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 June 30, 1997
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 Number 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 No.)
incorporation or organization)
2701 North Kildare Avenue, Chicago, Illinois 60639
(Address of principal executive offices) (Zip Code)
(773) 252-8220
(Registrant's telephone number, including area code)
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 July 31, 1997, 4,129,126 shares of the Common Stock, $1.00 par
value of the registrant were outstanding.
<PAGE>
WELLS-GARDNER ELECTRONICS CORPORATION
FORM 10-Q
For Quarter Ended June 30, 1997
PART I - FINANCIAL INFORMATION
Item 1.
Index to Financial Statements:
Condensed Statements of Earnings
- Three Months Ended June 30, 1997 & 1996 (Unaudited)
- Six Months Ended June 30, 1997 & 1996 (Unaudited)
Condensed Balance Sheets
- June 30, 1997 (Unaudited) & December 31, 1996 (Audited)
Condensed Statements of Cash Flows
- Six Months Ended June 30, 1997 & 1996 (Unaudited)
Notes to the Condensed Financial Statements
Item 2.
Management's Discussion & Analysis of Financial Condition & Results
of Operations
PART II - OTHER INFORMATION
Item 6.
Exhibits & 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 June 30,
1997 1996
<S> <C> <C>
Net sales $ 12,015,000 $ 9,158,000
Cost of sales 9,892,000 7,747,000
Engineering, selling &
administrative expenses 1,684,000 1,253,000
Other (income) expense, net (9,000) 7,000
Total costs 11,567,000 9,007,000
Earnings before income taxes 448,000 151,000
Income taxes --- ---
Net earnings $ 448,000 $ 151,000
Earnings per share:
Net earnings per share $ 0.11 $ 0.04
Weighted average common shares
outstanding 4,090,252 4,181,156
See accompanying notes to the unaudited condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
WELLS-GARDNER ELECTRONICS CORPORATION
Condensed Statement of Earnings
(Unaudited)
Six Months Ended June 30,
1997 1996
<S> <C> <C>
Net sales $ 22,120,000 $ 19,587,000
Cost of sales 18,653,000 16,622,000
Engineering, selling &
administrative expenses 2,931,000 2,539,000
Other (income) expense, net (21,000) 10,000
Total costs 21,563,000 19,171,000
Earnings before income taxes 557,000 416,000
Income taxes --- ---
Net earnings $ 557,000 $ 416,000
Earnings per share:
Net earnings per share $ 0.14 $ 0.10
Weighted average common shares
outstanding 4,080,054 4,151,867
See accompanying notes to the unaudited condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
WELLS-GARDNER ELECTRONICS CORPORATION
Condensed Balance Sheets
(Unaudited) (Audited)
June 30, December 31,
1997 1996
<S> <C> <C> <C> <C>
Assets:
Cash & cash equivalents $ 58,000 $ 57,000
Accounts receivable (net) 6,237,000 3,896,000
Inventory:
Raw materials 4,476,000 4,670,000
Work in progress 1,728,000 598,000
Finished goods 1,717,000 7,921,000 2,076,000 7,344,000
Prepaids & other current assets 318,000 450,000
Total current assets 14,534,000 11,747,000
Property, plant & equipment, net 2,325,000 2,378,000
Total assets $ 16,859,000 $ 14,125,000
Liabilities:
Accounts payable $ 2,595,000 $ 1,763,000
Accrued expenses 923,000 967,000
Total current liabilities 3,518,000 2,730,000
Long-term note payable 2,550,000 1,300,000
Total liabilities 6,068,000 4,030,000
Shareholders' Equity:
Common stock-authorized 25,000,000
shares, $1.00 par value; 4,107,026
shares issued as of June 30, 1997
& 4,068,426 shares issued as of
December 31, 1996 4,107,000 4,068,000
Additional paid in capital 1,240,000 1,159,000
Retained earnings 5,715,000 5,158,000
Unearned compensation (271,000) (290,000)
Total shareholders' equity 10,791,000 10,095,000
Total liabilities &
shareholders' equity $ 16,859,000 $ 14,125,000
See accompanying notes to the unaudited condensed financial
statements.
</TABLE>
<PAGE>
<TABLE>
WELLS-GARDNER ELECTRONICS CORPORATION
Condensed Statements of Cash Flows
(Unaudited)
Six Months Ended June 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 557,000 $ 416,000
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 194,000 221,000
Amortization of unearned compensation 92,000 (47,000)
Changes in current assets & liabilities:
Accounts receivable (2,341,000) (2,867,000)
Income taxes --- 2,000
Inventory (577,000) 1,883,000
Prepaid expenses & other current assets 132,000 122,000
Accounts payable 832,000 97,000
Accrued expenses (44,000) (227,000)
Net cash used in operating activities (1,155,000) (400,000)
Cash used in investing activities:
Additions to property, plant & equipment (141,000) (139,000)
Net cash used in investing activities (141,000) (139,000)
Cash provided by (used in) financing activities:
Borrowings (repayments) - note payable 1,250,000 (425,000)
Proceeds from stock options exercised 47,000 66,000
Net cash provided by (used in) financing activities 1,297,000 (359,000)
Net increase (decrease) in cash & cash equivalents 1,000 (898,000)
Cash & cash equivalents at beginning of period 57,000 1,117,000
Cash & cash equivalents at end of period $ 58,000 $ 219,000
Supplemental cash flow disclosure:
Interest paid $ 104,000 $ 122,000
Taxes paid $ --- $ ---
See accompanying notes to the unaudited condensed financial statements.
</TABLE>
<PAGE>
WELLS-GARDNER ELECTRONICS CORPORATION
Notes to the 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. These condensed financial statements should be
read in conjunction with the audited financial statements and notes
thereto included in the Company's 1996 Annual Report to shareholders.
The results of operations for the quarter and six months ended June
30, 1997 are not necessarily indicative of the operating results for
the full year.
2. Earnings per common and common equivalent shares were calculated by
dividing net earnings by the weighted average number of shares of
common stock and common stock equivalents outstanding.
Item 2. Management's Discussion & Analysis of Financial Condition &
Results of Operations
Second Quarter & Six Month Earnings Ended June 30, 1997 & 1996
For the second quarter ended June 30, 1997, net sales increased 31.2
percent to $12,015,000 from $9,158,000 in the prior year's period.
This increase was due to higher shipments to the bartop, gaming,
automotive, display and service applications. Gross operating profit
(net sales less cost of sales), as a percentage of sales, increased to
17.7 percent, or $2,123,000, compared to 15.4 percent, or $1,411,000,
for the same period last year. This increase was attributed to a
combination of improved productivity, a royalty adjustment and the
elimination of low margin products. Engineering, selling and
administrative expenses increased 34.4 percent to $1,684,000 from
$1,253,000 due to increased research and development of new products
and higher sales commissions paid on higher sales volume. The Company
did not recognize any income tax expense in the 1997 period due to the
utilization of its net operating loss carryforward. Net earnings were
$448,000, or 11 cents per share, compared to net earnings of $151,000,
or four cents per share, for the comparable 1996 quarter.
For the six months ended June 30, 1997, net sales increased 12.9
percent to $22,120,000 from $19,587,000 in the prior year's period.
This increase was due to higher shipments to the bartop, automotive,
leisure/fitness, display and service applications. Gross operating
profit (net sales less cost of sales), as a percentage of sales,
increased to 15.7 percent, or $3,467,000, compared to 15.1 percent, or
$2,965,000, for the same period last year. Engineering, selling and
administrative expenses increased 15.4 percent to $2,931,000 from
$2,539,000 due to increased research and development of new products
and higher sales commissions paid on higher sales volume. The Company
did not recognize any income tax expense in the 1997 period due to the
utilization of its net operating loss carryforward. Net earnings were
$557,000, or 14 cents per share, compared to net earnings of $416,000,
or 10 cents per share, for the comparable 1996 period.
<PAGE>
WELLS-GARDNER ELECTRONICS CORPORATION
Liquidity & Capital Resources
As of June 30, 1997, cash and cash equivalents increased $1,000 from
year end 1996. On a daily basis, the Company utilizes a sweep account
to minimize its cash on hand which reduces its outstanding balance on
its line of credit and minimizes interest expense. Accounts
receivable increased $2,341,000 to $6,237,000 from $3,896,000 due to a
31.2 percent increase in sales volume during the second quarter of
1997. Receivable days were averaging 49 days, up slightly from 44 at
the end of 1996. Inventory increased $577,000 to $7,921,000 from
$7,344,000 at year end 1996 as the Company prepared to resume
operations upon return from its annual summer shutdown which takes
place the first two weeks of July. The management of inventory
improved as inventory turns increased to 4.71 from 4.28 at year end
1996. The Company's backlog was approximately 38,500 monitors
representing approximately 3 months sales. It is the Company's
experience that over 90 percent of backlog results in revenue
recognition.
As of June 30, 1997, accounts payable increased $832,000 to $2,595,000
from $1,763,000 at year end 1996 due to the Company's increased
purchases based on its higher sales volume during the second quarter
of 1997. Accrued expenses decreased $44,000 to $923,000 from $967,000
at year end 1996. Notes payable increased $1,250,000 to $2,550,000
compared to $1,300,000 at December 31, 1996. This increase was
attributed to funding a higher sales volume and inventory level. 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. During
the second quarter of 1997, this line of credit was extended to the
year 2000. Working capital increased by $1,999,000 since year-end
1996, to $11,016,000, shareholders' equity improved to $2.63 per share
and corporate liquidity continues to be strong as evidenced by a
current ratio of 4.13 to 1.
Because the Company wants to provide shareholders and potential
investors with more meaningful and useful information, this report may
contain 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 which are more fully
described in our Securities and Exchange Commission filings. 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.
<PAGE>
WELLS-GARDNER ELECTRONICS CORPORATION
PART II - OTHER INFORMATION
Item 6. Exhibits & Reports on Form 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
Exhibit 10.1 Revolving Credit Agreement First Amendment dated
May 23, 1997, between Harris Trust and Savings Bank and the
Company.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended
June 30, 1997.
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: August 11, 1997 By: George B. Toma CPA, CMA
Its:Vice President of Finance,
Chief Financial Officer and
Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the Balance Sheet at June 30, 1997 (Unaudited) and the
Statements of Operations for the Six Months Ended June 30, 1997
(Unaudited) and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 58
<SECURITIES> 0
<RECEIVABLES> 6,237
<ALLOWANCES> 205
<INVENTORY> 7,921
<CURRENT-ASSETS> 14,534
<PP&E> 9,797
<DEPRECIATION> 7,472
<TOTAL-ASSETS> 16,859
<CURRENT-LIABILITIES> 3,518
<BONDS> 0
0
0
<COMMON> 4,107
<OTHER-SE> 6,684
<TOTAL-LIABILITY-AND-EQUITY> 16,869
<SALES> 22,120
<TOTAL-REVENUES> 22,120
<CGS> 18,653
<TOTAL-COSTS> 2,931
<OTHER-EXPENSES> (21)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 104
<INCOME-PRETAX> 557
<INCOME-TAX> 0
<INCOME-CONTINUING> 557
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 557
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
FIRST AMENDMENT TO CREDIT AGREEMENT
Harris Trust and Savings Bank
111 West Monroe Street
Chicago, Illinois
Gentlemen:
The undersigned Wells-Gardner Electronics Corporation, an
Illinois corporation, (the "Company") refers to the Credit Agreement
dated as of October 2, 1995 as may be amended from time to time (the
"Agreement") and currently in effect between the Company and you
(the "Bank"). All capitalized terms used herein without definition
shall have the same meanings as they have in the Agreement.
The Company hereby applies to the Bank for an extension of the
maturity date of the Agreement and certain other modifications to the
Agreement and the Company's borrowing arrangements with the Bank.
1. AMENDMENT.
Upon the Bank's acceptance hereof in the space provided for that
purpose below, the Agreement shall be and hereby is amended as
follows:
(a) The definition of "Termination Date" appearing in Section 4
of the Agreement shall be and hereby is amended in its entirety, and
said definition, as so amended, shall read as follows:
" "Termination Date" means January 1, 2000, or such earlier date
on which the Revolving Credit is terminated pursuant to Section
8.2 and 8.3 hereof."
2. CONDITIONS PRECEDENT.
The effectiveness of the Agreement is subject to the satisfaction of
all of the following conditions precedent:
(a) The Company and the Bank shall have executed this First
Amendment.
(b) The Bank shall have received copies executed or certified (as
may be appropriate) of all legal documents or proceedings taken in
connection with the execution and delivery hereof and the other
instruments and documents contemplated hereby.
(c) All legal matters incident to the execution and delivery
hereof and of the instruments and documents contemplated hereby shall
be satisfactory to the Bank and its counsel.
<PAGE>
3. REPRESENTATIONS.
In order to induce the Bank to execute and deliver this
Amendment, the Company hereby represents to the Bank that as of the
date hereof and as of the time that this Amendment becomes effective,
each of the representations and warranties set forth in Section 5 of
the Agreement are and shall be and remain true and correct (except
that the representations contained in Section 5.4 shall be deemed to
refer to the most recent financial statements of the Company delivered
to the Bank) and the Company is in full compliance with all of the
terms and conditions of the Agreement and no Default as defined in the
Agreement as amended hereby nor any Event of Default as so defined,
shall have occurred and be continuing or shall arise after giving
effect to this Amendment.
4. MISCELLANEOUS.
(a) Effect of Amendment. Except as specifically amended and
modified hereby, the Agreement shall stand and remain unchanged and in
full force and effect in accordance with its original terms.
Reference to this specific Amendment need not be made in any note,
instrument or other document making reference to the Agreement, any
reference to the Agreement in any of such to be deemed to be a
reference to the Agreement as amended hereby.
(b) Costs and Expenses. The Company agrees to pay on demand all
out-of-pocket costs and expenses incurred by the Bank in connection with
the negotiation, preparation, execution and delivery of this Agreement
and the documents and transactions contemplated hereby, including the
fees and expenses of counsel to the Bank with respect to the foregoing,
but not more than $500.00.
(c) Counterparts; Governing Law. This Amendment may be executed in
any number of counterparts and by different parties hereto on separate
counterparts, each of which when so executed shall be an original but
all of which together shall constitute one and the same agreement. This
Amendment shall be governed by the internal laws of the State of
Illinois.
Dated as of May 23, 1997
WELLS-GARDNER ELECTRONICS CORPORATION
By: GEORGE B. TOMA
Its: Vice President of Finance, Chief Financial
Officer and Treasurer
Accepted and agreed to at Chicago, Illinois, as of the date and year
last above written.
HARRIS TRUST AND SAVINGS BANK
By: DAVID ALTHOFF
Its: Vice President
