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 July 31, 1999
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( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition period from _________________to_______________
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.)
425 John Ward Rd
Lexington, N.C. 29295
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(336) 249-4931
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(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 3,723,220 July 31, 1999
Traditional Small Business Disclosure Format: YES [X] No [ ]
Page 1 of 12
<PAGE>
INDEX
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements (Unaudited)
Consolidated balance sheet - July 31, 1999 3
Consolidated statements of income - Three months
ended July 31, 1999 and 1998 4
Consolidated statements of cash flows- Three months
ended July 31, 1999 and 1998 5
Notes to consolidated financial
statements - July 31, 1999 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 12
<PAGE>
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(UNAUDITED)
-----------
July 31,
ASSETS 1999
-----------
Current assets:
Cash:
Cash on hand $ 3,947
Accounts receivable:
Trade 762,843
Less, allowance for doubtful accounts (63,843)
Note receivable - officer 0
Inventories 3,455,121
Prepaid expenses 57,171
Deferred income taxes 0
-----------
$ 4,215,239
-----------
Property and equipment:
Cost 1,977,256
Less, accumulated depreciation (1,265,046)
-----------
712,210
-----------
Other assets
Deferred income taxes 120,806
Other 8,492
-----------
$ 5,056,747
-----------
LIABILITIES
Current liabilities:
Current maturities on long-term debt $ 969,438
Notes payable - other 675,617
Accounts payable - trade 341,443
Sundry 4,112
Customer deposits 93,570
Other current liabilities 279,884
-----------
2,364,064
-----------
Noncurrent liabilities:
Long-term debt, less current maturities 1,369,018
Deferred compensation accrual 294,000
-----------
4,027,082
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STOCKHOLDERS' EQUITY
Common stock; authorized 6,000,000 shares;
no par; shares issued and outstanding
2,289,887 3,781,531
Preferred stock; authorized 5,000,000 shares; $5 par;
no shares issued and outstanding -0-
Cumulative translation adjustments (1,924,873)
Retained earnings (826,992)
-----------
Total Stockholders' Equity 1,029,665
-----------
Total Liabilities & Equity 5,056,747
===========
The accompanying notes are an integral part of the
consolidated financial statements
-3-
<PAGE>
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(UNAUDITED)
-----------
Three Months Ended
July 31,
----------------------------
1998 1998
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Revenues:
Sale of furniture $ 1,489,569 $ 1,556,520
Other income 2,524 4,732
----------- -----------
1,492,094 1,561,252
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Costs and expenses:
Cost of goods sold 1,077,110 1,155,595
Other operating, selling, general,
and administrative expenses 328,557 343,116
Interest expense 96,891 111,154
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1,502,558 1,609,865
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Income (loss) before income taxes
(benefits) (10,464) (48,613)
Provision for Income Taxes 816 14,104
----------- -----------
Net income (loss) for the quarter ($ 11,280) ($ 62,717)
----------- -----------
Earnings (loss) per share of common stock:
Primary and assuming full dilution:
Net income (loss) for the quarter ($ .003) ($ .017)
----------- -----------
The accompanying notes are an integral part of
the consolidated financial statements
-4-
<PAGE>
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(UNAUDITED)
-----------
Three Months Ended
July 31,
-------------------------
1998 1997
--------- ---------
Cash flows from operating activities:
Net income (loss) for the period ($ 11,280) ($ 63,012)
Noncash Expenses (Income) Included
in Net Income
Depreciations 23,594 24,736
Deferred compensation 6,000 6,000
Deferred income taxes 0 0
Changes in assets and liabilities:
Accounts receivable (146,527) (96,220)
Note receivable, 0 5,139
Inventories 120,807 81,783
Prepaid expenses (10,021) 15,623
Other assets 1,576 (441)
Accounts payable, customer deposits,
and other current liabilities (263,667) 79,203
--------- ---------
Net cash provided by (used for)
operating activities (279,517) 52,812
--------- ---------
Cash flows from investing activities:
Purchase of equipment (7,904) (7,388)
--------- ---------
Cash Flow From Financing Activities:
Payments on short-term debt (52,170) (14,604)
Proceeds from long-term debt 282,833 (41,696)
Proceeds from Equity Capital 27,000 0
--------- ---------
Net cash provided by (used for)
financing activities 257,663 (56,300)
--------- ---------
Effect of exchange rate changes on cash (2,880) (921)
--------- ---------
Net Increase (decrease) in cash (32,637) (11,798)
--------- ---------
Cash, beginning of quarters 36,584 32,467
--------- ---------
Cash, end of quarter $ 3,947 $ 20,669
========= =========
Cash paid during the quarters for:
Income taxes $ 0 $ 0
========= =========
Interest $ 96,891 $ 111,153
========= =========
The accompanying notes are an integral part
of the consolidated financial statements
-5-
<PAGE>
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
July 31, 1999
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
14.24 Lempiras to 1 U.S. Dollar. Income statement amounts have been
translated using the weighted average exchange rate which for the period
was 14.17 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 $230
and $120 during the quarters ended July 31, 1999 and 1998 respectively.
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 with Lexington State Bank and the term
loan of WHCC with the Overseas Private Investment Corporation (OPIC). As of July
31, 1999, total stockholders' equity was $1,029,065 and the outstanding
principal amounts of the Lexington State Bank loan and the OPIC loan were
$1,486,977 and $826,479, respectively.
-6-
<PAGE>
On June 16, 1999, Lexington State Bank (LSB) the company's primary domestic
lender restructured the company's debt whereby three lines of credit with an
aggregate total of $1,550,000 and one term loan with a balance of approximately
$278,00 were replaced by a long term loan of $1,529,784 with the repayment
amortized over a period of ten years and a line of credit of $300,000. The long
term loan and line of credit bear interest rates of prime plus 3/4% and the long
term loan is payable in monthly installments of approximately $9,830 until
maturity. The long term loan and the line of credit are secured by substantially
all of the Company's domestic assets. Principal payment on the line of credit is
due on demand. The line of credit and long term loan also contains restrictive
covenants that prohibit Wellington Hall from paying dividends and making other
distributions with respect to its capital stock. The line of credit is reviewed
annually for renewal.
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 were scheduled to 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.
On July 22, 1998, WHCC requested OPIC to waiver principal due on July 30,
1998 and on October 31, 1998. As of this date, WHCC has not been notified as to
the final disposition of that request. However, no principal payments were made
on either July 30, 1998 nor on October 31, 1998. Only the required interest was
paid. On January 31, 1999 and on April 30, 1999 the terms of the loan required
principal payments of approximately $62,000 plus the interest due. The company
made principal payments on each of these dates of approximately $21,000 and paid
the interest that was due and on April 30, 1999 had a past due principal balance
of approximately $207,000.
After on going discussion from time to time throughout fiscal year ended
April 30, 199, the Company requested on April 23, 1999 that OPIC amend the loan
agreement whereby (i) OPIC would accept $225,000 in preferred stock (ii) the
payment of the remaining loan balance would be scheduled over a period of six
years, and (iii) the company would received a grace period of one year, until
July 31, 2000, to make additional principal payments. The preferred stock will
be structured to assure OPIC that its stock would have an equal claim on the
Company's assets as does its loan balance. As of this date, OPIC has not
responded to the request of April 23, 1999. However, on July 31, 1999, the
Company did not make a principal payment but only paid the interest due on that
date.
The effect of this request, if granted, would reduce the loan balance from
approximately $826,000 at July 31, 1999 to approximately 600,000; reduce
interest expense by approximately $22,550 annually, and enhance the company's
effort to restore its sales and profit by allowing a period to increase working
capital. Since the total debt outstanding with the OPIC is due on October 31,
1999, the Company's Balance Sheet reflects the debt as a "Current Liability"
under "Current maturities on Long Term Debt". If OPIC grants the Company's
request, approximately $225,000 will become equity and the balance will be
reflected on the Balance Sheet as a Long Term Debt.
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.
-7-
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 a
$300,000 line of credit with Lexington State Bank. The Company pays interest
monthly at the rate of prime plus 3/4% payable monthly 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, and the
outstanding balance at July 31, 1999 was $289,772.
MWH has lines of credit with two Honduran banks and as of July 31, 1999, an
aggregate of $385,845 had been borrowed under these lines. Borrowings bear
interest at a rate that ranges between 29% and 36% 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.
On April 23, 1999, Ernst B. Kemm, upon the Board of Directors approval,
purchase 1,333,333 shares of the Company's common stock for $400,000 or $.30 per
share. The purpose of the funds was to reduce trade payable with certain vendors
and sales representatives, finance new sales aids, finance the purchase of raw
materials for the Company's Honduran facility, and to finance the purchase of
furniture from off shore manufacturers. On April 30, 1999 most of this equity
was reflected in Note Payable which were down about $1,265,476 with Mr. Kemm's
investment accounting for approximately $344,366 of the total decrease and the
balance of the decrease, approximately $921,110, as a result of a restructuring
of the Company's loans with Lexington State Bank discussed above.
On May 4, 1999, the Company and Furniture Classics Limited (FCL) executed a
marketing agreement whereby FCL would supply the Company a line of mirrors,
chinese antiques, and other products from their foreign sources which the
Company will market exclusively. Under the terms of this agreement R. Douglas
Ricks, the FCL president became a shareholder on June 22, 1999 by investing
$27,000 for 100,000 shares of the Company's common stack, has been nominated as
a Director, and is assisting management in developing additional products to
further exploit these new sources. As part of the agreement and to enhance
Company sales and possibly finance the growth of these sales, FCL received
certain incentives in the form of warrants which are priced and can be exercised
by the following:
100,000 shares at $0.30 per share exercisable until October 31, 1999
100,000 shares at $0.40 per share exercisable until July 31, 2000
100,000 shares at $0.40 per share exercisable until December 31, 2000
100,000 shares at $0.45 per share exercisable until December 31, 2001
100,000 shares at $0.45 per share exercisable until December 31, 2001
100,000 shares at $0.53 per share exercisable until December 31, 2001
The Company's other primary source of liquidity, other than its lines of
credit, is net cash provided by operating activities which was ($279,517) and
$52,812 in the fiscal first quarter of 1999 and 1998, respectively The negative
cash contribution in fiscal quarter were primarily as a result of a reduction in
current liabilities by about $263,667, principally trade payable's, which was
off set by the proceeds from equity capital received. However, the proceed from
the $400,000 received from Ernst B. Kemm late in the previous quarter initially
reduced short term borrowing but then were used to mostly reduce current
liabilities. The timing of the receipt of the equity capital in combination with
the timing of the restructuring of the LSB loans described above resulted in the
equity insertion being mostly reflected as an increase in loan term debt on the
Company's financial statement for the quarter ending July 31, 1999. 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 July 31, 1999, accounts receivable had increased by approximately
$146,527 since the beginning of the fiscal year, mostly as a result higher sales
late in the quarter. The receivables represented a turnover rate of about
forty-seven days, a increase of about six days when compared to the turnover
rate reported at April 30, 1999. The company's normal terms of sale for the
payment of invoices is Net 30 days for domestically produced goods (DPG) and 3%
10; Net 30 for foreign produced goods (FPG). In the case of export sales, an
Irrevocable Letter-Of-Credit is required.
-8-
<PAGE>
Consolidated inventories decreased by about $120,807 during the fiscal
quarter ended July 31, 1999 primarily a result of a reductions in the inventory
of domestically produced goods as a results of lower scheduled assembly
production and to generate operating funds.
Property and equipment is reported to have increased by about $7,904 during
the fiscal quarter. 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 for the fiscal quarter ended July 31, 1999 was approximately $8,016
used primarily to upgrading the Company's Honduran facilities.
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 14.24 lempira to the dollar at July 31, 1999. 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 $1.92 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 300,000 additional shares at option prices ranging from $.80
to $1.30 per share, 150,000 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.
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 has been tight during all of previous four years. The sale of stock to
Mr. Bingham assisted the Company in meeting its working capital and other cash
needs during fiscal 1997. During fiscal years 1998 and 1999, the Company
depended on the sale of excessive inventories, much of which was highly
discounted, to support continued operations. The equity fund received as a
result of Mr. Kemm investment and subsequent events discussed below along with
the continue reduction of inventory will be required for operating funds,
hopefully will increased sales during fiscal year 2000.
The Company leases a 4,400 square-foot showroom located in High Point,
North Carolina which is utilized to display the Company's products, particularly
new product introductions, during the semiannual International Furniture
Markets.
-9-
<PAGE>
On April 19, 1999, Hoyt M. Hackney, the Company President, with the
majority of the Board of Directors approval , agreed to alter the "Deferred
Compensation Agreement" between Mr. Hackney and the Company. The agreement
allows that upon retirement, at age 62 or older, or upon his death he or his
estate would received $50,000 per year for a period of ten years. The Company
has accrued the expensed of this obligation over the last twelve years and is
scheduled to continue that expense until the sum of $300,000 has been accrued.
At July 31, 1999 the Company's Balance Sheet stated a $294,000 long term
liability as a result of this accrual.
The revisions to the "Deferred Compensation Agreement", not yet finalized,
are expected to reduce the compensation to $20,000 per year but not before May
1, 2005. In exchange, Mr. Hackney would receiving restricted stock, 1,000,000
shares of common stock at $.30, which can not be sold until after retirement or
death and then only in increments of 1/10 of the shares per year for a period of
10 years. This action could capitalize the $300,000 liability and thus remove
the long term liability from the Company's balance sheet when the transaction is
executed.
The primary purpose of the revisions to the "Deferred Compensation
Agreement" is an incentive to the Company's lenders to restructure the
outstanding Company loans whereby the potential outlay of $50,000 per year is
removed, reduced and/or delayed to enhance the Company's ability to repay its
debt over all or part of the period the restructured loan long agreement would
specify.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 31, 1999 COMPARED TO THE THREE MONTHS
ENDED JULY 31, 1998
Consolidated revenues for the first fiscal quarter ended July 31, 1999 and
1998 were about $1,492,094 and $1,561,252 respectively representing a decrease
of approximately $69,158 or about 4.4%. Sales of domestically produced goods
(DPG) for the first quarter of fiscal year 1999 were about $968,081, down
approximately $122,353 or 12.6% from the $968,081 reported last year. The prices
for DPG were last increased August 15, 1998 by an estimated 5 to 6%. Sales of
the Company's Honduran produced goods (HPG), net of intercompany sales, for the
first quarter were approximately $528,309 in 1999 versus $588,438 in 1998
representing a decrease of $60,129 or 10.2% versus the previous year's sales.
The prices for HPG were last increased April 15, 1999 by an estimated 6%.
Because of the level of the backlog of orders for those products on April 15,
1999, the increased prices probably had little to no affect on the sales
reported for the quarter ended July 31,1999. Sales of the Foreign produced goods
(FPG), marketed as Wellington Hall Imports (WHI), for the first quarter were
approximately $73,371 in 1999 ,a total increase versus the previous year's sales
since these products were not introduced until April 1999. Sales of all
categories of the Company's products primarily through the Company's outlet,
Pametto Furniture Gallery (PFC), for the first quarter were approximately
$42,169 in 1999 ,a total increase versus the previous year's sales since the
outlet was opened during the second quarter of the previous fiscal year.
The additional sales of FPG during the quarter were the result of an
agreement between the Company and Furniture Classics Limited (FCL) whereby FCL
supplies the Company a line of mirrors, chinese antiques, and other products
from their foreign sources which the Company is marketing exclusively. The
products the Company is marketing as a result of that agreement were introduced
at the High Point International Furniture Market held in April 1999. In addition
to the products from FCL, the Company has also established a relationship with a
foreign manufacturer and has developed approximately thirty designs that are
being produced exclusively for the Company by a this source. The Company begin
marketing these items in February of 1998 but only formally introduced the
products at the High Point International Furniture Market held in April 1999.
The first shipments of the good are expected in the second quarter of fiscal
year 1999 ending October 31, 1999. The Company does not have a contractual
relationship with the foreign manufacturer of these products.
The Company's firm backlog of orders on July 31, 1999 was about $2,093,728,
down about 10.6% from the backlog of about $2,342,513 on April 30, 1999 and down
about 4.1% from the $2,184,728 reported at July 31, 1998. The July 31, 1999
backlog included about $964,000 of domestically manufactured products, as
opposed to about $1,191,648 included in the April 30, 1999 backlog and
$1,471,000 included in the July 31, 1998 backlog. The backlog included for WHCC
or Honduran-produced products, less intercompany orders, was $516,255 on July
31, 1999 versus about $598,010 on April 30, 1999 and $712,849 on July 31, 1996.
The backlog included for foreign produced goods, marketed as Wellington Hall
Imports and other than the Company's Honduran produced goods, was
-10-
$613,649 at July 31, 1999 versus $552,794 on April 30, 1999. There was no
backlog for this category of products included at July 31, 1998.
The backlog changes and variations in the various categories of the
Company's products somewhat reflects the management's strategy to returning the
the Company to profitability and renewed sales growth. Basically, that strategy
is to de emphasize domestic produced goods where profits have been elusive over
the past, to replace that sales volume with new products and product categories
supplied by foreign, less expensive producers, and to emphasize the sales of the
Honduran produced goods where the Company's believes it has profitable margins.
Cost of sales decreased approximately $ 78,485 to about $1,077,110 when
compared to the $1,155,595 reported last year. As a percent of sales, the cost
was 72.2% versus 74.2% for the fiscal first quarter ended July 31, 1999 and 1998
respectively. Selling, general, and administrative expenses decreased about
$14,559 or 4.24%, dropping from $343,116 in the first quarter last year to
$328,557 at July 31, 1999. These declines are directly related to the lower
sales of domestically produced good and the reduced production activity to
support these sales.
Interest expenses of about $ 96,891 and $ 111,153 are reported for July 31,
1999 and 1998 respectively. The decrease reflects mostly a decrease in the
interest rate applied to the Company's borrowings though the Company's total
debt was down about $188,000 at July 31, 1999 when compared to the total debt at
July 31, 1998.
For the fiscal quarter ended July 31, 1999, operating income (earning
before interest and taxes) was about $86,427, .023 cents per share, compared to
$62,541, .017 cents per share for quarter ended July 31, 1998. The net income
for the first quarter of fiscal year 2000 was a loss of about ($11,281), (.003)
cents per share versus a loss of about ($62,717) or (.017) cents per share at
July 31, 1998.
The net loss reported in the first quarter ended July 31, 1998 is mostly
the result of lower levels of assembly production at the Lexington facility.
Because of the lower sales of DPG and the necessity to reduce DPG inventories,
it was necessary during the first quarter to reduce production volumes,
primarily assembled production, in the Company's domestic operations to levels
below that required to manage labor and overhead cost. The resulting
inefficiencies significantly and negatively impacted losses incurred as a result
of domestic operations.
Sales of foreign produced products for the upcoming quarter are expected to
improve as production at the Honduras facility rises and more goods from other
foreign suppliers are expected allowing the higher backlog of orders 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 and on production of those products, DPG, as the
quarter progresses.
-11-
<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
July 31, 1999: 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: September 12, 1999 By:_________________________
Hoyt M. Hackney, Jr., President and
Chief Executive Officer
Chief Financial Officer
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