Wells-Gardner Reports Second Quarter and First Half 2011 Earnings

CHICAGO, IL -- (Marketwire) -- 08/10/11 -- Wells-Gardner Electronics Corporation (NYSE Amex: WGA) announced net earnings for the second quarter ending June 30, 2011 were $600,000 or $0.05 per share, a 36 per cent increase over net earnings of $441,000 or $0.04 per share in the same period the prior year. The second quarter results included $154,000 of non-recurring charges which was made up of $30,000 of reorganization charges and $124,000 of operating expenses related to the Illinois Video Lottery business, which is not expected to begin generating revenue until the second quarter 2012. Prior year results included non-recurring charges of $261,000. Second quarter 2011 sales were $13.2 million, which is a decrease of 14.5 per cent compared to $15.4 million in the same quarter 2010.

For the six months ending June 30, 2011, net earnings were $360,000 or $0.03 per share compared to $546,000 or $0.05 per share in the prior year six months. The six month 2011 earnings included non-recurring charges of $496,000, which was made up of $200,000 for two litigation cases, $266,000 of operating expenses related to the Illinois Video Lottery business and $30,000 for reorganization charges. The first half 2010 earnings included non-recurring charges of $362,000. Sales for the first half 2011 were $24.0 million, a decrease of 11.2 per cent compared to $27.0 million in the same period in 2010.

"Our earnings performance in the second quarter came in above expectations as we operate in a difficult but increasingly promising slot machine manufacturing environment," said Anthony Spier, Wells-Gardner's Chairman and Chief Executive Officer. "This increase in earnings was driven by both an increase in margin and a reduction in operating expenses. Margins increased in the quarter to 20.4 per cent compared to 18.3 per cent in the same quarter in the prior year due to improved mix, the elimination of low margin business particularly the used game sales and reduced royalty payments. Operating expenses declined by $274,000 due to a combination of reduced personnel cost and reduced engineering expenses as we are transitioning from hardware products, which we capitalize to software products, which we expense."

"The year to date sales decline of 11.2 per cent or $3 million was caused by a decline in sales to one of our major customers of $4 million due to a difficult comparison to prior year from strong Italian lottery VLT sales in 2010 as well as exiting the low margin used game business, which had sales of $550,000 in the first six months 2010. Without those two factors, sales increased by 6 per cent or $1.55 million."

"The balance sheet continues to remain strong as debt decreased to $4.4 million as of June 30, 2011 compared with $5.8 million at June 30, 2010. Nevertheless debt is up from $565,000 at year end 2010, which is a seasonal effect. The Company's debt equity ratio is now 28 per cent compared to 37 per cent at June 30, 2010. We expect the debt to be under $3 million by the end of the third quarter."

Outlook
"Given that the Illinois Supreme court unanimously upheld the Capital Spending Bill and hence the Video Lottery Terminal (VLT) business, we are currently estimating that the Illinois Video Lottery will begin in the second quarter 2012. As a result we expect that sales for the full year 2011 will be in the range of $45 to $48 million, compared to $45.7 million in 2010, as the worldwide gaming slot machine market remains sluggish. Second half sales are expected to increase from prior year by between 10 and 30 per cent however earnings will continue to be affected by spending for the Illinois VLT market without revenue. We expect Company sales will be in the range of $70 to $80 million in 2012 as the Illinois Video Lottery business gets started. We will continue to aggressively control costs, inventory levels and interest expenses."

Founded in 1925, Wells-Gardner Electronics Corporation is a distributor and manufacturer of color video monitors and other related distribution products for a variety of markets including, but not limited to, gaming machine manufacturers, casinos, coin-operated video game manufacturers and other display integrators. The Company has the majority of its LCDs monitors manufactured in Mainland China. In addition, the Company's American Gaming & Electronics, Inc. subsidiary ("AGE"), a leading parts distributor to the gaming markets, sells parts and services to over 700 casinos in North America with offices in Las Vegas, Nevada, Egg Harbor Township, New Jersey, Miami, Florida and McCook, Illinois.

This press release contains forward-looking statements within the meaning of the federal securities laws. Those statements include statements regarding the intent, belief or expectations of the Company and its management. Readers are cautioned that the forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties, and that actual results could differ materially from those expressed in any forward-looking statement. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include, but are not limited to, development of competing technologies, availability of adequate credit, interruption or loss of supply from key suppliers, increased competition, the regulatory process and regulatory and legislative changes affecting the gaming industry. Wells-Gardner assumes no obligation to update the information contained in this release to reflect events or circumstances after the date of this release or to reflect the occurrence of unanticipated events. For additional investor information, please contact Jim Brace - Wells-Gardner at (708) 290-2120 or Alan Woinski - Gaming USA Corporation at (201) 599-8484.

WELLS-GARDNER ELECTRONICS CORPORATION
Condensed Consolidated Statements of Earnings (unaudited)
Three Months and Six Months Ended June 30, 2011 and 2010

                     Three Months Ended June 30,  Six Months Ended June 30,
                     ---------------------------  -------------------------
                          2011          2010          2011         2010
-------------------- ------------- -------------  ------------ ------------
Net sales            $  13,150,000 $  15,388,000  $ 23,957,000 $ 26,964,000
Cost of sales           10,466,000    12,568,000    19,356,000   22,002,000
-------------------- ------------- -------------  ------------ ------------
Gross margin             2,684,000     2,820,000     4,601,000    4,962,000
Engineering, selling
 & administrative
 expenses                2,042,000     2,316,000     4,171,000    4,308,000
-------------------- ------------- -------------  ------------ ------------
Operating Earnings         642,000       504,000       430,000      654,000
Interest expense            33,000        69,000        61,000      111,000
Income Tax expense           9,000        (6,000)        9,000       (3,000)
-------------------- ------------- -------------  ------------ ------------
Net Earnings         $     600,000 $     441,000  $    360,000 $    546,000
==================== ============= =============  ============ ============

Earnings per share:
--------------------
Basic earnings per
 share               $        0.05 $        0.04  $       0.03 $       0.05
Diluted earnings per
 share               $        0.05 $        0.04  $       0.03 $       0.05

Basic average common
 shares outstanding     11,602,233    11,542,405    11,582,474   11,527,665
Diluted average
 common shares
 outstanding            11,607,410    11,547,329    11,589,591   11,535,221