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, 2001
                          ----------------------------------------------------

                                       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
                                                              ---    ---

<PAGE>

All reports during the preceding 12 months have been filed.

State issuer's revenues for its most recent fiscal year....$6,318,983.

As of February 25, 2002, 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 $253 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.....................................................  7
 3.     LEGAL PROCEEDINGS..............................................  7
 4.     SUBMISSION OF MATTERS TO A VOTE OF
        SECURITY HOLDERS...............................................  8

                                     PART II

 5.     MARKET FOR THE REGISTRANT'S COMMON STOCK
        AND RELATED SECURITY HOLDER MATTERS............................  9
 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................. 21
13.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES
        AND REPORTS ON FORM 8-K........................................ 21


                                       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 62% and 14%, respectively,
of the Company's revenues in 2001. 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.

In 2001, the Company classified its revolving line of credit with the bank as
currently payable. The loan agreement with the bank matures on June 1, 2003;
however, on December 21, 2001, the bank accelerated the indebtedness, demanding
payment in full by or before January 7, 2002. The Company notified the bank that
it was unable to repay the loan by that date. The bank has taken no further
action.

                                       4
<PAGE>

(B)  Financial Information About Segments

See Note 8 of Notes to Consolidated Financial Statements for information about
the Company's operations by segment and geographic area for the years ended
December 31, 2001 and 2000.


(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.

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

                                       5
<PAGE>

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 36-inch wide rolls of
paper and is used in conjunction with the perfector and Quadra-Color units. The
base rollstand holds two 42-inch diameter rolls of paper. A larger rollstand
that holds two 52-inch diameter rolls of paper is also available. 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 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

                                       6
<PAGE>

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 2001, $383 thousand was expended for research and development
compared to $477 thousand in 2000.

Total employment of approximately 39 persons as of December 31, 2001 compares
with approximately 55 at December 31, 2000.

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
2001 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 30.6% of total sales in 2001 and 42.3% in 2000. Further financial
information relating to foreign operations for the two years ended December 31,
2001, is set forth in Note 8 (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 St. Cloud, Minnesota; Blue

                                       7
<PAGE>

Springs, Missouri; and Charlotte, North Carolina. The Company has domestic sales
agents in Mystic, Connecticut and Tracy, California.

ITEM 3.   LEGAL PROCEEDINGS

There are no 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>

                                     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 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.

                              2001                         2000
                              ----                         ----
    Quarter             High       Low                High      Low
    -------             ----       ---                ----      ---

    First             $.28125    $.28125             $.406     $.375
    Second             .28125     .15                 .375      .344
    Third              .20        .15                 .48       .281
    Fourth             .20        .10                 .375      .281

The Company has paid no dividends during the two years ended December 31, 2001.

(B)  Approximate Number of Holders of Common Stock

The number of holders of record for the Company's common stock as of February
28, 2002 was 505.

                                       9
<PAGE>


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

                             2001 Compared With 2000
                             -----------------------

Total sales were $6.319 million in 2001, a decline of 41 percent from total
sales of $10.717 million in 2000. Most of the decrease was in new equipment
sales which were $3.937 million in 2001, a decline of $4.969 million from 2000
sales of $8.907 million. Both domestic and international new equipment sales
declined, decreasing 48.6 percent and 64.5 percent, respectively. Parts sales in
2001 were down 2.8 percent; while used equipment sales increased 228 percent.
The table below compares domestic, international and total sales by category for
2001 with 2000:

                          (Dollars in Thousands)
              Domestic       International         Total
              --------       -------------         -----
           2001     2000     2001     2000     2001     2000
           ----     ----     ----     ----     ----     ----
 New      $2,511   $4,886   $1,426   $4,021   $3,937   $ 8,907
 Used        844      175       39       94      883       269
 Parts &
  Service  1,031    1,120      468      421    1,499     1,541
          ------   ------   ------   ------   ------   -------

 Total    $4,386   $6,181   $1,933   $4,536   $6,319   $10,717
          ======   ======   ======   ======   ======   =======

Fewer presses were purchased industry-wide in 2001 than 2000 because of rising
uncertainty about the economy and future advertising revenue by newspapers and
commercial printers. Advertising revenues for newspapers started declining in
late 2000 and has continued to decline for the past 18 month. At the same time,
the paper mills lowered newsprint production resulting in higher newsprint
prices. Newsprint is the largest variable production cost printers incur. Press
sales have been declining since the fourth quarter of 2000 as a direct result of
the decline in advertising and higher newsprint prices. The Company's sales in
all four quarters of 2001 were lower compared with sales in the corresponding
quarters in 2000.

Cost of sales, as a percentage of sales, was 91.8 percent in 2001. In 2000, it
was 76.8 percent. The gross profit margin on new equipment sales decreased to
16.5 percent in 2001 from 28.7 percent in 2000. The decrease was caused by
abnormal warranty costs in 2001 to replace a bearing in the field at several
installations and by severe price-cutting by its competitors. A different type
of bearing is being used now that has not failed in the field. In 2002, used
equipment sales contributed a gross profit of $127 thousand compared with a
gross loss of $4 thousand in 2000. Cost of sales included a write-down for
obsolete parts

                                       10
<PAGE>

and certain equipment of $38 thousand in 2001 compared with a $68 thousand
write-down in 2000. Research and development expenses, primarily to design and
manufacture a new higher-speed folder and for enhancements to the Quad-Stack
four-color perfector, were $383 thousand in 2001. In 2000, research and
development costs were $477 thousand.

Selling, general and administrative expense declined $336 thousand, or 17.5
percent in 2001 from 2000. In 2001, selling expense decreased $117 thousand, and
administrative expense decreased $219 thousand compared with 2000 expenses. The
Company spent $49 thousand attending domestic tradeshows and $69 thousand
attending international tradeshows in 2001, compared with $130 thousand and $180
thousand in 2000, respectively. Advertising expense was $189 thousand in 2001
and $157 thousand in 2000. In 2001, the company spent $55 thousand to develop a
new sales prospect system. Commission expense was $58 thousand in 2001 and $110
thousand in 2000. Administrative payroll costs were $370 thousand in 2001; a
decline of $74 thousand from 2000 expense as a result of reduced staffing and
transfers to other departments. Actual bad debts in 2001 resulted in a benefit
of $43 thousand compared with an expense of $63 thousand in 2000. Professional
service fees were $61 thousand and $91 thousand in 2001 and 2000, respectively.

Interest expense increased $7 thousand in 2001 from 2000. The average interest
rate on the Company's revolving lines of credit with the bank were 7.1 percent
in 2001 compared with 9.3 percent in 2000. The average borrowings from the bank
were $2.308 million in 2001 and $1.852 million in 2000. The lowering of interest
rates by the Federal Reserve Bank in 2001 caused the lower average interest
rate. The Company's operating losses during the year caused the higher average
borrowing in 2001.

The Company had a loss of $1.322 million from operations and a net loss of $879
thousand in 2001. There is a bright spot within these disappointing numbers and
that is that the Company had earnings of $195 thousand from operations and net
earnings of $122 thousand in the fourth quarter of 2001. In 2000, the Company
had an operating profit of $342 thousand and net earnings of $235 thousand.

                             2000 Compared With 1999
                             -----------------------

Sales in 2000 were $10.717 million, a decrease of $977 thousand from 1999 sales
of $11.694 million. New press sales decreased $583 thousand to $8.907 million in
2000, a 6.1 percent decrease from 1999 sales of $9.490 million. Domestic sales
of new equipment were $4.886 million in 2000, $974 thousand higher than 1999

                                       11
<PAGE>

sales of $3.912 million. However, international sales of new equipment declined
to $4.020 million from 1999 sales of $5.576 million, a decrease of $1.557
million. The Company believes the strength of the dollar compared with other
currencies, combined with slower economic growth, caused the decline in
international sales. Used equipment sales were $269 thousand in 2000 and $799
thousand in 1999. Revenues from the sales of replacement parts and service were
$1.542 million in 2000, an increase of $136 thousand from 1999 sales of $1.406
million.

The gross profit margin on total sales was 23.3 percent in 2000, compared with
19.4 percent in 1999. The gross profit margin on new equipment sales and parts
sales both increased in 2000 from 1999. New equipment sales, which amounted to
83.1 percent of total sales in 2000, had a gross profit of 28.7 percent in 2000
compared with 26.4 percent in 1999. Used equipment sales contributed a gross
loss of $4 thousand in 2000. In 1999, used equipment sales resulted in a gross
profit of $88 thousand. In 2000, cost of sales included a write-down of $68
thousand for obsolete parts and certain equipment, compared with a write down of
$102 thousand in 1999. Research and development expenses were $477 thousand in
2000 and $503 thousand in 1999. Engineering costs in 2000 included the
internalization of electrical design work, design and development of a 52-inch
diameter rollstand, interlocks for the press guards, and preliminary design work
to help analyze features and cost for a contemplated new product line.

Selling, general and administrative expense declined $177 thousand, or 8.5
percent, in 2000 from 1999. In 2000, selling expenses increased $78 thousand,
and administrative expenses decreased $255 thousand. Advertising expense
increased $100 thousand in 2000 from 1999. The Company spent $180 thousand
attending international trade shows and $130 thousand attending domestic trade
shows in 2000, compared with $78 thousand and $109 thousand in 1999,
respectively. Offsetting this increase was $16 thousand less in advertisements
in trade publications. Commission expense decreased $28 thousand in 2000 from
1999 due to lower sales. In 1999, administrative expenses included a $250
thousand charge for a product liability claim settled in March 2000. In 2000,
administrative payroll costs increase $44 thousand from 1999. The Company
accrued $63 to bad debt expense in 2000, compared with $113 thousand in 1999.

Interest expense decreased $30 thousand in 2000 from 1999. 1999 interest expense
included $47 thousand in interest to the Internal Revenue Service for a tax
deficiency in the Company's 1993 tax return. The average interest rate on the
Company's revolving lines of credit with the bank were 9.3 percent in 2000,
compared with 8.6 percent in 1999. The average borrowings from the bank

                                       12
<PAGE>

were $1.852 million in 2000 and $1.841 million in 1999. The higher average
interest rate in 2000 was caused by the higher prime rate being charged by the
bank as a result of several interest rate increases by the Federal Reserve Bank.

The Company had pre-tax earnings of $342 thousand and net earnings of $268
thousand in 2000. In 1999, the Company had a pre-tax loss of $89 thousand and a
net loss of $61 thousand.

                                      2002
                                      ----

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.

We do see indications that the recession is easing, but we doubt that more
normal market conditions will return until 2003. Many newspaper analysts are
projecting stagnant to a 1.6 percent decline in newspaper advertising for 2002
(Presstime, January 2002, page 25). If they are correct, and the Company's
management believes they are, the number of orders placed for printing presses
in 2002 will continue to be below normal levels, resulting in aggressive
competition and severe price cutting for most orders.

Most of the Company's press sales in 2001 consisted of adding four-color models
to operating press installations. We expect that trend to continue in 2002 with
newspapers adding more color pages to their papers to attract advertisers and
please their readers. The Company's Quad-Stack model is ideal for this
application. The market for the Quad-Stack is essentially every four-page press
installation extant. Since the introduction of the Quad-Stack in August 1998,
approximately 50 percent of the units shipped have been installed with
competitive manufacturers equipment.

The Company expects that trend to continue in 2002 and believes its market share
will increase, too. To help accomplish this, the Company has transferred the
production of certain labor-intensive parts to either China or India. This has
allowed the Company to lower its selling price and become very competitive
price-wise. The Company retained PacSys Inc. to develop a sophisticated database
and prospect system and too manage its sales. Since November the new prospect
system has resulted in 3 sales to newspapers the Company previously had not
contacted. The Company has added 11 new, well-qualified, international agents in
recent months, and hired 2 new domestic salesmen. The Company will ship the new
higher-speed folder to a test site in the second quarter of 2002. A higher-speed
perfector will follow!

                                       13
<PAGE>

LIQUIDITY

Net working capital was $2.198 million and the current ratio was 1.7:1 on
December 31, 2001. Changes in working capital components include a decrease in
accounts receivable of $205 thousand; inventories decreased $716 thousand;
accounts payable declined $118 thousand; customers deposits increased $33
thousand; accrued expenses decreased by $254 thousand; and refundable income
taxes increased by $88 thousand. Net cash used for operations was $616 thousand
in 2001.

Raw materials and parts inventories, work-in-progress, and finished goods
inventory decreased $547 thousand, $32 thousand, and $321 thousand,
respectively, in 2001 from 2000. Used equipment inventory increased $190
thousand in 2001.

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, 2001, the Company had additional borrowing capacity of $792
thousand from its $3 million line of credit. The line of credit had an original
maturity of June 1, 2003; however, it has been called by the bank as described
below.

A covenant of the business loan agreement with the bank requires the Company to
maintain earnings before interest, taxes, and depreciation and amortization
divided by interest expense of a least 2:1. The Company has been in violation of
that covenant since March 31, 2001. On September 18, 2001, the bank notified the
Company that . . . "Based on Web's lack of performance (in 2001) and its
financial condition, KeyBank has elected to sever its financial relationship
with Web." On December 21, 2001, KeyBank accelerated the indebtedness due and
owing the bank and demanded payment in full by or before January 7, 2002. The
Company notified the bank that it was unable to repay the loan by that date. The
bank has not exercised the remedies available to it in the loan agreement and
continues to honor its obligations to the Company, allowing the Company to
operate normally. The Company has contacted several other banks and believes
that if it operates profitably during the first six months of 2002 it will be
able to arrange financing with another bank.

CAPITAL RESOURCES

Total assets decreased $809 thousand from December 31, 2000, to $6.266 million
on December 31, 2001. In 2001, stockholders' equity decreased by $879 thousand;
working capital decreased by $2.522 million; non-current deferred income taxes
decreased by

                                       14
<PAGE>

$249 thousand; and long-term debt (excluding the long-term revolving line of
credit in 2000) decreased by $26 thousand.

Long-term financing in the form of secured notes is used to acquire
manufacturing equipment. The Company incurred $24 thousand of new long-term debt
in 2001.

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 works 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 realized that if underlying
assumptions proved inaccurate or that 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.

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.

                                       15
<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                      53


E. P. Beierlorzer         Vice President of Engineering               62
                            and Director

R. G. Mercer              Vice President of Manufacturing             60
                            and Director

R. B. Thompson            Vice President of Technical                 61
                            Services and Director

A. W. White               Vice President of Purchasing                47
                            and Director

R. M. Sprague             Director                                    62

P. F. Dunn                Director                                    53

C. L. Mathison            Vice President of Finance                   59
                            and Secretary/Treasurer

G. C. Knutzen             Director                                    55


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.

                                       16
<PAGE>

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. 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.

                                       17
<PAGE>

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. He still consults part-time on financial and
accounting matters.

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 2000 was $10,500. 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 2001 and 2000. Fees paid the administrator, plus
the company's matching contribution, totals approximately $22 thousand in 2001
and $33 thousand in 2000.


                                       18
<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION

The following table sets forth the aggregate total cash compensation accrued
during the fiscal years ended December 31, 2001, 2000, and 1999 for the chief
executive officer of the Company.

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

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

G.B. Palmer            2001     86,292     2,099          0              0
President/             2000     95,000     2,392          0              0
General Manager        1999     85,625     1,317          0              0


The officers and directors are under no formal compensation agreements.

During 2001, 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 28, 2002, 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:

                                                                      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%
14409 - 151 Pl. SE
Renton, WA  98056

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

                                       19
<PAGE>



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

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 (9 persons)                 2,169,600                      79.99%

*  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.

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


                                       20
<PAGE>

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, 2001.

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, 2001, the Company purchased
parts costing $83,622 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 representation agreement between Web Press Corporation
                and PacSys Inc. dated August 27, 2001.

                                       21
<PAGE>

          (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, 2001.


                                   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 20, 2002                          By: /s/ Gary B. Palmer
                                            --------------------------
                                            Gary B. Palmer
                                            President and Chairman
                                            of the Board


March 20, 2002                          By: /s/ Craig L. Mathison
                                            --------------------------
                                            Craig L. Mathison
                                            Vice President of Finance
                                            (Principal Accounting
                                            Officer)

                                       22
<PAGE>

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 20, 2002
----------------------------------
Gary B. Palmer
President and Chairman
of the Board


/s/ Edwin P. Beierlorzer                       March 20, 2002
----------------------------------
Edwin P. Beierlorzer
Vice President of Engineering
and Director


/s/ Rolynn G. Mercer                           March 20, 2002
----------------------------------
Rolynn G. Mercer
Vice President of Manufacturing
and Director


/s/ Roy B. Thompson                            March 20, 2002
----------------------------------
Roy B. Thompson
Vice President of Technical Services
and Director


/s/Alan W. White                               March 20, 2002
----------------------------------
Alan W. White
Vice President of Purchasing
and Director


/s/ Rufus M. Sprague                           March 20, 2002
----------------------------------
Rufus M. Sprague
Director


/s/ Patrick F. Dunn                            March 20, 2002
----------------------------------
Patrick F. Dunn
Director


/s/ Gerald C. Knutzen                          March 20, 2002
----------------------------------
Gerald C. Knutzen
Director

                                       23
<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...........................................    25
  Balance Sheet as of December 31, 2001...................    27
  Statements of Operations for each of the two
    years ended December 31, 2001.........................    29
  Statements of Stockholders' Equity for each of
    the two years ended December 31, 2001.................    29
  Statements of Cash Flows for each of the two
    years ended December 31, 2001.........................    31
  Notes to Consolidated Financial Statements..............    33



                                       24
<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, 2001,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the two years then ended. 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, 2001, and the consolidated results
of their operations and their consolidated cash flows for each of the two years
then ended, in conformity with accounting principles generally accepted in the
United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 2 of the
financial statements, the Company has suffered a significant loss from
operations and the Company's bank has accelerated the indebtedness due and owing
the bank on June 1, 2003, and demanded payment. These factors, among others, as
discussed in note 2 to the financial statements, raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in note 2. The accompanying financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.


/s/ Grant Thornton LLP

Seattle, Washington
March 7, 2002



                                       25
<PAGE>

                              WEB PRESS CORPORATION

                           CONSOLIDATED BALANCE SHEET
                             (Dollars in Thousands)


ASSETS                                          December 31, 2001
                                                -----------------

Current Assets:
Cash ...........................................    $   --
Accounts receivable, less allowance for
  doubtful accounts of $36 (Note 4) ............     1,149
Inventories (Notes 3 and 4) ....................     3,821
Deferred tax assets (Note 5) ...................       308
Refundable income taxes (Note 5) ...............       137
Deposits .......................................        57
Prepaid expenses ...............................        58
                                                    ------

Total Current Assets ...........................     5,530

Machinery and Leasehold Improvements,
   at cost (Notes 3 and 4):
 Machinery and equipment .......................     3,611
 Leasehold improvements ........................       230
                                                    ------
                                                     3,841

 Less accumulated depreciation
  and amortization .............................     3,105
                                                    ------

Machinery and Leasehold Improvements (Net) .....       736
                                                    ------

Total Assets ...................................    $6,266
                                                    ======



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

                                       26
<PAGE>

                              WEB PRESS CORPORATION

                           CONSOLIDATED BALANCE SHEET
                             (Dollars in Thousands)


LIABILITIES AND STOCKHOLDERS'                December 31, 2001
                                             -----------------
EQUITY

Current Liabilities:
Accounts payable ...........................    $   351
Customer deposits ..........................        105
Accrued expenses ...........................        618
Current portion of long-term debt (Note 4) .      2,258
                                                -------

Total Current Liabilities ..................      3,332

Long-Term Debt, less current
  portion (Note 4) .........................        202

Deferred tax liabilities (Note 5) ..........        449

Commitments (Note 7)                                 --

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 .....................      1,974
                                                -------
                                                  2,380

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

Total Stockholders' Equity .................      2,283
                                                -------

Total Liabilities and Stockholders' Equity .    $ 6,266
                                                =======


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

                                       27
<PAGE>

                              WEB PRESS CORPORATION

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


                                       Year Ended December 31,
                                       -----------------------
                                          2001         2000
                                          ----         ----
Sales (Note 8) .....................    $  6,319     $ 10,717
Cost of sales ......................       5,816        8,225
                                        --------     --------
                                             503        2,492

Selling, general and
  administrative expenses (Note 7) .       1,580        1,916
                                        --------     --------
                                          (1,077)         576

Other income .......................           3            7
Interest expense ...................        (248)        (241)
                                        --------     --------
                                            (245)        (234)
                                        --------     --------
Earnings (loss) before taxes .......      (1,322)         342

Taxes (benefit) on earnings (loss)
  (Note 5) .........................        (443)         107
                                        --------     --------

Net earnings (loss) ................    $  (879)  $       235
                                        ========     ========

Basic and diluted earnings (loss)
  per share ........................    $   (.28)    $    .08
                                        ========     ========


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


                                       29
<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, 2000         3,436,513       $       86       $      (97)      $      320      $    2,618

Net earnings for the year                                                                                 235
                                ----------       ----------       ----------       ----------      ----------

Balance, December 31, 2000       3,436,513               86              (97)             320           2,853

Net loss for the year                                                                                    (879)
                                ----------       ----------       ----------       ----------      ----------

Balance, December 31, 2001       3,436,513       $       86       $      (97)      $      320      $    1,974
                                ==========       ==========       ==========       ==========      ==========
</TABLE>


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



                                       30
<PAGE>

                              WEB PRESS CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                                                     -----------------------

                                                                        2001        2000
                                                                        ----        ----
<S>                                                                   <C>          <C>

Cash flows from operating activities:
  Net earnings (loss) ...........................................     $  (879)     $   235
  Adjustments to reconcile net
   earnings (loss) to net cash
   provided (used) by operating
   activities:
     Depreciation and amortization ..............................         150          156
     Provision for losses on accounts
       receivable ...............................................        (110)          28
     Inventory valuation reserve ................................          46            8
     Deferred taxes .............................................        (282)         103
     Gain from retirement of
       plant assets .............................................          --           (1)

  Increase (Decrease) in cash from changes in operating accounts:
     Accounts receivable ........................................         205        1,478
     Refundable income taxes ....................................         (88)          16
     Inventory ..................................................         716         (328)
     Deposits ...................................................         (24)         102
     Prepaid expenses ...........................................         (11)          (3)
     Accounts payable ...........................................        (118)        (206)
     Customer deposits ..........................................          33         (128)
     Accrued expenses ...........................................        (254)      (1,182)
     Income taxes payable .......................................          --         (135)
                                                                      -------      -------


     Total adjustments ..........................................         263          (92)
                                                                      -------      -------

  Net cash provided (used) by operating
    activities ..................................................        (616)         143

Cash flows from investing activities:
  Capital expenditures ..........................................         (42)         (76)
  Proceeds from retirement of plant
    assets ......................................................          --            1
                                                                      -------      -------

     Net cash used in investing activities ......................         (42)         (75)
</TABLE>

(Continued on following page)

                                       31
<PAGE>

(Continued from previous page)

Cash Flows from financing activities:
     Proceeds from issuance of
        long-term debt ..............................        24        160
     Payments on long-term debt .....................       (45)       (38)
     Net borrowings (payments) on short-
        term line of credit .........................        --       (172)
     Net borrowings (payments) on
       long-term line of credit .....................       679        (18)
                                                          -----      -----

     Net cash provided (used) by
       financing activities .........................       658        (68)
                                                          -----      -----

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 .......................................     $ 240      $ 289
     Taxes ..........................................         1        171

Non-cash investing and financing activities:

     Inventory transferred to (from) leased equipment       (52)        52


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


                                       32
<PAGE>

                              WEB PRESS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        TWO YEARS ENDED DECEMBER 31, 2001


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 - Uncertainties:

     The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss of $879 thousand in 2001. Due to the Company's
losses during 2001, on December 21, 2001, the bank accelerated the indebtedness
due and owing the bank on June 1, 2003, demanding payment in full by or before
January 7, 2002. The Company notified the bank that it was unable to repay the
loan by that date. There has been no further action by the bank.

     The bank has not exercised any other remedies available to it in the loan
agreement and continues to honor its obligations to the Company. The Company has
contacted several other commercial banks and lenders about its financing needs.

     The Company's backlog of firm orders at any point in time is not sufficient
to meet a full year's operating needs. It is management's belief that sufficient
orders will continue to be re-

                                       33
<PAGE>

ceived from domestic and foreign markets, along with additional financing, to
meet liquidity requirements in the upcoming year.

     The Company is attempting to cure the loan covenant violation of the bank
loan agreement. If it is unable to do so, it will attempt to restructure its
debt facility with the bank, converting part of the loan to long-term debt.
Concurrently, the Company is discussing with other banks and commercial lenders
refinancing its debt. The Company believes it will be able to obtain new
financing if it operates profitably during the first six months of 2002;
however, there can be no assurance that this will occur. Likewise, new financing
may not be available in a sufficient amount or on acceptable terms even if the
Company operates profitably in the first six months of 2002.

     The accompanying financial statements do not include any adjustments that
might result from the outcome of this uncertainty.

Note 3 - 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, 2001:

                                          (Dollars in Thousands)

         Raw materials and parts
         (including subassemblies)........      $1,475
         Work-in-progress.................       1,233
         Finished goods...................         665
         Used equipment...................         448
                                                ------
                                                $3,821
                                                ======


                                       34
<PAGE>

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, 2001
and 2000 were $383 thousand and $477 thousand, respectively.

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, 2001 and 2000 were $190 thousand
and $156 thousand, respectively. In 2001, advertising cost include $9 thousand
for a direct-response mail campaign.

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

     Revenue from sales of manufactured products under firm contracts is
recognized generally at the time the 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 accrued at the time of sale.
Proceeds received on contracts prior to recognition as a sale are recorded as
deposits.


                                       35
<PAGE>

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 2001 and 2000.

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.

Recently issued accounting standards
------------------------------------

     In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 141 Business Combinations. SFAS 141
applies to all business combinations initiated after September 30, 2001. The
statement also applies to all business combinations accounted for using the
purchase method for which the date of acquisition is July 1, 2001, or later. The
adoption of SFAS 141 did not have an impact on the Company's financial
statements.

     In June 2001, the Financial Accounting Standards Board issued SFAS No. 142,
Goodwill and Other Intangible Assets. The provisions of SFAS 143 are required to
be applied starting with fiscal years beginning after December 15, 2001, with
earlier application permitted for entities with fiscal years beginning after
March 15, 2001, provided that the first interim financial statements have not
been previously issued. The statement is required to be applied at the beginning
of the entity's 2002 fiscal year and will be applied to all goodwill and other
intangible assets recognized in the Company's financial statements. The Company
is currently evaluating the potential affect of the initial application of SFAS
142, if any.

     In October 2001, the Financial Accounting Standards Board issued SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS 144
supersedes SFAS 121, Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to Be Disposed Of, and Accounting Principles Board (APB)
Opinion No. 30, Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary,

                                       36
<PAGE>

Unusual and Infrequently Occurring Events and Transactions, for segments of a
business to be disposed of. SFAS 144 is effective for fiscal years beginning
after December 15, 2001. The Company is currently evaluation the potential
effect of the initial application of SFAS 144 on its financial statements, if
any.

Note 4 - Financing:

     The Company has a revolving line of credit with a commercial bank for
borrowing up to $3 million. Borrowings against this line were $2.208 million on
December 31, 2001. The loan originally matured on June 1, 2003; however,
borrowings as of December 31, 2001 are included within the current portion of
debt on the balance sheet because the Company is in violation of a loan covenant
of the business loan agreement with the bank that requires the Company to
maintain earnings before interest, taxes, and depreciation and amortization
divided by interest expense of at least 2:1. The interest rate charged is the
bank's prime rate, plus a 3 percent loan covenant violation penalty. The rate
was 7.75 percent on December 31, 2001. Accounts receivable, firm orders in
production, inventories, and values in excess of the long-term financing on
equipment are pledged as collateral.

     The Company first breached the bank loan covenant on March 31, 2001. On
September 18, 2001, the bank notified the Company that because the Company
continued to be in default of the covenant and . . ."Based on Web's lack of
performance (in 2001) and its financial condition, KeyBank has elected to sever
its financial relationship with Web." On December 21, 2001, KeyBank accelerated
the indebtedness due and owing the bank on June 1, 2003, and demanded payment in
full by or before January 7, 2002. The Company notified the bank that it was
unable to repay the loan by that date. The bank has not exercised any of the
other remedies available to it in the loan agreement.

         Long-term debt consists of the following:

                                              (Dollars in Thousands)
                                                December 31, 2001

Revolving line of credit........................     $2,208

Note payable, 9%, due in monthly
installments of $2,027 including
interest.  Final payment
due April, 2010.................................        142

(Continued of the following page)


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<PAGE>


(Continued from the previous page)

Note payable for equipment, 9.3%,
due in monthly installments of $2,198
including interest.  Final payment due
in March, 2004..................................         53

Note payable for equipment, 8.97%, due in
monthly installments of $1,124 including
interest. Final payment due in March, 2003......         33

Note payable for equipment, 9%, due in
monthly installments of $492 including
interest.  Final payment due in November,
2006............................................         24
                                                    -------
                                                      2,460

Less current portion............................      2,258
                                                    -------

                                                    $   202
                                                    =======

     Equipment with an original cost of $215 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:

                                              (Dollars in Thousands)
                  2002                               $2,258
                  2003                                   54
                  2004                                   35
                  2005                                   21
                  2006                                   22
                  Thereafter                             70
                                                     ------

                                                     $2,460
                                                     ======

     The estimated fair value of long-term debt approximates carrying value at
December 31, 2001, based on the borrowing rates currently available to the
Company for bank loans with similar terms and average maturities.


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<PAGE>

Note 5 - Income Taxes:

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

                                     (Dollars in Thousands)
                                     Year Ended December 31,
                                     -----------------------
                                      2001          2000
                                      ----          ----

Current tax expense(benefit)         $(160)        $  26
Deferred taxes                        (283)           81
                                     -----         -----

                                     $(443)        $ 107
                                     =====         =====

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

                                     (Dollars in Thousands)
                                     Year Ended December 31,
                                     -----------------------
                                      2001          2000
                                      ----          ----
Taxes (benefit) at statutory rate    $(450)        $ 117
Permanent difference                     4             5
Other                                    3           (15)
                                     -----         -----

                                     $(443)        $ 107
                                     =====         =====

     The components of deferred taxes included in the balance sheet as of
December 31, 2001, are as follows:

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

Current deferred tax Assets:
  NOL tax carry-forward...........                   $ 98
  Inventory valuation reserve.....                     55
  Warranty reserve................                     33
  Allowance for doubtful accounts.                     12
  Vacation accrual................                     46
  Product liability reserve.......                     45
  263(a) costs....................                     19
                                                     ----

                                                     $308
                                                     ====

Non-current deferred tax liabilities:
  Deferred DISC income............                   $369
  Excess tax depreciation.........                     80
                                                     ----

                                                     $449
                                                     ====

     The Company has a net operating loss carry-forward of $287 thousand that
expires in 2016.

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<PAGE>

Note 6 - 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, 2001, no options have been granted under this Plan.

     On June 22, 2001, the board of directors approved, contingent upon
shareholder approval, issuing options to PacSys Inc. (PacSys) that could be used
to purchase up to 775,000 shares of the Company's common stock. As described in
Note 7, the Company and PacSys signed a marketing and sales representation
agreement on August 27, 2001,that could result in granting stock options to
PacSys if the Company achieves certain sales levels. If the options are granted
and subsequently exercised, the Company's treasury stock and additional shares
of the Company's common stock already authorized by the Company's articles of
incorporation, would be issued to PacSys. If granted, the options must be
exercised within 24 months from the date of issue. The exercise price is $.75
per share. As of December 31, 2001, the Company's sales had not reached the
sales level required to grant options to PacSys, and the Company's stockholders
had not approved the option agreement.

Note 7 - Commitments and contingencies:

     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.

     On August 27, 2001, the Company and PacSys Inc. (PacSys) signed a marketing
and sales agreement authorizing PacSys to direct the Company's marketing
programs, negotiate sales with domestic prospects and international agents, and
supervise the Company's domestic sales force. PacSys is a marketing and sales
company specializing in the graphics arts industry. PacSys receives a commission
of 6.5 percent for sales of the Company's equipment and a 2 percent commissions
for sales of auxiliary equipment with at least a 10 percent gross profit to
certain states in the Northeast United States, plus a management fee for all
sales of new and used equipment of 2 to 2.5 percent. Addi-

                                       40
<PAGE>

tionally, new and used equipment sales with a gross margin of at least 30
percent receive a 25 percent bonus in the Northeast territory and 10 percent for
all other sales. Both PacSys and the Company must give the other party six
months written notice to terminate the agreement.

     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 2001 and $215 thousand in 2000.

     Remaining minimum rental commitments are as follows:

                                 (Dollars in Thousands)
           2002...............           $194
           2003...............            173
                                         ----

                                         $367
                                         ====

Note 8 - 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 30.6% of total sales in
2001 and 42.3% in 2000. 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,
                                             -----------------------
                                              2001            2000
                                              ----            ----

         Europe                              $  260          $2,265
         Western Hemisphere                   1,205           1,014
         Asia                                     -             913
                                             ------          ------

                                             $1,465          $4,192
                                             ======          ======

     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 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.

                                       41
<PAGE>

     In 2001, the Company had a sale to one customer that as a percentage of
total consolidated sales accounted for 11.8% of total sales. During 2000, the
Company did not have sales to any customer that, as a percentage of total
consolidated sales, was greater than 10%.

Note 9 - 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 2001 and 2000.
Fees paid the administrator, plus the Company's matching contribution, totaled
approximately $22 thousand in 2001 and $33 thousand in 2000.

Note 10 - 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 21, 2001 and 2000, the Company purchased parts costing
approximately $84 thousand and $132 thousand, respectively.





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