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, 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 July 30, 1998, 4,266,177 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 June 30, 1998
PART I - FINANCIAL INFORMATION
Item 1.
Index to Financial Statements:
Condensed Statements of Earnings
- Three Months Ended June 30, 1998 & 1997 (Unaudited)
- Six Months Ended June 30, 1998 & 1997 (Unaudited)
Condensed Balance Sheets
- June 30, 1998 (Unaudited) & December 31, 1997 (Audited)
Condensed Statements of Cash Flows
- Six Months Ended June 30, 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 4.
Submission of Matters to a Vote of Security Holders
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 June 30,
1998 1997
<S> <C> <C>
Net sales $ 12,983,000 $ 12,015,000
Cost of sales 10,733,000 9,790,000
Engineering, selling &
administrative expenses 1,537,000 1,683,000
Other expense, net 166,000 94,000
Total costs 12,436,000 11,567,000
Earnings before income taxes 547,000 448,000
Income taxes --- ---
Net earnings $ 547,000 $ 448,000
Earnings per share:
Basic net earnings per share $ 0.13 $ 0.11
Diluted net earnings per share $ 0.12 $ 0.11
Basic average common shares
outstanding 4,241,046 4,090,252
Diluted average common shares
outstanding 4,433,481 4,199,814
See accompanying notes to the unaudited condensed financial statements.
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WELLS-GARDNER ELECTRONICS CORPORATION
Condensed Statement of Earnings
(Unaudited)
Six Months Ended June 30,
1998 1997
<S> <C> <C>
Net sales $ 21,965,000 $ 22,120,000
Cost of sales 18,321,000 18,503,000
Engineering, selling &
administrative expenses 2,707,000 2,931,000
Other (income) expense, net 236,000 129,000
Total costs 21,264,000 21,563,000
Earnings before income taxes 701,000 557,000
Income taxes --- ---
Net earnings $ 701,000 $ 557,000
Earnings per share:
Basic net earnings per share $ 0.17 $ 0.14
Diluted net earnings per share $ 0.16 $ 0.13
Basic average common shares
outstanding 4,231,848 4,080,054
Diluted average common shares
outstanding 4,466,918 4,166,425
See accompanying notes to the unaudited condensed financial statements.
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WELLS-GARDNER ELECTRONICS CORPORATION
Condensed Balance Sheets
(Unaudited) (Audited)
June 30, December 31,
1998 1997
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Assets:
Current assets:
Cash & cash equivalents $ 191,000 $ 150,000
Accounts receivable (net) 6,890,000 5,232,000
Note receivable 219,000 375,000
Inventory:
Raw materials 5,438,000 6,253,000
Work in progress 1,400,000 451,000
Finished goods 2,707,000 2,552,000
9,545,000 9,256,000
Prepaids & other current assets 317,000 237,000
Total current assets 17,162,000 15,250,000
Property, plant & equipment, net 2,625,000 2,270,000
Other assets:
Long-term note receivable 375,000 ---
Intangible assets (net) 2,438,000 ---
Total other assets 2,813,000 ---
Total assets $22,600,000 $17,520,000
Liabilities:
Current liabilities:
Accounts payable $ 3,533,000 3,453,000
Accrued expenses 1,121,000 882,000
Note payable 279,000 ---
Total current liabilities 4,933,000 4,335,000
Long-term liabilities:
Note payable 3,071,000 ---
Long-term note payable 2,275,000 1,800,000
Total long-term liabilities 5,346,000 1,800,000
Total liabilities 10,279,000 6,135,000
Shareholders' Equity:
Common stock-authorized 25,000,000
shares, $1.00 par value; 4,253,591
shares issued as of June 30, 1998
& 4,215,083 shares issued as of
December 31, 1997 4,254,000 4,215,000
Additional paid in capital 1,536,000 1,425,000
Retained earnings 6,634,000 5,933,000
Unearned compensation (103,000) (188,000)
Total shareholders' equity 12,321,000 11,385,000
Total liabilities & shareholders' equity $22,600,000 $17,520,000
See accompanying notes to the unaudited condensed financial statements.
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WELLS-GARDNER ELECTRONICS CORPORATION
Condensed Statements of Cash Flows
(Unaudited)
Six Months Ended June 30,
1998 1997
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Cash flows from operating activities:
Net earnings $ 701,000 $ 557,000
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Depreciation and amortization 187,000 194,000
Amortization of unearned compensation 85,000 92,000
Changes in current assets & liabilities:
Accounts receivable (1,658,000) (2,341,000)
Note receivable 156,000 ---
Inventory 153,000 (577,000)
Prepaid expenses & other current assets (80,000) 132,000
Accounts payable 80,000 832,000
Accrued expenses 239,000 (44,000)
Net cash used in operating activities (137,000) (1,155,000)
Cash used in investing activities:
Note receivable (375,000) ---
Acquisition (3,350,000) ---
Additions to property, plant & equipment, net (72,000) (141,000)
Net cash used in investing activities (3,797,000) (141,000)
Cash provided by financing activities:
Borrowings (repayments) - note payable 475,000 1,250,000
Proceeds from note payable 3,350,000 ---
Proceeds from stock options exercised 150,000 47,000
Net cash provided by financing activities 3,975,000 1,297,000
Net increase in cash & cash equivalents 41,000 1,000
Cash & cash equivalents at beginning of period 150,000 57,000
Cash & cash equivalents at end of period $ 191,000 $ 58,000
Supplemental cash flow disclosure:
Interest paid $ 183,000 $ 104,000
Taxes paid $ 15,000 $ ---
See accompanying notes to the unaudited condensed financial statements.
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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 and six months ended June
30, 1998 are not necessarily indicative of the operating results for
the full year.
2. Basic earnings per share is based on the weighted average number of
shares outstanding whereas diluted earnings per share includes the
dilutive effect of unexercised common stock equivalents.
3. On June 5, 1998, the Company acquired the mechanical coin door and
mechanical coin mechanism business of Coin Controls, Inc. (the
"Business"). The Business consists of the manufacturing, service,
sales and marketing of mechanical coin door and coin mechanisms.
These products are sold to the coin-operated video gaming, pinball,
redemption and other markets. Under the terms of the agreement,
Wells-Gardner acquired certain inventory, machinery, equipment,
tooling and certain contract rights (ie: open purchase and sales
orders).
The following pro forma amounts for the six months ended June 30, 1998
and 1997 are presented as if the acquisition of the Business had been
made at the beginning of each period presented. Such unaudited pro
forma information does not reflect actual results which may have
occurred if the acquisition had taken place at the beginning of each
period nor is it indicative of results of future operations.
Six Months Ended June 30,
1998 1997
Net sales $24,169,000 $24,718,000
Net earnings $664,000 $599,000
Earnings per share:
Basic $0.16 $0.15
Diluted $0.15 $0.14
4. Certain 1997 expenses have been reclassified 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 second quarter ended June 30, 1998, net sales increased 8.1
percent to $12,983,000 from $12,015,000 in the prior year's period,
while net earnings increased 22.1 percent to $547,000 from $448,000 in
the prior year's period. Gross operating profit, as a percentage of
sales was 17.3 percent, or $2,250,000, compared to 18.5 percent, or
$2,225,000, for the same period last year. The 1997 results included
a one-time royalty adjustment of $112,000 or 3 cents per share.
Engineering, selling and administrative expenditures decreased
$146,000 to $1,537,000 down from $1,683,000 in the second quarter of
1998. Net earnings were $547,000, or 13 cents per basic share and 12
cents per diluted share, compared to $448,000, or 11 cents per basic
and diluted share, for the comparable 1997 quarter. The Company did
not recognize any income tax expense in the quarterly periods due to
the utilization of its net operating loss carryforward.
For the six months ended June 30, 1998, net sales were $21,965,000
compared to $22,120,000 in the prior year's period, while net earnings
increased 25.9 percent to $701,000 from $557,000 in the prior year's
period. Gross operating profit, as a percentage of sales, increased
to 16.6 percent, or $3,644,000, compared to 16.4 percent, or
$3,617,000, for the same period last year. The 1997 results included a
one-time royalty adjustment of $112,000 or 3 cents per share.
Engineering, selling and administrative expenditures decreased
$224,000 to $2,707,000 down from $2,931,000 in the second quarter of
1998. Net earnings were $701,000, or 17 cents per basic and 16 cents
per diluted share, compared to $557,000, or 14 cents per basic and 13
cents per diluted share, for the comparable 1997 quarter. The Company
did not recognize any income tax expense during the six month periods
due to the utilization of its net operating loss carryforward.
As of June 30, 1998, cash and cash equivalents increased $41,000 from
year end 1997. 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 its interest expense. Accounts receivable
increased $1,658,000 to $6,890,000 from $5,232,000 due to higher sales
during the 1998 quarter. Receivable days were averaging 41 days, down
from 52 at the end of 1997. Inventory increased $289,000 to
$9,545,000 from $9,256,000 at year end 1997 as the Company prepared to
resume operations upon return from its annual summer shutdown.
Inventory turns were 3.8 compared to 3.9 at year-end 1997. The
Company's backlog was approximately 50,000 monitors representing
approximately four months sales. It is the Company's experience that
approximately 90 percent of backlog results in revenue recognition.
During the second quarter of 1998, the Company acquired certain assets
of the mechanical coin door division of Coin Controls Incorporated.
This acquisition led to the Company recording additional inventory,
equipment, tooling and intangible assets of $3,350,000.
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As of June 30, 1998, accrued expenses increased $239,000 to $1,121,000
from $882,000 at year end 1997. During the second quarter of 1998,
the Company negotiated a new banking agreement with American National
Bank. The new three-year banking agreement allows the Company to
utilize an unsecured line of credit up to $8,000,000 and a term loan
of $3,350,000. Long-term liabilities increased $3,546,000 to
$5,346,000 compared to $1,800,000 at December 31, 1997. This increase
was attributed to funding of the coin door acquisition which was
consummated during the second quarter of 1998. Working capital
increased by $1,314,000 since year-end 1997, to $12,229,000,
shareholders' equity improved to $2.90 per share and corporate
liquidity continues to be strong as evidenced by a current ratio of
3.48 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>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
A. The annual meeting of stockholders of Wells-Gardner Electronics
Corporation was held on April 28, 1998.
B. Set forth below is the tabulation of the votes on each nominee
for election as a director:
Withhold Broker
For Authority Non-votes
John R. Blouin 3,623,263 289,081 456
H. Wayne Harris 3,623,223 289,121 456
Ira J. Kaufman 3,621,123 291,221 456
Frank R. Martin 3,622,123 290,221 456
James J. Roberts, Jr. 3,623,123 289,221 456
Anthony Spier 3,623,263 289,081 456
Randall S. Wells 3,622,923 289,421 456
Ernest R. Wish 3,623,223 289,121 456
C. Set forth below is the tabulation of the vote on approval of
the amendment of the Company's 1998 Incentive Stock Plan:
For Against Withheld Brokers Nonvotes
1,739,692 454,406 100,977 1,617,725
D. Set forth below is the tabulation of the vote to approve the
appointment of KPMG Peat Marwick LLP, as independent public
accountants of the Company for the current fiscal year:
For Against Withheld Brokers Nonvotes
3,892,353 10,620 9,371 456
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits:
Exhibit 27 - Financial Data Schedule
(b). Reports on Form 8-K:
On June 16, 1998 the Company filed Form 8-K, pursuant to
Item 2 thereof, due to the purchase of certain assets
from Coin Controls, Inc. and Coin Controls Limited.
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 3, 1998 By: /s/ GEORGE B. TOMA
George B. Toma CPA, CMA
Vice President of Finance,
Chief Financial Officer and Treasurer
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<PERIOD-END> JUN-30-1998
<CASH> 191
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<RECEIVABLES> 7,579
<ALLOWANCES> 95
<INVENTORY> 9,545
<CURRENT-ASSETS> 17,162
<PP&E> 10,383
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0
0
<COMMON> 4,254
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