UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
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[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
for the fiscal year ended December 31, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
for the transition period from ____________ to _________
Commission File No. 1-8250
WELLS-GARDNER ELECTRONICS CORPORATION
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(Exact name of registrant as specified in its charter)
ILLINOIS 36-1944630
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
2701 North Kildare Avenue, Chicago, Illinois 60639
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 773/252-8220
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $1.00 par value American Stock Exchange
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Title of each class Name of each exchange on which
registered
Securities registered pursuant to Section 12(g) of the Act: None
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
As of March 1, 2000, 4,562,742 shares of the Common Stock of the
registrant were outstanding.
While it is difficult to determine the number of shares of stock owned
by non affiliates, the registrant estimates that the aggregate market
value of the registrant's Common Stock held by non affiliates on March
1, 2000 was approximately $10,872,000. This determination is based
upon an estimate that 70.6% of the shares are so owned by non
affiliates and upon the closing price for the Common Stock on the
American Stock Exchange on such date.
DOCUMENTS INCORPORATED BY REFERENCE
Part
Portions of Annual Report to Shareholders for fiscal year ----
ended December 31, 1999: I & II
Portions of Proxy Statement for Annual Meeting of
Shareholders to be held on April 25, 2000: III
PART I
Item 1. BUSINESS
(a) General Development of Business
Wells-Gardner Electronics CorporationO (the "Company") is a
distributor and ISO 9001 certified manufacturer of color video
monitors, video liquid crystal & plasma displays, coin doors, coin
mechanisms and other related distribution products for a wide variety
of markets including, but not limited to, gaming machines, coin-
operated video games, leisure and fitness, automotive, display,
intranet, medical, service and video walls. The Company continues to
focus on improving the quality of its products to achieve its goal of
being the "best-in-class" quality supplier in all its served markets.
During 1999, the Company passed its annual quality audit conducted by
the ISO 9001 accreditation agency. The Company was incorporated in
Illinois in 1925.
(b) Narrative Description of Business
(c) (i), (ii) and (iii)
PRODUCTS
The Company's primary business is the distribution, design,
manufacture, assembly and marketing of electronic components which
consist of video color monitors and displays, gaming supplies and
components, coin doors and mechanisms and the bonding of touch sensors
to video monitors. The image on a CRT display is produced by
magnetically guiding an interruptible stream of electrons against the
back of a phosphorescent screen. This stream of electrons scans a
series of horizontal lines from the top to the bottom of the screen.
When the stream of electrons strikes the back of the screen a bright
area is produced and when it is interrupted, a dark area appears. In a
medium-resolution unit, the stream of electrons scans the screen in a
series of 525 horizontal lines 30 times per second, whereas the series
of light and dark areas produced appears as a steady coherent image to
the viewer. High-resolution displays scan a greater number of lines at
a greater speed, thus producing a clearer image on the screen. Video
products and accessories accounted for approximately 99 percent of
revenues in 1999, 1998 and 1997.
The Company offers a full line of video monitors, with CRT sizes
ranging from 13" to 39" with horizontal scan frequencies from 15kHz to
35kHz. In addition to providing standardized products, the Company
also customizes electrical and mechanical applications to meet specific
customer requirements and optically bonds touch screen sensors to the
face of the monitors to allow the user of a CRT video monitor to
interact with a computer program by touching a video screen. The
Company has also entered the gaming distribution market as it has
acquired certain assets of American Gaming & Electronics of New Jersey,
Las Vegas and Florida in January, 2000.
The Company's sales are comprised of five main applications:
1999 1998 1997
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Amusement 30% 38% 44%
Gaming 29% 22% 20%
Service & Coin 29% 20% 15%
Leisure / Fitness 6% 9% 12%
Display / Other 6% 11% 9%
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Totals 100% 100% 100%
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MANUFACTURING AND ASSEMBLY
The Company's production activities consist primarily of wiring printed
circuit boards, assembling finished units (and to a limited extent
subassemblies), aligning, testing and optically bonding touch sensors.
The Company manufactures a limited range of electronic components and
coin doors and mechanisms and therefore relies on outside sources for
the majority of the other required components. A limited number of
sources are available for such electronic components and the other raw
materials. Two sources supply the Company with almost all of the
chassis subassemblies for its two-dimensional color game monitors.
Chassis subassemblies are contracted off-shore based on custom designs
developed by the Company. As the Company believes is characteristic of
other manufacturers in its industry, it has been confronted with long
lead times and cost pressures.
MARKETING AND SALES
The Company sells products throughout the world. The Company's
products are sold primarily through James Industries, Inc., a sales
representative organization. This representation is currently
furnished under a Sales Representation Agreement (See Item 13. Certain
Relationships and Related Transactions). James Industries, Inc. is
headquartered in Inverness, Illinois and also utilizes the services of
regional sub-representative firms. The Company maintains its own
internal sales staff primarily for sales of products not covered under
the Sales Representation Agreement, repair and service of its products
and to support its external sales representative organization.
(c) (iv) The Company is licensed on a non-exclusive basis
under certain patents owned by RCA Corporation, covering the technical
and electrical design of color display and video monitor chassis. Fees
under these licenses are based on the number of units shipped and
amounted to less than 0.2% of total 1999 revenue. Although certain of
these licenses may expire in the future, it has been the practice of
the Company to renew such licenses on substantially the same terms.
However, failure of the Company to obtain renewal of any of these
licenses could have a materially adverse effect on the Company's
business, financial condition and results of operations.
(c) (v) The Company's business is generally not seasonal.
(c) (vi) The Company has no unique or unusual practices
relating to working capital items.
(c) (vii) The Company's largest customer accounted for total
revenues of 32%, 33% and 34% in 1999, 1998 and 1997, respectively.
(c) (viii) The Company's 1999 year-end backlog was
approximately 30,000 monitors representing approximately three months
sales. It is the Company's experience that well over 90 percent of
backlog results in revenue recognition.
(c) (ix) No material portion of the Company's business is
subject to re-negotiation of profits or termination of contracts or
subcontracts at the election of the Government.
(c) (x) The Company encounters intense competition from many
domestic and foreign manufacturers. Due to the nature of its business
and the absence of reliable industry statistics, the Company cannot
estimate its position in relation to its competitors. However, the
Company recognizes that some competitors have greater financial and
personnel resources, handle more extensive lines of products, operate
larger facilities and price some products more competitively than the
Company. Although the Company believes that the prices of its products
are competitive, it endeavors to meet competition primarily through the
quality of its product line, service and delivery reliability and new
product innovations.
(c) (xi) During 1999, the Company spent approximately
$1,334,000 for product engineering, research and development costs,
compared to $1,536,000 in 1998 and $1,786,000 in 1997.
(c) (xii) Compliance with federal, state and local provisions
which have been enacted or adopted regulating the discharge of
materials into the environment, or otherwise relating to the protection
of the environment, has no material effect upon the capital
expenditures, earnings and competitive position of the Company.
(c) (xiii) At December 31, 1999, the Company employed
approximately 170 persons. The Company believes its relationship with
its employees is satisfactory.
(d) Export sales were approximately 25 percent of sales in
1999, 21 percent in 1998 and 22 percent in 1997.
Item 2. PROPERTIES
The Company's plant, which is owned by the Company, is located at 2701
North Kildare Avenue in Chicago, Illinois. It has approximately
207,000 square feet of floor space. Not less than 100,000 of the
207,000 square feet of the plant are at any time dedicated to
production. Offices for engineering, sales and administration are also
located at that facility. The plant is in good condition, is well
maintained, and currently has excess production capacity. In 1999, the
plant operated at an average 62 percent capacity based on one shift
production. The plant is not subject to any material encumbrance.
Item 3. LEGAL PROCEEDINGS
As the Company sells its products and services to a wide customer base,
from time to time it may be named in legal proceedings. The Company
aggressively reviews all claims on a timely basis and in the opinion of
management and its legal counsel, any currently pending legal claims
have no basis and no loss contingency reserves have been established.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders
during the fourth quarter of 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT
Year First
Elected As An
Name Office Age Executive Officer
---- ------ --- -----------------
Anthony Spier Chairman of the Board, President
and Chief Executive Officer 56 1994
Kathleen E. Hoppe Director of Information Technology 54 1994
Mark E. Komorowski Vice President of Sales 34 1994
Larry Mahl Director of Materials 52 1989
John S. Pircon Vice President of Marketing 41 1994
Eric Slagh Director of Quality 34 1997
Jeff Sterling Vice President of Engineering 41 1998
George B. Toma Vice President of Finance,
Chief Financial Officer, Treasurer
And Corporate Secretary 32 1996
Randall S. Wells Executive Vice President and
General Manager 48 1980
Unless otherwise indicated, each executive officer has served in
various executive capacities with the Company for the past five years.
George B. Toma joined the Company in 1990 and was elected Vice
President of Finance, Chief Financial Officer and Treasurer in
February, 1997. Mr. Toma was previously elected Chief Financial
Officer and Treasurer in April, 1996 and prior thereto held various
accounting positions within the Company. Prior to joining the Company,
Mr. Toma was an auditor with Laventhol & Horwath. Mr. Toma is a
certified public accountant as well as a certified management
accountant.
Mark E. Komorowski joined the Company in 1990 and was elected as Vice
President in April, 1996. Prior to this election, Mr. Komorowski held
the position of Controller. Prior to joining the Company, Mr.
Komorowski was an auditor with Laventhol & Horwath.
Eric Slagh joined the Company as Director of Quality in May, 1997.
Prior to joining the Company, Mr. Slagh was Quality Assurance Manager
at Danfoss Electronic Drives.
Jeff Sterling joined the Company as Vice President of Engineering in
November, 1998. Prior to joining the Company, Mr. Sterling was
Development Director of Commercial Products at Zenith Electronics.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDERS MATTERS.
The information required by this Item is set forth in Exhibit 13 under
the caption "Common Share Market Price," which information is contained
in the Company's Annual Report to Shareholders for the year ended
December 31, 1999, and which information is hereby incorporated herein
by reference.
Item 6. SELECTED FINANCIAL DATA
The information required by this Item is set forth in Exhibit 13 under
the caption "Selected Financial Data," which information is contained
in the Company's Annual Report to Shareholders for the year ended
December 31, 1999, and which information is hereby incorporated herein
by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information required by this Item is set forth in Exhibit 13 under
the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" which information is contained in
the Company's Annual Report to Shareholders for the year ended December
31, 1999, and which information is hereby incorporated herein by refer-
ence.
a. Quantitative and Qualitative Disclosures About Market Risk
The information required by this Item is set forth in Exhibit 13 under
the caption "Market and Credit Risks" in the Management's Discussion
and Analysis of Financial Condition and Results of Operations which
information is contained in the Company's Annual Report to Shareholders
for the year ended December 31, 1999, and which information is hereby
incorporated herein by reference.
Because the Company wants to provide shareholders and potential
investors with more meaningful and useful information, this Report
contains 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. 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements together with the notes thereto are
set forth in Exhibit 13, which information is contained in the
Company's Annual Report to Shareholders for the year ended December 31,
1999 and which information hereby incorporated herein by reference.
Balance Sheets as of December 31, 1999 and 1998
Statements of Operations for years ended December 31, 1999, 1998 and
1997
Statements of Shareholders' Equity for years ended December 31, 1999,
1998 and 1997
Statements of Cash Flows for years ended December 31, 1999, 1998 and
1997
Notes to Financial Statements
Independent Auditors' Report
Quarterly financial data for the years ended December 31, 1999 and 1998
are set forth in Exhibit 13 in Note 13 of "Notes to Financial
Statements" and are contained in the Company's Annual Report to
Shareholders for the year ended December 31, 1999, which information is
hereby incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
a. Directors
The information required by this Item is set forth in the Company's
Proxy Statement for the Annual Meeting of Shareholders to be held on
April 25, 2000, under the captions "Election of Directors" and
"Compliance with Section 16(a) of the Exchange Act," which information
is hereby incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
The information required by this Item is set forth in the Company's
Proxy Statement for the Annual Meeting of Shareholders to be held on
April 25, 2000, under the captions "Summary Compensation Table,"
"Option Grants in 1999," "Aggregated Option Exercises in 1999 and
Option Values at December 31, 1999," "Report of Board of Directors on
Compensation," and "Compensation Committee Interlocks and Insider
Participation," which information is hereby incorporated herein by
reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item is set forth in the Company's
Proxy Statement for the Annual Meeting of Shareholders to be held on
April 25, 2000, under the caption "Securities Beneficially Owned by
Principal Shareholders and Management," which information is hereby
incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Information required by this Item is set forth in the Company's
Proxy Statement for the Annual Meeting of Shareholders to be held on
April 25, 2000, under the caption "Compensation Committee Interlocks
and Insider Participation," which information is hereby incorporated
herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
a. (1) Financial Statements The information required by this Item
is set forth in Part II, Item 8 of this Report. The Independent
Auditors Report is set forth following the Financial Statement Schedule
referred to under (2) below.
(2) Financial Statement Schedules The information required by
this Item is set forth following the signature page of this Report.
(3) Exhibits
The following exhibits are filed herewith:
3.1. Articles of Incorporation of the Company, as amended, filed as
Exhibit 3.1 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1994 and incorporated herein by reference.
3.2. By-Laws of the Company, as amended, filed as Exhibit 3.2 of the
Company's Annual Report on Form 10-K for the year ended December 31,
1994 and incorporated herein by reference.
10.1*. Amended Employment Agreement dated February 29, 1996,
between the Company and Anthony Spier and incorporated herein by
reference.
10.2. License Agreement dated January 1, 1995, between the Company
and RCA Corporation and incorporated herein by reference.
10.3. Agreement dated July 1, 1997, between the Company and Local
1031, I.B.E.W., AFL-CIO, and incorporated herein by reference.
10.4*. Wells-Gardner Electronics Corporation Employee 401K Plan
dated January 1, 1990 and Amendment 1 dated February 11, 1992, and
Amendment 2 dated January 20, 1994, filed as Exhibit 10.10 of the
Company's Annual Report on Form 10-K for the year ended December 31,
1993 and incorporated herein by reference.
10.5*. Wells-Gardner Electronics Corporation 1996 Nonemployee
Director Plan, filed as Annex A to the Company's Proxy Statement for
the Annual Meeting of Shareholders to be held on April 23, 1996 and
incorporated herein by reference.
10.6*. Wells-Gardner Electronics Corporation Amended and Restated
Incentive Stock Plan, as amended and filed as Exhibit 4.1 of the
Company's Form S-8, dated August 21, 1998.
10.7. Credit Agreements dated June 5, 1998, between American
National Bank and Trust Company and the Company, filed as Exhibits 2.2,
2.3, 2.4 and 2.5 of the Company's Form 8K/A dated August 5, 1998 and
incorporated herein by reference.
10.8. Amended and Restated Sales Representative Agreement dated
December 9, 1998 and Amendment 1 dated August 30, 1999 and incorporated
by reference in this Annual Report on Form 10-K.
10.9. Guaranty Agreement dated December 9, 1998, between James J.
Roberts Jr., John R. Blouin and the Company and incorporated by
reference in this Annual Report on Form 10-K.
10.10. Promissory Note dated December 9, 1998 and Amendment 1 dated
August 30, 1999, between James Industries, James J. Roberts Jr., John
R. Blouin and the Company and incorporated by reference in this Annual
Report on Form 10-K.
10.11. Voting Rights Agreement dated December 9, 1998 and Amendment
1 dated August 30, 1999, among the Company, Anthony Spier, John R.
Blouin, James J. Roberts, Jr. and James Industries, Inc. and
incorporated by reference in this Annual Report on Form 10-K.
13. Certain portions of the Company's Annual Report to Shareholders
for the year ended December 31, 1999 as specified in Part I and II
hereof to be incorporated by reference in this Annual Report on Form
10-K.
23. Consent of KPMG LLP.
27. Financial Data Schedule
*Management contract or compensatory plan or arrangement.
b. Reports on Form 8-K No reports on Form 8-K were filed during
the last quarter ended December 31, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Secu-
rities 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
By: /S/ ANTHONY SPIER
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Anthony Spier Chairman of the Board,
President and Chief
Executive Officer February 16, 2000
/S/ GEORGE B. TOMA
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George B. Toma CPA, CMA Vice President of Finance,
Chief Financial Officer,
Treasurer and Corporate
Secretary February 16, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities on the dates indicated.
Signature Title Date
--------- ----- ----
/S/ ANTHONY SPIER Chairman of the Board,
Anthony Spier President and Chief
Executive Officer February 16, 2000
/S/ JOHN R. BLOUIN
John R. Blouin Director February 16, 2000
/S/ MARSHALL L. BURMAN
Marshall L. Burman Director February 16, 2000
/S/ JERYY KALOV
Jerry Kalov Director February 16, 2000
/S/ FRANK R. MARTIN
Frank R. Martin Director February 16, 2000
/S/ JAMES J. ROBERTS, JR.
James J. Roberts, Jr. Director February 16, 2000
/S/ RANDALL S. WELLS
Randall S. Wells Director February 16, 2000
/S/ ERNEST R. WISH
Ernest R. Wish Director February 16, 2000
FINANCIAL SCHEDULE
Schedules not included with this additional financial data have been
omitted because they are not applicable or the required information is
shown in the financial statements or notes thereof.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Balance at
Beginning (1) (2) Balance at
Year of Period Additions Deductions End of Period
---- --------- --------- ---------- -------------
1997 106,933 175,000 17,633 264,300
1998 264,300 36,133 215,433 85,000
1999 85,000 36,000 61,000 60,000
(1) Provision for bad debt.
(2) Accounts receivable written off against the allowance.