| **COMMON                SHARE MARKET PRICE**                                                                                             |                           |                       |   |   |
|------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------|----------------------------|--------|--------|
| The                Company's common shares are traded on the American Stock Exchange                under                the symbol WGA. |
| On                December 31, 2006, there were approximately 524 holders of record                of the                common shares.  |                           |
| A                five percent (5%) stock dividend was issued in 2006 and                2005.                                            |                           |                       |   |
| High                and low prices, reflecting this dividend, for the last two years                were:                           |                           |                       |   |   |
|                                                                                                                                     | **2006                Prices** | 2005                Prices |
|                                                                                                                                     | **High**                       | **Low**                    | High   | Low    |
| **Quarter                ended:**                                                                                                        |                           |                       |   |   |
| March                31                                                                                                                  | **$2.54**                      | **$1.57**                  | $6.05  | $4.46  |
| June                30                                                                                                                   | **$2.60**                      | **$2.04**                  | $4.54  | $3.03  |
| September                30                                                                                                              | **$3.53**                      | **$2.25**                  | $3.41  | $1.57  |
| December                31                                                                                                               | **$3.92**                      | **$2.71**                  | $2.09  | $1.35  |

| **COMMON                STOCK PRICE PERFORMANCE                GRAPH**                                                                                                                                                                                                                                                                                                                                                                                                          |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| The                graph below compares the yearly percentage change in the                cumulative total shareholder return of the Company’s Common Stock with the                cumulative total return of the S&P Midcap 400 Index and the SU)                Electronic Equipment Manufacturers Index during the years 2001 through                2006 assuming the investment of $100 on December 31, 2001 and the                reinvestment of dividends. |

----

| **SELECTED                FINANCIAL DATA**                                     |   |                                              |           |   |   |           |   |   |           |   |   |               |   |   |     |   |
|--------------------------------------------------------------------------------|--------|---------------------------------------------------|----------------|--------|--------|----------------|--------|--------|----------------|--------|--------|--------------------|--------|--------|----------|--------|
| *(in                  $000's except for per share data)*                       |   | **Years                Ended December 31,**  |
|                                                                           |   |                                              | **2006**       |   |   | **2005**       |   |   | **2004**       |   |   | **2003**           |   |   | **2002** |   |
| Net                sales                                                       |   | **$**                                             | **64,748**     |   | $      | 60,774         |   | $      | 51,535         |   | $      | 46,681             |   | $      | 49,309   |   |
| Operating                earnings (loss)                                       |   |                                              | **1,095**      |   |   | (2,745         | )      |   | 1,052          |   |   | (540               | )      |   | 1,097    |   |
| Earnings                (loss) before change in accounting principle |   |                                              | **343**        |   |   | (2,996         | )      |   | 1,068          |   |   | (697               | )      |   | 763      |   |
| Cumulative                effect of change in accounting principle             |   |                                              | ── |   |   | ── |   |   | ── |   |   | **──** |   |   | 52       |   |
| Net                 earnings (loss)                                       |   | **$**                                             | **343**        |   | $      | (2,996         | )      | $      | 1,068          |   | $      | (697               | )      | $      | 815      |   |
|                                                                           |   |                                              |                |   |   |                |   |   |                |   |   |                    |   |   |     |   |
| Basic                net earnings (loss) per common share                      |   | **$**                                             | **0.04**       |   | $      | (0.33          | )      | $      | 0.14           |   | $      | (0.10              | )      | $      | 0.13     |   |
| Diluted                net earnings (loss) per common share               |   | **$**                                             | **0.04**       |   | $      | (0.33          | )      | $      | 0.13           |   | $      | (0.10              | )      | $      | 0.13     |   |
|                                                                           |   |                                              |                |   |   |                |   |   |                |   |   |                    |   |   |          |   |
| Total                assets                                                    |   | **$**                                             | **30,187**     |   | $      | 29,077         |   | $      | 28,478         |   | $      | 21,172             |   | $      | 22,909   |   |
| Long-term                liabilities                                           |   | **$**                                             | **9,234**      |   | $      | 8,187          |   | $      | 3,168          |   | $      | 5,968              |   | $      | 8,352    |   |
|  Working              capital                                             |   | **$**                                             | **18,863**     |   | $      | 16,626         |   | $      | 14,244         |   | $      | 10,052             |   | $      | 12,269   |   |

----

***2006      PRESIDENT’S REPORT***

***TO      OUR SHAREHOLDERS, CUSTOMERS, SUPPLIERS &EMPLOYEES:***

| ·   | The                Company’s 2006 revenue grew by 6.5% to $64.7 million                from $60.8 million the prior year. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------|

| ·   | The                Company returned to profitability earning $343,000 or                $0.04 per share compared to the loss of ($3.0) million or ($0.33)                per                share in 2005. The 2005 results included non-recurring charges of                ($931,000) or ($0.11) per share. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Gross                margin in 2006 improved to 16.0% from 11.3% in 2005. A major factor                was                that LCD standard margins increased to 17.8% in 2006 compared 8.0%                in the                prior year. This was the major reason for the significant improvement                in                profitability. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The                Company sold a total of 61,400 LCDs generating revenue                of $36.9 million in 2006 compared to 30,100 LCDs generating $18.0                million                in 2005. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | This                includes American Gaming & Electronics (AGE) who sold over 5000 LCDs                directly to casinos generating $3.4 million of revenue up from 699                LCDs in                2005. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The                Company granted a 5% stock dividend to shareholders for                the 8th consecutive time. |
|--------------------|---------------------------------------------------------------------------------------------------------------------|

| ·   | The                Company secured another of the top 10 global gaming manufacturers                as a                customer and now sells to 7 of the top 10 |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***Strategic      Plan***

**Gaming sales continued to dominate the Company’s revenues and accounted      for 83% of the Company’s revenue in 2006 compared to 76% in 2005.**

***The      LCD Technology Transition Continues to Represent a Huge Growth Opportunity      for      Wells-Gardner***

----

***Wells      Gardner Increased LCD Standard Margins to 17.8% in 2006 from 8.0% in the Prior      Year***

| ·   | Approximately                67% of the LCDs were produced in Mainland                China in 2006. By the fourth quarter this had risen to 85%. 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 |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------|

| ·   | There                was an aggressive program to reduce airfreight, which                reduced costs by $370,000. |
|--------------------|----------------------------------------------------------------------------------------------------------------------|

| ·   | AGE                sold over 5000 LCDs to casinos at higher margins, which generated                an                increased gross profit of over                $730,000. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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 other components. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------|

***American      Gaming & Electronics (AGE)***

***Asian      Manufacturing***

----

***Gaming      Strategy***

| ·   | LCD                manufacturing in Mainland China and the US and CRT                monitor manufacturing in Malaysia and the                US. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Distributing                Wells-Gardner’s and other manufacturers’ parts to casinos throughout North                America and Central and South                America. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

***Wells-Gardner      is the Largest Monitor and LCD Manufacturer in the Global Gaming      Industry.***

***Quality      Continues To Be the Top Priority***

***2007      Global Gaming Outlook***

----

***2007      Wells-Gardner Outlook***

----

**MANAGEMENT’S      DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF      OPERATIONS**

**Year      Ended December 31, 2006 Compared to Year Ended December 31,      2005**

**Year      Ended December 31, 2005 Compared to Year Ended December 31,      2004**

----

***2007      Outlook***

***Market      & Credit Risk***

***Critical      Accounting Policies***

***Revenue      Recognition***

***Inventory      Obsolescence & Costing Methods***

----

***Provision      for Bad Debts***

***Valuation      Allowance for Deferred Taxes***

***Provision      for Warranty***

***Contingencies***

***Liquidity      & Capital Resources***

----

|                                       |   |   |       |   | Payments                Due in Year Ending December 31,  |
|--------------------------------------------|--------|--------|------------|--------|---------------------------------------------------------------|
|                                       |   |   |       |   |                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (in                $000’s)      |   |   | **Total**  |   |                                                          | 2007 |   |   | 2008 |   |   | 2009 |   |   | 2010 |   |   | 2011 |   |   | 2012 |   |
| Note                Payable (Note 4)  |   | **$**  | **9,234**  |   | $                                                             | --- |   | $ | --- |   | $ | --- |   | $ | 9,234 |   | $ | --- |   | $ | --- |   |
| Operating                Leases (Note 12)  |   | **$**  | **1,260**  |   | $                                                             | 893 |   | $ | 297 |   | $ | 18 |   | $ | 18 |   | $ | 17 |   | $ | 17 |   |
|                                       |   | **$**  | **10,494** |   | $                                                             | 893 |   | $ | 297 |   | $ | 18 |   | $ | 18 |   | $ | 17 |   | $ | 17 |   |

***Inflation***

----

| **CONSOLIDATED                BALANCE                SHEETS**                                           |   |                                          |       |   |   |
|---------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|------------|--------|--------|
| ***(in                  $000's except for share information)***                                         |   |  ***As                of December 31,*** |
|                                                                                                    |   |                                          | **2006**   |   |   | 2005 |   |
| **ASSETS**                                                                                              |   |                                          |            |   |   |  |   |
| ***Current                Assets:***                                                                    |   |                                          |            |   |   |  |   |
| Cash                                                                                                    |   | **$**                                         | **334**    |   | $      | 332 |   |
| Accounts                receivable, net of allowances of $253 in 2006 & $134 in                2005 |   |                                          | **7,182**  |   |   | 5,103 |   |
| Accounts                receivable, affiliates                                                          |   |                                          | **4,113**  |   |   | 5,624 |   |
| Inventory                                                                                               |   |                                          | **13,818** |   |   | 12,731 |   |
| Prepaid                expenses & other assets                                                      |   |                                          | **1,162**  |   |   | 1,283 |   |
| Total                current assets                                                                     |   | **$**                                         | **26,609** |   | $      | 25,073 |   |
|                                                                                                    |   |                                          |            |   |   |  |   |
| ***Property, Plant                & Equipment (at cost):***                                    |   |                                          |            |   |   |  |   |
| Leasehold                improvements                                                                   |   |                                          | **379**    |   |   | 365 |   |
| Machinery,                equipment & software                                                      |   |                                          | **8,836**  |   |   | 8,791 |   |
| less:                Accumulated depreciation & amortization                                        |   |                                          | **(8,342** | **)**  |   | (7,825 | ) |
| Property,                plant & equipment, net                                                     |   | **$**                                         | **873**    |   | $      | 1,331 |   |
|                                                                                                    |   |                                          |            |   |   |  |   |
| ***Other                Assets:***                                                                      |   |                                          |            |   |   |  |   |
| Investment                in joint venture                                                              |   |                                          | **1,376**  |   |   | 1,344 |   |
| Goodwill                                                                                                |   |                                          | **1,329**  |   |   | 1,329 |   |
| Total                other assets                                                                       |   | **$**                                         | **2,705**  |   | $      | 2,673 |   |
| **Total                Assets**                                                                         |   | **$**                                         | **30,187** |   | $      | 29,077 |   |
|                                                                                                    |   |                                          |            |   |   |  |   |
| **LIABILITIES                & SHAREHOLDERS' EQUITY**                                               |   |                                          |            |   |   |  |   |
| ***Current                Liabilities:***                                                               |   |                                          |            |   |   |  |   |
| Accounts                payable                                                                         |   |                                          | **2,081**  |   |   | 3,894 |   |
| Accounts                payable, affiliates                                                             |   |                                          | **4,814**  |   |   | 3,805 |   |
| Accrued                expenses                                                                         |   |                                          | **851**    |   |   | 748 |   |
| Total                current liabilities                                                                |   | **$**                                         | **7,746**  |   | $      | 8,447 |   |
|                                                                                                    |   |                                          |            |   |   |  |   |
| ***Long-Term                Liabilities:***                                                             |   |                                          |            |   |   |  |   |
| Note                payable                                                                             |   |                                          | **9,234**  |   |   | 8,187 |   |
| Total                long-term liabilities                                                              |   | **$**                                         | **9,234**  |   | $      | 8,187 |   |
| Total                Liabilities                                                                        |   | **$**                                         | **16,980** |   | $      | 16,634 |   |
|                                                                                                    |   |                                          |            |   |   |  |   |
| ***Shareholders'                Equity:***                                                              |   |                                          |            |   |   |  |   |
| Common                shares:                                                                           |   |                                          |            |   |   |  |   |
| $1                par value; 25,000,000 shares authorized;                                              |   |                                          |            |   |   |  |   |
| 9,255,123                shares issued at December 31, 2006                                             |   |                                          |            |   |   |  |   |
| 8,643,868                shares issued at December 31, 2005                                             |   |                                          | **9,255**  |   |   | 8,644 |   |
| Capital                in excess of par value                                                           |   |                                          | **6,755**  |   |   | 7,008 |   |
| Accumulated                deficit                                                                      |   |                                          | **(2,602** | **)**  |   | (2,945 | ) |
| Unearned                compensation                                                                    |   |                                          | **(201**   | **)**  |   | (264 | ) |
| Total                Shareholders' Equity                                                               |   | **$**                                         | **13,207** |   | $      | 12,443 |   |
| **Total                Liabilities & Shareholders' Equity**                                         |   | **$**                                         | **30,187** |   | $      | 29,077 |   |
|                                                                                                    |   |                                          |            |   |   |  |   |

----

| **CONSOLIDATED                STATEMENTS OF OPERATIONS**                              |                                                |   |          |   |   |      |
|---------------------------------------------------------------------------------------|-----------------------------------------------------|--------|---------------|--------|--------|-----------|
| ***(in                $000's except for share & per share                data)*** |  ***Years                ended December 31,*** |
|                                                                                  |                                                |   | **2006**      |   |   | 2005      |   |   | 2004 |   |
| Net                sales                                                              |                                                | **$**  | **64,748**    |   | $      | 60,774    |   | $ | 51,535 |   |
| Cost                of sales                                                          |                                                |   | **54,399**    |   |   | 53,881    |   |   | 41,731 |   |
| Gross                Margin                                                           |                                                |   | **10,349**    |   |   | 6,893     |   |   | 9,804 |   |
| Engineering,                selling & administrative                              |                                                |   | **9,254**     |   |   | 9,638     |   |   | 8,752 |   |
| Operating                earnings (loss)                                              |                                                |   | **1,095**     |   |   | (2,745    | ) |   | 1,052 |   |
| Other                (income) expense:                                                |                                                |   |               |   |   |           |   |   |  |   |
| Interest                                                                              |                                                |   | 806           |   |   | 444       |   |   | 302 |   |
| Joint                Venture income                                                   |                                                |   | (32           | )      |   | (206      | ) |   | (340 | ) |
| Other                                                                                 |                                                |   | (10           | )      |   | (6        | ) |   | 5 |   |
| Earnings                (loss) before income tax                                      |                                                |   | **331**       |   |   | (2,977    | ) |   | 1,085 |   |
| Income                tax                                                             |                                                |   | **(12**       | **)**  |   | 19        |   |   | 17 |   |
| Net                earnings (loss)                                                    |                                                | **$**  | **343**       |   | $      | (2,996    | ) | $ | 1,068 |   |
|                                                                                  |                                                |   |               |   |   |           |   |   |  |   |
| Basic                net earnings (loss) per common share                             |                                                | **$**  | **0.04**      |   | $      | (0.33     | ) | $ | 0.14 |   |
|                                                                                  |                                                |   |               |   |   |           |   |   |  |   |
| Diluted                net earnings (loss) per common share                      |                                                | **$**  | **0.04**      |   | $      | (0.33     | ) | $ | 0.13 |   |
|                                                                                  |                                                     |   |
| Basic                common shares outstanding                                        |                                                |   | **9,180,350** |   |   | 9,065,187 |   |   | 7,896,658 |   |
| Diluted                common shares outstanding                                      |                                                |   | **9,219,213** |   |   | 9,065,187 |   |   | 8,091,339 |   |

----

| **CONSOLIDATED                STATEMENTS OF SHAREHOLDERS' EQUITY** |   |   |                         |
|--------------------------------------------------------------------|--------|--------|------------------------------|
| ***(in                $000's)***                                   |   |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                               |   |   |                              |   |   | **Capital                In**  |   |   |   |   |   |  |   |   | **Total** |   |
|                                                               |   |   | **Common**         |   |   | **Excess                Of** |   |   | **Accumulated** |   |   | **Unearned** |   |   | **Shareholders'** |   |
|                                                               |   |   | **Shares**         |   |   | **Par                Value** |   |   | **Deficit** |   |   | **Compensation** |   |   | **Equity** |   |
| December                31, 2003                                   |   | $      | 6,221                        |   | $ | 3,214 |   | $ | (1,017 | ) | $ | (157 | ) | $ | 8,261 |   |
|                                                               |   |   |                              |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Net                earnings                                        |   |   |                              |   |   |  |   |   | 1,068 |   |   |  |   |   | 1,068 |   |
| Stock                dividend issued                               |   |   | 319                          |   |   | (319 | ) |   |  |   |   |  |   |   | 0 |   |
| Issuance                / cancellation of stock awards (net)       |   |   | 4                            |   |   | 44 |   |   |  |   |   | 16 |   |   | 64 |   |
| Private                placement shares and warrants               |   |   | 1,217                        |   |   | 3,816 |   |   |  |   |   |  |   |   | 5,033 |   |
| Shares                issued from stock purchase plan              |   |   | 1                            |   |   | 4 |   |   |  |   |   |  |   |   | 5 |   |
| Stock                options exercised                             |   |   | 391                          |   |   | 403 |   |   |  |   |   |  |   |   | 794 |   |
| Amortization                of unearned compensation               |   |   |                    |   |   |    |   |   |    |   |   | 54 |   |   | 54 |   |
| 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 |   |   | ($2,602 | ) |   | ($201 | ) | $ | 13,207 |   |

----

| **CONSOLIDATED                STATEMENTS OF CASH FLOWS**                                                       |   |                                                |       |
|----------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|------------|
| ***(in                $000's)***                                                                               |   |  ***Years                ended December 31,*** |
|                                                                                                           |   |                                                | **2006**   |   |   | 2005 |   |   | 2004 |   |
| ***Cash                flows from operating activities:***                                                     |   |                                                |            |   |   |  |   |   |  |   |
| Net                earnings (loss)                                                                             |   | **$**                                               | **343**    |   | $ | (2,996 | ) | $ | 1,068 |   |
| Adjustments                to reconcile net earnings (loss) to net                                             |   |                                                |            |   |   |  |   |   |  |   |
| cash                provided by (used in) operating activities:                                                |   |                                                |            |   |   |  |   |   |  |   |
| Depreciation                and amortization                                                                   |   |                                                | **517**    |   |   | 603 |   |   | 515 |   |
| Bad                debt expense                                                                                |   |                                                | **214**    |   |   | 38 |   |   | 14 |   |
| Amortization                of unearned compensation                                                           |   |                                                | **90**     |   |   | 85 |   |   | 54 |   |
| Share                of earnings of joint venture                                                              |   |                                                | **(32**    | **)** |   | (206 | ) |   | (340 | ) |
| Changes                in current assets & liabilities:                                                    |   |                                                |            |   |   |  |   |   |  |   |
| Accounts                receivable, net                                                                        |   |                                                | **(2,293** | **)** |   | 616 |   |   | (1,081 | ) |
| Inventory                                                                                                      |   |                                                | **(1,087** | **)** |   | 825 |   |   | (4,652 | ) |
| Prepaid                expenses & other                                                                    |   |                                                | **121**    |   |   | (490 | ) |   | 248 |   |
| Accounts                payable, net                                                                           |   |                                                | **(1,813** | **)** |   | (439 | ) |   | 1,698 |   |
| Due                to/from affiliates                                                                          |   |                                                | **2,520**  |   |   | (3,207 | ) |   | (214) |   |
| Accrued                expenses                                                                                |   |                                                | **103**    |   |   | 72 |   |   | 46 |   |
| Net                cash used in operating activities                                                           |   |  $                                             | **(1,317** | **)** | $ | (5,099 | ) | $ | (2,644 | ) |
|                                                                                                           |   |                                                |            |   |   |  |   |   |  |   |
| ***Cash                flows used in investing activities:***                                                  |   |                                                |            |   |   |  |   |   |  |   |
| Additions                to property, plant & equipment, net                                               |   |                                                | **(59**    | **)** |   | (198 | ) |   | (201 | ) |
| Net                cash used in investing activities                                                           |   | $                                                   | **($9**    | **)** | $ | (198 | ) | $ | (201 | ) |
|                                                                                                           |   |                                                |            |   |   |  |   |   |  |   |
| ***Cash                flows from financing activities:***                                                     |   |                                                |            |   |   |  |   |   |  |   |
| Borrowings                (repayments) from note payable                                                       |   |                                                | **1,047**  |   |   | 5,019 |   |   | (2,800 | ) |
| Proceeds                (net) from private placement stock issuance                                            |   |                                                |            |   |   |  |   |   | 5,037 |   |
| Proceeds                from stock issued, options exercised & employee stock purchase                plan |   |                                                | **331**    |   |   | 76 |   |   | 859  |   |
| Net                cash provided by financing activities                                                       |   | **$**                                               | **1,378**  |   | $ | 5,095 |   | $ | 3,096 |   |
|                                                                                                           |   |                                                |            |   |   |  |   |   |  |   |
| Net                 increase (decrease) in cash                                                           |   |                                                | **2**      |   |   | (202 | ) |   | 251 |   |
| Cash                at beginning of year                                                                       |   |                                                | **332**    |   |   | 534 |   |   | 283 |   |
| Cash                at end of year                                                                             |   | **$**                                               | **334**    |   | $ | 332 |   | $ | 534 |   |
|                                                                                                           |   |                                                |            |   |   |  |   |   |  |   |
| Supplemental                cash flows disclosure:                                                             |   |                                                |            |   |   |  |   |   |  |   |
| Income                taxes paid                                                                               |   | **$**                                               | **2**      |   | $ | 19 |   | $ | 17 |   |
| Interest                paid                                                                                   |   | **$**                                               | **806**    |   | $ | 444 |   | $ | 302 |   |

----

**NOTES      TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**Note      1. DESCRIPTION OF THE BUSINESS**

**Note      2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

***Principles      of Consolidation***

***Management      Estimates***

***Revenue      Recognition***

***Financial      Instruments***

***Receivables***

***Inventory      Obsolescence & Costing Methods***

***Provision      For Warranty***

***Property,      Plant & Equipment***

***Internal      Use Software***

----

***Investments***

***Goodwill***

***Engineering      Research & Development***

***Income      Taxes***

***Earnings      (Loss) Per Share***

***Stock      Based Compensation***

***Reclassifications***

***Recently      Issued Accounting Pronouncements***

----

**Note      3. INVENTORY**

| Net                inventory, which includes a valuation reserve of $1,935, $993 and                $380 in                2006, 2005 and 2004, respectively, consisted of the following                components: |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                |   | **December                31,**  |
| *(in                $000's)*                                                                                                                                                                                        |   |   | **2006** |   |   | 2005 |   |   | 2004 |   |
| Raw                materials                                                                                                                                                                                        |   | **$** | **4,053** |   | $ | 5,821 |   | $ | 6,297 |   |
| Work                in progress                                                                                                                                                                                     |   | **$** | **309** |   | $ | 127 |   | $ | 908 |   |
| Intransit                finished                goods                                                                                                                                                              |   | **$** | **1,927** |   | $ | 0 |   | $ | 0 |   |
| Finished                goods                                                                                                                                                                                       |   | **$** | **7,528** |   | $ | 6,783 |   | $ | 6,351 |   |
| Total                                                                                                                                                                                                               |   | **$** | **13,817** |   | $ | 12,731 |   | $ | 13,556 |   |

**Note      4. DEBT**

**Note      5. STOCK PLANS AND WARRANTS**

----

***Stock      Options***

|                                                    |   | **December                31,**  |
|---------------------------------------------------------|--------|---------------------------------------|
|                                                    |   |                                  | **2006** |   |   | **2005** |   |   | **2004** |   |
| ***Net                earnings (loss):***               |   |                                  |   |   |   |   |   |   |   |   |
| As                Reported                              |   | $                                     | 343,000 |   | $ | (2,996,000 | ) | $ | 1,068,000 |   |
| Add:                Total share-based compensation      |   |                                  |   |   |   |   |   |   |   |   |
| expense                included in net earnings (loss)  |   | $                                     | 11,000 |   | $ | -- |   | $ | --  |   |
| Deduct:Total                share-based compensation    |   |                                  |   |   |   |   |   |   |   |   |
| expense                (recorded at fair value)         |   | $                                     | (11,000 | ) | $ | (13,000 | ) | $ | (26,000 | ) |
| Pro                forma net earnings (loss)            |   | $                                     | 343,000 |   | $ | (3,009,000 | ) | $ | 1,042,000 |   |
|                                                    |   |                                  |   |   |   |   |   |   |   |   |
| ***Net                earnings (loss) per common and*** |   |                                  |   |   |   |   |   |   |   |   |
| ***common                equivalent share:***           |   |                                  |   |   |   |   |   |   |   |   |
| Basic                - As Reported                      |   | $                                     | 0.04 |   | $ | (0.33 | ) | $ | 0.14 |   |
| Diluted                - As Reported                    |   | $                                     | 0.04 |   | $ | (0.33 | ) | $ | 0.14 |   |
| Basic                - Pro Forma                        |   | $                                     | 0.04 |   | $ | (0.33 | ) | $ | 0.14 |   |

----

|                                            |   |   | **Options**  |   |   | **Weighted                  average****exercise                price** |   |   | **Weighted****average ****Remaining****Contractual                Life** |   |    | **Aggregate****Intrinsic****Value** |   |
|-------------------------------------------------|--------|--------|-------------------|--------|--------|------------------------------------------------------------------------|--------|--------|-------------------------------------------------------------------------------|--------|---------|-------------------------------------|--------|
| Outstanding                at beginning of year |   |   | 350,247           |   | $      | 2.39                                                                   |   |   |                                                                          |   |    |                                     |   |
| Granted                                         |   |   | 0                 |   | $      | -                                                                      |   |   |                                                                          |   |    |                                     |   |
| 5%                Stock Dividend                |   |   | 14,684            |   | $      | 2.35                                                                   |   |   |                                                                          |   |    |                                     |   |
| Forfeited                                       |   |   | (8,947            | )      | $      | -                                                                      |   |   |                                                                          |   |    |                                     |   |
| Exercised                                       |   |   | (155,310          | )      | $      | 2.12                                                                   |   |   |                                                                          |   |    |                                |   |
| Outstanding,                December 31, 2006   |   |   | 200,674           |   | $      | 2.41                                                                   |   |   | 3.3                                                                           |   |  $ | 227,000                             |   |
|                                            |   |   |              |   |   |                                                                   |   |   |                                                                          |   |    |                                     |   |
| Exercisable,                December 31, 2006   |   |   | 200,674           |   | $      | 2.41                                                                   |   |   | 3.3                                                                           |   |  $ | 227,000                             |   |

----

***Restricted      Shares***

|                                          |   |             |   |   | **Weighted                average** |   |
|-----------------------------------------------|--------|------------------|--------|--------|-------------------------------------|--------|
|                                          |   |             |   |   | **Grant                Date**       |   |
|                                          |   | **Shares**  |   |   | **Fair                Value**       |   |
| Unvested                at December 31, 2005  |   | 101,510          |   | $      | 2.61                                |   |
| Granted                                       |   | 47,250           |   | $      | 2.19                                |   |
| Vested                                        |   | (18,378          | )      | $      | 2.25                                |   |
| Forfeited                                |   | (26,907          | )      | $      | 4.68                                |   |
| Outstanding,                December 31, 2006 |   | 103,475          |   | $      | 1.94                                |   |

***Warrants***

**Note      6. ACCRUED EXPENSES**

|                                     |   | **December                31,**  |
|------------------------------------------|--------|---------------------------------------|
| *(in                $000's)*             |   |                                  | **2006** |   |   | 2005 |   |   | 2004 |   |
| Payroll&related                costs |   | **$**                                 | **98** |   | $ | 101 |   | $ | 294 |   |
| Sales                commissions         |   | **$**                                 | **55** |   | $ | 72 |   | $ | 43 |   |
| Warranty                                 |   | **$**                                 | **206** |   | $ | 169 |   | $ | 100 |   |
| Other                accrued expenses    |   | **$**                                 | **492** |   | $ | 406 |   | $ | 238 |   |
| Total                                    |   | **$**                                 | **851** |   | $ | 748 |   | $ | 675 |   |

**Note      7. SIGNIFICANT CUSTOMERS**

----

**Note      8. INCOME TAXES**

| *(in                $000's)*                                                                     |   | **2006** |     | 2005   |   | 2004   |   |
|--------------------------------------------------------------------------------------------------|--------|----------|----------|--------|--------|--------|--------|
| Computed                expected tax expense (benefit)                                      |   | **$**    | **117**  |   | $      | (1,019 | )      | $ | 363 |   |
| State                income tax expense (benefit), net of Federal tax                effect |   | **$**    | **16**   |   | $      | (138   | )      | $ | 49 |   |
| Other,                net                                                                        |   | **$**    | **30**   |   | $      | (32    | )      | $ | (99 | ) |
| Change                in valuation allowance                                                     |   | **$**    | **(175** | **)**  | $      | 1,208  |   | $ | (296 | ) |
|                                                                                             |   | **$**    | **(12**  | **)**  | $      | 19     |   | $ | 17 |   |

|                                                                                            |   | **December                31,** |
|-------------------------------------------------------------------------------------------------|--------|---------------------------------|
| *(in                $000's)*                                                                    |   |                            | **2006** |   |   | 2005 |   |   | 2004 |   |
| ***Deferred                tax assets:***                                                       |   |                            |   |   |   |  |   |   |  |   |
| Allowance                for doubtful accounts                                                  |   | **$**                           | **98** |   | $ | 52 |   | $ | 39 |   |
| Warranty                reserve                                                                 |   | **$**                           | **79** |   | $ | 65 |   | $ | 39 |   |
| Inventory                reserve                                                                |   | **$**                           | **747** |   | $ | 384 |   | $ | 147 |   |
| Net                operating loss carryforwards                                                 |   | **$**                           | **2,939** |   | $ | 3,564 |   | $ | 2,748 |   |
| Alternative                minimum tax credit carryforwards                                     |   | **$**                           | **62** |   | $ | 62 |   | $ | 62 |   |
| General                business credit carryforwards                                            |   | **$**                           | **129** |   | $ | 129 |   | $ | 129 |   |
| Other                                                                                           |   | **$**                           | **91** |   | $ | 47 |   | $ | 36 |   |
| Total                gross                deferred tax assets                                   |   | **$**                           | **4,145** |   | $ | 4,303 |   | $ | 3,200 |   |
| Less                valuation                allowance                                          |   | $                               | **(3,711** | **)** | $ | (3,886 | ) | $ | (2,678 | ) |
| Total                deferred                tax assets                                         |   | **$**                           | **434** |   | $ | 417 |   | $ | 522 |   |
| ***Deferred                tax liabilities:***                                                  |   |                            |  |   |   |  |   |   |  |   |
| Property,                plant, equipment and software, principally                depreciation |   | **$**                           | **129** |   | $ | 265 |   | $ | 410 |   |
| Goodwill                                                                                        |   | **$**                           | **305** |   | $ | 152 |   | $ | 112 |   |
| Total                deferred                tax liabilities                                    |   | **$**                           | **434** |   | $ | 417 |   | $ | 522 |   |
| Net                deferred taxes                                                               |   |                            | **---** |   |   | --- |   |   | --- |   |

----

**Note      9. EARNINGS PER SHARE**

| *in                $000's except for per share data)*         |   |   | **2006**   |   |   | **2005** |   |   | **2004**   |   |
|--------------------------------------------------------------------|--------|--------|------------|--------|--------|----------|--------|--------|------------|--------|
| ***Basic                earnings (loss) per common share:***       |   |   |            |   |   |          |   |   |            |   |
| Net                earnings (loss)                                 |   | **$**  | **343**    |   | $      | (2,996   | )      | $      | 1,068      |   |
| Weighted-average                common shares outstanding          |   |   | **9,180**  |   |   | 9,065    |   |   | 7,897      |   |
| Basic                net earnings (loss) per common share          |   | **$**  | **0.04**   |   | $      | (0.33    | )      | $      | 0.14       |   |
|                                                               |   |   |            |   |   |          |   |   |            |   |
| ***Diluted                earnings (loss) per common share:***     |   |   |            |   |   |          |   |   |            |   |
| Net                earnings (loss)                                 |   | **$**  | **343**    |   | $      | (2,996   | )      | $      | 1,068      |   |
| Weighted-average                common shares outstanding          |   |   | **9,180**  |   |   | 9,065    |   |   | 7,897      |   |
| Add:                Effect of dilutive stock options               |   |   | **39**     |   |   | 0        |   |   | 194        |   |
| Adjusted                weighted-average common shares outstanding |   | **$**  | **9,219**  |   | $      | 9,065    |   | $      | 8,091      |   |
|  Diluted              net earnings (loss) per common share    |   | **$**  | 0.04  |   | $      | (0.33)   |   | $      | 0.13  |   |

**Note      10. OPERATING SEGMENTS**

|                                                                                            |   | **December                31,**  |
|-------------------------------------------------------------------------------------------------|--------|---------------------------------------|
| *    (in                $000's)*                                            |   |                                  | **2006** |   |   | 2005 |   |   | **2004** |   |
| ***    Net                Sales:***                                         |   |                                  |  |   |   |  |   |   |  |   |
|         Gaming                                          |   | **$**                                 | **53,853** |   | $ | 46,409 |   | $ | 37,205 |   |
|         Amusement                                       |   | **$**                                 | **10,544** |   | $ | 13,467 |   | $ | 12,174 |   |
|         Other                                           |   | **$**                                 | **351** |   | $ | 898 |   | $ | 2,156 |   |
|         Total                Net Sales                  |   | **$**                                 | **64,748** |   | $ | 60,774 |   | $ | 51,535 |   |
| *    **Operating                earnings (loss):***                         |   |                                  |  |   |   |  |   |   |  |   |
|         Gaming                                          |   | **$**                                 | **3,608** |   | $ | 1,005 |   | $ | 2,882 |   |
|         Amusement                                       |   | **$**                                 | **1,360** |   | $ | 133 |   | $ | 1,314 |   |
|         Other                                           |   | **$**                                 | **58** |   | $ | 52 |   | $ | 224 |   |
|         Unallocated                Administration Costs |   | **$**                                 | **(3,931** | **)** | $ | (3,935 | ) | $ | (3,368 | ) |
|         Total                operating earnings (loss)  |   | **$**                                 | **1,095** |   | $ | (2,745 | ) | $ | 1,052 |   |

----

**Note      11. JOINT VENTURE / AFFILIATES**

**Note      12. LEASE COMMITMENTS**

| **Years                Ending**                         |   |   |                        |
|---------------------------------------------------------|--------|--------|-----------------------------|
| **December                31,    ** |   |   | *(in                $000's* | *)* |
| 2007                                                    |   | $      | 893                         |   |
| 2008                                                    |   | $      | 297                         |   |
| 2009                                                    |   | $      | 18                          |   |
| 2010                                                    |   | $      | 18                          |   |
| 2011                                                    |   | $      | 17                          |   |
| Thereafter                                              |   | $      | 17                          |   |
|                                                    |   | $      | 1,260                       |   |

----

**Note      13. UNAUDITED QUARTERLY FINANCIAL DATA**

| Selected                quarterly data for 2006 and 2005 are as                follows: |   |     |       |   |      |       |   |   |       |
|-----------------------------------------------------------------------------------------|--------|----------|------------|--------|-----------|------------|--------|--------|------------|
|                                                                                    |   | **2006** |
| *(in                $000's except per share data)*                                      |   |     | **First**  |   |      | **Second** |   |   | **Third**  |   |   | **Fourth** |   |
| Net                sales                                                                |   | **$**    | **15,485** |   | **$**     | **18,304** |   | **$**  | **15,085** |   | **$** | **15,875** |   |
| Net (loss)                earnings                                                 |   | **$**    | **(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** |   |
|                                                                                    |   |     |       |   |      |       |   |   |       |   |   |   |   |
|                                                                                    |   | **2005** |
| *(in                $000's except per share data)*                                      |   |     | First      |   |      | Second     |   |   | Third      |   |   | Fourth |   |
| Net                sales                                                                |   | $        | 13,174     |   | $         | 19,358     |   | $      | 14,879     |   | $ | 13,363 |   |
| Net                (loss)                                                               |   | $        | (815       | )      | ****$**** | (509       | )      | **$**  | (993       | ) | **$** | (679 | ) |
| Basic                net (loss) per share                                          |   | **$**    | (0.09      | )      | **$**     | (0.06      | )      | **$**  | (0.11      | ) | **$** | (0.08 | ) |
| Diluted                net (loss) per share                                        |   | **$**    | (0.09      | )      | $         | ($0.06     | )      | $      | (0.11      | ) | $ | (0.08 | ) |

----

**REPORT      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

**Blackman      Kallick Bartelstein, LLP**

----

|                                                  |   |                                                      |
|-------------------------------------------------------|--------|-----------------------------------------------------------|
| ***BOARD                OF DIRECTORS***               |   | ***EXECUTIVE                OFFICERS***                   |
|                                                  |   |                                                      |
| **Anthony                Spier**                      |   | **Anthony                Spier**                          |
| Chairman,                President                    |   | Chairman,                President                        |
| &                Chief Executive Officer          |   | &                Chief Executive Officer              |
|                                                  |   |                                                      |
| **Marshall                L. Burman**                 |   | **James                F. Brace**                         |
| Counsel                to Wildman,                    |   | Vice                President, Secretary, Treasurer & |
| Harrold,                Allen & Dixon             |   | Chief                Financial Officer                    |
|                                                  |   |                                                      |
| **Merle                H. Banta**                     |   |                                                      |
| Chairman                & Chief Executive Officer |   |                                                      |
| BHH                Management, Inc.                   |   |                                                      |
|                                                  |   |                                                      |
| **Frank                R. Martin**                    |   |                                                      |
| Attorney                and Principal of Righeimer,   |   |                                                      |
| Martin                & Cinquino, P.C.            |   |                                                      |
|                                                  |   |                                                      |

----

| ***CORPORATE                INFORMATION***                         |   |                                             |
|--------------------------------------------------------------------|--------|--------------------------------------------------|
|                                                               |   |                                             |
| ***ANNUAL                MEETING***                                |   | ***BANKER***                                     |
| The                Annual Meeting of Shareholders will take        |   | Wells                Fargo Bank, N.A.            |
| place                at 2:00 p.m. on Tuesday, April 24, 2007  |   | Milwaukee,                Wisconsin              |
| at                the corporate offices of the Company.            |   |                                             |
|                                                               |   |                                             |
| ***FORM                10-K***                                     |   | ***AUDITOR***                                    |
| A                copy of the Company’s annual report on Form |   | Blackman                Kallick Bartelstein, LLP |
| 10-K,                as filed with the Securities and Exchange     |   | Chicago,                Illinois                 |
| Commission,                is available without charge upon        |   |                                             |
| written                request to James F. Brace at the            |   |                                             |
| corporate                offices of the Company                    |   |                                             |
|                                                               |   |                                             |
| ***TRANSFER                AGENT***                                |   | ***COUNSEL***                                    |
| LaSalle                Bank N.A.                                   |   | Levenfeld                Pearlstein, LLC         |
| P.                O. Box 3319                                      |   | Chicago,                Illinois                 |
| South                Hackensack, NJ 07310                          |   |                                             |
| Telephone:                (888) 606-3971                           |   |                                             |