UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period
ended September 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition
period from ____________ to ____________
Commission File No. 1-8250
WELLS-GARDNER ELECTRONICS CORPORATION
(Exact name of registrant as specified in its charter)
ILLINOIS 36-1944630
(State or other jurisdiction of
incorporation or organization) (IRS Employer Identification No.)
2701 North Kildare Avenue, Chicago, Illinois 60639
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (773) 252-8220
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO
As of November 4, 1996, 4,066,176 shares of the Common Stock, $1.00
par value of the registrant were outstanding.
<PAGE>
WELLS-GARDNER ELECTRONICS CORPORATION
FORM 10-Q
Quarter Ended September 30, 1996
PART I - FINANCIAL INFORMATION
Item 1.
Condensed Statements of Earnings (Unaudited)
- Three Months Ended September 30, 1996 & 1995
Condensed Statements of Earnings (Unaudited)
- Nine Months Ended September 30, 1996 & 1995
Condensed Balance Sheets
- September 30, 1996 (Unaudited) & December 31, 1995 (Audited)
Condensed Statements of Cash Flows (Unaudited)
- Nine Months Ended September 30, 1996 & 1995
Notes to the Unaudited Condensed Financial Statements
Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II - OTHER INFORMATION
Item 4.
Submission of Matters to a Vote of Security Holders
Item 6.
Exhibits and Reports on Form 8-K
SIGNATURE
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WELLS-GARDNER ELECTRONICS CORPORATION
Condensed Statements of Earnings
(Unaudited)
Three Months Ended September 30,
1996 1995
<S> <C> <C>
Net sales $ 7,950,000 $ 7,842,000
Cost of sales 6,582,000 6,769,000
Engineering, selling &
administrative expenses 1,188,000 896,000
Special charge --- 886,000
Other expense, net 16,000 33,000
Total costs 7,786,000 8,584,000
Earnings (loss) before income taxes 164,000 (742,000)
Income taxes --- ---
Net earnings (loss) $ 164,000 $ (742,000)
Earnings per share:
Net earnings (loss) per share $ 0.04 $ (0.18)
Weighted average common shares
outstanding 4,065,637 4,045,295
See accompanying notes to the unaudited condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
WELLS-GARDNER ELECTRONICS CORPORATION
Condensed Statement of Earnings
(Unaudited)
Nine Months Ended September 30,
1996 1995
<S> <C> <C>
Net sales $ 27,537,000 $ 21,782,000
Cost of sales 23,204,000 18,632,000
Engineering, selling &
administrative expenses 3,727,000 3,044,000
Special charge --- 886,000
Other expense, net 26,000 68,000
Gain on sale of fixed asset --- (403,000)
Total costs 26,957,000 22,227,000
Earnings (loss) before income taxes 580,000 (445,000)
Income taxes --- ---
Net earnings (loss) $ 580,000 $ (445,000)
Earnings per share:
Net earnings (loss) per share $ 0.14 $ (0.11)
Weighted average common shares
outstanding 4,060,129 4,003,397
See accompanying notes to the unaudited condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
WELLS-GARDNER ELECTRONICS CORPORATION
Condensed Balance Sheets
(Unaudited) (Audited)
September 30, December 31,
1996 1995
<S> <C> <C> <C> <C>
Assets:
Cash & cash equivalents $ 52,000 $ 1,117,000
Accounts receivable (net) 5,193,000 3,540,000
Income tax receivable 60,000 62,000
Inventory:
Raw materials 4,374,000 5,562,000
Work in progress 1,324,000 435,000
Finished goods 2,673,000 8,371,000 2,933,000 8,930,000
Prepaids & other
current assets 189,000 375,000
Total current assets 13,865,000 14,024,000
Property, plant & equipment, net 2,444,000 2,546,000
Total assets $ 16,309,000 $ 16,570,000
Liabilities:
Accounts payable $ 2,595,000 $ 3,077,000
Accrued expenses 464,000 734,000
Total current liabilities 3,059,000 3,811,000
Long-term note payable 3,000,000 3,125,000
Total liabilities 6,059,000 6,936,000
Shareholders' Equity:
Common stock-authorized
25,000,000 shares, $1.00 par
value; 4,066,176 shares issued
as of September 30, 1996 &
4,052,676 shares issued as
of December 31, 1995 4,066,000 4,053,000
Additional paid in capital 1,153,000 1,097,000
Retained earnings 5,335,000 4,755,000
Unearned compensation (304,000) (271,000)
Total shareholders' equity 10,250,000 9,634,000
Total liabilities &
shareholders' equity $ 16,309,000 $ 16,570,000
See accompanying notes to the unaudited condensed financial statements.
</TABLE>
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<TABLE>
WELLS-GARDNER ELECTRONICS CORPORATION
Condensed Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,
1996 1995
<S> <C> <C>
Cash flows from operating
activities:
Net earnings (loss) $ 580,000 $ (445,000)
Adjustments to reconcile net
earnings (loss) to cash provided
by operating activities:
Depreciation & amortization 341,000 356,000
Gain on sale of fixed asset --- (401,000)
Amortization of unearned
compensation (33,000) 70,000
Changes in current assets &
liabilities:
Accounts receivable (1,653,000) 461,000
Income taxes (net) 2,000 267,000
Inventory 559,000 (1,671,000)
Prepaid expenses & other assets 186,000 174,000
Accounts payable (482,000) 1,644,000
Accrued expenses (270,000) (692,000)
Net cash used in operating activities (770,000) (237,000)
Cash flows from investing activities:
Additions to property, plant &
equipment (239,000) (260,000)
Proceeds from sale of fixed assets --- 601,000
Net cash provided by (used in)
investing activities (239,000) 341,000
Cash flows from financing activities:
Repayment of note payable (125,000) ---
Proceeds from note payable --- 300,000
Stock options exercised 69,000 233,000
Net cash provided by (used in)
financing activities (56,000) 533,000
Net increase (decrease) in cash & (1,065,000) 637,000
cash equivalents
Cash & cash equivalents at beginning
of period 1,117,000 57,000
Cash & cash equivalents at end of
period $ 52,000 $ 694,000
Supplemental cash flow disclosure:
Interest paid $ 181,000 $ 101,000
Taxes paid --- $ ---
See accompanying notes to the unaudited condensed financial statements.
</TABLE>
<PAGE>
Notes to the Unaudited Condensed Financial Statements
1. In the opinion of management, the accompanying unaudited condensed
financial statements contain all adjustments (consisting of normal
recurring accruals), which are necessary for a fair statement of
results for the periods presented. Certain information and footnote
disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. It is suggested that these condensed financial
statements be read in conjunction with the audited financial
statements and notes thereto included in the Company's 1995 annual
report to shareholders. The results of operations for the quarter and
nine months ended September 30, 1996 are not necessarily indicative of
the operating results for the full year.
2. Earnings per common share was calculated by dividing net earnings
by the weighted average number of shares of common stock outstanding.
3. Included in the Company's net earnings for the quarter ended
September 30, 1995 was a special charge of $886,000, or 21 cents per
share. This charge related to a warranty issue on monitors shipped to
a major customer from 1991 to 1993. This charge covered all
contingent liabilities which expired December 31, 1995. Included in
the Company's net earnings for the nine months ended September 30,
1995 was a gain of $403,000, or 10 cents per share, on the sale of
land and a building in the first quarter of 1995. The sale was closed
and title passed on March 30, 1995. The proceeds of $670,000 were put
into escrow in the Company's name and included in cash and cash
equivalents on the Company's December 31, 1995 balance sheet. The
funds were fully released to the Company during the first quarter of
1996.
4. Certain expenses relating to 1995 have been reclassified to conform
to the presentation in 1996.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
For the third quarter ended September 30, 1996, sales increased 1.4
percent to $7,950,000 from $7,842,000 in the prior year's period. This
increase was due to higher shipments to the gaming, amusement, INTRANET,
display, leisure/fitness and service segments. Gross operating profit,
as a percentage of sales, increased to 17.2 percent, or $1,368,000,
compared to 13.7 percent, or $1,073,000, for the same period last year.
This increase is attributed to the Company's aggressive programs of
increasing prices, enforcing additional charges where appropriate,
designing costs out of some specific products and entering new, higher
margin markets. Net earnings were $164,000, or four cents per share,
compared to net losses of $742,000, or 18 cents per share, for the
comparable 1995 quarter. Included in the prior year's quarter was a
charge of $886,000 or 21 cents per share for a warranty issue relating
back to 1993. Engineering, selling and administrative expenses increased
32.6 percent to $1,188,000 from $896,000 due to the increased investment
in development of new products and higher sales commissions paid based on
increased volume. The Company did not recognize any income tax expense in
the 1996 period due to the utilization of its net operating loss
carryforward.
For the nine months ended September 30, 1996, sales increased 26.4
percent to $27,537,000 from $21,782,000 in the prior year's period. This
increase was due to higher sales to all of the Company's segments. Gross
operating profit, as a percentage of sales, increased to 15.7 percent, or
$4,333,000, compared to 14.5 percent, or $3,150,000, for the same period
last year. Net earnings were $580,000, or 14 cents per share, compared
to net losses of $445,000, or 11 cents per share, for the comparable 1995
period. The 1995 results included a $403,000 or 10 cents per share gain
on the sale of fixed asset and a $886,000 or 21 cents per share special
charge for a warranty issue. Engineering, selling and administrative
expenses increased 22.4 percent to $3,727,000 from $3,044,000 due to the
increased investment in development of new products and applications and
higher sales commissions paid on higher sales volume. The Company did not
recognize any income tax expense in the 1996 period due to the
utilization of its net operating loss carryforward.
As of September 30, 1996, cash and cash equivalents decreased $1,065,000
from December 31, 1995 due to the release of $607,000 cash in escrow at
year end 1995 which was used to reduce borrowings existing under the
outstanding line of credit and fund operations. Accounts receivable
increased $1,653,000 to $5,193,000 from $3,540,000 due to a 26.4 percent
increase in sales volume. Inventory decreased $559,000 or 6.3 percent to
$8,371,000 from $8,930,000 at year end 1995 due to better management of
raw materials inventory and the Company's efforts to reduce its backlog
of orders.
As of September 30, 1996, accounts payable decreased $482,000 to
$2,595,000 from $3,077,000 at year end 1995. Accrued expenses decreased
$270,000 to $464,000 from $734,000 at year end 1995 due to certain
accrual payouts. Notes payable decreased $125,000 to $3,000,000 compared
to $3,125,000 at December 31, 1995. The Company has an unsecured
revolving line of credit of $7,000,000, with an interest rate at prime,
from Harris Trust and Savings Bank. Working capital increased by $593,000
since year-end 1995, to $10,806,000, while corporate liquidity continues
to be strong as evidenced by a current ratio of 4.53 to 1.
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits:
Exhibit 27 Financial Data Schedule
(b). Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter
ended September 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WELLS-GARDNER ELECTRONICS CORPORATION
Date: November 7, 1996 By: /s/ GEORGE B. TOMA
George B. Toma
Chief Financial Officer and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the Balance Sheet at September 30, 1996 (Unaudited) and the
Statements of Operations for the Nine Months Ended September 30,
1996 (Unaudited) and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
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<RECEIVABLES> 5,193
<ALLOWANCES> 107
<INVENTORY> 8,371
<CURRENT-ASSETS> 13,865
<PP&E> 9,604
<DEPRECIATION> 7,160
<TOTAL-ASSETS> 16,309
<CURRENT-LIABILITIES> 3,059
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0
0
<COMMON> 4,066
<OTHER-SE> 6,184
<TOTAL-LIABILITY-AND-EQUITY> 16,309
<SALES> 27,537
<TOTAL-REVENUES> 27,537
<CGS> 23,204
<TOTAL-COSTS> 26,931
<OTHER-EXPENSES> (155)
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<EPS-DILUTED> .14
</TABLE>
