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, 2000
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 10, 2000, 4,812,043 shares of the Common Stock, $1.00 par
value of the registrant were outstanding.
<PAGE>
WELLS-GARDNER ELECTRONICS CORPORATION
FORM 10-Q
For The Quarter Ended March 31, 2000
PART I - FINANCIAL INFORMATION
Item 1.
Index to Financial Statements:
Condensed Consolidated Statements of Operations
- Three Months Ended March 31, 2000 & 1999
Condensed Consolidated Balance Sheets
- March 31, 2000 & December 31, 1999
Condensed Consolidated Statements of Cash Flows
- Three Months Ended March 31, 2000 & 1999
Notes to the Condensed Consolidated 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 6.
Exhibits and Reports on Form 8-K
SIGNATURE
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
WELLS-GARDNER ELECTRONICS CORPORATION
Condensed Consolidated Statements of Operations
Three Months Ended March 31,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
Net sales $ 12,899,000 $ 9,207,000
Cost of sales 10,481,000 7,934,000
Engineering, selling & administrative expenses 2,004,000 1,401,000
----------- -----------
Operating income (loss) 414,000 (128,000)
Gain on sale of fixed assets 328,000 ---
Other expense, net 146,000 117,000
Income taxes --- ---
----------- -----------
Net earnings (loss) $ 596,000 $ (245,000)
=========== ===========
Earnings (loss) per share:
Basic net earnings (loss) per share $ 0.12 $ (0.05)
=========== ===========
Diluted net earnings (loss) per share $ 0.12 $ (0.05)
=========== ===========
Basic average common shares outstanding * 4,805,807 4,728,647
Diluted average common shares outstanding * 4,967,044 4,728,647
See accompanying notes to the unaudited condensed consolidated
financial statements.
* Shares outstanding have been adjusted to reflect the 5% stock dividend
paid to all shareholders of record as of April 07, 2000.
</TABLE>
<PAGE>
<TABLE>
WELLS-GARDNER ELECTRONICS CORPORATION
Condensed Consolidated Balance Sheets
March 31, December 31,
2000 1999
----------- -----------
<S> <C> <C> <C> <C>
Assets:
Current assets:
Cash & cash equivalents $ 378,000 $ 119,000
Accounts receivable (net) 7,146,000 4,795,000
Inventory:
Raw materials 5,322,000 6,123,000
Work in progress 1,296,000 402,000
Finished goods 3,656,000 1,985,000
--------- ---------
10,274,000 8,510,000
Prepaid & other current assets 1,009,000 609,000
----------- -----------
Total current assets 18,807,000 14,033,000
Property, plant & equipment, net 1,150,000 2,567,000
Other assets:
Investment in joint venture 200,000 0
Intangible (net) 2,797,000 2,189,000
----------- -----------
Total other assets 2,997,000 2,189,000
Total assets $ 22,954,000 $ 18,789,000
=========== ===========
Liabilities:
Current liabilities:
Accounts payable $ 4,217,000 $ 2,127,000
Accrued expenses 837,000 755,000
Note payable 670,000 670,000
----------- -----------
Total current liabilities 5,724,000 3,552,000
Long-term liabilities:
Notes payable 4,898,000 3,576,000
----------- -----------
Total liabilities 10,622,000 7,128,000
Shareholders' Equity:
Common stock-authorized 25,000,000
shares, $1.00 par value; 4,795,901
shares issued as of March 31, 2000
& 4,543,570 shares issued as of
December 31, 1999 4,796,000 4,544,000
Additional paid in capital 2,579,000 1,869,000
Retained earnings 4,957,000 5,248,000
----------- -----------
Total shareholders' equity 12,332,000 11,661,000
----------- -----------
Total liabilities & shareholders' equity $ 22,954,000 $ 18,789,000
=========== ===========
See accompanying notes to the unaudited condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
WELLS-GARDNER ELECTRONICS CORPORATION
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31,
-------------------------
2000 1999
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 596,000 $ (245,000)
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Depreciation & amortization 184,000 157,000
Gain on sale of fixed assets (328,000) -
Changes in current assets & liabilities
(net of effects of acquisition):
Accounts receivable (1,596,000) (622,000)
Note receivable - (6,000)
Inventory (921,000) (510,000)
Prepaid expenses & other current assets (395,000) 5,000
Accounts payable 1,747,000 593,000
Accrued expenses (25,000) (244,000)
---------- ----------
Net cash used in operating activities (738,000) (872,000)
---------- ----------
Cash provided by (used in) investing activities:
Issuance (repayment) of note receivable - 61,000
Payment for acquisition, net of cash acquired (1,905,000) -
Proceeds from sale of fixed assets 1,499,000
(Additions)/disposals to plant
& equipment, (net) 6,000 (75,000)
---------- ----------
Net cash provided by (used in)
investing activities (400,000) (14,000)
---------- ----------
Cash provided by financing activities:
Borrowings - note payable 1,322,000 1,638,000
Proceeds from stock purchase plan 8,000 7,000
Proceeds from stock options exercised 67,000 18,000
---------- ----------
Net cash provided by financing activities 1,397,000 1,663,000
---------- ----------
Net increase in cash & cash equivalents 259,000 777,000
Cash & cash equivalents at beginning of period 119,000 26,000
---------- ----------
Cash & cash equivalents at end of period $ 378,000 $ 803,000
---------- ----------
Supplemental cash flow disclosure:
Interest paid $ 141,000 $ 81,000
Taxes paid $ - $ -
Supplemental schedule of noncash investing
& financing activities:
Investment in joint venture $ 200,000 $ -
See accompanying notes to the unaudited condensed consolidated
financial statements.
</TABLE>
<PAGE>
WELLS-GARDNER ELECTRONICS CORPORATION
Notes to the Condensed Consolidated Financial Statements
1. In the opinion of management, the accompanying unaudited condensed
consolidated 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
consolidated financial statements should be read in conjunction with the
audited financial statements and notes thereto included in the Company's
1999 Annual Report to shareholders. The results of operations for the
first three months ended March 31, 2000 are not necessarily indicative of
the operating results for the full year.
2. On January 12, 2000, the Company acquired certain assets and
liabilities of American Gaming and Electronics (AG&E), a leading service
and parts distributor to the gaming markets. This acquisition was
accounted for under the purchase method of accounting and accordingly, the
results of operations of AG&E have been included in the Company's
consolidated financial statements from January 12, 2000. The excess of
the purchase price over the fair value of the net identifiable assets
acquired has been recorded as goodwill and is being amortized over 20
years. The purchase agreement provides for additional payments over the
next four years contingent on achieving certain operating income targets.
The additional payments, if any, will be charged to goodwill at the time
incurred. The effect of the proforma results of operations had the
acquisition occurred at the beginning of the year was immaterial.
3. On February 17, 2000, the Company declared a five percent (5%) stock
dividend payable to all common stock shareholders of record on April 7,
2000. Shares outstanding for all periods presented have been adjusted to
reflect the five percent (5%) stock dividend.
4. 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. Both basic and
diluted earnings per share reflect the declared stock dividend as
referenced in note 3.
5. On March 28, 2000, the Company sold its Chicago headquarters and
recognized a gain on the sale of $328,000 which was recorded in the first
quarter of 2000.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
First Quarter Ended March 31, 2000 and 1999
For the first quarter ended March 31, 2000, net sales increased 40.0
percent to $12,899,000 from $9,207,000 in the prior year's period. The
sales increase in the quarter was attributed to approximately $1.5 million
of additional revenue from the Company's acquisition of American Gaming
and Electronics and additional sales of approximately $2.2 million to the
Company's base business. Gross operating margin, as a percentage of sales
was 18.7 percent, or $2,418,000, compared to 13.8 percent, or $1,273,000,
for the same period last year. This increase in gross operating margin is
attributed to the sales volume of American Gaming and Electronics and
a favorable product mix of sales on the Company's base business.
Engineering, selling, administrative and amortization expenditures
increased $590,000 to $1,947,000 from $1,357,000 in the first quarter of
1999. This increase is attributed to the operating expenses incurred for
American Gaming and Electronics and the Company's international sales
efforts. Other expense, net increased $29,000 to $146,000 from $117,000
in the first quarter of 1999. This increase is attributed to additional
interest expense incurred during the first quarter of 2000. During the
first quarter of 2000, the Company sold its current facility and recorded
a gain on sale of fixed assets of $328,000. For the first quarter of
2000, the Company reported net earnings of $596,000, or 12 cents per basic
and diluted share, compared to a net loss of $245,000, or 5 cents per
basic and diluted share, for the comparable 1999 quarter. The Company did
not recognize any income tax expense in the quarterly periods due to the
utilization of net operating loss carryforwards.
Liquidity and Capital Resources
As of March 31, 2000, cash and cash equivalents increased $259,000 from
year end 1999. This increase was due to a timing difference caused by
deposits 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
increased $2,351,000 to $7,146,000 from $4,795,000. This increase is
attributed to the 40% increase in sales volume in the first quarter of
2000. Inventory increased $1,764,000 to $10,274,000 from $8,510,000 at
year end 1999. This increase is attributed to the inventory on hand of
American Gaming and Electronics and higher finished goods of the Company's
core business. Other current assets increased $400,000 to $1,009,000 from
$609,000 at year end 1999. This increase is attributed to additional
prepaid deposits with vendors. During the first quarter of 2000, the
Company entered into a 50 /50 joint manufacturing venture in Malaysia.
The Company recorded an initial investment of $200,000. Intangibles (net)
increased $608,000 to $2,797,000 from $2,189,000 as the Company recorded
goodwill and trademarks on its acquisition of American Gaming and
Electronics. Current liabilities increased $2,171,000 to $5,724,000 from
$3,553,000 at year end 1999. This increase is attributed to additional
accounts payable due to vendors and additional accrued liabilities. Long-
term liabilities increased $1,322,000 to $4,898,000 compared to $3,576,000
at December 31, 1999. This increase is attributed to a higher outstanding
balance at March 31, 2000 of the Company's general line of credit to fund
operations. Working capital increased by $2,602,000 since year-end 1999,
to $13,083,000 and the Company's current ratio is 3.29 to 1.
<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 three month period ended March 31, 2000. For additional information
refer to Item 7 in the Company's Annual Report in form 10-K for the year
ended December 31, 1999.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits & Reports on Form 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b). Reports on Form 8-K:
Form 8-K was filed on January 27, 2000 in connection with the
acquisition of American Gaming and Electronics.
<PAGE>
SIGNATURE
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 10, 2000 By: /s/ GEORGE B. TOMA
-----------------------------------
George B. Toma CPA, CMA
Vice President of Finance,
Chief Financial Officer & Treasurer
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<PERIOD-END> MAR-31-2000
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0
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</TABLE>
