F O R M 10 - KSB

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

(Mark One)

(X)  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
     OF THE SECURITIES EXCHANGE ACT OF 1934                      (FEE REQUIRED)
                                                                 --------------

For the fiscal year ended                 December 31, 2003
                          -----------------------------------------------------

                                       OR

( )  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     EXCHANGE ACT OF 1934                                      (NO FEE REQUIRED)
                                                               -----------------

For the transition period from  ______________ to _______________

Commission file number   O-7267
                         -------------------------------------------------------

                              WEB PRESS CORPORATION
--------------------------------------------------------------------------------

Washington                                                  91-0851298
--------------------------------------------                --------------------
(State or other jurisdiction of                             (I.R.S. Employer
 incorporation or organization)                             Identification No.)

22023 68th Avenue South, Kent, Washington                   98032
-----------------------------------------                   ----------
(Address of principal executive offices)                    (Zip Code)

Registrant's telephone number, including area code (253) 395-3343
                                                   --------------

Securities Registered Pursuant to 12(b) of the Act:

Title of each class     Name of each exchange on which registered

None
--------------         -------------------------------------------

Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock, Par Value $.025
--------------------------------------------------------------------------------
                                (Title of Class)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or 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
                                                              ---    ---
All reports during the preceding 12 months have been filed.

State issuer's revenues for its most recent fiscal year: $8,708,491.

As of February 23, 2004, 3,105,413 common shares were outstanding, and the
aggregate market value of the common shares (based upon the closing bid/asked
price provided by the Pink Sheets, LLC.) held by non-affiliates was
approximately $608 thousand.

Documents incorporated by reference: Exhibits as described in Part III, Item 13.

<PAGE>

                              WEB PRESS CORPORATION

                TABLE OF CONTENTS TO ANNUAL REPORT ON FORM 10-KSB

ITEM              DESCRIPTION                                             PAGE
----              -----------                                             ----

                                             PART I

 1.               BUSINESS...............................................  4
 2.               PROPERTIES.............................................  8
 3.               LEGAL PROCEEDINGS......................................  8
 4.               SUBMISSION OF MATTERS TO A VOTE OF
                  SECURITY HOLDERS.......................................  9

                                             PART II

 5.               MARKET FOR THE REGISTRANT'S COMMON STOCK
                  AND RELATED SECURITY HOLDER MATTERS.................... 10
 6.               MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......... 10
 7.               FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............ 19
 8.               CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                  ON ACCOUNTING AND FINANCIAL DISCLOSURE................. 19

                                            PART III

 9.               DIRECTORS AND EXECUTIVE OFFICERS
                  OF REGISTRANT.......................................... 20
10.               EXECUTIVE COMPENSATION................................. 23
11.               SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                  OWNERS AND MANAGEMENT.................................. 23
12.               CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......... 25
13.               EXHIBITS, FINANCIAL STATEMENT SCHEDULES
                  AND REPORTS ON FORM 8-K................................ 26
14.               CONTROLS AND PROCEDURES................................ 27
15.               PRINCIPAL ACCOUNTANT FEES AND SERVICES................. 27

                                       3
<PAGE>

                          ANNUAL REPORT ON FORM 10-KSB
                              WEB PRESS CORPORATION
                                     PART I


ITEM 1.   BUSINESS

(A)  General Development of Business

Web Press Corporation (herein referred to as "Web" or "Company") was founded in
late 1967 under the name "Web Press Aid" as a sole proprietorship. The Company
was incorporated in November, 1969 under the laws of the State of Washington.
Initially, the Company was involved primarily in the rebuilding and repair of
web-fed printing presses and related equipment. Shortly after incorporation, the
Company undertook the development of a line of printing press equipment of its
own design. During 1972, the Company commenced production of this equipment.
While the manufacture of new equipment is now the Company's primary business, it
continues to deal in rebuilt and used equipment as an adjunct to its new press
sales. The Company also sells parts and service for its new equipment. The sale
of new and used presses accounted for approximately 83% and 2%, respectively, of
the Company's revenues in 2003. The Company's presses are primarily designed to
print on absorbent paper such as newsprint. Products produced by the presses are
newspapers (both broadsheet and tabloid sizes), shoppers, advertising inserts,
and paperback books.

During 1984 and 1985, the Company developed four models of a new high-speed
press and added them to its product line. In 1992, the Company added a new size
cutoff to this line of presses, increasing the number of models to six.

In 1995, the Company introduced and sold its first integrated rollstand
perfecting unit (IRU). The IRU has a single roll position under the perfecting
unit in place of a free-standing two-position rollstand.

In June 1998, the Company introduced the Quad-Stack 4+4 perfecting unit as a new
module for the Atlas product line. The Quad-Stack prints color simultaneously on
both sides of the paper. Its unique design results in a compact size for a 4+4
press.

(B)  Financial Information About Segments

See Note 7 of Notes to Consolidated Financial Statements for information about
the Company's operations by segment and geographic area for the years ended
December 31, 2003 and 2002.

                                       4
<PAGE>

(C)  Narrative Description of Business

Equipment which Web Press Corporation manufactures consists of two basic
products, the Marc-25 and the Atlas. The Atlas is made in six different models.
The principal difference between the Marc-25 and the Atlas is that the Atlas is
twenty percent faster. Each press is composed of standard modules to unwind,
print, cutoff and fold the roll of paper into a finished product. Each is
arranged to meet the particular printer's requirements for the number of pages,
color, and size of their products. Following are descriptions of these modules:

PERFECTOR. Web's perfector is a rotary offset perfecting printing press unit,
consisting of two printing couples running "back-to-back". Each perfector will
print four broadsheet-size newspaper pages, in one color, on each revolution of
the printing couples. Perfectors can be configured to print up to four colors.
They can print up to 32 broadsheet-size pages. They are available both with and
without an integrated roll-stand.

QUADRA-COLOR UNIT. Web's Quadra-Color unit consists of four printing stations
mounted around a common impression cylinder. This unit prints four colors on two
broadsheet-size pages at a time. It offers better control over color register
and thus is capable of greater accuracy in color printing than conventional,
unit-to-unit methods for color printing. It is used in conjunction with the
Company's other products to provide close register, four-color capability in the
printing system. The Quadra-color can also be installed into press-lines
manufactured by Goss, Dauphin Graphic Machines, Heidelberg, and King.

QUAD-STACK(TM) MODULE. Web's Quad-Stack(TM) unit consists of eight printing
stations positioned in two juxtaposed vertical stacks of four printing stations
each. The horizontal layout of each printing station results in a compact 4+4
perfector that prints four colors on four broadsheet-size pages at the same
time. Like the Quadra-Color, it offers excellent control over color register
resulting in superior color printing. It is available both with and without an
integrated roll-stand and is used in conjunction with the Atlas product line.
The Quad-Stack(TM) can also be installed into press-lines manufactured by Goss,
Dauphin Graphic Machines, Heidelberg, and King.

FOLDER. Web's folder is used in conjunction with perfecting units, Quadra-Color
units, and Quad-Stack(TM) units to fold the printed paper into a finished
product. The folder cuts the paper off in every plate cylinder revolution and
folds it in standard broadsheet-size newspapers, tabloid-size papers, and
shopping-flyer or magazine-size products. The Company also produces two folder
styles which have the capability of making a second parallel

                                       5
<PAGE>

fold to produce "digest"-size signatures which are used in printing some books
and pamphlets.

TWO-POSITION ROLL ROLL-STANDS. Web's roll-stand supports two 36-inch wide rolls
of paper and is used in conjunction with the perfector, Quadra-Color, and
Quad-Stack units. The base roll-stand holds two 42-inch diameter rolls of paper.
A larger roll-stand that holds two 52-inch diameter rolls of paper is also
available. The roll-stand controls the unwinding of the paper roll and feeds it
to the printing units under controlled tension.

On October 23, 2003, the Company acquired the assets of Color Impact
International, Inc. (CII) and all product technology covered in a licensing
Agreement dated March 20, 1998 between the Company and CII. The Company will pay
CII's owner $1,000,000 over a period of 10 years with one payment of $100,000 at
the time of settlement and the balance of $900,000 payable in 108 monthly
payments of $8,333 starting one year from the settlement date. The assets
acquired consist of the drawings and license rights to the universal printing
module (UPM) designed by CII and manufactured by the Company including the
Quad-Stack(TM) perfector. These assets are described as intangible assets on the
Company's balance sheet. The Company will have the right of first acceptance of
any new printing product technology CII and/or its owner design in the future.
The license fee for new printing product technology will be 5 percent. The
Company and CII have not finalized certain details of the new product licensing
agreement and, therefore, no payments were made as of December 31, 2003.

The value of the intangible asset on the Company's balance sheet was determined
by discounting at 8 percent the $1,000,000 payable to CII. That value was
$694,988 as of October 23, 2003. The Company is amortizing this amount at the
rate of $579 per printing deck sold. The Company expects it to take between nine
and 10 years to fully amortize this asset. Internal Revenue Service regulations
require the Company to amortize this asset on a straight-line basis over 15
years in its federal tax return.

Web Press Corporation markets its products through Company employed
representatives in the United States and Canada. Foreign sales are made through
independent organizations in Latin America, Asia, Europe, and the Middle East.

The Company's presses are sold in a highly competitive world market. Competition
is based on a combination of price, service, quality, and the versatility of the
equipment. Web's presses are priced competitively with similar products. The
Company believes that features incorporated in its presses, as well as the
Company's policies of supporting its customers, will allow it to continue to be
very competitive. Web Press Corporation is the

                                       6
<PAGE>

only manufacturer in the United States producing a Quadra-Color unit for its
market.

The primary competitors of the Company are Goss Graphic Systems, Dauphin Graphic
Machines, Inc., Tensor and Heidelberg Graphics. Certain of these companies have
financial resources in excess of the Company's.

The most important materials employed in Web's product line are steel and
aluminum (plate and bar stock), tubing, bearings, and rubber coverings. All are
available through local suppliers. The Company believes that its sources of
supply for these materials are adequate for its needs and that it is not
substantially dependent upon any one supplier. Lead times of up to six months
are required at some times for certain materials. The Company has some of its
parts manufactured to its specifications by other machine shops in the United
States, China, and India.

Web Press Corporation maintains an ongoing program of product development and
improvement. This program consists primarily of technical improvements and
supplementary developments which have produced features and capabilities that
management believes will result in competitive marketing advantages for Web's
product line. In 2003, $243 thousand was expended for research and development
compared to $364 thousand in 2002.

Total employment was approximately 46 persons on both December 31, 2003, and
December 31, 2002.

Substantially all of the Company's operations are run by electrical energy
purchased from a local utility. The Company has not experienced energy shortages
and does not anticipate any difficulties in the foreseeable future. Extended
shortages of energy would have an adverse impact on the Company.

Compliance with federal, state and local environmental protection laws during
2003 had no material effect upon capital expenditures, earnings, or the
competitive position of Web Press Corporation.

(D)  Foreign Operations

The Company's foreign operations consist entirely of export sales and related
services originating at its facilities within the United States. Export sales
accounted for 31.4% of total sales in 2003 and 11.2% in 2002. Further financial
information relating to foreign operations for the two years ended December 31,
2003, is set forth in Note 7 (Segment Information) of the Notes to Consolidated
Financial Statements.

                                       7
<PAGE>

ITEM 2.   PROPERTIES

OFFICE AND MANUFACTURING FACILITIES. The Company presently occupies
approximately 49,000 square feet of leased office and manufacturing space at
22023 68th Avenue South, Kent, Washington. The term of the lease is five years,
commencing in November 2003. The monthly rental payment is $18,588.14.

The Company has arrangements for small offices for each of its three salesmen
who are located in St. Cloud, Minnesota; Charlotte, North Carolina; and Eugene,
Oregon. The Company has domestic sales agents in Burlington, Vermont and Tracy,
California.

ITEM 3.   LEGAL PROCEEDINGS

On January 23, 2003, the Company received a Petitioner's Notice of Intention to
Arbitrate from Color Impact International, Inc. (CII). CII sought arbitration
for controversies arising from an Agreement with the Company dated March 20,
1998, and a modification to that Agreement dated February 28, 2002. That
Agreement gives the Company the exclusive right (with the exception of Russia
and India) to manufacture, market and sell certain equipment designed by CII.

On October 23, 2003, the Company and CII signed a Settlement Agreement ending
the controversies that were to be arbitrated in November 2003. Under the
Settlement Agreement the Company purchased the assets of CII and all product
technology covered in the Agreement dated March 28, 1998 between the Company and
CII. The Company will pay CII's owner $1,000,000 over a period of 10 years with
one payment of $100,000 at the time of settlement and the balance of $900,000
payable in 108 monthly payments of $8,333.33 starting one year from the
settlement date.

The Settlement Agreement requires CII and its owner to grant the Company first
acceptance of any new product type technology at a license fee of 5 percent of
the selling price. As of March 5, 2004, the Company and CII had not finalized
all of the terms and conditions of this part of the Settlement Agreement and,
therefore, no payments have been made.

As part of the Settlement Agreement, CII dropped all claims for prior unpaid
license fees, which were $483,770 as of October 23, 2003. In its Form 10-QSB for
the period ended September 30, 2003, the Company reduced accrued expenses in the
balance sheet by $483,770 and recorded $483,770 as "CII Settlement" income in
the consolidated statement of operations.

The intangible asset acquired from CII and the note payable to CII's owner was
recorded in the Company's books in the fourth

                                       8
<PAGE>

quarter of 2003. The value of the
intangible asset on the Company's balance sheet was determined by discounting at
8 percent the $1,000,000 payable to CII. That value was $694,988 as of October
23, 2003. The Company is amortizing this amount at the rate of $579 per printing
deck sold. The Company expects it to take between nine and 10 years to fully
amortize this asset. Internal Revenue Service regulations require the company to
amortize this asset on a straight-line basis over 15 years in its federal tax
return.

The Company is involved in certain other legal proceedings arising in the normal
course of business. An estimate of the possible loss, if any, resulting from
these matters cannot be made at this time. However, management believes, based
upon the advice of legal counsel, that the ultimate resolution of these matters
will not have a material impact on the Company's consolidated financial
statements.

ENVIRONMENTAL PROCEEDINGS. There are no proceedings against the Company
involving federal, state or local statutes or ordinances dealing with
environmental protection.


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

None.



                                       9
<PAGE>

                                     PART II
                                     -------


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

(A)  Principal Market, Stock Price, and Dividend Information

Although certain dealers regularly provide quotations on the Company's stock,
actual trading activity is limited and is conducted in the over-the-counter
(OTC) "pink sheets". The Company's ticker symbol is WEBP.

The following table sets forth the high and low bid quotations per share for the
Company's common stock for the periods indicated. These figures were provided by
the Pink Sheets, LLC, and may reflect inter-dealer prices, without retail
mark-up, mark-down or commission. They do not necessarily represent actual
transactions.

                             2003                                2002
                             ----                                ----

  Quarter             High           Low                High              Low
  -------             ----           ---                ----              ---

    First             $.20          $.10                $.25             $.13
    Second             .15           .15                 .17              .14
    Third              .15           .15                 .20              .14
    Fourth             .58           .15                 .14              .09

The Company has paid no dividends during the two years ended December 31, 2003.

(B)  Approximate Number of Holders of Common Stock

The number of holders of record for the Company's common stock as of February
28, 2003, was 499.


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and related notes appearing
elsewhere in this report.

CRITICAL ACCOUNTING POLICIES

The Company's analysis and discussion of its financial condition and results of
operations are based upon its consolidated financial statements that have been
prepared in accordance with generally

                                       10
<PAGE>

accepted accounting principles in the United States (US GAAP). The preparation
of financial statements in accordance with US GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and the disclosure of contingent assets and
liabilities. US GAAP provides the framework from which to make these estimates,
assumptions and disclosures. The Company applies accounting policies within US
GAAP that management believes are appropriate to accurately and fairly report
the Company's operating results and financial position in a consistent manner.
Management regularly assesses these policies in light of current and forecasted
economic conditions along with other factors. The Company's accounting policies
are stated in Note 2 to the consolidated financial statements as presented
herein. The Company believes the following accounting policies and estimates are
critical to understanding the results of operations and affect the more
significant judgments and estimates used in the preparation of the consolidated
financial statements.

Revenue recognition -- The Company recognizes revenue from sales of manufactured
products under firm contracts generally at the time the equipment ships. All
freight and installation costs are accrued at the time revenue is recognized.
Estimated costs related to product warranties are accrued at the time of sale.
Proceeds received on contracts prior to recognition as a sale are recorded as
customer deposits. Parts and service sales are recognized when the parts ship
and after service has been performed.

Allowance for doubtful accounts - The Company actively monitors the financial
condition of its customers to determine the potential inability for nonpayment
of trade receivables. The Company also considers other economic factors, such as
advertising revenue, consumer confidence and aging trends, in determining if the
allowance for doubtful accounts is adequate. Management believes that its
process of specific review of customers combined with overall analytical review
provides an accurate evaluation of collectibility of trade receivables.

Inventories - Raw materials, work-in-progress and finished goods are stated at
the lower of average cost or market. Because of the long life cycle of the
Company's products and the large number of low sales volume parts needed in
inventory to service older presses, the Company maintains a valuation reserve
for raw materials and parts inventories to cover their obsolescence. The Company
maintains a second valuation reserve for used equipment to reduce used equipment
valuations to the lower of cost or market.

Warranty reserve - When a sale is recorded the Company establishes a warranty
reserve to cover replacement parts and field

                                       11
<PAGE>

repairs that may arise. To establish that reserve the Company determines the
number of remaining unit months outstanding for its equipment and multiplies
that number times an estimated cost per unit month. The cost per unit month is
based on several factors, including evaluation of costs per unit month over a
specified time frame by dividing total warranty costs by the number of unit
months expired during the period. The Company also analyzes all of its presses
still under warranty to determine if there are any recurring, unusual, or
significantly large problems that may require repair. If actual warranty costs
differ from our estimates, revisions to the estimated warranty liability would
be required. We evaluate our warranty obligations on a quarterly basis.

Income Taxes - The Company records an income tax valuation allowance when the
realization of certain deferred tax assets, net operating losses and capital
loss carryforwards is not assured. These deferred tax items represent expenses
recognized for financial reporting purposes, which may result in tax deductions
in the future. Certain judgments, assumptions and estimates may affect the
carrying value of the valuation allowance and income tax expense in the
consolidated financial statements.


OPERATING RESULTS

                             2003 Compared With 2002
                             -----------------------

Slow economic growth worldwide in 2003 continued to hold the demand for new
printing presses below normal levels. However, demand for the Company's
equipment in 2003 increased for the second year in a row compared with 2001.
Total sales were $8.708 million in 2003, an increase of $1.405 million from 2002
total sales of $7.303 million. Total sales in 2001 were $6.319 million. New
equipment sales were $7.236 million in 2003, and increase of $1.953 million from
2002 new equipment sales of $5.283 million. In 2003, used equipment sales and
parts and service sales were $197 thousand and $1.275 million, respectively. The
table below compares domestic, international and total sales by category for
2003 with 2002.

                                 (Dollars in Thousands)
                        Domestic      International       Total
                        --------      -------------       -----
                      2003    2002     2003   2002    2003    2002
                      ----    ----     ----   ----    ----    ----
 New                 $4,843  $4,866   $2,393  $417   $7,236  $5,283
 Used                   197     692       --    --      197     692
 Parts &
  Service               935     924      340   404    1,275   1,328
                     ------  ------   ------  ----   ------  ------

 Total               $5,975  $6,482   $2,733  $821   $8,708  $7,303
                     ======  ======   ======  ====   ======  ======

                                       12
<PAGE>

Cost of sales, as a percentage of sales, was 76.8 percent in 2003 compared with
86.9 in 2002. The gross profit margin on new equipment sales increased to 32.8
percent in 2003 from 21.7 percent in 2002. The primary reason for the increased
gross margin is cost cutting measures implemented in the machine shop and
assembly process to reduce the number of direct labor hours required per unit.
The Company also continues to purchase some parts from China and India, although
the number of parts sourced internationally did not change significantly in 2003
compared with 2002. In 2003, used equipment sales resulted in a gross profit of
$23 thousand compared with a gross profit of $64 thousand in 2002. Cost of sales
included a write-down for obsolete parts of $201 thousand and $85 thousand in
2003 and 2002, respectively. Engineering costs not charged to research and
development that is included in cost of sales was $291 thousand in 2003 and $261
thousand in 2002.

Selling, general and administrative expense was $1.851 million in 2003, an
increase of 7.4 percent from 2002 expenses of $1.723 million. Selling expenses
decreased $184 thousand to $912 thousand in 2003 from 2002 expense of $1.096
million. Advertising expenses decreased 41.7 percent to $145 thousand in 2003
from $249 thousand in 2002. Travel and expenses were $94 thousand in 2003
compared with $131 thousand in 2002. General and administrative expense
increased $312 thousand to $939 thousand in 2003 from $627 thousand in 2002. In
2003, doubtful account expense was $148 due to collection problems with several
accounts. In 2002, doubtful account expense was $24 thousand. Professional
service fees increased $68 thousand in 2003 to $158 thousand from $90 thousand
in 2002. Most of the increase was for legal fees attendant to the Color Impact
International, Inc. settlement agreement discussed in Item 3 - Legal
Proceedings. Administrative payroll costs increased $76 thousand in 2003 from
2002. Reinstatement of management compensation accounted for approximately $38
thousand of the increase. Management took a 20 percent compensation reduction in
June 2001. In January 2003, management compensation was reinstated to its May
2001 basis. Compensation expense also included $23 thousand in bonuses paid in
2003.

Research and development expense was $243 thousand in 2003 compared with $364
thousand in 2002. Most of the expense in both years was to design, manufacture,
and test a new higher-speed folder, and for refinements to the Quad-Stack(TM)
four-color perfector.

Interest expense decreased $11 thousand to $187 thousand in 2003 from $198
thousand in 2002. The average interest rate on the Company's revolving line of
credit with the bank was 7.1 percent in 2003 and 7.7 percent in 2002. The
average borrowings from the bank were $2.139 million in 2003 and $2.423 million
in 2002.

                                       13
<PAGE>

The Company had net earnings of $236 thousand in 2003. Because of the Company's
losses in prior years the Company did not have to recognize any income tax
expense in 2003. In 2002, the Company had a net loss of $1.173 million.

                             2002 Compared With 2001
                             -----------------------

Total sales for the year in both 2002 and 2001 were well below normal levels for
the Company because of the recent worldwide economic recession, the slow
recovery from that recession, uncertainty around the world about terrorist
attacks, and the possibility of war with Iraq. These have all contributed to
lower advertising revenues and higher newsprint costs for newspapers and
commercial printers during the past 27 months, causing their profits to decline
substantially. As a direct result of this, the Company's sales of printing
equipment during the last 27 months have been below normal levels.

The Company implemented a marketing program in the third quarter of 2001 aimed
at printers using competitive manufacturers' equipment. The marketing program
emphasized the growing demand for four-color printing by newspapers and stressed
the Company's ability to install its Quadra-Color and Quad-Stack four-color
printing modules into competitive manufacturers' press-lines. During the past 18
months 50 percent of the sales for those modules have been installed into
competitive manufacturers' press-lines. Based on the Company's internal analysis
of the four-page market it believes its share of this market has increased
relative to its competitions' share during this period.

Total sales were $7.303 million in 2002, an increase of 16 percent from total
sales of $6.319 million in 2001. New equipment sales were $5.283 million in
2002, and increase of $1.346 million from 2001 new equipment sales of $3.937
million. In 2002, used equipment sales and parts and service sales were $692
thousand and $1.328 million, respectively. The table below compares domestic,
international and total sales by category for 2002 with 2001.

                               (Dollars in Thousands)
                       Domestic      International      Total
                       --------      -------------      -----
                     2002    2001     2002   2001    2002    2001
                     ----    ----     ----   ----    ----    ----
 New                $4,866  $2,511    $417  $1,426  $5,283  $3,937
 Used                  692     844      --      39     692     883
 Parts &
  Service              924   1,031     404     468   1,328   1,499
                    ------  ------    ----  ------  ------  ------

 Total              $6,482  $4,386    $821  $1,933  $7,303  $6,319
                    ======  ======    ====  ======  ======  ======

                                       14
<PAGE>

Cost of sales, as a percentage of sales, was 86.9 percent in 2002 compared with
89.9 percent in 2001. The gross profit margin on new equipment sales increased
to 21.7 percent in 2002 from 16.5 percent in 2001. The Company purchased more
parts from China and India in 2002 than it did in 2001. Those parts cost less
than if the Company manufactured them or purchased them from another supplier in
the United States, resulting in the higher gross margin in 2002. In 2002, used
equipment sales resulted in a gross profit of $64 thousand compared with a gross
profit of $127 thousand in 2001. Cost of sales included a write-down for
obsolete parts and certain equipment of $85 thousand and $38 thousand in 2002
and 2001, respectively. Engineering costs not charged to research and
development that is included in cost of sales was $261 thousand in 2002 and $246
thousand in 2001.

Selling, general and administrative expense increased $143 thousand, or 9.1
percent, in 2002 from 2001. Selling expense increased $55 thousand to $1.096
million in 2002 from $1.041 million in 2001. The Company employed more sales
personnel, paid higher commissions, and had higher benefit costs in 2002,
resulting in an increase in compensation expense of $113 thousand in 2002 from
2001. The Company decreased advertising expenditures, primarily in trade
publications, by $125 thousand to $64 thousand in 2002 from $189 thousand in
2001. Travel and expenses increased $35 thousand to $130 thousand in 2002 from
$95 thousand in 2001. Communication expense and miscellaneous expenses also
increased in 2002 from 2001. General and administrative expense increased $88
thousand in 2002 from 2001. Most of the change was in doubtful accounts expense
which was $24 thousand in 2002, compared with a credit of $43 thousand in 2001.
Professional services, primarily in the form of attorney and accounting fees,
increased by $28 thousand to $90 thousand in 2002 from $62 thousand in 2001.

Research and development expenses were $364 thousand in 2002 compared with $137
thousand in 2001. Most of the expenses in both years were to design,
manufacture, and test a new higher-speed folder, and for improvements to the
Quad-Stack four-color perfector.

Interest expense decreased $50 thousand in 2002 from 2001. A decrease in
interest expense accrued in 2002 for the IC-DISC (Web Leader International,
Inc.) of $49 thousand accounted for the change. The average interest rate on the
Company's revolving line of credit with the bank was 7.7 percent in 2002
compared with 7.1 percent in 2001. The average borrowings from the bank were
$2.423 million in 2002 and $2.308 million in 2001. The average interest rate
charged by the bank changed on January 7, 2002, to prime plus 3 percent from
prime plus 1 percent in 2001, causing the higher average interest rate in 2002.

                                       15
<PAGE>

The Company had a loss of $1.316 million from operations and a net loss of
$1.173 million in 2002. In 2002, because of continuing losses the Company was
not able to recognize on its statement of operations the full tax benefit of
$457 thousand from the operation loss. The Company can carry forward that
benefit on its 2002 federal income tax return. In 2001, the Company had a loss
of $1.322 million from operations and a net loss of $879 thousand.

                                      2004
                                      ----

Because of the high value of each order for the Company's equipment and the
irregular timing of orders, and uncertainty about the economic environment in
foreign and domestic markets, projections for future time periods are very
difficult to make.

As of March 5, 2004, the Company has firm orders for approximately $3.067
million in sales for 2004. The Company's management believes newspaper
advertising growth will improve in 2004 compared with the past three years.
Presstime, the magazine of the Newspaper Association of America(R), reports
("Ready for Takeoff", p. 31, January 2004) that the economy and the advertising
marketplace now have sufficient momentum to surprise newspapers with earnings on
the upside instead of the downside. Newspaper advertising is expected to grow by
approximately 4.1 percent in 2004.

During the past four years a significant number of the Company's sales have been
single unit additions to existing press lines, most of them Quad-Stack(TM)
four-color modules. The Company has noticed during the past six to eight months
that newspapers are requesting quotes for multi-unit press lines. What is
different is that many of the quotes are for multi-unit Quad-Stack(TM) press
lines. Black and white units are becoming a less significant part of the
Company's business. The Company believes with its Quadra-Color and
Quad-Stack(TM) printing modules it is well positioned to take advantage of the
continuing change to color.

The Company continued to benefit from the marketing program begun in the third
quarter of 2001 aimed at printers using competitive manufacturers' equipment. In
2003, 52 percent of the new equipment sold was installed into press lines not
running the Company's equipment. Most of this equipment has been the
Quad-Stack(TM) four-color printing module. In 2003, the Company also
successfully installed the Quad-Stack(TM) into three plants were it is being
used to do "energy-set" printing using either ultra-violet or gas dryers. The
Company expects sales to both of these groups to increase in 2004.

                                       16
<PAGE>

LIQUIDITY

Net working capital was $3.053 million and the current ratio was 2.4:1 on
December 31, 2003. Changes in working capital components include an increase in
accounts receivable of $337 thousand; inventories increased by $609 thousand;
accounts payable increased by $183 thousand; customer deposits increased $530
thousand; and accrued expenses decreased by $245 thousand. Net cash provided
from operations was $212 thousand in 2003.

Raw materials and parts inventories and finished goods inventory increased $344
thousand and $384 thousand, respectively, in 2003 from 2002. Work-in-progress
and used equipment inventory decreased $150 thousand and $288 thousand,
respectively, in 2003 from 2002.

Funds provided by operations are the Company's primary source of liquidity. In
addition, the Company uses short-term debt from a revolving line of credit with
a commercial bank to finance fluctuating working capital requirements. On
December 31, 2003, the Company had additional borrowing capacity of $672
thousand from its $2.600 million line of credit.

On March 1, 2004, the bank and the Company modified their existing business loan
agreement. The maturity date was extended to March 1, 2005. Terms of the note
were modified, separating the note into two parts. (1) A revolving line of
credit (LOC) for $1,000,000 and (2) a term note for $1,514,609. The term note
will be decreased by $85,391 to $1,429,217 on March 15, 2004. Amortization of
the term note is over 20 years. On June 1, 2004, October 1, 2004 and February 1,
2005 the Company must reduce both the LOC and the term note by $25,000. The
interest rate charged on the LOC is prime plus 6 percent until September 1,
2004, and then increases to prime plus 8 percent. The interest rate charged on
the term note is 10 percent until September 1, 2004, and then increases to 12
percent. The Company paid the bank a loan fee of $25,000.

CAPITAL RESOURCES

Total assets were $6.416 million on December 31, 2003, an increase of $1.335
million from total assets of $5.081 million on December 31, 2002. In 2003,
stockholders' equity increased by $236 thousand; working capital decreased by
$24 thousand; non-current deferred income taxes increased by $188 thousand; and
long-term debt (excluding the term note and revolving line of credit with the
bank in 2003) increased by $695 thousand.

Long-term financing in the form of secured notes is used to acquire
manufacturing equipment. In 2003, the Company incurred additional

                                       17
<PAGE>

long-term debt of $695 thousand to acquire the assets of Color Impact
International, Inc. Details for this acquisition are contained in Item 3 - Legal
Proceedings.

CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

This Form 10-KSB contains forward-looking statements. Forward-looking statements
do not relate strictly to historical or current facts and anticipate results
based on management's plans that are subject to uncertainty. Forward-looking
statements may be identified by the use of words like "plans," "expects,"
"believes," "will," "anticipates," "estimates" and other words of similar
meaning in conjunction with, among other things, discussions of future
operations, financial performance, the Company's strategy for growth, product
development, regulatory requirements, market position and expenditures.

Forward-looking statements are based on current expectations of future events.
The Company cannot guarantee that any forward-looking statement will be
accurate, although the Company believes that it has been reasonable in its
expectations and assumptions. Investors should realize that if underlying
assumptions proved inaccurate or unknown risks or uncertainties materialize,
actual results could vary materially from the Company's expectations and
projections. Investors are therefore cautioned not to place undue reliance on
any forward-looking statements. Furthermore, the Company assumes no obligation
to update any forward-looking statements as a result of new information or
future events or developments.

CONTROLS AND PROCEDURES

Within 90 days prior to the date of this report, we carried out an evaluation,
under the supervision and with the participation of our principal executive
officer and principal financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures. Based on this evaluation,
our principal executive officer and principal financial officer concluded that
our disclosure controls and procedures are effective in timely alerting them to
material information required to be included in our periodic Securities and
Exchange Commission reports. It should be noted that the design of any system of
controls is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions, regardless of
how remote.

In addition, we reviewed our internal controls, and there have been no
significant changes in our internal controls or in

                                       18
<PAGE>

other factors that could significantly affect those controls subsequent to the
date of their last evaluation.

ITEM 7.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial statements and supplementary data filed as part of this report are
listed in the index appearing in Item 13 to this Form 10-KSB Annual Report.

ITEM 8.   CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURES

None.











                                       19
<PAGE>

                                    PART III
                                    --------


ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers and directors of the Company are:

Name                     Position                                   Age
----                     --------                                   ---

G. B. Palmer             President and Director                     55


E. P. Beierlorzer        Vice President of Engineering              64
                           and Director

R. G. Mercer             Vice President of Manufacturing            62
                           and Director

R. B. Thompson           Vice President of Technical                63
                           Services and Director

A. W. White              Vice President of Purchasing               49
                           and Director

M. J. Ricca              Vice President of Marketing                48

R. M. Sprague            Director                                   64

P. F. Dunn               Director                                   54

C. L. Mathison           Vice President of Finance                  61
                           and Secretary/Treasurer

G. C. Knutzen            Director                                   57


There are no family relationships between any directors or executive officers of
the registrant. Officers are appointed by the Board of Directors and serve at
its will or until they resign.

BUSINESS EXPERIENCE:

G. B. Palmer
------------

Mr. Palmer has been president and a director of the Company since December 1996.
He served as the Company's director of manufacturing from August 1990 to
December 1996, and has been employed by the Company since 1986. Prior to joining

                                       20
<PAGE>

the Company, he was director of manufacturing of Pacific Hoe Corporation. He
is a metallurgical engineer.

E. P. Beierlorzer
-----------------

Mr. Beierlorzer rejoined the Company as director of engineering in June 1997. He
was elected to the board of directors at that time and appointed vice president
of engineering in November 1997. From July 1996 to June 1997, he was a
consultant. Mr. Beierlorzer was chief engineer with the Ecopak division of
Ranpak Corporation from August 1992 to June 1996. From March 1984 to August
1992, he was director of engineering for the Company. He is a mechanical
engineer and has four patents for equipment design.

R. G. Mercer
------------

Mr. Mercer has worked for the Company in manufacturing since 1972. He was
elected to the board of directors in June 1997 and appointed vice president of
manufacturing in November 1997. He was director of manufacturing from December
1996 to November 1997. From August 1990 to December 1996, he was production
manager.

R. B. Thompson
--------------

Mr. Thompson has worked for the Company in technical services since 1970. He was
elected to the board of directors in June 1997 and appointed vice president of
technical services in November 1997. He was customer service manager from
October 1985 to November 1997.

A. W. White
-----------

Mr. White has worked for the Company in purchasing since 1976. He was elected to
the board of directors in June 1997 and appointed vice president of purchasing
in November 1997. He has been the Company's purchasing manager for 21 years.

R. M. Sprague
-------------

Mr. Sprague has been a director of the Company since January 1997. He is the
founder and owner of Sprague Metal Company, a manufacturer of specialty sheet
metal products. He founded the company in 1974 and has been employed in the
metal trades business for over 30 years.

                                       21
<PAGE>

P. F. Dunn
----------

Mr. Dunn has been a director of the Company since February 1997. Since July
2000, he has been the tax manager for the State and Local Division with
Amazon.com. Prior to that, he was employed by the Boeing Company in various
financial positions since 1973.

C. L. Mathison
--------------

Mr. Mathison was appointed vice president of finance in June 1998. He has been
secretary/treasurer of the Company since January 1997, and the Company's
controller since October 1979. Prior to joining the Company, he was assistant
controller of Bayliner Marine Corporation.

G. C. Knutzen
-------------

Mr. Knutzen was a partner for 12 years with the public accounting firm Deloitte
& Touche, before retiring in 1995. He was partner in charge of the Company's
audit during many of those years. Mr. Knutzen consults part-time on financial
and accounting matters to a variety of private companies.

M. J. Ricca
-----------

Mr. Ricca joined the Company as vice president of marketing in October 2003.
During the past five years Mr. Ricca has served as president and chairman of the
board of several startup companies in a variety of industries in the Northwest.
Mr. Ricca has extensive sales management experience in both the steel industry
and in pharmaceutical sales.

401(K) PLAN:

Effective January 1, 1988, the Company established a 401(K) plan under the
Internal Revenue Service Regulations. Employees are eligible to participate
after one year of service. Plan participants self-direct their investments
choosing from eleven options sponsored by Merrill Lynch. An employee who elects
to participate may contribute in a year up to the lower of 15% of gross pay or
the dollar limit under the regulations, which in 2003 was $12,000. The Company
contributes a matching amount of 25% of the first $4,000 contributed by an
employee in a year. In addition, the Company may make a discretionary matching
contribution. The total amount is determined by the Company's Board of Directors
and allocated to the participants based on their contributions. There were no
discretionary contributions in 2003 and 2002. Fees paid the administrator, plus
the company's matching contribution, totaled approximately $23 thousand in 2003
and $22 thousand in 2002.

                                       22
<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION

The following table sets forth the aggregate total cash compensation, based on
salary and bonus, accrued during the fiscal year ended December 31, 2003 for the
chief executive officer of the Company and the Company's other four most highly
compensated executive officers.

                               Annual Compensation
                               -------------------

                                                       Long-Term     All Other
Name/Principal                    Salary     Bonus    Compensation  Compensation
   Position              Year       ($)       ($)           $             $
---------------------    ----     ------     -----    ------------  ------------

G.B. Palmer              2003     95,000     13,593             0             0
President/               2002     76,000      2,095             0             0
General Manager          2001     86,292      2,099             0             0

Edwin P. Beier-
  lorzer                 2003     95,000     13,593             0             0
Vice President
  of Engineering

Alan W. White            2003     95,000     13,593             0             0
Vice President
  of Purchasing

Rolynn G. Mercer         2003     95,000     13,593             0             0
Vice President
  of Manufacturing

Roy B. Thompson          2003     95,000     13,593             0             0
Vice President
  Of Service


The officers and directors are under no formal compensation agreements.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth as of February 27, 2004, information with respect
to the beneficial ownership of common stock of the Company by each person who is
known by the Company to have owned beneficially more than 5% of the Company's
common stock, by each of its officers and directors, and by its officers and
directors as a group:

                                       23
<PAGE>

                                                            Percent
Name and Address                Shares Owned                Of Class
----------------                ------------                --------

Alan W. White                      551,400                    17.76%
3025 196th Ave. Ct. E
Sumner, WA  98390

Rolynn G. Mercer                   520,667 (1)                16.77%
23326 51st Avenue South
Kent, WA  98032

Roy B. Thompson                    513,000 (2)                16.52%
3901 NE 22
Renton, WA  98056

Gary B. Palmer                     264,833                     8.53%
285 Mt. Rainier Pl.
Issaquah, WA  98027

Edwin P. Beierlorzer               256,500                     8.26%
4714 - 161 Ave. SE
Bellevue, WA  98006

Rufus M. Sprague                    63,200                     2.04%
417 Milwaukee Blvd. N.
Pacific, WA  98047

Mark J. Ricca                       15,000                       *
5526 Elizabeth Ave. S. E.
Auburn, WA  98092

Gerald C. Knutzen                     -0-                        *
222 S. W. 292nd Street
Federal Way, WA 98023

Patrick F. Dunn                       -0-                        *
9768 Waters Ave. S
Seattle, WA  98118

Craig L. Mathison                     -0-                        *
9553 49th Ave. N.E.
Seattle, WA  98115

All Directors and Officers
 as a Group (10 persons)         2,184,600                    79.99%

*  Less than 1%

(1)      Includes 73,894 shares owned by Mr. Mercer's wife.

                                       24
<PAGE>

(2)      Includes 54,605 shares owned by Mr. Thompson's wife.

Except as noted, each person named in the table is believed to have sole voting
and investment power over the shares owned.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

No officer, director, nominee or associate of any officer, director, or nominee
was indebted to the Company in an amount in excess of $60,000 at any time during
the fiscal year ended December 31, 2003.

R. M. Sprague, a director of the Company and owner of Sprague Metal Company, has
an ongoing relationship with the Company as a supplier of sheet metal products
and other miscellaneous parts. This relationship is expected to continue in the
future. During the fiscal year ended December 31, 2003, the Company purchased
parts costing $99,297 from the Sprague Metal Company. The Company's management
negotiates purchase orders and prices for the items purchased. Management
believes the prices paid are competitive with other sources.

Two non-management employees of the Company operate a part-time business
rebuilding and selling used equipment manufactured by the Company. The Company
contracts with them to rebuild some of its used presses. Most, but not all of
their business, is with the company. The Company sells parts to them at its
normal selling prices. In 2003 and 2002, they purchased parts totaling $95,050
and $62,915, respectively, from the Company. In 2003 and 2002, the Company
purchased from them used equipment, rebuilding services, and used parts totaling
$89,196 and $169,199, respectively. The Company, also, paid them storage fees of
$10,800 in 2003 and $10,000 in 2002.





                                       25
<PAGE>

ITEM 13.  EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K

a.   List of Documents filed as a part of this report:

     (1)  Index to Consolidated Financial Statements:

              Report of Grant Thornton LLP, Independent Auditors
              Consolidated Balance Sheet as of December 31, 2003.
              Consolidated Statements of Operations for the years
                    ended December 31, 2003 and 2002.
              Consolidated Statements of Cash Flows for the years
                    ended December 31, 2003 and 2002.
              Consolidated Statements of Stockholders' Equity for
                    the years ended December 31, 2003 and 2002.
              Notes to Consolidated Financial Statements.

     (2)  Index to Exhibits:

     (3)  Articles of Incorporation and by-laws. Exhibit 1 to the registrant's
          Form 10-K for the year ended December 31, 1980, File No. 0-7267.

     (10) Material Contracts

          The following exhibits are filed herewith:

          (10a) being the modification and extension of the business Loan
                Agreement between Web Press Corporation and KeyBank National
                Association dated March 1, 2004.

          (10b) being the Settlement Agreement between Web Press Corporation and
                Color Impact Interna- tional, Inc. dated October 23, 2003.

          (31a) Certification of Gary B. Palmer, chairman and president of Web
                Press Corporation, pursuant to Rule 13a-15(e) under the
                Securities Exchange Act of 1934.

          (31b) Certification of Craig L. Mathison, vice president of finance of
                Web Press Corporation, pursuant to Rule 13a-15(e) under the
                Securities Exchange Act of 1934.

          (32a) Certification of Gary B. Palmer, chairman and president of Web
                Press Corporation, pursuant to 18 U.S.C. Section 1350.

                                       26
<PAGE>

          (32b) Certification of Craig L. Mathison, vice president of finance of
                Web Press Corporation, pursuant to 18 U.S.C. Section 1350.

                The following exhibits are incorporated herein by reference:

          (10c) being the lease for the Company's facilities between Web Press
                Corporation (lessee) and William J. Bennett (lessor) dated
                October 16, 1987.

          (10d) being the Business Loan Agreement between Web Press Corporation
                and KeyBank National Association dated April 7, 1999.

          (21)  Subsidiaries of Registrant

          (21a) Web Leader International, Inc.

          (b)   Report on Form 8-K

                There have been no reports on Form 8-K filed during the three
                months ended December 31, 2003

ITEM 14.  CONTROLS AND PROCEDURES

The Company is a non-accelerated filer and does not have to comply with the
information required by Item 14 until July 15, 2005.

ITEM 15.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

Grant Thornton LLP audited the Company's financial statements for the year ended
December 31, 2003.

During fiscal year 2003 and 2002, Grant Thornton LLP not only acted as the
independent auditors for the Company and its subsidiary (work related to
auditing the annual financial statements for the fiscal year 2003 and 2002 and
reviewing the financial statements in the Company's Forms 10-QSB), but also
rendered on their behalf other services, including tax-related services, and
other accounting and auditing services. The following table sets for the
aggregate fees billed or expected to be billed by Grant Thornton LLP for audit
services rendered in connection with the financial statements and reports for
fiscal year 2003 and 2002 on behalf of the Company, as well as all

                                       27
<PAGE>

"out-of-pocket" costs incurred in connection with these services, which have
been or will be billed to the Company:

                                           2003        2002
                                           ----        ----
              Audit fees for the year    $64,300     $55,252
              Financial information sys-
                tens design and im-
                plementation                   0           0
              All other fees:
                Tax services             $ 8,400     $ 8,085
                Other                      7,225       3,590
                                         -------     -------

                Total all other fees     $15,625     $11,675
                                         =======     =======





                                       28
<PAGE>

                                   SIGNATURES
                                   ----------

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


                                           WEB PRESS CORPORATION


March  5, 2004                             By: /s/ Gary B. Palmer
                                               ----------------------
                                               Gary B. Palmer
                                               President and Chairman
                                               of the Board


March  5, 2004                             By: /s/ Craig L. Mathison
                                               ---------------------
                                               Craig L. Mathison
                                               Vice President of Finance
                                               (Principal Accounting
                                               Officer)

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

/s/ Gary B. Palmer                                        March  5, 2004
---------------------------------
Gary B. Palmer
President and Chairman
of the Board


/s/ Edwin P. Beierlorzer                                  March  5, 2004
---------------------------------
Edwin P. Beierlorzer
Vice President of Engineering
and Director


/s/ Rolynn G. Mercer                                      March  5, 2004
---------------------------------
Rolynn G. Mercer
Vice President of Manufacturing
and Director


/s/ Roy B. Thompson                                       March  5, 2004
---------------------------------
Roy B. Thompson
Vice President of Technical Services
and Director

                                       29
<PAGE>

/s/ Alan W. White                                         March  5, 2004
---------------------------------
Alan W. White
Vice President of Purchasing
and Director


/s/ Rufus M. Sprague                                      March  5, 2004
---------------------------------
Rufus M. Sprague
Director


/s/ Patrick F. Dunn                                       March  5, 2004
---------------------------------
Patrick F. Dunn
Director


/s/ Gerald C. Knutzen                                     March  5, 2004
---------------------------------
Gerald C. Knutzen
Director



                                       30
<PAGE>

                              WEB PRESS CORPORATION
                                   FORM 10-KSB
                           ITEMS 7, 13(a) (1) AND (2)
                          INDEX OF FINANCIAL STATEMENTS


     The following financial statements of the registrant and its subsidiary
required to be included in Item 7 are listed below:

                                                              Page
                                                              ----

Consolidated Financial Statements:
  Report of Independent Certified Public
    Accountants...........................................     32
  Balance Sheet as of December 31, 2003...................     33
  Statements of Operations for each of the two
    years ended December 31, 2003.........................     35
  Statements of Stockholders' Equity for each of
    the two years ended December 31, 2003.................     36
  Statements of Cash Flows for each of the two
    years ended December 31, 2003.........................     37
  Notes to Consolidated Financial Statements..............     39




                                       31
<PAGE>

               Report of Independent Certified Public Accountants


Board of Directors and Stockholders
Web Press Corporation
Kent, Washington

We have audited the accompanying consolidated balance sheet of Web Press
Corporation (a Washington corporation) and Subsidiary as of December 31, 2003,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the two years in the period ended December 31, 2003.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Web Press
Corporation and Subsidiary as of December 31, 2003, and the consolidated results
of their operations and their consolidated cash flows for each of the two years
in the period ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States of America.

/s/ Grant Thornton LLP

Seattle, Washington
March 5, 2004

                                       32
<PAGE>

                              WEB PRESS CORPORATION

                           CONSOLIDATED BALANCE SHEET
                             (Dollars in Thousands)


ASSETS                                                     December 31, 2003
                                                           -----------------

Current Assets:
Cash ..........................................................   $    --
Accounts receivable, less allowance for
  doubtful accounts of $151 (Note 8) ..........................       750
Inventories (Notes 2 and 4) ...................................     3,745
Note receivable ...............................................        36
Deferred tax assets ...........................................       509
Refundable income taxes .......................................        20
Deposits ......................................................        73
Prepaid expenses ..............................................        58
                                                                  -------

Total Current Assets ..........................................     5,191

Machinery and Leasehold Improvements,
    at cost (Notes 2 and 4):
   Machinery and equipment ....................................     3,638
   Leasehold improvements .....................................       239
                                                                  -------
                                                                    3,877

   Less accumulated depreciation
    and amortization ..........................................    (3,341)
                                                                  -------

Machinery and Leasehold Improvements (Net) ....................       536

Intangible Asset, Net (Note 11) ...............................       686

Note Receivable ...............................................         3
                                                                  -------

Total Assets ..................................................   $ 6,416
                                                                  =======

The accompanying notes are an integral part of the Consolidated Financial
Statements.

                                       33
<PAGE>

                              WEB PRESS CORPORATION

                           CONSOLIDATED BALANCE SHEET
                             (Dollars in Thousands)


LIABILITIES AND STOCKHOLDERS'                               December 31, 2003
                                                            -----------------
EQUITY

Current Liabilities:
Accounts payable ..............................................  $   619
Customer deposits .............................................      581
Accrued expenses ..............................................      590
Current portion of long-term debt (Note 4) ....................      348
                                                                 -------

Total Current Liabilities .....................................    2,138

Long-Term Debt, less current
  portion (Note 4) ............................................    2,423

Deferred Taxes ................................................      509

Commitments (Note 6) ..........................................       --

Stockholders' Equity (Note 6):
     Common stock, par value $.025
     per share:
       Authorized, 4,000,000 shares
       Issued, 3,436,513 shares ...............................       86
     Paid-in capital ..........................................      320
     Retained earnings ........................................    1,037
                                                                 -------
                                                                   1,443

     Treasury stock, 331,100 shares
       at cost ................................................      (97)
                                                                 -------

Total Stockholders' Equity ....................................    1,346
                                                                 -------

Total Liabilities and Stockholders' Equity ....................  $ 6,416
                                                                 =======

The accompanying notes are an integral part of the Consolidated Financial
Statements.

                                       34
<PAGE>

                              WEB PRESS CORPORATION

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  (Dollars in Thousands Except Per Share Data)


                                                         Year Ended December 31,
                                                         -----------------------
                                                           2003           2002
                                                           ----           ----

    Sales (Note 7) ...................................   $ 8,708        $ 7,303
    Cost of sales ....................................     6,684          6,345
                                                         -------        -------
                                                           2,024            958

    Selling, general and
      administrative expenses (Note 6) ...........         1,851          1,723
    CII settlement ...............................          (484)            --
    Research & development expenses ..............           243            364
                                                         -------        -------
                                                             414         (1,129)

    Other income .................................             9             11
    Interest expense .............................          (187)          (198)
                                                         -------        -------
                                                            (178)          (187)
                                                         -------        -------

    Earnings (loss) before taxes .................           236         (1,316)

    Taxes (benefit) on earnings (loss)
      (Note 5) ...................................            --           (143)
                                                         -------        -------

    Net earnings (loss) ..........................       $   236        $(1,173)
                                                         =======        =======

    Basic and diluted earnings (loss)
      per share ..................................       $   .08        $  (.38)
                                                         =======        =======

The accompanying notes are an integral part of the Consolidated Financial
Statements.

                                       35
<PAGE>

                              WEB PRESS CORPORATION

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                  Common Stock
                                  ------------       Treasury      Paid-in    Retained
                               Shares      Amount      Stock       Capital    Earnings
                             ---------   ---------   ---------    ---------   ---------
<S>                          <C>         <C>         <C>          <C>         <C>
Balance, January 1, 2002     3,436,513   $      86   $     (97)   $     320   $   1,974

Net loss for the year               --          --          --           --      (1,173)
                             ---------   ---------   ---------    ---------   ---------

Balance, December 31, 2002   3,436,513          86         (97)         320         801

Net earnings for the year           --          --          --           --         236
                             ---------   ---------   ---------    ---------   ---------

Balance, December 31, 2003   3,436,513   $      86   $     (97)   $     320   $   1,037
                             =========   =========   =========    =========   =========
</TABLE>



The accompanying notes are an integral part of the Consolidated Financial
Statements.


                                       36
<PAGE>

                              WEB PRESS CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in Thousands)

                                                         Year Ended December 31,
                                                         -----------------------

                                                              2003       2002
                                                              ----       ----
Cash flows from operating activities:
  Net earnings (loss) ....................................  $   236    $(1,173)
  Adjustments to reconcile net
     earnings (loss) to net cash
     provided by operating
     activities:
         Depreciation and amortization ...................      130        146
         Provision for losses on accounts
           receivable ....................................      144        (22)
         Inventory valuation reserve .....................      201         85
         Deferred taxes ..................................       --       (141)
         Intangible amortization .........................        9         --
         Loss (gain) from retirement
           of plant assets ...............................        1         (1)

  Increase (Decrease) in cash from changes in
  operating accounts:
         Accounts receivable .............................     (337)       614
         Refundable income taxes .........................      (20)       137
         Inventory .......................................     (609)       281
         Deposits ........................................      (19)         3
         Prepaid expenses ................................        8         (8)
         Accounts payable ................................      183         85
         Customer deposits ...............................      530        (54)
         Accrued expenses ................................     (245)       217
                                                            -------    -------

         Total adjustments ...............................      (24)     1,342
                                                            -------    -------

     Net cash provided by operating
         activities ......................................      212        169
                                                            -------    -------

Cash flows from investing activities:
     Capital expenditures ................................      (41)       (38)
     Proceeds from sale of plant assets ..................        2          1
     Payments on notes receivable ........................       79         --
                                                            -------    -------

     Net cash provided by (used) in
      investing activities ...............................       40        (37)
                                                            -------    -------

(Continued on following page)

                                       37
<PAGE>

(Continued from previous page)

Cash flows from financing activities:

     Payments on long-term debt ..........................      (54)       (49)
     Net payments on
       long-term line of credit ..........................     (198)       (83)
                                                            -------    -------

     Net cash used by
       financing activities ..............................     (252)      (132)
                                                            -------    -------

Net increase (decrease) of period ........................       --         --
                                                            -------    -------

Cash at beginning of period ..............................       --         --
                                                            -------    -------

Cash at end of period ....................................  $    --    $    --
                                                            =======    =======

Supplemental disclosures of cash flow information:

Cash was paid during the year for:

     Interest ............................................   $ 183    $ 223
     Income taxes ........................................      21        1

Non-cash investing and financing activities:

     Acceptance of note receivable
       for sale of inventory .............................   $ 118       --
     Note payable issued in conjunction
       with CII settlement ...............................     695       --

The accompanying notes are an integral part of the Consolidated Financial
Statements.



                                       38
<PAGE>

                              WEB PRESS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        TWO YEARS ENDED DECEMBER 31, 2003


Note 1 - Nature of the Company's Business:

     The Company manufactures web-fed offset printing presses. It has two
product lines, the Web Leader and the Atlas. The primary difference between the
Web Leader and the Atlas is that the Atlas is twenty percent faster and is
manufactured in three different broadsheet newspaper page lengths. The Company's
presses are designed to print on absorbent paper such as newsprint. Among the
products produced by the presses are newspapers (both broadsheet and tabloid
sizes), shoppers, advertising inserts, and paperback books. Each press is
composed of standard modules to unwind, print, cut-off and fold the roll of
paper into a finished product. The equipment is arranged to meet the particular
printer's requirements for the number of pages, color, and size of products.

     The Company markets its presses worldwide. Company employed sales
representatives sell the Company's presses in the United States and Canada.
Foreign sales are made through independent agents in Central and South America,
Asia, Europe, and the Middle East. Sales are based on a combination of price,
service, quality, and the versatility of the equipment.

Note 2 - Summary of Significant Accounting Policies:

Principles of consolidation
---------------------------

     The accompanying consolidated financial statements include the accounts of
Web Press Corporation and Web Leader International, Inc., its wholly-owned
Domestic International Sales Corporation (DISC). All significant inter-company
accounts and transactions have been eliminated in consolidation.

Inventories
-----------

     Raw materials, work-in-progress and finished goods are stated at the lower
of average cost or market. Used presses and other related press equipment

                                       39
<PAGE>

are stated at the lower of cost (specific identification basis) or market.
Inventory costs include material, labor, and manufacturing overhead. Inventories
were classified as follows at December 31, 2003:

                                   (Dollars in Thousands)

         Raw materials and parts
         (including subassemblies).....   $1,912
         Work-in-progress..............      598
         Finished goods................    1,122
         Used equipment................      113
                                          ------

                                          $3,745
                                          ======

Machinery and leasehold improvements
------------------------------------

     Machinery and equipment are depreciated on the straight-line method for
financial statement purposes, based upon useful lives of three to ten years.
Leasehold improvements are amortized over their useful lives or the term of the
lease, whichever is shorter. For income tax purposes, accelerated methods are
used for all eligible assets.

     Maintenance and repairs are charged directly to costs or expenses as
incurred. Equipment of only nominal value and renewals and betterments which do
not appreciably extend the life of the asset are charged directly to costs or
expenses.

     Fully depreciated or fully amortized assets which are no longer in use or
are not identifiable are written off by charges to the allowance for accumulated
depreciation and amortization. When assets are retired or disposed of, the costs
and accumulated depreciation of such assets are removed from the accounts and
the difference between the net depreciated cost and the amount received is
recorded in the statements of operations.

Research and development costs
------------------------------

     Research and development costs are expensed as incurred. Total research and
development costs charged to operations during the years ended December 31, 2003
and 2002 were $243 thousand and $364 thousand, respectively.

                                       40
<PAGE>

Intangible assets
-----------------

     Intangible assets consist of drawings and ownership of the Universal
Printing Module (UPM) acquired from Color Impact International, Inc. in October
2003. The UPM is the base unit for the Quad-Stack(TM) perfector. Amortization is
at the rate of $579 per UPM printing deck sold. The Company expects it to take
between nine and 10 years to fully amortize this asset.

Long-lived assets
-----------------

     The Company evaluates potential impairment of long-lived assets whenever
events or circumstances indicate that the carrying amount of an asset may not be
recoverable. An impairment loss would be recognized when the estimated future
cash flow expected to result from the use of the asset and its eventual
disposition is less than its carrying amount. If an asset is considered
impaired, the impairment loss is measured as the amount by which the carrying
value of the asset exceeds its estimated fair value. Fair value is determined
based upon estimated discounted cash flows. To date, the Company has identified
no such impairment loss.

Advertising
-----------

         Advertisements placed primarily in periodical printing-trade magazines
and newspapers and direct-response mail campaigns followed by phone calls are
used to promote the Company's printing presses. Advertising costs are expensed
in the period the advertising initially takes place. Total advertising costs
charged to operations during the years ended December 31, 2003 and 2002 were $67
thousand and $64 thousand, respectively. Direct-response mail campaigns included
in advertising were $16 thousand in 2003 and $26 thousand in 2002.

Revenue recognition
-------------------

     The Company recognizes revenue from sales of manufactured products under
firm contracts generally at the time the equipment ships. All freight and
installation costs are accrued at the time revenue is recognized. Estimated
costs related to product warranties are accrued at the time of sale. Proceeds
received on contracts prior to recognition as a sale are recorded as customer
deposits. Parts and service sales are

                                       41
<PAGE>

recognized when the parts ship and after service has been performed.

Accounts receivable
-------------------

     Equipment sales are made using a "sales agreement" negotiated with the
purchaser that specifies the payment terms. Typically, the Company receives a
deposit when the sales agreement is signed, a second payment one week prior to
shipment of the equipment, and a final payment upon completion of the
installation. The sales agreement includes conditions of default and remedies
available to the Company if default occurs. The Company maintains a security
interest in the equipment until all payments are received. International sales
of equipment are generally made using irrevocable letters of credit confirmed by
a United States bank.

     The Company extends credit to its customers for parts sales and service.
Accounts receivable are due within 30 days of shipment.

     Accounts receivable are stated at amounts due from customers net of an
allowance for doubtful accounts. The Company determines its allowance for
doubtful accounts by considering a number of factors, including the length of
time amounts are past due, the customer's current ability to pay its obligations
to the Company, the Company's previous loss history, and the condition of the
general economy and the industry as a whole. The Company writes off accounts
receivable when they become uncollectible, and payments subsequently received
are credited to the allowance for doubtful accounts.

Earnings per share
------------------

     Earnings per share-basic and diluted were calculated based on the weighted
average number of shares outstanding. The weighted average-basic and diluted
number of shares outstanding was 3,105,413 in 2003 and 2002.

Estimates
---------

     The Company makes certain cost estimates when it records a press sale and
uses other estimates and assumptions regarding certain types of assets,
liabilities, revenues, and expenses. Such estimates primarily relate to
unsettled transactions and events as of

                                       42
<PAGE>

the date of the financial statements. All are reported in conformity with
accounting principles generally accepted in the United States of America.
Company management believes the basis for these estimates are accurately
reflected in the financial statements; however, actual results may differ from
estimated amounts.

Warranties
----------

     The Company records a liability for estimated costs that it expects to
incur for product warranty claims. Factors affecting the Company's warranty
liability include the number of units sold and historical and anticipated rates
of warranty claims and costs per claim. The Company periodically assesses the
adequacy of its warranty liability based on changes in these factors.

Recently issued accounting pronouncements
-----------------------------------------

     During 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 143 "Accounting for Asset
Retirement Obligations" and, during 2002, the FASB issued SFAS No. 146,
"Accounting for Costs Associated with Exit and Disposal Activities". The
adoption of SFAS Nos. 143 and 146 during 2003 did not have a material impact on
the Company's consolidated financial statements.

     In November 2003, the Emerging Issues Task Force (EITF) reached a consensus
on issue 03-10, "Application of EIFT 02-16 by Resellers to sales Incentives
Offered to Consumers by Manufacturers", addressing how a reseller is to account
for the redemption of a manufacturer's coupon by a consumer at the reseller's
location. The final consensus eliminates the option that permitted resellers to
report the value of the consideration received as a reduction in costs of goods
sold, but rather mandates that it be recorded as revenue. EITF 03-10 is
applicable to new arrangements, including modifications to existing
arrangements, entered into in fiscal periods beginning after November 25, 2003.
The provisions of this consensus did not have an impact on our financial
position or operating results.

     In January 2003, the FASB issued Interpretation 46, "Consolidation of
Variable Interest Entities," effective for the period ending December 31, 2003.

                                       43
<PAGE>

This interpretation requires the consolidation of variable interest entities in
which a company holds a qualifying variable interest. The provisions of this
interpretation do not have a significant effect on our financial position or
operating results.

     In April 2003, the FASB issued Statement No. 149, "Amendment of Statement
133 on Derivative Instruments and hedging Activities." The statement amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under
Statement 133. The Company believes its adoption of this new accounting standard
will not have a material impact on the Company's results of operations or
financial position, as the Company does not have derivatives nor does it
participate in hedging activities.

     In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity." The
statement requires that certain financial instruments, which under previous
guidance were accounted for as equity, must now be accounted for as liabilities.
This statement is effective for all financial instruments entered into or
modified after May 31, 2003. The adoption of SFAS No. 150 during fiscal 2003 did
not have a material impact on the Company's consolidated financial position or
operating results.

     In November 2003, the EITF reached a consensus on issue 03-01, "The Meaning
of Other-Than-Temporary Impairment and its Application to Certain Investments."
EITF 03-01 establishes additional disclosure requirements for each category of
FAS 115 investments in a loss position. Effective for years ending after
December 15, 2003, companies must disclose the aggregate amount of unrealized
losses, and the aggregate related fair value of their investments with
unrealized losses. Those investments are required to be segregated by those in a
loss position for less than twelve months and those in a loss position for
greater than twelve months. Additionally, certain qualitative disclosures should
be made to clarity a circumstance whereby an investment's fair value that is
below cost is not considered other-than-temporary. The provisions of this
consensus do not have a significant effect on our financial position or
operating results. At December 31, 2003, the Company did not have any assets
that required disclosure.

                                       44
<PAGE>

Note 3 - Legal Proceedings:

     On January 23, 2003, the Company received a Petitioner's Notice of
Intention to Arbitrate from Color Impact International, Inc. (CII). CII sought
arbitration for controversies arising from an Agreement with the Company dated
March 20, 1998, and a modification to that Agreement dated February 28, 2002.
That Agreement gives the Company the exclusive right (with the exception of
Russia and India) to manufacture, market and sell certain equipment designed by
CII.

     On October 23, 2003, the Company and CII signed a Settlement Agreement
ending the controversies that were to be arbitrated in November 2003. Under the
Settlement Agreement the Company purchased the assets of CII and all product
technology covered in the Agreement dated March 28, 1998 between the Company and
CII. The Company will pay CII's owner $1,000,000 over a period of 10 years with
one payment of $100,000 at the time of settlement and the balance of $900,000
payable in 108 monthly payments of $8,333 starting one year from the settlement
date.

     The Settlement Agreement requires CII and its owner to grant the Company
first acceptance of any new product type technology at a license fee of 5
percent of the selling price. As of March 5, 2004, the Company and CII had not
finalized all of the terms and conditions of this part of the Settlement
Agreement and, therefore, no payments have been made.

     As part of the Settlement Agreement, CII dropped all claims for prior
unpaid license fees, which were $483,770 as of October 23, 2003. In its Form
10-QSB for the period ended September 30, 2003, the Company reduced accrued
expenses in the balance sheet by $483,770 and recorded $483,770 as "CII
Settlement" income in the consolidated statement of operations.

     The intangible assets acquired from CII and the note payable to CII's owner
was recorded in the Company's books in the fourth quarter of 2003. The value of
the intangible asset on the Company's balance sheet was determined by
discounting at 8 percent the $1,000,000 payable to CII. That vale was $694,988
as of October 23, 2003. The Company is amortizing this amount at the rate of
$579 per printing deck sold.

                                       45
<PAGE>

The Company expects it to take between nine and 10 years to fully amortize this
asset.

     The Company is involved in certain other legal proceedings arising in the
normal course of business. An estimate of the possible loss, if any, resulting
from these matters cannot be made at this time. However, management believes,
based upon the advice of legal counsel, that the ultimate resolution of these
matters will not have a material impact on the Company's consolidated financial
statements.

Note 4 - Financing:

     The Company had a revolving line of credit with a commercial bank for
borrowing up to $2.6 million. Borrowings against this line were $1.928 million
on December 31, 2003. The interest rate charged is the bank's prime rate, plus 3
percent. The rate was 7 percent on December 31, 2003. Accounts receivable, firm
orders in production, inventories, and values in excess of the long-term
financing on equipment are pledged as collateral. The loan matured on March 1,
2004.

     On March 1, 2004, the Company and the bank extended the maturity date for
the note to March 1, 2005. Terms of the note were modified, separating the note
into two parts. (1) A revolving line of credit (LOC) for $1,000,000 and (2) a
term note for $1,514,609. The term note will be decreased by $85,391 to
$1,429,217 by March 15, 2004. Amortization of the term note is over 20 years. On
June 1, 2004, October 1, 2004 and February 1, 2005 both the LOC and the term
note must reduce by $25,000. The interest rate charged on the LOC is prime plus
6 percent until September 1, 2004, and then increases to prime plus 8 percent.
The interest rate charged on the term note is 10 percent until September 1,
2004, and then increases to 12 percent. The Company paid the bank a loan fee of
$25,000.




                                       46
<PAGE>

             Long-term debt consists of the following:

                                         (Dollars in Thousands)
                                            December 31, 2003
                                            -----------------

Revolving line of credit .....................   $  413

Term note to bank, 10% until
September 1, 2004, then increasing
to 12%, due March 1, 2005 ....................    1,515

Note payable, 8%, for intangible asset
payable in one payment of $100,000 and
108 payments of $8,333.  Payment has
not commenced as of March 5, 2004 ............      695

Note payable, 9%, due in monthly
installments of $2,027 including
interest.  Final payment
due April, 2010 ..............................      117

Note payable for equipment, 9.3%,
due in monthly installments of $2,198
including interest.  Final payment due
in March, 2004 ...............................        6

Note payable for equipment, 8.97%, due in
monthly installments of $1,124 including
interest. Final payment due in September, 2004       10

Note payable for equipment, 9%, due in
monthly installments of $492 including
interest.  Final payment due in November,
2006 .........................................       15
                                                 ------
                                                  2,771

Less current portion .........................      348
                                                 ------

                                                 $2,423
                                                 ======

     Equipment with an original cost of $215 thousand is pledged as collateral
under the notes payable for equipment.

                                       47
<PAGE>

     Maturities of the long-term debt for the next five years are as follows:

                                         (Dollars in Thousands)
                  2004                         $  348
                  2005                          1,774
                  2006                             76
                  2007                             77
                  2008                             83
                  Thereafter                      413
                                               ------

                                               $2,771
                                               ======

     Maturities of the long-term debt for the next five years include $100
thousand payable to CII and $212 thousand to the bank in 2004 and $1.716 million
due in March 2005 to the bank for the revolving line of credit and term loan,
and $476 thousand, excluding interest, for equipment purchase contracts. Cash
flow required to service the equipment purchase contracts and CII beyond 2004
over their remaining life, including interest, totals $1.088 million.

     The estimated fair value of long-term debt approximates carrying value at
December 31, 2003, based on the borrowing rates currently available to the
Company for bank loans with similar terms and average maturities.

Note 5 - Income Taxes:

     Taxes (benefit) from earnings (loss) consist of the following:

                              (Dollars in Thousands)
                              Year Ended December 31,
                              -----------------------
                                2003          2002
                                ----          ----

Current tax benefit            $ (34)        $(290)
Deferred taxes                   122          (165)
Valuation allowance              (88)          314
Other adjustment                  --            (2)
                               -----         -----

                               $  --         $(143)
                               =====         =====

                                       48
<PAGE>

     Taxes (benefit) from earnings (loss) differs from the federal statutory
rate as follows:

                              (Dollars in Thousands)
                             Year Ended December 31,
                             -----------------------
                                2003         2002
                                ----         ----

Taxes (benefit) at
  the statutory rate           $  80        $(447)
Valuation allowance              (88)         314
Permanent difference               8            6
Other                             --          (16)
                               -----        -----

                               $  --        $(143)
                               =====        =====

     The components of deferred taxes included in the balance sheet as of
December 31, 2003, are as follows:

                                    (Dollars in Thousands)
                                    ----------------------

Current deferred tax assets:

  NOL tax carry-forward...........            $438
  Inventory valuation reserve.....             120
  Warranty reserve................              23
  Allowance for doubtful accounts.              51
  Vacation accrual................              36
  Product liability reserve.......              37
  263(a) costs....................              30
                                              ----
                                               735
  Valuation allowance.............            (226)
                                              ----

                                              $509
                                              ====

Non-current deferred tax liabilities:

  Deferred DISC income............            $438
  Excess tax depreciation.........              71
                                              ----

                                              $509
                                              ====

     The Company established a valuation allowance of $226 thousand as of
December 31, 2003, due to the uncertainty of future utilization of net operating
loss carryforwards and realization of other deferred tax assets.

     The Company has a net operating loss carry-forward of $1.288 million that
expires in 2018.

                                       49
<PAGE>

Note 6 - Commitments and Contingencies:

     The Company has leased a 49,000 square foot manufacturing and office
facility located in Kent, Washington, since May 1988. The lease expires in
November 2008. The total monthly payment is $18,588.

     Rental expense was $220 thousand in 2003 and $215 thousand in 2002.

     Remaining minimum rental commitments are as follows:

                                (Dollars in Thousands)

                 2004                $  223
                 2005                   223
                 2006                   223
                 2007                   223
                 2008                   198
                                     ------

                                     $1,090
                                     ======

Note 7 - Market Segment and Concentration Information:

     Substantially all of the Company's operations relate to the manufacture and
sale of printing presses and associated equipment. The Company markets its
presses worldwide. International sales accounted for 31.4% of total sales in
2003 and 11.2% in 2002. The Company is not dependent on any country or region of
the world for international sales and domestic sales are disseminated throughout
the United States.

     Export sales of equipment by geographical area were as follows:

                                    (Dollars in Thousands)
                                    Year Ended December 31,
                                    -----------------------
                                   2003                2002
                                   ----                ----

     Europe                       $1,108              $ 417
     Western Hemisphere            1,285                 --
                                  ------              -----


                                  $2,393              $ 417
                                  ======              =====

     The Company normally has one or more individual press sales which account
for more than 10% of revenues in a given year. It is uncommon for a customer to
place a large order for additional equipment in the

                                       50
<PAGE>

years immediately following purchase of a press. On an ongoing basis, the
Company does not believe it is dependent on any one customer for a significant
portion of its business.

     In 2003, the Company had a sale to one customer that as a percentage of
total consolidated sales accounted for 12.2% of total sales. In 2002, the
Company did not have sales to any one customer that, as a percentage of total
consolidated sales, was greater than 10%.

Note 8 - Accounts Receivable:

     Accounts receivable consist of the following at December 31, 2003:

                                         (Dollars in Thousands)
                Trade receivables               $ 901
                Less allowance for
                  doubtful accounts              (151)
                                                -----

                Accounts receivable, net        $ 750
                                                =====

     Changes in the Company's allowance for doubtful accounts are as follows for
the year ended December 31, 2003:

                                          (Dollars in Thousands)
                Beginning balance               $  15
                Bad debt expense                  148
                Write-offs                        (13)
                Recoveries                          1
                                                -----

                Ending balance                  $ 151
                                                =====

Note 9 - Product Warranty Liability:

     The changes in the Company's product warranty liability are as follows for
the year ended December 31, 2003:

                                         (Dollars in Thousands)
         Liability, January 1, 2003             $ 118
         Warranty expense                          25
         Warranty claims                          (76)
                                                -----

         Liability, December 31, 2003           $  67
                                                =====

                                       51
<PAGE>

Note 10 - Amortization of Intangible Assets:

     The following is a summary of non-goodwill intangibles subject to
amortization as of December 31, 2003:


                                          (Dollars in Thousands)
                  Universal Printing Module        $695
                  Accumulated amortization           (9)
                                                   ----

                                                   $686
                                                   ====

     Amortization expense in 2003 was $9 thousand. The Universal Printing Module
is the base unit for the Quad-Stack(TM) perfector (UPM). Amortization is at the
rate of $579 per UPM printing deck sold. The Company expects it to take between
nine and 10 years to fully amortize this asset. The Company expects amortization
expense during the next five years to between $65 thousand and $104 thousand per
year.

Note 11 - Retirement Savings Plan:

     The Company has a 401(k) plan covering all employees who have completed one
year of service. Plan participants self-direct their investments choosing from
eleven options sponsored by Merrill Lynch. The Company matches up to 25% of the
first $4,000 contributed by the employee in a year. In addition, the Company may
make a discretionary matching contribution. The total amount is determined by
the Company's Board of Directors and allocated to the participants based on
their contributions. There were no discretionary contributions in 2003 and 2002.
Fees paid the administrator, plus the Company's matching contribution, totaled
approximately $23 thousand in 2003 and $22 thousand in 2001.

Note 12 - Related Party Transactions:

     A director of the Company has an ongoing relationship with the Company as a
supplier of sheet metal products and other miscellaneous parts. This
relationship is expected to continue in the future. During the fiscal years
ended December 31, 2003 and 2002, the Company purchased parts costing
approximately $99 thousand and $113 thousand, respectively.

     Two non-management employees of the Company operate a part-time business
rebuilding and selling

                                       52
<PAGE>

used equipment manufactured by the Company. The Company contracts with them to
rebuild some of its used presses. Most, but not all of their business, is with
the Company. The Company sells parts to them at its normal selling prices. In
2003 and 2002, they purchased parts totaling $95,050 and $62,915, respectively,
from the Company. In 2003 and 2002, the Company purchased from them used
equipment, rebuilding services, and used parts totaling $89,195 and $169,199,
respectively. The Company, also, paid them storage fees of $10,800 in 2003 and
$10,000 in 2002.








                                       53