----

|                                              |   | Years      Ended December 31, |   |
|---------------------------------------------------|--------|-------------------------------|--------|
|                                              |   | 2007                          |   |   | 2006 |   |   | 2005 |   |   | 2004 |   |   | 2003 |   |
| Net      sales                                    |   | $                             | 59,308 |   |   | $ | 64,748 |   |   | $ | 60,774 |   |   | $ | 51,535 |   |   | $ | 46,681 |   |
| Gross      Margin                                 |   | $                             | 9,866  |   |   | $ | 10,349 |   |   | $ | 6,893 |   |   | $ | 9,804 |   |   | $ | 8,017 |   |
| Operating      earnings (loss)                    |   | $                             | 546    |   |   | $ | 1,095 |   |   | $ | (2,745 | ) |   | $ | 1,052 |   |   | $ | (540 | ) |
| Net      earnings (loss)                          |   | $                             | 195    |   |   | $ | 343 |   |   | $ | (2,996 | ) |   | $ | 1,068 |   |   | $ | (697 | ) |
|                                              |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic      net earnings (loss) per common share   |   | $                             | 0.02   |   |   | $ | 0.04 |   |   | $ | (0.31 | ) |   | $ | 0.13 |   |   | $ | (0.09 | ) |
| Diluted      net earnings (loss) per common share |   | $                             | 0.02   |   |   | $ | 0.04 |   |   | $ | (0.31 | ) |   | $ | 0.13 |   |   | $ | 0.09 | ) |
|                                              |   | $                             |   |   |   | $ |   |   |   | $ |   |   |   | $ |   |   |   | $ |   |   |
| Total      assets                                 |   | $                             | 26,601 |   |   | $ | 30,187 |   |   | $ | 29,077 |   |   | $ | 28,478 |   |   | $ | 21,172 |   |
| Long-term      liabilities                        |   | $                             | 6,709  |   |   | $ | 9,234 |   |   | $ | 8,187 |   |   | $ | 3,168 |   |   | $ | 5,968 |   |
| Working      capital                              |   | $                             | 18,376 |   |   | $ | 18.863 |   |   | $ | 16,626 |   |   | $ | 14,244 |   |   | $ | 10,052 |   |

|                | 2007      Prices | 2006      Prices |
|---------------------|------------------|------------------|
|                | High             | Low              | High | Low |
| Quarter      ended: |             |             |   |   |
| March      31       | $4.62            | $2.86            | $2.42 | $1.50 |
| June      30        | $3.50            | $2.90            | $2.48 | $1.94 |
| September      30   | $3.26            | $2,95            | $3.36 | $2.14 |
| December      31    | $2.75            | $1.49            | $3.73 | $2.58 |

----

| ·   | The      Company was profitable with net earnings of $195,000 or $0.02 per share      compared to $343,000 or $0.04 per share in 2006 in spite of a sales      decline of $5.4 million |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The      Company’s Balance Sheet strengthened considerably with the generation of      $2.5 million of cash flow. Bank debt declined to $6.7 million from $9.2      million at year end 2006. This resulted in a reduction of interest expense      in the year of over $120,000. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Wells-Gardner’s      2007 sales declined by 8 percent to $59.3 million from $64.7 million in      the prior year. The sales decline was primarily due to the major slowdown      in the global slot machine market. Many industry experts believe that 2007      was one of the slowest years in recent history for gaming      machines. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The      company has two counter cyclical businesses that performed well in 2007      somewhat offsetting the unfavorable gaming machine  market: |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------|

| o   | The      Company reorganized its Used Gaming Device Business (UGDs) in February      2007 and entered into a partnership with Par 4 of Hammonton, NJ. This      reorganization has performed very well and in the second half of 2007, UGD      sales more than doubled |
|---------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| o   | Sales      of LCD replacement kits sold directly to casinos grew by 51 percent to      over 7,500 units from 5,000 in2006. |
|---------------|----------------------------------------------------------------------------------------------------------------------------|

| ·   | Wells-Gardner      signed a new 5 year supply agreement with Aristocrat which is in place      until June 30, 2012. |
|--------------------|---------------------------------------------------------------------------------------------------------------------|

| ·   | LCD      sales continue to drive our business and the Company sold 70,300 LCDs in      2007 an increase of 15 percent over 61,400 sold in  2006. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The      Company closed its CRT manufacturing Malaysia joint venture in July 2007      due to the rapid decline in CRT sales. The Company has received      distributions of $1.3 million by the end of 2007. As this business was      accounted using the Equity Method, the distributions were not income but      contributed to our cash flow generation. We expect to receive the final      distribution of about $130,000 by late 2008 or early  2009. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The      Company filed another 5 patents to bring our stable of filed patents to      10. This is a continuation of our push to broaden the scope of our      Intellectual Property (IP). |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Management      amicably terminated its relationship with its long time sales      representative organization, James Industries. There is currently a      transition period and James Industries will stop being remunerated on      August 24, 2008. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The      Company granted a 5 percent stock dividend to shareholders for the 9th      consecutive year. |
|--------------------|--------------------------------------------------------------------------------------------------------|

----

| ·   | Approximately      82 percent of the LCDs were produced in Mainland China in 2007 compared to      63 percent in 2006... LCDs made in Mainland China save approximately      $30/unit. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | There      was an effective program put in place to increase production efficiency      and obtain tooled metalwork |
|--------------------|---------------------------------------------------------------------------------------------------------------------|

| ·   | AGE      sold over 7,500 LCDs to casinos at higher margins, which generated an      increased gross margin of over$250,000. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------|

| ·   | There      was an aggressive engineering program to cost reduce new LCD      products. |
|--------------------|----------------------------------------------------------------------------------------|

| ·   | There      was a tough procurement program implemented to reduce the cost of      purchased LCD panels and othercomponents. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------|

----

| ·   | LCD      manufacturing in Mainland China and the US and primarily for the gaming      industry. |
|--------------------|-------------------------------------------------------------------------------------------------|

| ·   | Distributing      Wells-Gardner’s and other manufacturers’ parts to casinos throughout North      America and Central America, South America, Macau and South East Asia and      shortly into Europe. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Servicing      games and game parts for casinos throughout North  America |
|--------------------|---------------------------------------------------------------------------|

| ·   | Refurbishing      and selling used gaming equipment to customers  worldwide |
|--------------------|-----------------------------------------------------------------------------|

----

----

----

----

----

|                            |   | Payments      Due In Year Ending December 31, |   |
|---------------------------------|--------|-----------------------------------------------|--------|
| (in      $000’s)          |   | Total                                         |   |   | 2008 |   |   | 2009 |   |   | 2010 |   |   | 2011 |   |   | 2012 |   |   |   | 2013+ |   |
| Note      Payable (Note 4)      |   | $                                             | 6,709  |   |   | $ | ---- |   |   | $ | ---- |   |   | $ | 6,709 |   |   | $ | ---- |   |   | $ | ---- |   |   | $ | ---- |   |
| Operating      Leases (Note 11) |   | $                                             | 3,526  |   |   | $ | 741 |   |   | $ | 698 |   |   | $ | 698 |   |   | $ | 600 |   |   | $ | 589 |   |   | $ | 200 |   |
|                            |   | $                                             | 10,235 |   |   | $ | 741 |   |   | $ | 698 |   |   | $ | 7,407 |   |   | $ | 600 |   |   | $ | 589 |   |   | $ | 200 |   |

----

|                                                                                |   | 2007   |         |   | 2006   |   |
|-------------------------------------------------------------------------------------|--------|--------|--------------|--------|--------|--------|
| ASSETS                                                                              |   |   |         |   |   |   |
| Current      Assets:                                                                |   |   |         |   |   |   |
| Cash                                                                                |   | $      | 299          |   |   | $      | 334 |   |
| Accounts      receivable, net of allowances of $154 in 2007 & $253 in      2006 |   |   | 6,021        |   |   |   | 7,182 |   |
| Accounts      receivable (subcontractor in 2007, affiliate in 2006)                 |   |   | 4,026        |   |   |   | 4,113 |   |
| Inventory                                                                           |   |   | 12,913       |   |   |   | 13,818 |   |
| Prepaid      expenses & other assets                                            |   |   | 1,306        |   |   |   | 1,162 |   |
| Total      current assets                                                           |   | $      | 24,565       |   |   | $      | 26,609 |   |
|                                                                                |   |   |         |   |   |   |   |   |
| Property,      Plant & Equipment (at cost):                                     |   |   |         |   |   |   |   |   |
| Leasehold      improvements                                                         |   |   | 389          |   |   |   | 379 |   |
| Machinery,      equipment & software                                            |   |   | 8,912        |   |   |   | 8,836 |   |
| less:      Accumulated depreciation & amortization                              |   |   | (8,778       | )      |   |   | (8,342 | ) |
| Property,      plant & equipment, net                                           |   | $      | 523          |   |   | $      | 873 |   |
|                                                                                |   |   |         |   |   |   |   |   |
| Other      Assets:                                                                  |   |   |         |   |   |   |   |   |
| Investment      in joint venture                                                    |   |   | 129          |   |   |   | 1,376 |   |
| Deferred      Tax Asset, net                                                        |   |   | 55           |   |   |   | 0 |   |
| Goodwill                                                                            |   |   | 1,329        |   |   |   | 1,329 |   |
| Total      other assets                                                             |   | $      | 1,513        |   |   | $      | 2,705 |   |
| Total      Assets                                                                   |   | $      | 26,601       |   |   | $      | 30,187 |   |
|                                                                                |   |   |         |   |   |   |   |   |
| LIABILITIES & SHAREHOLDERS'      EQUITY                                         |   |   |         |   |   |   |   |   |
| Current      Liabilities:                                                           |   |   |         |   |   |   |   |   |
| Accounts      payable                                                               |   |   | 1,628        |   |   |   | 2,081 |   |
| Accounts      payable (subcontractor in 2007, affiliate in 2006)                    |   |   | 3,426        |   |   |   | 4,814 |   |
| Accrued      expenses                                                               |   |   | 1,135        |   |   |   | 851 |   |
| Total      current liabilities                                                      |   | $      | 6,189        |   |   | $      | 7,746 |   |
|                                                                                |   |   |         |   |   |   |   |   |
| Long-Term      Liabilities:                                                         |   |   |         |   |   |   |   |   |
| Note      payable                                                                   |   |   | 6,709        |   |   |   | 9,234 |   |
| Total      long-term liabilities                                                    |   | $      | 6,709        |   |   | $      | 9,234 |   |
| Total      Liabilities                                                              |   | $      | 12,898       |   |   | $      | 16,980 |   |
|                                                                                |   |   |         |   |   |   |   |   |
| Shareholders'      Equity:                                                          |   |   |         |   |   |   |   |   |
| Common      shares:                                                                 |   |   |         |   |   |   |   |   |
| $1      par value; 25,000,000 shares authorized;                                    |   |   |         |   |   |   |   |   |
| 9,835,450      shares issued at December 31, 2007                                   |   |   |         |   |   |   |   |   |
| 9,255,123      shares issued at December 31, 2006                                   |   |   | 9,835        |   |   |   | 9,255 |   |
| Capital      in excess of par value                                                 |   |   | 6,503        |   |   |   | 6,755 |   |
| Accumulated      deficit                                                            |   |   | (2,408       | )      |   |   | (2,602 | ) |
| Unearned      compensation                                                          |   |   | (227         | )      |   |   | (201 | ) |
| Total      Shareholders' Equity                                                     |   | $      | 13,703       |   |   | $      | 13,207 |   |
| Total Liabilities      & Shareholders' Equity                                   |   | $      | 26,601  |   |   | $      | 30,187  |   |

----

|                                                 |   | 2007   |      |   | 2006   |   |      | 2005   |   |
|------------------------------------------------------|--------|--------|-----------|--------|--------|--------|-----------|--------|--------|
| Net      sales                                       |   | $      | 59,308    |   |   | $      | 64,748    |   |   | $ | 60,774 |   |
| Cost      of sales                                   |   |   | 49,442    |   |   |   | 54,399    |   |   |   | 53,881 |   |
| Gross      Margin                                    |   |   | 9,866     |   |   |   | 10,349    |   |   |   | 6,893 |   |
| Engineering,      selling & administrative       |   |   | 9,320     |   |   |   | 9,254     |   |   |   | 9,638 |   |
| Operating      earnings (loss)                       |   |   | 546       |   |   |   | 1,095     |   |   |   | (2,745 | ) |
| Other      (income) expense:                         |   |   |      |   |   |   |      |   |   |   |   |   |
| Interest                                             |   |   | 683       |   |   |   | 806       |   |   |   | 444 |   |
| Joint      Venture income                            |   |   | (24       | )      |   |   | (32       | )      |   |   | (206 | ) |
| Other      income (Primarily currency gains in 2007) |   |   | (314      | )      |   |   | (10       | )      |   |   | (6 | ) |
| Earnings      (loss) before income tax               |   |   | 201       |   |   |   | 331       |   |   |   | (2,977 | ) |
| Income      tax expense (benefit)                    |   |   | 6         |   |   |   | (12       | )      |   |   | 19 |   |
| Net      earnings (loss)                             |   | $      | 195       |   |   | $      | 343       |   |   | $ | (2,996 | ) |
|                                                 |   |   |      |   |   |   |      |   |   |   |   |   |
| Basic      net earnings (loss) per common share      |   | $      | 0.02      |   |   | $      | 0.04      |   |   | $ | (0.31 | ) |
|                                                 |   |   |      |   |   |   |      |   |   |   |   |   |
| Diluted      net earnings (loss) per common share    |   | $      | 0.02      |   |   | $      | 0.04      |   |   | $ | (0.31 | ) |
|                                                 |   |   |      |   |   |   |      |   |   |   |   |   |
| Basic      common shares outstanding                 |   |   | 9,818,204 |   |   |   | 9,639,368 |   |   |   | 9,518,446 |   |
| Diluted      common shares outstanding               |   |   | 9,849,596 |   |   |   | 9.680,174 |   |   |   | 9,518,446 |   |

----

|                                               |   |   |   |   | Capital      In |   |   |        |   |   |         |   |   | Total         |   |
|----------------------------------------------------|--------|--------|--------|--------|-----------------|--------|--------|-------------|--------|--------|--------------|--------|--------|---------------|--------|
|                                               |   | Common |   |   | Excess      Of  |   |   | Accumulated |   |   | Unearned     |   |   | Shareholders' |   |
|                                               |   | Shares |   |   | Par      Value  |   |   | Deficit     |   |   | Compensation |   |   | Equity        |   |
| December      31, 2004                             |   | $      | 8,153  |   |            | $      | 7,162  |        |   | $      | 51           |   |   | $             | (87    | ) |   | $ | 15,279 |   |
|                                               |   |   |   |   |            |   |   |        |   |   |         |   |   |          |   |   |   |   |   |   |
| Net      loss                                      |   |   |   |   |            |   |   |        |   |   | (2,996       | )      |   |          |   |   |   |   | (2,996 | ) |
| Stock      dividend issued                         |   |   | 412    |   |            |   | (412   | )           |   |   |         |   |   |          |   |   |   |   | 0 |   |
| Issuance      / cancellation of stock awards (net) |   |   | 36     |   |            |   | 226    |        |   |   |         |   |   |          | (271   | ) |   |   | (9 | ) |
| Shares      issued from stock purchase plan        |   |   | 9      |   |            |   | 28     |        |   |   |         |   |   |          |   |   |   |   | 37 |   |
| Stock      options exercised                       |   |   | 34     |   |            |   | 4      |        |   |   |         |   |   |          |   |   |   |   | 38 |   |
| Amortization      of unearned compensation         |   |   |   |   |            |   |   |        |   |   |         |   |   |          | 94     |   |   |   | 94 |   |
| December      31, 2005                             |   | $      | 8,644  |   |            | $      | 7,008  |        |   | $      | (2,945       | )      |   | $             | (264   | ) |   | $ | 12,443 |   |
|                                               |   |   |   |   |            |   |   |        |   |   |         |   |   |          |   |   |   |   |   |   |
| Net      earnings                                  |   |   |   |   |            |   |   |        |   |   | 343          |   |   |          |   |   |   |   | 343 |   |
| Stock      dividend issued                         |   |   | 436    |   |            |   | (436   | )           |   |   |         |   |   |          |   |   |   |   | 0 |   |
| Issuance      / cancellation of stock awards (net) |   |   | 21     |   |            |   | 4      |        |   |   |         |   |   |          | (29    | ) |   |   | (4 | ) |
| FAS      123R Option compensation                  |   |   |   |   |            |   | 11     |        |   |   |         |   |   |          |   |   |   |   | 11 |   |
| Shares      issued from stock purchase plan        |   |   | 3      |   |            |   | 4      |        |   |   |         |   |   |          |   |   |   |   | 6 |   |
| Stock      options exercised                       |   |   | 151    |   |            |   | 165    |        |   |   |         |   |   |          |   |   |   |   | 316 |   |
| Amortization      of unearned compensation         |   |   |   |   |            |   |   |        |   |   |         |   |   |          | 92     |   |   |   | 92 |   |
| December      31, 2006                             |   | $      | 9,255  |   |            | $      | 6,755  |        |   | $      | (2,603       | )      |   | $             | (201   | ) |   | $ | 13,207 |   |
|                                               |   |   |   |   |            |   |   |        |   |   |         |   |   |          |   |   |   |   |   |   |
| Net      earnings                                  |   |   |   |   |            |   |   |        |   |   | 195          |   |   |          |   |   |   |   | 195 |   |
| Stock      dividend issued                         |   |   | 467    |   |            |   | (467   | )           |   |   |         |   |   |          |   |   |   |   | 0 |   |
| Issuance      / cancellation of stock awards (net) |   |   | 31     |   |            |   | 85     |        |   |   |         |   |   |          | (116   | ) |   |   | 0 |   |
| FAS      123R Option compensation                  |   |   |   |   |            |   | 3      |        |   |   |         |   |   |          |   |   |   |   | 2 |   |
| Stock      options exercised                       |   |   | 82     |   |            |   | 127    |        |   |   |         |   |   |          |   |   |   |   | 209 |   |
| Amortization      of unearned compensation         |   |   |   |   |            |   |   |        |   |   |         |   |   |          | 90     |   |   |   | 90 |   |
| December      31, 2007                             |   | $      | 9,835  |   |            | $      | 6,503  |        |   | $      | (2,408       | )      |   | $             | (227   | ) |   | $ | 13,703 |   |

----

|                                                        |   | 2007   |   |   | 2006   |   |   | 2005   |   |
|-------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Cash      flows from operating activities:                  |   |   |   |   |   |   |   |   |   |
| Net      earnings (loss)                                    |   | $      | 195    |   |   | $      | 343    |   |   | $ | (2,996 | ) |
| Adjustments      to reconcile net earnings (loss) to net    |   |   |   |   |   |   |   |   |   |   |   |   |
| cash      provided by (used in) operating activities:       |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation      and amortization                          |   |   | 444    |   |   |   | 517    |   |   |   | 603 |   |
| Bad      debt expense                                       |   |   | 79     |   |   |   | 214    |   |   |   | 38 |   |
| Amortization      of unearned compensation                  |   |   | 90     |   |   |   | 90     |   |   |   | 85 |   |
| Share      of earnings of joint venture                     |   |   | (30    | )      |   |   | (32    | )      |   |   | (206 | ) |
| Retained      earnings dividend from Joint Venture          |   |   | 770    |   |   |   | 0      |   |   |   | 0 |   |
| Deferred      Income Tax                                    |   |   | (55    | )      |   |   | 0      |   |   |   | 0 |   |
| Changes      in current assets & liabilities:           |   |   |   |   |   |   |   |   |   |   |   |   |
| Accounts      receivable, net                               |   |   | 1,082  |   |   |   | (2,293 | )      |   |   | 616 |   |
| Inventory                                                   |   |   | 905    |   |   |   | (1,087 | )      |   |   | 825 |   |
| Prepaid      expenses & other                           |   |   | (145   | )      |   |   | 121    |   |   |   | (490 | ) |
| Accounts      payable, net                                  |   |   | (453   | )      |   |   | (1,813 | )      |   |   | (439 | ) |
| Due      to/from subcontractor in 2007 / affiliates in 2006 |   |   | (1,301 | )      |   |   | 2,520  |   |   |   | (3,207 | ) |
| Accrued      expenses                                       |   |   | 284    |   |   |   | 103    |   |   |   | 72 |   |
| Net      cash provided by (used in) operating activities    |   | $      | 1,865  |   |   | $      | (1,317 | )      |   | $ | (5,099 | ) |
|                                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash      flows provided by (used in) investing activities: |   |   |   |   |   |   |   |   |   |   |   |   |
| Capital      dividend from Joint Venture                    |   |   | 507    |   |   |   | 0      |   |   |   | 0 |   |
| Additions      to property, plant & equipment, net      |   |   | (94    | )      |   |   | (59    | )      |   |   | (198 | ) |
| Net      cash provided by (used in) investing activities    |   | $      | 413    |   |   | $      | (59    | )      |   | $ | (198 | ) |
|                                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash      flows from financing activities:                  |   |   |   |   |   |   |   |   |   |   |   |   |
| Borrowings      (repayments) from note payable              |   |   | (2,525 | )      |   |   | 1,047  |   |   |   | 5,019 |   |
| Proceeds      from stock issued, options exercised          |   |   |   |   |   |   |   |   |   |   |   |   |
| &      employee stock purchase plan                     |   |   | 212    |   |   |   | 331    |   |   |   | 76 |   |
| Net      cash (used in) provided by financing activities    |   |   | (2,313 | )      |   | $      | 1,378  |   |   | $ | 5,095 |   |
|                                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      (decrease) increase in cash                        |   |   | (35    | )      |   |   | 2      |   |   |   | (202 | ) |
| Cash      at beginning of year                              |   |   | 334    |   |   |   | 332    |   |   |   | 534 |   |
| Cash      at end of year                                    |   | $      | 299    |   |   | $      | 334    |   |   | $ | 332 |   |
|                                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| Supplemental      cash flows disclosure:                    |   |   |   |   |   |   |   |   |   |   |   |   |
| Income      taxes paid                                      |   | $      | 15     |   |   | $      | 2      |   |   | $ | 19 |   |
| Interest      paid                                          |   | $      | 683    |   |   | $      | 806    |   |   | $ | 444 |   |

----

----

----

|                          |   | December      31, |   |
|-------------------------------|--------|-------------------|--------|
| (in      $000's)              |   | 2007              |   |   | 2006 |   |   | 2005 |   |
| Raw      materials            |   | $                 | 4,525  |   |   | $ | 4,053 |   |   | $ | 5,821 |   |
| Work      in progress         |   | $                 | 580    |   |   | $ | 309 |   |   | $ | 127 |   |
| Intransit      finished goods |   | $                 | 1,521  |   |   | $ | 1,927 |   |   | $ | - |   |
| Finished      goods           |   | $                 | 6,287  |   |   | $ | 7,529 |   |   | $ | 6,783 |   |
| Total                         |   | $                 | 12,913 |   |   | $ | 13,818 |   |   | $ | 12,731 |   |

----

|                                  |   |    |    |   |                  |   |   | Weighted      average |   | Aggregate |
|---------------------------------------|--------|---------|---------|--------|-----------------------|--------|--------|-----------------------|--------|-----------|
|                                  |   |    |    |   | Weighted      average |   |   | Remaining             |   | Intrinsic |
|                                  |   | Options |    |   | exercise      price   |   |   | Contractual      Life |   | Value     |
| Outstanding      at beginning of year |   |    | 200,674 |   |                  | $      | 2.41   |                  |   |      |   |   |
| Granted                               |   |    | 0       |   |                  | $      | -      |                  |   |      |   |   |
| 5%      Stock Dividend                |   |    | 10,032  |   |                  | $      | 2.35   |                  |   |      |   |   |
| Forfeited                             |   |    | (379    | )      |                  | $      | 1.82   |                  |   |      |   |   |
| Exercised                             |   |    | (85,222 | )      |                  | $      | 2.44   |                  |   |      |   |   |
| Outstanding,      December 31, 2007   |   |    | 125,105 |   |                  | $      | 2.19   |                  |   |      | 2.5 |   |   |
| Exercisable,      December 31, 2007   |   |    | 125,105 |   |                  | $      | 2.19   |                  |   |      | 2.5 |   | 0 |

|                                |   |   |          |   | Weighted      average |   |
|-------------------------------------|--------|--------|---------------|--------|-----------------------|--------|
|                                |   |   |          |   | Grant      Date       |   |
|                                |   | Shares |          |   | Fair      Value       |   |
| Unvested      at December 31, 2006  |   |   | 108,647       |   |                  | $      | 1.85 |   |
| Granted                             |   |   | 32,812        |   |                  | $      | 3.54 |   |
| Vested                              |   |   | (16,266       | )      |                  | $      | 4.91 |   |
| Forfeited                           |   |   |          |   |                  | $      | - |   |
| Outstanding,      December 31, 2007 |   |   | 125,193  |   |                  | $      | 1.88 |   |

----

|                             |   | December      31, |   |
|----------------------------------|--------|-------------------|--------|
| (in      $000's)                 |   | 2007              |   |   | 2006 |   |
| Payroll      & related costs |   | $                 | 123    |   |   | $ | 98 |   |
| Sales      commissions           |   | $                 | 85     |   |   | $ | 55 |   |
| Warranty                         |   | $                 | 200    |   |   | $ | 206 |   |
| Other      accrued expenses      |   | $                 | 727    |   |   | $ | 492 |   |
| Total                            |   | $                 | 1,135  |   |   | $ | 851 |   |

| (in      $000's)                                                   |   | 2007 |   |   | 2006   |   |   | 2005   |   |
|--------------------------------------------------------------------|--------|------|--------|--------|--------|--------|--------|--------|--------|
| Computed      expected tax expense (benefit)                       |   | $    | 66     |   |   | $      | 117    |   |   | $ | (1,019 | ) |
| State      income tax expense (benefit), net of Federal tax effect |   | $    | 9      |   |   | $      | 16     |   |   | $ | (138 | ) |
| Distribution      from Joint Venture                               |   | $    | 368    |   |   | $      | -      |   |   | $ | - |   |
| Reduction      of valuation allowance                              |   | $    | (55    | )      |   | $      | -      |   |   | $ | - |   |
| Other,      net  (primarily permanent differences)       |   | $    | (87    | )      |   | $      | 30     |   |   | $ | (32 | ) |
| Change      in valuation allowance (regarding utilization of NOL)  |   | $    | (295   | )      |   | $      | (175   | )      |   | $ | 1,208 |   |
| Income Tax Expense      (Benefit)                                  |   | $    | 6      |   |   | $      | (12    | )      |   | $ | 19 |   |

|                                                                   |   | December      31: |   |
|------------------------------------------------------------------------|--------|-------------------|--------|
| (in      $000's)                                                       |   | 2007              |   |   | 2006 |   |   | 2005 |   |
| Deferred      tax assets:                                              |   |              |   |   |   |   |   |   |   |
| Allowance      for doubtful accounts                                   |   | $                 | 60     |   |   | $ | 98 |   |   | $ | 52 |   |
| Warranty      reserve                                                  |   | $                 | 78     |   |   | $ | 79 |   |   | $ | 65 |   |
| Inventory      reserve                                                 |   | $                 | 833    |   |   | $ | 747 |   |   | $ | 384 |   |
| Net      operating loss carry forwards                                 |   | $                 | 2,468  |   |   | $ | 2,939 |   |   | $ | 3,564 |   |
| Alternative      minimum tax credit carryforwards                      |   | $                 | 74     |   |   | $ | 62 |   |   | $ | 62 |   |
| General      business credit carry forwards                            |   | $                 | 129    |   |   | $ | 129 |   |   | $ | 129 |   |
| Other                                                                  |   | $                 | 101    |   |   | $ | 91 |   |   | $ | 47 |   |
| Total      gross deferred tax assets                                   |   | $                 | 3,743  |   |   | $ | 4,145 |   |   | $ | 4,303 |   |
| Less      valuation allowance                                          |   | $                 | (3,361 | ) |   | $ | (3,711 | ) |   | $ | (3,886 | ) |
| Total      deferred tax assets                                         |   | $                 | 382    |   |   | $ | 434 |   |   | $ | 417 |   |
| Deferred      tax liabilities:                                         |   |              |   |   |   |   |   |   |   |   |   |   |
| Property,      plant, equipment and software, principally depreciation |   | $                 | 6      |   |   | $ | 129 |   |   | $ | 265 |   |
| Goodwill                                                               |   | $                 | 321    |   |   | $ | 305 |   |   | $ | 152 |   |
| Total      deferred tax liabilities                                    |   | $                 | 327    |   |   | $ | 434 |   |   | $ | 417 |   |
| Net      deferred taxes                                                |   | $                 | 55     |   |   | $ | - |   |   | $ | - |   |

----

| (in      $000's except for per share data)               |   | 2007   |   |   | 2006   |   |   | 2005   |   |
|----------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Basic      earnings (loss) per common share:             |   |   |   |   |   |   |   |   |   |
| Net      earnings (loss)                                 |   | $      | 195    |   |   | $      | 343    |   |   | $ | (2,996 | ) |
|                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted-average      common shares outstanding          |   |   | 9,818  |   |   |   | 9,639  |   |   |   | 9,518 |   |
|                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic      net earnings (loss) per common share          |   | $      | 0.02   |   |   | $      | 0.04   |   |   | $ | (0.31 | ) |
|                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted      earnings (loss) per common share:           |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      earnings (loss)                                 |   | $      | 195    |   |   | $      | 343    |   |   | $ | (2,996 | ) |
|                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted-average      common shares outstanding          |   |   | 9,818  |   |   |   | 9,639  |   |   |   | 9,518 |   |
| Add:  Effect      of dilutive stock options    |   |   | 31     |   |   |   | 41     |   |   |   | 0 |   |
| Adjusted      weighted-average common shares outstanding |   |   | 9,850  |   |   |   | 9,680  |   |   |   | 9,065 |   |
|                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted      net earnings (loss) per common share        |   | $      | 0.02   |   |   | $      | 0.04   |   |   | $ | (0.31 | ) |

----

|             |   |                      Years      ending |   |
|------------------|--------|---------------------------------------------|--------|
| (in      $000's) |   | December      31                            |   |
| 2008             |   | $                                           | 741    |   |
| 2009             |   | $                                           | 698    |   |
| 2010             |   | $                                           | 698    |   |
| 2011             |   | $                                           | 600    |   |
| 2012             |   | $                                           | 589    |   |
| Thereafter       |   | $                                           | 200    |   |
|             |   | $                                           | 3,526  |   |

|                                       |   | 2007   |   |
|--------------------------------------------|--------|--------|--------|
| (in      $000's except per share data)     |   | First  |   |   | Second |   |   | Third |   |   | Fourth |   |
| Net      sales                             |   | $      | 15,980 |   |   | $ | 15,129 |   |   | $ | 14,524 |   |   | $ | 13,675 |   |
| Gross      margin                          |   | $      | 2,968  |   |   | $ | 2,600 |   |   | $ | 2,444 |   |   | $ | 1,854 |   |
| Net      earnings (loss)                   |   | $      | 321    |   |   | $ | 161 |   |   | $ | 34 |   |   | $ | (321 | ) |
| Basic      net earnings (loss) per share   |   | $      | 0.03   |   |   | $ | 0.02 |   |   | $ | 0.00 |   |   | $ | (0.03 | ) |
| Diluted      net earnings (loss) per share |   | $      | 0.03   |   |   | $ | 0.02 |   |   | $ | 0.00 |   |   | $ | (0.03 | ) |
|                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                       |   | 2006   |   |
| (in      $000's except per share data)     |   | First  |   |   | Second |   |   | Third |   |   | Fourth |   |
| Net      sales                             |   | $      | 15,485 |   |   | $ | 18,304 |   |   | $ | 15,085 |   |   | $ | 15,875 |   |
| Gross      margin                          |   | $      | 2,071  |   |   | $ | 2,766 |   |   | $ | 2,664 |   |   | $ | 2,850 |   |
| Net      (loss) earnings                   |   | $      | (470   | ) |   | $ | 239 |   |   | $ | 326 |   |   | $ | 247 |   |
| Basic      net (loss) earnings per share   |   | $      | (0.05  | ) |   | $ | 0.03 |   |   | $ | 0.04 |   |   | $ | 0.03 |   |
| Diluted      net (loss) earnings per share |   | $      | (0.05  | ) |   | $ | 0.03 |   |   | $ | 0.04 |   |   | $ | 0.03 |   |

----

----

| BOARD      OF DIRECTORS                                                                                                                                                                                                                        |   | EXECUTIVE      OFFICERS                                                                |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                           |   |                                                                                   |
| Anthony      Spier                                                                                                                                                                                                                             |   | Anthony      Spier                                                                     |
| Chairman,      President&      Chief Executive Officer                                                                                                                                                                                     |   | Chairman,      President&      Chief Executive Officer                             |
|                                                                                                                                                                                                                                           |   |                                                                                   |
| Marshall      L. Burman                                                                                                                                                                                                                        |   | James      F. Brace                                                                    |
| Counsel      to Wildman,Harrold,      Allen & Dixon                                                                                                                                                                                        |   | Executive      Vice President, Secretary, Treasurer & Chief Financial      Officer |
|                                                                                                                                                                                                                                           |   |                                                                                   |
| Merle      H. Banta                                                                                                                                                                                                                            |   |                                                                                   |
| Chairman      & Chief Executive OfficerBHH      Management, Inc.                                                                                                                                                                           |   |                                                                                   |
|                                                                                                                                                                                                                                           |   |                                                                                   |
| Frank      R. Martin                                                                                                                                                                                                                           |   |                                                                                   |
| AttorneyRigheimer,      Martin & Cinquino, P.C.                                                                                                                                                                                            |   |                                                                                   |
|                                                                                                                                                                                                                                           |   |                                                                                   |
|                                                                                                                                                                                                                                           |   |                                                                                   |
| CORPORATE      INFORMATION                                                                                                                                                                                                                     |   |                                                                                   |
|                                                                                                                                                                                                                                           |   |                                                                                   |
| ANNUAL      MEETING                                                                                                                                                                                                                            |   | BANKER                                                                                 |
| The      Annual Meeting of Shareholders will take place at 10:00 a.m. on Tuesday,      May 13, 2008 at the corporate offices of the Company                                                                                                    |   | Wells      Fargo Bank N.A.Milwaukee,      WI                                           |
|                                                                                                                                                                                                                                           |   |                                                                                   |
| FORM      10-K                                                                                                                                                                                                                                 |   | AUDITOR                                                                                |
| A      copy of the Company’s annual report on Form 10-K, as filed with the      Securities and Exchange Commission, is available without charge upon      written request to James F. Brace at the corporate offices of the      Company |   | Blackman      Kallick, LLPChicago,      Illinois                                       |
|                                                                                                                                                                                                                                           |   |                                                                                   |
| TRANSFER      AGENT                                                                                                                                                                                                                            |   | COUNSEL                                                                                |
| LaSalle      Bank N.A.P.O.      Box 3319South      Hackensack, NJ  07310Telephone:      (888) 606-3971                                                                                                                               |   | Levenfeld      Pearlstein, LLCChicago,      Illinois                                   |
|                                                                                                                                                                                                                                           |   |                                                                                   |

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