<PAGE>   1
                                   EXHIBIT 13
<PAGE>   2
 
                              [CHICAGO RIVET LOGO]
                          Chicago Rivet & Machine Co.
                               1998 Annual Report
<PAGE>   3
 
                                                            [CHIGAGO RIVET LOGO]
--------------------------------------------------------------------------------
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                              PAGE NO.
                                                              --------
<S>                                                           <C>
Highlights..................................................     1
 
Management's Discussion and Analysis of Financial Condition
  and Results of Operations.................................     2
 
Consolidated Balance Sheets.................................     7
 
Consolidated Statements of Operations.......................     9
 
Consolidated Statements of Retained Earnings................     9
 
Consolidated Statements of Cash Flows.......................     10
 
Notes to Consolidated Financial Statements..................     11
 
Report of Independent Accountants...........................     14
 
Selected Financial Data.....................................     14
 
Quarterly Financial Data....................................     15
</TABLE>
 
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<PAGE>   4
 
[CHIGAGO RIVET LOGO]
 
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HIGHLIGHTS
 
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
                                                    1998           1997           1996
------------------------------------------------------------------------------------------
<S>                                              <C>            <C>            <C>
NET SALES AND LEASE REVENUE....................  $44,938,184    $44,543,404    $22,510,953
NET INCOME.....................................    3,360,480      3,861,510      1,948,001
NET INCOME PER SHARE...........................         2.90           3.30           1.66
DIVIDENDS PER SHARE............................         1.12            .91            .90
EXPENDITURES FOR PROPERTY, PLANT AND EQUIPMENT,
  NET OF ACQUISITION...........................    2,696,701        963,917        861,128
DEPRECIATION FOR PROPERTY, PLANT AND
  EQUIPMENT....................................    1,498,302      1,372,415        709,678
NET WORKING CAPITAL............................   12,363,179     13,766,681     12,040,579
TOTAL SHAREHOLDERS' EQUITY.....................   22,012,659     20,511,102     17,776,760
COMMON SHARES OUTSTANDING AT YEAR END..........    1,153,496      1,169,296      1,171,496
SHAREHOLDERS' EQUITY PER COMMON SHARE..........        19.08          17.54          15.17
APPROXIMATE NUMBER OF SHAREHOLDERS
  OF RECORD....................................          451            471            505
</TABLE>
 
REGISTRAR
First Chicago Trust Company, a division of EquiServe
 
TRANSFER AGENT
First Chicago Trust Company, a division of EquiServe
 
STOCK EXCHANGE
The Company's stock is traded on the American Stock Exchange (Ticker symbol
CVR).
 
ANNUAL MEETING
The annual meeting of shareholders
will be held on May 11, 1999 at 10:00 a.m. at
901 Frontenac Road
Naperville, Illinois 60566
 
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                                        1
<PAGE>   5
 
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                                            [CHIGAGO RIVET LOGO]
--------------------------------------------------------------------------------
 
TO OUR SHAREHOLDERS:
 
RESULTS OF OPERATIONS
 
    The recent year was another successful year for the Company. Despite a
number of challenges, the Company posted respectable earnings on modest revenue
growth. The economy continued to be strong throughout the year. In particular,
the strength of the automotive industry was reflected in the growth of revenues
within the fastener segment of our business. Unfortunately, most of that
increase in revenues was offset by a decline in revenues in the assembly
equipment segment of our operations. Demand in this segment was considerably
weaker than in the prior year, and the market was characterized by significant
competitive pressure on pricing. As a result, our overall product mix was more
heavily weighted toward fasteners, a segment with traditionally lower margins.
This change in our product mix, combined with lower margins on machinery and
equipment due to price competition, contributed to a reduction in net profits,
compared to the outstanding results achieved in 1997.
 
    We are pleased to report that all of the Company's fastener operations have
attained QS-9000 certification in addition to ISO-9002:1994 certification. Our
automotive customers mandated certification to these standards as a prerequisite
to continuing to receive new business, and we are pleased that we have been able
to attain and maintain certification to these standards.
 
    The Company also made considerable progress in meeting its objective of
implementing a new data management system. This project entails the
implementation of new computer hardware and software that will not only improve
information management in all operational disciplines, but will also ensure Year
2000 compliance. Piloting activity is nearing completion for the sales and
finance portion of this initiative and implementation of the manufacturing
portion is scheduled to begin late in the first half of 1999.
 
    1998 COMPARED TO 1997
 
    Net sales and lease revenues increased slightly compared with 1997, totaling
$44,938,184 for 1998, compared with $44,543,404 recorded during 1997. Revenues
in the fastener segment increased 3.7%, largely as a result of the robust
conditions in the automotive industry, which is the Company's primary market.
Conversely, revenues from the assembly equipment segment, which includes sale of
automatic assembly equipment, related tools and parts and lease revenue,
declined 7.0% compared to 1997. Several factors contributed to the decline in
revenue within the assembly equipment segment. The primary factor was a decline
in unit volume compared to 1997, which was an uncharacteristically strong year.
Also evident in 1998 was a noticeable change in product mix, with 1998 sales
consisting of more lower margin equipment compared to 1997. Finally, in order to
maintain certain customer relationships, the Company responded to competitive
pricing pressures by accepting margins below those historically associated with
its products in this segment.
 
    The positive impact from the increased level of fastener business was
largely offset by increases in wages, higher costs related to health insurance
and additional tooling expense in connection with initial production of a
variety of new fasteners. In addition, depreciation expense increased 7.4%
compared to 1997 due to increased capital expenditures. Competitive conditions
within the fastener industry, in conjunction with our major customers'
continuing policy of not accepting price increases, restricted our ability to
recover these higher costs. The net result is reflected in only nominal
improvement in gross profit within this segment of our operations. The Company's
investment in newer, more efficient equipment and procedures is intended to
reduce costs as well as expand capabilities, and should contribute to improved
operating margins in the future.
 
    As would be expected given 1998's lower volume, gross profits in the
assembly equipment segment declined compared to 1997. While variable costs were
reduced in proportion to the reduced level of operations, fixed costs increased
slightly due primarily to higher wage and depreciation expense. Finally, the
competitive situation discussed above also had an adverse impact upon margins
within this segment.
 
    Selling and administrative expenses, net of certain favorable adjustments to
environmental reserve accounts, increased 5.8% compared to 1997. Three factors
comprise the majority of this increase. First, expenses incurred in connection
with the development and implementation of new data processing software amounted
to approximately $135,000; second, bad debt expense increased by $145,000 due to
the voluntary reorganization of a certain fastener customer; and third, the
Company incurred certain state taxes, totaling $225,000, during 1998. While the
Company was subject to this same state tax during 1997, no tax liability was
incurred in that year due to certain deductions allowed in the computation of
the tax. In addition, the company incurred higher selling expense as a result of
increased staffing designed to strengthen our presence in certain key markets. A
portion of these increased costs were offset by reductions in commission
expense, reductions in expenses related to attaining QS-9000 certification and a
reduction in profit sharing expense.
 
--------------------------------------------------------------------------------
 
                                        2
<PAGE>   6
MANAGEMENT'S DISCUSSION
(Continued)
--------------------------------------------------------------------------------
 
    Net non-operating expense declined approximately 24% compared with 1997,
primarily as a result of reduced interest expense, which decreased from $546,666
in 1997 to $376,098 during 1998. This interest expense is related to borrowing
in connection with the 1996 acquisition of H & L Tool Company, Inc. The decrease
in interest expense reflects both lower interest rates in 1998 and a lower
principal balance outstanding compared with 1997. Interest income increased
approximately 12% compared with 1997 due primarily to a higher level of
investment during the year.
 
1997 COMPARED TO 1996
 
    Revenues increased in both the fastener and assembly equipment segments
compared with 1996. Overall, net sales and lease revenues amounted to
$44,543,404 in 1997 compared with $22,510,953 recorded in 1996. Revenues related
to the sale of fasteners increased to $32,712,820 compared with $11,263,822
recorded in 1996. Revenues from H & L Tool are included for the full twelve
months of 1997, compared with only one month in 1996, and this accounts for the
largest share of the change, although revenues from the Company's historical
product lines also increased compared with the prior year. Revenues in the
assembly equipment segment increased 5.2%, and amounted to $11,830,584 compared
with $11,247,131 in 1996.
 
    In line with the increase in revenues, the Company's total gross profit
increased substantially compared with the prior year. The addition of H & L Tool
accounts for a significant portion of the absolute increase; however, it should
be noted that H & L Tool's revenues are entirely related to the sale of
fasteners, and similar products, and the profit margins for those products, when
expressed as a percentage of sales, are below the aggregate margins historically
reported by the Company. As a result, even though gross margins increased
substantially, gross profit margins, when expressed as a percentage of sales,
declined from historical levels. Margins for our fastener products have been
constrained by the highly competitive nature of the market. Further, the
automotive customer base, which accounts for the majority of our sales, has
established purchasing guidelines that discourage the acceptance of price
increases, while simultaneously adding quality and service requirements that
tend to increase operating costs for its suppliers. This has been the case for a
number of years and is expected to continue in the years ahead. Accordingly, we
have continued to invest in equipment and production methods designed to allow
us to remain competitive and to control our manufacturing costs in order to
produce an acceptable level of profitability. This strategy has been successful
in the past and we intend to continue in a similar manner in the future. The
success of this approach, coupled with increased volumes, contributed to
improvements in gross margins from the sale of the Company's historical
products, in both the fastener and assembly equipment segments, during 1997.
Increases in fixed costs incurred are attributable to the acquisition and are
consistent with expectations.
 
    Additional selling and administrative expenses incurred in connection with
the operations of H & L Tool account for the majority of the increase
experienced in 1997. While the total expense increased over prior years, the
proportionate amount of the increase was substantially less than the increase in
revenues, and is in line with expectations. Sales commission expense decreased
as a percentage of sales, as a larger portion of revenues were generated from
customers serviced on a direct basis, rather than through commissioned sales
representatives.
 
    A number of factors contributed to a decrease of approximately $488,000 in
net non-operating income compared to 1996. Interest expense increased by
approximately $500,000, while interest income declined approximately $140,000.
Both of these changes stem from the use of cash and debt to finance the H & L
Tool purchase. Gains from the sale of surplus equipment, including sale of
leased machines, and a loss due to the write off of an investment in computer
software, resulted in a net gain of approximately $175,000.
 
DIVIDENDS
 
    The Company paid four regular quarterly dividends of $.18 per share during
1998. In addition, an extra dividend of $.40 per share was paid during the
second quarter of 1998, bringing the total dividend payout to $1.12 per share.
On February 15, 1999 your Board of Directors declared a regular quarterly
dividend of $.18 per share, payable March 20, 1999 to shareholders of record
March 5, 1999. This continues the uninterrupted record of consecutive quarterly
dividends paid by the Company to its shareholders that extends over 65 years. At
that same meeting, the Board declared an extra dividend of $.35 per share,
payable April 20, 1999 to shareholders of record, April 5, 1999.
 
ACQUISITION
 
    On December 3, 1996, the Company acquired substantially all of the assets
and assumed certain liabilities of H & L Tool Company, Inc. of Madison Heights,
Michigan. The purchase price was approximately $19.1 million, including
acquisition costs of $0.3 million, and was financed through a $4.8 million
credit against the purchase price in consideration of the seller's retention of
all cash and marketable securities, an unsecured loan of $9.0 million and
approximately $5.3 million in available cash. Additional information is
contained in Note 2 to the Consolidated Financial Statements. H & L Tool is a
leading manufacturer of specialty screw-machine and cold-headed products serving
the automotive industry. This acquisition significantly enhanced the Company's
product offerings and strengthened our relationships with certain key customers.
 
--------------------------------------------------------------------------------
 
                                        3
<PAGE>   7
MANAGEMENT'S DISCUSSION
(Continued)                                                 [CHIGAGO RIVET LOGO]
--------------------------------------------------------------------------------
 
MACHINERY & EQUIPMENT
 
    The Company made a number of significant investments in both equipment and
building improvements during 1998. Capital expenditures totaled nearly
$2,700,000. Expenditures related to new data processing systems, including
computer hardware and software, totaled approximately $542,000. Expenditures for
the purchase of new equipment used in the manufacture of fasteners amounted to
$1,430,000. The Company also purchased a variety of new machine tools, material
handling equipment and inspection equipment valued at approximately $313,000.
Building improvements, which included the installation of new air compressors at
one facility and a new roof at another facility, amounted to approximately
$252,000. Investment in both new equipment and rebuilding of existing equipment
used to plate and heat treat fasteners amounted to $63,000. A total of $51,000
was expended for the construction of new automatic rivet setting equipment that
is leased to customers. The balance was expended for a variety of smaller office
equipment and for the construction of new rivet setting machines that will be
used for demonstration purposes.
 
    During 1997, capital investments totaled $963,917. Significant expenditures
included approximately $540,000 for equipment used in the manufacture of
fasteners and assembly equipment, $117,000 for data processing and
telecommunications equipment, building improvements amounting to $87,000 and
approximately $58,000 which was invested in new equipment related to quality
control. The balance consists of investments in material handling equipment and
other miscellaneous equipment.
 
    Capital investments during 1996, exclusive of expenditures related to the
acquisition of the assets of H & L Tool, totaled $861,128. Of this total,
approximately $289,000 was invested in equipment used in the manufacture of
fasteners and machinery and $193,000 was expended for the purchase of a new
boiler to provide heat and process steam for our Tyrone facility. Approximately
$280,000 was invested in new data processing equipment and software. A total of
approximately $22,000 was invested in new automatic rivet setting machines
manufactured by the Company and leased to its customers. The balance was
expended for the purchase of various, smaller machine tools and office
equipment.
 
    Depreciation expense was $1,498,302 in 1998, $1,372,415 in 1997 and $709,678
in 1996.
 
LIQUIDITY AND CAPITAL RESOURCES
 
    Working capital, at the end of 1998, amounted to approximately $12.4
million. While this is a decrease of $1.4 million compared to the beginning of
the year, the current level is considered sufficient for current operations. The
primary factor contributing to this decrease was the use of cash to fund the
unusually high level of capital expenditures made during 1998. Accounts
receivable balances at year-end increased by approximately $821,000 compared to
1997. Shipping activity during the latter part of 1998 was approximately 12%
higher than during the same period in 1997, and the normal timing difference
between shipment and the receipt of payment is reflected in the higher year-end
accounts receivable balance. Long-term debt was reduced by $1.8 million as the
Company continued to meet the repayment obligations of a commercial loan
obtained in connection with the 1996 acquisition of H & L Tool. The Company
borrowed $9.0 million, on an unsecured basis, subject to certain customary
covenants. Under the terms of the note, the Company is scheduled to repay the
principal in 20 quarterly installments of $450,000, plus interest computed on
the unpaid balance at a variable rate that is calculated under one of two
methods: the London Inter Bank Offering Rate, plus 80 basis points; or the
lender's reference rate, less 75 basis points. The interest rate is adjusted
quarterly and at year-end was approximately 6.26% and the unpaid balance of the
note was $4.95 million. Capital expenditures for new equipment and data
processing implementation are expected to total approximately $2.5 million
during 1999 and early 2000. Management believes that this level of investment
can be funded internally, nevertheless, a $1.0 million line of credit, which was
obtained from the Bank of America in connection with the acquisition, remains
available to the Company. There was no charge for this facility, and as of
December 31, 1998, it was unused. The facility is scheduled to expire on May 30,
1999, but may be extended beyond that date.
 
NEW ACCOUNTING STANDARDS
 
    In 1998, the Company adopted Statement of Financial Accounting Standards No.
131 ("FAS 131"), "Disclosures about Segments of an Enterprise and Related
Information." The adoption of FAS 131 did not affect results of operations or
financial position but did affect the disclosure of segment information.
 
    The Company's financial statements and financial condition were not, and are
not expected to be, materially impacted by any other new, or proposed,
accounting standards.
 
YEAR 2000 COMPLIANCE
 
    The Company continues to make ongoing assessments of its state of readiness
with respect to Year 2000 ("Y2K") issues. This process can logically be
segregated into two major categories--information technology and non-information
technology. The first category encompasses issues related to computer equipment
and software used in the operation of the business, while the second category
deals with all other aspects of Y2K issues, including, but not limited to,
manufacturing equipment and systems, supplier and customer preparedness and
facility related issues such as telecommunications equipment, HVAC systems and
facility security.
 
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                                        4
<PAGE>   8
MANAGEMENT'S DISCUSSION
(Continued)
--------------------------------------------------------------------------------
 
    The Company has determined that its information technology systems are not
Y2K compliant and has further determined that its existing software will not
meet the needs of the organization in the future. Accordingly, significant
resources have been allocated to the process of implementing a new data
processing solution that will better meet the needs of the organization while
also addressing the Y2K issues. The implementation of this solution is planned
in three phases. The first two phases include hardware and network installation
and the installation of application software related to financial reporting,
inventory control, order processing, purchasing and payroll. Hardware and
network installation has been completed. The software installation and testing
is nearly completed, and training is scheduled for completion in May 1999. The
final phase consists of implementation of the manufacturing software modules and
is currently scheduled to begin late in the second quarter or early in the third
quarter of 1999. This project is expected to resolve the fundamental Y2K
information technology issues, and we believe that it will also have significant
benefits to the organization in terms of more efficient operations, improved
access to information related to production control and inventory management as
well as improvements in customer service. While it is not possible to segregate
the costs of this project into segments that are solely related to resolution of
Y2K issues and costs associated with the other aspects of the project, the
overall investment in information technology is expected to total approximately
$1.1 million. Actual expenditures related to this project, through the end of
1998, totaled approximately $700,000.
 
    While we believe that the timetable for implementation is realistic and
attainable, it is not possible to be absolutely certain of completion within the
scheduled time frame. The failure to correct a material Y2K issue could result
in an interruption in, or failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. However, manual
systems currently exist for the essential functions covered by this project, and
such manual systems could be utilized on a temporary basis if the project falls
substantially behind schedule, so the potential disruption resulting from a
delay in implementation is expected to be manageable.
 
    With respect to non-information technology issues, the Company has completed
an inventory of the production and support equipment and systems currently in
use and determined that most such equipment does not contain microprocessors or
embedded microchips and therefore will not be affected by Y2K issues. Certain,
more modern, production equipment contains microprocessors. For the majority of
that equipment, we have received confirmation that the equipment is Y2K
compliant, and we believe that we have alternative equipment available that
could be utilized on an interim basis should some of the modern equipment fail
unexpectedly.
 
    The Company has also requested that each of its major customers and critical
suppliers advise the Company of their current state of readiness as well as
their plans to resolve any open Y2K issues. The response to these requests has
been varied. In general, most firms contacted have indicated that their systems
are Y2K compliant, or that Y2K issues will be resolved during 1999. The Company
will continue to monitor the status of its key vendors and customers and will
develop appropriate contingency plans as more information becomes available.
 
STOCK PURCHASE PROGRAM
 
    Terms of a stock repurchase authorization originally approved by the Board
of Directors in February of 1990, and subsequently amended to permit the
repurchase of an aggregate of 200,000 shares, provide for purchases to be made
from time to time, in the open market or in private transactions, at prices
deemed reasonable by management. Purchases under the current repurchase
authorization have amounted to 135,196 shares at an average price of $14.44 per
share. This includes the purchase of 15,800 shares during 1998 at an average
price of $35.26 per share. It is management's intention to continue this
program, provided market conditions are favorable and funding for repurchases is
available.
 
PERSONNEL
 
    We are pleased to report that Michael J. Bourg joined the Company as
Controller in December 1998. Mr. Bourg is a CPA with both public accounting and
private industry experience and is a welcome addition to the staff.
 
OUTLOOK FOR 1999
 
    We anticipate that 1999 will be another successful year for Chicago Rivet &
Machine Co. Consensus forecasts suggest that the economy will continue to grow
at a moderate rate, and we expect to maintain, or increase our business
relationships with our major existing customers and to aggressively solicit
business from new customers. That optimism is tempered by the recognition that
the ongoing consolidation among companies that supply the automotive industry
has affected some of our long-term customer relationships in the past and may
impact other relationships in the future. Revenues from the assembly equipment
segment of our business were less robust in 1998 than in 1997 and, at the
present time, we have no indications that a significant change will occur in
1999. While demand for fasteners continues to be relatively strong, our
customers continue to challenge us with expectations of reductions in product
costs.
 
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                                        5
<PAGE>   9
MANAGEMENT'S DISCUSSION
(Continued)                                                 [CHIGAGO RIVET LOGO]
--------------------------------------------------------------------------------
 
These expectations are manifested in many ways, including new quality
initiatives, reductions in manufacturing lot sizes combined with more frequent
shipments, or, on an increasing basis, requests for progressive annual price
reductions. Our goal is to meet these challenges more successfully in 1999 by
focusing on cost reduction strategies in all areas of our operations, while
still providing the level of service and quality that our customers expect and
deserve. The investments that have been made in equipment and technology are
essential elements of that strategy. But we recognize that success, both past
and future, is dependent upon intangible elements as well and take this
opportunity to acknowledge, with gratitude, the support of our shareholders, the
loyalty of our customers and suppliers and the conscientious efforts of our
workforce.
 
                                     Respectfully,
 
<TABLE>
  <S>                                         <C>
        J. A. MORRISSEY                             JOHN C. OSTERMAN
       John A. Morrissey                            John C. Osterman
            Chairman                                   President
</TABLE>
 
March 5, 1999
 
FORWARD-LOOKING STATEMENTS
 
    When used in this discussion, the words "believe," "anticipated," "expected"
and similar expressions are intended to identify "forward-looking statements,"
which statements speak only as of the date hereof. Such statements are subject
to certain risks and uncertainties which could cause actual circumstances to
differ materially from those mentioned in this discussion including, but not
limited to: (i) the ability of the Company to maintain its relationships with
its significant customers, (ii) increases in the prices of, or limitations on
the availability of, the Company's primary raw materials, (iii) a downturn in
the automotive industry, upon which the Company relies for sales revenue, and
which is cyclical and dependent on, among other things, consumer spending,
international economic conditions and regulations and policies regarding
international trade, and (iv) failure of the Company or its major customers or
suppliers to successfully address Year 2000 issues.
 
    Readers are cautioned not to place undue reliance on these forward-looking
statements. The Company undertakes no obligation to publish revised
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events. In addition to the
disclosures contained herein, readers are also urged to carefully review and
consider any risks and uncertainties contained in other documents filed by the
Company with the Securities and Exchange Commission.
 
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                                        6
<PAGE>   10
 
[CHIGAGO RIVET LOGO]
 
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CONSOLIDATED BALANCE SHEETS
      ASSETS
 
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
                        DECEMBER 31                                1998                1997
-----------------------------------------------------------------------------------------------
<S>                                                             <C>                 <C>
 
Current Assets
 
  Cash and Cash Equivalents (Note 1)........................    $ 3,181,471         $ 3,983,471
 
  Certificates of Deposit...................................        550,254           2,867,715
 
  Accounts Receivable--Less allowances of $70,000 and
     $123,022, respectively (Note 1)........................      6,483,214           5,662,538
 
  Inventories (Notes 1 and 4)...............................      6,529,747           6,354,607
 
  Deferred Income Taxes (Notes 1 and 5).....................        691,191             764,588
 
  Other Current Assets......................................        235,149             360,448
                                                                -----------         -----------
 
  Total Current Assets......................................     17,671,026          19,993,367
                                                                -----------         -----------
 
Property, Plant and Equipment (Notes 1 and 9)
 
  Land and Improvements.....................................      1,008,901           1,008,901
 
  Buildings and Improvements................................      5,634,144           5,501,189
 
  Production Equipment, Leased Machines and Other...........     23,737,405          21,404,751
                                                                -----------         -----------
 
                                                                 30,380,450          27,914,841
 
  Less Accumulated Depreciation.............................     16,235,695          14,960,748
                                                                -----------         -----------
 
  Net Property, Plant and Equipment.........................     14,144,755          12,954,093
                                                                -----------         -----------
 
Total Assets................................................    $31,815,781         $32,947,460
                                                                ===========         ===========
</TABLE>
 
       THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
 
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                                        7
<PAGE>   11
                                                            [CHIGAGO RIVET LOGO]
 
--------------------------------------------------------------------------------
 
      LIABILITIES AND SHAREHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
                        DECEMBER 31                              1998                1997
---------------------------------------------------------------------------------------------
<S>                                                           <C>                 <C>
Current Liabilities
 
  Current Portion of Note Payable (Note 3)..................  $ 1,800,000         $ 1,800,000
 
  Accounts Payable..........................................    1,272,462           1,700,296
 
  Wages and Salaries........................................      745,158             772,247
 
  Contributions Due Profit Sharing Plan (Note 6)............      546,078             707,747
 
  Other Accrued Expenses (Note 7)...........................      546,068             438,342
 
  Unearned Lease Revenue (Note 1)...........................       43,267              68,711
 
  Federal and State Income Taxes (Notes 1 and 5)............      354,814             739,343
                                                              -----------         -----------
 
  Total Current Liabilities.................................    5,307,847           6,226,686
 
Note Payable (Note 3).......................................    3,150,000           4,950,000
 
Deferred Income Taxes (Notes 1 and 5).......................    1,345,275           1,259,672
                                                              -----------         -----------
 
  Total Liabilities.........................................    9,803,122          12,436,358
                                                              -----------         -----------
 
Shareholders' Equity
 
  Preferred Stock, No Par Value--Authorized 500,000
     Shares--None Outstanding...............................           --                  --
 
  Common Stock, $1.00 Par Value;
     Authorized 4,000,000 Shares; Issued and Outstanding
     1,153,496 and 1,169,296, respectively (Note 8).........    1,153,496           1,169,296
 
  Additional Paid-in Capital................................      453,184             459,388
 
  Retained Earnings.........................................   20,405,979          18,882,418
                                                              -----------         -----------
 
  Total Shareholders' Equity................................   22,012,659          20,511,102
                                                              -----------         -----------
 
Commitments and Contingencies (Note 12)
 
Total Liabilities and Shareholders' Equity..................  $31,815,781         $32,947,460
                                                              ===========         ===========
</TABLE>
 
       THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
 
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                                        8
<PAGE>   12
[CHIGAGO RIVET LOGO]
 
--------------------------------------------------------------------------------
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
<TABLE>
<S>                                                   <C>            <C>            <C>
-----------------------------------------------------------------------------------------------
For the Years Ended December 31                              1998           1997           1996
-----------------------------------------------------------------------------------------------
Net Sales and Lease Revenue (Notes 1 and 9).......    $44,938,184    $44,543,404    $22,510,953
Cost of Goods Sold and Costs Related to Lease
  Revenue.........................................     31,622,558     30,797,023     14,938,997
                                                      -----------    -----------    -----------
Gross Profit......................................     13,315,626     13,746,381      7,571,956
Selling and Administrative Expenses...............      8,140,630      7,573,074      4,757,440
Other Income (Expenses), Net (Note 10)............        (97,516)      (128,797)       359,485
                                                      -----------    -----------    -----------
Income Before Income Taxes........................      5,077,480      6,044,510      3,174,001
Provision for Income Taxes (Notes 1 and 5)........      1,717,000      2,183,000      1,226,000
                                                      -----------    -----------    -----------
Net Income........................................    $ 3,360,480    $ 3,861,510    $ 1,948,001
                                                      ===========    ===========    ===========
Net Income Per Share..............................    $      2.90    $      3.30    $      1.66
                                                      ===========    ===========    ===========
</TABLE>
 
CONSOLIDATED STATEMENTS OF
RETAINED EARNINGS
 
<TABLE>
<S>                                                   <C>            <C>            <C>
Retained Earnings at Beginning of Year............    $18,882,418    $16,145,012    $15,251,361
Net Income........................................      3,360,480      3,861,510      1,948,001
Cancellation of Treasury Stock (Note 8)...........       (535,058)       (58,259)            --
Cash Dividends Paid,
  $1.12 Per Share in 1998, $.91 Per Share in 1997
  and $.90 Per Share in 1996......................     (1,301,861)    (1,065,845)    (1,054,350)
                                                      -----------    -----------    -----------
Retained Earnings at End of Year..................    $20,405,979    $18,882,418    $16,145,012
                                                      ===========    ===========    ===========
</TABLE>
 
       THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
 
--------------------------------------------------------------------------------
                                        9
<PAGE>   13
                                                            [CHIGAGO RIVET LOGO]
 
--------------------------------------------------------------------------------
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
         ---------------------------------------------------------------------------------------------------
                      FOR THE YEARS ENDED DECEMBER 31                   1998          1997          1996
         ---------------------------------------------------------------------------------------------------
         <S>                                                         <C>           <C>           <C>
         Cash Flows from Operating Activities:
         Net Income................................................  $3,360,480..  $ 3,861,510   $ 1,948,001
         Adjustments to Reconcile Net Income to Net Cash Provided
           by Operating Activities:
           Depreciation and Amortization...........................    1,498,302     1,380,763       734,674
           Net Gain on the Sale of Properties......................      (14,787)     (175,059)      (54,376)
           Deferred Income Taxes...................................      159,000       248,084        11,297
           Changes in Working Capital Components, net of the
             effects of the acquisition of H & L Tool:
             Accounts Receivable...................................     (820,676)     (633,653)      770,288
             Inventories...........................................     (175,140)      543,996       (10,553)
             Other Current Assets..................................      125,299       (88,475)       16,914
             Accounts Payable......................................     (427,834)      442,592       168,876
             Accrued Wages and Salaries............................      (27,089)       17,456      (301,362)
             Accrued Benefit Plan Contributions....................     (161,669)      185,469       (50,586)
             Other Accrued Expenses................................      107,726       (43,916)     (302,143)
             Unearned Lease Revenue................................      (25,444)       15,300       (16,709)
             Income Taxes Payable..................................     (384,529)      320,004      (121,706)
                                                                     -----------   -----------   -----------
                  Net Cash Provided by Operating Activities........    3,213,639     6,074,071     2,792,615
                                                                     -----------   -----------   -----------
         Cash Flows from Investing Activities:
           Acquisition of H & L Tool, net of cash acquired of $4.8
             million...............................................           --            --   (14,294,470)
           Capital Expenditures....................................   (2,696,701)     (963,917)     (861,128)
           Proceeds from the Sale of Properties....................       22,524       800,302       114,403
           Proceeds from Held-to-Maturity Securities...............    5,831,753     4,316,492     7,921,447
           Proceeds from Available-for-Sale Securities.............           --            --     2,209,513
           Purchases of Held-to-Maturity Securities................   (3,514,292)   (6,081,987)   (3,766,410)
           Purchases of Available-for-Sale Securities..............           --            --      (195,025)
                                                                     -----------   -----------   -----------
                  Net Cash Used in Investing Activities............     (356,716)   (1,929,110)   (8,871,670)
                                                                     -----------   -----------   -----------
         Cash Flows from Financing Activities:
           Borrowings under Term Loan Agreement....................           --            --     9,000,000
           Payments under Term Loan Agreement......................   (1,800,000)   (2,250,000)           --
           Purchases of Treasury Stock.............................     (557,062)      (61,333)           --
           Cash Dividends Paid.....................................   (1,301,861)   (1,065,845)   (1,054,350)
                                                                     -----------   -----------   -----------
                  Net Cash Provided by (Used in) Financing
                    Activities.....................................   (3,658,923)   (3,377,178)    7,945,650
                                                                     -----------   -----------   -----------
         Net Increase(Decrease) in Cash and Cash Equivalents.......     (802,000)      767,783     1,866,595
         Cash and Cash Equivalents at Beginning of Year............    3,983,471     3,215,688     1,349,093
                                                                     -----------   -----------   -----------
         Cash and Cash Equivalents at End of Year..................  $ 3,181,471   $ 3,983,471   $ 3,215,688
                                                                     ===========   ===========   ===========
           Cash Paid During the Year for:
             Income Taxes..........................................  $ 1,942,529   $ 1,614,913   $ 1,337,427
             Interest..............................................  $   458,080   $   485,282            --
</TABLE>
 
       THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
 
--------------------------------------------------------------------------------
                                       10
<PAGE>   14
 
[CHIGAGO RIVET LOGO]
 
--------------------------------------------------------------------------------
 
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 
1--NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
 
NATURE OF BUSINESS--The Company operates in the fastener industry and is in the
business of producing and selling rivets, cold-formed fasteners, screw-machine
products, automatic rivet setting machines, parts and tools for such machines,
and the leasing of automatic rivet setting machines.
 
A SUMMARY OF THE COMPANY'S SIGNIFICANT ACCOUNTING POLICIES FOLLOWS:
 
PRINCIPLES OF CONSOLIDATION--The Consolidated Financial Statements include the
accounts of Chicago Rivet & Machine Co. and its wholly owned subsidiary, H & L
Tool Company, Inc. All significant intercompany accounts and transactions have
been eliminated.
 
REVENUE RECOGNITION--Revenues from product sales are generally recognized upon
shipment and a reserve is provided for estimated returns and allowances based on
experience.
 
LEASE INCOME--Automatic rivet setting machines are available to customers on
either a sale or lease basis. The leases, generally for a one-year term, are
cancelable at the option of the Company or the customer and are accounted for
under the operating method, which recognizes lease revenue over the term of the
lease. Rentals are billed in advance, and revenues attributable to future
periods are shown as unearned lease revenue in the consolidated balance sheets.
Costs related to lease revenue, other than the cost of the machines, are
expensed as incurred.
 
CREDIT RISK--The Company extends credit primarily on the basis of 30 day terms
to various companies doing business primarily in the automotive and appliance
industries. The Company has a concentration of credit risk primarily within the
automotive industry and in the Midwestern United States.
 
CASH AND CASH EQUIVALENTS--The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.
 
FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying amounts reported in the
consolidated balance sheets for cash and cash equivalents and certificates of
deposit approximate fair value because of the immediate or short-term maturity
of these financial instruments. The carrying amount reported for the note
payable approximates fair market value because the underlying instrument is at a
rate similar to current rates available to the Company for notes with the same
remaining maturities.
 
INVENTORIES--Inventories are stated at the lower of cost or net realizable
value, cost being determined principally by the first-in, first-out method.
 
PROPERTY, PLANT AND EQUIPMENT--Properties are stated at cost and are depreciated
over their estimated useful lives using the straight-line method for financial
reporting purposes. Accelerated methods of depreciation are used for income tax
purposes, and deferred taxes are provided on the difference between financial
and tax depreciation. Direct costs related to developing or obtaining software
for internal use are capitalized as property and equipment. Capitalized software
costs are amortized over the software's useful life when the software is ready
for its intended use. The estimated useful lives by asset category are:
 
Asset category                                             Estimated useful life
------------------------------------------------------------
 
<TABLE>
<S>                                          <C>
Land improvements...........................    15 to 25 years
Buildings and improvements..................    10 to 35 years
Machinery and equipment.....................     9 to 12 years
Automatic rivet setting machines on lease...          10 years
Capitalized software costs..................      3 to 5 years
Other equipment.............................     3 to 15 years
</TABLE>
 
     When properties are retired or sold, the related cost and accumulated
depreciation are removed from the respective accounts, and any gain or loss on
disposition is recognized currently. Maintenance, repairs and minor betterments
that do not improve the related asset or extend its useful life are charged to
operations as incurred.
 
INCOME TAXES--Deferred income taxes are determined under the asset and liability
method in accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes". Deferred income taxes arise from temporary
differences between the income tax basis of assets and liabilities and their
reported amounts in the financial statements.
 
PURCHASE OF COMPANY COMMON STOCK--The Company is required by its state of
incorporation to retire any common stock it purchases. The excess of cost over
par value is charged proportionately to additional paid-in capital and retained
earnings.
 
SEGMENT INFORMATION--In 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, ("FAS 131") "Disclosures about Segments of an
Enterprise and Related Information." FAS 131 establishes new standards for
defining a Company's segments and disclosing information about them. It requires
that segments be based on the internal structure and reporting of the Company's
operations. The adoption of FAS 131 did not affect results of operations or
financial position but did affect the disclosure of segment information.
 
NET INCOME PER SHARE--Net income per share of common stock is based on the
weighted average number of shares outstanding of 1,159,360 in 1998, 1,170,988 in
1997 and 1,171,496 in 1996, after giving effect to a two-for-one stock split
that occurred September 19, 1997.
 
ESTIMATES--The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those estimates.
 
2--ACQUISITIONS--On December 3, 1996, the Company acquired substantially all of
the assets and assumed certain liabilities of H & L Tool Company, Inc. (H & L
Tool) of Madison Heights, Michigan in a transaction accounted for as a purchase.
The purchase price was approximately $19.1 million, including $0.3 million of
acquisition costs, and was financed through a $4.8 million credit in
consideration of the seller's retention of all cash and marketable securities,
an unsecured loan of $9.0 million and approximately $5.3 million of available
cash. The purchase price was allocated to the fair market
 
--------------------------------------------------------------------------------
                                       11
<PAGE>   15
                                                            [CHIGAGO RIVET LOGO]
--------------------------------------------------------------------------------
 
value of the assets acquired, including all of H & L Tool's production equipment
and its facilities in Madison Heights, inventories, accounts receivable, and
other operating assets. The consolidated financial statements for the year ended
December 31, 1996, reflect the operation of H & L Tool from the date of
acquisition.
 
The following represents the unaudited pro forma results of operations, for
1996, as if the acquisition occurred on January 1, 1996 (in thousands, except
per share data):
 
<TABLE>
<S>                                               <C>
Net sales and lease revenue...................    $   42,957
Net Income....................................         1,856
Net Income per share..........................          1.58
</TABLE>
 
     The unaudited pro forma financial information is not necessarily indicative
of, and does not include all adjustments management considers necessary to
reflect, the results of operations that would have been obtained if the
acquisition had taken place at the beginning of the period presented or of
future results of operation.
 
3--NOTE PAYABLE--On November 25, 1996, in connection with the acquisition of H &
L Tool, the Company entered into a five-year unsecured term loan agreement (the
Term Loan) for $9 million, and a $1 million line of credit agreement (the Line
of Credit) available through May 30, 1997. The Term Loan bears interest, payable
quarterly, at the Company's option, at the reference rate of the financial
institution less 75 basis points, or the LIBOR rate plus 80 basis points.
Repayments of principal are made quarterly in the amount of $450,000 through
September 2001. The Line of Credit was extended through May 30, 1999 and remains
unused at December 31, 1998.
4--INVENTORIES--Inventories at December 31, 1998 and 1997 consisted of the
following:
 
<TABLE>
<CAPTION>
                                       1998           1997
                                    -----------    -----------
<S>                                 <C>            <C>
Raw materials.....................  $1,656,179     $1,901,419
Work in process...................   1,777,584      1,427,764
Finished goods....................   3,095,984      3,025,424
                                    ----------     ----------
                                    $6,529,747     $6,354,607
                                    ==========     ==========
</TABLE>
 
5--INCOME TAXES--The provision for income tax expense consists of the following:
 
<TABLE>
<CAPTION>
                             1998          1997          1996
                          -----------   -----------   -----------
<S>                       <C>           <C>           <C>
Current
  Federal...............  $ 1,431,000   $ 1,729,916   $   993,703
  State.................      127,000       205,000       221,000
Deferred................      159,000       248,084        11,297
                          -----------   -----------   -----------
                          $ 1,717,000   $ 2,183,000   $ 1,226,000
                          ===========   ===========   ===========
</TABLE>
 
     The deferred tax liabilities and assets are comprised of the following:
 
<TABLE>
<CAPTION>
                                      1998            1997
                                  ------------    ------------
<S>                               <C>             <C>
Depreciation....................  $(1,368,531)    $(1,287,412)
                                  -----------     -----------
Inventory.......................      443,202         427,166
Accrued vacation................      176,400         183,477
Unearned rental revenue.........       16,710          27,484
Allowance for doubtful
  accounts......................       26,110          44,827
Environmental accrual...........       15,448          34,000
Other...........................       36,577          75,374
                                  -----------     -----------
                                      714,447         792,328
                                  -----------     -----------
                                  $  (654,084)    $  (495,084)
                                  ===========     ===========
</TABLE>
 
     The following is a reconciliation of the statutory federal income tax rate
to the actual effective tax rate:
 
<TABLE>
<CAPTION>
                              1998                1997               1996
                        -----------------   -----------------  ----------------
                          AMOUNT      %       Amount      %      Amount     %
                        -----------------   -----------------  ----------------
<S>                     <C>          <C>    <C>          <C>   <C>         <C>
Expected tax at U.S
 Statutory rate.......  $1,726,000   34.0   $2,055,133   34.0  $1,079,160  34.0
State taxes, net of
 federal benefit......      84,000    1.7      135,300    2.2     145,860   4.6
Other, net............       7,000     .1       (7,433)    --         980    --
Adjustment to prior
 year accrual.........    (100,000)  (2.0)          --     --          --    --
                        ----------   ----   ----------   ----  ----------  ----
Income tax expense....  $1,717,000   33.8   $2,183,000   36.2  $1,226,000  38.6
                        ==========   ====   ==========   ====  ==========  ====
</TABLE>
 
6--PENSIONS--The Company has a noncontributory profit sharing plan covering
substantially all employees. Total expenses relating to the profit sharing plan
amounted to approximately $546,000 in 1998, $627,000 in 1997 and $327,000 in
1996.
 
     During 1997, the Company's defined benefit pension plans were terminated
and all liabilities were satisfied.
 
7--OTHER ACCRUED EXPENSES--Accrued expenses consist of the following:
 
<TABLE>
<CAPTION>
                                          1998         1997
                                        ---------    ---------
<S>                                     <C>          <C>
Property taxes........................  $100,008     $ 95,620
Payroll taxes and withholding.........   149,466       68,951
Interest..............................    26,652      108,634
Environmental costs...................    40,000       85,000
Commissions...........................    85,039        8,863
All other items.......................   144,903       71,274
                                        --------     --------
                                        $546,068     $438,342
                                        ========     ========
</TABLE>
 
8--TREASURY STOCK TRANSACTIONS--In 1998, the Company purchased 15,800 shares of
its common stock for $557,062. In 1997, the Company purchased 2,200 shares of
its common stock for $61,333. All stock purchased was retired, the excess of
cost over par value was charged proportionately to additional paid-in capital
and retained earnings.
 
9--LEASED MACHINES--Lease revenue amounted to $376,644 in 1998, $330,312 in 1997
and $414,129 in 1996. Future minimum rentals on leases beyond one year are not
significant. The cost and carrying value of leased automatic rivet setting
machines at December 31 were:
 
<TABLE>
<CAPTION>
                                          1998         1997
                                        ---------    ---------
<S>                                     <C>          <C>
Cost..................................  $725,459     $742,491
Accumulated depreciation..............   610,616      649,939
                                        --------     --------
Carrying value........................  $114,843     $ 92,552
                                        ========     ========
</TABLE>
 
10--OTHER INCOME (EXPENSES), NET--Other income (expenses) consists of the
following:
 
<TABLE>
<CAPTION>
                               1998         1997         1996
                            ----------   ----------   ----------
<S>                         <C>          <C>          <C>
Gain on sale of properties
  and equipment...........  $   14,787   $  175,059   $   54,376
Interest income...........     247,889      221,975      362,158
Interest expense..........    (376,098)    (546,666)     (47,250)
Amortization expense......          --       (8,348)     (24,996)
Other.....................      15,906       29,183       15,197
                            ----------   ----------   ----------
                            $  (97,516)  $ (128,797)  $  359,485
                            ==========   ==========   ==========
</TABLE>
 
--------------------------------------------------------------------------------
                                       12
<PAGE>   16
[CHIGAGO RIVET LOGO]
--------------------------------------------------------------------------------
 
11--SEGMENT INFORMATION--The Company operates, primarily in the United States,
in two business segments as determined by its products. The fastener segment,
which aggregates H & L Tool and the parent company's fastener operations,
includes rivets, cold-formed fasteners and screw-machine products. The assembly
equipment segment includes automatic rivet setting machines, parts and tools for
such machines and the leasing of automatic rivet setting machines. Information
by segment is as follows:
 
<TABLE>
<CAPTION>
                                        ASSEMBLY
                          FASTENER      EQUIPMENT       OTHER      CONSOLIDATED
                         -----------   -----------   -----------   ------------
<S>                      <C>           <C>           <C>           <C>
YEAR ENDED
 DECEMBER 31, 1998:
Net sales and lease
 revenue...............  $33,931,740   $11,006,444   $        --   $44,938,184
Depreciation...........    1,148,343      213,294        136,665     1,498,302
Segment profit.........    7,073,936    4,758,406             --    11,832,342
Selling and administra-
 tive expenses.........                                6,626,653     6,626,653
Interest expense.......                                  376,098       376,098
Interest income........                                 (247,889)     (247,889)
                                                                   -----------
Income before income
 taxes.................                                              5,077,480
                                                                   -----------
Capital expenditures...    1,992,015      229,553        475,133     2,696,701
Segment assets:
 Inventory.............    3,761,580    2,768,167             --     6,529,747
 Property, plant and
   equipment...........   10,588,483    1,790,190      1,766,082    14,144,755
 Other assets..........           --           --     11,141,279    11,141,279
                                                                   -----------
                                                                    31,815,781
                                                                   -----------
YEAR ENDED
 DECEMBER 31, 1997:
Net sales and lease
 revenue...............  $32,712,820   $11,830,584   $        --   $44,543,404
Depreciation...........    1,068,940      187,708        115,767     1,372,415
Segment profit.........    7,016,647    5,404,439             --    12,421,086
Selling and administra-
 tive expenses.........                                6,051,885     6,051,885
Interest expense.......                                  546,666       546,666
Interest income........                                 (221,975)     (221,975)
                                                                   -----------
Income before income
 taxes.................                                              6,044,510
                                                                   -----------
Capital expenditures...      533,865      291,814        138,238       963,917
Segment assets:
 Inventory.............    3,698,325    2,656,282             --     6,354,607
 Property, plant and
   equipment...........    9,941,054    1,609,264      1,403,775    12,954,093
 Other assets..........           --           --     13,638,760    13,638,760
                                                                   -----------
                                                                    32,947,460
                                                                   -----------
YEAR ENDED
 DECEMBER 31, 1996:
Net sales and lease
 revenue...............  $11,263,822   $11,247,131   $        --   $22,510,953
Depreciation...........      430,040      170,037        109,601       709,678
Segment profit.........    1,378,077    5,220,540             --     6,598,617
Selling and administra-
 tive expenses.........                                3,739,524     3,739,524
Interest expense.......                                   47,250        47,250
Interest income........                                 (362,158)     (362,158)
                                                                   -----------
Income before income
 taxes.................                                              3,174,001
                                                                   -----------
Capital expenditures...      335,948      204,272        320,908       861,128
Segment assets:
 Inventory.............    4,154,710    2,743,893             --     6,898,603
 Property, plant and
   equipment...........   10,689,532    1,676,989      1,621,312    13,987,833
 Other assets..........           --           --     10,440,116    10,440,116
                                                                   -----------
                                                                    31,326,552
                                                                   -----------
</TABLE>
 
     The Company does not allocate selling and administrative expenses, except
for freight allowed and certain identifiable engineering expenses, for internal
reporting, thus, no allocation was made for segment disclosure purposes. Segment
assets reported internally are limited to inventory and long-lived assets.
Long-lived assets of one plant location are allocated between the two segments
based on estimated plant utilization as this plant serves both fastener and
assembly equipment activities. Other assets are not allocated to segments
internally and to do so would be impracticable. Sales to two customers in the
fastener segment accounted for 15 and 10 percent of consolidated revenues during
1998 and sales to these customers accounted for 15 and 11 percent, respectively,
in 1997. No single customer accounted for 10 percent of consolidated revenues
during 1996.
 
12--COMMITMENTS AND CONTINGENCIES--The Company recorded rent expense aggregating
approximately $26,000, $27,000 and $9,000 for 1998, 1997 and 1996, respectively.
Total future minimum rentals at December 31, 1998 are not significant.
 
     The Company is, from time to time, involved in litigation, including
environmental claims, in the normal course of business. With regard to
environmental claims, the Company has been named by state and/or federal
government agencies as a "potentially responsible party" with respect to certain
waste disposal sites. As a potentially responsible party, the Company may be
considered jointly and severally liable, along with other potentially
responsible parties, for the cost of remediation of these waste sites. Certain
estimates related to remediation costs were favorably adjusted during 1998 and
1997 as remediation work nears completion at certain sites, while claims at
other sites are nearing resolution, and, accordingly, the Company has revised
the amount of reserves recorded in connection with these claims. Despite the
joint and several nature of liability, these proceedings are frequently resolved
on the basis of the quantity and type of waste disposed by the parties. The
actual amount of liability for the Company is unknown due to disagreement
concerning the allocation of responsibility, uncertainties regarding the amount
of contribution that will be available from other parties and uncertainties
related to insurance coverage. After investigation of the quantities and type of
waste disposed at these sites, it is management's opinion that any liability
will not be material to the Company's financial condition. Nevertheless, it is
likely that the Company will incur additional costs associated with these
proceedings, and, accordingly, the Company has recorded a total liability of
$40,000 related to these matters. The adequacy of this reserve will be reviewed
periodically as more definitive cost information becomes available.
 
     While it is not possible at this time to establish the ultimate amount of
liability with respect to contingent liabilities, including those related to
legal proceedings, management is of the opinion that the aggregate amount of any
such liabilities, for which provision has not been made, will not have a
material adverse effect on the Company's financial position.
 
13--OTHER UNUSUAL ITEMS OF INCOME AND EXPENSE--Fourth quarter net income
includes the net favorable effect of certain adjustments related to inventory,
accruals and allowances of $.05, $.16 and $.36 per share, for 1998, 1997 and
1996, respectively. The 1998 adjustment includes $.09 per share related to the
reduction of prior year accrued income taxes. The 1997 adjustment includes $.08
per share related to the reduction in environmental reserves recorded in
connection with favorable resolution of certain environmental claims and revised
liability estimates in connection with certain other environmental claims.
 
--------------------------------------------------------------------------------
                                       13
<PAGE>   17
 
                                                            [CHIGAGO RIVET LOGO]
 
--------------------------------------------------------------------------------
 
REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Board of Directors and Shareholders of
Chicago Rivet & Machine Co.
 
    In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, retained earnings and cash flows present
fairly, in all material respects, the financial position of Chicago Rivet &
Machine Co. and its subsidiary at December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
 
PRICE WATERHOUSE LLP
 
Chicago, Illinois
March 5, 1999
 
SELECTED FINANCIAL DATA
 
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
                                                           1998           1997           1996           1995           1994
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>            <C>            <C>            <C>            <C>
Net Sales and Lease Revenue                             $44,938,184    $44,543,404    $22,510,953    $23,717,410    $23,012,730
-------------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes                                5,077,480      6,044,510      3,174,001      3,645,215      3,239,881
-------------------------------------------------------------------------------------------------------------------------------
Net Income                                                3,360,480      3,861,510      1,948,001      2,235,215      1,908,881
-------------------------------------------------------------------------------------------------------------------------------
Net Income Per Share                                           2.90           3.30           1.66           1.91           1.63
-------------------------------------------------------------------------------------------------------------------------------
Dividends Per Share                                            1.12            .91            .90            .88            .78
-------------------------------------------------------------------------------------------------------------------------------
Average Common Shares Outstanding                         1,159,360      1,170,988      1,171,496      1,172,944      1,174,122
-------------------------------------------------------------------------------------------------------------------------------
Net Working Capital                                      12,363,179     13,766,681     12,040,579     12,710,825     10,968,607
-------------------------------------------------------------------------------------------------------------------------------
Total Debt                                                4,950,000      6,750,000      9,000,000             --             --
-------------------------------------------------------------------------------------------------------------------------------
Total Assets                                             31,815,781     32,947,460     31,326,552     21,355,139     19,923,085
-------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity                                     22,012,659     20,511,102     17,776,760     16,883,109     15,702,000
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
 
--------------------------------------------------------------------------------
                                       14
<PAGE>   18
 
[CHIGAGO RIVET LOGO]
 
--------------------------------------------------------------------------------
 
QUARTERLY FINANCIAL DATA (UNAUDITED):
 
<TABLE>
<CAPTION>
                           1ST           2ND           3RD           4TH
                         QUARTER       QUARTER       QUARTER       QUARTER
                       -----------   -----------   -----------   -----------
<S>                    <C>           <C>           <C>           <C>
1998
Net Sales and Lease
 Revenue.............  $11,672,949   $10,822,531   $10,331,367   $12,111,337
Gross Profit.........    3,401,609     3,194,414     3,180,502     3,539,101
Net Income...........      914,820       783,924       718,506       943,230
Per Share Data:
 Net Income Per
   Share.............          .78           .68           .62           .82
 Average Common
   Shares
   Outstanding.......    1,169,100     1,159,793     1,155,535     1,153,764
 
1997
Net Sales and Lease
 Revenue.............  $11,898,645   $11,564,802   $10,122,352   $10,957,605
Gross Profit.........    3,108,504     3,750,335     3,196,822     3,690,720
Net Income...........      731,983     1,070,424       704,495     1,354,608
Per Share Data:
 Net Income Per
   Share.............          .62           .91           .60          1.17
 Average Common
   Shares
   Outstanding.......    1,171,496     1,171,444     1,170,896     1,170,134
 
1996
Net Sales and Lease
 Revenue.............  $ 5,323,632   $ 6,162,712   $ 4,807,028   $ 6,217,581
Gross Profit.........    1,718,656     1,908,693     1,594,397     2,350,210
Net Income...........      350,629       433,227       381,773       782,372
Per Share Data:
 Net Income Per
   Share.............          .30           .37           .32           .67
 Average Common
   Shares
   Outstanding.......    1,171,496     1,171,496     1,171,496     1,171,496
</TABLE>
 
INFORMATION ON COMPANY'S COMMON STOCK
 
The Company's common stock is traded on the American Stock Exchange. The
following chart shows the dividends declared and the quarterly high and low
prices of the common stock for the last two years.
 
<TABLE>
<CAPTION>
                        Dividends
                       --Declared----------------------------------Market-Range----------------------------
       QUARTER         1998    1997                  1998                                1997
       -------         ----    ----    --------------------------------    --------------------------------
<S>                    <C>     <C>     <C>  <C>          <C>  <C>          <C>  <C>          <C>  <C>
First................  $.58*   $.40*   $46   1/2         $28               $18   3/4         $15   1/2
Second...............   .18     .15    $49   1/2         $32               $24  15/16        $18
Third................   .18     .18    $34   7/8         $24   3/4         $39  15/16        $23
Fourth...............   .18     .18    $30   1/2         $21               $36               $23   1/2
</TABLE>
 
---------------
* Includes an extra dividend of $.40 and $.25 per share for 1998 and 1997,
  respectively.
 
--------------------------------------------------------------------------------
                                       15
<PAGE>   19
 
                                                            [CHIGAGO RIVET LOGO]
 
--------------------------------------------------------------------------------
 
BOARD OF DIRECTORS
ROBERT K. BROWN(e)
Retired President of
the Company
STEPHEN L. LEVY(a)(c)
Senior Advisor to the
Chief Executive Office
Motorola Inc.
Schaumburg, Illinois
JOHN R. MADDEN(a)(c)
Chairman of the Board
of Directors of
The First National Bank
of La Grange
La Grange, Illinois
JOHN A. MORRISSEY(e)
Chairman of the Board
of the Company
 
President & Director
Algonquin State Bank
Algonquin, Illinois
WALTER W. MORRISSEY(a)(c)(e)
Attorney at Law
 
Morrissey & Robinson
Oak Brook, Illinois
JOHN C. OSTERMAN(e)
President of the Company
CORPORATE OFFICERS
JOHN A. MORRISSEY
Chairman, Chief
Executive Officer
JOHN C. OSTERMAN
President, Chief Operating
Officer and Treasurer
DONALD P. LONG
Vice President--Sales
KIMBERLY A. KIRHOFER
Secretary
MICHAEL J. BOURG
Corporate Controller
 
CHICAGO RIVET & MACHINE CO.
 
ADMINISTRATIVE & SALES OFFICES
Naperville, Illinois
Norwell, Massachusetts
MANUFACTURING FACILITIES
Albia Division
Albia, Iowa
 
Jefferson Division
Jefferson, Iowa
 
Tyrone Division
Tyrone, Pennsylvania
 
H & L Tool Company, Inc.
Madison Heights, Michigan
 
(a) Member of Audit Committee
(c) Member of Compensation Committee
(e) Member of Executive Committee
 
Chicago Rivet & Machine Co. - 901 Frontenac Road - P.O. Box 3061 - Naperville,
Illinois 60566 - Telephone: (630) 357-8500
 
--------------------------------------------------------------------------------
<PAGE>   20
 
                              [CHICAGO RIVET LOGO]
 
 Chicago Rivet & Machine Co. - 901 Frontenac Road - P.O. Box 3061 - Naperville,
                   Illinois 60566 - Telephone: (630) 357-8500