<PAGE> 1
FORM 10-KSB/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) ANNUAL REPORT UNDER SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended April 30, 1996
or
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from
---------------------------------------------
Commission File Number 0-3928
-----------------
WELLINGTON HALL, LIMITED
----------------------------------------------
(Name of small business issuer in its charter)
NORTH CAROLINA 56-0815012
-------------- ----------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
ROUTE 1, U.S. HIGHWAY 29 AND 70, LEXINGTON, N.C. 27292
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 910-249-4931
----------------
Securities registered under Section 12 (b) of the Exchange Act: NONE
--------
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK (NO PAR VALUE)
---------------------------
(Title of Class)
Check whether the issued (1) filed all reports to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
Check if there is no disclosure of delinquent filers in form, and no
disclosure will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-KSB or any amendment. (X)
<PAGE> 2
Item 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Accounts Receivable decreased by approximately $158,141 to $756,872
and represented a turnover rate of 46 days, the same as that reported at the
end of last year. This reduction is largely the result of a decline in sales
during the fiscal year.
Inventories decreased by about $148,000 or 3.1% during the fiscal year
and represents an effort to bring inventory levels down significantly. During
the current fiscal year it will be necessary to further reduce inventories to
generate working capital. Management plans to raise sales while reducing
inventories to bring the Company's turn ratio to a higher and more acceptable
level.
Property and equipment cost is reported to be down about $116,000 but
when expenditures of approximately $39,000 are added then the reduction becomes
$155,000. This decline is primarily the result of the devaluation of the
Honduran currency relative to the U.S. dollar throughout the fiscal year. The
currency exchange rate was 9.24 to 1 on April 30, 1995 and 11.06 to 1 on April
30, 1996, a 19.7% drop. The historical value of the company's Honduran assets
are carried on the subsidiaries' books in the local currency, the Lempira.
Accounting rules dictate that those lempiras be converted to dollars at the
"Spot" rate in effect on April 30, 1996. The reduction to these assets appear
as part of the translation adjustment.
Notes payable increased by $40,000.
The company must meet its interim cash requirements through cash flow
from operations and use of both domestic and foreign lines of credit. At April
30, 1996 the company had approximately $97,000 of credit available from
Lexington State Bank (LSB), its domestic bank. The foreign subsidiary had
available approximately $200,000 from its primary lender, BANCHAS, which
corresponds with NationsBank, and none from its secondary foreign bank, Banco
De Honduras, a subsidiary of Citibank.
Accounts (trade) payable are about $170,000 below those reported last
year as a result of reduced production levels in both domestic and foreign
operations.
-2-
<PAGE> 3
The company's total outlay for capital improvements for the fiscal
year ended April 30, 1996 was approximately $39,000. No significant capital
expenditures are planned for the upcoming year and will be limited to
maintenance needs which develop from time to time.
The Company's long term debt plus current maturities decreased by
approximately $162,000 as a result of payments against the indebtedness during
the fiscal year.
The Company's cash position was tight during all of fiscal 1996 as a
result of excessive wood deliveries early in the year and then a slow economy
and lower sales during the balance of the year. The Company, which has
continually produced reasonably good operating profits, has been prohibited
from improving it working capital position by the relatively high level of debt
and the corresponding interest and principal payments on that debt. The
Company's management and sales associates have been intensely focused on
marketing since late 1995. The results, especially since early April, have been
encouraging with some improvement in orders booked and backlogs which are
expected to support better sales by the second fiscal quarter that ends on
October 30, 1996.
However, a significant portion of this backlog and orders expected to
be received in the near future carry delayed payment terms and/or will require
reserved inventories. These terms will further stretch the Company's cash
resources until the payment for these sales become due. Delayed payment terms
have become somewhat the norm within the industry and therefore necessary for
the Company to attract new distribution.
To manage this additional burden on cash flow, the Company has had
preliminary discussions with its lending institutions about a plan of
additional credit and rescheduled principal payments to be granted for a period
of time necessary to allow the Company to restore its volume to a level where
profits will accommodate all the Company's needs. Initial conversations have
been positive but no decisions are expected until possibly late September.
Results of Operations
Consolidated revenues from the sale of furniture were down 17.5% as
compared to those reported for the previous year. This decline is primarily the
results of a soft furniture economy that affected the fourth quarter the prior
year and persisted throughout fiscal 1996. As a result, income per share
decreased to $.04 from $.13 for the prior year, a 70% reduction.
Cost of Sales were down approximately $914,000 eighteen percent (18%)
for the year as compared with last year and reflects management efforts to
curtail production as a reaction to the slow economy and to reduce inventories
to manage the company's cash position.
-3-
<PAGE> 4
Selling, General and Administrative Expenses decreased about $246,000
during the year or approximately (15%) fifteen percent. The decrease reflects
reduced sales commissions on lower sales and managements efforts to reducing
cost.
Operating income for the year was $458,338, down from $577,639
reported for fiscal 1995. As a percent of sales, this income represented 7.6%
and 7.9% respectively.
Interest Expenses for the year were up as a results of increased
borrowing against foreign lines-of-credit and higher interest rate being
applied to domestic borrowing as compared to last year.
-4-
<PAGE> 5
TURLINGTON AND COMPANY, L.L.P. 509 East Center Street
Certified Public Accountants Post Office Box 1697
Lexington, North Carolina 27293-1697
Office 910-249-6856
Facsimile 910-248-8697
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Wellington Hall, Limited and Subsidiaries
Lexington, North Carolina
We have audited the accompanying consolidated balance sheets of Wellington
Hall, Limited and Subsidiaries as of April 30, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We did not audit the financial statements of Muebles Wellington Hall, S.A., a
wholly-owned subsidiary, which statements reflect total assets of $1,693,959
and $1,852,435, respectively, as of April 30, 1996 and 1995, and total revenues
of $1,273,301 and $1,897,449, respectively, for the years ended April 30, 1996
and 1995. These statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts included
for Muebles Wellington Hall, S.A., is based solely on the report of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits and the report of other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Wellington Hall, Limited and
Subsidiaries as of April 30, 1996 and 1995, and the results of their
operations, and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Turlington and Company, L.L.P.
July 12, 1996
-5-
<PAGE> 6
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash:
Cash on hand $ 400 $ 400
Cash in demand deposits 55,356 30,892
Accounts receivable:
Trade 756,872 915,013
Less, allowance for doubtful accounts (43,800) (28,000)
Note receivable - officer (Note 2) 27,908 40,909
Inventories (Note 3) 4,571,015 4,718,867
Prepaid expenses 134,076 175,688
Deferred income taxes 14,327 10,967
---------- ----------
5,516,154 5,864,736
---------- ----------
Property and equipment:
Cost 2,173,110 2,258,950
Less, accumulated depreciation 1,218,540 1,142,886
---------- ----------
954,570 1,116,064
---------- ----------
Other assets:
Deferred income taxes 94,537 91,230
Other 36,053 36,197
---------- ----------
130,590 127,427
---------- ----------
$6,601,314 $7,108,227
========== ==========
</TABLE>
-6-
<PAGE> 7
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30
1996 1995
---- ----
<S> <C> <C>
LIABILITIES
Current liabilities:
Current maturities on long-term debt (Note 6) $ 347,755 $ 218,840
Notes payable - other (Note 5) 1,415,698 1,375,226
Accounts payable - trade 481,797 649,258
Customer deposit 74,139 104,370
Other current liabilities 276,159 310,822
----------- -----------
2,595,548 2,658,516
Noncurrent liabilities:
Long-term debt, less current maturities (Note 6) 1,128,907 1,419,606
Deferred compensation accrual 216,000 192,000
----------- -----------
3,940,455 4,270,122
----------- -----------
STOCKHOLDERS' EQUITY
Common stock; authorized 6,000,000 shares; no par;
stated value 1996 and 1995 - $4; shares issued
and outstanding 1996 and 1995 - 1,689,887 6,759,549 6,759,549
Amount less than stated value paid in for
common stock (common stock discounts) (3,705,018) (3,705,018)
----------- -----------
3,054,531 3,054,531
Preferred stock; authorized 5,000,000 shares; $5 par;
no shares issued and outstanding for 1996 and 1995 -0- -0-
Cumulative translation adjustments (1,669,945) (1,419,125)
Retained earnings 1,276,273 1,202,699
----------- -----------
2,660,859 2,838,105
----------- -----------
$ 6,601,314 $ 7,108,227
=========== ===========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
-7-
<PAGE> 8
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
CONSOLIDATED STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years Ended April 30
1996 1995
---- ----
<S> <C> <C>
Common stock:
Authorized 6,000,000 shares; no par;
stated value $4:
Balances, beginning of years $ 6,759,549 $ 6,759,549
Shares issued during the years -0- -0-
----------- -----------
Balances, end of years 6,759,549 6,759,549
----------- -----------
Amount less than stated value paid in for
common stock (common stock discounts):
Balances, beginning of years (3,705,018) (3,705,018)
Shares issued during the years -0- -0-
----------- -----------
Balances, end of years (3,705,018) (3,705,018)
----------- -----------
Preferred stock:
Authorized 5,000,000 shares; $5 par;
issued and outstanding beginning and
end of years -0- -0-
----------- -----------
Cumulative translation adjustments:
Balances, beginning of years (1,419,125) (1,231,705)
Translation of foreign currency statements (250,820) (187,420)
----------- -----------
Balances, end of years (1,669,945) (1,419,125)
----------- -----------
Retained earnings:
Balances, beginning of years 1,202,699 980,044
Net income for the years 73,574 222,655
----------- -----------
Balances, end of years 1,276,273 1,202,699
----------- -----------
$ 2,660,859 $ 2,838,105
=========== ===========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
-8-
<PAGE> 9
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended April 30
1996 1995
---- ----
<S> <C> <C>
Revenue:
Sale of furniture $5,989,959 $7,260,491
Other income 2,464 3,614
---------- ----------
5,992,423 7,264,105
---------- ----------
Costs and expenses:
Cost of goods sold 4,143,692 5,057,079
Other operating, selling, general,
and administrative expenses 1,390,392 1,629,387
Interest expense 388,829 335,951
---------- ----------
5,922,913 7,022,417
---------- ----------
Income before income taxes (benefits) 69,510 241,688
Income taxes (benefits) (4,064) 19,033
---------- ----------
Net income for the years $ 73,574 $ 222,655
========== ==========
Earnings per share of common stock:
Primary and assuming full dilution:
Net income for the years $ .04 $ .13
========== ==========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
-9-
<PAGE> 10
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended April 30
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income for the years $ 73,574 $ 222,655
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation 111,149 120,568
Deferred compensation 24,000 24,000
Deferred income taxes (6,667) 9,491
Changes in assets and liabilities:
Accounts receivable 164,231 98,130
Note receivable, officer 13,001 21,047
Inventories (71,750) (289,599)
Prepaid expenses 37,297 (2,866)
Other assets (6,363) (16,033)
Accounts payable, customer deposits,
and other current liabilities (240,955) 107,896
--------- ---------
Net cash provided by operating activities 97,517 295,289
--------- ---------
Cash flows from investing activities:
Purchase of equipment (26,947) (73,705)
--------- ---------
Cash flows from financing activities:
Short-term borrowings 69,533 (80,771)
Payments on long-term debt (125,354) (157,622)
--------- ---------
Net cash used for financing activities (55,821) (238,393)
--------- ---------
Effect of exchange rate changes on cash 9,715 6,416
--------- ---------
Net increase (decrease) in cash 24,464 (10,393)
Cash, beginning of years 31,292 41,685
--------- ---------
Cash, end of years $ 55,756 $ 31,292
========= =========
Cash paid during the years for:
Income taxes $ 10,499 $ 16,443
========= =========
Interest $ 415,494 $ 334,689
========= =========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
-10-
<PAGE> 11
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended April 30, 1996 and 1995
1. Summary of Significant Accounting Policies:
These consolidated financial statements were prepared on the basis of
generally accepted accounting principles. The more significant of
these principles are described as follows:
Inventories are stated at the lower of cost or market with cost
computed by use of the first-in, first-out method. Provision has been
made for obsolete and slow moving inventory.
Property and equipment is carried at cost less accumulated
depreciation. New assets and expenditures which substantially increase
the useful lives of the existing assets are capitalized. Maintenance
and repairs are expensed as incurred. Depreciation is computed by use
of the straight-line method over the estimated useful lives of the
assets.
The weighted average number of shares of common stock outstanding and
"common stock equivalents" are totaled in determining both primary and
fully diluted earnings per share.
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Wellington Hall Caribbean
Corp. and Muebles Wellington Hall, S.A. All intercompany accounts and
transactions have been eliminated in consolidation. The Muebles
Wellington Hall, S.A. subsidiary was formed during the year ended
April 30, 1990 and accounted for as a purchase.
The financial statements of foreign subsidiaries have been translated
into U. S. dollars in accordance with Statement of Financial
Accounting Standards No. 52. All balance sheet accounts have been
translated using the current exchange rates at the balance sheet date.
Income statement amounts have been translated using the average
exchange rate for the year. The gains and losses resulting from the
change in exchange rates during the year have been reported separately
as a component of stockholders' equity entitled "Cumulative
Translation Adjustments".
-11-
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. Summary of Significant Account Policies (Continued)
Net currency transaction gains and (losses) which occur during the
year are included in net earnings and amounted to approximately
$11,969 and ($690), respectively, during the years ended April 30,
1996 and 1995.
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
2. Note Receivable - Officer:
On January 30, 1992, Hoyt Hackney, President and Chief Executive
Officer, exercised options and awards for 180,000 shares of common
stock at the option price of $.80 per share resulting in a net
increase in common stock of $144,000. This increase was accomplished
by cash of $40,000 being paid over to the Company along with the
issuance of a demand note to the Company by Hoyt Hackney of $104,000.
The note receivable - officer is collateralized by the assignment of
the interest the officer has in the Company's deferred compensation
accrual account and bears interest at the federal rate as issued from
time to time.
The note balance at April 30, 1996 and 1995 was $27,908 and $40,909,
respectively.
3. Inventories:
Inventories consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Finished goods $1,642,115 $1,820,214
Work-in-process 2,057,076 1,734,905
Raw materials 871,824 1,163,748
---------- ----------
$4,571,015 $4,718,867
========== ==========
</TABLE>
-12-
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. Property and Equipment:
The major classes are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land and buildings $1,121,207 $1,145,345
Machinery and equipment 887,479 932,840
Furniture, fixtures and other equipment 164,424 180,765
---------- ----------
$2,173,110 $2,258,950
========== ==========
</TABLE>
Depreciation expense for the years ended April 30, 1996 and 1995
amounted to $111,149 and $120,568, respectively.
5. Short-term Loans:
The Company has a demand loan payable to Lexington State Bank for
$90,000 and $100,000, respectively, at April 30, 1996 and 1995.
The Company has a line of credit agreement for short-term debt with
Lexington State Bank. The bank agreed to extend to the Company in the
form of a line of credit the lesser of $1,200,000 or 70% of the
Company's accounts receivable less than 60 days old, 50% of the
finished goods inventory, and 10% of the work-in-process and raw
materials inventories which sum amounted to $973,964 at April 30, 1996
and $1,503,542 at April 30, 1995. The Company executed a $1,200,000
demand promissory note against which the bank shall advance funds at
the Company's request. Interest is at the rate of 1% above prime. This
agreement is reviewed annually for renewal. At April 30, 1996 and
1995, $1,113,000 and $1,099,000, respectively, was advanced under this
agreement. This loan is secured by all present and future personal
property assets of the Company.
The Company had short-term loans with two Honduran banks with interest
rates of 25% in the amount of $212,698 and $176,226, respectively, at
April 30, 1996 and 1995. The banks have a second mortgage on fixed
assets as security for these loans.
-13-
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. Long-term Debt:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
E. Kemm:
Interest payable monthly at 1%
above prime $ 25,000 $ 25,000
Overseas Private Investment Corporation:
Interest rate 12.00%, payable in
quarterly installments of $61,937
plus interest 1,021,968 1,145,844
Lexington State Bank:
Interest rate 9.75% and 8.25%,
payable in monthly installments
of $7,000 with interest at 1.5%
above prime 429,694 467,602
---------- ----------
1,476,662 1,638,446
Less, current maturities 347,755 218,840
---------- ----------
$1,128,907 $1,419,606
========== ==========
</TABLE>
The weighted average interest rate paid E. Kemm amounted to 9.61% and
9.00%, respectively, for the years ended April 30, 1996 and 1995.
E. Kemm is a stockholder and an officer of the Company.
The Overseas Private Investment Corporation loan is secured by a first
lien on all real estate and all current and future fixed assets of
Muebles Wellington Hall, S.A. and a security interest in the Sales
Agreement between Muebles Wellington Hall, S.A. and Wellington Hall
Caribbean Corp.
The Lexington State Bank loan is secured by a first lien on all assets
of Wellington Hall, Limited.
The projected payments of long-term debt in each of the five years
subsequent to April 30, 1996 are:
-14-
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. Long-term Debt (Continued)
<TABLE>
<CAPTION>
Year Ending April 30 Amount
-------------------- ------
<S> <C>
1997 $347,755
1998 296,277
1999 301,226
2000 306,687
2001 64,941
</TABLE>
7. Stock Option Plan:
In 1981, the stockholders approved the Executive Stock Plan whereby
officers and key employees can be issued stock options ("options") and
restrictive stock purchase awards ("awards"). The Company reserved
200,000 shares of common stock for issuance under the Plan; however,
no more than 75,000 shares may be issued pursuant to awards. Options
and awards may be granted within fifteen years from the effective date
of the Plan. Stock options are granted at the fair market value of a
share of common stock at the date of grant exercisable for a period
determined by the Compensation Committee of the Board of Directors
(maximum 15 years) and may be exercised in whole at any time or in
part from time to time after the date of grant. The per share purchase
price of stock subject to an award shall be $0.80 and be paid in full
to the Company within 30 days after the date of award.
No award for any shares will be granted to the President of the
Company until after the expiration of a minimum of 61 days from the
date that such awards are requested by the President. Upon termination
of employment of the grantee for any reason other than death,
retirement, or permanent total disability, all shares acquired by the
grantee pursuant to an award will be repurchased by the Company for
$0.80 per share.
The following is a summary of changes in stock awards:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Available for awards at beginning of years $7,500 $7,500
Awards purchase -0- -0-
------ ------
Available for awards at end of years $7,500 $7,500
====== ======
</TABLE>
-15-
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. Capital Stock:
The Company, in accordance with its long-term loan agreement and line
of credit with Lexington State Bank, is restricted from paying
dividends on its capital stock without prior written consent of the
bank.
9. Income Taxes:
At April 30, 1996, the Company had federal operating loss
carryforwards of $62,373 that expire in 2010 and 2011, and state net
operating loss carryforwards of $975,358 that expire in 1997, 1998,
2000, and 2001. For financial reporting purposes, a valuation
allowance of $116,734 has been recognized to offset the deferred tax
assets related to the carryovers and certain other deferred tax
assets.
At April 30, 1995, the Company had a federal operating loss
carryforward of $24,282 that expires in 2010, and state net operating
loss carryforwards of $884,657 that expire in 1997, 1998, and 2000.
For financial reporting purposes, a valuation allowance of $45,737 has
been recognized to offset the deferred tax assets related to the state
net operating loss carryforwards.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax assets
and liabilities are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Book over tax amortization $ 10,059 $ 16,024
Book allowance for doubtful accounts 14,327 10,967
Tax over book inventory 42,402
Deferred compensation 84,478 75,206
State net operating loss carryforward 49,938 45,737
Federal net operating loss carryforward 24,394
--------- ---------
225,598 147,934
Valuation allowance for deferred
tax assets (116,734) (45,737)
--------- ---------
Deferred tax assets $ 108,864 $ 102,197
========= =========
</TABLE>
-16-
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. Income Taxes (Continued)
Classification of the Company's Consolidated Balance Sheets is as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Current $ 14,327 $ 10,967
Noncurrent 94,537 91,230
-------- --------
$108,864 $102,197
======== ========
</TABLE>
There follows reconciliations of the income taxes per the income tax
returns with the income tax deductions per the Consolidated Statements
of Income:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Amounts shown by returns (net) $ 2,603 $ 9,542
Deferred income taxes (6,667) 9,491
------- -------
$(4,064) $19,033
======= =======
Effective income tax rates (5.8)% 7.8%
======= =======
</TABLE>
No provision has been made for U. S. income taxes on unremitted
earnings of the foreign subsidiary (approximately $1,094,000 and
$1,072,000, respectively, at April 30, 1996 and 1995) since it is the
present intention of management to indefinitely reinvest these
earnings.
The components of income before income taxes are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Domestic $47,499 $(134,286)
Foreign 22,011 375,974
------- ---------
$69,510 $ 241,688
======= =========
</TABLE>
Federal, foreign, and state income taxes consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Federal $(5,809) $ 9,491
Foreign 36 1,122
State 1,709 8,420
------- -------
$(4,064) $19,033
======= =======
</TABLE>
-17-
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. Income Taxes (Continued):
The following schedule reconciles the differences between the U. S.
federal income tax rate and the effective tax rate:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Tax computed at the U. S. federal rate 34.0% 34.0%
Increases (decreases) resulting from:
State income tax, net of federal benefit 2.4 2.3
Foreign income taxed at
different rates (10.7) (34.0)
Deferred income taxes (9.6) 4.0
Nondeductible expenses and benefit
of domestic net operating loss (17.4)
Other (4.5) 1.5
----- -----
(5.8)% 7.8%
===== =====
</TABLE>
At April 30, 1994, the Company had the following carryovers subject to
certain restrictions of the tax laws and regulations. Generally, jobs
credits may be carried over for fifteen years subject to the
provisions in the Tax Reform Act of 1986:
<TABLE>
<CAPTION>
Year Ended Jobs
April 30 Credits
-------- -------
<S> <C>
1985 $1,914
1986 2,754
1987 2,270
------
$6,938
======
</TABLE>
-18-
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. Financial Information Relating to Foreign and Domestic Operations and
Export Sales:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Sales to unaffiliated customers:
United States $5,985,826 $7,226,030
Republic of Honduras 4,133 34,461
---------- ----------
Total sales $5,989,959 $7,260,491
========== ==========
Sales (export sales) or transfers between
geographic areas:
Sales from Republic of Honduras subsidiary
to United States parent company, at market
value (export sales) $1,269,168 $1,851,165
========== ==========
Transfers from United States parent
company to Republic of Honduras subsidiary
of materials and supplies, at cost $ 211,206 $ 316,244
========== ==========
Operating profit:
United States $ 333,693 $ 129,033
Republic of Honduras 124,646 448,606
---------- ----------
Income before interest and
income taxes $ 458,339 $ 577,639
========== ==========
Identifiable assets:
United States $4,907,355 $5,255,792
Republic of Honduras 1,693,959 1,852,435
---------- ----------
Total assets $6,601,314 $7,108,227
========== ==========
</TABLE>
-19-
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. Leases:
The Company leases showroom space and office equipment under
noncancelable leases expiring April 14, 1999.
Net minimum annual lease payments on the foregoing leases amount to
$104,066 for 1997, $103,007 for 1998, and $34,218 for 1999.
Net lease expenses of the foregoing leases for the years are
summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Lease expense $86,478 $103,717
======= ========
</TABLE>
12. Contingent Liability:
In accordance with the Honduran Labor Code, the Company has the
obligation to pay severance compensation to its employees in the event
of dismissal under certain specific circumstances. It is the policy of
the Company to pay such severance payments in accordance with the Law.
At April 30, 1996 and 1995, the estimated contingent liability
aggregated approximately $133,488 and $74,242, respectively.
13. Earnings Per Share:
Earnings per share of common stock are based on the average number of
shares of common stock outstanding during each period.
For the years ended April 30, 1996 and 1995, the equivalents were
dilutive and the primary earnings per share were computed based on the
average number of common shares and common share equivalents
outstanding. When dilutive, stock options are included as share
equivalents using the treasury stock method. The number of shares used
in computing primary earnings per share were 1,689,887. The number of
shares used in computing fully diluted earnings per share were
1,689,887.
-20-
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. Incentive Plan:
The Company has an Incentive Plan covering certain officers and key
employees who have the greatest opportunities to contribute to current
earnings and the future success of the Company's operations. The
amount determined under the Incentive Plan is based upon profits of
the Company.
On January 1, 1987, the President of the Company executed a new
employment contract and forfeited his rights under the Incentive Plan
as one of the conditions of the new contract.
15. Deferred Compensation Agreement:
On May 8, 1987, the Company adopted a Deferred Compensation Agreement
with the President of the Company which will provide for the payment
of $50,000 per year for 10 years in monthly installments when the
President reaches age 62 and retires. The Agreement provides that if
he dies before he has received the total payments or if he dies before
retirement, then his beneficiary shall receive the benefit balance
thereof in monthly installments. In future years, the deferred
compensation will be accrued over the remaining term of service by the
President on a present value basis. The accruals for the years ended
April 30, 1996 and 1995 were $24,000.
16. Profit Sharing Plan:
During the year ended April 30, 1987, the Company adopted a combined
Profit Sharing and Salary Reduction Plan. The Company contributes 50%
of the employee contributions with a 2% maximum Company contribution
on each employee's salary. The Plan also has a feature whereby the
Directors can set aside certain profits as determined annually by the
Directors. The Profit Sharing and Salary Reduction Plans are tax
exempt under applicable sections of the Internal Revenue Code. The
contributions by the Company for the years ended April 30, 1996 and
1995 were $8,143 and $9,650, respectively.
17. Quarterly Financial Data (Unaudited):
The following is a summary of the quarterly results of operations for
the years ended April 30, 1996 and 1995:
-21-
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. Quarterly Financial Data (Unaudited): (Continued)
<TABLE>
<CAPTION>
Fiscal 1996 Quarters
--------------------
First Second Third Fourth
-------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $1,473,474 $1,614,388 $1,496,387 $1,405,710
Cost of goods sold 981,741 1,095,476 1,111,108 955,367
Net income (loss) 44,756 13,361 (31,015) 46,472
Net income (loss) per
common share (primary
and fully diluted) .03 .01 (.02) .03
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1995 Quarters
--------------------
First Second Third Fourth
-------------------------------------------
<S> <C> <C> <C> <C>
Net sales $1,823,644 $1,848,345 $1,975,615 $1,612,887
Cost of goods sold 1,192,351 1,161,284 1,356,594 1,346,850
Net income (loss) 131,891 170,660 113,678 (193,574)
Net income (loss) per
common share (primary
and fully diluted) .08 .10 .07 (.12)
</TABLE>
18. Nature of Operations and Concentration of Credit Risk:
Wellington Hall, Limited and Subsidiary, Muebles Wellington Hall,
S.A., are manufacturers of wall systems, dining room, bedroom, and
accent and occasional furniture, with plant facilities located in
Lexington, North Carolina and San Pedro Sula, Honduras. The accent and
occasional furniture accounts for approximately 40% of the Company's
total sales. The remaining 60% of total sales is split about evenly
over the other three product lines. Wellington Hall Caribbean Corp.,
the other subsidiary, is a sales organization located in
Lexington,North Carolina that is responsible for selling Muebles
Wellington Hall, S.A.'s products to both the general public and
Wellington Hall, Limited. The Company grants credit to customers who
are located primarily in the United States.
-22-
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. Nature of Operations and Concentrations of Credit Risk (Continued):
The Company's policy is to maintain its cash balances in reputable
financial institutions insured by the Federal Deposit Insurance
Corporation which provides $100,000 of insurance coverage on each
customer's cash balances.
19. Disclosures About Fair Value of Financial Instruments:
Statement of Financial Accounting Standards No. 107, "Disclosures
About Fair Value of Financial Instruments", requires that the Company
disclose estimated fair values for its financial instruments. The
following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
Cash:
The carrying amount approximates fair value.
Notes receivable - officer:
The carrying amount approximates fair value.
Note payable - other:
Due to the fact that these are short-term notes payable within
one year, the carrying amount approximates fair value.
Long-term debt:
The fair value of long-term debt is estimated based on the
current rates the Company could obtain on debt of the same
remaining maturities.
The estimated fair values of the Company's financial instruments as of
April 30, 1996 are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
------ -----
<S> <C> <C>
Cash $ 55,756 $ 55,756
Note receivable - officer 27,908 27,908
Notes payable - other 1,415,698 1,415,698
Long-term debt 1,476,662 1,520,652
</TABLE>
-23-
<PAGE> 24
TURLINGTON AND COMPANY, L.L.P. 509 East Center Street
Certified Public Accountants Post Office Box 1697
Lexington, North Carolina 27293-1697
Office 910-249-6856
Facsimile 910-248-8697
REPORT AND CONSENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders
Wellington Hall, Limited and Subsidiaries
Lexington, North Carolina
We hereby consent to the incorporation, by reference, of our report dated July
12, 1996, which appears on page 5 of the annual report to stockholders for the
year ended April 30, 1996, in this annual report on Form 10-K of Wellington
Hall, Limited and Subsidiaries for the year ended April 30, 1996.
The audit referred to in the above mentioned report also included the related
consolidated financial statements for the two years ended April 30, 1996 listed
in the accompanying index. In our opinion, such financial schedules present
fairly the information required to be set forth therein.
/s/ Turlington and Company, L.L.P.
July 12, 1996
-24-
<PAGE> 25
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
WELLINGTON HALL, LIMITED
Date: August 13, 1996 By : /s/ Hoyt M. Hackney, Jr.
------------------------
Hoyt M. Hackney, Jr.
President, (Principal Executive
Officer, Principal Accounting
Officer)
-25-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH WELLINGTON HALL, LIMITED ANNUAL REPORT ON FORM
10-KSB, AMENDMENT NO. 1 ON FORM 10-KSB/A (SEC FILE NO. 0-3928).
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> MAY-01-1995
<PERIOD-END> APR-30-1996
<EXCHANGE-RATE> 11.06
<CASH> 55,756
<SECURITIES> 0
<RECEIVABLES> 784,780
<ALLOWANCES> 43,800
<INVENTORY> 4,571,015
<CURRENT-ASSETS> 5,516,154
<PP&E> 2,173,110
<DEPRECIATION> 1,218,540
<TOTAL-ASSETS> 6,601,314
<CURRENT-LIABILITIES> 2,595,548
<BONDS> 0
0
0
<COMMON> 1,689,887
<OTHER-SE> 1,276,273
<TOTAL-LIABILITY-AND-EQUITY> 6,601,314
<SALES> 5,989,959
<TOTAL-REVENUES> 5,992,423
<CGS> 4,143,692
<TOTAL-COSTS> 5,539,084
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 43,800
<INTEREST-EXPENSE> 388,829
<INCOME-PRETAX> 69,510
<INCOME-TAX> (4,064)
<INCOME-CONTINUING> 73,574
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73,574
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
