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
March 31, 1998
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 May 4, 1998, 4,232,758 shares of the Common Stock, $1.00 par
value of the registrant were outstanding.
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WELLS-GARDNER ELECTRONICS CORPORATION
FORM 10-Q
For Quarter Ended March 31, 1998
PART I - FINANCIAL INFORMATION
Item 1.
Index to Financial Statements:
Condensed Statements of Earnings
- Three Months Ended March 31, 1998 & 1997 (Unaudited)
Condensed Balance Sheets
- March 31, 1998 (Unaudited) & December 31, 1997 (Audited)
Condensed Statements of Cash Flows
- Three Months Ended March 31, 1998 & 1997 (Unaudited)
Notes to the Condensed Financial Statements
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II - OTHER INFORMATION
Item 6.
Exhibits and Reports on Form 8-K
SIGNATURE
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WELLS-GARDNER ELECTRONICS CORPORATION
Condensed Statements of Earnings
(Unaudited)
Three Months Ended March 31,
1998 1997
<S> <C> <C>
Net sales $ 8,983,000 $ 10,105,000
Cost of sales 7,588,000 8,714,000
Engineering, selling &
administrative expenses 1,171,000 1,247,000
Other expense, net 70,000 35,000
Total costs 8,829,000 9,996,000
Earnings before income taxes 154,000 109,000
Income taxes --- ---
Net earnings $ 154,000 $ 109,000
Earnings per share:
Basic net earnings per share $ 0.04 $ 0.03
Diluted net earnings per share $ 0.04 $ 0.03
Basic average common shares
outstanding 4,222,116 4,069,922
Diluted average common shares
outstanding 4,409,372 4,142,584
See accompanying notes to the unaudited condensed financial statements.
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<TABLE>
WELLS-GARDNER ELECTRONICS CORPORATION
Condensed Balance Sheets
(Unaudited) (Audited)
March 31, December 31,
1998 1997
<S> <C> <C> <C> <C>
Assets:
Cash & cash equivalents $ 39,000 $ 150,000
Accounts receivable (net) 5,894,000 5,232,000
Note receivable 214,000 375,000
Inventory:
Raw materials 5,549,000 6,253,000
Work in progress 1,027,000 451,000
Finished goods 3,296,000 2,552,000
9,872,000 9,256,000
Prepaids & other current assets 361,000 237,000
Total current assets 16,380,000 15,250,000
Property, plant & equipment, net 2,208,000 2,270,000
Long-term note receivable 432,000 ---
Total assets $ 19,020,000 $ 17,520,000
Liabilities:
Accounts payable $ 3,148,000 $ 3,453,000
Accrued expenses 575,000 882,000
Total current liabilities 3,723,000 4,335,000
Long-term note payable 3,675,000 1,800,000
Total liabilities 7,398,000 6,135,000
Shareholders' Equity:
Common stock-authorized 25,000,000
shares, $1.00 par value; 4,229,108
shares issued as of March 31, 1998
& 4,215,083 shares issued as of
December 31, 1997 4,229,000 4,215,000
Additional paid in capital 1,475,000 1,425,000
Retained earnings 6,088,000 5,933,000
Unearned compensation (170,000) (188,000)
Total shareholders' equity 11,622,000 11,385,000
Total liabilities & shareholders' equity 19,020,000 17,520,000
See accompanying notes to the unaudited condensed financial statements.
</TABLE>
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<TABLE>
WELLS-GARDNER ELECTRONICS CORPORATION
Condensed Statements of Cash Flows
(Unaudited)
Three Months Ended March 31,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 154,000 $ 109,000
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Depreciation 85,000 97,000
Amortization of unearned compensation 18,000 44,000
Changes in current assets & liabilities:
Accounts receivable (662,000) (1,391,000)
Note receivable 161,000 ---
Inventory (616,000) (434,000)
Prepaid expenses & other current assets (124,000) (147,000)
Accounts payable (305,000) 1,301,000
Accrued expenses (307,000) (210,000)
Net cash used in operating activities (1,596,000) (631,000)
Cash used in investing activities:
Note receivable (432,000) ---
Additions to property, plant & equipment, net (22,000) (104,000)
Net cash used in investing activities (454,000) (104,000)
Cash provided by financing activities:
Borrowings (repayments) - note payable 1,875,000 700,000
Proceeds from stock options exercised 64,000 31,000
Net cash provided by financing activities 1,939,000 731,000
Net decrease in cash & cash equivalents (111,000) (4,000)
Cash & cash equivalents at beginning of period 150,000 57,000
Cash & cash equivalents at end of period $ 39,000 $ 53,000
Supplemental cash flow disclosure:
Interest paid $ 76,000 $ 38,000
Taxes paid $ 10,000 $ ---
See accompanying notes to the unaudited condensed financial statements.
</TABLE>
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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 1997 Annual Report to shareholders.
The results of operations for the quarter ended March 31, 1998 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 equivalents outstanding.
3. Certain 1997 expenses have been reclassed to conform to the
presentation in 1998.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
For the first quarter ended March 31, 1998, net sales decreased 11.1
percent to $8,983,000 from $10,105,000 in the prior year's period,
while net earnings increased 41.3 percent to $154,000 from 109,000 in
the prior year's period. Gross operating profit, as a percentage of
sales, increased to 15.5 percent, or $1,395,000, compared to 13.8
percent, or $1,391,000, for the same period last year. This increase
was attributed to the introduction of the new WG2 line of standard
monitors. Engineering, selling and administrative expenditures
decreased to $1,171,000 down from $1,247,000 in the first quarter of
1998. Net earnings were $154,000, or 4 cents per basic and diluted
share, compared to net earnings of $109,000, or 3 cents per basic and
diluted share, for the comparable 1997 quarter. The Company did not
recognize any income tax expense in the first quarter periods due to
the utilization of its net operating loss carryforward.
As of March 31, 1998, cash and cash equivalents decreased $111,000
to $39,000 from $150,000 at year end 1997. On a daily basis, the
Company uses all available cash to reduce its long-term notes payable
and minimize its interest expense. Accounts receivable increased
$662,000 to $5,894,000 from $5,232,000 at year end 1997 due to the
higher sales volume during the last month of the first quarter, 1998.
Receivable days were averaging 53 days, up slightly from 52 at the end
of 1997. Inventory increased $616,000 to $9,872,000 from $9,256,000
at year end 1997 due to the new release of the WG2 product during the
first quarter of 1998. Long-Term notes payable was $3,675,000
compared to $1,800,000 at year end 1997. This increase was attributed
to funding operations, specifically the increased inventory level.
Accounts payable decreased $305,000 to $3,148,000 from $3,453,000 at
year end 1997 due to the Company's decreased purchases based on its
lower sales volume during the first quarter of 1998. Accrued expenses
decreased $297,000 to $575,000 from $882,000 at year end 1997.
Working capital increased by $1,742,000 since year-end 1997, to
$12,657,000 and corporate liquidity continues to be strong as
evidenced by a current ratio of 4.40 to 1.
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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.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits:
Exhibit 27 - Financial Data Schedule
(b). Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter
ended March 31, 1998.
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: May 6, 1998 By: /s/ GEORGE B. TOMA
George B. Toma CPA, CMA
Vice President of Finance,
Chief Financial Officer and Treasurer
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