<PAGE>   1

                                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, 1999

                                       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.............$11,694,360.


<PAGE>   2

As of February 29, 2000, 3,105,413 common shares were outstanding, and the
aggregate market value of the common shares (based upon the closing bid price
provided by the National Quotation Bureau, Inc.) held by non-affiliates was
approximately $363 thousand.

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




                                       2
<PAGE>   3

                              WEB PRESS CORPORATION

                TABLE OF CONTENTS TO ANNUAL REPORT ON FORM 10-KSB



<TABLE>
<CAPTION>
ITEM           DESCRIPTION                                                          PAGE
----           -----------                                                          ----
<S>            <C>                                                                  <C>
                                     PART I

 1.            BUSINESS............................................................... 4
 2.            PROPERTIES............................................................. 7
 3.            LEGAL PROCEEDINGS...................................................... 7
 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........................... 15
 8.            CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
               ON ACCOUNTING AND FINANCIAL DISCLOSURE................................ 15


                                    PART III

 9.            DIRECTORS AND EXECUTIVE OFFICERS
               OF REGISTRANT................................... ......................16
10.            EXECUTIVE COMPENSATION.......................... ......................19
11.            SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
               OWNERS AND MANAGEMENT........................... ......................19
12.            CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.. ......................20
13.            EXHIBITS, FINANCIAL STATEMENT SCHEDULES
               AND REPORTS ON FORM 8-K......................... ......................21
</TABLE>



                                       3

<PAGE>   4

                          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 81% and 7%, respectively, of
the Company's revenues in 1999. 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, 1999 and 1998.


(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



                                       4
<PAGE>   5

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.

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.

QUAD-STACK. Web's Quad-Stack 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 or without an integrated
rollstand and is used in conjunction with the Atlas product line.

FOLDER. Web's folder is used in conjunction with perfecting, Quadra-Color and
Quad-Stack 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 fold to produce "digest"-size
signatures which are used in printing some books and pamphlets.

TWO-POSITION ROLL ROLLSTANDS. Web's rollstand supports two, 42-inch diameter
rolls of 36-inch wide paper and is used in conjunction with the perfector and
Quadra-Color units. The rollstand controls the unwinding of the paper roll and
feeds it to the printing units under controlled tension.

The Company has an agreement granting it the exclusive right to manufacture and
sell in the United States and most other countries printing equipment designed
by Color Impact International, Inc. The grantor may purchase the equipment from
the Company and



                                       5
<PAGE>   6

resell it in Russia and China. Another company has the exclusive right to
manufacture and sell the equipment in India. The agreement commenced on August
17, 1998, and is for a period of 10 years. It requires the company to pay Color
Impact International, Inc. a license fee equal to 7 percent of the gross selling
price for equipment. The minimum license fee is $70 thousand in any 12-month
period from the commencement date. The Company may enhance or modify the
equipment and commingle it with equipment of its own design.

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

The primary competitors of the Company are Goss Graphic Systems, P.E.C.
Corporation (King Press Division), Dauphin Graphic Machines, Inc. and Harris
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.

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 1999, $503 thousand was expended for research and development
compared to $450 thousand in 1998.

Total employment of 69 persons as of December 31, 1999 compares with
approximately 63 at December 31, 1998.

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.



                                       6
<PAGE>   7

Compliance with federal, state and local environmental protection laws during
1999 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 53.1% of total sales in 1999 and 26.2% in 1998. Further financial
information relating to foreign operations for the two years ended December 31,
1999, is set forth in Note 7 (Segment Information) of the Notes to Consolidated
Financial Statements.


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 1998, with a five-year renewal option. The monthly rental
payment is $16,155.

The Company has arrangements for small offices for each of its three salesmen
who are located in Burlington, Vermont; Blue Springs, Missouri; and Charlotte,
North Carolina.


ITEM 3.    LEGAL PROCEEDINGS

LITIGATION. On December 17, 1998, the Company received a Notice of Deficiency
for $70,316 from the Internal Revenue Service (IRS) for federal income taxes for
the calendar year 1993. In its 1993 federal tax return the Company carried back
a loss to recover taxes paid in 1990. The IRS determined that it in its 1993
federal tax return the Company should have included as taxable income deposits
received on sales that were delivered and installed in 1994 and included by the
Company in its 1994 federal tax return. Based on the advice of its tax
accountants and legal counsel, the Company disputed the entire amount of the
deficiency. Subsequent events, and the high cost to defend the Company's
position in court, resulted in the Company agreeing to amend its 1993 and 1994
federal tax returns and the payment of $65,117 in taxes for 1993, plus interest
of $47,456, in February 2000. The Company will be able to recover that amount by
carrying forward an additional loss of $65,117 from its 1994 federal tax return
to its 1996 federal tax return, which will be amended. The interest paid the IRS
is deductible in the Company's 1999 federal tax return.



                                       7
<PAGE>   8

In February 2000, a product liability claim went to trial in the state of New
York for a worker injured operating one of the Company's presses in 1993. The
plaintiff claimed he injured his hand while doing routine maintenance on a press
manufactured by the Company because the press did not have adequate guarding.
The jury found in favor of the plaintiff and awarded him $4,828,805. The jury
held the Company 63 percent responsible for the injury and the Company,
therefore, must pay $3,042,147 of the judgement. The Company's product liability
insurance for 1993 will pay $1 million of the judgement. The balance of
$2,042,147, is the responsibility of the Company.

On March 18, 2000, the Company, the insurance carrier, and the New York State
Insurance Fund, whom was a third party defendant, agreed to pay the plaintiff
$1,500,088, and the plaintiff agreed to a general release and discharge of all
claims and judgements against the Company. The Company's product liability
insurance carrier will pay $1 million; the New York State Insurance Fund will
pay $240,088; and the Company will pay $100 thousand on or before 40 days from
the date of the release, and an additional $160 thousand payable in monthly
payments of $2,026.81 for 10 years commencing May 1, 2000. To cover the
settlement, a $260 thousand expense is included in general and administrative
expense in the statement of operations for 1999, and accrued expenses in the
balance sheet.

There are no other material pending legal proceedings, other than ordinary legal
matters incidental to the Company's business, to which the Company is a party or
in which any of the Company's property is the subject.

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.



                                       8
<PAGE>   9

                                     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.

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 National Quotation Bureau, LLC, and may reflect inter-dealer prices, without
retail mark-up, mark-down or commission. They do not necessarily represent
actual transactions.

<TABLE>
<CAPTION>
                                    1999                           1998
  -------                     ----------------                --------------
  Quarter                     High         Low                High       Low
  -------                     ----         ---                ----       ---
  <S>                       <C>          <C>                 <C>        <C>
   First                    $ .629       $.46875             $ .53      $.25
   Second                     .6875       .53125              1.50       .25
   Third                      .53125      .50                  .8438     .375
   Fourth                     .50         .375                 .75       .4688
</TABLE>

The Company has paid no dividends during the two years ended December 31, 1999.

(B)  Approximate Number of Holders of Common Stock

The number of holders of record for the Company's common stock as of February
29, 2000 was 521.


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

OVERVIEW

Web Press operates in a segment of the graphic arts industry. Its primary
business is the manufacture and sale of rotary offset, web-fed printing presses.
These products are designed for the use in printing newspapers, shoppers,
advertising inserts, paperback books and similar products. The market is
dominated by four domestic manufacturers. Sales in the industry are sensitive to
advertising expenditures, long-term interest rates and newsprint shortages. The
product is labor intensive; materials shortages are rare; and technical
obsolescence has not been a significant factor.

OPERATING RESULTS



                                       9
<PAGE>   10

                             1999 Compared With 1998

Sales in 1999 were $11.694 million, an increase of $1.724 million from 1998
sales of $9.970 million. New press sales increased $1.836 million to $9.490
million in 1999, a 23.4 percent increase from 1998. International sales of new
equipment were $5.576 million in 1999, an increase of $3.804 million from 1998
sales of $1.773 million. Domestic sales of new equipment were $3.912 million, a
decline of $1.969 million from 1998 sales of $5.881 million. International
customers purchased larger size press configurations than domestic customers in
1999, as most domestic sales were add-ons to existing press lines, resulting in
a change in the mix of international sales versus domestic sales. Used equipment
sales were $799 thousand in 1999, compared with $784 thousand in 1998. Revenues
from the sale of replacement parts and service were $1.406 million in 1999, a
decline of $126 thousand from 1998 sales of $1.532 million.

The gross profit margin on total sales was 19.4 percent in 1999, compared with
22.8 percent in 1998. The primary reason for the lower gross profit margin in
1999 was cost overruns mainly in the field of $320 thousand from 1998 sales that
were unexpectedly incurred in 1999. A decrease in the average gross profit
percentage for new equipment sales to 26.4 percent in 1999 from 28.2 percent in
1998 also contributed to the lower gross profit margin. Used equipment sales
contributed a gross profit of $88 thousand in 1999 and $86 thousand in 1998. In
1999, cost of sales included a write-down of $102 thousand for obsolete parts
and certain equipment, compared with a write-down of $83 thousand in 1998.
Research and development expenses were $503 thousand in 1999, compared with $450
thousand in 1998. Continuing development of the Quad-Stack printing module and
internalization of the electrical design work have resulted in higher
engineering costs during both 1999 and 1998.

Selling, general and administrative expenses increased $398 thousand, or 23.6
percent, in 1999 from 1998. In 1999, selling expenses declined $21 thousand, and
administrative expenses increased $419 thousand compared with 1998. Sales
commissions increased $73 thousand in 1999 from 1998, and other payroll costs
related to sales increased $21 thousand. Lower promotional expenses offset the
increase. In 1999, the Company spent $78 thousand attending international trade
shows, compared with $208 thousand in 1998. Administrative expenses increased
due to higher payroll costs of $44 thousand, a charge of $113 thousand for bad
debts, higher bank fees and professional service fees, and a $260 thousand
expense for the settlement of the product liability judgement against the
Company discussed elsewhere in this report.



                                       10
<PAGE>   11

Interest expense increased $72 thousand in 1999 from 1998. Payment of $47
thousand in interest to the Internal Revenue Service for a tax deficiency in the
Company's 1993 tax return caused most of the increase. The average interest rate
on the Company's revolving lines of credit with the bank was 8.6 percent in 1999
and 10.1 percent in 1998. The average borrowings from the bank were $1.841
million in 1999 and $623 thousand in 1998. The higher average borrowings in 1999
resulted from the conversion of most of the company's long-term debt into a
long-term revolving line of credit, allowing the Company to pay interest only on
the money it needs to borrow. The lower average interest rate on those
borrowings in 1999 is because the interest rate on the new revolving line of
credit is 2 percent lower than the rate for the retired short-term revolving
line of credit used by the Company in 1998 and during the first quarter of 1999.

The Company had a pre-tax loss of $89 thousand and a net loss of $61 thousand in
1999. In 1998, the Company had pre-tax earnings of $444 thousand and net
earnings of $280 thousand.


                             1998 Compared With 1997

Nineteen ninety-eight ended with total sales of $9.970 million, an increase of
$147 thousand from total sales of $9.822 million in 1997. New equipment sales
declined 6.3 percent in 1998 to $7.654 million from $8.171 million in 1997. New
equipment sales in 1997 included a significant amount of auxiliary equipment.
The Company sold 11 of the new Quad-Stack four-color perfectors to 6 different
customers in 1998; 9 perfectors to 4 domestic customers and 2 perfectors to 2
international customers. The domestic versus international mix of new equipment
sales changed 180 degrees in 1998 from 1997 as domestic sales increased $2.972
million to $5.881 million and international sales declined $3.490 million to
$1.773 million. The Company is particularly pleased with domestic sales of new
equipment, which were at their highest level since 1990. Undoubtedly some of the
decline in international sales was the result of the sluggish economies in Asia
and Latin America. Nevertheless, the Company was active in the international
market in 1998, and for its efforts already has, as of March 12, 1999, firm
international orders for new equipment in 1999 in excess of 1998 international
sales for new equipment. Used equipment sales in 1998 were $784 thousand,
compared with $241 thousand in 1997. In 1998, parts sales increased to $1.391
million from $1.265 million in 1997.

The gross profit margin on total sales was 22.8 percent in 1998, compared with
22.3 percent in 1997. The gross profit margin on new equipment sales and parts
sales both increased slightly in 1998, when compared with 1997. Used equipment
sales in 1998 resulted in a gross profit of $86 thousand, versus a loss of $94



                                       11
<PAGE>   12

thousand in 1997. In 1998, cost of sales included a write-down of $83 thousand
for obsolete parts and certain equipment, compared to a write-down of $57
thousand in 1997. Also included in cost of goods sold were higher research and
development expenses, which increased $157 thousand to $450 thousand in 1998,
compared with $292 thousand in 1997. Engineering design and testing of the new
Quad-Stack perfector are the reason for the increase.

Selling, general and administrative expenses increased $270 thousand, or 19
percent, in 1998 from 1997. Administrative expenses declined $28 thousand, while
selling expenses increased $298 thousand. Promotional expenses for the new
Quad-Stack accounted for most of the increase in selling expenses. In 1998, the
Company spent $319 thousand attending both domestic and international trade
shows, compared with $159 thousand in 1997. Advertisements in several trade
publications cost $148 thousand in 1998, an increase of $67 thousand from the
$81 thousand spent in 1997. Sales commissions in 1998 increased $49 thousand to
$87 thousand. Higher domestic sales of new equipment caused the increase.
Accrued termination costs caused 1997 administrative expenses to be higher than
1998. Most other selling, general and administrative costs did not change
significantly.

In 1998, other income included a $55 thousand reimbursement for expenses
incurred by the Company in a previous year.

Interest expense decreased 17.1 percent in 1998 from 1997. Average short-term
borrowings from the bank were $623 thousand in 1998, compared with $683 thousand
in 1997. The average interest rate on all of the Company's short-term borrowings
from the bank was 10.1 percent in 1998 and 10.3 percent in 1997. Earnings in the
DISC, on which the Company must pay interest, increased again in 1998.

In 1998, the Company had pre-tax earnings of $444 thousand, compared with $542
thousand in 1997. Net earnings after taxes were $280 thousand in 1998, versus
$355 thousand in 1997. Incremental costs totaling approximately $396 thousand to
design, test, advertise and display the new Quad-Stack caused the lower profits
in 1998 despite nominal increases in 1998 for both sales and the gross profit
margin.


                                      2000

Because of the high value of each order for the Company's equipment and the
irregular timing of orders, projections for particular time periods are very
difficult to make. Since its introduction



                                       12
<PAGE>   13

in June 1998, sales of the Quad-Stack perfecting module have exceeded
expectations. The Company expects to install both the Quad-Stack and the
Quadra-color printing modules to press lines manufactured by other manufacturers
in 2000. In 2000, a 21-1/2 inch broadsheet size Quad-Stack printing module will
be added to the Company's product line.

Looking ahead, the international market appears to be especially strong. The
Company has received orders for delivery in 2000 from Asia. These are the first
orders from Asia since 1996. The Company has orders from customers in Europe,
and Central and South America, too. Overall, the Company anticipates moderate
growth for both domestic and international sales in 2000. The Company's
customers are dependent upon advertising for a significant portion of their
revenue. As long as advertising remains strong, demand for the Company's
printing presses should continue. Funds for capital equipment purchases are
readily available; however, higher interest rates could dampen demand.

The Company does not anticipate purchasing any large machine tools in 2000.

LIQUIDITY

Net working capital was $4.258 million and the current ratio was 2.3:1 on
December 31, 1999. Changes in working capital components include an increase in
accounts receivable of $884 thousand; inventories increased $398 thousand;
deposits increased by $109 thousand; accounts payable declined by $201 thousand;
customers deposits declined by $69 thousand; accrued expenses increased by
$1.293 million; and income taxes payable increased by $135 thousand. Net cash
used by operations was $69 thousand in 1999.

Raw materials and parts inventories, and finished goods inventory increased $364
thousand and $624 thousand, respectively, in 1999. The manufacture of modules in
larger lot sizes to meet future sales resulted in the increase in both
categories. Work in progress declined $647 thousand due to completion of most
assembly work prior to year-end. Used equipment inventory declined $52 thousand
in 1999.

Funds provided by operations are the Company's primary source of liquidity. In
addition, the Company uses two revolving lines of credit with a commercial bank
to finance fluctuating working capital requirements. On December 31, 1999, the
Company had additional borrowing capacity of $1.453 million from its operating
line of credit and $1.828 million from its export working capital line of
credit. The Company's operating line of credit matures on June 1, 2002. The
export line was paid off on January 18,



                                       13
<PAGE>   14

2000. The Company can request additional loans for export sales using the export
line of credit.

CAPITAL RESOURCES

Total assets increased $1.467 million from December 31, 1998, to $8.448 million
on December 31, 1999. In 1999, stockholders' equity decreased by $61 thousand;
working capital increased by $903 thousand; non-current deferred income taxes
increased by $114 thousand; and long-term debt (including the long-term
revolving line of credit) increased by $902 thousand.

Long-term financing in the form of secured notes is used to acquire
manufacturing equipment. The Company incurred $55 thousand of new long-term debt
in 1999 to purchase a new forklift and made payments of $988 thousand (including
the refinancing of long-term debt into the long-term revolving line of credit)
on its long-term debt. The Company believes that its additional long-term
borrowing capacity is sufficient to provide for orderly growth.


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.



                                       14
<PAGE>   15

                                    PART III


ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers and directors of the Company are:

<TABLE>
<CAPTION>
Name                         Position                                  Age
----                         --------                                  ---
<S>                          <C>                                       <C>
G. B. Palmer                 President and Director                    51


E. P. Beierlorzer            Vice President of Engineering             60
                               and Director

R. G. Mercer                 Vice President of Manufacturing           58
                               and Director

R. B. Thompson               Vice President of Technical               59
                             Services and Director

A. W. White                  Vice President of Purchasing              45
                               and Director

R. M. Sprague                Director                                  60

P. F. Dunn                   Director                                  51

C. L. Mathison               Vice President of Finance                 57
                               and Secretary/Treasurer

C. A. Gath                   Vice President of Sales                   59
</TABLE>


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



                                       15
<PAGE>   16

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 holds 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.

P. F. Dunn

Mr. Dunn has been a director of the Company since February 1997. He has been
employed by the Boeing Company in various financial positions since 1973. He
currently is tax manager for the State and Local Division.



                                       16
<PAGE>   17

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.

C. A. Gath

Prior to joining the Company as vice president of sales in May of 1985, Mr. Gath
was manager of South and Western Operations in the Cheshire Division of Xerox
Corporation, a manufacturer of addressing and labeling equipment. He started
with that division in 1976 as a sales representative and progressed through
several management positions in sales and marketing.


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 1999 was $10,000. 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 1999 and 1998. Fees paid the administrator, plus
the company's matching contribution, totals at approximately $31 thousand in
1999 and $7 thousand in 1998.



                                       17
<PAGE>   18

ITEM 10.  EXECUTIVE COMPENSATION

The following table sets forth the aggregate total cash compensation accrued
during the fiscal years ended December 31, 1999, 1998, and 1999 for the chief
executive officer of the Company.

                               Annual Compensation

<TABLE>
<CAPTION>
                                                      Long-Term    All Other
Name/Principal                      Salary         Bonus     Compensation Compensation
   Position                Year       ($)           ($)            $           $
-------------------        ----     ------         -----     ------------  -----------
<S>                        <C>      <C>            <C>       <C>           <C>
G.B. Palmer                1999      85,625        1,317           0           0
President/                 1998      72,500          0             0           0
General Manager            1997      65,614          0             0           0
</TABLE>

The vice president of sales is paid commissions equal to 1% of firm orders
accepted. The remainder of the officers and directors are under no formal
compensation agreements.

During 1999, there were no options outstanding under the Company's Stock Option
Plan.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth as of February 26, 1999, 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:

<TABLE>
<CAPTION>
                                                                 Percent
Name and Address                      Shares Owned               Of Class
----------------                      ------------               --------
<S>                                   <C>                        <C>
Alan W. White                           551,400                    17.76%
3025 196th Ave. Ct. E
Sumner, WA  98390

Rolynn G. Mercer                        520,667(1)                16.77%
14409 - 151 Pl. SE
Renton, WA  98056

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
</TABLE>



                                       18
<PAGE>   19

<TABLE>
<S>                                   <C>                        <C>
Edwin P. Beierlorzer                    256,500                    8.26%
4714 - 161 Ave. SE
Bellevue, WA  98006

William F. Carmody                      155,800(3)                 5.02%
10826 Auburn Ave. S
Seattle, WA  98178

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

Charles A. Gath                           6,000(4)                  .19%
640 Jasmine Pl. N.W.
Issaquah, WA  98027

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

Craig L. Mathison                          -0-                       *
4504 SW Director Pl.
Seattle, WA  98136

All Directors and Officers
 as a Group (9 persons)               2,175,600                   70.06%
</TABLE>

------------
 *   Less than 1%

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

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

(3)  Includes 800 shares held as custodian for Mr. Carmody's child as to which
     he disclaims beneficial ownership.

(4)  Includes 1,000 shares held as custodian for Mr. Gath's grandchild as to
     which he disclaims beneficial ownership.

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, 1999.

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, 1999, the Company purchased



                                       19
<PAGE>   20

parts costing $252,329 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.


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

(a) (1) and (2) The response to this portion of Item 13 is submitted as a
separate section of this report.


(a) (3)  The following exhibits are incorporated herein by reference:

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

   (10)  Material Contracts

         (10a)      Exhibit 3 to Registrant's Form 10-K for the year ended
                    December 31, 1980, File No. 0-7267 being Web Press
                    Corporation's Company Stock Option Plan.

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

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

         (10d)      being the Business Loan Agreement between Web Press
                    Corporation and KeyBank National Association dated July 20,
                    1999.

         (10e)      being the Borrowing Agreement between Web Press Corporation
                    and the Export-Import Bank of the United States dated July
                    20, 1999.


         (10f)      being the agreement to manufacture and sell equipment
                    between Web Press Corporation and Color Impact
                    International, Inc.

         The        following exhibit is filed herewith:

         (10g)      being the General Release between Barton Ankenman, Brenda
                    Ankenman, the New York State Insurance Fund, and the Company
                    for the product liability judgement against the Company in
                    the state of New York.



                                       20
<PAGE>   21

(22)     Subsidiaries of Registrant

(b)      Report on Form 8-K

         There have been no reports on Form 8-K filed during the three months
         ended December 31, 1999.

         Exhibit 27.1    Financial Data Schedule


                                   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 27, 2000                               By:  /s/ Gary B. Palmer
                                                 -------------------------------
                                                  Gary B. Palmer
                                                  President and Chairman
                                                  of the Board


March 27, 2000                               By:  /s/ Craig L. Mathison
                                                 -------------------------------
                                                  Craig L. Mathison
                                                  Vice President of Finance
                                                  (Principal Accounting
                                                   Officer)



                                       21
<PAGE>   22

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.


<TABLE>
<S>                                                              <C>
/s/ Gary B. Palmer                                               March 27, 2000
--------------------------------------
Gary B. Palmer
President and Chairman
of the Board


/s/ Edwin P. Beierlorzer                                         March 27, 2000
--------------------------------------
Edwin P. Beierlorzer
Vice President of Engineering
and Director


/s/ Rolynn G. Mercer                                             March 27, 2000
--------------------------------------
Rolynn G. Mercer
Vice President of Manufacturing
and Director


/s/ Roy B. Thompson                                              March 27, 2000
--------------------------------------
Roy B. Thompson
Vice President of Technical Services
and Director


/s/Alan W. White                                                 March 27, 2000
--------------------------------------
Alan W. White
Vice President of Purchasing
and Director


/s/ Rufus M. Sprague                                             March 27, 2000
--------------------------------------
Rufus M. Sprague
Director


/s/ Patrick F. Dunn                                              March 27, 2000
--------------------------------------
Patrick F. Dunn
Director
</TABLE>



                                       22
<PAGE>   23

                              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:

<TABLE>
<CAPTION>
                                                               Page
                                                               ----
<S>                                                             <C>
Consolidated Financial Statements:

  Report of Independent Certified Public
    Accountants...........................................      25

  Balance Sheet as of December 31, 1999...................      26

  Statements of Operations for each of the two
    years ended December 31, 1999.........................      28

  Statements of Stockholders' Equity for each of
    the two years ended December 31, 1999.................      29

  Statements of Cash Flows for each of the two
    years ended December 31, 1999.........................      30

  Notes to Consolidated Financial Statements..............      32
</TABLE>



                                       23
<PAGE>   24

               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, 1999
and the related consolidated statements of operations, stockholders' equity, and
cash flows for the years ended December 31, 1999 and 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the 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, 1999, and the consolidated results
of their operations and their consolidated cash flows for the years ended
December 31, 1999 and 1998, in conformity with accounting principles generally
accepted in the United States.



/s/ Grant Thornton LLP

Seattle, Washington
March 3, 2000 except for note 6 as to which
 the date is March 27, 2000



                              WEB PRESS CORPORATION



                                       24
<PAGE>   25

                           CONSOLIDATED BALANCE SHEET
                             (Dollars in Thousands)



<TABLE>
<CAPTION>
                                                                   December 31, 1999
                                                                   -----------------
<S>                                                                <C>
ASSETS

Current Assets:
Cash ...........................................................        $
Accounts receivable, less allowance for
  doubtful accounts of $118 (Note 3) ...........................           2,750
Inventories (Notes 2 and 3) ....................................           4,263
Deferred Tax Assets (Note 4) ...................................             267
Refundable income taxes (Note 4) ...............................              65
Deposits .......................................................             135
Prepaid expenses ...............................................              44
                                                                        --------

Total Current Assets ...........................................           7,524

Machinery and Leasehold Improvements,
    at cost (Notes 2 and 3):
  Machinery and equipment ......................................           3,520
  Leasehold improvements .......................................             214
                                                                        --------
                                                                           3,734

  Less accumulated depreciation
   and amortization ............................................           2,810
                                                                        --------

Machinery and Leasehold Improvements (Net) .....................             924
                                                                        --------

Total Assets ...................................................        $  8,448
                                                                        ========
</TABLE>


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



                                       25
<PAGE>   26

                              WEB PRESS CORPORATION

                           CONSOLIDATED BALANCE SHEET
                             (Dollars in Thousands)



<TABLE>
<CAPTION>
                                                                   December 31, 1999
                                                                   -----------------
<S>                                                                <C>
LIABILITIES AND STOCKHOLDERS'
EQUITY

Current Liabilities:
Note payable to bank (Note 3) ..................................        $   172
Accounts payable ...............................................            675
Customer deposits ..............................................            200
Accrued expenses ...............................................          2,054
Income taxes payable (Note 4) ..................................            135
Current portion of long-term debt ..............................             30
                                                                        -------

Total Current Liabilities ......................................          3,266

Long-Term Debt, less current
  portion (Note 3) .............................................          1,667

Deferred tax liabilities (Note 4) ..............................            588

Commitments (Note 6)

Stockholders' Equity (Note 5):
    Common stock, par value $.025
    per share:
      Authorized, 4,000,000 shares
      Issued, 3,436,513 shares .................................             86
    Paid-in capital ............................................            320
    Retained earnings ..........................................          2,618
                                                                        -------
                                                                          3,024

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

Total Stockholders' Equity .....................................          2,927
                                                                        -------

Total Liabilities and Stockholders' Equity .....................        $ 8,448
                                                                        =======
</TABLE>


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



                                       26
<PAGE>   27

                              WEB PRESS CORPORATION

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



<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                                      -------------------------
                                                        1999              1998
                                                      --------          -------
<S>                                                   <C>               <C>
Sales (Note 7) .................................      $ 11,694          $ 9,970
Cost of Sales ..................................         9,428            7,698
                                                      --------          -------
                                                         2,266            2,272

Selling, general and
  administrative expenses (Note 6) .............         2,086            1,688
                                                      --------          -------
                                                           180              584

Other income ...................................             2               59
Interest expense ...............................          (271             (199)
                                                      --------          -------
                                                          (269)           (140)
                                                      --------          -------
Earnings (loss) before taxes ...................           (89)             444

Taxes (benefit) on earnings (loss)
  (Note 4) .....................................           (28)             164
                                                      --------          -------

Net earnings (loss) ............................      $    (61)         $   280
                                                      ========          =======

Basic earnings (loss) per share ................      ($   .02)         $   .09
                                                      ========          =======
</TABLE>


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



                                       27
<PAGE>   28

                              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, 1998          3,436,513        $86        $(97)        $320        $2,399

Net earnings for the year                                                                 280
                                  ---------        ---        ----         ----        ------

Balance, December 31, 1998        3,436,513         86         (97)         320         2,679

Net Loss for the Year                                                                     (61)
                                  ---------        ---        ----         ----        ------

Balance, December 31, 1999        3,436,513        $86        $(97)        $320        $2,618
                                  =========        ===        ====         ====        ======
</TABLE>


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



                                       28
<PAGE>   29

                              WEB PRESS CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in Thousands)



<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                                      -----------------------
                                                                         1999          1998
                                                                       -------       -------
<S>                                                                    <C>           <C>
Cash flows from operating activities:
  Net earnings (loss) ..............................................   $   (61)      $   280
  Adjustments to reconcile net
    earnings (loss) to net cash
    provided (used) by operating
    activities:
        Depreciation and amortization ..............................       184           219
        Provision for losses on accounts
          receivable ...............................................       108             6
        Inventory valuation reserve ................................       109          (313)
        Deferred taxes .............................................      (196)          117
        Retirement of plant assets .................................         3

  Increase (Decrease) in cash from changes in operating accounts:
        Accounts receivable ........................................      (884)        1,493
        Refundable income taxes ....................................        19            27
        Inventory ..................................................      (398)         (911)
        Deposits ...................................................      (109)           81
        Prepaid expenses ...........................................         1            (7)
        Accounts payable ...........................................      (201)          188
        Customer deposits ..........................................       (69)           75
        Accrued expenses ...........................................     1,293          (547)
        Income taxes payable .......................................       135
                                                                       =======       =======

        Total adjustments ..........................................        (8)          431
                                                                       -------       -------

    Net cash provided (used) by operating
    activities .....................................................       (69)          711

Cash flows from investing activities:
    Capital expenditures ...........................................      (236)         (595)
    Proceeds from retirement of plant
       assets ......................................................                      58
                                                                       -------       -------

    Net cash used in investing activities...........................      (236)         (537)
</TABLE>

(Continued on following page)



                                       29
<PAGE>   30

(Continued from previous page)

<TABLE>
<S>                                                     <C>           <C>
Cash Flows from financing activities:
    Proceeds from issuance of
       long-term debt ...............................        55         421
    Payments on long-term debt ......................      (988)       (310)
    Net borrowings (payments) on short-
       term line of credit ..........................      (315)       (285)
    Net borrowings on long-term line
       of credit ....................................     1,547
                                                        -------       -----

    Net cash provided (used) by
      financing activities ..........................       299        (174)
                                                        -------       -----

Net increase (decrease) of period ...................        (6)          0

Cash at beginning of period .........................         6           6
                                                        -------       -----

Cash at end of period ...............................   $     0       $   6
                                                        =======       =====

Supplemental disclosures of cash flow information:

Cash was paid during the year for:

    Interest ........................................   $   213       $ 202
    Taxes ...........................................        16          75
</TABLE>


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



                                       30
<PAGE>   31

                              WEB PRESS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        TWO YEARS ENDED DECEMBER 31, 1999



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 fifty 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
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, 1999:



                                       31
<PAGE>   32

<TABLE>
<CAPTION>
                                                          (Dollars in Thousands)
    <S>                                                   <C>
    Raw materials and parts
        (including subassemblies)........                         $2,132
        Work-in-progress.................                            470
        Finished goods...................                          1,345
        Used equipment...................                            316
                                                                  ------
                                                                  $4,263
</TABLE>

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,
1999 and 1998 were $503 thousand and $450 thousand, respectively.

Advertising

        Advertisements placed primarily in periodical printing-trade magazines
and newspapers 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, 1999
and 1998 were $174 thousand and $148 thousand, respectively. The Company does
not use direct-response advertising.


Revenue recognition

        Revenue from sales of manufactured products under firm contracts is
recognized generally at the time equipment is available for shipment. All
freight and installation costs are accrued at the time revenue is recognized.
Estimated costs related to product warranties are provided at the time of sale.



                                       32
<PAGE>   33

Proceeds received on contracts prior to recognition as a sale are recorded as
deposits.

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 1999 and 1998.

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

Note 3 - Financing

        The Company has a revolving line of credit with a commercial bank for
borrowing up to $3 million. Borrowings against this line were $1.547 million on
December 31, 1999. Because the loan matures on June 1, 2002, that amount is
included in long-term debt on the balance sheet. The interest rate charged is
the bank's prime rate. That rate was 8.5 percent on December 31, 1999. Accounts
receivable, firm orders in production, inventories, and values in excess of the
long-term financing on equipment are pledged as collateral.

        The Company has a second line of credit with the bank for borrowing, on
a short-term basis, up to an additional $2 million to manufacture equipment for
export. On December 31, 1999, borrowings against this line were $172 thousand.
The loan is to be repaid when certain presses manufactured for export ship. The
Company paid off the loan on January 18, 2000. The Company may request
additional loans using this facility. The interest rate charged is .25 percent
under the bank's prime rate. The rate charged was 8.25 percent on December 31,
1999. The loan is secured by an "export working capital guarantee" from the
Export-Import Bank of the United States.

        A covenant of the business loan agreement with the bank is that the
Company must maintain earnings before interest and taxes divided by interest
expense of at least 2.5:1, calculated at the end of each quarter. The Company
was in breach of this covenant on December 31, 1999. The bank waived this
covenant for the period ending December 31, 1999, and for the period ended
December 31, 2000; and amended the basis for subsequent quarters to earnings
before interest, taxes, and depreciation



                                       33
<PAGE>   34

and amortization divided by interest expense; and changed the ratio to 2:1.

        Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                    (Dollars in Thousands)
                                                      December 31, 1999
                                                    ----------------------
<S>                                                 <C>
Note payable for equipment, 9.3%,
due in monthly installments of $2,198
including interest.  Final payment due
in March, 2004 .....................................          $ 92

Note payable for equipment, 8.97%, due in
monthly installments of $1,124 including
interest. Final payment due in March, 2003 .........            52

Note payable for equipment, 8.23%, due in
monthly installments of $277 including
interest.  Final payment due in December,
2001 ...............................................             6
                                                              ----
                                                               150

Less current portion ...............................            30
                                                              ----
                                                              $120
                                                              ====
</TABLE>

        Equipment with an original cost of $206 thousand is pledged as
collateral under the notes payable for equipment.

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

<TABLE>
<CAPTION>
                                               (Dollars in Thousands)
               <S>                             <C>
               2000                                     $ 30
               2001                                       34
               2002                                       33
               2003                                       37
               2004                                       16
               Thereafter                                  0
                                                        ----
                                                        $150
                                                        ====
</TABLE>

        The estimated fair value of long-term debt approximates carrying value
at December 31, 1999, based on the borrowing rates currently available to the
Company for bank loans with similar terms and average maturities.

Note 4 - Income Taxes:

        The taxes (benefit) on earnings (loss) consist of the following:



                                       34
<PAGE>   35

<TABLE>
<CAPTION>
                                            (Dollars in Thousands)
                                            Year Ended December 31,
                                        ------------------------------
                                         1999                     1998
                                        -----                     ----
<S>                                     <C>                       <C>
Current tax expense                     $ 173                     $ 47
Currently refundable                       (5)
Deferred taxes                           (196)                     117
                                        -----                     ----
                                        $ (28)                    $164
                                        =====                     ====
</TABLE>

        The taxes (benefit) on earnings (loss) differ from the federal statutory
rate as follows:

<TABLE>
<CAPTION>
                                            (Dollars in Thousands)
                                            Year Ended December 31,
                                        ------------------------------
                                         1999                     1998
                                        -----                     ----
<S>                                     <C>                       <C>
Taxes (benefit) at statutory rate       $ (30)                    $151
Permanent difference                        7                        5
Prior year tax adjustment                  (5)                       8
                                        $ (28)                    $164
                                        =====                     ====
</TABLE>

        The components of deferred taxes included in the balance sheet as of
December 31, 1999, are as follows:

<TABLE>
<CAPTION>
                                               (Dollars in Thousands)
<S>                                            <C>
Current deferred tax Assets:
  Inventory valuation reserve .................          $ 50
  Warranty reserve ............................            33
  Allowance for doubtful accounts .............            40
  Vacation accrual ............................            42
  Product liability reserve ...................            85
  263(a) costs ................................            17
                                                         ----
                                                         $267
                                                         ====

Non-current deferred tax liabilities:
  Deferred DISC income ........................          $554
  Excess tax depreciation .....................            34
                                                         ----
                                                         $588
                                                         ====
</TABLE>

        On December 17, 1998, the Company received a Notice of Deficiency for
$70,316 from the Internal Revenue Service (IRS) for federal income taxes for the
calendar year 1993. In its 1993 federal tax return the Company carried back a
loss to recover taxes paid in 1990. The IRS determined that in its 1993 federal
tax return the Company should have included as taxable income de-posits received
on sales that were delivered and installed in 1994 and included by the Company
in its 1994 federal tax return.



                                       35
<PAGE>   36

Based on the advice of its tax accountants and legal counsel, the Company
disputed the entire amount of the deficiency. Subsequent events, and the high
cost to defend the Company's position in court, resulted in the Company agreeing
to amend its 1993 and 1994 federal tax returns and the payment of $65,117 in
taxes for 1993, plus interest of $47,456, in February 2000. The Company will be
able to recover that amount by carrying forward an additional loss of $65,117
from its 1994 federal tax return to its 1996 federal tax return, which will be
amended. The interest paid the IRS is deductible in the Company's 1999 federal
tax return.

        The Company has a net operating loss carryforward of $192 thousand as a
result of the changes made to its 1993 and 1994 federal tax return by the
Internal Revenue Service. That loss will be used by amending the Company's 1996
federal tax return.


Note 5 - Common Stock:

        The Company's Stock Option Plan permits issuance of stock options to key
employees at prices not less than 100% of market price at the date of grant. An
aggregate of 600,000 shares of common stock is reserved in connection with this
Plan. As of December 31, 1999, no options have been granted under this Plan.


Note 6 - Commitments and contingencies:

        In February 2000, a product liability claim went to trial in the state
of New York for a worker injured operating one of the Company's presses in 1993.
The plaintiff claimed he injured his hand while doing routine maintenance on a
press manufactured by the Company because the press did not have adequate
guarding. The jury found in favor of the plaintiff and awarded him $4,828,805.
The jury held the Company 63 percent responsible for the injury and the Company,
therefore, must pay $3,042,147 of the judgement. The Company's product liability
insurance for 1993 will pay $1 million of the judgement. The balance of
$2,042,147, is the responsibility of the Company.

        On March 18, 2000, the Company, the insurance carrier, and the New York
State Insurance Fund, whom was a third party defendant, agreed to pay the
plaintiff $1,500,088, and the plaintiff agreed to a general release and
discharge of all claims and judgements against the Company. The Company's
product liability insurance carrier will pay $1 million; the New York State
Insurance Fund will pay $240,088; and the Company will pay $100 thousand on or
before 40 days from the date of the release, and an additional $160 thousand
payable in monthly payments of $2,026.81 for 10 years commencing May 1, 2000. To
cover the settlement, a $260 thousand expense is included in general and
administrative expense in the statement of operations for 1999, and accrued
expenses in the balance sheet.



                                       36
<PAGE>   37

        The Company has an agreement granting it the exclusive right to
manufacture and sell in the United States and most other countries printing
equipment designed by Color Impact International, Inc. The grantor may purchase
the equipment from the Company and resell it in Russia and China. Another
company has the exclusive right to manufacture and sell the equipment in India.
The agreement commenced on August 17, 1998, and is for a period of 10 years. It
requires the Company to pay Color Impact International, Inc. a license fee equal
to 7 percent of the gross selling price for the equipment. The minimum license
fee is $70 thousand in any 12-month period from the commencement date. The
Company may enhance or modify the equipment and commingle it with equipment of
its own design.

        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 2003, and includes a five-year renewal option. The total monthly
payment is $16,155.

        Rental expense was $212 thousand in 1999 and $169 thousand in 1998.

        Remaining minimum rental commitments are as follows:

<TABLE>
<CAPTION>
                                            (Dollars in Thousands)
                      <S>                   <C>
                      2000..................          $194
                      2001..................           194
                      2002..................           194
                      2003..................           173
                                                      ----
                                                      $755
                                                      ====
</TABLE>

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 53.1% of total sales in
1999 and 26.2% in 1998. 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:

<TABLE>
<CAPTION>
                                                 (Dollars in Thousands)
                                                 Year Ended December 31,
                                                 -----------------------
                                                    1999         1998
                                                   ------       ------
        <S>                                        <C>          <C>
        Europe                                     $4,095       $1,441
        Western Hemisphere                          1,616          679
                                                   ------       ------
                                                   $5,711       $2,120
                                                   ======       ======
</TABLE>

        The Company normally has one or more individual press sales which
account for more than 10% of revenues in a given year. It



                                       37
<PAGE>   38

is uncommon for a customer to place a large order for additional equipment in
the 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.

        During 1999, the Company had sales to one customer which, as a
percentage of total consolidated sales, was 10.8%. In 1998, the Company had
sales to two separate customers which accounted for 11.8% and 10.5% of sales.

Note 8 - 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. The Company may also
make discretionary contributions to the plan. Fees paid the administrator, plus
the Company's matching contribution, totaled approximately $31 thousand in 1999
and $7 thousand in 1998.



                                       38