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, 1999
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, 1999, 4,516,465 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, 1999
PART I - FINANCIAL INFORMATION
Item 1.
Index to Financial Statements:
Condensed Statements of Earnings
- Three Months Ended June 30, 1999 & 1998
- Six Months Ended June 30, 1999 & 1998
Condensed Balance Sheets
- June 30, 1999 & December 31, 1998
Condensed Statements of Cash Flows
- Six Months Ended June 30, 1999 & 1998
Notes to the Condensed Financial Statements
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
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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<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WELLS-GARDNER ELECTRONICS CORPORATION
Condensed Statements of Earnings
Three Months Ended June 30,
1999 1998
<S> <C> <C>
Net sales $ 11,034,000 $ 12,983,000
Cost of sales 9,149,000 10,686,000
Engineering, selling & administrative
expenses 1,388,000 1,584,000
Other expense, net 92,000 166,000
Total costs 10,629,000 12,436,000
Earnings before income taxes 405,000 547,000
Income taxes --- ---
Net earnings $ 405,000 $ 547,000
Earnings per share:
Basic net earnings per share $ 0.09 $ 0.12
Diluted net earnings per share $ 0.09 $ 0.12
Basic average common shares outstanding * 4,512,980 4,456,149
Diluted average common shares outstanding * 4,535,762 4,658,200
See accompanying notes to the unaudited condensed financial statements.
* Shares outstanding have been adjusted to reflect the 5% stock dividend
paid to all shareholders of record as of April 13, 1999.
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<TABLE>
WELLS-GARDNER ELECTRONICS CORPORATION
Condensed Statements of Earnings
Six Months Ended June 30,
1999 1998
<S> <C> <C>
Net sales $ 20,241,000 $ 21,965,000
Cost of sales 17,083,000 18,228,000
Engineering, selling & administrative
expenses 2,790,000 2,800,000
Other expense, net 209,000 236,000
Total costs 20,082,000 21,264,000
Earnings before income taxes 159,000 701,000
Income taxes --- ---
Net earnings $ 159,000 $ 701,000
Earnings per share:
Basic net earnings per share $ 0.04 $ 0.16
Diluted net earnings per share $ 0.04 $ 0.15
Basic average common shares outstanding * 4,508,210 4,446,491
Diluted average common shares outstanding * 4,532,946 4,694,032
See accompanying notes to the unaudited condensed financial statements.
* Shares outstanding have been adjusted to reflect the 5% stock dividend
paid to all shareholders of record as of April 13, 1999.
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<TABLE>
WELLS-GARDNER ELECTRONICS CORPORATION
Condensed Balance Sheets
June 30, December 31,
1999 1998
<S> <C> <C> <C> <C>
Assets:
Current assets:
Cash & cash equivalents $ 133,000 $ 26,000
Accounts receivable (net) 4,679,000 5,149,000
Note receivable 244,000 232,000
Inventory:
Raw materials 6,636,000 6,226,000
Work in progress 1,028,000 440,000
Finished goods 3,741,000 1,914,000
11,405,000 8,580,000
Prepaids & other current assets 364,000 428,000
Total current assets 16,825,000 14,415,000
Property, plant & equipment, net 2,538,000 2,649,000
Other assets:
Long-term note receivable 130,000 255,000
Intangible assets (net) 2,269,000 2,352,000
Total other assets 2,399,000 2,607,000
Total assets $ 21,762,000 $ 19,671,000
Liabilities:
Current liabilities:
Accounts payable $ 3,611,000 $ 2,548,000
Accrued expenses 883,000 1,053,000
Note payable 670,000 614,000
Total current liabilities 5,164,000 4,215,000
Long-term liabilities:
Notes payable 3,676,000 2,736,000
Total liabilities 8,840,000 6,951,000
Shareholders' Equity:
Common stock-authorized 25,000,000
shares, $1.00 par value; 4,516,465
shares issued as of June 30, 1999
& 4,285,912 shares issued as of
December 31, 1998 4,516,000 4,286,000
Additional paid in capital 1,809,000 1,527,000
Retained earnings 6,597,000 6,907,000
Total shareholders' equity 12,922,000 12,720,000
Total liabilities & shareholders' equity $ 21,762,000 $ 19,671,000
See accompanying notes to the unaudited condensed financial statements.
</TABLE>
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<TABLE>
WELLS-GARDNER ELECTRONICS CORPORATION
Condensed Statements of Cash Flows
Six Months Ended June 30,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 159,000 $ 701,000
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Depreciation and amortization 311,000 187,000
Amortization of unearned compensation --- 85,000
Changes in current assets & liabilities
(net of effects of acquistion):
Accounts receivable 470,000 (1,658,000)
Note receivable (12,000) 156,000
Inventory (2,826,000) 153,000
Prepaid expenses & other current assets 64,000 (80,000)
Accounts payable 1,063,000 80,000
Accrued expenses (170,000) 239,000
Net cash used in operating activities (941,000) (137,000)
Cash provided by (used in) investing activities:
Note receivable 125,000 (375,000)
Acquisition --- (3,350,000)
Additions to property, plant & equipment, net (116,000) (72,000)
Net cash provided by (used in) investing activities 9,000 (3,797,000)
Cash provided by financing activities:
Borrowings - note payable 996,000 475,000
Proceeds from stock purchase plan 18,000 ---
Proceeds from note payable --- 3,350,000
Proceeds from stock options exercised 25,000 150,000
Net cash provided by financing activities 1,039,000 3,975,000
Net increase in cash & cash equivalents 107,000 41,000
Cash & cash equivalents at beginning of period 26,000 150,000
Cash & cash equivalents at end of period $ 133,000 $ 191,000
Supplemental cash flow disclosure:
Interest paid $ 166,000 $ 183,000
Taxes paid $ --- $ 15,000
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 adjustments, which are necessary for a fair presentation of
the financial position and results of operations 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 1998 Annual Report to shareholders. The
results of operations for the first six months ended June 30, 1999 are
not necessarily indicative of the operating results for the full year.
2. On March 16, 1999, the Company declared a five percent (5%) stock
dividend payable to all common stock shareholders of record on April
13, 1999. Shares outstanding for all periods presented have been
adjusted to reflect the five percent (5%) stock dividend.
3. Basic earnings per share is based on the weighted average number of
shares outstanding whereas diluted earnings per share in 1998 includes
the dilutive effect of unexercised common stock equivalents. Both
basic and diluted earnings per share reflect the declared stock
dividend as referenced in note 2.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Second Quarter Ended June 30, 1999 and 1998
For the second quarter ended June 30, 1999, net sales decreased 15.0
percent to $11,034,000 from $12,983,000 in the prior year's period.
Included in the 1999 results are sales of approximately $900,000
relating to coin doors, a product line which was acquired in June,
1998. Gross operating margin, as a percentage of sales was 17.1
percent, or $1,885,000, compared to 17.7 percent, or $2,297,000, for
the same period last year. Engineering, selling and administrative
expenditures decreased $196,000 to $1,388,000 from $1,584,000 in the
second quarter of 1998. The Company reported net earnings of
$405,000, or 9 cents per basic and diluted share, compared to net
earnings of $547,000, or 12 cents per basic and diluted share, for the
comparable 1998 quarter. The Company did not recognize any income tax
expense in the quarterly periods due to the utilization of its net
operating loss carryforward.
Six Months Ended June 30, 1999 and 1998
For the six months ended June 30, 1999, net sales decreased 7.8
percent to $20,241,000 from $21,965,000 in the prior year's period.
Included in the 1999 results are sales of approximately $1,600,000
relating to coin doors, a product line which was acquired in June,
1998. Gross operating margin, as a percentage of sales was 15.6
percent, or $3,158,000, compared to 17.0 percent, or $3,737,000, for
the same period last year. The decrease in gross operating margin is
attributed to lower sales in the Company's amusement, intranet and
data display markets, and lower production which caused weak overhead
absorption. Engineering, selling and administrative expenditures
decreased $10,000 to $2,790,000 from $2,800,000 in the first six
months of 1998. The Company reported net earnings of $159,000, or 4
cents per basic and diluted share, compared to net earnings of
$701,000, or 16 cents per basic share and 15 cents per diluted share,
for the comparable 1998 period. The Company did not recognize any
income tax expense in the six month periods due to the utilization of
its net operating loss carryforward.
<PAGE>
Liquidity and Capital Resources
As of June 30, 1999, cash and cash equivalents increased $107,000 from
year end 1998. This increase was due to a timing difference caused by
a deposit in transit. 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 decreased $470,000 to $4,679,000 from $5,149,000 due to
aggressive collection efforts. Receivable days were averaging 39,
comparable to 44 at the end of 1998. Inventory increased $2,825,000
to $11,405,000 from $8,580,000 at year end 1998 as the Company built
up additional inventory and materials for its summer shutdown which
occurs the first two weeks of July. Inventory turns were 3.2 compared
to 4.2 at year-end 1998. The Company's backlog was approximately
35,000 units, representing approximately three months sales. It is
the Company's experience that approximately 90 percent of backlog
results in revenue recognition. Accounts payable increased $1,063,000
to $3,611,000 from $2,548,000 at year end 1998. The increase is
attributed to additional purchases made during the last month of the
1999 quarter to procure material for production. Long-term
liabilities increased $940,000 to $3,676,000 compared to $2,736,000 at
December 31, 1998. This increase was attributed to the $1,275,000
note payable on the Company's books to fund operations. Working
capital increased by $1,461,000 since year-end 1998, to $11,661,000,
shareholders' equity was $2.86 per share and corporate liquidity
continues to be strong as evidenced by a current ratio of 3.26 to 1.
Year 2000 Disclosure
The term Y2K is used to refer to a worldwide computer-related problem
where software programs and embedded programs in microprocessors will
not work properly when processing a date greater than December 31,
1999. This problem results from using two digits to denote the third
and fourth digit of a four-digit year whereas a program assumes 19 to
be the first two digits. Many existing programs will continue to
assume the 19 as the first and second digit while a 20 or greater is
required. A method of fixing the problem is for all years to be
denoted in a four-digit field and the programs to recognize all four
digits as the year. This Y2K problem has resulted in significant
worldwide concern about the future operations of businesses and other
institutions.
The majority of the systems utilized by the Company have already been
made Y2K compliant in an undertaking which began in 1997. The balance
of the Company's systems are planned to be made compliant by the third
quarter of 1999. Management believes that there are no Y2K issues with
respect to the functionality of any products sold in the past or
expected to be sold in the near future. The unknown area of Y2K
related exposure is with the Company's suppliers. Although management
has began a program of supplier inquiry and evaluation to assess the
potential problem, management cannot make a determination as to the
suppliers' level of Y2K compliance at this time. There can be no
assurance that the systems of other companies which the Company deals
with will be timely converted or that such failure to convert by
another company could not have an adverse effect on the Company's
financial position, results of operations or cash flows. Currently, no
material compliance costs are expected to be incurred and Management
expects to make contingency plans as necessary.
<PAGE>
Forward Looking Statements
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the Company's market risk
during the six month period ended June 30, 1999. For additional
information refer to Item 7 in the Company's Annual Report in form
10-K for the year ended December 31, 1998.
<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 27, 1999.
B. Set forth below is the tabulation of the votes on each nominee
for election as a director:
<TABLE>
Withhold Broker
For Authority Non-votes
<S> <C> <C> <C>
John R. Blouin 4,008,038 83,370 0
Marshall L. Burman 4,008,238 83,170 0
Jerry Kalov 4,009,938 81,470 0
Ira J. Kaufman 4,009,038 82,370 0
Frank R. Martin 4,010,938 80,470 0
James J. Roberts, Jr. 4,007,538 83,870 0
Anthony Spier 4,003,738 87,670 0
Randall S. Wells 4,011,038 80,370 0
Ernest R. Wish 4,007,638 83,770 0
</TABLE>
C. Set forth below is the tabulation of the vote on approval of
the adoption of the Company's 1999 Stock Purchase Plan:
For Against Withheld Brokers Nonvotes
2,376,910 140,884 19,900 1,553,714
D. Set forth below is the tabulation of the vote to approve the
appointment of KPMG LLP, as independent public accountants of
the Company for the current fiscal year:
For Against Withheld Brokers Nonvotes
4,020,971 62,990 7,447 0
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 June 30, 1999.
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 9, 1999 By: /s/ GEORGE B. TOMA
George B. Toma CPA, CMA
Vice President of Finance,
Chief Financial Officer and Treasurer
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 133
<SECURITIES> 0
<RECEIVABLES> 5,143
<ALLOWANCES> 90
<INVENTORY> 11,405
<CURRENT-ASSETS> 16,825
<PP&E> 10,722
<DEPRECIATION> 8,111
<TOTAL-ASSETS> 21,762
<CURRENT-LIABILITIES> 5,164
<BONDS> 0
0
0
<COMMON> 4,516
<OTHER-SE> 8,406
<TOTAL-LIABILITY-AND-EQUITY> 21,762
<SALES> 20,241
<TOTAL-REVENUES> 20,241
<CGS> 17,083
<TOTAL-COSTS> 2,790
<OTHER-EXPENSES> 209
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</TABLE>
