UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Period Ended October 31, 1997
----------------
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Transition period from to
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Commission file number 0- 3928
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Wellington Hall, Limited
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(Exact name of Registrant as specified 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
Lexington, N.C. 29293
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(910) 249-4931
----------------------------------------------------
(Registrant's Telephone Number, including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities exchange Act of
1934 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 [ ]
Indicate the number of shares outstanding of each of insurer's classes of common
stock, as of the latest practicable date.
CLASS Number of Shares Date
----- ---------------- ----
Common Stock 2,289,887 October 31, 1997
Traditional Small Business Disclosure Format:
YES [X] No [ ]
Page 1 of 11 Pages
<PAGE>
INDEX
Wellington Hall, Limited and Subsidiaries
Part 1. Financial Information Page No.
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheet - October 31, 1997 3
Condensed consolidated statements of income - Six months ended 4
October 31, 1997 and 1996
Condensed consolidated statements of cash flows- Six months ended 5
October 31, 1997 and 1996
Notes to condensed consolidated financial statements
- October 31, 1997 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 11
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<PAGE>
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(unaudited)
-----------
Quarter Ended Year Ended
October 31, April 30,
1977 1996
---- ----
ASSETS
Current assets:
Cash:
Cash on hand $ 400 $ 400
Cash in demand deposits 25,887 53,715
Accounts receivable:
Trade 779,949 986,954
Less, allowance for doubtful accounts (63,843) (63,843)
Note receivable - officer 14,561 28,393
Inventories 4,478,148 4,363,027
Prepaid expenses 187,467 170,434
Deferred income taxes 19,713 19,713
----------- -----------
5,442,282 5,558,793
----------- -----------
Property and equipment:
Cost 2,160,461 2,150,193
Less, accumulated depreciation (1,328,872) (1,281,690)
----------- -----------
831,589 868,503
----------- -----------
Other assets:
Deferred income taxes 98,532 98,532
Other 34,246 34,735
----------- -----------
132,778 133,267
----------- -----------
$ 6,406,649 $ 6,560,563
----------- -----------
LIABILITIES
Current liabilities:
Current maturities on long-term debt $ 258,381 $ 196,443
Notes payable - other 1,926,989 1,935,972
Accounts payable - trade 383,894 372,139
Customer deposits 83,579 45,757
Other current liabilities 462,385 298,014
----------- -----------
3,115,228 2,848,325
Noncurrent liabilities:
Long-term debt, less current maturities 1,058,284 1,205,294
Deferred compensation accrual 252,000 240,000
----------- -----------
4,425,512 4,293,619
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STOCKHOLDERS' EQUITY
Common stock; authorized 6,000,000
shares; no par; shares issued and
outstanding 1997 - 2,289,887 and
1996 - 1,689,887 3,354,531 3,354,531
Preferred stock; authorized 5,000,000
shares; $5 par; no shares issued and
outstanding for 1997 and 1996 0 0
Cumulative translation adjustments (1,861,762) (1,856,648)
Retained earnings 488,368 769,061
----------- -----------
1,981,137 2,266,944
----------- -----------
$ 6,406,649 $ 6,560,563
=========== ===========
The accompanying notes are an integral part
of the consolidated financial statements
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<PAGE>
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(unaudited)
-----------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
1997 1996 1997 1996
---- ---- ---- ----
Revenue:
<S> <C> <C> <C> <C>
Sale of furniture $1,467,983 $ 1,586,709 $ 3,040,802 $2,833,407
Other income 253 14,182 1,620 16,321
---------- ----------- ----------- ----------
1,468,236 1,600,891 3,042,422 2,849,728
Cost and expenses:
Cost of goods sold 1,004,333 1,066,480 2,320,610 1,917,071
Other operating, selling, general
and administrative expenses 341,169 382,980 772,257 702,578
Interest expense 113,775 101,834 229,985 193,220
---------- ----------- ----------- ----------
1,459,277 1,551,294 3,322,852 2,812,869
---------- ----------- ----------- ----------
Income (loss) before
income taxes (benefits) 8,959 49,597 (280,430) 36,589
Income tax benefits 3,176 (1,881) 3,176 396
---------- ----------- ----------- ----------
Net income (loss)
for the years $ 5,783 $ 51,478 $ ( 283,606) $ 36,463
========== =========== =========== ==========
Earnings (loss) per share of common
stock:
Primary and assuming full dilution:
Net income (loss) for the years $ -0- $ .02 $ (.12) $ .02
========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements
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<PAGE>
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
October 31,
1997 1996
---- ----
Cash flows from operating activities:
Net income (loss) for the years $(283,606) $ 36,426
Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities:
Depreciation 48,263 48,531
Gain on sale of equipment
Deferred compensation 12,000 12,000
Deferred income taxes -0- -0-
Changes in assets and liabilities:
Accounts receivable 206,504 (132,396)
Note receivable, officer 13,832 -0-
Inventories (120,306) (284,396)
Prepaid expenses (17,149) (27,904)
Other assets 310 (3,014)
Accounts payable, customer deposits,
and other current liabilities 214,530 44,843
--------- ---------
Net cash provided by (used for)
operating activities 74,378 (305,910)
--------- ---------
Cash flows from investing activities:
Purchase of equipment (15,620) (33,158)
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Net cash used for investing activities (15,620) (33,158)
--------- ---------
Cash flows from financing activities:
Short-term borrowings (6,713) 58,016
Payments on long-term debt (85,001) 237,148
Proceeds from issuance of stock -0- -0-
--------- ---------
Net cash provided by (used for)
financing activities (91,714) 295,164
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Effect of exchange rate changes on cash 5,128 20,093
--------- ---------
Net increase (decrease) in cash (27,828) (23,811)
Cash, beginning of years 54,115 54,287
--------- ---------
Cash, end of years $ 26,287 $ 30,475
========= =========
Cash paid during the years for:
Income taxes $ -0- $ -0-
========= =========
Interest $ 229,985 $ 193,220
========= =========
The accompanying notes are an integral part
of the consolidated financial statements
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<PAGE>
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
October 31, 1997
1. In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position of
the Company for the interim period presented.
2. Promotional costs are expensed as they are incurred.
3. The company takes a physical inventory at the end of the second quarter
(October 31) and at year-end (April 30). At the end of each month and at the
end of the first quarter (July 31) and the third quarter (January 31),
inventories are adjusted to purchases, production and shipments.
4. The financial statements of the Company's foreign subsidiary, Muebles
Wellington Hall, S.A., have been translated into U.S. dollars in accordance
with FASB Statement No. 52. All balance sheet accounts have been translated
using the current ("spot") exchange rates at the balance sheet date or 13.09
Lempiras to 1 U.S. Dollar. Income statement amounts have been translated
using the weighted average exchange rate which for the period was 13.08
Lempira to 1 U.S. Dollar. The gains and losses resulting from the change in
exchange rates during the quarter have been reported separately as a
component of stockholders' equity entitled "Cumulative Translation
Adjustments". Net currency transaction gains or losses which occur during
the quarter are included in net earnings and amounted to approximately $618
and $5,211 during the six month period ended October 31, 1997 and 1996
respectively.
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<PAGE>
Item 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company's principal long-term capital resources are shareholders'
equity, the term loan of Wellington Hall (WHL) with Lexington State Bank (LSB)
and the term loan of Wellington Hall Caribbean Corp. (WHCC) with the Overseas
Private Investment Corporation (OPIC). As of October 31, 1997, total
stockholders' equity was $1,981,138 and the outstanding principal amounts of the
LSB loan and the OPIC loan were $362,604 and $929,061, respectively.
The Lexington State Bank loan bears interest at the prime rate plus 1.5% and
is payable in monthly installments of $7,000 until maturity on April 10, 2002.
It is secured by substantially all of the Company's domestic assets. The net
proceeds of the loan were used to refinance indebtedness used to purchase and
expand the Company's Lexington, North Carolina facility.
In July 1996, the Company began negotiating with OPIC to amend the OPIC loan
agreement then in effect to provide more favorable terms. Principal payments
were scheduled to double from approximately $31,000 per quarter to approximately
$62,000 per quarter beginning on July 31, 1996 with a final balloon payment of
$185,812 due on October 31, 1999. Under the loan agreement, WHCC was also
obligated to make quarterly interest payments at the rate of 12% per annum. On
March 10, 1997, WHCC and OPIC executed an amended loan agreement that, among
other things, lowered the interest rate to 10% per annum as of November 1, 1996
and waived principal payments from July 31, 1996 until July 31, 1997, at which
time the Company began making quarterly payments of approximately $31,000.
Principal payments increase to approximately $62,000 on July 31, 1998 with a
balloon payment of approximately $557,438 due on October 31, 1999. Upon
execution of the amended documents, WHCC paid OPIC a rescheduling fee of 1% of
the principal balance. The proceeds from the OPIC loan, together with funds
generated internally by Wellington Hall, were used to acquire and improve the
Honduran Facilities.
The OPIC loan prohibits the payment of dividends and other distributions by
Wellington Hall and requires that it maintain a stated amount of tangible net
worth as well as certain financial ratios, including current assets to current
liabilities and total indebtedness to tangible net worth. In addition, WHCC is
required to maintain a stated amount of current assets in excess of current
liabilities, and WHCC and MWH are required to maintain stated ratios of current
assets to current liabilities and indebtedness to tangible net worth. Wellington
Hall, WHCC an MWH are each in compliance with the requirements of the OPIC loan.
Under the OPIC loan arrangement, Wellington Hall is obligated to supply any
necessary funds to WHCC to meet WHCC's obligations thereunder, and MWH has also
guaranteed the obligations of WHCC. The OPIC loan is secured by substantially
all of the tangible assets of the Honduran Facilities.
The Company's primary sources of liquidity are bank lines of credit and cash
flow from operations. For its domestic operations, the Company has three lines
of credit with Lexington State Bank. Under its primary line, the Company may
borrow the lesser of (i) $1,200,000 or (ii) the sum of 70% of the Wellington
Hall's accounts receivable less than 60 days old, 50% of its finished good
inventories and 10% of work in process and raw material inventories. As of
October 31, 1997, the Company had $1,167,400 in borrowings under this line of
credit. The Company pays interest monthly at the rate of prime plus 1% on
outstanding borrowings under the facility. Principal payments are due on demand.
The line of credit also contains restrictive covenants that prohibit Wellington
Hall from paying dividends and making other distributions with respect to its
capital stock and require it to maintain certain financial ratios, including
current assets to current credit. The line of credit is reviewed annually for
renewal.
Wellington Hall is also indebted to Lexington State Bank under a demand loan
for $100,000 borrowed in 1993 to finance working capital. The loan bears
interest at the prime rate plus 1% payable monthly, and the outstanding balance
at October 31, 1997 was $43,600.
On January 16, 1997, Wellington Hall executed the loan documents that
increased its line of credit from Lexington State Bank in the amount of
$250,000. Outstanding borrowings under this facility will bear interest at the
rate of prime plus 1 1/2%, payable monthly, and the outstanding balance as of
October 31, 1997 was $224,000.
The Lexington State Bank lines of credit and demand loan are secured by
substantially all of the Company's domestic assets.
On October 31, 1997, the company had and aggregate balance of $115,000
available from LSB for future borrowing.
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<PAGE>
MWH has lines of credit with two Honduran banks in an aggregate amount of about
$590,000. As of October 31, 1997, an aggregate of $492,217 had been borrowed
under these lines, leaving approximately $81,000 for future borrowings.
Borrowings bear interest at rates ranging from 28% to 35% payable quarterly and
principal is payable on demand. The lines are secured by a second lien on the
fixed assets of MWH and current assets.
The Company's other primary source of liquidity is net cash provided by
operating activities which was $74,378 and ($305,901) in the fiscal 1998 and
1997, respectively. The funds provided during the quarter was primarily as a
result of decreases in account receivable. If the Company is to meet its
liquidity needs in the future, it must continue to generate positive cash flows
and avoid any significant losses in the future.
As of October 31, 1997, accounts receivable had decreased by approximately
$206,500 since the beginning of the fiscal year, mostly as a result lower sales
and an improved turn on the outstanding receivables. The receivables represented
a turnover rate of about forty-seven days, a decrease of about eight days when
compared to the turnover rate reported at April 30, 1997.
Accounts payable were reduced by approximately $36,900 reflecting mostly the
curtailment of domestic production reducing the requirements for raw materials.
The Company has generally paid its vendors and material suppliers within their
terms.
Consolidated inventories increased by about $115,000 by the end of the
fiscal quarter ended October 31, 1997 primarily a result of an increased level
of raw materials inventories at the Honduras facility to support efforts to
increase production in response to the higher backlog of orders for the foreign
produced products.
Property and equipment is reported to have increased by about $10,000 during
the two fiscal quarters, however, expenditures were approximately $15,600 with
the difference attributable to the devaluation of the Honduran currency relative
to the prior fiscal year end of approximately 1%. The historical value of the
Company's Honduran assets are carried on the subsidiaries' books in the local
currency, the lempira. Lempiras are converted to dollars at the spot rate in
effect at period end when the Company's financial statements are consolidated,
and the reduction to the reported value of these assets appears as part of the
translation adjustment.
There are no significant capital expenditures planned for the balance of
fiscal year 1998 and expenditures are expected to be limited to maintenance
needs which develop from time to time. The Company's total outlay for capital
improvements during six month period ended October 31, 1997 was approximately
$15,600 used primarily to upgrading the Company's domestic operations water
supply piping and to completing the retubing of its boiler at the Honduran
facilities used to dry wood.
The Company is subject to the risk that foreign currency fluctuation may
have an adverse impact on its operations, For example, if the Honduran currency
were to stabilize in the future or to increase in value against the dollar, the
Honduran subsidiary's cost might increase causing profit margins to erode. The
Company, however, does not engage in any hedging of the exchange rate
fluctuations. Since the acquisition of the Honduran subsidiary in 1989, the
lempira has continually devalued against the U.S. dollar, from 2.0 lempira to
the dollar in 1989 to 13.09 lempira to the dollar at October 31, 1997. Although
the devaluation of the lempira has resulted in reductions in the historical book
value of the assets and liabilities and a corresponding reduction to
shareholders' equity in the form of a $1.86 million cumulative translation
adjustment, the Company also benefits from lower product cost from the
subsidiary as the lempira devalues. In view of the long-term trend of the
devaluation, management believes that hedging of the exchange rate fluctuation
is unnecessary and could reduce or eliminate the benefits of lower product costs
resulting from any continued devaluation.
As of September 1, 1996, the Company executed an Employment and Stock
Purchase Agreement with Arthur F. Bingham (the "Agreement"). On October 10, 1996
Mr. Bingham loaned the Company $285,694 at terms included in an addendum to the
Agreement. On February 12, 1997 and, during the Company's last fiscal quarter,
Mr. Bingham purchased 600,000 shares of common stock at a price of $.50 per
share, which purchase price was paid by cancellation of the foregoing loan and
for an additional investment of $14,306. Mr. Bingham has also been granted
options to purchase 600,000 additional shares at option prices ranging from $.50
to $1.30 per share, 450,000 of which are subject to certain performance
conditions.
In 1989, the Company acquired the Honduran Facilities and anticipated
raising $1,500,000 through the sale of the Company's stock by the board of
directors. The private placement ended early in 1990 having produced about
one-half the funds anticipated. The result of not raising all the funds has been
that the Company has had to incur more debt and restrict capital expenditures
that were both in its original plans at the time of the acquisition and that
have developed since the acquisition. Because of this debt, sales needed to grow
rapidly from the time of the acquisition to a level at which operating incomes
would be adequate to service the debt and to fund capital needs if the Company
was to grow. Maintaining an adequate level of sales since the acquisition has
been possible only for limited periods of time, mostly as a result of a sluggish
furniture economy that has existed over much of that time, a period that
includes two recessions. The sluggish furniture economy has also reduced the
industry's distribution base, especially the base of mid to small retailers more
committed to using smaller manufacturers, such as the Company, as a resource.
Furthermore, management believes that the consumer taste in home furnishings has
swung away from the more formal designs and executions that the Company has
marketed to more informal designs.
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<PAGE>
Management believes that the resulting situation is that the Company has too
much debt service, given its sales volume most recently achieved, and has
inadequate funds for its plans to restoring and growing its sales to a level
where its operating profits can accommodate its needs. The Company's cash
position remains tight as was the case during all of fiscal years 1996, 1997,
and the first half of 1998, having experienced excessive wood deliveries early
in the fiscal year 1996 and then a slow furniture economy and lower sales during
the balance of the both fiscal years while the Company continued to service its
high level of indebtedness. The sale of stock to Mr. Bingham assisted the
Company in meeting its working capital and other cash needs during fiscal 1997.
Management recognized early in fiscal year 1997, that if sales, then in
decline, were to be restored to a level necessary to achieving adequate profits
it would first be necessary to manage the Company's limited finances in a manner
that would maintain sufficient funds to support continued operations until its
marketing efforts produced increased sales volume. In addition management
believed it essential that the Company's financial condition be strengthened by
providing funds both to finance a recovery and to addressing the debt-equity
problem in general. A strategy was formulated that addressed securing the
necessary funding and improving the debt-equity problem. The plan consists
primarily of (i) the private placement of stock to Mr. Bingham, (ii) the
Company's debt restructuring, both as discussed herein above, (iii) the offering
of stock to the shareholders of Company and to the public, as discussed herein
below, (iv) the grant of options to certain key employees, discussed in the
Notes to the Consolidated Financial Statements, and (v) reducing inventories to
finance continued operations, as discussed herein below .
On February 21,1997, the Company filed a registration statement with the
Securities and Exchange Commission for the offer and sale of 1,689,887 shares of
its common stock. The shares will be offered first to the holders of record of
its outstanding common stock as of a date at or about the time that the
registration statement becomes effective, who will have the right for thirty
days to purchase one additional share for each share then held at a price of
$.50 per share. Each Wellington Hall shareholder as of that date may also
subscribe within that thirty day period for additional shares, and any available
shares will be sold to shareholders who have subscribed therefor on a pro rata
basis. Any shares still remaining after the expiration of the offering to
Wellington Hall shareholders may be sold to persons who are not directors,
officers or shareholders of Wellington Hall.
The aforementioned stock offering has been delayed and the registration
statement filed with respect thereto is not expected to become effective, if at
all, until some future date.
The foregoing plan removed some of the pressure on the Company's working
capital, made funds available to support marketing requirements and slowed the
negative effect of servicing the debt for the near term. The balance of the plan
would be aimed at reducing debt and the corresponding costs thereof.
RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED OCTOBER 31, 1997 COMPARED TO THE THREE MONTHS
AND SIX MONTHS ENDED JULY 31, 1996
Consolidated revenues for the second quarter were down about $133,000 or 8%
but increased approximately $192,000 or 7% for the first half of the fiscal year
when compared with the result reported last year. The decline was a result of
reduced sales for both domestically produced goods and foreign produced goods
normally sold to retail customers. The increase was entirely the result of OEM
sales, (products sold to other manufacturers), produced in the Honduran
facility. These results were not effected by changes in the Company's prices
though prices on those product distributed through retailers were increase
between four and five percent in October.
Sales of domestically produced goods for the quarter were about $1,049,000,
down $68,000 or 6% from the $1,117,000 reported last year while sales for the
six month period were $2,033,000 about even with the $2,026,000 recorded last
year. Sales of foreign produced goods, net of inter company sales, for the
quarter were approximately $568,000 down $107,000 from the previous year's
second quarter and were $1,326,000 for the twenty-six weeks and increase of
$245,000 over the prior year. The consolidated sales included $211,000 and
$418,000, for the quarter and half year respectively, of highly discounted sales
of inventories deemed to be slow moving, of unacceptable quality or discontinue
product. Without these highly discounted sales, revenues would have been
significantly less.
The sales of domestic products during the quarter and half year were at a
level consistent with the level of sales reported over the last two years and
remains well below the Company's production capacity and an estimated level of
sales necessary for the operation to be profitable. The Company experience a
significant drop in the rate of incoming orders for these products last in 1994
and has experience a continuing downward trend since that
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<PAGE>
time. Several fundamental factors probably contribute to the cause of this trend
including the somewhat distress level of the furniture economy during the period
relative to the strong nation economy, a shrinking distribution base as more and
more retailer have gone out of business, changing consumer taste away from more
formal designs such as the Company's products, and imports which have possibly
undercut the value of domestically produced goods.
Means of reversing the downward trend regarding sales of domestically
produced products and returning those operations back to profitability have been
elusive, and several avenues pursued over time have shown initial promise only
to stall and have little lasting material effect. It is uncertain whether these
trends will continue but, if the Company's strategies do not successfully
counteract these trends, they could continue to have a material adverse effect
on the Company's results of operations and financial condition.
The decline in domestic sales has also negatively effected the Companys
foreign operations. The domestic operation was consuming a significant portion
of the foreign output as dimension stock, carved and/or turned components and
unfinished assemblies into domestic production. The decline has effectively cost
the foreign operation its best and largest customer. To counteract this loss and
to increase revenues and operations at the Honduran facility, considerable
effort continues to be directed at selling other manufactures and wood consumers
their products and production requirements; OEM sales. These sales during the
quarter ended October 31, 1997 were about $85,000 and virtually the same as last
year. For the half year the sales were approximately $338,000 an increase of
about $205,000 or 154% and accounted for practically all the growth in foreign
produced goods and consolidated revenues and accounted for 11% of total
consolidated sales up from 5.0% last year.
The Company's firm backlog of orders on October 31, 1997 was $2,115,333, up
about 3% and 6% respectively when compared with the backlog of $2,047,369 on
April 30, 1997 and the $1,996,702 reported at October 31, 1996. The current
backlog included $1,191,795 of domestically - manufactured products, as opposed
to $1,289,542 included in the April 30, 1997 backlog and $1,498,110 included in
the October 31, 1996 backlog , which decrease reflects the continuing downward
trend in the Company's ability to successfully market its domestic products. The
backlog for WHCC and Honduran-produced products, less intercompany orders, was
$923,538 on October 31, 1997 versus $757,827 on April 30, 1997 and $498,592 on
October 31, 1996. The increase primarily reflects more recent success in
securing orders from other manufacturers for their products (OEM sales) and
improved orders for the Company foreign produced line normally sold through
retailers.
Cost of sales decreased approximately $62,000 to about $1,004,000 for the
second quarter ended October 31, 1997 and were 68% of sales. However, these cost
for the half year increased approximately $400,000 or 21% as compared with last
year, reflecting primarily the reduced level of domestic production especially
during the first quarter ended July 31, 1997 and the sales of highly discounted
goods.
Selling, general and administrative expenses decreased about $41,000 or 11 %
for the second fiscal quarter but increased about $70,000 during the first half
year mostly as a result of the addition a Sales and Marketing manager and other
general marketing costs. The Company expects to continue to support an expanded
marketing effort.
Interest expenses of $113,775 for the fiscal quarter represent an increase
of about $12,000 over that paid during the previous year second quarter. For the
six month period were $229,0985 up about $37,000 over the same period the prior
year. As a result of added borrowing during the previous fiscal year and after
last years second quarter. The additional borrowing covered operating losses and
increased wood purchases at the Honduras facility to raise production in
response to the improved level of orders and the higher backlog. Long-term debt
declined during the six month period by by about $88,000 and short term
borrowing decreased by approximately $14,000 since the beginning of the current
fiscal year.
For the the fiscal quarter ended October 31, 1997, operating income
(earnings before interest and taxes) was $122,734, 5.0 cents per share, compared
to $151,449, 7.0 cents per share for quarter ended October 31, 1996. For the six
month period ended October 31 1997 the operating income was a loss of ($50,446),
($.02) per share versus the previous years gain of $230,079 or $.10 per share.
Net income for the second quarter was $5,783, virtually breaking even, while for
the six month period there is a net loss of ($283,606) or ($.12) per share,
compared to a net gain of $36,463 or $.02 per share for the prior year's two
quarters.
The essentially break even performance in the second quarter and the loss
reported for the first half year are a result generally of slow sales and the
Company's limited operating capital. Because of the slow sales and to avoid
increasing inventories, it was necessary, during part of the first two quarters,
to reduce production volumes, primarily assembled production, in the Company's
domestic operation to levels below that required to manage labor and overhead
cost. In addition, the Company sold off inventories at discounted prices to
generate cash to cover the operating loss and to finance continued operations.
Sales of foreign produced products for the upcoming quarter are expected to
improve as production at the Honduras facility rises allowing the backlog of
orders at October 31, 1997 for these products to be shipped. There remains some
doubt as to the performance that might be expected from the domestic operations
which will be more dependent on the amount of orders received for those products
as the quarter progresses.
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<PAGE>
PART II
Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Filed:
Exhibit No. Description
3.1 Amended and Restated Charter of Wellington Hall Limited.
Incorporated by reference
3.2 Bylaws of Wellington Hall, Limited, as amended.
Incorporated by reference
(b) Reports on From 8-K filed during the quarter ended
October 31, 1997: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WELLINGTON HALL, LIMITED
(Registrant)
Date: December 15, 1997 By: /s/ Hoyt M. Hackney, Jr.
-----------------------------------
Hoyt M. Hackney, Jr., President and
Chief Executive Officer
Chief Financial Officer
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Unaudited
Consolidated Balance Sheet and Consolidated Statement of Income and is qualified
in its entirety by reference to such Notes to Financial Statement.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 26,287
<SECURITIES> 0
<RECEIVABLES> 779,949
<ALLOWANCES> 63,843
<INVENTORY> 4,478,148
<CURRENT-ASSETS> 5,442,282
<PP&E> 2,160,461
<DEPRECIATION> 1,328,872
<TOTAL-ASSETS> 6,406,649
<CURRENT-LIABILITIES> 3,115,228
<BONDS> 0
0
0
<COMMON> 2,289,887
<OTHER-SE> 488,368
<TOTAL-LIABILITY-AND-EQUITY> 6,406,649
<SALES> 3,040,802
<TOTAL-REVENUES> 3,042,422
<CGS> 2,320,610
<TOTAL-COSTS> 3,092,867
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 63,843
<INTEREST-EXPENSE> 229,985
<INCOME-PRETAX> (280,430)
<INCOME-TAX> 3,176
<INCOME-CONTINUING> (283,606)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (283,606)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> 0
</TABLE>
