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 January 31, 2000
----------------
( ) 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
- - --------------------------------------------------------------------------------
(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 Road
Lexington, N.C. 29295
- - ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(336) 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 3,823,220 January 31, 2000
Traditional Small Business Disclosure Format:
YES [X] No [ ]
Page 1 of 12 Pages
<PAGE>
INDEX
Wellington Hall, Limited and Subsidiaries
PART 1. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheet - January 31, 2000 3
Condensed consolidated statements of income - Six months 4
ended January 31, 2000 and 1999
Condensed consolidated statements of cash flows - Six 5
months ended January 31, 2000 and 1999
Notes to condensed consolidated financial 6
statements - January 31, 2000
Item 2. Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 12
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<PAGE>
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
Quarter Ended Year Ended
January 31, April 30,
2000 1999
------------ ------------
ASSETS
Current assets:
Cash:
<S> <C> <C>
Cash on hand $ 400 $ 400
Cash in demand deposits 34,759 49,538
Accounts receivable:
Trade 727,446 617,192
Less, allowance for doubtful accounts (63,843) (63,843)
Note receivable - officer 0 0
Inventories 3,356,422 3,587,043
Prepaid expenses 120,293 47,224
Deferred income taxes 0 19,476
------------ ------------
4,175,477 4,257,029
------------ ------------
Property and equipment:
Cost 1,995,613 1,976,882
Less, accumulated depreciation (1,305,531) (1,244,920)
------------ ------------
690,082 731,962
------------ ------------
Other assets:
Deferred income taxes 120,805 101,329
Other 11,408 8,352
------------ ------------
132,213 109,681
------------ ------------
$ 4,997,772 $ 5,098,672
------------ ------------
LIABILITIES
Current liabilities:
Current maturities on long-term debt $ 969,438 $ 969,438
Notes payable - other 526,190 433,994
Accounts payable - trade 397,152 597,672
Customer deposits 131,348 91,828
Other current liabilities 331,320 308,500
------------ ------------
2,355,448 2,401,432
------------ ------------
Noncurrent liabilities:
Long-term debt, less current maturities 1,359,170 1,386,658
Deferred compensation accrual 306,000 288,000
4,020,618 4,076,090
STOCKHOLDERS' EQUITY
Common stock; authorized 6,000,000 shares;
no par; shares issued and outstanding
3,823,220 3,811,731 3,754,531
Preferred stock; authorized 5,000,000 shares; $5 par;
shares issued and outstanding 0 0
Cumulative translation adjustments (1,937,228) (1,914,398)
Retained earnings (897,151) (817,551)
------------ ------------
977,151 1,022,582
------------ ------------
$ 4,997,769 $ 5,098,672
============ ============
</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 INCOME
---------------------------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
January 31, January 31,
2000 1999 2000 1999
------------ ------------ ------------ ------------
Revenue:
<S> <C> <C> <C> <C>
Sale of furniture $ 1,420,533 $ 1,385,637 $ 4,174,252 $ 4,293,518
Other income 48,819 (4,989) 52,326 1,611
------------ ------------ ------------ ------------
1,469,352 1,380,648 4,226,578 4,295,129
Cost and expenses:
Cost of goods sold 1,113,201 1,135,516 3,027,105 3,333,575
Other operating, selling, general
and administrative expenses 286,862 346,176 998,414 1,060,460
Interest expense 86,478 94,811 274,191 316,391
------------ ------------ ------------ ------------
1,486,541 1,576,503 4,299,710 4,710,426
------------ ------------ ------------ ------------
Income (loss) before
income taxes (benefits) (17,189) (195,855) (73,133) (415,297)
Income tax (benefits) (10,626) 5,041 8,306 13,518
------------ ------------ ------------ ------------
Net income (loss) for
the periods ($ 6,563) ($ 200,896) ($ 81,439) ($ 428,815)
============ ============ ============ ============
Earnings (loss) per share of common stock:
Primary and assuming full dilution:
Net income (loss) for the years $ (0.002) $ (0.055) $ (0.022) $ (0.118)
============ ============ ============ ============
</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)
-----------
Nine Months Ended
January 31,
2000 1999
---------- ----------
Cash flows from operating activities:
Net income (loss) for the years $ (81,538) $ (432,385)
Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities:
Depreciation 73,915 73,261
Gain on sale of equipment
Deferred compensation 18,000 18,000
Deferred income taxes -0- -0-
Changes in assets and liabilities:
Accounts receivable (112,338) (129,469)
Note receivable, officer 0 12,605
Inventories 200,435 317,872
Prepaid expenses (73,289) 43,401
Other assets (3,412) (1,610)
Accounts payable, customer deposits,
and other current liabilities (115,220) 211,770
---------- ----------
Net cash provided by (used for)
operating activities (93,447) 113,445
---------- ----------
Cash flows from investing activities:
Purchase of equipment (37,817) (9,580)
---------- ----------
Net cash used for investing activities (37,817) (9,580)
---------- ----------
Cash flows from financing activities:
Proceeds from Short-term borrowings (192,071) (14,177)
Proceeds from long-term borrowings 293,711 (85,546)
Proceeds from issuance of stock 57,000 -0-
Net cash provided by (used for)
financing activities 138,641 (99,723)
---------- ----------
Effect of exchange rate changes on cash (8,636) (3,116)
---------- ----------
Net increase (decrease) in cash (1,259) 1,026
Cash, beginning of period 36,417 19,689
---------- ----------
Cash, end of period $ 35,159 $ 20,715
========== ==========
Cash paid during the period for:
Income taxes $ -0- $ -0-
========== ==========
Interest $ 274,191 $ 316,391
========== ==========
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)
January 31, 2000
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
14.57 Lempiras to 1 U.S. Dollar. Income statement amounts have been
translated using the weighted average exchange rate which for the period
was 14.34 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 (
$7,875) and ($575) during the nine month period ended January 31, 2000 and
1999 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 with Lexington State Bank and the term
loan of Wellington Hall Caribbean Corp. (WHCC) with the Overseas Private
Investment Corporation (OPIC). As of January 31, 2000, total stockholders'
equity was $977,152 and the outstanding principal amounts of the Lexington State
Bank loan and the OPIC loan were $1,359,170 and $826,479, respectively. 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 and long
term loan are 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.
The Company, beginning on July 31, 1998 and thereafter was unable to make
quarterly principal payments except for the quarters ending on January 31, 1999
and April 30, 1999 when for each quarter the Company paid approximately $21,000.
The Company has made all required quarterly interest payments. On October 31,
1999 the Company was unable to make the balloon payment which had grown to
approximately $826,479 and, therefore, the Company was in default of the loan
agreement. The Company did make the quarterly scheduled interest payments on
October 31, 1999 and on January 31, 2000. The acceptance of the interest
payments by OPIC does not in any way alter the default status of the loan.
The Company agreed in December of 1999 to bear the expense of having the
OPIC mortgage on the Company's Honduran facility extended. Under Honduran law
the maximum length of time a mortgage can remain in effect is ten years and
OPIC's original mortgage was due to expire on April 1, 2000. All necessary
actions have now been completed and the original OPIC mortgage has been
effectively extended for another ten years. The expense of this transaction was
minimal.
In February of 2000, the Company's management and OPIC personnel met and
discussed the future Company plans to satisfying the principal balance. The
Company's position was that addition time must be given for it's current
strategy, presented to OPIC during the meeting, to produced the growth in sales
and a resulting level of profitability adequate to servicing the debt and/or
that the Honduran facility be sold or and investor be found with interest in
part ownership of that facility. The proceeds from such a sale or investment
could, among other things, pay off the OPIC loan balance. Selling the Honduras
facility and then contracting the production of the Company's products is
consistent with the Company's current strategy of becoming a marketing and
distribution Company for products available from foreign manufacturers.
The disposition of this matter awaits OPIC's decision on how it chooses to
proceed. The Company believes that both parties would prefer to avoid a
situation, if at all possible, which would force a sale of the facility under
duress.
The OPIC loan prohibited 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.
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
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<PAGE>
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
January 31, 2000 was $260,000.
MWH has lines of credit with two Honduran banks and as of January 31, 2000,
an aggregate of $266,193 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 stock, was elected as a
Director, by the Shareholders 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
On October 31, 1999 Mr. Ricks exercised the warrant scheduled to expire on
that date and invested $30,000 in exchange for 100,000 shares of the Company's
common stock.
The Company's other primary source of liquidity, other than its lines of
credit, is net cash provided by operating activities which was ($91,610) and
($113,445) in the fiscal third quarter of 2000 and 1999, respectively The
negative cash contribution in the fiscal quarter were primarily as a result of
increases in consolidated account receivables. If the Company is to meet its
liquidity needs in the future, it must generate positive cash flows and avoid
any significant losses in the future.
As of January 31, 2000, accounts receivable had increased by approximately
$112,330 since the beginning of the fiscal year, mostly as a result of sales
generated from foreign manufacturers and the companys Honduran operations. The
receivables represented a turnover rate of about forty-eight days, a increase of
about seven 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 foreign produced goods (FPG) and 3%
10; Net 30 for Honduran produced goods (HPG). In the case of export sales, an
Irrevocable Letter-Of-Credit is required.
Consolidated inventories decreased by about $200,435 during the three
fiscal quarters ended January 31, 2000 primarily as a result of lower
inventories of domestically produced goods which decrease by about $568,353 as a
results of lower scheduled assembly production and to generate operating funds.
This decrease was somewhat off set by an increase in the Company's inventories
of foreign produced goods and Honduran produced goods which is a reaction to an
increase in the level of new orders for these products.
Property and equipment is reported to have increased by about $18,731
during the three fiscal quarters ended January 31, 2000. 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 2000 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 first three quarters of the fiscal year ended April 30,
2000 was approximately $37,817 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 production costs 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
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<PAGE>
subsidiary in 1989, the lempira has continually devalued against the U.S.
dollar, from 2.0 lempira to the dollar in 1989 to 14.57 lempira to the dollar at
January 31, 2000. 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 $1,937,228
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.
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 January 31, 2000 the Company's Balance Sheet stated a $306,000 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 $306,000 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" was 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.
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<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED JANUARY 31, 2000 COMPARED TO THE THREE MONTHS
AND NINE MONTHS ENDED JANUARY 31, 1999.
Consolidated revenues for the first two fiscal quarters ended January 31,
2000 and 1999 were about $4,226,577 and $4,295,129 respectively representing a
decrease of approximately $68,552 or about 1.6%. Sales of domestically produced
goods (DPG) for the first three quarters of fiscal year 2000 were about
$1,911,681, down approximately $917,1558 or 32.4% from the $2,823,837 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 three quarters were approximately $1,627,051
in 2000 versus $1,506,556 in 1999 representing a decrease of $120,495 or 8.0%
versus the previous year's sales. The prices for HPG were last increased April
15, 1999 by an estimated 6%. Sales of the Foreign produced goods (FPG), marketed
as Wellington Hall Imports (WHI), for the first three quarters were
approximately $409,421 in 2000, almost a total increase versus the previous
year's sales, $35,517 since these products were not introduced until April 1999.
Sales of all categories of the Company's products through the Company's retail
outlet, Palmetto Furniture Gallery (PFC), for the first three quarters were
approximately $168,158 in 2000 versus about $116,771 in 1999.
The additional sales of FPG during the six month period 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 first
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 twenty
five designs that are being produced exclusively for the Company by 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 were received and shipped during the
second fiscal quarter ended 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 January 31, 2000 was about
$1,726,448, down about 14.9% from the backlog of about $2,342,513 on April 30,
1999 and down about 5.8% from the $1,863,000 reported at January 31, 1999. The
January 31, 2000 backlog included about $776,931 of domestically - manufactured
products, as opposed to about $1,191,6480 included in the April 30, 1999 backlog
and $1,306,000 included in the January 33, 1999 backlog. The backlog included
for WHCC or the Honduran-produced products, less intercompany orders, was about
$575,275 on January 31, 2000 versus about $598,010 on April 30, 1999 and
$557,000 on January 31, 1999. The backlog included for foreign produced goods,
marketed as Wellington Hall Imports and other than the Company's Honduran
produced goods, was $374,242 at January 31, 2000 versus $552,794 on April 30,
1999. There was no backlog included for this category of products at January 31,
1999.
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 for the third fiscal quarter decreased approximately $22,115
to about $1,113,201 when compared to the $1,135,516 reported last year. As a
percent of sales, the cost was about 75.7% versus 82.2% for the fiscal third
quarter ended January 31, 2000 and 1999 respectively. For the fiscal nine months
, cost of goods sold decreased approximately $306,471 compared to the previous
year and, as a percent of sales, the cost was about 71.6% versus 77.6% for the
fiscal three quarter year period ended January 31,2000 and 1999 respectively.
These declines are directly related to the lower sales of domestically produced
good and the reduced production activity to support these sales and to the
increase as a percent of total sales represented by the FPG's and HPG's.
During the quarter ended January 31, 2000, selling, general and
administrative expenses declined by about $59,314 or 17.1%. For the nine month
period the decline in the expenses was about $62,043 or 5%. The declines are the
results mostly of reduced corporate saleries which will continue at about the
same level through the nest fiscal quarter.
Interest expenses for the third fiscal quarter ended January 31, 2000 were
$ 86,478 and $94,811 for the third fiscal quarter ended January 31, 1999.
Interest expenses for the first half of the fiscal year ended January 31,2000
were about $274,191 versus $316,391 the previous year representing a decrease of
about $42,200 or 13.3%. The decline in interest expense reflects a drop in short
term borrowing from Honduran banks over the three quarters by about $168,029.
This debt was at an interest rate of 30-36% and so the debt reduction, though
somewhat off set byan increase in short term borrowing from a domestic bank
where interest is prime plus 3/4% has resulted in a savings in interest cost.
For the fiscal third quarter ended January 31, 2000, operating income
(earning before interest and taxes) was about $69,289 or .012 cents per share,
compared to a loss of ($101,044), (.02) cents per share for quarter ended
January 31, 1999. For the nine months period ended January 31, 2000, operating
income was about $201,088 or .034
-10-
<PAGE>
cents per share, compared to a loss of ($98,906), (.004) cents per share for
same period ended January 31, 1999.
Net income for the third quarter ended January 31, 2000 was a loss of about
($6,562), (.002) cents per share, compared to a loss of ($200,8956), (.055)
cents per share for the previous years third quarter. The net income for the
three quarters of fiscal year 2000 was a loss of about ($81,439), (.022) cents
per share versus a loss of about ($428,816) or (.118) cents per share during the
same period the previous year.
The net loss reported in the fiscal periods ended January 31, 2000 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 has been necessary 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
be about the same as those reported for the third quarter. 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. The level of production
produced at the domestic operation has been reduced significantly and is now
mostly involved in receiving, packing, and distributing foreign produced goods
from the company's Honduran facility and other foreign manufacturers.
At the upcoming April, International Furniture Market held in High Point,
N.C., the company expects to display products not previously shown from possibly
three foreign manufacturers which will represent new sources for the Company.
There will also be new products on display from the companys Honduran operation
shown.
-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
January 31, 2000: 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: March 16, 2000 By:_________________________
Hoyt M. Hackney, Jr.,
President and
Chief Executive Officer
Chief Financial Officer
-12-
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<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 35,159
<SECURITIES> 0
<RECEIVABLES> 727,446
<ALLOWANCES> (63,843)
<INVENTORY> 3,356,422
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<PP&E> 1,995,613
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<CURRENT-LIABILITIES> 2,355,448
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<COMMON> 3,811,731
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<TOTAL-REVENUES> 4,226,578
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