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EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - AG&E HOLDINGS INC.wga_ex31-1.htm
EX-32.1 - STATEMENT OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURUSANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - AG&E HOLDINGS INC.wga_ex32-1.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - AG&E HOLDINGS INC.wga_ex31-2.htm
EXCEL - IDEA: XBRL DOCUMENT - AG&E HOLDINGS INC.Financial_Report.xls

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549

FORM 10-Q

[X]
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the quarterly period ended March 31, 2013
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 incorporation or organization)
(IRS Employer Identification No.)

9500 West 55th Street, Suite A, McCook, Illinois
60525-3605
(Address of principal executive offices)
(Zip Code)

 (708) 290-2100
(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
ý
 
NO
o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 

YES
ý
 
NO
o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of "large accelerated filer", "accelerated filer", and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer
o
 
Accelerated filer
o
         
Non-accelerated filer
o
 
Smaller reporting company
ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES
o
 
NO
ý

As of May 10, 2013 approximately 11,730,000 shares of the Common Stock, $1.00 par value of the registrant were outstanding.


 
-1-

 


 
WELLS-GARDNER ELECTRONICS CORPORATION
 
FORM 10-Q TABLE OF CONTENTS
 
For The Three Months Ended March 31, 2013
 
PART I – FINANCIAL INFORMATION
 
Financial Statements:

 
Condensed Consolidated Statements of Earnings (unaudited)
 
-
Three Months Ended March 31, 2013 & 2012
     
 
Condensed Consolidated Balance Sheets
 
-
March 31, 2013 & 2012 (unaudited) & December 31, 2012
     
 
Condensed Consolidated Statements of Cash Flows (unaudited)
 
-
Three Months Ended March 31, 2013 & 2012
     
 
Notes to the Unaudited Condensed Consolidated Financial Statements

Management's Discussion & Analysis of Financial Condition & Results of Operations

Quantitative & Qualitative Disclosures about Market Risk

Controls & Procedures



Legal Proceedings

Risk Factors

Other Information

Exhibits



 
-2-

 



Item 1. Financial Statements
 

   
   
Three Months Ended
March 31
 
   
2013
   
2012
 
Net sales
  $ 18,031,000     $ 12,343,000  
Cost of sales
    15,071,000       10,158,000  
Gross margin
    2,960,000       2,185,000  
Engineering, selling & administrative expenses
    2,373,000       1,951,000  
Operating Earnings
    587,000       234,000  
Interest expense
    37,000       30,000  
Other income, net
    0       0  
Income tax expense
    1,000       2,000  
Net Earnings
  $ 549,000     $ 202,000  
                 
Earnings per share:
               
Basic earnings per share
  $ 0.05     $ 0.02  
Diluted earnings per share
  $ 0.05     $ 0.02  
                 
Basic average common shares outstanding
    11,692,765       11,625,314  
Diluted average common shares outstanding
    11,695,171       11,629,916  
                 
See accompanying notes to the unaudited condensed consolidated financial statements
 




 
-3-

 




WELLS-GARDNER ELECTRONICS CORPORATION
 
Condensed Consolidated Balance Sheets
 
                   
   
March 31,
   
March 31
   
December 31,
 
   
2013
   
2012
   
2012
 
   
(unaudited)
   
(unaudited)
       
Assets:
                 
Current assets:
 
 
   
 
   
 
 
Cash
  $ 41,000     $ 221,000     $ 768,000  
Accounts receivable, net
    9,311,000       6,824,000       8,678,000  
Accounts receivable, subcontractor
    3,872,000       3,432,000       5,093,000  
Inventory
    9,769,000       7,918,000       10,817,000  
Other current assets
    1,169,000       518,000       855,000  
Total current assets
  $ 24,162,000     $ 18,913,000     $ 26,211,000  
                         
Property, plant & equipment, net
    229,000       237,000       257,000  
                         
Other assets:
                       
Deferred tax asset, net
    469,000       471,000       469,000  
Other long term asset
    99,000       0       49,000  
Goodwill
    1,329,000       1,329,000       1,329,000  
Total other assets
    1,897,000       1,800,000       1,847,000  
Total assets
  $ 26,288,000     $ 20,950,000     $ 28,315,000  
                         
Liabilities:
                       
Current liabilities:
                       
Accounts payable
  $ 3,833,000     $ 1,751,000     $ 4,167,000  
Accounts payable, subcontractor
    3,251,000       1,722,000       3,581,000  
Accrued expenses
    1,345,000       1,132,000       1,040,000  
Total current liabilities
  $ 8,429,000     $ 4,605,000     $ 8,788,000  
                         
Long-term liabilities:
                       
Note payable
    1,461,000       544,000       3,701,000  
Total liabilities
  $ 9,890,000     $ 5,149,000     $ 12,489,000  
                         
Shareholders' Equity:
                       
Common stock: authorized 25,000,000 shares
                       
$1.00 par value; shares issued and outstanding:
                       
11,729,898 shares as of March 31, 2013
                       
11,663,898 shares as of March 31, 2012
                       
11,666,898 shares as of December 31, 2012
  $ 11,730,000     $ 11,664,000     $ 11,667,000  
Additional paid-in capital
    5,193,000       5,128,000       5,131,000  
Accumulated deficit
    (175,000 )     (686,000 )     (725,000 )
Unearned compensation
    (350,000 )     (305,000 )     (247,000 )
Total shareholders' equity
    16,398,000       15,801,000       15,826,000  
Total liabilities & shareholders' equity
  $ 26,288,000     $ 20,950,000     $ 28,315,000  
                         
See accompanying notes to the unaudited condensed consolidated financial statements
 
   
 
 
 
-4-

 
 


WELLS-GARDNER ELECTRONICS CORPORATION
 
Condensed Consolidated Statements of Cash Flows (unaudited)
 
Three Months Ended March 31, 2013 and 2012
 
   
   
Three Months Ended
 
   
March 31
   
March 31
 
   
2013
   
2012
 
Cash flows from operating activities:
           
Net earnings
  $ 549,000     $ 202,000  
Adjustments to reconcile net earnings to
               
net cash provided by operating activities:
               
Depreciation and amortization
    42,000       40,000  
Bad debt expense (recoveries)
    6,000       (46,000 )
Amortization of unearned compensation
    20,000       19,000  
   Issuance of long term asset
    (35,000 )     0  
Changes in current assets & liabilities
               
Accounts receivable
    (653,000 )     (415,000 )
Inventory
    1,048,000       1,191,000  
Prepaid expenses & other
    (314,000 )     (8,000 )
Accounts payable
    (334,000 )     966,000  
Due to/from subcontractor
    890,000       (1,264,000 )
Accrued expenses
    305,000       (168,000 )
Net cash provided by operating activities
  $ 1,524,000     $ 517,000  
                 
Cash used in investing activities:
               
Additions to plant & equipment
    (14,000 )     (20,000 )
Net cash used in investing activities
  $ (14,000 )   $ (20,000 )
                 
Cash used in financing activities:
               
Repayments - note payable
    (2,240,000 )     (515,000 )
Proceeds from shares issued, options exercised and purchase plan
    3,000       18,000  
Net cash used in financing activities
  $ (2,237,000 )   $ (497,000 )
                 
Net decrease in cash
    (727,000 )     0  
Cash at beginning of period
    768,000       221,000  
Cash at end of period
  $ 41,000     $ 221,000  
                 
Supplemental cash flow disclosure:
               
Interest paid
    37,000       30,000  
Taxes paid
    0       1,000  
   
See accompanying notes to the unaudited condensed consolidated financial statements
 


 
-5-

 



 
WELLS-GARDNER ELECTRONICS CORPORATION
 
Notes to the Unaudited 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 financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP USA) have been condensed or omitted.  These condensed consolidated financial state­ments should be read in conjunction with the audited financial statements and notes included in the Company's 2012 Annual Report to Shareholders. The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the operating results for the full year.
 
2.           Basic earnings per share are based on the weighted average number of shares outstanding whereas diluted earnings per share include the dilutive effect of unexercised common stock equivalents. Potentially dilutive securities are excluded from diluted earnings per share calculations for periods with a net loss.
 
3.           Revenue from video gaming terminal sales with standard payment terms is recognized upon the passage of title and transfer of the risk of loss.  The Company recognizes revenue even if it retains a form of title to products delivered to customers, provided the sole purpose is to enable the Company to recover the products in the event of a customer payment default and the arrangement does not prohibit the customer’s use of the product in the ordinary course of business.
 
4.            The fair value of the Company’s financial instruments does not materially vary from the carrying value of such instruments.
 
5.            The Company maintains an Incentive Stock Option and Stock Award Plan under which officers and key employees may acquire up to a maximum of 2,052,408 common shares.
 
Stock Options
The Company’s Stock Option Plan ended on December 31, 2008.  Options could be granted through December 31, 2008 at an option price not less than fair market value on the date of grant and are exercisable not earlier than six months nor later than ten years from the date of grant. Options vest over two and three year periods. As of March 31, 2013, 1 person held outstanding options and was eligible to participate in the plan. Such options expire on various dates through April 8, 2014.
 
Under the stock option plan, the exercise price of each option equals the market price of the Company’s stock on the date of grant. For purposes of calculating the compensation cost consistent with GAAP USA guidelines, the fair value of each grant was estimated on the date of grant using the Black-Scholes option-pricing model. The Company has not issued any Incentive Stock Options since 2004, except for adjustments to previous grants for the 5% stock dividend declared in subsequent years.   It is the Company’s policy to issue new stock certificates to satisfy stock option exercises.
 
The following table summarizes information about stock options outstanding for the three months ending March 31, 2013:
 

 
-6-

 


 
 
Shares
Weighted
Average
Exercise Price
Weighted Average
Remaining
Contractual Life
Aggregate
Intrinsic
Value
Outstanding at beginning of year
18,931
$2.00
   
Granted
0
$0.00
   
Forfeited
0
$0.00
   
Exercised
(2,000)
$1.58
   
Outstanding, March 31, 2013
16,931
$2.05
0.6
$0
Exercisable, March 31, 2013
16,931
$2.05
0.6
$0


Restricted Shares
All restricted shares granted are governed by the Company’s Stock Award Plan, which was approved by shareholders in 2000. As of March 31, 2013, 188,100 restricted shares are outstanding on a dividend adjusted basis. The employees will earn the restricted shares in exchange for services to be provided to the Company over a three-year or five-year vesting period.  Total unrecognized compensation cost related to unvested stock awards is approximately $350,000 and is expected to be recognized over a weighted average period of 2 years.
 
The following table summarizes information regarding Restricted Share activity for the three months ending March 31, 2013:
 
Shares
Weighted Average Grant Date
Fair Value
Unvested at December 31, 2012
171,246
$2.14
Granted
61,000
$2.00
Vested
(44,146)
$1.94
Forfeited
0
$0.00
Unvested, March  31, 2013
188,100
$2.14
 
6.           Our inventory detail as of March 31, 2013, March 31, 2012 and December 31, 2012 was as follows:
 
   
March 31,
   
March 31,
   
December 31,
 
(in $000's)
 
2013
   
2012
   
2012
 
   
(unaudited)
   
(unaudited)
       
Inventory:
                 
Raw materials
  $ 3,200     $ 3,744     $ 2,662  
In transit finished goods
    429       736       950  
Finished goods
    6,140       3,438       7,205  
Total
  $ 9,769     $ 7,918     $ 10,816  
                         
 
7.           On March 8, 2013, the Company signed an amendment to extend the term of its credit agreement with Wells Fargo Bank one year to August 21, 2016.  The total credit line of $12 million and the annual maintenance fees remained the same while the interest rate was lowered to LIBOR plus 275 basis points.  The amendment decreased the year end minimum earnings covenant to $200,000 for 2013 and all future years.  The amendment also includes provisions to allow permitted acquisitions and permitted redemptions of Company stock up to $1,250,000 as long as the Company has excess availability of $2,500,000 both before and after the completion of permitted acquisitions and permitted redemptions.  As of March 31, 2013, the Company had total outstanding bank debt of $1.5 million at an average interest rate of 4.125%.  The Company is in compliance with all of its covenants at March 31, 2013.
 

 
-7-

 

 

 
 

 
 
8.           An income tax valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The net change in the valuation allowance for the three months ended March 31, 2013 was a decrease of $174,000 to recognize the decrease in deferred tax assets during the first three months. The net deferred tax asset of $469,000 as of March 31, 2013 represents the Company’s belief that it is more likely than not that a profit will be generated over the next twelve to eighteen months which will allow the Company to use a portion of the current net operating loss carry forwards.  As of December 31, 2012, the Company has net operating loss carry forwards for Federal income tax purposes of approximately $5,502,000, which are available to offset future Federal taxable income, if any, that begin to expire in 2021. The Company also has a net operating loss carry forward for Illinois state income tax purposes of approximately $5,608,000 as of December 31, 2012.  The Company also has alternative minimum tax credit carry forwards of approximately $136,000, which are available to reduce future Federal regular income taxes, if any, over an indefinite period. No unrecognized tax benefits are set to expire in the next twelve months that may have an impact upon the Company’s effective tax rate.  The Company files tax returns in the U.S. federal jurisdiction and various state jurisdictions. The tax years 2009, 2010, 2011 and 2012 remain open to examinations. Our policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. During the three months ended March 31, 2013, the Company did not recognize expense for interest or penalties related to income tax, and do not have any amounts accrued at March 31, 2013, as the Company does not believe it has taken any uncertain income tax positions.

9.           The Company’s goodwill resulting from its purchase of American Gaming and Electronics, Inc. (AGE) is tested for impairment at least annually, which the Company does in the fourth quarter or more often if circumstances warrant. The Company determined that there was no impairment of goodwill in 2012 and 2011 by utilization of a discounted cash flow analysis.  The model utilizes numerous assumptions, including but not limited to future sales estimates of AGEs traditional products and of Video Gaming Terminals (VGTs) related to the new Illinois VGT business.  Due to the nature of such estimates, there is no certainty in future periods that the Fair Value of the American Gaming & Electronics reporting unit will exceed its carrying value.
 
10.           The Company has evaluated subsequent events through the date the financial statements were issued for the three months ended March 31, 2013.
 

 
-8-

 


 
Item 2. Management's Discussion & Analysis of Financial Condition & Results of Operations

 
Three Months Ended March 31, 2013 & 2012
 
For the first quarter ended March 31, 2013, net sales increased $5.7 million or 46% to $18.0 million compared to $12.3 million in the first quarter 2012.  Gaming sales increased $6.2 million or 55% to $17.4 million in the first quarter 2013 compared to $11.2 million in the first quarter 2012 representing 96% of total sales in the 2013 period compared to 91% in 2012.  Amusement sales decreased $(0.5) million or (43)% to $0.7 million in the first quarter 2013 compared to $1.2 million in the first quarter 2012 representing 4% of total sales in the 2013 period compared to 9% in 2012.  By product category, video gaming terminal (VGT) sales added $5.9 million in the first quarter 2013.  Gaming and amusement display sales declined $(0.1) million or (1)% in the first quarter 2013 compared to the same period in 2012. This was due to display average selling price declining by (8)%, offsetting the total display unit volume increase of 7% to 32,900 units in 2013 compared to 30,800 units in 2012.  Gaming and amusement parts sales declined by $(0.1) million or (4)% in the first quarter 2013 compared to the same period in 2012.

Gross margin for the first quarter 2013 increased $0.8 million to $3.0 million or 16.5% of sales compared to $2.2 million or 17.7% in the first quarter 2012.  Although gaming display sales unit volume grew noticeably, the average selling price declined, which resulted in the gaming display gross margin percentage increasing slightly.  Although gaming VGT sales grew significantly (from zero to $5.9 million), the VGT gross margin percentages are noticeably lower than the gaming gross margin percentage averages.  The gaming and amusement parts gross margin percentage declined slightly in the first quarter 2013 compared to the first quarter 2012, but the parts gross margin remains significantly higher than the corporate gross margin percentage average.

Operating expenses increased $422,000 to $2.4 million in the first quarter 2013 compared to $2.0 million in the first quarter 2012.  Operating expenses increased $128,000 to support the VGT sales in the first quarter 2013, $169,000 to support additional engineering resources, and $125,000 for other gaming and amusement operating expense, primarily sales personnel expense and bad debt expense.  Due to sales increasing more than operating expense increases, operating expenses as a percent of sales decreased to 13.2% in the quarter from 15.8% of sales in the same quarter last year. The Company continues to place great emphasis on operating expense control.

Operating earnings were $587,000 in the first quarter 2013 compared to $234,000 in the first quarter 2012 due to noticeably higher sales and gross margin dollars with a slightly lower margin percentage, partially offset by the higher operating expenses noted above.

Interest expense was $37,000 in the first quarter 2013 compared to $30,000 in the first quarter 2012 due to slightly higher average debt balances due to VGT inventory.  Other expense was a zero in the first quarter 2013 and the first quarter 2012.

Income tax expense was $1,000 in the first quarter 2013 compared to $2,000 in the first quarter 2012. The Company has available a net operating loss carry forward of approximately $5.5 million as of December 31, 2012.
 
Net income was $549,000 in the first quarter 2013 compared to net income of $202,000 in the first quarter 2012.  For the first quarter 2013 basic and diluted earnings per share was $0.05 compared to basic and diluted earnings per share of $0.02 in the first quarter 2012.

 
-9-

 


 
Outlook
 
Based on its best estimates and information available at this time, management believes full year 2013 net sales will increase in a range of 21 percent to 27 percent, or between $62 million and $65 million, compared to $51.1 million in full year 2012 with a meaningful percentage increase in net earnings versus 2012. In addition, the Company is developing several new proprietary products that we expect will contribute to improved sales and margins in late 2013 and 2014. We will continue to aggressively control costs and inventory levels.

 
Liquidity & Capital Resources
 
Accounts receivable increased to $9.3 million in the first quarter 2013 compared to $8.7 million at year end 2012.  This $0.65 million use of cash is due to $3.8 million higher sales in the first quarter 2013 compared to the fourth quarter 2012, due to higher video display and VGT sales. Days sales in accounts receivable decreased to 47 days at the end of the first quarter 2013 compared to 55 days at year end 2012. Accounts receivable due from subcontractors decreased to $3.9 million at the end of the first quarter 2013 compared to $5.1 million at year end 2012, a $1.2 million provision of cash as operations consumed advance purchases of CCFL LCDs to support a major customer.

Inventory decreased to $9.8 million at the end of the first quarter 2013 compared to $10.8 million at year end 2012.  This $1.0 million provision of cash was due to a reduction of video display finished goods and VGT units.   Days cost of sales in inventory decreased to 59 days at the end of the first quarter 2013 compared to 84 days cost of sales at year end 2012.  This was the lowest days sale in inventory and thus the highest inventory turnover in recent Company history.

Accounts payable decreased to $3.83 million at the end of the first quarter 2013 compared to $4.17 million at year end 2012, a $0.34 million use of cash.  Days payables outstanding decreased to 55 days at the end of the first quarter 2013 compared to 75 days at year end 2012 again higher due to higher video display and VGT sales in the first quarter 2013.  Accounts payable due to subcontractors decreased to $3.3 million at the end of the first quarter 2013 compared to $3.6 million at year end 2012, a $0.3 million use of cash.

Prepaid expenses increased $0.3 million and accrued expenses increased $0.3 million which offset each other for a net zero provision (use) of cash.  The net of the above working capital changes resulted in $0.9 million of cash provided by operations.

The net of our first quarter 2013 earnings, depreciation and amortization, and other non cash adjustments to earnings resulted in a $0.6 million provision of cash by operations. The net of earnings and non cash adjustments plus the working capital changes resulted in $1.5 million of cash being provided by operations in the first quarter 2013.

Capital additions, primarily IT equipment, were $0.02 million of cash used by investing activities.

Long-term liabilities decreased to $1.5 million during the first quarter 2013 compared to $3.7 million at year end 2012, which was a $2.2 million use of cash.  Cash provided by sales of stock issued under the employee stock option plan and stock grants was minimal in the first quarter 2013.  These two items resulted in $2.2 million of net cash used by financing activities.

 
-10-

 




The net change in cash provided by operations and used by investing activities and financing activities was $0.73 million.  Cash at the beginning of the year was $0.77 million and at the end of the first quarter was $0.04 million.

The Company is subject to certain market risks, mainly interest rates.  On August 21, 2006, the Company entered into a four-year credit facility with Wells Fargo Bank NA.  On September 15, 2009, the Company amended the term of the credit agreement extending it to August 21, 2013.  The amended credit agreement is a $12 million revolving credit facility.  The credit facility has several financial covenants including a minimum book net worth, minimum net earnings, maximum capital expenditures and maximum compensation increases.  The financial covenants included a provision that any future write off of goodwill will be an add back to the net worth and earnings covenants.

On March 4, 2011, the Company amended the term of the credit agreement to August 21, 2014, the interest rate to LIBOR plus 375 basis points, and the minimum book net worth and minimum net earnings covenants were modified for the first three quarters of 2011 to account for the investment the Company was making into the Video Gaming Terminal market with the year end 2011 covenants remaining the same.  On March 5, 2012, the Company amended the term of the credit agreement to August 21, 2015.  The amendment included a waiver for the fourth quarter 2011 minimum book net worth and minimum net earnings covenants and eliminated the book net worth covenant for future periods.  The financial covenants for the first three quarters 2012 were modified to account for the investment the Company was making into the Video Gaming Terminal market with the year end 2012 covenants remaining the same.  The amendment also increased the year end minimum earnings covenant to $300,000 for 2013 and 2014, and raised the capital expenditure limit to $400,000 per year for 2013, 2014 and 2015. On March 8, 2013, the Company amended the term of the credit agreement to August 21, 2016, the interest rate to LIBOR plus 275 basis points, changed the year end minimum net earnings to $200,000 for 2013, 2014  and 2015, reduced the borrowing base block to $250,000, and created a basket of $1,250,000 for small acquisitions or stock buy backs as long as the Company has excess availability of $2,500,000 both before and after making the permitted acquisition or permitted redemption of Company stock.

An adverse change in interest rates during the time that this debt is outstanding would cause an increase in the amount of interest paid.  The Company may pay down the loans at any time; however, monthly interest charges are not less than $5,000 per month to termination.  All bank debt is due and payable on August 21, 2016. As of March 31, 2013, the Company had total outstanding bank debt of $1.5 million at an average interest rate of 4.125%.  In addition, the Company pays $31,000 credit insurance on selected foreign receivables.

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

 
 
-11-

 


 

 
 
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 Form 10-K filing. The Company undertakes no, and hereby disclaims any, 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.
 

 
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Item 3. Quantitative & Qualitative Disclosures about Market Risk
 
There have been no material changes to the Company’s market risk during the three months ended March 31, 2013.  For additional information on market risk, refer to the “Quantitative and Qualitative Disclosures about Market Risk” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.
 
The Company is subject to certain market risks, mainly interest rate risk.  In August 2006, the Company entered into a four-year secured credit facility with Wells Fargo Bank.  In September 2010, the Company entered into a three-year extension of the credit facility.  On March 4, 2011, March 5, 2012, and March 8, 2013, respectively, the Company entered into another additional one year extension of the credit facility and each time made certain other modifications to covenants primarily related to delays in the start up of the Illinois VGT business.
 
As of March 31, 2013, the Company had total outstanding bank debt of $1.5 million at an average interest rate of 4.125%.  The loan is at three month Libor plus 2.75% with a minimum interest charge of $5,000 per month. All of the Company’s debt is subject to variable interest rates at this time. An adverse change in interest rates during the time that this debt is outstanding would cause an increase in the amount of interest paid. If the debt would exceed approximately $1.9 million, then a 100 basis point increase in interest rates would result in additional interest expense recognized in the financial statements. The Company may make payments towards the loans at any time without penalty.
 
The Company is exposed to credit risk on certain assets, primarily accounts receivable. The currency risk is minimal as substantially all of the Company’s sales are billed in US dollars.  The Company provides credit to customers in the ordinary course of business and performs ongoing credit evaluations. Concentrations of credit risk with respect to trade receivables are limited except for the Company’s largest customers.
 
Item 4. Controls & Procedures
 
The Company has established a Disclosure Committee, which is made up of the Company’s Chief Executive Officer, Chief Financial Officer and other members of management. The Disclosure Committee conducts an evaluation of the effectiveness of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) as of the end of the period covered by this report. While the Company has limited resources and cost constraints due to its size, based on the evaluation required by Rule 13a-15(b), the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective in ensuring that all material information required to be filed in this quarterly report has been made known to them. As of March 31, 2013, there have been no known significant changes in internal controls or in other factors that could significantly affect these controls.
 

 

 



 
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PART II - OTHER INFORMATION


Item 1. Legal Proceedings

NONE


Item 1A. Risk Factors

There have been no material changes to the description of the risk factors associated with the Company's business previously disclosed in Part I, Item 1 "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2012. In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in the Company's Annual Report on Form 10-K as they could materially affect our business, financial condition and future results. The risks described in the Company's Annual Report on Form 10-K are not the only risks facing the Company.  Additional risks and uncertainties not currently known, or that are currently deemed to be immaterial, also may materially and adversely affect the Company's business, financial condition or operating results.
 

Item 5. Other Information

Submission of Matters to a Vote of Security Holders

Wells-Gardner Electronics Corporation (the "Company") held its Annual Meeting of Shareholders on May 14, 2013.  The following is a summary of the matters voted on at that meeting.

(a)     
The shareholders elected the Company's entire Board of Directors.  The persons elected to the Company's Board of Directors and the number of shares cast for, the number of shares withheld, and broker non-votes, with respect to each of these persons, were as follows:

 

 
Name
 
Votes For
 
Votes Withheld
 
Broker Non-Votes
 
                 
 
Merle H. Banta
 
4,038,000
 
990,000
 
5,033,000
 
 
Marshall L. Burman
 
4,067,000
 
960,000
 
5,033,000
 
 
Frank R. Martin
 
4,077,000
 
950,000
 
5,033,000
 
 
Anthony Spier
 
4,838,000
 
190,000
 
5,033,000
 


(b)  
The shareholders ratified the advisory approval of named executive officer compensation for the fiscal year ending December 31, 2012.  The number of shares cast in favor of the ratification, the number against, the number abstaining, and broker non-votes were as follows:
 
 
For
 
Against
 
Abstain
 
Broker Non-Votes
 
 
4,592,000
 
285,000
 
151,000
 
5,033,000
 
                 

 
 
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(b)  
The shareholders ratified the recommendation that the say-on-pay vote frequency should be one year.  The number of shares cast in favor of one year, two years, three years or abstention were as follows:
 
 
1 Year
 
2 Years
 
3 Years
 
Abstain
 
 
4,789,000
 
75,000
 
69,000
 
95,000
 
                 



(b)  
The shareholders ratified the appointment of Plante & Moran, PLLC, as independent certified public accountants of the Company for the fiscal year ending December 31, 2013.  The number of shares cast in favor of the ratification of Plante & Moran, PLLC, the number against, the number abstaining, and broker non-votes were as follows:
 
 
For
 
Against
 
Abstain
 
Broker Non-Votes
 
 
9,784,000
 
244,000
 
33,000
 
0
 
                 



Material Changes to Procedures by Which Security Holders Recommend Nominees

NONE





















 
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Item 6. Exhibits
     
(a).
Exhibits:
   
       
       
       
 
Exhibit 31.1
-
Certification of Chief Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
       
 
Exhibit 31.2
-
Certification of Chief Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
       
 
Exhibit 32.1
-
Statement of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
       
 
Exhibit 101.INS
-
XBRL Instance Document
       
 
Exhibit 101.SCH
-
XBRL Taxonomy Extension Schema
       
 
Exhibit 101.CAL
-
XBRL Taxonomy Extension Calculation Linkbase
       
 
Exhibit 101.DEF
-
XBRL Taxonomy Extension Definition Linkbase
       
 
Exhibit 101.LAB
-
XBRL Taxonomy Extension Label Linkbase
       
 
Exhibit 101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase
       


(b).
Press Releases:

The following press releases have been issued by the Company during the Company’s three months 2012, which are available on the Company’s website (www.wellsgardner.com) under its Investor Information section:

DATE
TITLE
   
   
02/14/13
WELLS-GARDNER REPORTS FOURTH QUARTER AND FULL YEAR 2012 RESULTS
   
02/28/13
WELLS-GARDNER HAS RECEIVED PURCHASE ORDERS FOR OVER $30 MILLION OF VGTs
   
04/11/13
WELLS-GARDNER ELECTRONICS CORPORATION RETAINS LYTHAM PARTNERS FOR INVESTOR RELATIONS
   
04/15/13
WELLS-GARDNER HAS RECEIVED PURCHASE ORDERS FOR OVER $35 MILLION OF VGTs
   
05/08/13
WELLS-GARDNER REPORTS FINANCIAL RESULTS FOR THE FIRST QUARTER 2013
   

 
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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 15, 2013
By:
graphic
     
James F. Brace
     
Executive Vice President,
     
Chief Financial Officer,
     
Treasurer & Corporate Secretary


 
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