WELLS-GARDNER ELECTRONICS CORPORATION
                           1996 ANNUAL REPORT


COMPANY PROFILE

Wells-Gardner Electronics Corporation is an ISO 9001 certified video
products corporation that designs, manufactures and assembles color 
video monitors for sale to the gaming, industrial and commercial 
markets. It has a customer base that is growing both domestically and 
internationally. Included are makers of coin-operated video games, 
lottery terminals, video slot machines, video walls, leisure and 
fitness, INTRANET, media, automotive, kiosk and other display 
applications.  From time to time, the company also engages in contract 
manufacturing of electronic products designed and marketed by others.

The company's strategic plans include focusing on market segments where
its willingness and ability to semi-customize products, quick response 
time and quality of service differentiate it from its competition.  In 
turn, these strategies enable the company to establish defensible market 
niches.

Founded in 1925, Wells-Gardner is a publicly traded corporation and 
maintains its headquarters in Chicago, Illinois.

COMMON SHARE MARKET PRICE & DIVIDENDS

The company's common shares are traded on the American Stock Exchange 
(AMEX) under the symbol of WGA.  On December 31, 1996, there were 805 
holders of record of the company's common shares.  No dividends were 
paid in 1996 or 1995.  High and low sales prices by quarter for the last 
two years were:
<TABLE>
                  1996 Prices       1995 Prices          
Quarter ended:    High      Low      High    Low
<S>               <C>      <C>      <C>     <C>
March 31,         4.2500   2.500    5.7500  2.5620
June 30,          4.8750   3.875    5.2500  3.3750
September 30,     4.6250   3.125    6.5000  4.2500
December 31,      4.5000   3.250    4.7500  2.8750
</TABLE>
TABLE OF CONTENTS

Selected Financial Results & Corporate Information...   1
President's Report...................................   2
Management's Discussion & Analysis...................   4
Financial Statements.................................   6
Notes to Financial Statements........................   9
Independent Auditors'Report..........................  12
Board of Directors Officers..........................  13
<PAGE>
<TABLE>
SELECTED FINANCIAL RESULTS & CORPORATE INFORMATION

Years ended December 31, (In thousands except per-share data)

                               1996      1995      1994      1993      1992
Earnings Data:
<S>                           <C>       <C>       <C>       <C>       <C>
Net sales                     $36,668   $28,301   $33,435   $36,011   $48,949
Operating earnings (loss)
excluding special charges                                 
& sale of fixed assets            444      (416)     (498)   (2,216)    1,606
Special charges                   ---      (886)   (1,201)      ---       ---
Gain on sale of fixed assets      ---       358       ---       ---       ---
Earnings (loss) from              
continuing operations             403    (1,059)   (1,735)   (1,881)    1,017
Earnings from extraordinary 
item...
  tax effect of loss             
  carryforward                    ---       ---       ---       ---       528
Cumulative effect of change    
in accounting principle           ---       ---       ---       102       ---
Net earnings (loss)               403    (1,059)   (1,735)   (1,779)    1,545

PER-SHARE DATA:
Earnings (loss) from             
continuing operations            0.10     (0.26)    (0.45)    (0.49)     0.26
Earnings from extraordinary 
item...
  tax effect of loss             
  carryforward                    ---       ---       ---       ---      0.14
Cumulative effect of change      
in accounting principle           ---       ---       ---      0.03       ---
Net earnings (loss)              0.10     (0.26)    (0.45)    (0.46)     0.40

BALANCE SHEET DATA:
Inventory                       7,344     8,930     5,831     6,989    11,570
Working capital                 9,017    10,213     7,561     9,510    11,465
Total assets                   14,125    16,570    15,619    16,085    20,189
Long-Term debt                  1,300     3,125       ---       ---       ---
Shareholders' equity           10,095     9,633    10,367    12,108    13,785
</TABLE>
TRANSFER AGENT & REGISTRAR:  Shareholders of record who have questions
regarding address changes, transfers, lost certificates or other 
shareholder matters should direct their inquires to: Harris Trust & 
Savings, 311 West Monroe Street, Chicago, Illinois 60690. Telephone: 
(312) 461-6848.

INDEPENDENT AUDITORS:  KPMG Peat Marwick LLP, 303 East Wacker Drive,
Chicago, Illinois 60601.

OUTSIDE LEGAL COUNSEL:  Katten, Muchin & Zavis, 525 West Monroe Street, 
Chicago, Illinois 60661.
<PAGE>
FORM 10-K: A copy of the 1996 Annual Report on Form 10-K, without 
exhibits, as filed with the Securities and Exchange Commission, is 
available to shareholders upon written request, without charge.  All 
requests should be directed to: George B. Toma, Vice President of 
Finance, Chief Financial Officer & Treasurer, Wells-Gardner Electronics 
Corporation, 2701 North Kildare Avenue, Chicago, Illinois 60639.

ANNUAL SHAREHOLDERS' MEETING:  April 22, 1997, 2:00 p.m. at 2701 North
Kildare Avenue, Chicago, Illinois.

WORLD WIDE WEB: http://www.wgec.com

                           PRESIDENT'S REPORT

TO OUR SHAREHOLDERS, CUSTOMERS, SUPPLIERS AND EMPLOYEES:

We are pleased to report to you that Wells-Gardner made its first annual
profit since 1992. There were many positive accomplishments during 1996
including improvements in productivity, cost control and quality and the
release of several new products.

1996 SALES GREW BY 30 PERCENT DUE TO NEW PRODUCTS
1996 sales were $36.7 million, up $8.4 million from 1995.  This increase
was driven by increased market share in most market segments we serve.
There were substantial increases in several segments including:

     * More than doubling the service business which includes the sales
       of our refurbished monitors.

     * A substantial increase in the coin-operated amusement market due
       to an increase in market share.

     * More than tripling our sales to the bartop market segment due to
       the development of a new series of products in 1996.

     * Over $1 million of sales of our new INTRANET product developed in
       1996.

     * A large increase in our leisure and fitness sales due to
       increasing our market share with new products  developed in 1996.

Our sales did decline in two market segments, namely gaming and
automotive, but we believe our market share in these markets increased.
In gaming, the sales of video lottery products declined significantly in
1996, thereby depressing the entire market.

Our video wall sales did not meet expectations. However, we remain
optimistic concerning the future of this product and this represents an
opportunity for the Company in 1997.

WELLS-GARDNER RELEASED 12 NEW PRODUCTS IN 1996
New products released in the past 2 years accounted for over 72% of 1996
sales.  The Company has embarked on an aggressive program of new product
introductions releasing 8 new products in 1995, 12 in 1996 with another
10 new products scheduled for 1997 release.  Our investment in research
and development increased by another 13 percent in 1996.
<PAGE>
Of the 12 new products released in 1996, all were voltage free, which
means they automatically operate on all voltages anywhere in the world
and can be plugged in anywhere from Topeka to Tokyo to Timbuktu.  The
new products include the INTRANET product, 25" and 27" video wall
monitors with new front-mounted controls which are in the process of
being patented, 13", 17", 19" and 33" new standard resolution monitors,
17", 27" and 33" VGA monitors and a 16X9 monitor, which approximates the
image dimensions of a movie. In addition, the Company released a brand
new product concept, Playmaster Extreme, which is a game system that
involves using a high definition multisync projector, which projects a
high resolution image onto a 200 inch diagonal screen. Management also
decided to end its relationship with Wee Chin Enterprise Co. Ltd. of
Taiwan, to focus on its other investment opportunities. As a result the
Company will cease marketing the "OK Baby" product line.

Management views new product development as the basis for sustainable
growth in our served markets.

PROFIT IMPROVED FOR THIRD CONSECUTIVE YEAR
1996 net earnings were $403,000 or 10 cents per share compared to a loss
of ($1.1) million or (26) cents per share in 1995, a loss of ($1.7)
million or (45) cents per share in 1994 and a loss of ($1.8) million or
(46) cents per share in 1993.  The improvement in earnings in 1996 over
1995 came from two major factors:

     * Sales increased by 30 percent.

     * Margins improved by 13 percent caused by additional production
       throughput of 27  percent more units.  Management  continues to
       believe that increasing margins is essential and will continue 
       its focus on this area in 1997.


1996 OPERATING PROFITS INCREASED BY $2.6 MILLION OVER 1993 ON SAME SALES
VOLUME

Sales in 1996 were $36.7 million compared to $36.0 million in 1993.
However operating income improved by $2.6 million due primarily to a 76
percent improvement in gross margins.  This was due to a combination of
a 45 percent increase in manufacturing productivity, a reduction of
manpower and overhead expenses including the sale of 25 percent of our
plant and a migration to higher margin new products.  In addition,
selling, general and administrative costs were reduced by over $200,000
while research and development costs increased as part of the program to
release new products.

WELLS-GARDNER GENERATED OVER $1 MILLION OF CASH FROM OPERATIONS IN 1996
Wells-Gardner generated over $1 million of cash from operations in spite
of sales increasing by 30 percent.  Receivable days hit an all-time low
of 44 days, compared to 57 days at the end of 1995.  This was  as a
result of the Company's aggressive credit policies.  Inventory declined
by about $1.6 million and the inventory turns improved to 4.28 turns
from 2.61 at the end of 1995.  The Company was able to reduce its bank
debt from $3.1 million at the end of 1995 to $1.3 million at the end of
1996.
<PAGE>
QUALITY REMAINS A TOP PRIORITY
Again in 1996, Wells-Gardner comfortably passed the very exacting annual
audit of our ISO 9001 quality accreditation.  We were the first open-
frame monitor manufacturer in the world to obtain this quality
certification.  This has been a valuable marketing advantage and has
attracted several new prestigious accounts.  An important part of our
new culture is to "continuously improve" our quality processes and to
help us in this effort we have retained Quality Technology Company, a
well respected quality consulting Company.  As a result of these
efforts, our internal defect rates have dropped by 59 percent since the
middle of 1994.  Our goal is to improve this amount to 75 percent by the
end of 1997.

ROAD MAP TO 2000
Wells-Gardner management develops an in-depth long range strategic plan
on an annual basis as a road map for the Company.  The key issues for
the future are:

     * Focus the entire Company operations on customer satisfaction.

     * Grow sales by entering new high margin, high growth markets,
       releasing approximately 10 new products  annually and  expanding
       the product line beyond monitors to improve technological
       flexibility.

     * Continue to improve margins by a combination of driving material
       cost out of the products through aggressive  procurement actions,
       improved engineering, increased labor productivity, reduced
       overhead and developing exclusive  relationships with low-cost
       offshore manufacturers.

     * Enhance quality with the concept that in each of our served
       markets, Wells-Gardner will be the highest quality  vendor.

     * Identify an appropriate acquisition.

We thank all of you for your continued support as we focus on growth and
"consistent year by year profitability" through the year 2000 and 
beyond.
                              Anthony Spier
                              Chairman of the Board, President
                              and Chief Executive Officer

                              March 14, 1997
<PAGE>
                  MANAGEMENT'S DISCUSSION & ANALYSIS
   RESULTS OF OPERATIONS, YEARS ENDED DECEMBER 31, 1996, 1995 & 1994

REVENUES:
For the years ended December 31, 1996, 1995 and 1994 the Company had
sales of $36,668,000, $28,301,000 and $33,435,000, respectively.  The
1996 increase of $8,367,000 or 29.6% from 1995 was attributed to
additional sales to the Company's core amusement, data display, leisure
fitness and service segments and its new INTRANET and display monitor
segments.  These increases were offset by lower sales to the automotive
and gaming segments. The 1995 decrease of $5,134,000 or 15.4% from 1994
was attributed to lower demand in the amusement and gaming segments.

GROSS PROFIT:
The Company reported gross profit of $5,602,000 or 15.3% in 1996,
$3,849,000 or 13.6% in 1995 and $3,975,000 or 11.9% in 1994.  The
increase in gross profit from 1996 to 1995 was attributed to increased
sales volume, manufacturing efficiencies and the Company's ongoing focus
on cost reductions.  The increase in gross profit from 1995 to 1994 was
attributed to restructuring charges incurred during 1994 and the
efficiencies of new production lines during 1995.

ENGINEERING, SELLING & ADMINISTRATIVE:
Engineering, selling and administrative expenses were $5,158,000 in
1996, $4,265,000 in 1995 and $4,473,000 in 1994.  The increase in 1996
from 1995 was attributed to new product development, sales commissions
paid on the increased sales volume and additional expenditures in
employee manning, associated benefits and outside professional fees. The
decrease in 1995 from 1994 was attributed to the commissions paid on the
lower sales volume.

OPERATING INCOME (LOSS):
The Company's operating income was $444,000 or 11 cents per share in
1996. The Company's operating losses, excluding any gain on sale of
fixed assets and special charges, were ($416,000) or (10) cents per
share in 1995 and ($498,000) or (13) cents per share in 1994.

OTHER EXPENSE (NET):
Other expense was $41,000 in 1996, $115,000 in 1995 and $36,000 in 1994.
Other expense is the net of interest expense, interest income, payment
negotiations and other non-operating miscellaneous receipts.  Interest
expense was  $242,000 in 1996, $165,000 in 1995 and $119,000 in 1994.
The increase in 1996 from 1995 resulted from the additional utilization
of the Company's revolving line of credit to fund operations during the
1996 year.  The increase in 1995 from 1994 resulted from additional
capital needed to finance a higher level of inventory.

GAIN ON SALE OF FIXED ASSETS & SPECIAL CHARGE:
During 1995, the Company realized a gain of $358,000 on the sale of
excess warehouse space.  The excess space resulted from the installation
of new automated production lines.  Also during 1995, the Company
incurred a charge of $886,000 to settle a warranty issue with a major
customer.  The Company has retained the customer, which remains a
significant contributor to operations.  In 1994, the Company incurred a
$1.2 million charge for management reorganization and phasing out
certain products.
<PAGE>
INCOME TAXES:
Tax expense was not recorded in 1996 due to the Company's utilization of
its $3.4 million net operating loss carryforward.  The Company has not
recognized any deferred tax assets.  Realization of deferred tax assets
is dependent upon the Company generating sufficient taxable earnings in
future periods.

NET EARNINGS (LOSS):
The Company's net income was $403,000 or 10 cents per share in 1996. The
Company's net loss was ($1,059,000) or (26) cents per share in 1995 and
($1,735,000) or (45) cents per share in 1994.  The Company believes that
the effect of inflation on past operations has not been significant and
anticipates that inflation will not have a significant impact on future
operations.

LIQUIDITY & CAPITAL RESOURCES:
Net cash provided by operating activities was $1,042,000 in 1996
compared to net cash used in operating activities of $627,000 in 1995
and $155,000 in 1994.  The 1996 increase was attributed to the Company's
net income, improved collections, focus on reducing all segments of
inventory and lower fourth quarter purchases.  Receivable days
outstanding decreased to 43.83 in 1996 from 57.19 in 1995, while
inventory turns increased to 4.28 in 1996 from 2.61 in 1995.

Net cash used in investing activities was $296,000 in 1996 compared to
net cash provided by investing activities of $254,000 in 1995 and net
cash used in investing activities was $658,000 in 1994.  The 1996
variance was attributed to lower capital expenditures caused by the full
implementation of the new production lines in 1994.  In 1995, the
Company disposed of $601,000 of fixed assets.

Net cash used in financing activities was $1,805,000 in 1996 compared to
net cash provided by financing activities of $1,432,000 in 1995 and
$777,000 in 1994. The 1996 reduction was attributed to the Company's
ability to generate and manage cash to reduce its revolving line of
credit from $3,125,000 to $1,300,000.  Debt to equity decreased to
12.88% in 1996 from 32.44% in 1995 and 18.57% in 1994.

The Company's financial condition is strong and liquidity has improved.
The Company was able to reduce working capital by 12 percent to
$9,017,000 in 1996 from $10,213,000 in 1995, while increasing sales by
30 percent.  Shareholders' equity increased to $10,095,000 in 1996 from
$9,633,000 in 1995 and the current ratio improved to 4.30 from 3.68.
The Company believes that its future financial requirements can be met
with funds generated from operating activities and from its revolving
line of credit.
<PAGE>
<TABLE>
BALANCE SHEETS


                                ASSETS
                                                       December 31,
                                                   1996            1995
<S>                                           <C>              <C>
Current Assets:                                
 Cash & cash equivalents                      $     57,481     $  1,116,630
 Accounts receivable, net of allowances
  of $106,933 in 1996, & $297,866 in 1995        3,895,805        3,540,346
 Income tax receivable                                 ---           62,182
 Inventory (Note 3)                              7,343,843        8,929,939
 Prepaid expenses & other current assets           449,595          374,847
        Total current assets                    11,746,724       14,023,944

Property, Plant & Equipment (at cost):
 Land & land improvements                          274,267          274,267
 Buildings & improvements                        3,461,980        3,373,101
 Machinery & equipment                           5,925,802        5,723,530
  Total property, plant & equipment              9,662,049        9,370,898
 Less accumulated depreciation                  (7,284,170)      (6,825,212)
   Property, plant & equipment, net              2,377,879        2,545,686
       Total assets                           $ 14,124,603     $ 16,569,630                                               
       
                      LIABILITIES AND SHAREHOLDERS' EQUITY

                                                       December  31,
                                                   1996             1995
Current Liabilities:
 Accounts payable                             $  1,762,736     $  3,076,777
 Accrued expenses                                  967,281          734,434
       Total current liabilities                 2,730,017        3,811,211

Long-Term Liabilities:
 Note payable (Note 8)                           1,300,000        3,125,000
       Total liabilities                         4,030,017        6,936,211

Shareholders'Equity:
 Common shares
  $1 par value, 25,000,000 shares authorized;
  4,068,426 shares issued & outstanding at
  December 31, 1996 4,052,676 shares issued                
  & outstanding at December 31, 1995             4,068,426        4,052,676
 Capital in excess of par value                  1,158,308        1,096,892
 Retained earnings                               5,157,953        4,754,851
 Unearned compensation                            (290,101)        (271,000)
       Total shareholders' equity               10,094,586        9,633,419
       Total liabilities & shareholders'                                                       
       equity                                 $ 14,124,603     $ 16,569,630

See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF OPERATIONS

                                                    Year Ended December 31,
                                                1996           1995           1994
<S>                                       <C>            <C>            <C>
Net sales                                 $ 36,667,774   $ 28,300,514   $ 33,435,447
Cost & expenses:
 Cost of sales                              31,066,161     24,451,816     29,460,747
 Engineering, selling & administrative       5,157,948      4,264,893      4,472,921
 Other expense (net) (Note 6)                   40,563        114,886         35,671
 Gain on sale of fixed assets                      ---       (357,774)           ---
 Special charge (Note 9)                           ---        886,000      1,200,738
Net earnings (loss)                       $    403,102   $ (1,059,307)  $ (1,734,630)

Net earnings (loss) per share             $       0.10   $      (0.26)  $      (0.45)


Weighted average common shares outstanding   4,061,860      4,015,717      3,882,964
</TABLE>
<TABLE>
STATEMENTS OF SHAREHOLDERS' EQUITY

                                           Capital in                       of          Total 
                                Common     excess of     Retained      Unearned     shareholders' 
                                shares     par value     earnings     compensation     equity
<S>                         <C>           <C>           <C>           <C>            <C>
Balance, December 31, 1993  $  3,859,942  $    757,946  $  7,548,788  $     (58,335) $ 12,108,341

Net loss                             ---           ---    (1,734,630)          ---     (1,734,630)
Issuance of stock awards         102,000       262,500           ---       (364,500)          ---
Stock options exercised           17,500        34,063           ---            ---        51,563
Cancellation of stock awards     (21,706)      (94,964)          ---         58,335       (58,335)
Balance, December 31, 1994  $  3,957,736  $    959,545  $  5,814,158  $    (364,500) $ 10,366,939

Net loss                             ---           ---    (1,059,307)           ---    (1,059,307)
Stock options exercised          116,210       243,154           ---            ---       359,364
Stock repurchased & retired      (21,270)     (105,807)          ---            ---      (127,077)
Amortization of unearned
compensation                         ---           ---           ---         93,500        93,500
Balance, December 31, 1995  $  4,052,676  $  1,096,892  $  4,754,851  $   $(271,000) $  9,633,419

Net earnings                         ---           ---       403,102            ---       403,102
Issuance of stock awards          12,000        54,854           ---        (57,304)        9,550
Stock options exercised            3,750         6,562           ---            ---        10,312
Amortization of unearned
compensation                         ---           ---           ---         38,203        38,203
Balance, December 31, 1996  $  4,068,426  $  1,158,308  $  5,157,953  $    (290,101) $ 10,094,586

See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CASH FLOWS

                                                     Year Ended December 31,
                                                 1996         1995          1994
<S>                                         <C>           <C>            <C>
Cash flows from operating activities:       
 Net earnings (loss)                        $   403,102   $(1,059,307)   $(1,734,630)
 Adjustments to reconcile net earnings 
 (loss) to net cash provided by (used in)
 operating activities:
  Depreciation                                  463,859       489,432        463,884
  Net gain on the sale of fixed assets              ---      (357,774)       (13,115)
  Amortization (reversal) of unearned                                    
  compensation                                   38,203        93,500        (58,335)
 Changes in current assets & liabilities:     
 Income tax receivable                           62,182       266,245        (87,419)
  Accounts receivable                          (355,459)    2,564,977       (424,843)
  Inventory                                   1,586,096    (3,098,442)     1,157,360
  Prepaid expenses & other current assets       (74,748)       85,322         (8,483)
  Accounts payable                           (1,314,041)    1,154,153        322,806
  Accrued expenses                              232,847      (765,309)       228,101
Net cash provided by (used in) operating      1,042,041      (627,203)      (154,674)
activities

Cash provided by (used in) investing 
activities:
  Additions to property, plant &               
  equipment, net                               (296,052)     (346,467)      (683,077)
  Proceeds from the disposition of              
  long-term bond                                    ---           ---         25,000
  Proceeds from the disposition                      
  of fixed assets                                   ---       600,637            ---
Net cash provided by (used in)                     
investing activities                           (296,052)      254,170       (658,077)

Cash provided by (used in) financing 
activities:
  Notes payable                              (1,825,000)    1,200,000        725,000
  Proceeds from stock options exercised          19,862       359,364         51,563
  Stock repurchased & retired                       ---      (127,077)           ---
Net cash provided by (used in) financing      
activities                                   (1,805,138)    1,432,287        776,563

Net increase (decrease) in cash &             
cash equivalents                             (1,059,149)    1,059,254        (36,188)
Cash & cash equivalents at beginning           
of year                                       1,116,630        57,376         93,564
Cash & cash equivalents at end of year      $    57,481   $ 1,116,630    $    57,376

Supplemental cash flows disclosure:
  Income taxes paid                         $       ---   $       ---    $   108,226
  Interest paid                             $   241,844   $   164,566    $   119,131

See accompanying notes to financial statements
</TABLE>
<PAGE>
         NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1996, 1995 & 1994

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH & CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, commercial paper, certificates of deposit and money market
funds, which have an original maturity of three months or less.

INVENTORY
Inventory is stated at the lower of cost, determined by the first-in,
first-out (FIFO) method, or market.

PROPERTY, PLANT & EQUIPMENT
Property, plant and equipment are stated at cost.  Depreciation is
calculated on the straight-line method over the estimated useful lives
of the assets.  The approximate range of useful lives is as follows:
 Buildings....15 - 31 1/2 years   Machinery & Equipment....5 - 15 years

REVENUE RECOGNITION
Revenue from sales of products which the Company manufactures are
recorded at time of shipment.

EARNINGS PER SHARE
Net earnings per share is computed based upon the number of weighted
average common shares outstanding.

FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments does not
materially vary from the carrying value of such instruments.

RECLASSIFICATIONS
Where appropriate, certain items relating to the prior years have been
reclassified to conform to the current year's presentation.

RESEARCH & DEVELOPMENT
Research and development costs for the years ended December 31, 1996,
1995 and 1994 were $1,700,935, $1,506,448, and $1,392,620, respectively,
which were 4.6%, 5.3% and 4.2% of annual sales, respectively.

USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure
of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.

LONG-LIVED ASSETS
Long-Lived assets to be held and used are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amounts should be evaluated.  Impairment is measured by comparing the
carrying value to the estimated undiscounted future cash flows expected
to result from the use of the assets and their eventual disposition.
The Company has determined that as of December 31, 1996, there has been
no impairment in the carrying values of long-lived assets.
<PAGE>
(2)  NATURE OF BUSINESS & RELATED PARTIES
The Company's primary business is the assembly of electronic components
which consist of video color monitors, data display monitors and bonding
of touch panels.  Monitor and data display sales during the period 1996
to 1994 were made through a sales representative firm (James Industries
Inc.) whose Chairman of the Board and principal shareholder is a
substantial beneficial shareholder and director of the Company.
Commissions earned by James Industries Inc. for the years ended December
31, 1996, 1995 and 1994 were approximately $1,225,000, $868,000 and
$1,047,000, respectively.  Commissions owed to James Industries Inc. as
of December 31, 1996, 1995 and 1994 were approximately $169,000,
$103,000 and $170,000 respectively.  Total commissions as a percentage
of sales for the years ended December 31, 1996, 1995 and 1994 were 3.3%,
3.1% and 3.1%, respectively.  Sales to James Industries Inc. for the
years ended December 31, 1996, 1995 and 1994 were approximately
$543,000, $425,000 and $2,216,000, respectively.  Outstanding accounts
receivable due from James Industries Inc. at December 31, 1996, 1995 and
1994 were approximately $40,000 $33,000 and $535,000, respectively.

The Company's largest customer accounted for total revenues of 18%, 15%
and 19% in 1996, 1995 and 1994, respectively.  Sales to customers
outside the United States were 13.2%, 20.1%, and 20.0% of total revenues
in 1996, 1995 and 1994, respectively.

(3)  INVENTORY
Inventory consisted of the following components:
<TABLE>
                                    December 31,
                                 1996           1995
    <S>                     <C>            <C>
    Raw materials           $  4,670,279   $  5,561,981
    Work in progress             597,574        435,324
    Finished goods             2,075,990      2,932,634
          Total             $  7,343,843   $  8,929,939
</TABLE>

(4)  INCOME TAXES
The effective income tax rates for 1996, 1995 and 1994 differed from
the expected Federal income tax rate (34%) for the following reasons:

<TABLE>
                                              1996        1995          1994
    <S>                                  <C>          <C>           <C>
    Computed expected tax (benefit)      $  137,000   $ (360,000)   $ (590,000)
    State income taxes (benefit) net of      
    Federal tax effect                       20,000      (52,000)      (86,000)
    Other, net                                8,000        6,000        36,000
    Limitations on and utilization         
    of tax benefits                        (165,000)     406,000       640,000
                                         $      ---   $      ---    $      ---
</TABLE>
<PAGE>
Deferred income taxes reflect the impact of temporary differences
between the amounts of assets and liabilities for financial reporting 
purposes and such amounts as measured by income tax regulations.  
Temporary differences which gave rise to deferred tax assets and 
liabilities at December 31, 1996 and 1995 consisted of:
<TABLE>

   Deferred tax assets:                             1996         1995
   <S>                                          <C>            <C>
     Allowance for doubtful accounts            $    41,000     $   115,000
     Warranty reserve                                37,000          39,000
     Inventory reserve                              169,000         273,000
     Separation charge                               39,000             ---
     Deferred compensation                              ---          36,000
     Contributions carryovers                        14,000           9,000
     Net operating loss carryforwards             1,293,000       1,332,000
     Alternative minimum tax credit                  
     carryforwards                                   50,000          50,000
     General business credit carryforwards          129,000         129,000
     Other                                            8,000          10,000
      Total gross deferred tax assets             1,780,000       1,993,000
      Less valuation allowance                   (1,623,000)     (1,798,000)
      Net deferred tax assets                       157,000         195,000
   Deferred tax liabilities:
     Property, plant & equipment,
      principally depreciation                      157,000         195,000
    Net deferred taxes                          $       ---     $       ---
</TABLE>

A 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 year ended December
31, 1996 was an decrease of $175,000 primarily due to the utilization of
net operating loss carryforwards.  At December 31, 1996, the Company has
net operating loss carryforwards for Federal income tax purposes of
approximately $3,350,000 which are available to offset future Federal
taxable income, if any, through 2010.  The Company also has alternative
minimum tax credit carryforwards of approximately $50,000 which are
available to reduce future Federal regular income taxes, if any, over an
indefinite period.  In addition, the Company has general business credit
carryforwards of approximately $129,000 which are available to reduce
future Federal regular income taxes, if any.  These general business
credits are scheduled to expire during 2004 through 2007.

(5)  STOCK PLANS
The Company maintains a Non-qualified Option and Stock Award Plan under
which officers and key employees may acquire up to a maximum of
1,400,000 common shares and a Nonemployee Director Stock Plan under
which directors may acquire up to 250,000 common shares.  Options may be
granted thru December 31, 2004 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 December 31, 1996, 72
persons were eligible to participate in the plans and 43 persons held
outstanding options. Such options expire on dates ranging from April 24,
2000 to August 13, 2006.
<PAGE>
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its plans.  Accordingly, no compensation cost has been
recognized for its fixed stock option plans.  Had compensation cost for
the Company's stock option plans been determined consistent with FASB
Statement of Financial Accounting Standards No. 123 (``FAS 123''), the
Company's net earnings available to common shareholders and net earnings
per common share would have been reduced to the pro forma amounts
indicated below: 

                                                    1996        1995
Net earnings (loss) available to common shareholders

                          As reported             $403,102  ($1,059,307)
                          Pro forma               $342,375  ($1,085,070)

Net earnings (loss) per common and common
equivalent share
                          As reported                $0.10       ($0.26)
                          Pro forma                  $0.09       ($0.27)
                  

Under the stock option plans, 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 FAS 123,
the fair value of each grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in fiscal 1996 and 1995, respectively:
expected volatility of 20 percent; risk free interest rates ranging from
5.2 percent to 7.9 percent; and expected lives of 5 years.  Additional
information on shares subject to options is as follows:
<TABLE>
                                       1996                      1995                       1994
                                      Weighted                  Weighted                   Weighted
                                      Average                   Average                    Average
                          1996        Exercise       1995       Exercise      1994         Exercise
                         Options      Price         Options     Price        Options       Price
<S>                  <C>          <C>          <C>          <C>          <C>          <C>
Outstanding at
beginning of year       277,411          3.38      196,321         4.13      197,803         3.24
Granted                 263,054          3.30      221,300         2.75       27,500         3.68
Forfeited               (13,500)         3.13      (24,000)        5.10      (11,482)        4.71
Exercised                (3,750)         2.75     (116,210)        3.09      (17,500)        2.95
Outstanding at end         
of year                 523,215          3.35      277,411         3.38      196,321         4.13

Options exercisable           
at year end             215,900                     99,561                   152,946
</TABLE>
<PAGE>
<TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1996:

                                       Weighted
                                       Average       Weighted
          Range of        Options      Remaining     Average      Options
          Exercise      Outstanding   Contractual    Exercise    Exercisable
          Prices        at 12/31/96     Life          Price      at 12/31/96
         <C>            <C>           <C>           <C>         <C>  
            3.00              4,900        3           3.00           4,900
            2.875            17,536        4           2.88          17,536
            5.375            58,000        5           5.38          58,000
         3.50 - 3.75         17,500        7           3.64          10,625
            2.75            167,225        8           2.75          60,324
         3.125 - 4.25       258,054        9           3.31          64,515
                            523,215        8           3.35         215,900
</TABLE>
<TABLE>
(6)  OTHER EXPENSE (NET)
Other expense (net) consisted of the following components:

                                     December 31,
                              1996       1995         1994
    <S>                    <C>          <C>          <C>
    Interest expense, net  $ 241,844    $ 164,566    $ 119,131
    Other income, net       (201,281)     (49,680)     (83,460)
    Other expense (net)    $  40,563    $ 114,886    $  35,671
</TABLE>          
<TABLE>
(7)  ACCRUED EXPENSES
Accrued expenses consisted of the following components:

                                               December 31,
                                           1996            1995
    <S>                                 <C>          <C>     
    Payroll and additional salary       $  254,619   $   66,376
    Taxes other than on income             125,989      124,791
    Sales commissions                      168,726      102,809
    Insurance                              172,350      176,922
    Warranty                                97,101       99,906
    Other accrued expenses                 148,496      163,630
          Total                         $  967,281   $  734,434
</TABLE>    

(8)  NOTE PAYABLE
The note payable consisted of a revolving line of credit balance of
$1,300,000 and $3,125,000 at December 31, 1996 and 1995, respectively,
bearing interest at prime (8.25% at December 31, 1996 and 8.50% at
December 31, 1995). During 1995, the Company entered into a new long-
term banking agreement with Harris Trust and Savings Bank for a
$7,000,000 revolving line of credit. This agreement runs through
September 30, 1998. At December 31, 1996 the Company had an unused
balance of $5,649,600 on its line of credit. During 1996, the average
rate for the borrowings was 8.28%.  The long-term note is
uncollateralized with certain covenant restrictions. The Company had an
outstanding letter of credit balance of $50,400 and $428,538 at December
31, 1996 and 1995 respectively.
<PAGE>
(9)  SPECIAL CHARGE
During 1995, the Company incurred a one time charge of $886,000, or 22
cents per share.  This charge related to a warranty issue on monitors
shipped to a major customer from 1991 to 1993.  This charge covered all
contingent liabilities which expired December 31, 1995.  During 1994,
the Company incurred a one time charge of $1,201,000, or 31 cents per
share.  This charge consisted of $762,000, or 20 cents per share for
management reorganization and $439,000, or 11 cents per share for
phasing out certain products and severance payments for employee
reorganization which consisted of terminating 19 employees.  This
reorganization was substantially completed at December 31, 1994.

(10)  LEASE COMMITMENTS
The Company leases certain data processing equipment under lease
agreements expiring through the year 2001.  The following is a schedule
of future minimum lease payments required under operating leases as of
December 31, 1996:
<TABLE>
                      Year ending
                      December 31,     Amount
                      <C>           <C>
                        1997        $  27,961
                        1998           27,961
                        1999           23,644
                        2000           20,100
                        2001           20,100
                      Thereafter          ---
                                    $ 119,766
</TABLE>
Rent expense related to operating leases was approximately $6,411,
$12,568 and $4,880 during the years ended December 31, 1996, 1995 and
1994, respectively.

<TABLE>
(11)  UNAUDITED QUARTERLY FINANCIAL DATA
Selected quarterly data for 1996 and 1995 are as follows:
(In thousands except per-share data)

                                                 1996
                                 First     Second    Third     Fourth
<S>                            <C>       <C>       <C>       <C>               
Net sales                      $ 10,429  $  9,158  $  7,950  $  9,131
Net earnings (loss)            $    265  $    151  $    164  $   (177)
Net earnings (loss) per share  $   0.07  $   0.03  $   0.04  $  (0.04)
</TABLE>
<TABLE>
                                                 1995
                                 First     Second    Third     Fourth
<S>                            <C>       <C>       <C>       <C>
Net Sales                      $  6,157  $  7,784  $  7,784  $  6,518
Net earnings (loss)            $    148  $    149  $   (742) $   (614)
Net earnings (loss) per share  $   0.04  $   0.03     (0.18)    (0.15)
</TABLE>
<PAGE>
                      INDEPENDENT AUDITORS' REPORT

The Board of Directors
Wells-Gardner Electronics Corporation:

We have audited the accompanying balance sheets of Wells-Gardner
Electronics Corporation as of December 31, 1996 and 1995 and the related
statements of operations, shareholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1996.  These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement.  An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe
that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Wells-
Gardner Electronics Corporation at December 31, 1996 and 1995, and the
results of its operations and its cash flows for each of the years in
the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.

KPMG PEAT MARWICK, LLP
Chicago, Illinois
January 31, 1997
<PAGE>
                           BOARD OF DIRECTORS

ANTHONY SPIER            ALLAN GARDNER            JAMES J. ROBERTS, JR.
Chairman of the          Retired from the         Chairman of the Board
Board, President         Company in 1988          & Chief Executive
& Chief Executive                                 Officer of James
Officer                                           Industries, Inc.

JOHN R. BLOUIN           H. WAYNE HARRIS          RANDALL S. WELLS
President of James       President of Wayne       Executive Vice
Industries, Inc.         Harris Company           President & General
                                                  Manager

WILLIAM L. DENICOLO      IRA J. KAUFMAN           ERNEST R. WISH
Founder & Chairman of    Senior Managing          Chairman of the Board
the Board of Telular     Director of Mesirow      of WRM, Inc.
Corporation & Chairman   Financial, Inc.                                       
of the Board and                
President of DNIC
Brokerage Company

                           OFFICERS

ANTHONY SPIER            MARK E. KOMOROWSKI       GEORGE B. TOMA CPA,CMA
Chairman of the          Vice President &         Vice President of
Board, President         General Manager of       Finance, Chief
& Chief Executive        Services                 Financial Officer &
Officer                                           Treasurer

EUGENE C. AHNER          LARRY S. MAHL            RANDALL S. WELLS
Director of Human        Director of Materials    Executive Vice
Resources & Secretary                             President & General
& Secretary                                       Manager

KATHLEEN E. HOPPE        JOHN S. PIRCON
Director of Management   Vice President of
Information Systems      Marketing & Engineering
<PAGE>