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FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended January 31, 1997
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For the Transition period from to
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COMMISSION FILE NUMBER 0 3928
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Wellington Hall, Limited
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(Exact name of Registrant as specified in its charter)
North Carolina 56 0815012
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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)
(910) 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 January 31, 1997
Traditional Small Business Disclosure Format:
Yes X NO
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Page 1 of 50 Pages
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WELLINGTON HALL, LIMITED AND SUBSIDIARIES
INDEX
PART 1. FINANCIAL INFORMATION PAGE NO.
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet - January 31, 1997 3
Consolidated Statements of Operations,
Nine Months Ended January 31, 1997 and 1996 5
Consolidated Statements of Changes in
Cash Flows - Nine Months Ended January 31,
1997 and 1996 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 14
Signatures 14
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WELLINGTON HALL, LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
Quarter Ended Year Ended
January 31, April 30
1997 1996
ASSETS
Current Assets
Cash:
Cash on hand $ 50,088 $ 55,756
Accounts Receivables
Trade 939,832 756,872
Allowance for Bad Debt (43,800) (43,800)
Inventories 4,675,775 4,571,015
Note Receivable-Officer 27,908 27,908
Prepaid Expenses 143,749 134,076
Deferred Taxes 0 0
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Total Current Assets 5,793,550 5,501,826
Deferred Income Taxes 108,864 108,864
Property and equipment
Cost 2,156,063 2,181,537
Less, accumulated depreciation (1,263,981) (1,218,540)
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892,082 962,997
Other assets: 27,064 27,626
Total Assets $ 6,821,559 $ 6,601,313
=========== ===========
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WELLINGTON HALL, LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(unaudited)
Quarter Ended Year Ended
January 31, April 30,
1997 1996
LIABILITIES
Current liabilities:
Current maturities on long-term debt $ 161,269 $ 347,755
Notes payable, Bank 1,663,572 1,415,698
Accounts Payable
Trade 489,847 480,355
Sundry 69,251 74,207
Customer deposits 44,174 74,139
Other current liabilities 182,486 201,951
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Total Current Liabilities 2,611,269 2,594,105
Noncurrent liabilities:
Deferred Compensation Accrual 234,000 216,000
Long-Term Debt, Less Current Maturities 1,251,300 1,128,907
Total Liabilities 4,096,569 3,939,012
STOCKHOLDERS' EQUITY
Common stock; authorized 6,000,000 shares;
No Par; Stated Value $4; Shares Issued and
Outstanding - 1,689,887 3,340,226 3,054,531
Preferred Stock; Authorized 5,000,000
Shares; $5 Par; No Shares Issued or
Outstanding 0 0
Retained Earnings 1,250,378 1,277,715
Cumulative Translation Adjustments (1,865,614) (1,669,945)
Total Stockholders' Equity 2,274,990 2,662,301
Total Liabilities & Equity $ 6,821,559 $ 6,601,313
=========== ===========
Notes to consolidated financial statement are an internal part hereof
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WELLINGTON HALL, LIMITED AND SUBSIDIARIES
STATEMENT OF OPERATIONS
(unaudited)
Three Months Ended Nine Months Ended
January 31 January 31
1997 1996 1997 1996
Revenue:
Sale of Furniture $1,533,266 $1,496,387 $4,366,673 $4,584,248
Other Income 7,984 10,638 24,305 14,907
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Total 1,541,250 1,507,025 4,390,979 4,599,155
Cost of Furniture Sold 1,086,343 1,111,108 3,003,415 3,188,326
---------- ---------- ---------- ----------
Gross Profit 454,907 395,917 1,387,564 1,410,829
Other Operating, Selling, General
And Administrative Expenses 413,399 320,835 1,115,960 1,078,433
Income (Loss) From Operations 41,508 75,082 271,604 332,396
Other Deductions
Interest Expense-S/T 66,884 69,365 183,044 180,294
Interest Expense-L/T 38,623 43,646 115,683 124,572
---------- ---------- ---------- ----------
Total 105,507 113,011 298,727 304,866
Income Before Taxes and
Extraordinary Items (63,999) (37,929) (27,123) 27,530
Income Taxes (190) (6,914) 206 427
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Net Income (63,809) (31,015) (27,329) 27,103
========== ========== ========== ==========
Earnings(Loss) Per Share Of
Common Stock
Primary And Assuming Fully
Diluted
Income Before Extraordinary Item (0.03) (0.01) (0.01) 0.01
Extraordinary Item 0.00 0.00 0.00 0.00
---------- ---------- ---------- ----------
Net Income (Loss) $ (0.03) $ (0.01) $ (0.01) $ 0.01
========== ========== ========== ==========
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WELLINGTON HALL, LIMITED AND SUBSIDIARIES
STATEMENTS OF CASH FLOW
(unaudited)
Nine Months Ended
1997 1996
Cash flows from operating activities:
Net income (Loss) for the years $ (27,328) $ 27,555
Noncash Expenses (Income) Included
in Net Income
Depreciation 76,701 93,938
Deferred Income Taxes 0 0
Deferred Compensation 18,000 18,000
Changes in assets and liabilities:
(Increase) Decrease In Accounts Receivables, Net (193,166) 78,776
(Increase) Decrease in Note Receivable 0 0
(Increase) Decrease in Inventories (286,002) (135,682)
(Increase) Decrease in Prepaid Expenses (13,078) 27,870
(Increase) Decrease in Other Assets (3,790) 797
Increase (Decrease) in Accounts Payables, Customer
Deposits And Other Current Liabilities (36,676) (48,511)
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Net Cash Provided By (Used For)
Operating Activities (465,338) 62,743
Cash Flow From Investing Activities
Purchase of Property and Equipment (75,458) (9,005)
Cash Flow From Financing Activities:
Proceeds From Long-Term Borrowing (58,422) (154,725)
Proceeds From Short-Term Borrowing 279,996 159,110
Proceeds From Equity Capital 285,695 0
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Net Cash Provided By Financing Activities 507,269 4,384
Effect of Exchange Rate on Cash 29,679 23,005
Net Increase (Decrease) in Cash (3,848) 81,128
Cash, Beginning of Period 53,934 30,564
Cash End of Period 50,086 111,694
Cash Paid During the Period For:
Income Taxes $ 0 $ 0
Interest $ 298,727 $304,866
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ITEM I. CONTINUED
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting of only
normal recurring accruals necessary to present fairly the financial position of
the Company for the interim period presented.
2. Promotional costs are expensed as they are incurred.
3. The Company takes a physical inventory at the end of the second
quarter (October 31) and at year-end (April 30). At the end of each month and at
the end of the first quarter (July 31) and the third quarter (January 31),
inventories are adjusted to purchases, production and shipments.
4. The financial statements of the Company's foreign subsidiary,
Muebles Wellington Hall, S.A., have been translated into U.S. dollars in
accordance with FASB Statement No. 52. All balance sheet accounts have been
translated using the current ("spot") exchange rates at the balance sheet date
or 13.03 Lempiras to 1 U.S. Dollar. Income statement amounts have been
translated using the weighted average exchange rate which for the period was
12.42 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.
5. Subsequent significant events and changes following the second
quarter ended January 31, 1997 have occurred:
On March 10, 1997 the Company and the Overseas Private Investment
Corporation ("OPIC") executed ammended loan documents as to the terms and
conditions of the restructuring of the Loan Agreement between Wellington Hall
Caribbean Corporation and OPIC. The more significant elements of the
restructuring are:
A. A grace period on principal payments for one year beginning
on July 31, 1996.
B. Reducing the amount of quarterly principal payments from
$61,937 to $30,969 beginning with the payment due on July 31, 1997.
C. The interest rate on the loan will be changed from 12% per
annum to 10% effective November 1, 1996.
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As a result of the foregoing, "Current Maturities on Long Term Debt"
was reduced by $278,697 and added to "Long-Term Debt Less Current Maturities" as
reflected on the January 31, 1997 balance sheet.
As of September 1, 1996 the Company and Mr. Arthur F. Bingham entered
into an agreement that was amended as of February 10, 1997. Pursuant to the
agreement Mr. Bingham advanced $285,694 to the Company in October 1996 to be
repaid within two years. As of February 12, 1997, the Company issued to Mr.
Bingham 600,000 shares of the Company's common stock at a price of $.50 per
share in repayment of the loan and following an additional $14,306 investment by
Mr. Bingham.
As a result of this transaction, "Long Term Debt, Less Current
Maturities" will be reduced $285,304, "Other Current Liabilities" will be
reduced $14,306 and paid in capital will be increased by $300,000, all during
the quarter ended January 31, 1997. The total shares of common stock outstanding
will be increased by 600,000 shares to a total of 2,289,887 shares.
On February 10, 1997, the Board of Directors of the Company adopted,
subject to shareholder approval, the 1997 Stock Option and Restricted Stock Plan
(the "Plan") that permits the Company to grant incentive stock options
("ISOs"), nonqualified stock options or restricted stock awards up to an
aggregate of 1,200,000 shares of the Company's common stock. The Plan has a
ten-year term, and will be administered by an option committee of nonemployee
directors (the "Committee").
On February 10, 1997 the company granted stock options to Ralph L.
Eskelsen and Arthur Bingham pursuant to the Plan. These options may not be
exercised prior to shareholder approval of the Plan. Eskelsen was granted an ISO
to purchase 300,000 shares of Common Stock at $0.50 per share. Eskelsen may
exercise the ISO to the extent of 200,000 on or after September 1, 1997 up to
and including February 1, 1998 and may exercise the ISO in full on or after
January 1, 1998 up to and including February 1, 1998. If not sooner terminated,
the ISO will terminate three months after Eskelsen's termination of employment
with the Company for any reason other than death or three months after
Eskelsen's death. In no event will the ISO be exercisable after it expires by
its terms. The option price may be paid in U.S. dollars or in Honduran currency
at the exchange rate on the date of exercise.
Bingham received the following ISOs to purchase shares of Common Stock:
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Option A. Option to purchase 150,000 shares of Common Stock at an
exercise price of $0.50 per share. Option A becomes exercisable on September 1,
1998 up to and including February 9, 2004, if Commissioned Retail Sales in the
Territory (both as defined in the option agreement) from May 1, 1997 through
April 30, 1998 equal or exceed $2,500,000.
Option B. Option to purchase 150,000 shares of Common Stock at an
exercise price of $0.80 per share. Option B becomes exercisable on September 1,
1999 up to and including February 9, 2004, if Commission Retail Sales in the
Territory from May 1, 1998 through April 30, 1999 equal or exceed $2,700,000.
Option C. Option to purchase 150,000 shares of Common Stock at an
exercise price of $0.50 per share. Option C becomes exercisable on September 1,
2000 up to and including February 9, 2004, if Commissioned Retail Sales in the
Territory from May 1, 1999 through April 30, 2000 equal or exceed $3,000,000.
Bingham also received nonqualified options to purchase 150,000 shares
of Common Stock at an exercise price of $1.30 per share. The options may be
exercised at any time from the date of grant until February 9, 2004.
If not sooner terminated, the options will terminate three months after
Bingham's termination of employment with the Company for any reason other than
death or twelve months after Bingham's death. In no event will any option be
exercisable after such option expires by its terms.
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Item 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended January 31, 1997 Compared to the Three Months Ended
January 31, 1996
Consolidated revenues increased $34,225 or 2.3% for the third quarter of
fiscal 1997 compared to the third quarter of fiscal 1996. Sales for domestically
produced products increased about 2% percent and the sales of foreign produced
goods increased by about 9% for the fiscal quarter.
New orders received during the three month period amounted to approximately
$1,157,000 in future sales, down about 5% from the same period last year. This
decline was largely the 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 purchasing the higher quality and higher
priced furniture of the type that historically has been the Company's principal
product line. The Company's backlog of orders at January 31, 1997 was
approximately $1,558,000 versus $1,454,000 on that date last year and $1,853,000
on April 30, 1996.
Cost of Sales were down approximately $25,000 or 2.2% for the three-month
period as compared with last year, reflecting the reduced level of sales.
Selling, General and Administrative Expenses increased about $92,000 or 29%
during the quarter primarily as a result of increased marketing and promotion
expenses. More specifically, such increase included improvements to the
Company's showroom used to display its products at the semiannual furniture
markets held in High Point, N.C., printing and photograhy expense for catalogs,
awards for promotion contests for certain dealers, and salary expense for
additional sales management personnel.
Interest Expenses were $105,507 for the three months period of the current
fiscal year, down slightly, $7,500, from the same period of the prior year.
For the three month period ending January 31, 1997, operating income
(earnings before interest and taxes) was $41,508, 1.8 cents per share, compared
to $75,082, 3.3 cents per share for the same period of the prior year. The net
loss was $63,809 or $.03 per share, compared to $31,015, $.01 per share for the
same period of fiscal 1996.
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Nine Months Ended January 31, 1997 Compared to the Nine Months Ended
January 31, 1996
Consolidated revenues were down approximately $208,200 or 4.5% for the
first nine months of fiscal 1997 compared to the first nine months of fiscal
1996. This decline was largely the result of the same factors affecting the
three-month period ended January 31, 1997, as described hereinabove. Sales for
domestically produced products were down about 11.8% percent for the three
quarters. Sales of foreign produced goods increased by about 19% for the nine
month period.
New orders received during the nine month period amounted to approximately
$4,368,000 in future sales, up slightly from the same period last year. During
much of the period, the Company was without a salesman in it territory
encompassing North Carolina, South Carolina and Virginia (the "North Carolina
territory"), its most productive, for almost three months while negotiations
were completed with an individual to fill that slot as an exclusive
representative and as the newly created position of sales and marketing manager.
Cost of Sales were down approximately $185,000 or 5.8% for the nine month
period as compared with last year, reflecting the reduced level of sales.
Selling, General and Administrative Expenses increased about $38,000 or
3.5% for the nine-month period primarily as a result of increased marketing
cost.
Interest Expenses were $298,727 for the first nine months of the current
fiscal year, down slightly, $6,000, from the nine-month period of the prior
year.
For the nine-month period ending January 31, 1997, operating income
(earnings before interest and taxes) was $271,604, 11.8 cents per share,
compared to $332,396, 14.5 cents per share, for the same period of the prior
year. The net loss was $27,329 or $.01 per share, compared to a net profit of
$27,103 or $.01 per share for the same period of fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal long-term capital resources are stockholders'
equity, the term loan of Wellington Hall with Lexington State Bank and the term
loan of Wellington Hall Caribbean Corporation with the Overseas Private
Investment Corporation (OPIC). As of January 31, 1996, total stockholders'
equity was $2,724,990 and the outstanding principal amounts of the Lexington
State Bank loan and the OPIC loan were $397,241 and $990,999, respectively.
The Lexington State Bank loan bears interest at the prime rate plus 1.5%
and is payable in monthly installments of $7,000 until maturity on April 10,
2002. It is secured by substantially all
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of the Company's domestic assets. The net proceeds of the loan were used to
refinance indebtedness used to purchase and expand the Company's Lexington,
North Carolina facility.
Since July 1996, the Company has been negotiating with OPIC to amend the
OPIC loan agreement then in effect to provide more favorable terms. Principal
payments were scheduled to double from approximately $31,000 per quarter to
approximately $62,000 per quarter beginning on July 31, 1996 with a final
balloon payment of $185,812 due on October 31, 1999. Under the original loan
agreement, WHCC was also obligated to make quarterly interest payments at the
rate of 12% per annum. On March 10, 1997, WHCC and OPIC executed an amended
loan agreement that, among other things, lowered the interest rate to 10% per
annum as of November 1, 1996 and waived principal payments from July 31,
1996 until July 31, 1997, at which time quarterly payments of approximately
$31,000 become due and payable. Principal payments increase to approximately
$62,000 on July 31, 1998 with a balloon payment of approximately $557,438 due
on October 31, 1999. Upon execution of the amended documents, WHCC paid OPIC a
rescheduling fee of 1% of the principal balance. The proceeds from the OPIC
loan, together with funds generated internally by Wellington Hall, were used to
acquire and improve the Honduran Facilities.
The OPIC loan prohibits the payment of dividends and other distributions by
Wellington Hall and requires that it maintain a stated amount of tangible net
worth as well as certain financial ratios, including current assets to current
liabilities and total indebtedness to tangible net worth. In addition, WHCC is
prohibited from paying dividends or making other distributions to Wellington
Hall and 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.
WHCC also is required to generate operating income sufficient to service the
OPIC loan for at least four consecutive quarters beginning July 31, 1999.
Wellington Hall, WHCC an MWH are each in compliance with the requirements of the
OPIC loan.
Under the OPIC loan arrangement, Wellington Hall, Limited 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 two
lines of credit with Lexington State Bank. Under its primary line, the Company
may borrow the lesser of (i) $1,2000,000 or (ii) the sum of 70% of the
Wellington Hall's accounts receivable less than 60 days old, 50% of its finished
good inventories and 10% of work in process and raw material inventories. As of
January 31, 1996, the Company had $1,200,000 in borrowings under this line of
credit. The Company pays interest monthly at the rate of prime plus 1% on
outstanding borrowings under the facility.
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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.
On January 16, 1996, Wellington Hall executed the loan documents that
increased its line of credit from Lexington State Bank in the amount of
$250,000. No borrowings have been made to date. Outstanding borrowings under
this facility will bear interest at the rate of prime plus 1 1/2%, payable
monthly and the outstanding balance as of January 31, 1996 was $13,000 in
borrowings under this line of credit, leaving $237,000 available for future
borrowings.
The Lexington State Bank lines of credit and demand loan are secured by
substantially all of the Company's domestic assets.
Wellington Hall is also indebted to Lexington State Bank under a demand
loan for $100,000 borrowed in 1993 to finance working capital. The loan bears
interest at the prime rate plus 1% payable monthly, and the outstanding balance
at January 31, 1997 was $100,000.
MWH has lines of credit with two Honduran banks in an aggregate amount of
$500,000. As of January 31, 1997, an aggregate of $350,572 had been borrowed
under these lines, leaving approximately $149,000 for future borrowings.
Borrowings bear interest at 25% payable quarterly and principal is payable on
demand. The lines are secured by a second lien on the fixed assets of MWH and
current assets.
The Company's other primary source of liquidity is net cash provided by
operating activities which was $97,517 and $295,289 in fiscal 1996 and 1995,
respectively. However, operations used $465,338 during the first nine months of
the current fiscal year, primarily as a result of the increases in inventories
and account receivable discussed below.
As of January 31, 1997, accounts receivable had increased by approximately
$193,000 since the beginning of the fiscal year, mostly as a result of a surge
in sale late in the third quarter and extended term granted certain dealers for
payment of their invoices. The receivables represented a turnover rate of about
fifty-five days, an increase of about ten days when compared to the turnover
rate reported a April 30, 1996.
Inventories increased by about $286,000 during the first nine months of the
current fiscal year primarily a result of increased production to meet an
increased backlog of orders for foreign produced goods. The Company believes
that the renewed and revised marketing effort that it put in place in early 1996
had some positive effect on the Company's level of incoming orders through the
second fiscal quarter ended October 31, 1996 but the rate of incoming orders did
decline
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during the third quarter, a decline however that may have been experienced
throughout the industry. The Company had a backlog of orders of approximately
$1,558,000 at January 31, 1997 versus $1,454,000 on the same date in 1996 and
versus $1,853,000 at April 30, 1996. The increased inventories consisted
primarily of inventory in transit from the Honduran Facilities to the Lexington,
NC facility, which at quarter's end was about $212,000 versus about $74,000 at
year end, April 30, 1996, and the inventory of raw materials and supplies in
transit to the Honduran Facilities from Lexington at January 31, 1997, which was
about $40,000 versus about $5,000 on hand at April 30, 1996.
Property and Equipment is reported to be down about $25,000 as of January
31, 1997 compared to year-end but, when expenditures of approximately $75,000
are added, the decrease is actually about $100,000. The decline is mostly the
result of the devaluation of the Honduran currency relative to the prior fiscal
year end of approximately 18%. 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
this fiscal year and expenditures for the remainder of the year will be limited
to maintenance needs which develop from time to time. The Company's total outlay
for capital improvements for the fiscal year ended April 30, 1996 was
approximately $39,000.
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. These terms, among other things, allowed the Company two years to
repay the loan. On February 12, 1997, the Company issued to Mr. Bingham 600,000
shares of stock as repayment of that loan and for his additional investment of
$14,306. Mr. Bingham has also been granted options to purchase 600,000
additional shares at option prices ranging from $.50 to $1.30 per share, 450,000
of which are subject to certain performance conditions.
In 1989, the Company acquired the Honduran Facilities and anticipated
raising $1,500,000 through the sale of the Company's stock by the board of
directors. The private placement ended early in 1990 having produced about
one-half the funds anticipated. The result of not raising all the funds has been
that the Company has had to incur more debt and restrict capital expenditures
that were both in its original plans at the time of the acquisition and that
have developed since the acquisition. Because of this debt, sales needed to grow
rapidly from the time of the acquisition to a level at which operating incomes
would be adequate to service the debt and to fund capital needs if the Company
was to grow. Maintaining an adequate level of sales since the acquisition has
been possible only for limited periods of time, mostly as a result of a sluggish
furniture economy that
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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 and execution.
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 was tight during all of fiscal 1996, having experienced excessive wood
deliveries early in the year and then a slow economy and lower sales during the
balance of the year while the Company continued to service its high level of
indebtedness. The sale of stock to Mr. Bingham has assisted the Company in
meeting its working capital and other cash needs and a significant portion of
the Company's backlog and orders expected to be received in the near future
carry delayed payment terms and/or will require reserved inventories. These
terms will further stretch the Company's cash resources until the payment for
these sales becomes due. Delayed payment terms have become expected within the
industry and therefore necessary for the Company to attract new distribution.
Having initiated in early 1996 a marketing effort to achieve sales growth,
and having begun to see results from this effort, the Company formulated a
strategy that addressed means of securing the necessary funding and solving its
debt-equity problem in general. The plan consists primarily of (i) the private
placement of stock to Mr. Bingham and (ii) the Company's debt restructuring,
both as discussed hereinabove, (iii) the offering of stock to the shareholders
of Company and to the public, as discussed hereinbelow, and (iv) the grant of
options to certain key employees, as discussed in Note 5 to the Consolidated
Financial Statements.
On February 20, 1997 the Company filed a registration statement with the
Securities and Exchange Commission for the offer and sale of 1,689,887 shares of
its common stock. The shares will be offered first to the holders of record of
its outstanding common stock as of a date at or about the time that the
registration statement becomes effective, who will have the right for thirty
days to purchase one additional share for each share then held at a price of
$.50 per share. Each Wellington Hall shareholder as of that date may also
subscribe within that thirty day period for additional shares, and any available
shares will be sold to shareholders who have subscribed therefor on a pro rata
basis. Any shares still remaining after the expiration of the offering to
Wellington Hall shareholders may be sold to persons who are not directors,
officers or shareholders of Wellington Hall. The registration statement has not
yet become effective.
The success to date in the execution of this plan has removed some
immediate pressure on working capital, is making funds available to support
marketing requirements and slowed the effect of
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servicing the debt for the near term. The balance of the plan is essentially
aimed at reducing debt and the corresponding costs thereof.
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17
PART II
Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Filed: Exhibit 10.18 Second Amendment to the Loan Agreement
Between the Overseas Private Investment Corp. and Wellington Hall
Caribbean Corporation dated March 10, 1997
Exhibit 27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K filed during the quarter ended October 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
(Registrant)
Date: March 17, 1997 By: /s/ Hoyt M. Hackney, Jr.
-------------- ---------------------------------
Hoyt M. Hackney, Jr.,
President and
Chief Executive Officer
Chief Financial Officer
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