WELLS-GARDNER ELECTRONICS CORPORATION
                              1998 ANNUAL REPORT


   CORPORATE PROFILE

   Founded  in  1925,  Wells-Gardner  Electronics  Corporation  is  an  ISO
   9001certified  video  products  company  which  designs,   manufactures,
   assembles and  markets  color video  monitors,  video liquid  crystal  &
   plasma displays, coin doors  and coin mechanisms for  a wide variety  of
   markets including,  but  not  limited  to,  coin-operated  video  games,
   lottery and gaming machines,  leisure and fitness, automotive,  display,
   intranet, service and video walls.


   TABLE OF CONTENTS

        Selected Financial Data & Common
         Share Market Price                        1
        President's Report                         2
        Management's Discussion & Analysis         4
        Financial Information                      7
        Notes to Financial Statements             10
        Independent Auditors' Report              16
<PAGE>
<TABLE>
   SELECTED FINANCIAL DATA

   (In thousands except per-share data)

                                          Years Ended December 31,
                                1998     1997      1996     1995     1994
   -------------------------------------------------------------------------
   <S>                         <C>       <C>      <C>      <C>       <C>
   Earnings Data:
   Net sales                   $42,590   $42,989  $36,668  $28,301   $33,435
   Earnings (loss) from
     operations excluding
     special charges & gain     
     on sale of fixed assets    $1,505    $1,124     $563   ($375)    ($407)
   Special charges                 ---       ---      ---   ($886)  ($1,201)
   Gain on sale of fixed assets    ---       ---      ---    $358       ---
   Net earnings (loss)            $974      $775     $403 ($1,059)  ($1,735)
   -------------------------------------------------------------------------
   Basic net earnings (loss)     
    per share                    $0.23     $0.19    $0.10  ($0.26)   ($0.45)
   Diluted net earnings          
    (loss) per share             $0.22     $0.18    $0.10  ($0.26)   ($0.45)
   -------------------------------------------------------------------------
   Balance Sheet Data:
   Inventory                    $8,579    $9,257   $7,344   $8,930    $5,831
   Working capital             $10,199   $10,915   $9,017  $10,213    $7,561
   Total assets                $19,671   $17,520  $14,125  $16,570   $15,619
   General debt                    ---    $1,800   $1,300   $3,125    $1,925
   Acquisition debt             $3,350       ---      ---      ---       ---
   Shareholders' equity        $12,720   $11,385  $10,095   $9,633   $10,367
   -------------------------------------------------------------------------
</TABLE>

   COMMON SHARE MARKET PRICE


   The Company's common shares are traded on the American Stock Exchange
   under the symbol WGA.  On December 31, 1998, there were approximately
   700 holders of record of the common shares.  No dividends were paid in
   1998 or 1997.  High and low sales prices for the last two years were:
<TABLE>

                                          1998 Prices        1997 Prices
                                         High      Low      High      Low
   -------------------------------------------------------------------------
   <S>                                  <C>       <C>       <C>      <C>
   Quarter ended:
       March 31,                        6  3/4    5  5/16   4  1/2   3  3/8
       June 30,                         5  1/2    3  7/8    4  3/8   3  3/8
       September 30,                    5         2  5/8    6  7/8   4
       December 31,                     3  5/8    2  3/8    7  3/16  5
   -------------------------------------------------------------------------
</TABLE>
<PAGE>

   PRESIDENT'S REPORT

   TO OUR SHAREHOLDERS, CUSTOMERS, SUPPLIERS AND EMPLOYEES:

   The management of  Wells-Gardner had mixed  feelings on  the results  of
   1998.  We  are pleased  to report  to you  that Wells-Gardner  announced
   improved earnings for  the fifth consecutive  year and  we acquired  the
   Coin business  and successfully  integrated  it into  the  Wells-Gardner
   environment.   However  we  are  disappointed  at  the  erosion  in  our
   shareholder  value  even  though  we  recognize  that  public  micro-cap
   companies have experienced  severe reductions in  their market value  in
   1998.

   Strategic Plan To Increase Shareholder Value

   Your  management  and  Board  of  Directors  are  continuing  to   spend
   considerable  effort   in  identifying   strategies  to   increase   the
   shareholder value of the Company.  We recognize that the way to increase
   value is to increase profitability and that we have to renew our efforts
   and make significant changes to continue the current trend of increasing
   profits.

        * Key to  this strategy is a  commitment to be the  "best-in-class"
          quality supplier  in our served markets.   The Company  continued
          to maintain its ISO  9001 accreditation.  As has been  previously
          mentioned, we were  the first open-frame monitor manufacturer  to
          obtain  this quality  certification and  it has  been a  valuable
          marketing  advantage in  selling  to several  highly  prestigious
          accounts. The Company's quality coefficient, which measures  five
          different aspects of product quality, increased by 30% in 1998.
          
        * Even though  our plans  provide for  significant internal  growth
          within our existing businesses particularly in the  international
          arena,  we recognize  the need  to  enter other  growth  markets,
          probably  through the  acquisition  of  all or  part  of  another
          Company.  Our acquisition  strategy  is to  target  companies  in
          growing  and   profitable  markets  and   we  have  retained   an
          investment banking firm to  aid us in our acquisition and  growth
          activities.   We  are also  examining  other revenue  and  profit
          growth opportunities by  utilizing our current skills to  develop
          opportunities in tangential markets.
          
        * We have  also announced our  schedule to  begin accepting  orders
          for products  in our on-line catalog  via e-commerce using  major
          credit  cards  at  www.wgec.com.    This  will  allow  our  1,400
          customers instant access to our products 24 hours a day 7 days  a
          week.
<PAGE>
   Operations Improve In 1998

   Net earnings in 1998 increased by 26 percent to 23 cents per share  from
   19 cents in 1997 on slightly  decreased revenue. The increased  earnings
   came primarily from an increase in margins and a reduction in  expenses.
   The newly acquired Coin business was  also a significant contributor  to
   both sales and earnings in 1998. Sales were essentially flat with gaming
   becoming the  largest  market  segment for  Wells-Gardner.  The  Company
   released 9 new products  in 1998 and new  products continued to play  an
   important role in the revenue performance with 96 percent of 1998  sales
   derived from products introduced in the last 3 years.


   $1.9 Million Of Cash Was Generated From Operations In 1998

   Wells-Gardner generated over $1.9 million of cash in 1998 primarily from
   earnings and  inventory reductions.  Our balance  sheet remains  strong,
   with a current  ratio of  3:42 to  1 and  a debt/equity  of 21.5%  after
   acquiring the new Coin business for cash. Inventory turns increased   to
   4.17 from 3.93 in  1997 and overall inventory  for the monitor  business
   declined by over $1.1 million. Receivable days outstanding also declined
   to 44 days from 52  days in 1997.   Your shareholder equity improved  to
   $2.97 per share.


   We thank  all  of  you  for  your  continued  support  as  we  focus  on
   profitability and the increase  in shareholder value  for the year  2000
   and beyond.




   Anthony Spier
   Chairman of the Board, President
   and Chief Executive Officer
   March 19, 1999

<PAGE>
<TABLE>

   MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
   CONDITION & RESULTS OF OPERATIONS


   Results of Operations

   The following table sets forth the  percentage of net sales  represented
   by each line item presented in  the Company's Statements of Earnings  as
   of December 31.

                                         Percent of Net Sales

                                      1998       1997       1996
                                      ----       ----       ----
   <S>                               <C>        <C>        <C>
   Net sales...................      100.0%     100.0%     100.0%

   Cost of sales...............       83.9%      84.2%      84.4%

   Gross margin................       16.1%      15.8%      15.6%

   Engineering, selling &
     administrative............       12.6%      13.2%      14.1%

   Operating income............        3.5%       2.6%       1.5%

   Other expense (net)..........       1.2%        .8%        .4%

   Net earnings.................       2.3%       1.8%       1.1%

</TABLE>
<PAGE>

   Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

   Net sales decreased 0.9% to $42,590,000 in 1998 compared to  $42,989,000
   in 1997, while gross margin for 1998 increased to $6,858,000 or 16.1% of
   sales compared to $6,801,000  or 15.8% of sales  in 1997.  Gross  margin
   improved for the fifth consecutive year as the Company introduced 10 new
   products and realized a benefit of producing standard-product in Asia.

   Engineering, selling and administrative  expenses decreased to 12.6%  of
   sales or  $5,353,000  in  1998  compared  to  $5,677,000  in  1997.  The
   percentage decrease is  reflective of the  Company's continued focus  on
   maintaining net sales without adding additional overhead expenses.

   Operating income for 1998 was $1,505,000 compared to $1,124,000 in 1997,
   an increase of 33.9%.  Other expense (net) increased to $505,000 in 1998
   compared to $339,000  in 1997 as  the Company  incurred additional  debt
   financing and interest expense  for the acquisition  it closed in  1998.
   The Company recorded an income tax provision of $25,000 in 1998 compared
   to $10,000 in 1997.  The Company continues to utilize its net  operating
   loss carryforward.  As of December 31, 1998, the Company has available a
   net operating loss carryforward of approximately $1.5 million.

   Net income  for 1998  was  $974,000 compared  to  $775,000 in  1997,  an
   increase of 25.7%.  For 1998, basic earnings per share were 23 cents and
   diluted earnings per share were 22 cents, compared to basic earnings per
   share of 19 cents and diluted earnings per share of 18 cents for 1997.

   On June  5, 1998,  the Company  acquired the  mechanical coin  door  and
   mechanical  coin  mechanism  business  of  Coin  Controls,  Inc.    This
   consisted  of  the  manufacturing,  service,  sales  and  marketing   of
   mechanical coin door and  coin mechanisms.  These  products are sold  to
   the coin-operated video gaming,  pinball, redemption and other  markets.
   Under  the  terms  of  the  agreement,  Wells-Gardner  acquired  certain
   inventory, machinery, equipment,  tooling and  certain contract  rights.
   Results of operations had the acquisition  occurred at the beginning  of
   each year was immaterial.


   Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

   Net sales increased 17.2% to $42,989,000 in 1997 compared to $36,668,000
   in 1996.  The 1997 increase was attributed to sales growth primarily  in
   the gaming  and service  segments and  the release  of 12  new  products
   during the year.

   Gross margin  for 1997  was $6,801,000  or 15.8%  of sales  compared  to
   $5,721,000 or 15.6%  of sales in  1996.  Gross  margin improved for  the
   fourth consecutive year as the Company  introduced the WG2 line of  high
   value monitors manufactured in Asia and the release of new products.

   Engineering, selling and administrative expenses decreased .9% of  sales
   to $5,677,000 in 1997 compared to $5,158,000 in 1996.  The 1997  results
   include an increase in the Company's provision for doubtful accounts  by
   $157,000 to fully reserve for a  customer in financial difficulties  and
   additional sales commissions paid on the increased sales volume.
<PAGE>
   Operating income for 1997 was $1,124,000  compared to $563,000 in  1996,
   an increase of 99.6%.  Other expense (net) increased to $339,000 in 1997
   compared to  $160,000 in  1996.   The  Company  recorded an  income  tax
   provision of $10,000 in 1997, but  did not record an income tax  expense
   for 1996 due  to the  Company's utilization  of its  net operating  loss
   carryforward.

   Net income  for 1997  was  $775,000 compared  to  $403,000 in  1996,  an
   increase of 92.3%.  For 1997, basic earnings per share were 19 cents and
   diluted earnings per share  were 18 cents,  whereas 1996 reported  basic
   and diluted earnings per share of 10 cents.

   Market and Credit Risks

   The Company is subject to certain  market risks, mainly interest  rates.
   Interest rate risk is managed through  a combination of fixed rate  debt
   and variable  rate short-term  borrowings.   At December  31, 1998,  the
   Company had  a five  year, $3,350,000  installment note  payable with  a
   variable rate  of the  London Interbank  Offered Rate  (LIBOR) plus  225
   basis points.  This note  has a  term  of five  years with  sixty  equal
   monthly  principal  payments  of   $55,833  plus  interest,   commencing
   February, 1999.

   The Company  is exposed  to credit  risk  on certain  assets,  primarily
   accounts receivable.  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 due to the  large number of  customers comprising the  Company's
   customer base.    The  Company  currently  believes  its  allowance  for
   doubtful accounts is sufficient to cover customer credit risks.

   Liquidity & Capital Resources

   The Company's financial condition and liquidity continues to be  strong.
   The Company generated over $1.9 million in cash from operations in 1998.
   Accounts  receivable  decreased  to  $5,149,000  in  1998  compared   to
   $5,232,000 in 1997, while days outstanding were 44 days in 1998 compared
   to 52 in 1997; both which are far below the industry average.  Inventory
   decreased to $8,579,000  in 1998 compared  to $9,257,000 in  1997.   The
   decrease is attributed to lower finished  goods on hand at year-end  and
   improved inventory turns to 4.17 in 1998 compared to 3.93 in 1997.

   Accounts payable decreased to $2,548,000 in 1998 compared to  $3,453,000
   in 1997.  The decrease is  attributed to lower inventory purchases  made
   during December, 1998.  Long-term note  payable decreased to $0 in  1998
   compared to $1,800,000  in 1997.   In 1998, the  Company entered into  a
   long-term  installment  note   payable  for  $3,350,000   to  fund   the
   acquisition consummated during the year.  Shareholders' equity increased
   to $12,720,000 in 1998 from $11,385,000 in 1997 and book value  improved
   to $2.97 per share in 1998 compared to $2.70 per share in 1997.

   Overall, the Company believes that its future financial requirements can
   be met  with funds  generated from  operating  activities and  from  its
   credit facility.
<PAGE>
   Inflation

   During the  past three  years, management  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.

   Year 2000

   The term Y2K is  used to refer to  a worldwide computer-related  problem
   where software programs  and embedded programs  in microprocessors  will
   not work properly when processing a date greater than December 31, 1999.
   This problem  results from  using two  digits to  denote the  third  and
   fourth digit of a four-digit year whereas a program assumes 19 to be the
   first two digits.  Many existing programs will continue to assume the 19
   as the first  and second digit  while a 20  or greater is  required.   A
   method of fixing the problem is for all  years to be denoted in a  four-
   digit field and the programs to  recognize all four digits as the  year.
   This Y2K problem has resulted in significant worldwide concern about the
   future operations of businesses and other institutions.

   The majority of the  systems utilized by the  Company have already  been
   made Y2K  compliant  in  an  undertaking which  began  in  1997,  at  no
   significant additional  cost  to  the  Company.    The  balance  of  the
   Company's systems will be made compliant by the second quarter of  1999.
   Management believes that  there are no  Y2K issues with  respect to  the
   functionality of any products sold in the past or expected to be sold in
   the future.   The  unknown area  of  Y2K related  exposure is  with  the
   Company's suppliers.    Although  management  has  began  a  program  of
   supplier  inquiry  and  evaluation  to  assess  the  potential  problem,
   management cannot make a determination as to the suppliers' level of Y2K
   compliance at this time.  Management  expects to make contingency  plans
   as necessary.

<PAGE>
<TABLE>

   BALANCE SHEETS

   Years ended December 31,

                                                       1998          1997
   -------------------------------------------------------------------------
   <S>                                           <C>            <C>
   ASSETS
   Current Assets:
     Cash & cash equivalents                         $26,052       $149,787
     Accounts receivable, net of allowances
       of $85,000 in 1998, & $264,300 in 1997      5,148,712      5,231,835
     Note receivable                                 232,369        374,507
     Inventory                                     8,579,344      9,256,552
     Prepaid expenses & other current assets         428,209        237,455
   -------------------------------------------------------------------------
             Total current assets                $14,414,686    $15,250,136
   -------------------------------------------------------------------------
   Property, Plant & Equipment (at cost):
     Land                                            206,144        206,144
     Land improvements                                71,970         71,243
     Buildings & improvements                      3,529,124      3,521,753
     Machinery & equipment                         6,839,416      6,049,931
   -------------------------------------------------------------------------
       Total property, plant & equipment          10,646,654      9,849,071
     Less accumulated depreciation                (7,997,720)    (7,578,823)
   -------------------------------------------------------------------------
             Property, plant & equipment, net     $2,648,934     $2,270,248
   -------------------------------------------------------------------------
   Other Assets:
     Note receivable                                 255,152            ---
     Intangibles, net                              2,352,379            ---
   -------------------------------------------------------------------------
             Total other assets                   $2,607,531            ---
   -------------------------------------------------------------------------
                      Total Assets               $19,671,151    $17,520,384
                                                  ==========     ==========
<PAGE>

   LIABILITIES & SHAREHOLDERS' EQUITY
   Current Liabilities:
     Accounts payable                             $2,547,993     $3,453,251
     Income taxes payable                                ---         10,000
     Accrued expenses                              1,053,159        872,211
     Installment note payable                        614,163            ---
   -------------------------------------------------------------------------
             Total current liabilities            $4,215,315     $4,335,462
   -------------------------------------------------------------------------

   Long-Term Liabilities:
     Note payable                                        ---      1,800,000
     Installment note payable                      2,735,837            ---
   -------------------------------------------------------------------------
             Total long-term liabilities          $2,735,837     $1,800,000
   -------------------------------------------------------------------------
                       Total Liabilities          $6,951,152     $6,135,462
   -------------------------------------------------------------------------
 
   Shareholders' Equity:
     Common shares, $1 par value; 25,000,000
      shares authorized; 4,285,912 shares
      issued at December 31, 1998 4,215,083
      shares issued at December 31, 1997           4,285,912      4,215,083
     Capital in excess of par value                1,526,760      1,424,496
     Retained earnings                             6,907,327      5,933,193
     Unearned compensation                               ---       (187,850)
   -------------------------------------------------------------------------
                Total Shareholders' Equity        $12,719,999    $11,384,922
   -------------------------------------------------------------------------
   Total Liabilities & Shareholders' Equity       $19,671,151    $17,520,384
                 

   See accompanying notes to financial statements.

</TABLE>
<PAGE>
<TABLE>

STATEMENTS OF EARNINGS

Years ended December 31,

                                             1998          1997        1996
-----------------------------------------------------------------------------
<S>                                       <C>         <C>         <C>
Net sales                                 $42,590,394 $42,988,526 $36,667,774
-----------------------------------------------------------------------------

Cost & expenses:
  Cost of sales                            35,732,440  36,187,438  30,946,600
  Engineering, selling & administrative     5,353,387   5,677,183   5,157,948
  Other expense (net)                         505,433     338,665     160,124
-----------------------------------------------------------------------------
Earnings before income taxes                  999,134     785,240     403,102
  Income tax                                   25,000      10,000         ---
-----------------------------------------------------------------------------
Net earnings                                 $974,134    $775,240    $403,102
                                              =======     =======     =======

Basic net earnings per share                    $0.23       $0.19       $0.10
-----------------------------------------------------------------------------
Diluted net earnings per share                  $0.22       $0.18       $0.10
-----------------------------------------------------------------------------
Basic average common shares outstanding     4,255,190   4,128,524   4,061,860
-----------------------------------------------------------------------------
Diluted average common shares outstanding   4,381,519   4,316,368   4,153,762
-----------------------------------------------------------------------------

</TABLE>
<PAGE>
<TABLE>

STATEMENTS OF SHAREHOLDERS' EQUITY

 
                                       Capital In                           Total
                             Common    Excess Of   Retained  Unearned     Shareholders'
                             Shares    Par Value   Earnings Compensation     Equity
------------------------------------------------------------------------------------
<S>                        <C>         <C>        <C>        <C>          <C>
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
------------------------------------------------------------------------------------
December 31, 1996          $4,068,426  $1,158,308 $5,157,953  ($290,101) $10,094,586

Net earnings                      ---         ---    775,240        ---      775,240
Issuance of stock awards       30,400      86,750        ---  (115,050)        2,100
Stock options exercised       116,257     179,438        ---        ---      295,695
Amortization of unearned      
compensation                      ---         ---        ---    217,301      217,301
------------------------------------------------------------------------------------
December 31, 1997          $4,215,083  $1,424,496 $5,933,193  ($187,850) $11,384,922

Net earnings                      ---         ---    974,134        ---      974,134
Issuance of stock awards       14,050      51,700        ---    (65,750)         ---
Stock options exercised        56,779      50,564        ---        ---      107,343
Amortization of unearned        
compensation                      ---         ---        ---    253,600      253,600
------------------------------------------------------------------------------------
December 31, 1998          $4,285,912  $1,526,760 $6,907,327        ---  $12,719,999
                            =========   =========  =========    =======   ==========

See accompanying notes to financial statements.

</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CASH FLOWS

Years ended December 31,
                                              1998           1997        1996
------------------------------------------------------------------------------
<S>                                       <C>           <C>         <C>
Cash flows from operating activities:
 Net earnings                               $974,134      $775,240    $403,102
 Adjustments to reconcile net earnings
    to net cash provided by (used in)
    operating activities:
   Depreciation & amortization               507,816       403,989     463,859
   Amortization of unearned compensation     253,600       217,301      38,203
 Changes in current assets & liabilities
    (net of effect of acquisition):
 Accounts receivable                          83,123    (1,336,030)   (355,459)
 Income tax receivable                           ---           ---      62,182
 Note receivable                            (113,013)     (374,508)        ---
 Inventory                                 1,123,958    (1,912,709)  1,586,096
 Prepaid expenses & other current assets    (190,754)      212,141     (74,748)
 Accounts payable                           (905,259)    1,690,515  (1,314,041)
 Income taxes payable                            ---        10,000         ---
 Accrued expenses                            170,948       (95,071)    232,847
------------------------------------------------------------------------------
Net cash provided by (used in)            
  operating activities                    $1,904,553     ($409,132) $1,042,041
------------------------------------------------------------------------------
Cash used in investing activities:
 Payment for acquisition                  (3,350,000)          ---         ---
 Additions to property, plant &         
  equipment, net                            (335,631)     (296,357)   (296,052)
------------------------------------------------------------------------------
Net cash used in investing activities    ($3,685,631)    ($296,357)  ($296,052)
------------------------------------------------------------------------------
Cash provided by (used in) financing
  activities:
 Borrowings (repayments) from note       
  payable                                 (1,800,000)      500,000  (1,825,000)
 Proceeds from note payable                3,350,000           ---         ---
 Proceeds from stock options exercised       107,343       297,795      19,862
------------------------------------------------------------------------------
Net cash provided by (used in)            
financing activities                      $1,657,343      $797,795 ($1,805,138)                                   )
------------------------------------------------------------------------------
Net increase (decrease) in cash & cash      
 equivalents                                (123,735)       92,306  (1,059,149)
Cash & cash equivalents at beginning of     
  year                                       149,787        57,481   1,116,630
------------------------------------------------------------------------------
Cash & cash equivalents at end of year       $26,052      $149,787     $57,481
                                            ========      ========     =======

Supplemental cash flows disclosure:
 Income taxes paid                           $35,000           ---         ---
 Interest paid                              $400,719      $222,375    $241,844

See accompanying notes to financial statements.
</TABLE>
<PAGE>

   NOTES TO FINANCIAL STATEMENTS

   Note 1.  DESCRIPTION OF THE BUSINESS
   Wells-Gardner Electronics  Corporation is  an ISO  9001 certified  video
   products company  which  designs, manufactures,  assembles  and  markets
   color video monitors, video displays, coin doors and coin mechanisms for
   diverse markets.   The  Company currently  sells its  products into  the
   coin-operated  video,   lottery  and   gaming,  leisure   and   fitness,
   automotive, display, intranet, service and video wall markets.

   Note 2.  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 valued at the lower of  first-in, first-out (FIFO) cost  or
   market.

   Property, Plant & Equipment
   Property, plant and equipment are stated at cost and are depreciated for
   financial reporting  purposes  over  the estimated  useful  lives  on  a
   straight-line basis as follows:

   Buildings..... 15 - 31 1/2 years   Machinery & Equipment..  5 - 15 years

   Revenue Recognition
   Revenue from sales of products is recorded at time of shipment.

   Earnings Per Share
   Basic earnings per share ("EPS") is based on the weighted average number
   of shares outstanding whereas diluted  EPS includes the dilutive  effect
   of unexercised common stock options.

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

   Reclassifications
   Certain amounts  in previously  issued  financial statements  have  been
   reclassified to conform to the current year's presentation.

   Research & Development
   Research and development costs  for the years  ended December 31,  1998,
   1997 and 1996 were approximately $1,536,000, $1,786,000 and  $1,701,000,
   respectively,  which  were  3.6%,  4.2%   and  4.6%  of  annual   sales,
   respectively.

   Use of Estimates
   The preparation  of financial  statements in  conformity with  generally
   accepted accounting principles require management to make estimates  and
   assumptions that affect the reported amounts of assets and  liabilities,
   the disclosure of contingent assets and  liabilities at the date of  the
   financial statements and the reported  amounts of revenues and  expenses
   during the reporting  period.  Actual  results could  differ from  those
   estimates.
<PAGE>
   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, 1998 there has  been
   no impairment in the carrying values of long-lived assets.

   Intangibles
   Intangible assets consist primarily of the cost of purchased business in
   excess of the fair value of net  assets acquired and are amortized on  a
   straight-line basis over periods of five and twenty years.  The  Company
   regularly reviews the performance of  acquired business to evaluate  the
   realizability of the underlying goodwill.  Amortization expense in 1998,
   1997 and 1996 was approximately $89,000, $0 and $0 respectively.

   Significant Customers
   Approximately 33%, 34%  and 18%  of net sales  in 1998,  1997 and  1996,
   respectively, were from the Company's largest customer.

   Note 3.  RELATED-PARTY TRANSACTIONS
   During the period 1996 to 1998,  a majority of the Company's sales  were
   made through a sales representative  firm, James Industries Inc.,  whose
   Chairman  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, 1998,  1997 and  1996
   were approximately $1,386,000, $1,541,000 and $1,225,000,  respectively.
   Commissions owed to James Industries Inc. as of December 31, 1998,  1997
   and  1996   were   approximately   $148,000,   $246,000   and   $169,000
   respectively.  Total commissions as a percentage of sales for the  years
   ended December  31,  1998, 1997  and  1996  were 3.2%,  3.6%  and  3.3%,
   respectively.   Sales  to James  Industries  Inc. for  the  years  ended
   December 31, 1998, 1997 and  1996 were approximately $258,000,  $406,000
   and $543,000, respectively.   Outstanding accounts  receivable due  from
   James  Industries  Inc.  at  December  31,  1998,  1997  and  1996  were
   approximately $156,000, $100,000 and $40,000, respectively.

   During 1997, the Company entered into an agreement with James Industries
   whereby it agreed to sell certain specific products on extended terms in
   exchange for a promissory note.  Shipments under this agreement began in
   September, 1997 and were fully completed  in the first quarter of  1998.
   The note carries interest at a rate  of prime plus 200 basis points  and
   is personally  guaranteed  by Jim  Roberts,  Chairman and  John  Blouin,
   President of James Industries, respectively.   At December 31, 1998  the
   balance on the note was approximately $488,000.
<PAGE>
   Note 4.  INVENTORY
   Inventory consisted of the following components:

                                                   December 31,
                                              1998             1997
                                            ---------        ---------
   Raw materials                           $6,225,344       $6,253,877
   Work in progress                          $440,049         $451,080
   Finished goods                          $1,913,951       $2,551,595
                                            ---------        ---------
                     Total                 $8,579,344       $9,256,552
                                            =========        =========

   Note 5.  DEBT
   The long-term  note payable  consisted of  a  revolving line  of  credit
   balance  of  $0  and   $1,800,000  at  December   31,  1998  and   1997,
   respectively, bearing interest  at 8.50%  at December  31, 1997.  During
   1998, the Company entered into a  new, long-term banking agreement  with
   American National Bank and Trust Company of Chicago.  The new  agreement
   provides for an $8,000,000 revolving line of credit at a rate of  either
   prime or  the  London Interbank  Offered  Rate (LIBOR)  plus  175  basis
   points. This agreement runs through May 31, 2001.  At December 31,  1998
   the Company had an unused balance  of $8,000,000 on its line of  credit.
   The  long-term   note   is  uncollateralized   with   certain   covenant
   restrictions. The Company had an outstanding letter of credit balance of
   $0 and $947,000 at December 31, 1998 and 1997 respectively.

   During 1998, the Company entered into an uncollateriazlized  installment
   note payable for $3,350,000  at a rate of  LIBOR plus 225 basis  points.
   The proceeds of  this note were  used for the  acquisition discussed  in
   Note 11.  This note has  a term of five  years with sixty equal  monthly
   principal payments of $55,833 plus interest, commencing February, 1999.

   Note 6.  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, 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 December  31, 1998,  52
   persons held outstanding options and were eligible to participate in the
   plans.  Such options expire on dates ranging from April 24, 2000 to June
   16, 2008.
<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: 

                                               1998               1997
                                              -------           -------
   Net earnings available to common
    shareholders:
                As reported                  $974,134          $775,240
                Pro forma                    $846,988          $701,175

   Net earnings per common and common
    equivalent share:
                Basic as reported             $0.23             $0.19
                Diluted as reported           $0.22             $0.18
                Pro forma - Basic             $0.20             $0.17
                Pro forma - Diluted           $0.19             $0.16


   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 1998, 1997 and 1996, respectively:
   expected volatility of 20 percent; risk free interest rates ranging from
   5.7 percent to 7.2 percent; and  expected lives of 5 years.   Additional
   information on shares subject to options is as follows:
<PAGE>
<TABLE>
                                                              1998
                                                        Weighted average
                                          Options        exercise price
                                          -------             ----- 
   <S>                                    <C>                 <C>
   Outstanding at beginning of year       663,774             $3.56
   Granted                                312,342             $4.73
   Forfeited                              (41,583)            $4.30
   Exercised                              (81,669)            $3.49
                                          -------             ----- 
   Outstanding at end of year             852,864             $3.98
                                          =======             =====
   Weighted average fair value
     of options granted                                       $1.38
                                                              =====

   Options exercisable at year end        449,927
                                          =======

                                                              1997
                                                        Weighted average
                                          Options        exercise price
                                          -------             ----- 
   Outstanding at beginning of year       523,215             $3.35
   Granted                                285,789             $3.73
   Forfeited                              (8,000)             $3.50
   Exercised                             (137,230)            $3.02
                                          -------             ----- 
   Outstanding at end of year             663,774             $3.56
                                          =======             =====
   Weighted average fair value
     of options granted                                       $1.18
                                                              =====
   Options exercisable at year end        286,405
                                          =======

                                                              1996
                                                        Weighted average
                                          Options        exercise price
                                          -------             ----- 
   Outstanding at beginning of year       277,411             $3.38
   Granted                                263,054             $3.30
   Forfeited                              (13,500)            $3.13
   Exercised                              (3,750)             $2.75
                                          -------             ----- 
   Outstanding at end of year             523,215             $3.35
                                          =======             =====
   Weighted average fair value
     of options granted                                       $1.01
                                                              =====
   Options exercisable at year end        215,900
                                          =======
</TABLE>
<PAGE>
<TABLE>
   The  following  table   summarizes  information   about  stock   options
   outstanding at December 31, 1998:


                                      Weighted                    Options
                       Options         average       Weighted   exercisable
       Range of     outstanding at    remaining      average         at
   exercise prices   December 31,    contractual  exercise price  December
                         1998           life                      31, 1998
     ------------      -------          ----          -----       -------  
    <S>                <C>               <C>          <C>         <C>
        $3.00            4,900            1           $3.00         4,900
        $2.88           15,536            2           $2.88        15,536
        $5.38           43,750            3           $5.38        43,750
    $3.50 - $3.75       17,500            5           $3.64        17,500
        $2.75           72,595            6           $2.75        72,595
    $3.13 - $4.25      155,615            7           $3.29       103,921
    $3.63 - $3.75      240,183            8           $3.74       116,029
    $4.63 - $5.38      302,785            9           $4.71        75,696
                       -------                                    -------    
                       852,864            8           $3.98       449,927
                       =======          ====          =====       =======

</TABLE>
<PAGE>
<TABLE>
   Note 7.  ACCRUED EXPENSES
   Accrued expenses consisted of the following components:

                                                        December 31,
                                                  1998               1997
                                               ---------           --------
   <S>                                        <C>                  <C>
   Payroll & salary                             $410,184           $316,954
   Taxes other than on income                   $115,435           $110,521
   Sales commissions                            $148,456           $246,109
   Insurance                                    $149,861            $35,812
   Warranty                                     $191,115           $113,616
   Other accrued expenses                        $38,108            $49,199
                                               ---------           --------
                     Total                    $1,053,159           $872,211
                                               =========           ========

   Note 8.  OTHER EXPENSE (NET)
   Other expense (net) consisted of the following components:

                                                   December 31,
                                           1998        1997         1996
                                          -------     -------      -------
   <S>                                   <C>         <C>         <C>
   Interest expense                      $400,719    $222,375     $241,844
   Other expense, net                    $183,590    $151,019      $44,599
   Other income, net                     ($78,876)   ($34,729)   ($126,319)
                                          -------     -------      -------
        Other expense (net)              $505,433    $338,665     $160,124
                                          =======     =======      =======
</TABLE>
<PAGE>
<TABLE>

   Note 9.  INCOME TAXES
   The effective income tax rates for 1998, 1997 and 1996 differed from
   the expected Federal income tax rate (34%) for
   the following reasons:

                                           1998       1997        1996
                                          -------    -------     -------
    <S>                                  <C>        <C>         <C>
    Computed expected tax expense        $340,000   $281,000    $137,000
    State income taxes expense net of     $37,000    $40,000     $20,000
    Federal tax effect
    Other, net                           ($59,000)   $12,000      $8,000
    Utilization of net operating loss   
    carryforward                        ($293,000) ($323,000)  ($165,000)
                                          -------    -------     -------
                                          $25,000    $10,000        ----
                                          =======    =======      ======

   Deferred income  taxes  reflect  the  impact  of  temporary  differences
   between the amounts  of assets and  liabilities for financial  reporting
   purposes  and  as  measured  by  income  tax  regulations.     Temporary
   differences which  gave rise  to deferred  tax assets  and deferred  tax
   liabilities at December 31, 1998 and 1997 consisted of:


                                                        1998         1997
                                                     ---------    ---------
   <S>                                                <C>          <C>
   Deferred tax assets:
    Allowance for doubtful accounts                    $33,000     $102,000
    Warranty reserve                                   $74,000      $44,000
    Inventory reserve                                 $175,000     $110,000
    Deferred compensation                               $1,000      $55,000
    Net operating loss carryforwards                  $586,000     $940,000
    Alternative minimum tax credit carryforwards       $74,000      $60,000
    General business credit carryforwards             $129,000     $129,000
    Other                                               $6,000       $6,000
                                                     ---------    ---------
       Total gross deferred tax assets              $1,078,000   $1,446,000
       Less valuation allowance                    ($1,007,000) ($1,300,000)
                                                     ---------    ---------
       Net deferred tax assets                         $71,000     $146,000
   Deferred tax liabilities:
    Property, plant & equipment, principally           
    depreciation                                       $71,000     $146,000
                                                     ---------    ---------
   Net deferred taxes                                     ----         ----
                                                     =========    =========
</TABLE>
<PAGE>

   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, 1998 was a decrease of $401,000 primarily due to the utilization  of
   net operating loss carryforwards.  At December 31, 1998, the Company has
   net operating  loss carryforwards  for Federal  income tax  purposes  of
   approximately $1,500,000 which  are available to  offset future  Federal
   taxable income, if any, through 2009.  The Company also has  alternative
   minimum tax  credit carryforwards  of  approximately $74,000  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.
<PAGE>
<TABLE>

   Note 10.  EARNINGS PER SHARE
   In accordance with Statement of  Financial Accounting Standards No.  128
   "Earnings Per Share," the following  table presents a reconciliation  of
   the numerators and denominators of basic and diluted earnings per common
   share for the years ended December 31, 1998, 1997 and 1996:



                                                 December 31,
                                          1998          1997        1996
                                       ---------     ---------   ---------
   <S>                                 <C>           <C>         <C>
   Basic earnings per common share
    Net income                          $974,134      $775,240    $403,102
    Weighted average common shares     
     outstanding                       4,255,190     4,128,524   4,061,860

    Per share amount                       $0.23         $0.19       $0.10
                                           =====         =====       =====

   Diluted earnings per common share
    Net income                          $974,134      $775,240    $403,102
    Weighted average common shares     
     outstanding                       4,255,190     4,128,524   4,061,860
    Add:  Effect of dilutive stock     
     options                             126,329       187,844      91,902
                                       ---------     ---------   ---------
    Adjusted weighted average common   
     shares outstanding                4,381,519     4,316,368   4,153,762

    Per share amount                       $0.22         $0.18       $0.10
                                           =====         =====       =====

   Options which had an anti-dilutive effect at December 31, 1998, 1997 and
   1996 were 374,092,  58,000 and  99,554, respectively  and were  excluded
   from the diluted earnings per share calculation.
</TABLE>
<PAGE>
   Note 11.  ACQUISITION
   In 1998, the Company  acquired the mechanical  coin door and  mechanical
   coin mechanism business  of Coin Controls,  Inc.   This acquisition  was
   accounted for under the  purchase method of accounting.   The effect  of
   the pro forma results of operations had the acquisition occurred at  the
   beginning of each year was immaterial.

   Note 12.  LEASE COMMITMENTS
   The Company leases  certain data  processing and  other equipment  under
   lease agreements expiring  through the year  2002.  The  following is  a
   schedule of  future  minimum  lease payments  required  under  operating
   leases as of December 31, 1998:


          Years ending              Amount
          December 31,
             ----                  -------
             1999                  $24,163
             2000                  $22,712
             2001                  $22,712
             2002                     $435
             2003                      ---
          Thereafter                   ---
                                    ------
                                   $70,022
                                    ======

   Rent expense  related to  operating  leases was  approximately  $50,000,
   $38,000 and $6,000 during  the years ended December  31, 1998, 1997  and
   1996, respectively.

<TABLE>

   Note 13.  UNAUDITED QUARTERLY FINANCIAL DATA
   Selected quarterly data for 1998 and 1997 are as follows:
   (In thousands except per-share data)

                                                       1998
                                        First    Second      Third   Fourth
                                        -----    ------      -----   ------
   <S>                                 <C>      <C>         <C>     <C>
   Net sales                           $8,983   $12,983     $9,965  $10,659
   Net earnings                          $154      $547       $131     $142
   Basic net earnings per share         $0.04     $0.13      $0.03    $0.03
   Diluted net earnings per share       $0.04     $0.12      $0.03    $0.03



                                                        1997
                                        First    Second      Third   Fourth
                                        -----    ------      -----   ------
   Net sales                          $10,105   $12,016    $10,554  $10,314
   Net earnings                          $109      $448       $188      $30
   Basic net earnings per share         $0.03     $0.11      $0.04    $0.01
   Diluted net earnings per share       $0.03     $0.10      $0.04    $0.01

</TABLE>
<PAGE>

   INDEPENDENT AUDITORS' REPORT

   The Board of Directors and Shareholders of
   Wells-Gardner Electronics Corporation:

   We  have  audited  the  accompanying  balance  sheets  of  Wells-Gardner
   Electronics Corporation as of December 31, 1998 and 1997 and the related
   statements of earnings, shareholders' equity and cash flows for each  of
   the years  in the  three-year period  ended December  31, 1998.    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,  1998 and 1997, and  the
   results of its operations and  its cash flows for  each of the years  in
   the three-year  period  ended  December 31,  1998,  in  conformity  with
   generally accepted accounting principles.


   KPMG  LLP
   Chicago, Illinois
   January 29, 1999

<PAGE>

   BOARD OF DIRECTORS

Anthony Spier             Ira J. Kaufman               Randall S. Wells
Chairman of the Board,    Senior Managing Director of  Executive Vice President
President &               Mesirow Financial, Inc.      & General Manager
Chief Executive Officer     

John R. Blouin            Frank R. Martin              Ernest R. Wish
President of              Senior Partner of Righeimer, Chairman of the
James Industries, Inc.    Martin & Cinquino, P.C.      Board of WRM, Inc.

Marshall L. Burman        James J. Roberts, Jr.
Counsel with Wildman,     Chairman of the Board
Harrold, Allen & Dixon    & Chief Executive Officer
                          of James Industries, Inc.


OFFICERS

Anthony Spier                Larry S. Mahl          George B. Toma  CPA, CMA
Chairman of the Board,       Director of Materials  Vice President of Finance,
President &                                         Chief Financial Officer &
Chief Executive Officer                             Treasurer       

Gene Ahner                   John S. Pircon         Randall S. Wells
Director of Human Resources  Vice President of      Executive Vice President
& Corporate Secretary        Marketing              & General Manager

Kathleen E. Hoppe            Eric Slagh
Director of Information      Director of Quality
Technology

Mark E. Komorowski           Jeffrey A. Sterling
Vice President of            Vice President of 
Service and Coin             Engineering
_____________________________________________________________________________

<PAGE>

CORPORATE OFFICES                            TRANSFER AGENT
Wells-Gardner Electronics Corporation        LaSalle National Bank
2701 North Kildare Avenue                    135 South LaSalle Street
Chicago, Illinois  60639                     Chicago, Illinois  60603
Telephone: 773/252-8220                      Telephone: 800/246-5761
Fax: 773/252-8072
Internet: www.wgec.com                       CORPORATE BANKERS
                                             American National Bank & Trust
ANNUAL MEETING                               Chicago, Illinois
The annual meeting of shareholders will
take place on April 27, 1999 at 2:00 p.m.    INDEPENDENT AUDITORS
at the corporate offices of the Company.     KPMG LLP
                                             Chicago, Illinois
FORM 10-K
A copy of the Company's annual report on     GENERAL COUNSEL
Form 10-K, without exhibits, as filed        Katten Muchin & Zavis
with the Securities and Exchange             Chicago, Illinois
Commission is available without charge
upon written request to Mr. George           INVESTMENT BANKERS
B. Toma at the corporate offices of          Mesirow Financial
the Company.                                 Chicago, Illinois