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FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 10549
X Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
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For the quarterly period ended July 31, 1996
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For the Transition period from to
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COMMISSION FILE NUMBER 03938
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Wellington Hall, Limited
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(Exact name of Registrant as specified in its charter)
North Carolina 56 0815012
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Route 1, U.S. Highway 29 and 70, Lexington, N.C. 27292
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(Address of principal executive offices)
(704) 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
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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
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Common Stock 1,689,887 July 31, 1996
Traditional Small Business Disclosure Format:
YES X No
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Page 1 of 24 Pages
EXHIBIT INDEX (NONE -- No Exhibits Filed)
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WELLINGTON HALL, LIMITED AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet - July 31, 1996 3
Consolidated Statements of Operations,
Nine Months Ended July 31, 1996 and 1995 5
Consolidated Statements of Changes in
Cash Flows - Six Months Ended July 31,
1996 and 1995 6
Notes to Consolidated Financial Statements 7
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 13
Signatures 13
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Wellington Hall Limited And Subsidiaries
Consolidated Balance Sheets
Quarter Ended
July 31,
ASSETS 1996
Current Assets:
Cash $ 16,841.18
Accounts Receivables
Trade $ 703,367.10
Allowance For Bad Debt $ (43,800.00)
Inventories $ 4,642,942.07
Note Receivable-Officer $ 27,907.84
Prepaid Expenses $ 146,452.32
Deferred Income Taxes $ 0.00
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Total Current Assets $ 5,492,652.31
Deferred Income Taxes $ 108,864.00
Property, Plant, and Equipment
Cost $ 2,138,679.83
Less Accumulated Depreciation $(1,228,962.64)
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$ 909,717.19
Other Assets $ 27,598.73
Total Assets $ 6,548,791.80
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Wellington Hall Limited And Subsidiaries
Consolidated Balance Sheet
Quarter Ended
July 31,
LIABILITIES 1996
Current Liabilities:
Current Maturities of L/T Debt $ 316,786.26
Notes Payable, Banks $1,542,280.11
Accounts Payable
Trade $ 442,168.00
Sundry $ 82,508.42
Customer Deposits $ 62,352.28
Other Current Liabilities $ 229,050.43
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Total Current Liabilities $2,675,145.50
Noncurrent Liabilities:
Deferred Compensation Accrual $ 222,000.00
Long-Term Debt, Less Current Maturities $1,118,272.89
Total Liabilities $4,015,417.99
STOCKHOLDERS' EQUITY
Common Stock; Authorized 6,000,000 $6,759,549.00
Shares; No Par; Stated Value $4; Shares
Issued and Outstanding-1,689,887
Amount Less Than Stated Value Paid ($3,705,017.99)
For Common Stock (Common Stock
Discount)
Preferred Stock; Authorized 5,000,000
Shares; $5 Par; No Shares Issued
Or Outstanding
Retained Earnings $1,262,699.43
Cumulative Translation Adjustments ($1,783,856.64)
Total Stockholders' Equity $2,533,373.80
Total Liabilities & Equity $6,548,791.79
Notes to consolidated financial statement are an internal part hereof.
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Wellington Hall Limited And Subsidiaries
Statement Of Operations
Three Months Ended
July 31,
1996 1995
Revenues:
Sale Of Furniture $1,246,698 $1,473,474
Other Income $ 2,140 $ 5,838
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Total $1,248,837 $1,479,312
Cost Of Furniture Sold $ 850,591 $ 981,741
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Gross Profit $ 398,246 $ 497,571
Other Operating, Selling,General $ 319,599 $ 351,950
And Administrative Expenses
Income (Loss) From Operations $ 78,647 $ 145,621
Other Deductions:
Interest Expense-S/T $ 53,228 $ 54,197
Interest Expense-L/T $ 38,158 $ 40,673
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Total $ 91,386 $ 94,869
Income Before Taxes And $ (12,739) $ 50,751
Extraordinary Items
Income Taxes $ 2,277 $ 5,995
Net Income $ (15,016) $ 44,756
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Earnings (Loss) Per Share Of
Common Stock
Primary And Assuming Fully
Diluted
Income Before Extraordinary Item $ (0.01) $ 0.03
Extraordinary Item $ 0.00 $ 0.00
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Net Income (Loss) $ (0.01) $ 0.03
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Wellington Hall Limited And Subsidiaries
Statements of Cash Flow
Three Months Ended
July 31,
1996 1995
Cash Flow From Operating Activities
Net Income (Loss) For The Period $ (15,015) $ 45,200
Noncash Expenses (Income) Included
In Net Income
Depreciation $ 28,449 $ 32,283
Deferred Income Taxes $ 0 $ 0
Deferred Compensation $ 6,000 $ 6,000
Changes in Assets and Liabilities:
(Increase) Decrease In Accounts
Receivables, Net $ 51,778 $ 65,524
(Increase) Decrease In Note Receivable $ 0 $ 0
(Increase) Decrease In Inventories $(179,500) $(331,940)
(Increase) Decrease In Prepaid Expenses $ (14,192) $ 65,190
(Increase) Decrease In Other Assets $ (2,505) $ 3,567
Increase (Decrease) In Accounts
Payables, Customer Deposits And
Other Current Liabilities $ (9,873) $ 123,614
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Net Cash Provided By (Used For) $(134,859) $ 9,437
Operating Activities
Cash Flow From Investing Activities:
Purchase of Property And Equipment $ (20,455) $ (5,687)
Cash Flow From Financing Activities:
Proceeds From Long-Term Borrowing $ (38,646) $ (71,680)
Proceeds From Short-Term Borrowing $ 145,575 $ 116,667
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Net Cash Provided By Financing Activities $ 106,929 $ 44,987
Effect Of Exchange Rate On Cash $ 15,875 $ 3,685
Net Increase (Decrease) In Cash $ (35,514) $ 52,423
Cash, Beginning Of Period $ 54,679 $ 31,132
Cash, End Of Period $ 16,841 $ 83,556
Cash Paid During The Period For:
Income Taxes $ 0 $ 5,995
Interest $ 91,386 $ 94,869
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ITEM I. CONTINUED
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. The results of operation for the three-month period ended July 31, 1996 and
July 31, 1995, are not necessarily indicative of the results to be expected
for the full year.
3. Promotional expenses are charged in as incurred.
4. 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.
5. 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
12.15 Lempiras to 1 U.S. Dollar. Income statement amounts have been
translated using the weighted average exchange rate which for the period
was 11.83 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.
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Item 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Accounts receivables decreased by approximately $53,000 as a results
of a decline in revenues caused mostly by restricted production and extended
vacation close down for the domestic operations as a result of the continuing
weakness in the furniture segment of the national economy. The receivables
represented a turnover rate of about fifty-one days and represents a increase
of about five day when compared to the turn over rate reported at April 30,
1996.
Inventories increased by about $71,000 during the fiscal quarter as
a result of increased production at the Company's Honduras facility with
shipments there increasing significantly in July which left approximately
$200,000 of inventory in transit to the Lexington N.C. facility at quarter's
end versus about $74,000 at year end April 30, 1996. The receipt of these
intransit inventories and the continued higher levels of production at the
Honduras facility are expected to support an increase in the future Company
sales. The increased production at that facility is in response to a renewed
and revised marketing effort put in place early in 1996 which is having a
positive effect on the Companys level of incoming orders and has resulted in a
backlog of orders of approximately $2,033,000 at July 31 versus $1,796,000 at
the same time last year and $1,853,000 at April 30. A portion of the April 30,
1996 backlog were orders for new products introduced at the April National
Furniture Market held in High Point N.C. and the production requirements of
theses new products were prohibitive to the shipment of theses products during
the first quarter ended on July 31 but are expected to effect second quarter
sales.
The reported inventory level of approximately $4,643,000 at the
first fiscal quarter's end were down about $369,000 from the $5,012,000
reported at July 31, 1995. Thought the level of inventory reported last year
were somewhat hyped by inordinate wood delivers during that first quarter, the
drop in the level of inventory also reflects efforts to reducing the level of
inventory to accommodate cash flow and to bringing the turn ratio to an
acceptable level over time.
On July 31, 1996 the Company's subsidiary Wellington Hall Caribbean
Corp.'s loan with the Overseas Private Investment Corporation (OPIC) had an
outstanding balance of $990,999 that carried an interest rate of 12% per annum.
Prior to July 31, 1996 the terms of the loan require quarterly principal
payments when amounted to approximately $123,500 per year and were scheduled to
double to about $247,000 per year beginning July 31, 1996. On July 19, 1996 the
Company requested that OPIC change the terms of the loan including a change to
the interest rate to 9% per annum and that addition principal payments be
delayed by two years. At the time of that request, OPIC responded by rescinding
the Company's obligation to make a principal payment scheduled for July 31,
1996 in the amount of approximately $62,500. In addition, OPIC committed to
reviewing certain requested information and, thereafter, determining what other
concessions were necessary to accommodating the Company's need of time to
growing its sales and to accumulating adequate working capital through profits
to support a level of sales against which adequate profits could be expected to
service and repay the balance of the loan and other
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obligations. The information requested by OPIC is extensive and includes
detailed proforma projected financial results in monthly detail for fiscal
1997, Quarterly details for fiscal 1998, and annual results for fiscal 1999.
Though high priority is given to the preparation of this information, other
demands since the July 19th meeting have limited the available management time
for the preparation of the information. It is projected that the information
will be submitted mid to late September or about one month later that
originally planned. The final nature or configuration of a requested concession
on the interest rate or repayment of principal by OPIC, if a concession is made
at all, nor the timing of a decision by OPIC are unknown at the time this
filing is submitted.
The current maturities on long term debt reported on the consolidated
balance sheet of $316,786 does not reflect the rescinded obligation to a
principal payment originally due on July 31, 1996 nor does the balance
anticipate any other changes to the terms of the OPIC loan.
The Company must meet its interim cash requirements through cash flow
from operations and use of both domestic and foreign lines-of-credit. At July
31, 1996 the Company had approximately $11,000 available from Lexington State
Bank (LSB), its domestic bank. The foreign subsidiary had available
approximately $140,000 from its primary foreign bank lender, BANCHASA, which
corresponds with Nations Bank and none from its secondary foreign bank, Banco
De Honduras, a subsidiary of Citibank.
Property and equipment is reported to be down about thirty-five
thousand dollars but when expenditures of approximately twenty thousand
dollars are added then the reduction would be about fifty-five thousand
dollars. The decline is mostly the result of the devaluation of the Honduran
currency relative to the prior fiscal year end. The currency exchange rate was
11.06 to $1 on April 30, 1996 and 12.15 to $1 on a July 31, 1996, an almost ten
percent reduction in value during the first quarter. The historical value of
the Company's Honduran assets are carried on the subsidiaries books in the
local currency, the lempira. Accounting rules dictate that those lempiras be
converted to dollars at the "spot" rate in effect on July 31, 1996. The
reduction to these assets appears as part of the translation adjustment. There
are no significant capital expenditures planned for the balance of this fiscal
year.
The Company's current liabilities are approximately $79,000 above that
reported at 4-30-96 or about (3%) three percent mostly as a result of the
increases in raw material inventories and production at the Honduran facility.
However, the current liabilities are about $180,000 less than that reported at
the end of the previous years first quarter. Short-term borrowing increased by
about $127,000 and accounts payable decreased by about $38,000 and current
maturities on long term debt decreased by about $31,000.
THREE MONTHS ENDED JULY 31, 1996 COMPARED TO THE THREE MONTHS
ENDED JULY 31, 1995
Consolidated sales for the quarter were down approximately $227,000 or
15% for the three months period as a result of the current recession within
the furniture segment of the national economy, a shrinking distribution base
and possibly a permanent resistance by the consumer to
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purchasing more stylish, higher quality, and higher priced furniture. Sales for
domestically produced product were down about (21%) twenty-one percent for the
quarter and sales of foreign produced products declined by about (13%) thirteen
points for the quarter. The foreign sales include inter company sales and
reflect the impact the recession is having on total operations and the effort
to reduce inventories during a period of a soft economy.
Orders for the three months periods were approximately $1,470,000,
essentially equal to last year's first quarter, but the Company was without a
salesmen in it's North Carolina, South Carolina and Virginia territory (the
"North Carolina territory"), its most productive, for one half the quarter
when the previous multi line representative resigned and negotiations with an
individual to fill the opening as an exclusive representative, a sales and
marketing manager, and as and investor delayed the process.
On September 6, 1996 the Company executed an "Employment And Stock
Purchase Agreement" (the "agreement") with Arthur F. Bingham and the entire
text of this agreement is herein included as Exhibit No. 10.17 under PART II,
Item 6 of this report. Some of the more significant conditions of this
agreement makes Mr. Bingham, who is a nominee for the election to the board of
director at the meeting of the shareholders to be held September 18, 1996, the
Company's exclusive sales representative in the North Carolina territory, the
Senior Executive Vice President of Sales and Marketing, and requires an
investment of $300,000 for the Company stock within sixty days of the effective
date of the agreement. For these duties Mr. Bingham will receive the normal
sales commissions paid on the territory sales and a compensation package for
his Sales and Marketing responsibilities including a base salary, disability,
and expense reimbursement that totals approximately $52,200 per year.
Cost of Sales were down approximately $131,000 (13%) thirteen percent
for the three months periods as compared with last year and reflects management
efforts to curtail production, reduce cost and to reducing inventories to
manage the company's cash position.
Selling, General and Administrative Expenses decreased by about
$32,000 during the first quarters as compared to last year.
Interest Expenses for the quarter decreased slightly because of lower
interest rate being applied to domestic borrowing as compared to last year.
In January 1996, the Company employed Mr. Arnold Axelberg as a
consultant to fill the capacity of Marketing Manager. During the previous two
years, Mr Axelberg has consulted for a number of furniture companies having
previously been employed by Rich's department stores where he was the Senior
Buyer for furniture for sixteen years. The primary purpose of Mr. Axelberg's
employment was to work with management in the development and execution of a
marketing plan aimed at increasing revenues and reducing inventories.
Management believes Mr. Axelberg's association has produced some results and
his employment with the Company will continue for the time being to among other
things assist with the transition period that is
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anticipated for Mr. Bingham to learn and understand certain marketing programs
and commitments to dealers put in place since Mr. Axelberg was employed and
that management desires being continued.
In 1989 the Company acquired the Honduran facility 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 take on more debt and restrict it capital
expenditure that were both in its original plans for the acquisition and over
time since the the acquisition. Because of this debt, sales, from the time of
the acquisition, needed to grow rapidly to a level against which operating
incomes would be adequate to servicing the debts and to funding capital needs
if the Company was to growth. Thought the Companys operating profits, as a
percent of sales, has for the most part been adequate, maintaining an adequate
level of sales since the acquisition has only been possible over limited
periods of time mostly as a result of a sluggish furniture economy which has
existed over much of that time, a period which includes two out and out
recessions. To further complicate the matter, the sluggish furniture economy
has diminished the distribution base especially the base of mid to small
retailers more committed to using smaller manufactures, such as the Company, as
a resource and the consumer taste in home furnishings seems to have swung away
from the more formal designs and execution the Company marketed to a the more
informal designs and execution.
The resulting situation is that the Company has too much debt service
given its sales volume more recently achieved and inadequate funds for its plans
to restoring and growing its sales to a level where its operating profits can
accommodate all the needs. Having initiated early in 1996 a marketing effort to
achieving the sales, and having begun to see the results of this effort, the
Company is now prepared to address a means to securing the necessary funding and
to solving its debt-equity problem in general. Having, over time, discussed,
investigated and evaluated a number of means of raising equity capital and given
more recent developments, the Company now intends to take the following steps
that are expected to raising capital, reducing debt, increasing working capital,
and increasing its sales. The plan is as follows:
1. The Company will request that its line of credit with Lexington State Bank,
its primary domestic bank, be extended by $250,000 to manage short term
requirements. Though initial discussions have been positive, there is no
assurance the extension will be granted.
2. The agreement between the Company and Arthur Bingham disclosed above will
make $300,000 available to the Company by November 6, 1996.
3. The General Manager of the Company's Honduran subsidiary has verbally
committed to investing 1,800,000 Honduran lempiras which will repay the
Company's indebtedness with Banco de Honduras which at the exchange rate in
effect at July 31, 1996 would equate to approximately $150,000. These funds are
contingent on the sale of certain real-estate own by the General Manager which
could be completed by as early as November of this year but could intend until
the spring of 1997.
4. The Company plans to prepare for approval by the Securities and
Exchange Commission a stock offering to its current shareholder to buy
additional, registered common stock at a price at or
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near the market price and to include a further enticement to purchase in the
form of a number of warrants based the level of participation by the
shareholder in the offering
5. Included as a condition of the proposed stock offering will be the right of
the board of directors to sell any remaining stock not purchased by the
stockholders and not required to satisfy the required stock that will be issued
to Mr. Arthur Bingham and the Companys Honduran General Manager in exchange for
their investment to other investors. The Company has no specific investor
committed to purchasing this unsubscribed stock.
6. Discussed above is a request made of the Overseas Private Investment
Corporation for a concession on the terms of the Company's loan whereby
principal payments would be delayed for two years. If that concession is
granted, then the scheduled payments for fiscal year 1997 of approximately
$247,000 would not be required and the cash requirement for these principal
payments relative to fiscal year 1996 would be reduced by about $123,500.
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PART II
Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Filed: 10.17 Employment and Stock Purchase
Agreement between the Company and Arthur F. Bingham effective
September 1, 1996
(b) Reports on From 8-K filed during the quarter ended
July 31, 1996: 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
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(Registrant)
Date: September 12, 1996 By: /s/ Hoyt M. Hackney, Jr.
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Hoyt M. Hackney, Jr., President and
Chief Executive Officer
Chief Financial Officer
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