decline in 2005 may have reflected a correction of circulation
statistics that certain newspapers had reportedly misstated in recent years.
Nevertheless, we expect the trend of decreasing circulation to continue as
newspapers continue to compete for advertising revenue with other media
including the Internet, direct mail, television and radio. While reduced
circulation could negatively affect demand for our products, we believe the
consolidation of newspaper ownership in recent years has had a positive impact
on our business. In many cases, when large newspaper and media groups have
acquired small newspapers and newspaper chains, the acquiring groups centralize
the production and distribution of multiple newspapers located in a geographic
area to one or a few sites. The operation of centralized production and
distribution facilities typically require the purchase of additional automated
equipment. Therefore, consolidation could enhance demand for our products.

Based on published financial reports and discussions with our customers, we
believe that major newspaper chains generally derive over 70% of their revenues
from advertising. Statistics obtained from the Newspaper Association of America
(NAA) indicate that newspaper advertising revenue increased 1.51% during the
year ended December 31, 2005 compared to the same period in 2004, representing a
growth rate than is significantly lower than historical rates. Although recently
published reports by analysts indicate the expectation of a modest improvement
in 2006, management believes that the trend of lower than historical increases
in advertising revenue will continue into 2006, mostly due to competition for
advertising dollars by other media. Nevertheless, statistics available from NAA
indicate that, in 2004 (which we believe are the most recent statistics
available), U.S. newspaper advertising revenue amounted to $48.2 billion,
continuing to rank newspapers second behind direct mail ($52.2 billion) and
ahead of broadcast television ($46.3 billion) in the allocation of advertising
dollars. Despite published reports of significant advertising revenue gains
achieved by the Internet, such revenues remain well below traditional media,
amounting to $5.3 billion in 2004.

Based on public filings of financial reports of many newspaper chains, newsprint
represents a significant operating expense for newspaper publishers. According
to published reports, newsprint prices increased steadily during 2005. While
published reports indicated that newsprint prices are expected to rise again in
2006, publishers are attempting to offset the newsprint price increase by
reducing their consumption as they move to smaller web widths and lighter
newsprint weight. Accordingly, management expects that the increase in newsprint
prices will have only a moderate affect on capital spending demands of newspaper
publishers in 2006.

Our 2005 booked orders totaled $25,630,000 compared to $19,913,000 in 2004.
Approximately $820,000 of the 2005 booked orders were generated by Newstec
following its acquisition by us in August 2005. The larger volume of orders
received in 2005 are partly due to demand for our recently introduced Quipp
Packman packaging system. Additionally we believe that our customers accelerated
placing orders in December 2005 to avoid an announced price increase scheduled
for January 1, 2006.

We have previously disclosed our acquisition strategy to enhance our position in
the post-press newspaper industry and in markets that will provide reasonable
diversification. With the acquisition of Newstec in August 2005, we expect to
benefit from a more complete product offering, expanded new product development
capabilities, and increased depth of management talent. We will continue to seek
acquisitions in the post-press newspaper market and other markets that will
provide reasonable diversification.

                                       13

<PAGE>

EFFECT OF CONTRACT TERMS ON CASH GENERATION, REVENUE RECOGNITION
Most of our sales are made on a contract basis. A typical sales contract
requires a customer to pay for its purchase in installments as follows: 30% due
at the time of the order; 30% due 60 days prior to shipment; 30% due 30 days
prior to shipment; 5% due upon installation and 5% due upon acceptance. Contract
payment terms vary for some orders and may be based on our achievement of agreed
upon milestones. While cash is collected throughout the order process, revenue
is recognized only when all significant contract obligations are satisfied and
collection of outstanding receivables are reasonably assured in accordance with
our revenue recognition policy (see note 1 to the consolidated financial
statements included in this report).

We normally receive larger orders several months in advance of delivery.
Therefore, backlog can be an important, though by no means conclusive,
indication of our short-term revenue stream. The timing of revenues can be
affected by pending orders, the amount of custom engineering required, the
timetable for delivery, the time required to complete installation and the
receipt of new orders. Our backlog, as of December 31, 2005 and December 31,
2004, was $13,524,000 and $8,631,000, respectively. We expect to ship all orders
in our December 31, 2005 backlog within 12 months.














                                       14

<PAGE>

RESULTS OF OPERATIONS
2005 vs. 2004

NET SALES
Of the $25,782,879 in 2005 net sales, we generated $2,456,965 from our new
inserter product line acquired with the purchase of Newstec in August 2005.

The balance of the 2005 net sales totaling $23,325,914 decreased $1,364,141
(5.5%) compared to 2004 net sales of $24,690,055. The decrease was due mostly to
lower sales volume of manufactured products including stackers, bottomwrappers
and conveyor equipment, offset in part by an increase in OEM and installation
revenue. The higher volume of OEM and installation revenue was due in part to
the recognition of approximately $2,700,000 in revenue relating to a complex
system order that was manufactured and shipped to our customer in 2003 and 2004.

Sales to foreign customers were $1,686,772 in 2005 compared to $2,172,536 in
2004. Most of our foreign sales are made to customers located in countries where
equipment specifications are similar to those in the U.S, principally newspapers
in Canada, Central America and South America. Because opportunities to sell our
equipment overseas are not consistent, sales to foreign customers fluctuate from
year to year.

GROSS PROFIT Of the $6,271,109 gross profit in 2005, $118,120 was generated by
our newly acquired inserter product line. Gross profit as a percentage of net
sales amounted to 4.8% on the newly acquired product line following the
acquisition in August 2005. The gross profit percentage was adversely affected
by low manufacturing volumes at our Walpole, Massachusetts facility, resulting
in unfavorable overhead absorption. Due to the low volume of inserter orders
scheduled to ship from August to December 2005, we accelerated the relocation of
our newly acquired inserter operations from Massachusetts to our Miami, Florida
facility and closed the Walpole Facility. The relocation was completed by March
1, 2006. The profit margin percentage for our newly acquired inserter product
line was also adversely affected by the purchase accounting write-up of
inventory on the date of acquisition. In other words, the inventory was written
up to fair value on the date that we acquired Newstec. The purchase accounting
adjustment resulted in increased cost of sales by approximately $187,000 upon
recognition of the related revenue.

The balance of our 2005 gross profit was $6,152,989, a decrease of $283,973
(4.4%) compared to gross profit of $6,436,962 for the corresponding period in
2004. Gross profit as a percentage of sales increased to 26.4% in 2005 from
26.1% in 2004, mostly due to an improved sales mix resulting from lower volume
of complex system projects in 2005 compared to 2004. We generally expect margins
on complex systems projects to be lower than margins on discrete product sales
due to competitive pricing pressures, system complexity and additional
customization requirements. In addition, cost of sales in 2004 reflected the
rework of a gripper conveyor system that was later returned by the customer. The
improved 2005 gross profit margin was partially offset by a nominal profit
earned on revenue of approximately $2,700,000 for a complex system project
recognized during the first quarter of 2005. The order for this system was
negotiated in 2003 when our market was just beginning to show signs of recovery.
We expected lower margins on this order due not only to the factors described
above, but also because it included a high content of equipment manufactured by
others. Additionally, in 2005, our manufacturing plant in Miami was shut down
for eleven days following hurricanes Katrina and Wilma, resulting in added
facilities and property maintenance costs coupled with production start-up
inefficiencies.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Of the $5,999,955 in selling, general and administrative expenses for 2005,
$746,667 was incurred by our acquired operations in Walpole, Massachusetts.

The balance of our 2005 selling, general and administrative expenses amounted to
$5,253,288, a decrease of $17,727 (0.3%) as compared to $5,271,015 for 2004.
During the third quarter 2005, we settled a matter with the Export-Import Bank
of the United States ("EXIM Bank") related to a dispute arising from the sale of
equipment to a foreign customer in 2000. The settlement with the EXIM Bank was
less than the cost estimated and accrued, and, as a result, we recorded a
$235,000 reduction in selling, general and administrative expenses.
Additionally, due to lower sales volume, we incurred lower variable selling
costs including commissions and warranty expense. The reduction to selling,
general and administrative expenses was offset in part by higher expenses
related to compliance requirements of the Sarbanes-Oxley Act of 2002 and related
regulations.

                                       15

<PAGE>


RESEARCH AND DEVELOPMENT
Research and development expenses for 2005 were $393,600, a decrease of $313,547
(44.3%) as compared to $707,147 in 2004. In 2005, we continued to develop and
test our In-Line-C inserting/collating system with poly-wrapping capabilities
and commenced development of new controls for some of our equipment. In 2004, we
focused much of our research and development efforts on our new In-Line C
inserting/collating system with poly-wrapping capabilities. Additionally, we
expended research and development resources to redesign our gripper conveyor to
enhance the performance of the product in certain applications, and completed
the software for the Quipp Packman packaging system. In 2003, we focused much of
our engineering and technical efforts on the development of the Quipp Packman
packaging system.

OTHER INCOME AND EXPENSE (NET)
Other income and expense (net) in 2005 was $173,636 as compared to $306,778 for
the same period in 2004. Royalty income relating to our patented automatic cart
loading system technology used by another supplier of post-press material
handling equipment decreased to $25,000 in 2005 compared to $120,000 during the
same period in 2004. Interest income decreased to $172,123 in 2005 from $194,953
in 2004. Our interest income was lower in 2005 due to lower balances of cash,
cash equivalents and securities available for sale after we expended
approximately $4,500,000 for Newstec, partially offset by increases in interest
rates. In addition, we recognized interest income in 2004 related to repayment
of a note from an international customer who previously was delinquent in making
payment. Interest expense was greater in 2005 primarily due to amortization of
loan costs associated with our line of credit.

INCOME TAX (BENEFIT) EXPENSE
Income taxes for 2005 were reduced by $250,000 in the third quarter. The
reduction was due to an adjustment in current and deferred state tax liabilities
as a result of settlements of tax obligations with several states for amounts
that were less than estimated and accrued.














                                       16

<PAGE>

RESULTS OF OPERATIONS
2004 vs. 2003

NET SALES
Net sales for 2004 were $24,690,055, an increase of $5,169,362 (26.5%) from 2003
net sales of $19,520,693. Most of the increase is due to higher sales volume of
core products including stackers, bottomwrappers and conveyor equipment. The
greater net sales are due mostly to the higher volume of orders booked in the
second half of 2003 and the resulting strong backlog entering into 2004.
Additionally, in 2004 we recognized net sales of approximately $1,245,000 from
our recently introduced Quipp Packman packaging system. Sales to foreign
customers were $2,172,536 in 2004 compared to $2,167,122 in 2003. Most of our
foreign sales presently are made to newspapers in Canada where equipment
specifications are similar to those in the U.S. Sales to foreign customers
fluctuate from year to year as opportunities to sell our equipment outside the
United States arise.

GROSS PROFIT
Gross profit for 2004 was $6,436,962, an increase of $858,095 (15.4%) from gross
profit of $5,578,867 for the corresponding period in 2003. As a percentage of
net sales, gross profit decreased to 26.1% in 2004 from 28.6% in 2003. The
decrease in gross profit margin as a percentage of sales is mainly due to the
production and installation of complex systems. In general, we expected margins
to be lower on these projects due to competitive pricing pressures, system
complexity and additional customization requirements. Nevertheless, we incurred
higher than expected costs on complex systems, including custom software
development costs for systems integration; additional production and
installation costs on newer products for which we had limited experience,
including an In-Line inserter system and waste handling systems; and rework
costs for a gripper conveyor system that was subsequently returned by the
customer. Our gripper conveyor has been redesigned to enhance its performance in
certain applications. Costs related to the redesign of the gripper conveyor were
charged to research and development.

Additionally, as a result of slow incoming orders during the third quarter in
2004, our overhead absorption was negatively affected by a one-week plant
shutdown and shortened work-weeks for production personnel, coupled with a
shutdown for two days due to hurricane conditions.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for 2004 were $5,271,015, an
increase of $439,496 (9.1%) as compared to $4,831,519 for 2003. We incurred
higher variable selling and administrative costs such as commission and warranty
expense due to improved net sales. Additionally, we incurred higher test
equipment expenses due to a greater number of prospective customers evaluating
our equipment as we recently introduced the Quipp Packman packaging system.
Also, we incurred an increase in selling, general and administrative costs from
expenses associated with compliance requirements of the Sarbanes-Oxley Act of
2002.

Selling, general and administrative costs in 2003 included costs related to
professional fees associated with the implementation of a shareholder rights
plan and a special meeting of shareholders held in response to the demand of a
shareholder.

RESEARCH AND DEVELOPMENT
Research and development expenses for 2004 were $707,147, an increase of
$126,026 (21.7%) as compared to $581,121 in 2003. In 2004, we devoted much of
our research and development resources to our new In-Line-C inserting/collating
system with poly-wrapping capabilities. In addition, we expended research and
development resources to redesign our gripper conveyor to enhance the
performance of the product in certain applications, and we completed the
software for the Quipp Packman packaging system. For the same period in 2003, we
focused much of our engineering and technical efforts on the development of the
Quipp Packman packaging system.

OTHER INCOME AND EXPENSE (NET)
Other income and expense (net) in 2004 was $306,778 as compared to $140,591 for
the same period in 2003. Interest income increased to $194,953 from $133,332
mostly due to the collection of the final installment of an outstanding note
receivable from an international customer. All principal and interest payments
on the note receivable had previously been applied only to the principal balance
due to uncertainties regarding collectability of the note. Interest relating to
the note was recognized upon receipt of the final installment. Additionally, we
received $120,000 of royalty income relating to our patented automatic cart
loading system technology used by another supplier of post-press material
handling equipment. We received $15,000 of royalty income during the same period
in 2003.
                                       17

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES
Over the past several years, our cash generation has been more than sufficient
to support our operations. While our cash, cash equivalents and securities
available for sale decreased by $2,874,566 at December 31, 2005 compared to the
same date in the previous year, the decrease relates to approximately $4,500,000
expended to purchase Newstec offset in part by the collection of receivables in
the first quarter of 2005 in connection with the sale of a large and complex
order that required an extended period of time to design, manufacture and
install.

On March 25, 2005, we entered into a line of credit agreement with Merrill Lynch
Business Financial Services, Inc. Under the terms of the agreement, we can
borrow up to $3,000,000 subject to a limit based on eligible accounts receivable
and inventory. Borrowings are secured by all accounts receivable, inventory,
intangibles and contract rights as well as securities with value of no less than
$1,000,000. Interest is payable monthly at a rate equal to the one-month LIBOR
rate plus 2.4%. The Agreement expires on April 30, 2006 and is subject to
renewal in accordance with terms specified in the agreement. As of the date of
this report, we have not drawn on the line of credit.

Our long-term debt consists primarily of obligations under variable rate
industrial revenue bonds that were issued through the Dade County Industrial
Development Authority in 1988. At December 31, 2005, the balance due on the
bonds was $350,000, of which $100,000 is classified as a current liability on
our balance sheet. During 2005, the bonds bore interest at an average rate of
2.6%.

The following table provides information relating to certain of our material
contractual obligations at December 31, 2005.

                                      PAYMENTS DUE BY PERIOD
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
                                                                                                MORE
   CONTRACTUAL OBLIGATIONS        TOTAL         1 YEAR        1-3 YEARS     4-5 YEARS       THAN 5 YEARS
---------------------------------------------------------------------------------------------------------
   <S>                          <C>            <C>            <C>             <C>                  <C>

   Employment Agreements        $1,677,083     $  740,000     $  937,083             --             --
   Building Lease               $  147,506     $   59,974     $   83,972     $    3,560             --
   Purchase Commitments         $1,082,519     $1,082,519             --             --             --
   Auto Loan                    $   23,096     $    9,088     $   14,088             --             --
   Industrial Revenue Bonds     $  350,000     $  100,000     $  250,000             --             --
---------------------------------------------------------------------------------------------------------
</TABLE>

On December 31, 2005, cash, cash equivalents and securities available for sale
totaled $5,864,641, as compared to $8,739,207 at December 31, 2004. The
reduction in cash and cash equivalents and securities available for sale
resulted from approximately $4,500,000 expended to purchase Newstec, offset in
part by the reduction of inventory and receivables.

Working capital at December 31, 2005 was $5,210,523 a decrease of $4,607,280
from $9,817,803 at December 31, 2004. The reduction in working capital is due
mostly to the purchase of Newstec.

As noted in the "Overview" section above, we may effect strategic acquisitions
to enhance our position in the newspaper post-press market or provide reasonable
market diversification. If any acquisition is effected, it may require a
significant cash investment and additional short term or long term financing
arrangements. Nevertheless, we believe that our cash, cash equivalents and
securities available for sale together with our line of credit and cash
generated from operations will be sufficient to fund operations at the current
level.

                                       18

<PAGE>

CRITICAL ACCOUNTING ESTIMATES

In preparing our financial statements, management is required to make estimates
and assumptions that, among other things, affect the reported amounts of assets,
revenues and expenses. These estimates and assumptions are most significant
where they involve levels of subjectivity and judgment necessary to account for
highly uncertain matters or matters susceptible to change, and where they can
have a material impact on our financial condition and operating performance. We
discuss below the more significant estimates and related assumptions used in the
preparation of our consolidated financial statements. If actual results were to
differ materially from the estimates made, the reported results could be
materially affected. Our senior management has discussed the application of
these estimates with our Audit Committee.

Revenue recognition

Revenue from contracts that include multiple element arrangements, such as a
sale of standard equipment and basic installation services, is recognized as
each element is earned based on the relative fair value of each element. Revenue
on standard equipment is recognized upon delivery in accordance with contractual
terms, net of discounts. The fair value of installation services is deferred
until the installation is completed. Management reviews objective evidence such
as prices charged when each element is sold separately and selling prices on
similar elements sold by competitors in making judgment as to the fair value for
each element of the contract.

Revenue from long-term complex system arrangements, such as a sale of complex
equipment, controls and software, is recognized using the percentage of
completion method of accounting. Revenue recognition is measured by units
delivered. On such contracts, management makes judgments regarding costs and
profitability estimates measuring progress toward completion. These judgments
are subject to some degree of uncertainty, and unanticipated efforts necessary
to complete a complex system could adversely affect operating results in future
periods.

Allowance for doubtful accounts
We continuously monitor collections and payments from our customers and maintain
an allowance for doubtful accounts based upon our historical experience and any
specific customer collection issues that we have identified. Nevertheless, there
is a risk that credit losses in the future will exceed our expectations, in
which case our operating results would be adversely affected.

Warranty reserves
We record a warranty reserve based on our actual historical return rates and
repair costs at the time of sale. While our warranty costs have generally been
within our expectations and the provisions established, future returns or repair
costs could be in excess of our warranty reserves. Additionally, we do not have
extensive warranty claims experience with recently introduced products or
Newstec products. A significant increase in product return rates or a
significant increase in the costs to repair our products would adversely affect
our operating results for the period or periods in which such returns or
additional costs materialize.

Goodwill and other intangible assets
In connection with our acquisitions, we estimated the value of the acquired
intangibles assets. Because the value of these assets is not certain, there is a
degree of subjectivity in allocating fair value to the assets. The determination
of fair value of certain of the assets can have an impact on amortization
expense, because the useful lives of such assets vary from 5 years to 17 years.
We review goodwill and other intangible assets periodically. The impairment
review is based on a discounted cash flow approach that requires significant
judgments with respect to value, revenue and expense growth rates and the
selection of an appropriate discount rate. We determined that goodwill and
intangible assets were not impaired in 2005. However, if acquired products fail
to achieve estimated volume and price levels, market conditions unfavorably
change, or other significant estimates are not realized, we may be required to
recognize impairment charges in the future.

                                       19

<PAGE>

MARKET RISK
We are exposed to various types of market risk, including changes in interest
rates. Market risk is the potential loss arising from adverse changes in market
rates and prices such as interest rates. We do not enter into derivatives or
other financial instruments for trading or speculative purposes. Because our
cash and investments exceed short and long-term debt, the exposure to interest
rates relates primarily to our investment portfolio. Due to the short-term
maturities of our investments, we believe there is no significant risk arising
from interest rate fluctuations. To ensure safety and liquidity, we only invest
in instruments with credit quality and which are traded in a secondary market.
The counterparties are major financial institutions and government agencies.

INFLATION
The rate of inflation has not had a material impact on operations.

RECENT ACCOUNTING PRONOUNCEMENTS
See Note 17 in the Notes to Consolidated Financial Statements for recent
accounting pronouncements.

FORWARD LOOKING STATEMENTS
The statements contained in this Annual Report on Form 10-K, including
statements concerning shipment of backlog orders; whether a sale of Quipp may
occur; possible continuation of our current mode of operations or other
alternative actions and maintenance of management focus on expanding our
business; the effect of changes in newspaper advertising revenue and newsprint
costs on newspapers' capital spending and on orders for our products; newspaper
circulation trends; the trend of advertising revenues; the effect of decreasing
circulation and newspaper industry consolidation on demand for our products;
adequacy of cash, cash equivalents and securities available for sale; investment
in strategic acquisitions; anticipated effect of the Newstec Acquisition and
adequacy of available resources, are forward looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. A number of
important factors could cause actual results to differ materially from those in
the forward looking statements including, but not limited to, economic
conditions generally and specifically in the newspaper industry; the result of
the strategic evaluation described in this report; unanticipated business
developments; delay in transition of newspapers to smaller web widths;
acceleration of the decline in newspaper circulation; capital spending
reductions by newspaper publishers; demand and market acceptance for new and
existing products; the impact of competitive products and pricing; delays in
shipment; cancellation of customer orders; engineering and production
difficulties; unanticipated customer demand for additional work in connection
with large and complex orders; payment delays; and specific terms of strategic
acquisitions (if any are effected),


ITEM 7A - QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Market Risk."


ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                     PAGE

Report of Independent Registered Public Accounting Firm                  F-1

Financial Statements:

      Consolidated Balance Sheets as of December 31, 2005 and 2004       F-2

      Consolidated Statements of Operations for each of the years
         in the three-year period ended December 31, 2005                F-3

     Consolidated Statements of Shareholders' Equity for each of the
         years in the three-year period ended December 31, 2005          F-4

     Consolidated Statements of Cash Flows for each of the years in
         the three-year period ended December 31, 2005                   F-5

         Notes to Consolidated Financial Statements.                  F-6 - F-18

                                       20

<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of Quipp, Inc.:

We have audited the accompanying consolidated balance sheets of Quipp Inc. and
subsidiaries (the Company) as of December 31, 2005 and 2004, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 2005. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (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 consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. 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 financial position of the Company as of
December 31, 2005 and 2004, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 2005, in
conformity with U.S. generally accepted accounting principles.



/ s / KPMG LLP
Miami, Florida
March 23, 2006
Certified Public Accountants



                                       F-1


<PAGE>

                                   QUIPP, INC.
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2005 AND 2004

<TABLE>
<CAPTION>
                                                                            2005             2004
                                                                        ------------     ------------
<S>                                                                     <C>              <C>
ASSETS
Current assets:
    Cash and cash equivalents                                           $  2,829,246     $  5,762,511
    Securities available for sale                                          3,035,395        2,976,696
    Accounts receivable, net of allowances of $148,000 and $168,000        4,086,891        4,092,548
    Inventories                                                            4,803,013        4,876,677
    Current deferred tax asset                                               609,848          531,589
    Prepaid expenses and other current assets                                520,634          200,570
                                                                        ------------     ------------
TOTAL CURRENT ASSETS                                                      15,885,027       18,440,591

Property, plant and equipment, net                                         1,603,041        1,693,504
Intangible assets, net                                                     3,386,576          658,412
Goodwill                                                                   2,190,847           68,161
Other assets                                                                  33,738           40,459
                                                                        ------------     ------------
TOTAL ASSETS                                                            $ 23,099,229     $ 20,901,127
                                                                        ============     ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Current portion of long-term debt                                    $    109,088     $    100,000
   Accounts payable                                                        1,683,712        1,260,650
   Accrued salaries and wages                                                663,471          603,617
   Deferred revenues                                                       6,713,384        4,633,632
   Other accrued liabilities                                               1,504,849        2,024,889
                                                                        ------------     ------------
TOTAL CURRENT LIABILITIES                                                 10,674,504        8,622,788

Long-term debt, net of current portion                                       264,008          350,000
                                                                        ------------     ------------

TOTAL LIABILITIES                                                         10,938,512        8,972,788

Commitments and Contingencies (Note 16)

Shareholders' Equity:
   Common stock - par value $.01 per share, authorized 8,000,000
     shares, issued 1,423,775 and 1,433,025 shares in 2005
     and 2004, respectively                                                   14,238           14,330
     Paid-in capital                                                              --           83,825
  Treasury Stock, at cost                                                         --         (148,375)
  Retained earnings                                                       12,153,632       11,994,935
  Other comprehensive income                                                  (7,153)         (16,376)
                                                                        ------------     ------------
                                                                          12,160,717       11,928,339
                                                                        ------------     ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                              $ 23,099,229     $ 20,901,127
                                                                        ============     ============
</TABLE>

        See accompanying notes to the consolidated financial statements.

                                      F-2

<PAGE>

                                   QUIPP, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

<TABLE>
<CAPTION>
                                                          2005             2004             2003
                                                      ------------     ------------     ------------
<S>                                                   <C>              <C>              <C>
Net sales                                             $ 25,782,879     $ 24,690,055     $ 19,520,693
Cost of sales                                          (19,511,770)     (18,253,093)     (13,941,826)
                                                      ------------     ------------     ------------

GROSS PROFIT                                             6,271,109        6,436,962        5,578,867
                                                      ------------     ------------     ------------

Operating expenses:
   Selling, general and administrative expenses         (5,999,955)      (5,271,015)      (4,831,519)
   Research and development                               (393,600)        (707,147)        (581,121)
                                                      ------------     ------------     ------------

OPERATING  (LOSS) PROFIT                                  (122,446)         458,800          166,227

----------------------------------------------------------------------------------------------------
Other income (expense):
   Miscellaneous income (expense)                           25,000          120,000           15,019
   Interest income                                         172,123          194,953          133,332
   Interest expense                                        (23,487)          (8,175)          (7,760)
                                                      ------------     ------------     ------------

                                                           173,636          306,778          140,591

----------------------------------------------------------------------------------------------------

INCOME BEFORE INCOME TAXES                                  51,190          765,578          306,818

Income tax (expense) benefit                               202,714         (279,792)        (105,624)
                                                      ------------     ------------     ------------

NET INCOME                                            $    253,904     $    485,786     $    201,194
                                                      ------------     ------------     ------------


OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXES:
Unrealized gain (loss) on securities held for sale           9,223          (18,292)         (36,689)
                                                      ------------     ------------     ------------
Comprehensive income                                  $    263,127     $    467,494     $    164,505
                                                      ------------     ------------     ------------


----------------------------------------------------------------------------------------------------
PER SHARE AMOUNTS:

   Basic income per common share                      $       0.18     $       0.34     $       0.14
   Diluted income per common share                    $       0.18     $       0.34     $       0.14

Basic average number common shares                       1,429,929        1,423,775        1,422,707
     Outstanding

Diluted average number of common and
   common equivalent shares outstanding                  1,429,929        1,425,497        1,422,707

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

</TABLE>

        See accompanying notes to the consolidated financial statements.

                                      F-3

<PAGE>

                                   QUIPP, INC.
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

<TABLE>
<CAPTION>
                                                        ADDITIONAL                                         OTHER           TOTAL
                                      COMMON STOCK        PAID-IN      RETAINED      TREASURY STOCK    COMPREHENSIVE   SHAREHOLDERS'
                                     SHARES    AMOUNT     CAPITAL      EARNINGS    SHARES    AMOUNT    INCOME (LOSS)       EQUITY
--------------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>                    <C>        <C>          <C>     <C>            <C>         <C>
Balances on

         January 1, 2003            1,426,025   14,260          --    11,307,955   9,250   (148,375)       38,605     11,212,445


Net income                                 --       --          --       201,194      --         --            --        201,194
Issuance of shares to employees         1,000       10      14,767            --      --         --            --         14,777
Unrealized loss on securities held         --       --          --            --      --         --       (36,689)       (36,689)
  for sale
Issuance of shares to purchase
  certain assets of USA Leader,
  Inc.                                  6,000       60      57,720            --      --         --            --         57,780
--------------------------------------------------------------------------------------------------------------------------------

 Balances on

          December 31, 2003         1,433,025   14,330      72,487    11,509,149   9,250   (148,375)        1,916     11,449,507


Net income                                 --       --          --       485,786      --         --            --        485,786
Stock-based compensation                   --       --      11,338            --      --         --            --         11,338
Unrealized loss on securities held
  for sale                                 --       --          --            --      --         --       (18,292)       (18,292)
--------------------------------------------------------------------------------------------------------------------------------

Balances on

        December 31, 2004           1,433,025   14,330      83,825    11,994,935   9,250   (148,375)      (16,376)    11,928,339


Net income                                 --       --          --       253,904                 --            --        253,904
Stock-based compensation                   --       --      40,441            --                 --            --         40,441
Unrealized gain on securities held
  for sale                                 --       --          --            --                 --         9,223          9,223
Retirement of treasury stock           (9,250)     (92)   (124,266)      (24,017) (9,250)   148,375            --             --
Dividend declared on common
  stock ($.05 per share)                   --       --          --       (71,190)     --         --            --        (71,190)
--------------------------------------------------------------------------------------------------------------------------------

Balances on

          December 31, 2005         1,423,775   14,238          --    12,153,632      --         --        (7,153)    12,160,717
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>



        See accompanying notes to the consolidated financial statements.

                                      F-4

<PAGE>

                                   QUIPP, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDING DECEMBER 31, 2005, 2004 AND 2003
<TABLE>
<CAPTION>
                                                                     2005           2004           2003
                                                                 -----------    -----------    -----------
<S>                                                              <C>            <C>            <C>
Cash provided by operations:
   Net income                                                    $   253,904    $   485,786    $   201,194
                                                                 -----------    -----------    -----------
Reconciliation of net income to net cash (used in) provided by
operations:

Deferred income taxes                                                (78,259)       134,748         58,021
Depreciation                                                         238,759        271,063        263,922
Intangible amortization                                              272,836        115,193         86,395
Goodwill Impairment                                                       --         29,932         76,729
Stock-based compensation                                              40,441         11,338         14,777
(Recovery from) charged to bad debt expense                          (16,545)       117,990         64,546

Changes in operational assets and liabilities net of effect of
acquisitions:
Accounts receivable                                                  645,553     (1,737,772)       335,305
Inventories                                                        2,668,482     (1,184,291)    (1,602,283)
Prepaid expenses and other assets                                    169,531         45,941        114,516
Notes receivable                                                          --        154,565        267,763
Accounts payable and other accrued liabilities                    (1,140,317)       130,521        291,265
Deferred revenues                                                 (1,095,507)       459,519      1,797,082
Income taxes payable                                                (153,828)       139,060         14,768
                                                                 -----------    -----------    -----------
NET CASH PROVIDED BY (USED IN) OPERATIONS                          1,805,050       (826,407)     1,984,000
                                                                 -----------    -----------    -----------

Cash flows from investing activities:
Securities purchased                                              (7,152,723)      (991,880)    (1,999,940)
Securities sold                                                    7,103,247        389,472      6,427,198
Capital expenditures                                                (107,694)      (199,488)      (245,035)
Purchase of assets from USA Leader, Inc.                                  --             --       (344,954)
Purchase of Newstec and related expenses, net of cash acquired    (4,477,455)            --             --
                                                                 -----------    -----------    -----------
NET CASH (USED IN) PROVIDED BY  INVESTING ACTIVITIES              (4,634,625)      (801,896)     3,837,269
                                                                 -----------    -----------    -----------

Cash flows from financing activities:
Repayment of debt                                                   (103,690)      (100,000)      (100,000)
                                                                 -----------    -----------    -----------
NET CASH USED IN FINANCING ACTIVITIES                               (103,690)      (100,000)      (100,000)
                                                                 -----------    -----------    -----------

(Decrease) increase in cash and cash equivalents                  (2,933,265)    (1,728,303)     5,721,269

Cash and cash equivalents, beginning of year                       5,762,511      7,490,814      1,769,545
                                                                 -----------    -----------    -----------

Cash and cash equivalents, end of year                           $ 2,829,246    $ 5,762,511    $ 7,490,814
                                                                 ===========    ===========    ===========

SUPPLEMENTAL DISCLOSURE OF NON CASH INFORMATION:
Issuance of shares to purchase assets of USA Leader, Inc.                 --             --    $    57,780
Cash received with acquisition of Newstec                        $   145,217             --             --
Retirement of treasury stock                                     $   148,375             --             --
Dividend declared (paid March 1, 2006)                           $    71,190             --             --
SUPPLEMENTAL DISCLOSURE OF CASH PAYMENTS:
Interest                                                         $    23,487    $     8,175    $     7,760
Income Taxes                                                     $   279,492    $     5,984    $    10,270
                                                                 ===========    ===========    ===========
</TABLE>

See accompanying notes to the consolidated financial statements.

                                      F-5

<PAGE>

                                   QUIPP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS - Through our wholly owned subsidiaries, Quipp Systems, Inc.
and Newstec, Inc., we design, manufacture, sell and install post-press material
handling equipment and systems to newspaper publishers. In the post-press stage
of newspaper operations, newspapers move from the pressroom in a continuous
stream and are assembled, stacked, bundled and transferred to the shipping
docks, from which they are loaded into delivery trucks, or loaded into carts or
stored on pallets for further distribution. Our equipment and control systems
facilitate the automated movement of newspapers from the printing press to the
delivery truck.

PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements
include the accounts of Quipp, Inc., Quipp Systems, Inc. and Newstec, Inc., both
wholly owned subsidiaries (collectively, the "Company"). All material
intercompany balances and transactions have been eliminated in consolidation.

ACCOUNTS RECEIVABLE AND DEFERRED REVENUE - Most of the Company's sales are made
on a contract basis and require customers to make progress payments. Progress
payments are recorded as deferred revenue when received. Accounts receivable is
presented net of an allowance for doubtful accounts of $148,000 and $168,000 for
2005 and 2004, respectively.

REVENUE RECOGNITION - Revenue is recognized when all significant contractual
obligations have been satisfied and collection of the resulting accounts
receivable is reasonably assured. Revenue from the sale of standard stand-alone
equipment without installation service is recognized upon delivery according to
contractual terms and is recorded net of discounts. Revenue from
multiple-element arrangements such as the sale of standard equipment and basic
installation services is recognized in accordance with EITF 00-21 "Revenue
Arrangements with Multiple Deliverables". Revenue from the standard equipment is
recognized upon delivery according to contractual terms and is recorded net of
discounts. The fair value of the revenue related to the installation service is
deferred until installation services are provided. Fair value is determined by
the price charged to other customers when services are sold separately and is
supported by competitive market data. Revenue from long-term complex equipment
or installation arrangements is recognized using the unit of delivery method
under SOP 81-1 in accordance with contractual terms and is recorded net of
discounts. Cost and profitability estimates are revised periodically based on
changes in circumstances. Estimated losses on such contracts are recognized
immediately.

INVENTORIES - Inventories include material, labor and factory overhead, and are
stated at the lower of cost or market. Costs are determined using the first-in,
first-out (FIFO) method. Inventories determined not likely to be sold during the
product lifecycle are written down to fair value based on the Company's
experience recovering value from similar products.

GOODWILL AND INTANGIBLE ASSETS - Goodwill represents the excess of costs over
fair value of assets of businesses acquired. The Company adopted the provisions
of Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and
Other Intangible Assets," as of January 1, 2002. Goodwill and intangible assets
acquired in a business combination and determined to have an indefinite useful
life are not amortized, but instead tested for impairment in accordance with
SFAS No. 142. The Company evaluates goodwill impairment at least annually,
calculating fair value of the reporting unit by estimating future cash flows. If
the fair value of the reporting unit is less than the carrying amount of
goodwill, an impairment loss is recognized in an amount equal to that excess.

RESEARCH AND DEVELOPMENT COSTS - Research and development costs include
expenditures for the development of new products, significant enhancements of
existing products or production processes, and the design, testing and
construction of prototypes. The Company expenses research and development costs
as they are incurred.

                                       F-6

<PAGE>

PROPERTY, PLANT AND EQUIPMENT, NET - Property, plant and equipment is recorded
at cost. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. Repairs and maintenance are expensed as
incurred; alterations and major overhauls that improve an asset or extend the
useful lives are capitalized.

CASH AND CASH EQUIVALENTS - Cash and cash equivalents include all the Company's
operating cash balances, demand deposits and short-term investments with
original maturities of three months or less. The Company classifies investments
with an original maturity of more than three months as securities available for
sale.

INCOME TAXES - Income taxes are accounted for using the asset and liability
method under the provisions of SFAS No. 109, "Accounting for Income Taxes."
Deferred tax assets and liabilities are identified based on temporary
differences between the financial statements and the tax bases of assets and
liabilities. Deferred tax assets and liabilities are measured using tax rates
that are expected to apply to taxable income in the year the temporary
difference is expected to recover or settle. Tax rate changes are recognized in
the period in which the change occurs.

INCOME PER SHARE - Basic income per share is based on the weighted average
number of common shares outstanding during the periods presented. Diluted income
per share is computed using the weighted average number of common and dilutive
common equivalent shares outstanding in the periods presented. Dilutive common
equivalent shares assume the exercise of options, calculated under the treasury
stock method, using the average stock market prices during the periods.

WARRANTY RESERVE - Warranty reserves are made at the time the products are sold
using historical experience as a prediction of expected future costs. Reserves
are adjusted when experience indicates that expected cost will differ from
initial estimates. The provision for warranty costs is included in other accrued
liabilities.

SECURITIES AVAILABLE FOR SALE - Securities available for sale include
investments that are not held for trading or not intended to be held to
maturity. These instruments are recorded at their fair value. Unrealized holding
gains or losses, net of the related tax effect, are included as a separate
component of shareholders' equity. Realized gains and losses, arising from the
sale of securities, are computed using the specific identification method and
included in other income. Fair value of the securities is determined based upon
market prices. A decrease in the market value below cost, determined to be other
than temporary, would result in a reduction in carrying amount to fair value.
This reduction would be charged to income. Premiums and discounts are amortized
or accreted using a method that approximates the effective yield over the life
of the security. Dividend and interest income is recognized when earned. The
Company invests in short term and variable rate long-term securities and
believes there is no significant risk arising from interest rate fluctuations.
In order to ensure liquidity, the Company will only invest in instruments with
credit quality and which are traded in a secondary market.

DEFERRED BOND-FINANCING COST - Deferred bond financing costs were incurred upon
the issuance of industrial revenue bonds (see note 7) and are included in other
assets. These costs are amortized using the effective yield over the term of the
bonds.

USE OF ESTIMATES - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and disclosure of contingent assets and
liabilities at the date of the financial statements. These estimates could
affect the reported amounts of revenues and expenses. Significant items subject
to estimates include the allowance for doubtful accounts, warranty reserves,
goodwill, intangible assets, deferred taxes and inventory valuation. Actual
results could differ from those estimates.

                                      F-7

<PAGE>

IMPAIRMENT OF LONG-LIVED ASSETS - Long-lived assets and certain identifiable
intangibles are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future undiscounted net cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell. There was no impairment of long-lived assets in 2005, 2004 and
2003.

COMPREHENSIVE INCOME (LOSS) - The Company had unrealized (losses) gains on
securities available for sale totaling $(7,153) and $(16,376) at December 31,
2005 and 2004, respectively.

SEGMENT REPORTING - SFAS No. 131, "Disclosure about Segments of an Enterprise
and Related Information" applies a "management approach" in which the internal
reporting that is used by management for making operational decisions and
evaluating performance is the source for the Company's segment reporting. The
Company operates in one segment for management reporting purposes.

ADVERTISING COSTS - The Company expenses advertising costs as incurred.
Advertising costs totaled $75,495, $71,182, and $82,001 in 2005, 2004 and 2003,
respectively.

STOCK-BASED COMPENSATION - Prior to 2003, the company accounted for the grant of
stock options under its 1996 Equity Compensation Plan using the recognition and
measurement provisions of APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. No stock-based employee compensation
cost related to stock options is reflected in 2003 net income, as all options
granted under the plan had an exercise price equal to the market value of the
underlying common stock on the date of grant. Effective January 1, 2003, the
Company adopted the fair value recognition provisions of FASB Statement No. 123,
"Accounting for Stock Based Compensation," prospectively to all employee awards
granted, modified or settled after January 1, 2003. Awards under the company's
1996 Equity Compensation Plan vest over periods ranging from three to five
years. The following table illustrates the effect on net loss and loss per share
if the fair value based method had been applied to all outstanding and unvested
awards in each period.

<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------------------------
                                                                              2005           2004           2003
-------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>            <C>            <C>
Net  income as reported                                                   $   253,904    $   485,786    $  201,194
Deduct total stock-based employee compensation expense determined under
fair-value-based method for all awards, net of tax                        $   (13,426)   $   (22,419)   $  (33,615)

Pro forma net income                                                      $   240,478    $   463,367    $  167,579


EARNINGS PER SHARE:
Basic  - as reported                                                      $      0.18    $      0.34    $     0.14
Basic  - pro forma                                                        $      0.17    $      0.33    $     0.12

Diluted  - as reported                                                    $      0.18    $      0.34    $     0.14
Diluted  - pro forma                                                      $      0.17    $      0.33    $    (0.12)
-------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      F-8

<PAGE>

NOTE 2 - SECURITIES AVAILABLE FOR SALE

Securities available for sale are recorded at fair value and consist primarily
of federal, state and local government obligations and other short-term
investments. As of December 31, 2005 and 2004, the amortized cost of securities
available for sale approximated fair value. Securities available for sale at
December 31, 2005 and 2004 consisted of the following:

<TABLE>
<CAPTION>
                                                                          2005
                                             -----------------------------------------------------------
                                              AMORTIZED    UNREALIZED       UNREALIZED           FAIR
                                                COST          GAIN             LOSS              VALUE
                                             -----------   ---------         ---------       -----------
<S>                                          <C>           <C>               <C>             <C>
Federal Government Agency Securities         $ 3,042,548   $      --         $  (7,153)      $ 3,035,395
                                             -----------   ---------         ---------       -----------
                                             $ 3,042,548   $      --         $  (7,153)      $ 3,035,395
                                             ===========   =========         =========       ===========
</TABLE>
<TABLE>
<CAPTION>

                                                                          2004
                                             -----------------------------------------------------------
                                              Amortized    Unrealized       Unrealized           Fair
                                                Cost          Gain             Loss              Value
                                             -----------   ---------         ---------       -----------
<S>                                          <C>           <C>              <C>              <C>
Federal Government Agency Securities         $ 2,993,072   $     --         $  (16,376)      $ 2,976,696
                                             -----------   ---------         ---------       -----------
                                             $ 2,993,072   $     --         $  (16,376)      $ 2,976,696
                                             ===========   =========         =========       ===========
</TABLE>

All securities available for sale at the end of 2005 will mature in 2006. No
gains or losses were realized in 2005 or 2004.

NOTE 3 - INVENTORIES

Inventory also includes equipment shipped to customers but not yet recognized as
a sale because either risk of loss has not transferred to the customer or the
equipment requires complex installation services. The Company will recognize the
sales and cost of sales for this equipment when the risk of loss transfers to
the customer or when installation services are complete and collection of the
resulting receivable is reasonably assured. Components of inventory as of
December 31, 2005 and 2004 were as follows:

                                         -----------------------
                                             2005        2004
                                         ----------   ----------

Raw Materials                            $2,792,334   $1,844,297
Work in Process                             911,586    1,024,104
Finished Goods                              121,377      162,497
                                         ----------   ----------
Subtotal                                  3,825,297    3,030,898
Finished goods shipped, not recognized      977,716    1,845,779
                                         ----------   ----------

Total                                    $4,803,013   $4,876,677
                                         ----------   ----------


Equipment made available to prospective customers for evaluation is included in
finished goods inventory at the lower of cost or market.

                                      F-9

<PAGE>

NOTE 4 - INCOME TAXES

Income tax benefit (expense) for the years ended December 31, 2005, 2004 and
2003 is as follows:

                                  CURRENT       DEFERRED        TOTAL
                                ---------      ---------      ---------
   2005
     U.S. FEDERAL               $ (35,100)     $  54,436      $  19,336
     STATE AND LOCAL              159,555         23,823        183,378
                                ---------      ---------      ---------
                                $ 124,455      $  78,259      $ 202,714
                                ---------      ---------      ---------
   2004
     U.S. Federal               $(119,131)     $(123,591)     $(242,722)
     State and local              (25,913)       (11,157)       (37,070)
                                ---------      ---------      ---------
                                $(145,044)     $(134,748)     $(279,792)
                                ---------      ---------      ---------
   2003
     U.S. Federal               $ (42,115)     $ (53,606)     $ (95,721)
     State and local               (5,488)        (4,415)        (9,903)
                                ---------      ---------      ---------
                                $ (47,603)     $ (58,021)     $(105,624)
                                ---------      ---------      ---------
The tax effects of the temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of December 31, 2005 and
2004 are as follows:

                                      ----------------------
                                         2005         2004
                                      ---------    ---------
DEFERRED TAX ASSETS:
Warranty reserve                      $  67,245    $  83,005
Inventory obsolescence                  175,107      131,335
Allowance for bad debts                  48,136       61,870
Contract reserves                        37,577      123,588
Vacation accrual                         52,256       49,391
Unicap                                   89,239       84,768
Other taxes                               7,489           --
Amortization                             87,381       79,907
Other
                                        106,262       82,190
                                      ---------    ---------
Total deferred tax assets             $ 670,692    $ 696,054

DEFERRED TAX LIABILITY:
Other Taxes                                  --      (70,252)
Depreciation                            (60,844)     (94,213)
                                      ---------    ---------
Total deferred tax liabilities          (60,844)    (164,465)

                                      ---------    ---------
Net current deferred tax assets       $ 609,848    $ 531,589
                                      =========    =========

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or the entire deferred tax
asset will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods that the deferred tax assets are deductible, management believes it is
more likely than not the Company will realize the benefits of these deductible
differences. The amount of the deferred tax asset considered realizable,
however, could be reduced in the near term if estimates of future taxable income
during the carryforward period are reduced.

                                      F-10

<PAGE>

The following table summarizes the differences between the Company's effective
income tax (expense) benefit and the statutory federal tax (expense) benefit for
the years ended December 31, 2005, 2004, and 2003:

                                            Year Ended December 31,
                                     ---------------------------------
                                        2005        2004        2003
                                     ---------   ---------   ---------
Statutory federal income tax           (17,405)   (260,297)   (104,318)

Increase (decrease) resulting from:

State and Local taxes, net of
   Federal income tax benefit          236,003     (24,466)     (6,536)

Permanent differences                  (22,564)      3,692      18,052

Other                                    6,679       1,279     (12,822)
                                     ---------   ---------   ---------

                                       202,714    (279,792)   (105,624)
                                     =========   =========    ========

The Company's effective tax rate was (396%), 36.5%, and 34.4% in 2005, 2004, and
2003, respectively. The effective tax rate of (396%) in 2005 resulted from an
adjustment to current and deferred state tax liabilities because the Company
settled tax obligations for amounts that were less than estimated and accrued.

NOTE 5 - PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment at December 31, 2005 and 2004 consist of the
following:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
                                                                                 ESTIMATED
                                                                                USEFUL LIFE
                                                  2005           2004             (YEARS)
                                          ------------       -----------        -----------
<S>                                           <C>               <C>                   <C>
LAND                                          $500,500          $500,500              --
BUILDING                                     1,431,771         1,431,771              31
BUILDING IMPROVEMENTS                          647,211           637,246              10
MACHINERY                                      863,676           863,262               5
FURNITURE AND FIXTURES                         229,436           226,777               5
COMPUTER EQUIPMENT                           1,669,763         1,562,640               5
AUTOMOBILES                                     70,817            41,115               5
                                          ------------       -----------
                                             5,413,174         5,263,311
Less: Accumulated depreciation              (3,810,133)       (3,569,807)
                                          ------------       -----------
                                          $  1,603,041       $ 1,693,504
============================================================================================
</TABLE>
Depreciation expense charged to income was $238,759, $271,063 and $263,922 in
2005, 2004 and 2003, respectively.

NOTE 6 - ACQUISITIONS

On August 10, 2005, the Company purchased the outstanding stock of Newstec, Inc.
(Newstec), a privately-held company located in Walpole, Massachusetts. Newstec
manufactures and sells high-speed inserting equipment and controls designed to
handle inserting requirements for the newspaper and commercial printing markets.
The Company acquired Newstec to enhance its product offering and expand new
product development capabilities.

The Company paid to the shareholders of Newstec (the "Sellers") $4,025,000 in
cash and provided the Sellers an opportunity to receive additional consideration
totaling $650,000 in Quipp, Inc. stock based upon criteria specified in the
agreement. The purchase price was determined by arms-length negotiations between
the parties. The cash portion of the purchase price was paid out of the
Company's cash and securities on hand. To date, the total paid and accrued
acquisition costs for the stock purchase amounted to $4,622,672 (inclusive of
direct legal fees, consulting costs, accounting fees, investment banking fees,
employee severance costs and other acquisition expenses). As of the date of this
report, the Company has determined that the Sellers have earned approximately
$250,000 of additional consideration. The Company will pay the additional
consideration in Quipp, Inc. stock in accordance with the Share Purchase
Agreement.

                                      F-11
<PAGE>

The acquisition was treated as a purchase transaction and the purchase price was
allocated to the acquired assets and assumed liabilities based on the estimated
fair value on the acquisition date. The Company hired an independent appraisal
consultant to assist with the valuation of goodwill and other intangible assets.
The purchase price was allocated as follows:

      Cash Paid                                       4,455,720
      Accrued Acquisition Costs                         166,952

      Liabilities Assumed:
           Current                                    4,361,091
           Long Term                                     26,786
                                                    -----------

                                                      9,010,549
                                                    -----------

      Fair Value of Tangible Assets:
           Current Assets                             3,846,261
           Fixed Assets                                  40,602

      Intangible Assets:
           Non-competition agreement                  2,500,000
           Customer lists                               248,000
           Trade names                                  253,000
           Goodwill                                   2,122,686
                                                    -----------

                                                      9,010,549
                                                    -----------

Of the total purchase price, $3,001,000 was allocated to amortizable intangible
assets including tradenames, customer lists and non-competition agreements.
Tradenames represents the value associated with customer recognition of the
Newstec and NewsCom brand names. Customer lists represent Newstec's
relationships with its installed base of customers. The Company entered into a
non-competition agreement with the former principals of Newstec for a minimum
term ending two years after the date the former principals of Newstec cease to
be employed by the Company, subject to a minimum five year term.

Details of the amortizable intangibles follow:


                                               Fair
    Intangible Asset                           Value                Life
    ------------------------------------  ------------------   ---------------
    Tradename                                  253,000            10 Years
    Customer Relationship                      248,000            10 Years
    Non-competition Agreement                2,500,000             7 Years

On March 6, 2003, pursuant to an Asset Purchase Agreement (the "Purchase
Agreement"), the Company, through its subsidiary Quipp Systems, Inc. ("Quipp
Systems"), completed the acquisition of certain assets (the "USA Leader Asset
Purchase") of USA Leader, Inc., a Missouri corporation (the "Seller"). The
assets acquired pursuant to the Purchase Agreement included the Seller's patent,
know-how, drawings, tooling, customer list, other intellectual property,
inventory, furniture, equipment and supplies. The Seller manufactured and sold
proprietary inserting and collating equipment and stacking systems (the
"Products") for the newspaper and commercial printing markets. In the newspaper
industry, the Seller historically focused on small to intermediate sized
publications, a market that has not been a traditional focus of the Company. The
Company has continued the sale of the Products following the acquisition.

As consideration for the asset purchase, the Company paid the Seller $344,954
and 6,000 shares of common stock, $0.01 par value per share, of the Company.
Also, the Company pays additional amounts ("Additional Consideration")
consisting of a percentage of sales of the Products during the three years
following the date of purchase.

                                      F-12
<PAGE>

The USA Leader Asset Purchase was treated as a purchase transaction and the
acquisition price was allocated to the acquired assets and assumed liabilities
based on the estimated fair value as of the acquisition date. The purchase price
was allocated as follows:

   Net liabilities                                                  $  (112,066)

   Less:  Acquisition costs                                            (321,993)

          Accrued contingent consideration                              (23,207)
                                                                    -----------
                                                                       (457,266)
   Amortizable Intangible Assets:
          Non-competion Agreement                  150,000
          Customer List                             10,000
          Patent                                   200,000
          Acquired Technology                      500,000
                                                ----------
                                                                        860,000
                                                                     ----------
                                                                        402,734
                                                                     ==========

As noted above, $860,000 was allocated to amortizable intangible assets
including a customer list, non-competition agreements and patent and technology
acquired as part of the asset purchase from USA Leader, Inc. Customer list
represents USA Leader's relationships within its installed base of customers.
The non-competition agreements were entered into with the former principals of
USA Leader, Inc. Acquired technology and patent represents a combination of USA
Leader's intellectual property, processes, patent and trade secrets developed
through experience in design and development of the product lines acquired in
the asset purchase.

Details of the amortizable intangibles follow:

                                          FAIR
         INTANGIBLE ASSET                 VALUE              LIFE
-----------------------------------     --------           --------
    Customer List                                        5 Years
                                        $10,000
    Non-competition agreement           $150,000            5 Years
    Patent                              $200,000            17 Years
    Acquired Technology                 $500,000            7 Years

The consolidated statement of operations for the period ended December 31, 2005
includes the operating results of Newstec from the date of acquisition and
includes the USA Leader Asset Purchase for the full year. The consolidated
operations for the period ended December 31, 2004 include the operating results
of the USA Leader Asset Purchase for the full year. The consolidated operations
for the period ended December 31, 2003 include results of the USA Leader Asset
Purchase from the date of acquisition. The following unaudited pro forma results
of operation of the Company for the periods ended December 31, 2005, 2004, and
2003 assume the acquisition of Newstec and the USA Leader Asset Purchase
occurred as of January 1, 2003. The unaudited pro forma results have been
prepared for comparative purposes only and do not purport to indicate the
results of operations that would have actually occurred had the acquisition of
assets occurred on the dates indicated.

                                      F-13

<PAGE>

                                      UNAUDITED PRO FORMA

                                   DECEMBER 31,   December 31,   December 31,
                                       2005          2004           2003
                                  -------------  ------------   ------------

Net Sales                         $ 32,305,883   $ 32,618,955   $ 24,457,827

Net Income                        $    316,742   $    524,055   $   (746,481)


Basic income (loss) per share     $       0.22   $       0.36   $      (0.52)

Diluted income (loss) per share   $       0.22   $       0.36   $      (0.52)

Basic average number of

    shares outstanding               1,448,189      1,448,189      1,448,189
Diluted average number of

    shares outstanding               1,448,189      1,449,911      1,448,189


NOTE 7 - DEBT

On March 25, 2005, we entered into a line of credit agreement with Merrill Lynch
Business Financial Services, Inc. Under the terms of the agreement, we can
borrow up to $3,000,000 subject to a limit based on eligible accounts receivable
and inventory. Borrowings are secured by all accounts receivable, inventory,
intangibles and contract rights as well as securities with value of no less than
$1,000,000. Interest is payable monthly at a rate equal to the one-month LIBOR
rate plus 2.4%. The Agreement expires on April 30, 2006 and is subject to
renewal in accordance with terms specified in the agreement. As of the date of
this report, we have not drawn on the line of credit.

Long-term debt consisted of the following at December 31, 2005 and 2004:

                                                      2005              2004
                                                   ---------         ---------
$2,340,000 Variable Rate Industrial
Revenue Bond secured by a letter of credit
payable in annual installments of $100,000
in 2006 and 2007 and $150,000 in 2008
and bore interest at 2.6% and 1.6% in 2005
and 2004, respectively                             $ 350,000         $ 450,000

4.99% automobile loan, principal and
interest of $848 due monthly through 2008          $  23,096                --

Less: current portion                              $(109,088)        $(100,000)
                                                   ---------         ---------

Long term debt, net of current portion             $ 264,008           350,000
                                                   ---------         ---------


Debt maturities by year is as follows:

                                        2006              2007           2008
                                      --------          --------       -------
                                      $109,088          $109,701       $154,307


                                      F-14
<PAGE>

NOTE 8 - LEASES

The Company leases certain premises under operating leases. At December 31,
2005, the minimum future lease obligation under the long term lease obligation
is as follows:

                            2006    $ 61,092

                            2007      41,479

                            2008      41,479

                            2009       3,457
                                    --------
                                    $147,506
                                    --------

Rent expense in 2005 was $66,725.


NOTE 9 - STOCK OPTION PLANS

EQUITY COMPENSATION PLAN - The Quipp, Inc. Equity Compensation Plan (Equity
Compensation Plan) provides for grants of stock options and stock-based awards
to employees, directors, consultants and advisors of the Company. Stock options
issued in connection with the Equity Compensation Plan are granted with an
exercise price per share equal to the fair market value of a share of Company
common stock at the date of grant. All stock options have five to ten-year
maximum terms and vest, either immediately, or within four years of grant date.
The total number of shares of common stock issuable under the Equity
Compensation Plan is 600,000. At December 31, 2005, 2004 and 2003 there were
106,889, 77,764, and 92,764 shares available for grant under the Equity
Compensation Plan.

Stock option activity during the periods indicated is as follows:

                                        OPTIONS         NONQUALIFIED OPTIONS
                                ---------------------   ---------------------
                                             WEIGHTED                WEIGHTED
                                             AVERAGE                 AVERAGE
                                             EXERCISE                EXERCISE
                                 SHARES       PRICE      SHARES       PRICE
                                --------    ---------   -------     ---------
Balance at December 31, 2002      95,875    $   15.39    40,000     $   14.95
      Cancellations              (33,250)       14.83        --            --
                                --------    ---------   -------     ---------
Balance at December 31, 2003      62,625    $   15.69    40,000     $   14.95
      Issued                      10,000    $   13.60    15,000     $   13.88
      Cancellations                   --        --      (10,000)    $   14.00
                                --------    ---------   -------     ---------
Balance at December 31, 2004      72,625    $   15.40    45,000     $   14.80
      Cancellations              (29,125)   $   17.50    (5,000)    $   17.50
                                --------    ---------   -------     ---------
Balance at December 31, 2005      43,500    $   13.99    40,000     $   14.47
                                ========    =========   =======     =========

At December 31, 2005, 2004, and 2003 the number of shares underlying exercisable
options were 76,000, 105,625, and 98,625, respectively, the weighted average
exercise price of those options was $14.28, $15.31, and $15.43, respectively.
The range of exercise prices and remaining contractual life of outstanding
options was $13.60 to $17.13, and .5 to 9 years at December 31, 2005 as
indicated in the table below.

                                                                     Remaining
          Range of              Options             Options         Contractual
       Exercise Prices        Outstanding         Exercisable          Life
       ---------------        -----------         -----------       ------------

       $13.60 - $14.98             78,500               71,000     .5 to 9 years
           $17.13                   5,000                5,000         2.5
                              -----------           ----------
                                   83,500               76,000
                              ===========           ==========

The weighted-average exercise price of options outstanding at December 31, 2005
was $14.22

                                      F-15

<PAGE>

NOTE 10 - EARNINGS PER SHARE

Basic net income (loss) per share is computed by dividing net income (loss)
(numerator) by the weighted average number of shares of common stock outstanding
(denominator) during the period. Diluted net income (loss) per share gives
effect to stock options considered to be potential common shares, if dilutive,
computed using the treasury stock method. The following table presents the
calculation for the number of shares used in the basic and diluted net income
(loss) per share computations:


                                2005           2004            2003
                            -----------     ----------     -----------
NET INCOME (LOSS)            $  253,904        485,786     $   201,194

SHARES
Basic Shares                  1,429,929      1,423,775       1,422,707

Common stock equivalents
        from option plan             --          1,722              --
                            -----------     ----------     -----------
Diluted                       1,429,929      1,425,497       1,422,707
                            -----------     ----------     -----------

EPS
Basic                        $      .18     $      .34     $       .14
Diluted                      $      .18     $      .34     $       .14
                                                           -----------


NOTE 11 - MAJOR CUSTOMERS AND  SALES BY GEOGRAPHIC AREA

For the years ended December 31, 2005, 2004, and 2003, no single newspaper
customer accounted for ten percent or more of our net sales. A number of our
newspaper customers are part of large newspaper chains, including newspaper
chains that are part of larger media groups. Management believes that purchase
decisions regarding individual pieces of equipment are made by the individual
newspapers, while decisions regarding the purchase of complex systems involve
input from the corporate office of the newspaper chain or media group.
Newspapers owned by Gannett Co, Inc. and The New York Times Company each
accounted for 11% of our net sales in 2005. Newspapers owned by Gannett Co, Inc.
and Advance Publications, Inc. accounted for 17% and 10% of our net sales in
2004, respectfully. Newspapers owned by Advance Publications, Inc. and Gannett
Co, Inc. accounted for 15% and 10% of our net sales in 2003, respectively. Since
our equipment is designed to have an extended life, our largest individual
newspaper customers usually change from year to year.

We sell most of our products to newspaper publishers in the United States. Our
foreign sales accounted for 7%, 9%, and 11% of total sales in 2005, 2004, and
2003, respectively. The following table indicates the amount of sales by
geographic area during the past three years:


SALES BY GEOGRAPHIC AREA

                      2005            2004            2003
                  -----------     -----------     -----------

United States     $24,096,107     $22,517,519     $17,353,571
Canada                564,362       1,821,042       1,478,233
Latin America         613,421         302,213         400,462
Europe                  1,354              --         130,681
Other                 507,635          49,281         157,746
                  -----------     -----------     -----------

                  $25,782,879     $24,690,055     $19,520,693
                  ===========     ===========     ===========

                                      F-16

<PAGE>

NOTE 12 - EMPLOYEE BENEFIT PLAN

The Quipp Systems, Inc. Employee Savings and Investment Plan (the Savings Plan),
is a defined contribution plan that covers substantially all full-time
employees. The Savings Plan permits eligible employees to contribute up to 20%
of annual compensation, subject to the maximum allowable contribution limits of
Sections 415, 401(k) and 404 of the Internal Revenue Code. The Company matches
employee contributions to the Savings Plan at the rate of 60% for the first 8%
of compensation deferred by each participant. The amount contributed by the
Company in 2005, 2004, and 2003, was $182,417, $122,531, and $110,698
respectively.

Beginning January 1, 2005, the Company implemented a Supplemental Executive
Retirement Program (the "SERP") for certain Company employees. The SERP provides
for three-year performance periods, and the Company will make common stock
allocations to participant accounts following the end of each performance
period. The total amount of allocations following the end of each performance
period will be equal to five percent of the Company's net income during the
three years in the performance period, as reported in the Company's annual
reports on Form 10-K, up to a maximum dollar amount specified by the Company's
Corporate Governance and Compensation Committee of the Company's Board of
Directors. During 2005 the Company charged $14,000 related to the SERP to
selling, general and administrative expenses.


NOTE 13 - QUARTERLY SUMMARY OF KEY FINANCIAL DATA

QUARTERLY SUMMARY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
QUARTER ENDED                               MARCH 31,   JUNE 30,   SEPTEMBER 30,   DECEMBER 31,
-----------------------------------------------------------------------------------------------
<S>                                        <C>         <C>          <C>              <C>
2005
Net Sales                                  $ 8,275     $ 5,441      $ 7,069          $ 4,998
Gross Profit                                 1,907       1,629        1,618            1,117


Operating Profit  (Loss)                       176         183          269             (750)


Net Income (Loss)                              129         156          442             (473)

Basic income (loss) per common share       $  0.09     $  0.11      $  0.31          $ (0.33)
Diluted income (loss) per common share     $  0.09     $  0.11      $  0.31          $ (0.33)


2004
Net Sales                                  $ 5,789     $ 7,296      $ 5,309          $ 6,296
Gross Profit                                 1,570       1,862        1,155            1,850


Operating (Loss) Profit                        128          54          (93)             370


Net (Loss) Income                               91         150          (28)             273

Basic (loss) income per common share       $  0.06     $  0.11      $ (0.02)         $  0.19
Diluted (loss) income per common share     $  0.06     $  0.10      $ (0.02)         $  0.19
</TABLE>

NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of the Company's financial instruments, including cash and
cash equivalents, securities available for sale, accounts receivable, other
assets, prepaid expenses and other current assets, long-term debt, accounts
payable, accrued salaries and wages and other accrued liabilities approximate
fair value based on their short term maturities.


                                      F-17

<PAGE>

NOTE 15 - GOODWILL

The changes in the carrying value of goodwill for the years ended December 31,
2005 and 2004 are as follows:

                                                2005          2004
                                            ----------------------------

Balance as of January 1                         $ 68,161       $ 98,093
Newstec, Inc. Stock Acquisition                2,122,686         -
Impairment loss                                     -          (29,932)
                                            ----------------------------

Balance as of December 31                     $2,190,847       $ 68,161
                                            ============================


In 2005, the Company acquired Newstec, Inc. (See Note 6). The amount of the
purchase price assigned to goodwill from this purchase amounted to $2,122,686.
Prior to this acquisition, the Company's goodwill resulted from the purchase of
certain assets of Hall Processing Systems in 1994.

The Company reviews the operating profit and cash flow expected from these
assets, at least, annually. The Company recognized an impairment loss of $29,932
in 2004. The impairment write-off was charged to selling, general and
administrative expenses.


NOTE 16 - COMMITMENTS AND CONTINGENCIES

In the normal course of business, the Company is exposed to litigation and other
asserted and unasserted claims. In the opinion of management, the resolution of
these matters would not have a material adverse effect on the Company's
financial position, results of operations or liquidity.


NOTE 17 - RECENT PRONOUNCEMENTS

In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Shared-based
Payment" ("SFAS 123R"). This statement replaces SFAS No. 123 and supersedes APB
Opinion No. 25. The Company is required to adopt SFAS 123R in the first quarter
of 2006. SFAS 123R requires that the fair value of all stock option awards
issued to employees be recorded as an expense over the related vesting period.
The Statement also requires the recognition of compensation expense for fair
value of any unvested stock option awards outstanding at the date of adoption.
The Company is evaluating this statement.

In November 2004, the FASB issued SFAS No. 151, "Inventory Costs - An Amendment
of ARB No. 43, Chapter 4" (SFAS 151). SFAS 151 amends Accounting Research
Bulletin No. 43, Chapter 4, "Inventory Pricing," to clarify that abnormal
amounts of idle facility expense, freight, handling costs, and wasted material
should be recognized as current-period charges. Additionally, SFAS 151 requires
that allocation of fixed production overheads to the costs of conversion be
based on the normal capacity of the production facilities. The Company is
required to adopt SFAS 151 effective January 1, 2006. The Company is evaluating
this statement, but expects no material impact upon adoption.

In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections" (SFAS 154), which replaces APB Opinion No. 20, "Accounting
Changes," and SFAS No. 3, "Reporting Accounting Changes in Interim Financial
Statements." SFAS 154 changes the requirements for the accounting for and
reporting of a change in accounting principle. The Company is required to adopt
SFAS 154 beginning January 1, 2006 and it will have no material impact upon
adoption.

                                      F-18

<PAGE>

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

Not applicable.



ITEM 9A - CONTROLS AND PROCEDURES

(a)      Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and
principal financial officer, evaluated the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this report.
Based on that evaluation, the Chief Executive Officer and principal financial
officer concluded that, due to the material weakness described under "Change in
Internal Control over Financial Reporting" below, our disclosure controls and
procedures as of the end of the period covered by this report were not
functioning effectively to provide reasonable assurance that the information
required to be disclosed in reports filed under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms.

(b)      Change in Internal Control over Financial Reporting

Management has identified a material weakness in our internal control over
financial reporting as of the end of the period covered by this report based on
its determination that we lacked effective controls over the processes and
procedures involved in the calculation of current and deferred income tax
liabilities related to state income taxes. Specifically, our calculation for
state income tax understated our tax expense. The error was identified by our
independent auditors as part of their audit of the financial statements included
in this report. As a result, we recorded adjustments in the consolidated
financial statements. Effective in the first quarter of 2006, we have determined
to expand the scope of our existing engagement with our tax accountants (who are
not our independent auditors) to include quarterly tax calculations as well as
calculations for the full year.

No change in our internal control over financial reporting occurred during our
most recent fiscal quarter that has materially affected, or is reasonably likely
to materially affect, our internal control over financial reporting.




                                       21

<PAGE>

                                    PART III


ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

This information (other than the information relating to executive officers
included in Part I) will be included in our Proxy Statement relating to our
Annual Meeting of Shareholders or in an amendment to this report, which will be
filed within 120 days after the close of our fiscal year covered by this report,
and, if applicable, is hereby incorporated by reference to such Proxy Statement.


ITEM 11 - EXECUTIVE COMPENSATION

This information will be included in our Proxy Statement relating to our Annual
Meeting of Shareholders or in an amendment to this report, which will be filed
within 120 days after the close of our fiscal year covered by this report, and,
if applicable, is hereby incorporated by reference to such Proxy Statement.


ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS

The following table provides information, as of December 31, 2005, regarding
securities issuable under our 1996 Equity Compensation Plan, which is our only
equity compensation plan currently in effect and was approved by our
shareholders.

                      EQUITY COMPENSATION PLAN INFORMATION
--------------------------------------------------------------------------------

                                                                      NUMBER OF
                                       NUMBER OF                    SECURITIES
                                     SECURITIES TO   WEIGHTED-      REMAINING
                                       BE ISSUED      AVERAGE     AVAILABLE FOR
                                         UPON         EXERCISE   FUTURE ISSUANCE
                                      EXERCISE OF     PRICE OF    UNDER EQUITY
                                      OUTSTANDING   OUTSTANDING   COMPENSATION
  PLAN CATEGORY                         OPTIONS       OPTIONS         PLANS
--------------------------------------------------------------------------------
Equity compensation plans approved
by security holders                    83,500      $  14.22          106,889
--------------------------------------------------------------------------------
Equity compensation plans not
approved by security holders               --            --               --
--------------------------------------------------------------------------------

TOTAL                                   83,500      $  14.22          106,889
--------------------------------------------------------------------------------

Other information required to be disclosed in this Item will be included in our
proxy statement relating to our Annual Meeting of Shareholders or in an
amendment to this report, which will be filed within 120 days after the close of
our fiscal year covered by this report, and, if applicable, is hereby
incorporated by reference to such Proxy Statement


ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Not applicable


ITEM 14 - INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES AND SERVICES

This information will be included in our Proxy Statement relating to our Annual
Meeting of Shareholders or in an amendment to this report, which will be filed
within 120 days after the close of our fiscal year covered by this report, and,
if applicable, is hereby incorporated by reference to such Proxy Statement.

                                       22


<PAGE>

                                     PART IV

ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)   1   Financial Statements - See "Index to Financial Statements" in Item 8

      2   Schedule II - Valuation and Qualifying Accounts. All other schedules
          are omitted because they are inapplicable.

      3   Exhibits (Note: The file number of all referenced reports and
          registration statements, is 0-14870.)

      Exhibit
        No.
      -------
       3.1      Articles of Incorporation, as amended (Incorporated by reference
                to Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q
                for the quarter ended June 30, 2004).

       3.2      By-Laws, as amended (Incorporated by reference to Exhibit 3.3 to
                Registrants Quarterly Report on Form 10-Q for the quarter ended
                June 30, 2004).

       4.1      Rights Agreement, dated as of March 3, 2003, between the
                Registrant and American Stock Transfer & Trust Company, as
                Rights Agent, including the form of Rights Certificate attached
                as Exhibit A (incorporated by reference to Exhibit 4.1 to
                Registrant's Registration Statement on Form 8-A, filed March 3,
                2003).

       4.2      First Amendment to Rights Agreement, dated as of February 26,
                2006, between the Registrant and American Stock Transfer and
                Trust Company (incorporated by reference to Exhibit 4.1 to the
                Registrant's Current Report on Form 8-K, filed March 1, 2006).

     *10.1      Quipp, Inc. Equity Compensation Plan, as amended (incorporated
                by reference to Exhibit A to the Registrant's Proxy Statement
                relating to the Registrant's 2005 Annual Meeting of
                Stockholders).

     *10.2      Quipp, Inc. Supplemental Executive Retirement Plan (incorporated
                by reference to Exhibit 99.1 to the Registrant's Current Report
                on Form 8-K, filed on October 31, 2005).

     *10.3      Quipp Inc. Management Incentive Plan (Incorporated by reference
                to Exhibit 10.8 to the Registrant's Annual Report on Form 10-K
                for the fiscal year ended December 31, 1998).

     *10.4      Change of Control Agreement, dated as of December 23, 2000,
                among the Registrant, Quipp Systems, Inc. and Christer Sjogren.
                (Incorporated by reference to Exhibit 10.7 to the Registrant's
                Annual Report on Form 10-K for the fiscal year ended December
                31, 2000). Identical agreements, also dated as of December 23,
                2000, were entered into with David Switalski and Angel Arrabal.
                In accordance with Instruction 2 of Item 601 of Regulation S-K,
                those agreements need not be filed with this report.

     *10.5      Change of Control Agreement, dated as of October 28, 2005, among
                the Registrant, Quipp Systems, Inc. and Eric Bello (incorporated
                by reference to Exhibit 99.3 to the Registrant's Current Report
                on Form 8-K, filed October 31, 2005).

     *10.6      Employment Agreement, dated October 25, 2005, between the
                Registrant and Michael S. Kady (incorporated by reference to
                Exhibit 99.2 to the Registrant's Current Report on Form 8-K,
                filed October 31, 2005).

     *10.7      Employment Agreement, dated August 10, 2005, between the
                Registrant and John F. Connors III (incorporated by reference to
                Exhibit 2.1 to the Registrant's Current Report on Form 8-K,
                filed August 16, 2005).

                                       23


<PAGE>

     *10.8      Summary of Directors' Compensation.

      10.9      Share Purchase Agreement, dated August 10, 2005, among the
                Registrant, John F. Connors III and Terence B Connors
                (incorporated by reference to Exhibit 2.1 to the Registrant's
                Current Report on Form 8-K, filed August 16, 2005).

      22        Subsidiaries of the Registrant.

      23        Consent of KPMG LLP.

      31.1      Certificate of the Chief Executive Officer of the Registrant
                required by Rule 13a-14(a) under the Securities Exchange Act of
                1934.

      31.2      Certificate of the principal financial officer of the Registrant
                required by Rule 13a-14(a) under the Securities Exchange Act of
                1934.

      32.1      Certificate of the Chief Executive Officer of the Registrant
                required by Rule 13a-14(b) under the Securities Exchange Act of
                1934 and U.S.C. Section 1350.

      32.2      Certificate of the principal financial officer of the Registrant
                required by Rule 13a-14(b) under the Securities Exchange Act of
                1934 and U.S.C. Section 1350.

------------
*   Constitutes management contract or compensatory plan or arrangement required
    to be filed as an exhibit to this form.





                                       24

<PAGE>

                                   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:

                                       QUIPP, INC.


Date:    March 29, 2005                By: /s/ Michael S. Kady
                                           -------------------------------------
                                           MICHAEL S. KADY
                                           President and Chief Executive Officer

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

    SIGNATURE                            TITLE                        DATE
    ---------                            -----                        ----
/s/ Michael S. Kady                Chief Executive
----------------------------       Officer and Director           March 29, 2006
MICHAEL S. KADY


/s/ William A. Dambrackas          Director                       March 29, 2006
----------------------------
WILLIAM A. DAMBRACKAS


/s/ Lawrence J. Gibson             Director                       March 29, 2006
----------------------------
LAWRENCE J. GIBSON


/s/ Cristina H. Kepner             Director                       March 29, 2006
----------------------------
CRISTINA H. KEPNER


/s/ Arthur J. Rawl                 Director                       March 29, 2006
----------------------------
ARTHUR J. RAWL


/s/ Robert C. Strandberg           Director                       March 29, 2006
----------------------------
ROBERT C. STRANDBERG


/s/ Eric Bello                    Director of Finance and
----------------------------      Treasurer (Principal Financial
ERIC BELLO                        and Accounting Officer)         March 29, 2006

                                       25

<PAGE>

                                   QUIPP, INC.
                           ANNUAL REPORT ON FORM 10-K
                                  EXHIBIT INDEX

      Exhibit
        No.
      -------
       3.1      Articles of Incorporation, as amended (Incorporated by reference
                to Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q
                for the quarter ended June 30, 2004).

       3.2      By-Laws, as amended (Incorporated by reference to Exhibit 3.3 to
                Registrants Quarterly Report on Form 10-Q for the quarter ended
                June 30, 2004).

       4.1      Rights Agreement, dated as of March 3, 2003, between the
                Registrant and American Stock Transfer & Trust Company, as
                Rights Agent, including the form of Rights Certificate attached
                as Exhibit A (incorporated by reference to Exhibit 4.1 to
                Registrant's Registration Statement on Form 8-A, filed March 3,
                2003).

       4.2      First Amendment to Rights Agreement, dated as of February 26,
                2006, between the Registrant and American Stock Transfer and
                Trust Company (incorporated by reference to Exhibit 4.1 to the
                Registrant's Current Report on Form 8-K, filed March 1, 2006).

     *10.1      Quipp, Inc. Equity Compensation Plan, as amended (incorporated
                by reference to Exhibit A to the Registrant's Proxy Statement
                relating to the Registrant's 2005 Annual Meeting of
                Stockholders).

     *10.2      Quipp, Inc. Supplemental Executive Retirement Plan (incorporated
                by reference to Exhibit 99.1 to the Registrant's Current Report
                on Form 8-K, filed on October 31, 2005).

     *10.3      Quipp Inc. Management Incentive Plan (Incorporated by reference
                to Exhibit 10.8 to the Registrant's Annual Report on Form 10-K
                for the fiscal year ended December 31, 1998).

     *10.4      Change of Control Agreement, dated as of December 23, 2000,
                among the Registrant, Quipp Systems, Inc. and Christer Sjogren.
                (Incorporated by reference to Exhibit 10.7 to the Registrant's
                Annual Report on Form 10-K for the fiscal year ended December
                31, 2000). Identical agreements, also dated as of December 23,
                2000, were entered into with David Switalski and Angel Arrabal.
                In accordance with Instruction 2 of Item 601 of Regulation S-K,
                those agreements need not be filed with this report.

     *10.5      Change of Control Agreement, dated as of October 28, 2005, among
                the Registrant, Quipp Systems, Inc. and Eric Bello (incorporated
                by reference to Exhibit 99.3 to the Registrant's Current Report
                on Form 8-K, filed October 31, 2005).

     *10.6      Employment Agreement, dated October 25, 2005, between the
                Registrant and Michael S. Kady (incorporated by reference to
                Exhibit 99.2 to the Registrant's Current Report on Form 8-K,
                filed October 31, 2005).

     *10.7      Employment Agreement, dated August 10, 2005, between the
                Registrant and John F. Connors III (incorporated by reference to
                Exhibit 2.1 to the Registrant's Current Report on Form 8-K,
                filed August 16, 2005).

                                       26


<PAGE>

     *10.8      Summary of Directors' Compensation.

      10.9      Share Purchase Agreement, dated August 10, 2005, among the
                Registrant, John F. Connors III and Terence B Connors
                (incorporated by reference to Exhibit 2.1 to the Registrant's
                Current Report on Form 8-K, filed August 16, 2005).

      22        Subsidiaries of the Registrant.

      23        Consent of KPMG LLP.

      31.1      Certificate of the Chief Executive Officer of the Registrant
                required by Rule 13a-14(a) under the Securities Exchange Act of
                1934.

      31.2      Certificate of the principal financial officer of the Registrant
                required by Rule 13a-14(a) under the Securities Exchange Act of
                1934.

      32.1      Certificate of the Chief Executive Officer of the Registrant
                required by Rule 13a-14(b) under the Securities Exchange Act of
                1934 and U.S.C. Section 1350.

      32.2      Certificate of the principal financial officer of the Registrant
                required by Rule 13a-14(b) under the Securities Exchange Act of
                1934 and U.S.C. Section 1350.

------------
*   Constitutes management contract or compensatory plan or arrangement required
    to be filed as an exhibit to this form.












                                       27
<PAGE>

                           QUIPP, INC. AND SUBSIDIARY
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

<TABLE>
<CAPTION>
                                                          (A)
                                          BALANCE,      CHARGED                      (C)           BALANCE,
                                         BEGINNING        TO           (B)          NEWSTEC          END
                                          OF YEAR      EXPENSES     WRITE-OFFS    ACQUISITION      OF YEAR
                                         ---------    ----------   -----------    ------------    ----------
<S>                                       <C>          <C>          <C>             <C>            <C>
Year ended December 31, 2005:
     Allowance for doubtful accounts      167,705      (16,545)      (30,126)       26,806         147,840

Year ended December 31, 2004:

     Allowance for doubtful accounts      229,546      117,990      (179,831)           --         167,705

Year ended December 31, 2003:

     Allowance for doubtful accounts      165,000       64,546            --            --         229,546
</TABLE>
<TABLE>
<CAPTION>

                                          BALANCE,      ACCRUED        (D)             (C)          BALANCE,
                                         BEGINNING      WARRANTY    PAYMENTS         NEWSTEC          END
                                          OF YEAR        COSTS       IN KIND       ACQUISITION      OF YEAR
                                         ---------     ---------   -----------     -----------    -----------
<S>                                       <C>          <C>          <C>             <C>            <c>
Year ended December 31, 2005:
     Accrued warranty                     231,857      104,232      (157,136)       84,166         263,119

Year ended December 31, 2004:

     Accrued warranty                     261,917      258,872      (288,932)           --         231,857

Year ended December 31, 2003:

     Accrued warranty                     219,950      186,998      (145,031)           --         261,917
</TABLE>

------------
(a)  Charges to expense result from increases or decreases to our allowance for
     doubtful accounts due to the assessment of the collectability of customer
     accounts and the aging of our accounts receivable.

(b)  We write-off trade accounts when we have exhausted all reasonable efforts
     to collect outstanding receivable balances.

(c)  Changes in valuation account resulting from acquisition of Newstec in
     August 2005.

(d)  Payments in kind represent cost to repair or replace defective items.





                                       28