WELLS GARDNER ELECTRONICS CORP, 10-K, 1997-03-26

WELLS GARDNER ELECTRONICS CORP
10-K, 1997-03-26
COMPUTER TERMINALS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(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, 1996

[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [NO FEE REQUIRED] 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 (IRS Employer Identification Number)
incorporation or organization)

2701 North Kildare Avenue, Chicago, Illinois 60639
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: 773/252-8220

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $1.00 par value American Stock Exchange
Title of each class Name of each exchange on which registered

Securities registered pursuant to Section 12(g) of the Act: None

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

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]

As of March 20, 1997, 4,071,276 shares of the Common Stock of the
registrant were outstanding.

While it is difficult to determine the number of shares of stock
owned by non affiliates, the registrant estimates that the aggregate
market value of the registrant's Common Stock held by non affiliates on
March 20, 1997 was approximately $12,035,000. This determination is
based upon an estimate that 73.9% of the shares are so owned by non
affiliates and upon the closing price for the Common Stock on the
American Stock Exchange on such date.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE

Portions of Annual Report to Shareholders for fiscal year ended December
31, 1996: Part I & II
Portions of Proxy Statement for Annual Meeting of Shareholders to be
held on April 22, 1997: Part III

PART I
Item 1. BUSINESS

(a) General Development of Business
Wells-Gardner Electronics Corporation (the ``Company'') is an ISO
9001 certified video products corporation that designs, manufactures
and assembles color cathode ray tube (``CRT'') video monitors. The
Company sells video monitors to leading manufacturers of coin-operated
video games, lottery terminals, video slot machines, video walls,
leisure and fitness, INTRANET, media, automotive kiosks and other
display applications.

In 1996, the Company reported its first annual profit since 1992.
During 1996, the Company continued to aggressively invest in
engineering research and development. This investment resulted in the
introduction of 20 new products being released in the past two years
which accounted for over 72% of 1996 revenues. As a result of the
Company's continuously improving its quality, the Company passed its
1996 annual quality audit conducted by the ISO 9001 accreditation
agency. The Company continues to focus on improving the quality of
its products to achieve its goal of being the highest quality vendor
in each of the markets it serves. The Company was incorporated in
Illinois in 1925.

(b) Financial Information About Industry Segments
The information required on industry segments for the three fiscal
years ended December 31, 1996 is set forth in Exhibit 13 under the
caption ``Selected Financial Results and Corporate Information'' and
in Note 2 of ``Notes to Financial Statements,'' in the Company's
Annual Report to Shareholders for the year ended December 31, 1996,
and hereby incorporated herein by reference.

PRODUCTS
The Company's primary business is the design, manufacture and
assembly of electronic components which consist of video color
monitors and the bonding of touch sensors to open frame monitors. The
image on a CRT display is produced by magnetically guiding an
interruptible stream of electrons against the back of a phosphorescent
screen. This stream of electrons scans a series of horizontal lines
from the top to the bottom of the screen. When the stream of
electrons strikes the back of the screen a bright area is produced and
when is interrupted, a dark area appears. In a medium-resolution
unit, the stream of electrons scans the screen in a series of 525
horizontal lines 30 times per second, whereas the series of light and
dark areas produced appears as a steady coherent image to the viewer.
High-resolution displays scan a greater number of lines at a greater
speed, thus producing a clearer image on the screen. CRT video
products accounted for approximately 99 percent of revenues in 1996,
98 percent of revenues in 1995 and 96 percent of revenues in 1994.
<PAGE>
The Company offers a full line of video monitors, with CRT sizes
ranging from 3'' to 33'' with horizontal scan frequencies from 15kHz
to 35kHz. In addition to providing standardized products, the Company
also customizes electrical and mechanical applications to meet
specific customer requirements. The Company's line of color display
monitors have been redesigned over the past years for higher
performance and lower per unit cost. In 1996, the Company released 12
new voltage free products which allow the products to be plugged in
anywhere in the world.

The Company also optically bonds touch screen sensors to the face
of the monitors to allow the user of a CRT video monitor to interact
with a computer program by touching a video screen. Touch sensors are
mainly used in the electronic video gaming, video slot machine,
lottery terminal and kiosk applications.

The Company's sales are comprised of five main applications.
Amusement sales accounted for 49 percent of total revenues in 1996, 46
percent in 1995 and 53 percent in 1994. Gaming sales accounted for 17
percent of sales in 1996, 24 percent in 1995 and 33 percent in 1994.
Leisure and fitness sales accounted for 13 percent of sales in 1996,
14 percent in 1995 and 6 percent in 1994. Service sales accounted for
11 percent of sales in 1996, 8 percent in 1995 and 5 percent in 1994.
Data and display sales accounted for 10 percent of sales in 1996, 8
percent in 1995 and 3 percent in 1994.

MANUFACTURING AND ASSEMBLY

The Company's production activities consist primarily of wiring
printed circuit boards, assembling finished units (and to a limited
extent subassemblies), aligning, testing and optically bonding touch
sensors. The Company manufactures a limited range of electronic
components and therefore relies on outside sources for the majority of
the other required components. A limited number of sources are
available for such electronic components and the other raw materials.
Two sources supply the Company with almost all of the chassis
subassemblies for its two-dimensional color game monitors. Chassis
subassemblies are contracted off shore based on a design developed by
the Company. As the Company believes is characteristic of other
manufacturers in its industry, it has been confronted with long lead
times and cost increases.

MARKETING AND SALES

The Company sells products throughout the world. The Company's
products are sold primarily through James Industries, Inc., a sales
representative organization. This representation is currently
furnished under a Sales Representation Agreement (See Item 13. Certain
Relationships and Related Transactions). James Industries, Inc. is
headquartered in Inverness, Illinois and also utilizes the services of
regional sub-representative f irms. The Company maintains its own
internal sales staff primarily for sales of products not covered under
the Sales Representation Agreement, repair and service of its products
and to support its external sales representative organization.
<PAGE>
(c) (iv) The Company is licensed on a non-exclusive basis under
certain patents owned by RCA Corporation, covering the technical and
electrical design of color display and video monitor chassis. Fees
under these licenses are based on the number of units shipped and
amounted to less than 0.3% of total 1996 revenue. Although certain of
these licenses may expire in the future, it has been the practice of
the Company to renew such licenses on substantially the same terms.
However, failure of the Company to obtain renewal of any of these
licenses could have a materially adverse effect on the Company's
business, financial condition and results of operations.

(c) (vii) The Company's largest customer accounted for total
revenues of 18%, 15% and 19% in 1996, 1995 and 1994, respectively.

(c) (viii) The Company's 1996 year-end backlog was approximately
32,000 monitors representing approximately 4 months sales. It is the
Company's experience that well over 90 percent of backlog results in
revenue recognition.

(c) (ix) No material portion of the Company's business is subject
to re-negotiation of profits or termination of contracts or
subcontracts at the election of the Government.

(c) (x) The Company encounters intense competition from many
domestic and foreign manufacturers. Due to the nature of its business
and the absence of reliable industry statistics, the Company cannot
estimate its position in relation to its competitors. However, the
Company recognizes that some competitors have greater financial and
personnel resources, handle more extensive lines of products, operate
larger facilities and price some products more competitively than the
Company. Although the Company believes that the prices of its
products are competitive, it endeavors to meet competition primarily
through the quality of its product line, service and delivery
reliability and new product innovations.

(c) (xi) During 1996, the Company spent approximately $1,701,000
for product engineering, research and development costs, compared to
$1,506,000 in 1995 and $1,393,000 in 1994.

(c) (xii) Compliance with federal, state and local provisions which
have been enacted or adopted regulating the discharge of materials
into the environment, or otherwise relating to the protection of the
environment, has no material effect upon the capital expenditures,
earnings and competitive position of the Company.

(c) (xiii) At December 31, 1996, the Company employed approximately
180 persons. The Company believes its relationship with its employees
is satisfactory.

(d) Export sales were 13 percent of sales in 1996, 20 percent in
1995 and 20 percent in 1994.
<PAGE>
Item 2. PROPERTIES

The Company's plant, which is owned by the Company, is located at
2701 North Kildare Avenue in Chicago, Illinois. It has approximately
207,000 square feet of floor space. Not less than 100,000 of the
207,000 square feet of the plant are at any time dedicated to
production. Offices for engineering, sales and administration are
also located at that facility. The plant is in good condition, is
well maintained, and currently has excess production capacity. In
1996, the plant operated at an average 55% capacity. The plant is not
subject to any material encumbrance. In 1995, the Company sold
approximately 63,000 square feet of excess building capacity.

Item 3. LEGAL PROCEEDINGS

None

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

There were no matters submitted to a vote of the Company's share-
holders during the fourth quarter of 1996.
<TABLE>
EXECUTIVE OFFICERS OF THE REGISTRANT

Year First
Elected As An
Name Office Age Executive Officer
<S> <C> <C> <C>
Anthony Spier Chairman of the Board,
President and Chief
Executive Officer 53 1994

Randall S. Wells Executive Vice President
and General Manager 45 1980

George B. Toma Vice President of
Finance, Chief Financial
Officer and Treasurer 29 1996

John S. Pircon Vice President of
Marketing and
Engineering 38 1994

Mark E. Komorowski Vice President and
General Manager of
Business Services 31 1994

Kathleen E. Hoppe Director of Management
Information Systems 51 1994

Larry Mahl Director of Materials 49 1989

Eugene C. Ahner Director of Human
Resources and Secretary 60 1994
</TABLE>
Unless otherwise indicated, each executive officer has served in
various executive capacities with the Company for the past five years.
<PAGE>
Anthony Spier joined the Company in 1994 as Chairman of the Board,
President and Chief Executive Officer. Mr. Spier has been a Director
of the Company since April, 1990. Before joining the Company, Mr.
Spier was President of Bruning Corporation, a manufacturer of drafting
equipment and supplies from 1989 to 1994.

Randall S. Wells joined the Company in 1971 and was elected Executive
Vice President and General Manager of the Company in April, 1987.
Prior to this election, Mr. Wells held various manufacturing positions
within the Company.

George B. Toma joined the Company in 1990 and was elected Vice
President of Finance, Chief Financial Officer and Treasurer in
February, 1997. Mr. Toma was previously elected Chief Financial
Officer and Treasurer in April, 1996 and prior thereto held various
accounting positions within the Company. Prior to joining the
Company, Mr. Toma was an auditor with Laventhol & Horwath. Mr. Toma
is a certified public accountant as well as a certified management
accountant.

John S. Pircon joined the Company in 1987 and was elected Vice
President of Marketing and Engineering in August, 1995. Mr. Pircon was
previously elected Director of Engineering in April, 1994 and prior
thereto held various other engineering, marketing and sales positions
within the Company.

Mark E. Komorowski joined the Company in 1990 and was elected Vice
President and General Manager of Business Services in April, 1996.
Prior to this election, Mr. Komorowski held the position of
Controller. Prior to joining the Company, Mr. Komorowski was an
auditor with Laventhol & Horwath.

Kathleen E. Hoppe joined the Company in 1970 and was elected Director
of Management Information Systems in August, 1994. Prior to this
election, Ms. Hoppe held various information systems positions within
the Company.

Larry Mahl joined the Company in 1981 and was elected Director of
Materials in April, 1989. Prior to this election, Mr. Mahl held
various other engineering positions within the Company.

Eugene C. Ahner joined the Company in 1992 and was elected Director of
Human Resources in August, 1994. Prior to this election, Mr. Ahner
held the position as Personnel Manager. Prior to joining the Company,
Mr. Ahner was Director of Human Resources and Secretary of Pheoll
Manufacturing Company from 1985 to 1992.

PART II

Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDERS MATTERS.

The information required by this Item is set forth in Exhibit 13
under the caption ``Common Share Market Price and Dividends'', which
information is contained in the Company's Annual Report to
Shareholders for the year ended December 31, 1996, and which
information is hereby incorporated herein by reference.
<PAGE>
Item 6. SELECTED FINANCIAL DATA

The information required by this Item is set forth in Exhibit 13
under the caption ``Selected Financial Results and Corporate
Information'', which information is contained in the Company's Annual
Report to Shareholders for the year ended December 31, 1996, and which
information is hereby incorporated herein by reference.

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The information required by this Item is set forth in Exhibit 13
under the caption ``Management's Discussion and Analysis'', which
information is contained in the Company's Annual Report to
Shareholders for the year ended December 31, 1996, and which
information is hereby incorporated herein by reference.

Because the Company wants to provide shareholders and potential
investors with more meaningful and useful information, this Report
contains certain forward-looking statements (as such term is defined
in the Securities Act of 1933, as amended, and the Securities Exchange
Act of 1934, as amended) that reflect the Company's current
expectations regarding the future results of operations, performance
and achievements of the Company. Such forward-looking statements are
subject to the safe harbor created by the Private Securities
Litigation Reform Act of 1995. The Company has tried, wherever
possible, to identify these forward-looking statements by using words
such as ``anticipate'', ``believe'', ``estimate'', ``expect'' and
similar expressions. These statements reflect the Company's current
beliefs and are based on information currently available to it.
Accordingly, these statements are subject to certain risks,
uncertainties and assumptions which could cause the Company's future
results, performance or achievements to differ materially from those
expressed in, or implied by, any of these statements. The Company
undertakes no obligation to release publicly the results of any
revisions to any such forward-looking statements that may be made to
reflect events or circumstances after the date of this Report or to
reflect the occurrence of unanticipated events.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following financial statements together with the notes thereto
are set forth in Exhibit 13, which information is contained in the
Company's Annual Report to Shareholders for the year ended December
31, 1996 and which information hereby incorporated herein by
reference.

Balance Sheets as of December 31, 1996 and 1995

Statements of Operations for years ended December 31, 1996, 1995 and
1994

Statements of Shareholders' Equity for years ended December 31, 1996,
1995 and 1994

Statements of Cash Flows for years ended December 31, 1996, 1995 and
1994
<PAGE>
Notes to Financial Statements

Independent Auditors' Report

Quarterly financial data for the years ended December 31, 1996 and
1995 are set forth in Exhibit 13 in Note 11 of ``Notes to Financial
Statements'' and are contained in the Company's Annual Report to
Shareholders for the year ended December 31, 1996, and which
information is hereby incorporated herein by reference.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

None

PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

a. Directors

The information required by this Item is set forth in the Company's
Proxy Statement for the Annual Meeting of Shareholders to be held on
April 22, 1997, under the captions ``Election of Directors'' and
``Compliance with Section 16(a) of the Exchange Act'', which
information is hereby incorporated herein by reference.

b. Executive Officers

Reference is made to ``Executive Officers of the Registrant '' in
Part I hereof.

Item 11. EXECUTIVE COMPENSATION

The information required by this Item is set forth in the Company's
Proxy Statement for the Annual Meeting of Shareholders to be held on
April 22, 1997, under the captions ``Summary Compensation Table'',
``Option Grants in 1996'', "Aggregated Option Exercises in 1996 and
Option Values at December 31, 1996'', ``Report of Board of Directors
on Compensation'' and ``Compensation Committee Interlocks and Insider
Participation'', which information is hereby incorporated herein by
reference.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

The information required by this Item is set forth in the Company's
Proxy Statement for the Annual Meeting of Shareholders to be held on
April 22, 1997, under the caption ``Securities Beneficially Owned by
Principal Shareholders and Management'', which information is hereby
incorporated herein by reference.
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Information required by this Item is set forth in the Company's
Proxy Statement for the Annual Meeting of Shareholders to be held on
April 22, 1997, under the caption ``Compensation Committee Interlocks
and Insider Participation'', which information is hereby incorpo rated
herein by reference.

PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K

a. (1) Financial Statements The information required by this
Item is set forth in Part II, Item 8 of this Report. The Independent
Auditor's Report is set forth following the Financial Statement
Schedule referred to under (2) below.

(2) Financial Statement Schedules The information required by
this Item is set forth following the signature page of this Report.

(3) Exhibits

The following exhibits are filed herewith:

3.1. Articles of Incorporation of the Company, as amended, filed
as Exhibit 3.1 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1994, and incorporated herein by reference.

3.2. By-Laws of the Company, as amended, filed as Exhibit 3.2 of
the Company's Annual Report on Form 10-K for the year ended December
31, 1994, and incorporated herein by reference.

*10.1. Wells-Gardner Electronics Corporation Amended and Restated
Incentive Stock Plan, as amended, filed as Appendix A to the Company's
Proxy Statement for Annual Meeting of Shareholders held on April 23,
1995, and incorporated herein by reference.

10.2. Sales Representative Agreement among the Company, James
Industries, Inc. and James J. Roberts Jr. dated February 29, 1996, and
incorporated herein by reference.

*10.3. Amended Employment Agreement dated February 29, 1996,
between the Company, and Anthony Spier and incorporated herein by
reference.

10.4. License Agreement dated January 1, 1995, between the Company
and RCA Corporation, and incorporated herein by reference.

*10.5. Employment contract dated June 12, 1989, between the
Company and Larry Mahl, filed as Exhibit 10.9 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1989, and
incorporated herein by reference.
<PAGE>
*10.6. Employment contract dated April 26, 1994, between the
Company and Randall S. Wells, filed as Exhibit 10.2 of the Company's
Form 10-Q dated June 30, 1994, and incorporated herein by reference.

10.7. Agreement dated July 1, 1995, between the Company and Local
1031, I.B.E.W., AFL-CIO, and incorporated herein by reference.

*10.9. Wells-Gardner Electronics Corporation Employee 401K Plan
dated January 1, 1990 and Amendment 1 dated February 11, 1992, and
Amendment 2 dated January 20, 1994, filed as Exhibit 10.10 of the
Company's Annual Report on Form 10-K for the year ended December 31,
1993, and incorporated herein by reference.

10.11. Voting Rights Agreement dated February 29, 1996, among the
Company, Albert S. Wells, Jr., Randall S. Wells, Anthony Spier, Allan
Gardner, John R. Blouin, James Industries, Inc., and James J. Roberts,
Jr., individually and as Trustee of James J. Roberts, Trust, UTA dated
December 23, 1991, and incorporated herein by reference.

*10.12. Wells-Gardner Electronics Corporation 1996 Nonemployee
Director Plan, filed as Annex A to the Company's Proxy Statement for
the Annual Meeting of Shareholders to be held on April 23, 1996, and
incorporated herein by reference.

*10.13. Assignment of Rights and Royalty Agreement dated January
17, 1997, between the Company, Randall S. Wells and Mark Komorowski
and incorporated herein by reference.

13. Certain portions of the Company's Annual Report to Shareholders
for the year ended December 31, 1996 as specified in Part I and II
hereof to be incorporated by reference in this Annual Report on Form
10-K.

23. Consent of KPMG Peat Marwick, LLP.

27. Financial Data Schedule

*Management contract or compensatory plan or arrangement.

b. Reports on Form 8-K No reports on Form 8-K were filed during
the last quarter ended December 31, 1996.
<PAGE>
<TABLE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Secu-
rities 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

By: ANTHONY SPIER February 18, 1997
Anthony Spier Chairman of the Board, President
and Chief Executive Officer

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

Signature Title Date
<S> <C> <C>

ANTHONY SPIER
Anthony Spier Chairman of the Board, President
and Chief Executive Officer February 18, 1997

RANDALL S. WELLS
Randall S. Wells Director February 18, 1997

ALLAN GARDNER
Allan Gardner Director February 18, 1997

JAMES J. ROBERTS, JR.
James J. Roberts, Jr. Director February 18, 1997

WILLIAM L. DE NICOLO
William L. DeNicolo Director February 18, 1997

H. WAYNE HARRIS
H. Wayne Harris Director February 18, 1997

JOHN R. BLOUIN
John R. Blouin Director February 18, 1997

ERNEST R. WISH
Ernest R. Wish Director February 18, 1997
</TABLE>
<PAGE>
FINANCIAL SCHEDULE

Schedules not included with this additional financial data have
been omitted because they are not applicable or the required
information is shown in the financial statements or notes thereof.

<TABLE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

ALLOWANCE FOR DOUBTFUL ACCOUNTS

Balance at Balance at
Beginning (1) (2) (3) End
Year of Period Additions Deductions Other of Period
<S> <C> <C> <C> <C> <C>
1994 227,406 0 9,759 0 217,647

1995 217,647 210,000 129,781 0 297,866

1996 297,866 10,000 80,933 (120,000) 106,933

(1) Provision for bad debt.
(2) Accounts receivable written off against the allowance.
(3) In 1996, $120,000 of this provision was reallocated to other
accruals.
</TABLE>

EXHIBIT INDEX

3.1. Articles of Incorporation of the Company, as amended, filed
as Exhibit 3.1 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1994, and incorporated herein by reference.

3.2. By-Laws of the Company, as amended, filed as Exhibit 3.2 of
the Company's Annual Report on Form 10-K for the year ended December
31, 1994, and incorporated herein by reference.

10.2. Sales Representative Agreement among the Company, James
Industries, Inc. and James J. Roberts Jr. dated February 29, 1996, and
incorporated herein by reference.

*10.3. Amended Employment Agreement dated February 29, 1996,
between the Company, and Anthony Spier, and incorporated herein by
reference.

10.4. License Agreement dated January 1, 1995, between the Company
and RCA Corporation, and incorporated herein by reference.

10.7. Agreement dated July 1, 1995, between the Company and Local
1031, I.B.E.W., AFL-CIO, and incorporated herein by reference.

*10.9. Wells-Gardner Electronics Corporation Employee 401K Plan
dated January 1, 1990, and Amendment 1 dated February 11, 1992, and
Amendment 2 dated January 20, 1994, filed as Exhibit 10.10 of the
Company's Annual Report on Form 10-K for the year ended December 31,
1993, and incorporated herein by reference.

*10.13. Assignment of Rights and Royalty Agreement dated January
17, 1997, between the Company, Randall S. Wells and Mark Komorowski
and incorporated herein by reference.

13. Certain portions of the Company's Annual Report to Shareholders
for the year ended December 31, 1996, as specified in Part I and II
hereof to be incorporated by reference in this Annual Report on Form
10-K.

23. Consent of KPMG Peat Marwick, LLP.

27. Financial Data Schedule

*Management contract or compensatory plan or arrangement.
<PAGE>

WELLS-GARDNER ELECTRONICS CORPORATION
1996 ANNUAL REPORT

COMPANY PROFILE

Wells-Gardner Electronics Corporation is an ISO 9001 certified video
products corporation that designs, manufactures and assembles color
video monitors for sale to the gaming, industrial and commercial
markets. It has a customer base that is growing both domestically and
internationally. Included are makers of coin-operated video games,
lottery terminals, video slot machines, video walls, leisure and
fitness, INTRANET, media, automotive, kiosk and other display
applications. From time to time, the company also engages in contract
manufacturing of electronic products designed and marketed by others.

The company's strategic plans include focusing on market segments where
its willingness and ability to semi-customize products, quick response
time and quality of service differentiate it from its competition. In
turn, these strategies enable the company to establish defensible market
niches.

Founded in 1925, Wells-Gardner is a publicly traded corporation and
maintains its headquarters in Chicago, Illinois.

COMMON SHARE MARKET PRICE & DIVIDENDS

The company's common shares are traded on the American Stock Exchange
(AMEX) under the symbol of WGA. On December 31, 1996, there were 805
holders of record of the company's common shares. No dividends were
paid in 1996 or 1995. High and low sales prices by quarter for the last
two years were:
<TABLE>
1996 Prices 1995 Prices
Quarter ended: High Low High Low
<S> <C> <C> <C> <C>
March 31, 4.2500 2.500 5.7500 2.5620
June 30, 4.8750 3.875 5.2500 3.3750
September 30, 4.6250 3.125 6.5000 4.2500
December 31, 4.5000 3.250 4.7500 2.8750
</TABLE>
TABLE OF CONTENTS

Selected Financial Results & Corporate Information... 1
President's Report................................... 2
Management's Discussion & Analysis................... 4
Financial Statements................................. 6
Notes to Financial Statements........................ 9
Independent Auditors'Report.......................... 12
Board of Directors Officers.......................... 13
<PAGE>
<TABLE>
SELECTED FINANCIAL RESULTS & CORPORATE INFORMATION

Years ended December 31, (In thousands except per-share data)

1996 1995 1994 1993 1992
Earnings Data:
<S> <C> <C> <C> <C> <C>
Net sales $36,668 $28,301 $33,435 $36,011 $48,949
Operating earnings (loss)
excluding special charges
& sale of fixed assets 444 (416) (498) (2,216) 1,606
Special charges --- (886) (1,201) --- ---
Gain on sale of fixed assets --- 358 --- --- ---
Earnings (loss) from
continuing operations 403 (1,059) (1,735) (1,881) 1,017
Earnings from extraordinary
item...
tax effect of loss
carryforward --- --- --- --- 528
Cumulative effect of change
in accounting principle --- --- --- 102 ---
Net earnings (loss) 403 (1,059) (1,735) (1,779) 1,545

PER-SHARE DATA:
Earnings (loss) from
continuing operations 0.10 (0.26) (0.45) (0.49) 0.26
Earnings from extraordinary
item...
tax effect of loss
carryforward --- --- --- --- 0.14
Cumulative effect of change
in accounting principle --- --- --- 0.03 ---
Net earnings (loss) 0.10 (0.26) (0.45) (0.46) 0.40

BALANCE SHEET DATA:
Inventory 7,344 8,930 5,831 6,989 11,570
Working capital 9,017 10,213 7,561 9,510 11,465
Total assets 14,125 16,570 15,619 16,085 20,189
Long-Term debt 1,300 3,125 --- --- ---
Shareholders' equity 10,095 9,633 10,367 12,108 13,785
</TABLE>
TRANSFER AGENT & REGISTRAR: Shareholders of record who have questions
regarding address changes, transfers, lost certificates or other
shareholder matters should direct their inquires to: Harris Trust &
Savings, 311 West Monroe Street, Chicago, Illinois 60690. Telephone:
(312) 461-6848.

INDEPENDENT AUDITORS: KPMG Peat Marwick LLP, 303 East Wacker Drive,
Chicago, Illinois 60601.

OUTSIDE LEGAL COUNSEL: Katten, Muchin & Zavis, 525 West Monroe Street,
Chicago, Illinois 60661.
<PAGE>
FORM 10-K: A copy of the 1996 Annual Report on Form 10-K, without
exhibits, as filed with the Securities and Exchange Commission, is
available to shareholders upon written request, without charge. All
requests should be directed to: George B. Toma, Vice President of
Finance, Chief Financial Officer & Treasurer, Wells-Gardner Electronics
Corporation, 2701 North Kildare Avenue, Chicago, Illinois 60639.

ANNUAL SHAREHOLDERS' MEETING: April 22, 1997, 2:00 p.m. at 2701 North
Kildare Avenue, Chicago, Illinois.

WORLD WIDE WEB: http://www.wgec.com

PRESIDENT'S REPORT

TO OUR SHAREHOLDERS, CUSTOMERS, SUPPLIERS AND EMPLOYEES:

We are pleased to report to you that Wells-Gardner made its first annual
profit since 1992. There were many positive accomplishments during 1996
including improvements in productivity, cost control and quality and the
release of several new products.

1996 SALES GREW BY 30 PERCENT DUE TO NEW PRODUCTS
1996 sales were $36.7 million, up $8.4 million from 1995. This increase
was driven by increased market share in most market segments we serve.
There were substantial increases in several segments including:

* More than doubling the service business which includes the sales
of our refurbished monitors.

* A substantial increase in the coin-operated amusement market due
to an increase in market share.

* More than tripling our sales to the bartop market segment due to
the development of a new series of products in 1996.

* Over $1 million of sales of our new INTRANET product developed in
1996.

* A large increase in our leisure and fitness sales due to
increasing our market share with new products developed in 1996.

Our sales did decline in two market segments, namely gaming and
automotive, but we believe our market share in these markets increased.
In gaming, the sales of video lottery products declined significantly in
1996, thereby depressing the entire market.

Our video wall sales did not meet expectations. However, we remain
optimistic concerning the future of this product and this represents an
opportunity for the Company in 1997.

WELLS-GARDNER RELEASED 12 NEW PRODUCTS IN 1996
New products released in the past 2 years accounted for over 72% of 1996
sales. The Company has embarked on an aggressive program of new product
introductions releasing 8 new products in 1995, 12 in 1996 with another
10 new products scheduled for 1997 release. Our investment in research
and development increased by another 13 percent in 1996.
<PAGE>
Of the 12 new products released in 1996, all were voltage free, which
means they automatically operate on all voltages anywhere in the world
and can be plugged in anywhere from Topeka to Tokyo to Timbuktu. The
new products include the INTRANET product, 25" and 27" video wall
monitors with new front-mounted controls which are in the process of
being patented, 13", 17", 19" and 33" new standard resolution monitors,
17", 27" and 33" VGA monitors and a 16X9 monitor, which approximates the
image dimensions of a movie. In addition, the Company released a brand
new product concept, Playmaster Extreme, which is a game system that
involves using a high definition multisync projector, which projects a
high resolution image onto a 200 inch diagonal screen. Management also
decided to end its relationship with Wee Chin Enterprise Co. Ltd. of
Taiwan, to focus on its other investment opportunities. As a result the
Company will cease marketing the "OK Baby" product line.

Management views new product development as the basis for sustainable
growth in our served markets.

PROFIT IMPROVED FOR THIRD CONSECUTIVE YEAR
1996 net earnings were $403,000 or 10 cents per share compared to a loss
of ($1.1) million or (26) cents per share in 1995, a loss of ($1.7)
million or (45) cents per share in 1994 and a loss of ($1.8) million or
(46) cents per share in 1993. The improvement in earnings in 1996 over
1995 came from two major factors:

* Sales increased by 30 percent.

* Margins improved by 13 percent caused by additional production
throughput of 27 percent more units. Management continues to
believe that increasing margins is essential and will continue
its focus on this area in 1997.

1996 OPERATING PROFITS INCREASED BY $2.6 MILLION OVER 1993 ON SAME SALES
VOLUME

Sales in 1996 were $36.7 million compared to $36.0 million in 1993.
However operating income improved by $2.6 million due primarily to a 76
percent improvement in gross margins. This was due to a combination of
a 45 percent increase in manufacturing productivity, a reduction of
manpower and overhead expenses including the sale of 25 percent of our
plant and a migration to higher margin new products. In addition,
selling, general and administrative costs were reduced by over $200,000
while research and development costs increased as part of the program to
release new products.

WELLS-GARDNER GENERATED OVER $1 MILLION OF CASH FROM OPERATIONS IN 1996
Wells-Gardner generated over $1 million of cash from operations in spite
of sales increasing by 30 percent. Receivable days hit an all-time low
of 44 days, compared to 57 days at the end of 1995. This was as a
result of the Company's aggressive credit policies. Inventory declined
by about $1.6 million and the inventory turns improved to 4.28 turns
from 2.61 at the end of 1995. The Company was able to reduce its bank
debt from $3.1 million at the end of 1995 to $1.3 million at the end of
1996.
<PAGE>
QUALITY REMAINS A TOP PRIORITY
Again in 1996, Wells-Gardner comfortably passed the very exacting annual
audit of our ISO 9001 quality accreditation. We were the first open-
frame monitor manufacturer in the world to obtain this quality
certification. This has been a valuable marketing advantage and has
attracted several new prestigious accounts. An important part of our
new culture is to "continuously improve" our quality processes and to
help us in this effort we have retained Quality Technology Company, a
well respected quality consulting Company. As a result of these
efforts, our internal defect rates have dropped by 59 percent since the
middle of 1994. Our goal is to improve this amount to 75 percent by the
end of 1997.

ROAD MAP TO 2000
Wells-Gardner management develops an in-depth long range strategic plan
on an annual basis as a road map for the Company. The key issues for
the future are:

* Focus the entire Company operations on customer satisfaction.

* Grow sales by entering new high margin, high growth markets,
releasing approximately 10 new products annually and expanding
the product line beyond monitors to improve technological
flexibility.

* Continue to improve margins by a combination of driving material
cost out of the products through aggressive procurement actions,
improved engineering, increased labor productivity, reduced
overhead and developing exclusive relationships with low-cost
offshore manufacturers.

* Enhance quality with the concept that in each of our served
markets, Wells-Gardner will be the highest quality vendor.

* Identify an appropriate acquisition.

We thank all of you for your continued support as we focus on growth and
"consistent year by year profitability" through the year 2000 and
beyond.
Anthony Spier
Chairman of the Board, President
and Chief Executive Officer

March 14, 1997
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS
RESULTS OF OPERATIONS, YEARS ENDED DECEMBER 31, 1996, 1995 & 1994

REVENUES:
For the years ended December 31, 1996, 1995 and 1994 the Company had
sales of $36,668,000, $28,301,000 and $33,435,000, respectively. The
1996 increase of $8,367,000 or 29.6% from 1995 was attributed to
additional sales to the Company's core amusement, data display, leisure
fitness and service segments and its new INTRANET and display monitor
segments. These increases were offset by lower sales to the automotive
and gaming segments. The 1995 decrease of $5,134,000 or 15.4% from 1994
was attributed to lower demand in the amusement and gaming segments.

GROSS PROFIT:
The Company reported gross profit of $5,602,000 or 15.3% in 1996,
$3,849,000 or 13.6% in 1995 and $3,975,000 or 11.9% in 1994. The
increase in gross profit from 1996 to 1995 was attributed to increased
sales volume, manufacturing efficiencies and the Company's ongoing focus
on cost reductions. The increase in gross profit from 1995 to 1994 was
attributed to restructuring charges incurred during 1994 and the
efficiencies of new production lines during 1995.

ENGINEERING, SELLING & ADMINISTRATIVE:
Engineering, selling and administrative expenses were $5,158,000 in
1996, $4,265,000 in 1995 and $4,473,000 in 1994. The increase in 1996
from 1995 was attributed to new product development, sales commissions
paid on the increased sales volume and additional expenditures in
employee manning, associated benefits and outside professional fees. The
decrease in 1995 from 1994 was attributed to the commissions paid on the
lower sales volume.

OPERATING INCOME (LOSS):
The Company's operating income was $444,000 or 11 cents per share in
1996. The Company's operating losses, excluding any gain on sale of
fixed assets and special charges, were ($416,000) or (10) cents per
share in 1995 and ($498,000) or (13) cents per share in 1994.

OTHER EXPENSE (NET):
Other expense was $41,000 in 1996, $115,000 in 1995 and $36,000 in 1994.
Other expense is the net of interest expense, interest income, payment
negotiations and other non-operating miscellaneous receipts. Interest
expense was $242,000 in 1996, $165,000 in 1995 and $119,000 in 1994.
The increase in 1996 from 1995 resulted from the additional utilization
of the Company's revolving line of credit to fund operations during the
1996 year. The increase in 1995 from 1994 resulted from additional
capital needed to finance a higher level of inventory.

GAIN ON SALE OF FIXED ASSETS & SPECIAL CHARGE:
During 1995, the Company realized a gain of $358,000 on the sale of
excess warehouse space. The excess space resulted from the installation
of new automated production lines. Also during 1995, the Company
incurred a charge of $886,000 to settle a warranty issue with a major
customer. The Company has retained the customer, which remains a
significant contributor to operations. In 1994, the Company incurred a
$1.2 million charge for management reorganization and phasing out
certain products.
<PAGE>
INCOME TAXES:
Tax expense was not recorded in 1996 due to the Company's utilization of
its $3.4 million net operating loss carryforward. The Company has not
recognized any deferred tax assets. Realization of deferred tax assets
is dependent upon the Company generating sufficient taxable earnings in
future periods.

NET EARNINGS (LOSS):
The Company's net income was $403,000 or 10 cents per share in 1996. The
Company's net loss was ($1,059,000) or (26) cents per share in 1995 and
($1,735,000) or (45) cents per share in 1994. The Company believes that
the effect of inflation on past operations has not been significant and
anticipates that inflation will not have a significant impact on future
operations.

LIQUIDITY & CAPITAL RESOURCES:
Net cash provided by operating activities was $1,042,000 in 1996
compared to net cash used in operating activities of $627,000 in 1995
and $155,000 in 1994. The 1996 increase was attributed to the Company's
net income, improved collections, focus on reducing all segments of
inventory and lower fourth quarter purchases. Receivable days
outstanding decreased to 43.83 in 1996 from 57.19 in 1995, while
inventory turns increased to 4.28 in 1996 from 2.61 in 1995.

Net cash used in investing activities was $296,000 in 1996 compared to
net cash provided by investing activities of $254,000 in 1995 and net
cash used in investing activities was $658,000 in 1994. The 1996
variance was attributed to lower capital expenditures caused by the full
implementation of the new production lines in 1994. In 1995, the
Company disposed of $601,000 of fixed assets.

Net cash used in financing activities was $1,805,000 in 1996 compared to
net cash provided by financing activities of $1,432,000 in 1995 and
$777,000 in 1994. The 1996 reduction was attributed to the Company's
ability to generate and manage cash to reduce its revolving line of
credit from $3,125,000 to $1,300,000. Debt to equity decreased to
12.88% in 1996 from 32.44% in 1995 and 18.57% in 1994.

The Company's financial condition is strong and liquidity has improved.
The Company was able to reduce working capital by 12 percent to
$9,017,000 in 1996 from $10,213,000 in 1995, while increasing sales by
30 percent. Shareholders' equity increased to $10,095,000 in 1996 from
$9,633,000 in 1995 and the current ratio improved to 4.30 from 3.68.
The Company believes that its future financial requirements can be met
with funds generated from operating activities and from its revolving
line of credit.
<PAGE>
<TABLE>
BALANCE SHEETS

ASSETS
December 31,
1996 1995
<S> <C> <C>
Current Assets:
Cash & cash equivalents $ 57,481 $ 1,116,630
Accounts receivable, net of allowances
of $106,933 in 1996, & $297,866 in 1995 3,895,805 3,540,346
Income tax receivable --- 62,182
Inventory (Note 3) 7,343,843 8,929,939
Prepaid expenses & other current assets 449,595 374,847
Total current assets 11,746,724 14,023,944

Property, Plant & Equipment (at cost):
Land & land improvements 274,267 274,267
Buildings & improvements 3,461,980 3,373,101
Machinery & equipment 5,925,802 5,723,530
Total property, plant & equipment 9,662,049 9,370,898
Less accumulated depreciation (7,284,170) (6,825,212)
Property, plant & equipment, net 2,377,879 2,545,686
Total assets $ 14,124,603 $ 16,569,630

LIABILITIES AND SHAREHOLDERS' EQUITY

December 31,
1996 1995
Current Liabilities:
Accounts payable $ 1,762,736 $ 3,076,777
Accrued expenses 967,281 734,434
Total current liabilities 2,730,017 3,811,211

Long-Term Liabilities:
Note payable (Note 8) 1,300,000 3,125,000
Total liabilities 4,030,017 6,936,211

Shareholders'Equity:
Common shares
$1 par value, 25,000,000 shares authorized;
4,068,426 shares issued & outstanding at
December 31, 1996 4,052,676 shares issued
& outstanding at December 31, 1995 4,068,426 4,052,676
Capital in excess of par value 1,158,308 1,096,892
Retained earnings 5,157,953 4,754,851
Unearned compensation (290,101) (271,000)
Total shareholders' equity 10,094,586 9,633,419
Total liabilities & shareholders'
equity $ 14,124,603 $ 16,569,630

See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF OPERATIONS

Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Net sales $ 36,667,774 $ 28,300,514 $ 33,435,447
Cost & expenses:
Cost of sales 31,066,161 24,451,816 29,460,747
Engineering, selling & administrative 5,157,948 4,264,893 4,472,921
Other expense (net) (Note 6) 40,563 114,886 35,671
Gain on sale of fixed assets --- (357,774) ---
Special charge (Note 9) --- 886,000 1,200,738
Net earnings (loss) $ 403,102 $ (1,059,307) $ (1,734,630)

Net earnings (loss) per share $ 0.10 $ (0.26) $ (0.45)

Weighted average common shares outstanding 4,061,860 4,015,717 3,882,964
</TABLE>
<TABLE>
STATEMENTS OF SHAREHOLDERS' EQUITY

Capital in of Total
Common excess of Retained Unearned shareholders'
shares par value earnings compensation equity
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $ 3,859,942 $ 757,946 $ 7,548,788 $ (58,335) $ 12,108,341

Net loss --- --- (1,734,630) --- (1,734,630)
Issuance of stock awards 102,000 262,500 --- (364,500) ---
Stock options exercised 17,500 34,063 --- --- 51,563
Cancellation of stock awards (21,706) (94,964) --- 58,335 (58,335)
Balance, December 31, 1994 $ 3,957,736 $ 959,545 $ 5,814,158 $ (364,500) $ 10,366,939

Net loss --- --- (1,059,307) --- (1,059,307)
Stock options exercised 116,210 243,154 --- --- 359,364
Stock repurchased & retired (21,270) (105,807) --- --- (127,077)
Amortization of unearned
compensation --- --- --- 93,500 93,500
Balance, December 31, 1995 $ 4,052,676 $ 1,096,892 $ 4,754,851 $ $(271,000) $ 9,633,419

Net earnings --- --- 403,102 --- 403,102
Issuance of stock awards 12,000 54,854 --- (57,304) 9,550
Stock options exercised 3,750 6,562 --- --- 10,312
Amortization of unearned
compensation --- --- --- 38,203 38,203
Balance, December 31, 1996 $ 4,068,426 $ 1,158,308 $ 5,157,953 $ (290,101) $ 10,094,586

See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CASH FLOWS

Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 403,102 $(1,059,307) $(1,734,630)
Adjustments to reconcile net earnings
(loss) to net cash provided by (used in)
operating activities:
Depreciation 463,859 489,432 463,884
Net gain on the sale of fixed assets --- (357,774) (13,115)
Amortization (reversal) of unearned
compensation 38,203 93,500 (58,335)
Changes in current assets & liabilities:
Income tax receivable 62,182 266,245 (87,419)
Accounts receivable (355,459) 2,564,977 (424,843)
Inventory 1,586,096 (3,098,442) 1,157,360
Prepaid expenses & other current assets (74,748) 85,322 (8,483)
Accounts payable (1,314,041) 1,154,153 322,806
Accrued expenses 232,847 (765,309) 228,101
Net cash provided by (used in) operating 1,042,041 (627,203) (154,674)
activities

Cash provided by (used in) investing
activities:
Additions to property, plant &
equipment, net (296,052) (346,467) (683,077)
Proceeds from the disposition of
long-term bond --- --- 25,000
Proceeds from the disposition
of fixed assets --- 600,637 ---
Net cash provided by (used in)
investing activities (296,052) 254,170 (658,077)

Cash provided by (used in) financing
activities:
Notes payable (1,825,000) 1,200,000 725,000
Proceeds from stock options exercised 19,862 359,364 51,563
Stock repurchased & retired --- (127,077) ---
Net cash provided by (used in) financing
activities (1,805,138) 1,432,287 776,563

Net increase (decrease) in cash &
cash equivalents (1,059,149) 1,059,254 (36,188)
Cash & cash equivalents at beginning
of year 1,116,630 57,376 93,564
Cash & cash equivalents at end of year $ 57,481 $ 1,116,630 $ 57,376

Supplemental cash flows disclosure:
Income taxes paid $ --- $ --- $ 108,226
Interest paid $ 241,844 $ 164,566 $ 119,131

See accompanying notes to financial statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1996, 1995 & 1994

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH & CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, commercial paper, certificates of deposit and money market
funds, which have an original maturity of three months or less.

INVENTORY
Inventory is stated at the lower of cost, determined by the first-in,
first-out (FIFO) method, or market.

PROPERTY, PLANT & EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is
calculated on the straight-line method over the estimated useful lives
of the assets. The approximate range of useful lives is as follows:
Buildings....15 - 31 1/2 years Machinery & Equipment....5 - 15 years

REVENUE RECOGNITION
Revenue from sales of products which the Company manufactures are
recorded at time of shipment.

EARNINGS PER SHARE
Net earnings per share is computed based upon the number of weighted
average common shares outstanding.

FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments does not
materially vary from the carrying value of such instruments.

RECLASSIFICATIONS
Where appropriate, certain items relating to the prior years have been
reclassified to conform to the current year's presentation.

RESEARCH & DEVELOPMENT
Research and development costs for the years ended December 31, 1996,
1995 and 1994 were $1,700,935, $1,506,448, and $1,392,620, respectively,
which were 4.6%, 5.3% and 4.2% of annual sales, respectively.

USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure
of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.

LONG-LIVED ASSETS
Long-Lived assets to be held and used are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amounts should be evaluated. Impairment is measured by comparing the
carrying value to the estimated undiscounted future cash flows expected
to result from the use of the assets and their eventual disposition.
The Company has determined that as of December 31, 1996, there has been
no impairment in the carrying values of long-lived assets.
<PAGE>
(2) NATURE OF BUSINESS & RELATED PARTIES
The Company's primary business is the assembly of electronic components
which consist of video color monitors, data display monitors and bonding
of touch panels. Monitor and data display sales during the period 1996
to 1994 were made through a sales representative firm (James Industries
Inc.) whose Chairman of the Board and principal shareholder is a
substantial beneficial shareholder and director of the Company.
Commissions earned by James Industries Inc. for the years ended December
31, 1996, 1995 and 1994 were approximately $1,225,000, $868,000 and
$1,047,000, respectively. Commissions owed to James Industries Inc. as
of December 31, 1996, 1995 and 1994 were approximately $169,000,
$103,000 and $170,000 respectively. Total commissions as a percentage
of sales for the years ended December 31, 1996, 1995 and 1994 were 3.3%,
3.1% and 3.1%, respectively. Sales to James Industries Inc. for the
years ended December 31, 1996, 1995 and 1994 were approximately
$543,000, $425,000 and $2,216,000, respectively. Outstanding accounts
receivable due from James Industries Inc. at December 31, 1996, 1995 and
1994 were approximately $40,000 $33,000 and $535,000, respectively.

The Company's largest customer accounted for total revenues of 18%, 15%
and 19% in 1996, 1995 and 1994, respectively. Sales to customers
outside the United States were 13.2%, 20.1%, and 20.0% of total revenues
in 1996, 1995 and 1994, respectively.

(3) INVENTORY
Inventory consisted of the following components:
<TABLE>
December 31,
1996 1995
<S> <C> <C>
Raw materials $ 4,670,279 $ 5,561,981
Work in progress 597,574 435,324
Finished goods 2,075,990 2,932,634
Total $ 7,343,843 $ 8,929,939
</TABLE>

(4) INCOME TAXES
The effective income tax rates for 1996, 1995 and 1994 differed from
the expected Federal income tax rate (34%) for the following reasons:

<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Computed expected tax (benefit) $ 137,000 $ (360,000) $ (590,000)
State income taxes (benefit) net of
Federal tax effect 20,000 (52,000) (86,000)
Other, net 8,000 6,000 36,000
Limitations on and utilization
of tax benefits (165,000) 406,000 640,000
$ --- $ --- $ ---
</TABLE>
<PAGE>
Deferred income taxes reflect the impact of temporary differences
between the amounts of assets and liabilities for financial reporting
purposes and such amounts as measured by income tax regulations.
Temporary differences which gave rise to deferred tax assets and
liabilities at December 31, 1996 and 1995 consisted of:
<TABLE>

Deferred tax assets: 1996 1995
<S> <C> <C>
Allowance for doubtful accounts $ 41,000 $ 115,000
Warranty reserve 37,000 39,000
Inventory reserve 169,000 273,000
Separation charge 39,000 ---
Deferred compensation --- 36,000
Contributions carryovers 14,000 9,000
Net operating loss carryforwards 1,293,000 1,332,000
Alternative minimum tax credit
carryforwards 50,000 50,000
General business credit carryforwards 129,000 129,000
Other 8,000 10,000
Total gross deferred tax assets 1,780,000 1,993,000
Less valuation allowance (1,623,000) (1,798,000)
Net deferred tax assets 157,000 195,000
Deferred tax liabilities:
Property, plant & equipment,
principally depreciation 157,000 195,000
Net deferred taxes $ --- $ ---
</TABLE>

A valuation allowance is provided when it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
The net change in the valuation allowance for the year ended December
31, 1996 was an decrease of $175,000 primarily due to the utilization of
net operating loss carryforwards. At December 31, 1996, the Company has
net operating loss carryforwards for Federal income tax purposes of
approximately $3,350,000 which are available to offset future Federal
taxable income, if any, through 2010. The Company also has alternative
minimum tax credit carryforwards of approximately $50,000 which are
available to reduce future Federal regular income taxes, if any, over an
indefinite period. In addition, the Company has general business credit
carryforwards of approximately $129,000 which are available to reduce
future Federal regular income taxes, if any. These general business
credits are scheduled to expire during 2004 through 2007.

(5) STOCK PLANS
The Company maintains a Non-qualified Option and Stock Award Plan under
which officers and key employees may acquire up to a maximum of
1,400,000 common shares and a Nonemployee Director Stock Plan under
which directors may acquire up to 250,000 common shares. Options may be
granted thru December 31, 2004 at an option price not less than fair
market value on the date of grant and are exercisable not earlier than
six months nor later than ten years from the date of grant. Options
vest over two and three year periods. As of December 31, 1996, 72
persons were eligible to participate in the plans and 43 persons held
outstanding options. Such options expire on dates ranging from April 24,
2000 to August 13, 2006.
<PAGE>
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been
recognized for its fixed stock option plans. Had compensation cost for
the Company's stock option plans been determined consistent with FASB
Statement of Financial Accounting Standards No. 123 (``FAS 123''), the
Company's net earnings available to common shareholders and net earnings
per common share would have been reduced to the pro forma amounts
indicated below:

1996 1995
Net earnings (loss) available to common shareholders

As reported $403,102 ($1,059,307)
Pro forma $342,375 ($1,085,070)

Net earnings (loss) per common and common
equivalent share
As reported $0.10 ($0.26)
Pro forma $0.09 ($0.27)

Under the stock option plans, the exercise price of each option equals
the market price of the Company's stock on the date of grant. For
purposes of calculating the compensation cost consistent with FAS 123,
the fair value of each grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in fiscal 1996 and 1995, respectively:
expected volatility of 20 percent; risk free interest rates ranging from
5.2 percent to 7.9 percent; and expected lives of 5 years. Additional
information on shares subject to options is as follows:
<TABLE>
1996 1995 1994
Weighted Weighted Weighted
Average Average Average
1996 Exercise 1995 Exercise 1994 Exercise
Options Price Options Price Options Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 277,411 3.38 196,321 4.13 197,803 3.24
Granted 263,054 3.30 221,300 2.75 27,500 3.68
Forfeited (13,500) 3.13 (24,000) 5.10 (11,482) 4.71
Exercised (3,750) 2.75 (116,210) 3.09 (17,500) 2.95
Outstanding at end
of year 523,215 3.35 277,411 3.38 196,321 4.13

Options exercisable
at year end 215,900 99,561 152,946
</TABLE>
<PAGE>
<TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1996:

Weighted
Average Weighted
Range of Options Remaining Average Options
Exercise Outstanding Contractual Exercise Exercisable
Prices at 12/31/96 Life Price at 12/31/96
<C> <C> <C> <C> <C>
3.00 4,900 3 3.00 4,900
2.875 17,536 4 2.88 17,536
5.375 58,000 5 5.38 58,000
3.50 - 3.75 17,500 7 3.64 10,625
2.75 167,225 8 2.75 60,324
3.125 - 4.25 258,054 9 3.31 64,515
523,215 8 3.35 215,900
</TABLE>
<TABLE>
(6) OTHER EXPENSE (NET)
Other expense (net) consisted of the following components:

December 31,
1996 1995 1994
<S> <C> <C> <C>
Interest expense, net $ 241,844 $ 164,566 $ 119,131
Other income, net (201,281) (49,680) (83,460)
Other expense (net) $ 40,563 $ 114,886 $ 35,671
</TABLE>
<TABLE>
(7) ACCRUED EXPENSES
Accrued expenses consisted of the following components:

December 31,
1996 1995
<S> <C> <C>
Payroll and additional salary $ 254,619 $ 66,376
Taxes other than on income 125,989 124,791
Sales commissions 168,726 102,809
Insurance 172,350 176,922
Warranty 97,101 99,906
Other accrued expenses 148,496 163,630
Total $ 967,281 $ 734,434
</TABLE>

(8) NOTE PAYABLE
The note payable consisted of a revolving line of credit balance of
$1,300,000 and $3,125,000 at December 31, 1996 and 1995, respectively,
bearing interest at prime (8.25% at December 31, 1996 and 8.50% at
December 31, 1995). During 1995, the Company entered into a new long-
term banking agreement with Harris Trust and Savings Bank for a
$7,000,000 revolving line of credit. This agreement runs through
September 30, 1998. At December 31, 1996 the Company had an unused
balance of $5,649,600 on its line of credit. During 1996, the average
rate for the borrowings was 8.28%. The long-term note is
uncollateralized with certain covenant restrictions. The Company had an
outstanding letter of credit balance of $50,400 and $428,538 at December
31, 1996 and 1995 respectively.
<PAGE>
(9) SPECIAL CHARGE
During 1995, the Company incurred a one time charge of $886,000, or 22
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. During 1994,
the Company incurred a one time charge of $1,201,000, or 31 cents per
share. This charge consisted of $762,000, or 20 cents per share for
management reorganization and $439,000, or 11 cents per share for
phasing out certain products and severance payments for employee
reorganization which consisted of terminating 19 employees. This
reorganization was substantially completed at December 31, 1994.

(10) LEASE COMMITMENTS
The Company leases certain data processing equipment under lease
agreements expiring through the year 2001. The following is a schedule
of future minimum lease payments required under operating leases as of
December 31, 1996:
<TABLE>
Year ending
December 31, Amount
<C> <C>
1997 $ 27,961
1998 27,961
1999 23,644
2000 20,100
2001 20,100
Thereafter ---
$ 119,766
</TABLE>
Rent expense related to operating leases was approximately $6,411,
$12,568 and $4,880 during the years ended December 31, 1996, 1995 and
1994, respectively.

<TABLE>
(11) UNAUDITED QUARTERLY FINANCIAL DATA
Selected quarterly data for 1996 and 1995 are as follows:
(In thousands except per-share data)

1996
First Second Third Fourth
<S> <C> <C> <C> <C>
Net sales $ 10,429 $ 9,158 $ 7,950 $ 9,131
Net earnings (loss) $ 265 $ 151 $ 164 $ (177)
Net earnings (loss) per share $ 0.07 $ 0.03 $ 0.04 $ (0.04)
</TABLE>
<TABLE>
1995
First Second Third Fourth
<S> <C> <C> <C> <C>
Net Sales $ 6,157 $ 7,784 $ 7,784 $ 6,518
Net earnings (loss) $ 148 $ 149 $ (742) $ (614)
Net earnings (loss) per share $ 0.04 $ 0.03 (0.18) (0.15)
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Board of Directors
Wells-Gardner Electronics Corporation:

We have audited the accompanying balance sheets of Wells-Gardner
Electronics Corporation as of December 31, 1996 and 1995 and the related
statements of operations, shareholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1996. 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 generally accepted auditing
standards. 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 financial position of Wells-
Gardner Electronics Corporation at December 31, 1996 and 1995, and the
results of its operations and its cash flows for each of the years in
the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.

KPMG PEAT MARWICK, LLP
Chicago, Illinois
January 31, 1997
<PAGE>
BOARD OF DIRECTORS

ANTHONY SPIER ALLAN GARDNER JAMES J. ROBERTS, JR.
Chairman of the Retired from the Chairman of the Board
Board, President Company in 1988 & Chief Executive
& Chief Executive Officer of James
Officer Industries, Inc.

JOHN R. BLOUIN H. WAYNE HARRIS RANDALL S. WELLS
President of James President of Wayne Executive Vice
Industries, Inc. Harris Company President & General
Manager

WILLIAM L. DENICOLO IRA J. KAUFMAN ERNEST R. WISH
Founder & Chairman of Senior Managing Chairman of the Board
the Board of Telular Director of Mesirow of WRM, Inc.
Corporation & Chairman Financial, Inc.
of the Board and
President of DNIC
Brokerage Company

OFFICERS

ANTHONY SPIER MARK E. KOMOROWSKI GEORGE B. TOMA CPA,CMA
Chairman of the Vice President & Vice President of
Board, President General Manager of Finance, Chief
& Chief Executive Services Financial Officer &
Officer Treasurer

EUGENE C. AHNER LARRY S. MAHL RANDALL S. WELLS
Director of Human Director of Materials Executive Vice
Resources & Secretary President & General
& Secretary Manager

KATHLEEN E. HOPPE JOHN S. PIRCON
Director of Management Vice President of
Information Systems Marketing & Engineering
<PAGE>

ASSIGNMENT OF RIGHTS AND ROYALTY AGREEMENT

This Assignment of Rights and Royalty Agreement ("Agreement" is
made this 1st day of January, 1997 by and between Wells-Gardner
Electronics Corporation, an Illinois corporation (the "Company"), and
Randall S. Wells, the Executive Vice President and General Manager of
the Company ("Wells") and Mark Komorowski, Vice President of Business
Services of the Company ("Komorowski" and together with Wells, the
"Employees").

WHEREAS, each Employee is currently an employee of the Company;

WHEREAS, on the date of this Agreement, the Employees are formally
transferring all of the rights to, title to and interest in the system
of manufacturing, marketing, distributing and selling video projection
systems known as the "Play Master Extreme" as is more fully described
in the attached Exhibit A (2 specification sheets) (the "System");

WHEREAS, in exchange for the rights to the System, the Company desires
to pay the Employees a royalty based on net profits derived from the
sales of System products; and

WHEREAS, The parties desire to enter into this Agreement to formalize
the terms of such assignment and agreement.

NOW, THEREFORE, in consideration of the foregoing and the mutual
convenience and promises in this Agreement and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:

Section 1. Originality of System. The Employees represent and warrant
that the System is original, and does not, to the best of their
knowledge, infringe or misappropriate the rights or properties of any
third parties. Nothing in this Agreement shall be construed as warranty
or representation that any manufacture, sale, lease, use or importation
will be free from infringement of patents, trademarks, copyrights, or
other forms of intellectual property.

Section 2. Assignment of Rights.

(a) The Employees hereby assign and agree to assign all of their rights
to, title and interest in the System and all Embodiments (as defined
below), whether such interest arises under patent law, trademark law,
copyright law, trade secret law, or otherwise, including the right to
use the System in any and all manner throughout the world in perpetuity
and the right to sue and recover damages for any past, present and
future infringement or misappropriation of the System or Embodiments.
"Embodiments" means the Playmaster Extreme business plan, (attached
hereto as Exhibit C) the know-how to manufacture, market, use,
distribute and sell the System.

(b) Each Employee shall promptly disclose to the Company all
Embodiments.

(c) Each Employee hereby agrees that the Company may, in the Company's
sole discretion, make any desired changes to any part of the System or
any Embodiment, to combine it with other ideas in any manner desired.
<PAGE>
(d) At the request of the Company, each Employee shall promptly and
without additional compensation execute any and all patent applications,
trademark registration applications, copyright registration
applications, assignments, or other instruments that the Company deems
necessary or appropriate to apply for or obtain Letters Patent of the
United States or any foreign country, trademark registrations, copyright
registrations or otherwise to protect the Company's interest in such
System and Embodiments, the expenses for which will be borne by the
Company. Each Employee hereby irrevocably designates and appoints the
Company and its duly authorized officers and agents as his agents and
attorneys-in-fact to, if the Company is unable for any reason to secure
such Employee's signature to any lawful and necessary document required
or appropriate to apply for or execute any patent application,
trademark registration, application, copyright registration application,
or other similar document with respect to the System and Embodiment
(including, without limitation, renewals, extensions, continuations,
divisions, or continuations in part), (i) act for and in his behalf,
(ii) execute and file any such document, and (iii) do all other lawfully
permitted acts to further the prosecution of the same legal force and
effect as if executed by him. This designation and appointment
constitutes an irrevocable power of attorney coupled with an interest
with respect to the System and Embodiments.

(e) The obligations of each Employee set forth in this Section
(including, without limitation, the assignment obligations) will
continue beyond the termination of this Agreement whether pursuant to
this Agreement or otherwise. Those obligations will be binding upon
each Employee, his assignees permitted under this Agreement, executors,
administrators, and other representatives. In the event of termination,
either voluntary or involuntary, of either or both Employee(s) by the
Company, this Agreement will remain in effect. Nothing herein shall be
construed as an employment agreement or the right to continue as an
employee of the Company. Each Employee shall be responsible for and
shall promptly discharge when and as due any taxes resulting from the
receipt of payments hereunder. Each Employee shall indemnify and hold
the Company harmless from and against any and all failures to pay taxes
earned on amounts received hereunder.

Section 3. Royalty.

(a)(i) In consideration of the rights granted by the Employees to the
Company hereunder, the Company shall pay the Employees a royalty (the
"Royalty") equal to 20% of Net Profit (as defined) made by the Company
for products from the System (the "Products") per Exhibit A, equivalents
and any future improvements thereof for the Royalty Period (as defined).
The Company will pay the Employees the total sum of $5,000 ($2,500 to
each Employee) (each, an "Advance") per year of the Agreement. The
payment shall be paid by January 31 of each year of the Agreement. This
amount will be deducted from the Royalty due the Employees as is
outlined in this Section. The Company shall use its best efforts, as
determined solely by its chief executive officer, to market and sell the
System.
<PAGE>
(a)(ii) At any time during the Royalty Period, if the Company decides
to sell the System and the Embodiments and any other related equipment
or inventory (Collectively, the "System Assets") and the Company
receives an offer for the System Assets (the "Offer"), the Employees
shall have the right, but not the obligation, to purchase the System
Assets for the same price as the Offer and on the same terms and
conditions. The Company shall promptly notify the Employees of any such
Offer. The Employees shall promptly notify the Company if they wish to
purchase the System Assets pursuant to this Section. Such purchase and
sale shall thereafter by promptly consummated.

(b) "Net Profit" means net sales (minus any allowance for returns)
minus the cost of goods sold, minus any administrative, sales,
advertising, trade show, warranty, research and development, direct
inventory write-off, and other costs to be mutually agreed upon by the
Employee(s) and the Company, all as is more fully described in the
attached Exhibit B. Expenses to be allocated to the Net Profit
calculation are based on expenses incurred during each year of the
"Royalty Period". The "Royalty Period" shall commence on January 1, 1997
and end on December 31, 1998.

(c) The Royalty shall be accounted for and paid within 60 days after
the end of each semi-annual period during the term of the Royalty
Period. All payments shall be made in US dollars and shall be made in
accordance with the Employees reasonable instructions.

(d) At the end of each year, the Company shall reconcile Net Profit
with its final audited financial statements to the extent the Company
has paid the Employees an amount in excess of 20% of the actual Net
Profit for that year, such Employees shall promptly repay any amounts
due to the Company. To the extent the Company has paid the Employees an
amount which is less than 20% of the actual Net Profit for that year,
the Company shall promptly pay such amounts due to the Employees. To
the extent the Advances exceed the Royalties due to the Employees at the
end of the Royalty Period, the Employees shall promptly repay such
amounts to the Company.

(e) The Employee(s) reserve the right to audit the net profit
calculation and supporting documentation on a semi-annual basis related
to the Royalty payment in Section 3.

Section 4. Restrictive Covenant.

(a) Restrictive Covenant. Each Employee hereby covenants and agrees
that, during the term of this Agreement, and for a period of one year
thereafter, each Employee will not, directly or indirectly, for himself
or as an agent on behalf of, or in conjunction with any person, firm,
association or corporation, compete with the Company or attempt to sell
or sell any Company or equivalent products or service to any present or
former (within the last 24 months) customer of the Company in the World.
<PAGE>
(b) Modification By Court. The parties hereto agree that if for any
reason, the covenants or any portion of the covenants provided for in
this Section shall be deemed too expensive and therefore unreasonable,
they hereby expressly authorize the court to modify those covenants or
offending portions of the covenants so as to create limitations which
are reasonable and enforceable.

(c) Other than for acts or omissions which violate the representations,
terms or conditions of this Agreement or are illegal, the Company shall
indemnify and hold the Employees harmless from any and all losses,
damages, or claims (including reasonable attorney's fees) resulting from
any acts of the Company's agents, employees, dealers, subcontractors, or
end users or relating in any way to the content, completeness, or
performance of any products covered herein including but not limited to
any third party claims of patent, trademark, or copyright infringement.

(d) Each party shall be responsible for their own litigation expenses.

Section 5. Effect of Prior Agreements. This Agreement contains the
entire understanding between the Company and the Employees relating to
the subject matter hereof and supersedes any prior agreement,
communication, or understanding relating to the subject matter hereof
between the Company and the Employees.

Section 6. Modification and Waiver. This Agreement may not be
modified or amended except by an instrument in writing signed by the
parties. No term or condition of this Agreement will be deemed to have
been waived, except by written instrument of the party charged with such
waiver. No such written waiver will be deemed to be a continuing wives
unless specifically stated therein, and each such waiver will operate
only as to the specific term or condition waived and will not constitute
a waiver of such term or condition for the future or as to any act other
than that specifically waived.

Section 7. Severability. If, for any reason, any provision of this
Agreement is held invalid, such invalidity will not affect any other
provision of this Agreement, and each provision will to the full extent
consistent with law continue in full force and effect. If any provision
of this Agreement is held invalid in part, such invalidity will in no
way affect the rest of such provision, and the rest of such provision,
together with all other provisions of this Agreement, will, to the full
extent consistent with law, continue in full force and effect. The
Employees are jointly and severally liable for any breach of this
Agreement by either Employee.
<PAGE)
Section 8. Notices. Any notice or consent required or permitted
pursuant to the provisions of this Agreement must be in writing and will
be deemed to have been properly given when sent by telecopier, provided
that a copy is sent by United States mail, certified or registered; one
day after deposit with a nationally recognized overnight courier
service; or when personally delivered, addressed as follows:

If to the Company:
Wells-Gardner Electronics Corporation
2701 N. Kildare Avenue
Chicago, Illinois 60639
Attn: Anthony Spier
Chairman and CEO
Telecopy No: 773 252-8072

With a copy to:
Katten, Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661
Attn: David J. Kaufman
Telecopy No: 312 902-1061

If to the Employees:
Randall S. Wells
515 N. Wisner
Park Ridge, Illinois 60068

Mark Komorowski
8581 Ventura Drive
St. John, Indiana 46373

Each party will be entitled to specify a different address for the
receipt of subsequent notices by giving written notice thereof to the
other party in accordance with this Section.

Section 9. Headings. The headings and other captions in this
Agreement are included solely for convenience of reference and will not
affect the meaning and interpretation of any provision of this
Agreement.

Section 10. Governing Law. This Agreement has been executed in the
State of Illinois, and its validity, interpretation, performance, and
enforcement will be governed by the laws of such state without regard to
conflicts of laws principles.

Section 11. Binding Effect. This Agreement will be binding upon and
inure to the benefit of each Employee, the Company, and their respective
successors and permitted assigns. The Company will be entitled to
assign its rights and duties under this Agreement provided that the
Company will remain liable to each Employee should such assignee fail to
perform its obligations under this Agreement.

Section 12. No Strict Construction. The language used in this
Agreement will be deemed to be the language chosen by the parties to
express their mutual intent, and no rule of strict construction will be
applied against either party.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its duly authorized officer and each Employee has signed this
Agreement, as of the date first above written.

WELLS-GARDNER ELECTRONICS CORPORATION

By: ANTHONY SPIER
Anthony Spier, Chairman and CEO

RANDALL S. WELLS
Randall S. Wells

MARK KOMOROWSKI
Mark Komorowski
<PAGE>

Independent Auditors' Report

The Board of Directors
Wells-Gardner Electronics Corporation:

Under date of January 31, 1997, we reported on the balance sheets of
Wells-Gardner Electronics Corporation (Company) as of December 31, 1996
and 1995, and the related statements of operations, shareholders'
equity, and cash flows for each of the years in the three-year period
ended December 31, 1996, as contained in the 1996 annual report to
shareholders. These financial statements and our report thereon are
incorporated by reference in the annual report on Form 10-K for the year
1996. In connection with our audits of the aforementioned financial
statements, we also audited the related financial statement schedule as
listed in the accompanying index. This financial statement schedule is
the responsibility of the Company's management. Our responsibility is
to express an opinion on this financial statement schedule based on our
audits.

In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.

KPMG Peat Marwick LLP

Chicago, Illinois
January 31, 1997
<PAGE>

CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors
Wells-Gardner Electronics Corporation:

We consent to incorporation by reference in the Registration Statements
on Form S-8 (#2-72090, #2-09137, #33-63920, #33-61535, and #33-02981) of
Wells-Gardner Electronics Corporation of our reports dated January 31,
1997, relating to the balance sheet of Wells-Gardner Electronics
Corporation as of December 31, 1996 and 1995, and the related statements
of operations, shareholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1996, and the related
schedule, which reports are included in or incorporated by reference in
the December 31, 1996 annual report on Form 10-K of Wells-Gardner
Electronics Corporation.

KPMG Peat Marwick LLP

Chicago, Illinois
March 21, 1997
<PAGE>

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 57
<SECURITIES> 0
<RECEIVABLES> 3,896
<ALLOWANCES> 107
<INVENTORY> 7,344
<CURRENT-ASSETS> 11,747
<PP&E> 9,662
<DEPRECIATION> 7,284
<TOTAL-ASSETS> 14,124
<CURRENT-LIABILITIES> 2,730
<BONDS> 0
0
0
<COMMON> 4,068
<OTHER-SE> 6,027
<TOTAL-LIABILITY-AND-EQUITY> 14,124
<SALES> 36,668
<TOTAL-REVENUES> 36,668
<CGS> 31,066
<TOTAL-COSTS> 36,224
<OTHER-EXPENSES> 41
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 242
<INCOME-PRETAX> 403
<INCOME-TAX> 0
<INCOME-CONTINUING> 403
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 403
<EPS-PRIMARY> .10
<EPS-DILUTED> .10

</TABLE>