EXHIBIT
                                       13

                                      1999
                                  ANNUAL REPORT
                            WELLINGTON HALL, LIMITED
                            Lexington, North Carolina


                                      -19-
<PAGE>

TO THE SHAREHOLDERS OF WELLINGTON HALL LIMITED

     Sales for the year were  $5,721,206 up about $59,000 over the previous year
and, though  relatively small, the increase is a reversal of a trend the Company
has  experienced  over the last three  years.  This level of sales  remains well
below the level of sales  necessary for the company to be profitable  even after
significant  cost reduction have been executed at both the Honduran and domestic
facilities.  Net profits  for the year were a loss of $573,793  versus a loss in
fiscal 1998 of $1,013,125  and though this is a significant  improvement,  there
remains a substantial  task to returning  the Company to  profitable  operations
next year.

     A positive factor in the fiscal 1999 results were the increase in the sales
of the  Honduran  products  and the  improvement  in the margins  and  operating
profits as a result of those sales.  Those sales,  net of inter  Company  sales,
increased by about $94,000 or 4.5 percent and the operating  profits for Muebles
Wellington Hall, the Honduran operation, and for Wellington Hall Caribbean Corp.
(WHCC), the marketing and distribution Company for the Honduran production, were
$485,495,  16.7% of all sales  versus  $59,523 or 2.4% the  previous  year.  Net
income for these two entities were $227,195, 2.4 % of all sales, including inter
Company versus a loss in fiscal 1998 of $200,590. This improvement is mostly the
results of price increases and labor reductions at the Honduran facility.

     Management will attempt to build on this improvement in fiscal year 2000 by
taking the following  action.  First,  management  believed that relative to its
competition  for solid  mahogany  furniture,  the  primary  product  produced in
Honduras,  a price increase could be taken without  diminishing  sales and so on
April 15, 1999 the prices were increased  approximately  6%.  Secondly and in an
effort  to keep the  Honduran  facility  operating  on a full  schedule  without
building higher inventories, new products will be added to the WHCC product line
and certain products  previously  marketed as part of the domestically  produced
line will be switched to the WHCC line. The new product will utilize pine and be
introduced at the October 1999  International  Market held in High Point N.C. An
English  bedroom  and a limited  number of  occasion  furniture  items  previous
marketed and priced as  domestically  produced  goods have been  switched to the
WHCC line.  Marketing of the English  bedroom began this spring and at the April
furniture  market at lower prices but at expected  higher margins and will begin
shipping during the second quarter ending October 31, 1999. Thirdly, the Company
is up grading it catalogs for the WHCC products.  In June 1999 a new catalog for
the mahogany bedroom was distributed to the Company's  customer base and in July
a new catalog was issued for the mahogany occasional furniture,  including those
items switched from the domestic line.

     The  operation of the domestic  facility and the continue sale of inventory
at highly  discounted  prices have contributed most materially to the losses the
Company has experience.  The sale of the inventory has been necessary to both to
generate  operating  funds and to dispose  of slow  moving,  distressed,  and/or
discontinue products. These sale of the inventories will continue throughout the
next year to generate a portion of  necessary  operating  fund and,  though this
action will likely  diminish  profits,  these sales have  allowed the Company to
produce positive cash contribution  from operating  activities over the last two
fiscal  years.  The plan for the domestic  facility is to further  scale down it
production  and  basically  use the  facility  to receive,  deluxe,  package and
distribute the Honduran  products and new products which have been developed and
marketed as Wellington Hall Imports (WHI).  These products are further discussed
below.  There has been a significant  effort to date to reducing  expense at the
domestic  facility and management  will continue to scrutinize it domestic labor
and overhead to reduce the expenses to a level whereby the more limited domestic
production, WHCC sales, and WHI sales can absorb at a profitable level.

     To expand the Company  sales,  management  concluded that it must have high
quality,  well design  products at lower  prices to offer the current  furniture
market.  To accomplish this,  efforts were initialed early in calendar year 1998
to find foreign  manufactures  whereby the Company could develop a  relationship
and have new design produced at lower cost for marketing and distribution by the
Company.  At the April 1999  International  Market  held in High Point N.C.  the
Company, having establish a source, formally introduced approximately thirty new
designs and in  combination  with a  premarketing  effort  realized  encouraging
success.  In  addition,  in March of 1999,  the Company and  Furniture  Classics
Limited  (FCL),  a Norfolk  Virginia  imported,  agreed that the  Company  would
distribute  certain products  exclusively from FCL established  source.  The FCL
agreement  allowed the Company,  again at the before mentioned April market,  to
introduce a mirror line,  about thirty  items,  and a line of Chinese  antiques,
about twenty items, both categories are new to the Company marketing effort. The
quantity of orders  received for both of these  categories has been  encouraging
and will begin  contributing  to the Company's sales during the first quarter of
fiscal 2000 ending July 31, 1999.  The Company is marketing  these products from
the source  developed  by  management  and those from FCL source  under the name
Wellington Hall Imports.

     The company's financial situation in general, particularly it indebtedness,
has received  significant  attention and the following  actions have been taken.
Briefly:

     First, an equity  investment of $400,000 was made in the Company at the end
of fiscal year 1999.

     Second,  subsequent  to the end of the fiscal year,  Lexington  State Bank,
restructured the Company's outstanding loans by converting most of the Company's
debt with LSB to long term loans and thus  significantly  changing the Company's
balance sheet, particularly it's ratio of current assets to current liabilities.

     Thirdly,  and  subsequent  to the end of the  fiscal  year,  a  contractual
agreement between the Company and Furniture  Classics Limited (FCL) was executed
and FCL made an equity investment of $27,000 in the Company.

     Fourth, there is an agreement relative the Deferred  Compensation Plan (see
proxy statement) that if completed could possibly remove approximately  $300,000
from long term liability and increase equity.

                                      -20-
<PAGE>

     Fifth,  the  Company  has made  certain  request  of the  Overseas  Private
Investment  Corporation to restructure the  outstanding  loan with the Company's
subsidiary,  Wellington  Hall  Caribbean  Corp.  which if granted  will  convert
approximately  $225,000 of the debt to equity,  reschedule  the repayment of the
principal over the nest six years  including a one year grace period without any
principal payments.

     Management  believes that if all of the  marketing  and  financial  efforts
described  above and discussed in more detail in the  Management  Discussion and
Analysis section of this report are  satisfactory  executed that the results for
fiscal  year 2000 could be  positive.  Management  will  continue  to pursue the
before  mentioned and possibly other solutions to its marketing and to it's debt
or financial condition as situations might develop.

Sincerely,

Hoyt Hackney, Jr.
President

Upon written request  directed to the Secretary of the Company at P.O. Box 1354,
Lexington,  North Carolina 27293-1354,  Shareholders will be furnished a copy of
the Company's Annual Report on form 10-KSB without charge.

                                      -21-
<PAGE>

            MARKET PRICES, DIVIDENDS AND RELATED SHAREHOLDER MATTERS

     Until  October 1995,  the Common Stock of the Company  traded in the NASDAQ
over-the-counter  market system. Since that time, the Company's Common Stock has
traded  on  the  NASD's  over-the-counter   bulletin  board.  According  to  the
information  furnished by Anderson & Strudwick,  a market maker in the Company's
Common  Stock,  the high and low bid  quotations  for each  quarterly  period of
fiscal 1998 and the high low trades that occurred  closest to each quarter ended
date during the current fiscal year is as follows:

Quarter Ending    High     Low              Quarter Ending    High     Low
--------------    ----     ---              --------------    ----     ---

July     1997     0.25     0.25             July     1998     5/32     5/32
October  1997     0.25     0.25             October  1998     0.15     0.15
January  1998     0.22     0.19             January  1999     1/8      1/8
April    1998     0.25     0.22             April    1999     0.07     0.07

     These market  quotations  represent  inter-dealer  prices,  without  retail
mark-up,  mark-down  or  commission,  and do not  necessarily  represent  actual
transactions.

     As of July 28, 1999, there were  approximately 562 holders of record of the
Company's Common Stock.

     The Company has not paid any dividends since its inception. Pursuant to the
terms of its  line-of-credit  and long-term loan agreements with Lexington State
Bank,  the  Company may not pay any  dividends,  purchase,  redeem or  otherwise
retire any of its capital stock or otherwise make any other  distribution of its
assets  resulting  in the  reduction  of its capital  without the prior  written
consent of Lexington  State Bank. See  "Management's  Discussion and Analysis of
Results of Operations and Financial Condition."

                                      -22-
<PAGE>

MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS

Liquidity and Capital Resources

     The Company's  principal  long-term  capital  resources  are  shareholders'
equity,  the term loan of Wellington Hall with Lexington State Bank and the term
loan of WHCC with the Overseas  Private  Investment  Corporation  (OPIC).  As of
April 30, 1999, total stockholders' equity was approximately  $1,022,582 and the
outstanding principal amounts of the Lexington State Bank loan and the OPIC loan
were $284,617 and $826,479 respectively.

     The  Lexington  State Bank loan bears  interest at the prime rate plus 1.5%
and is payable in monthly  installments  of $7,000  until  maturity on April 10,
2002. It is secured by substantially all of the Company's  domestic assets.  The
net  proceeds of the loan were used to refinance  indebtedness  used to purchase
and expand the Company's Lexington, North Carolina facility.

     On March 10, 1997,  WHCC and OPIC executed an amended loan agreement  that,
among other things, lowered the interest rate to 10% per annum as of November 1,
1996 and waived  principal  payments  from July 31, 1996 until July 31, 1997, at
which time the Company began making quarterly payments of approximately $31,000.
Principal  payments were scheduled to increase to approximately  $62,000 on July
31, 1998 with a balloon  payment of  approximately  $557,438  due on October 31,
1999. Upon execution of the amended documents, WHCC paid OPIC a rescheduling fee
of 1% of the principal balance.  The proceeds from the OPIC loan,  together with
funds generated  internally by Wellington Hall, were used to acquire and improve
the Honduran Facilities.

     On July 22, 1998,  WHCC requested OPIC to waiver  principal due on July 30,
1998 and on October 31, 1998. As of this date,  WHCC has not been notified as to
the final disposition of that request.  However, no principal payments were made
on either July 30, 1998 nor on October 31, 1998. Only the required  interest was
paid.  On January 31, 1999 and on April 30, 1999 the terms of the loan  required
principal  payments of approximately  $62,000 plus the interest due. The company
made principal payments on each of these dates of approximately $21,000 and paid
the interest that was due and on April 30, 1999 had a past due principal balance
of approximately $207,000.

     After on going discussion from time to time throughout the fiscal year, The
Company  requested on April 23, 1999 that OPIC amend the loan agreement  whereby
(i) OPIC would  accept  $225,000  in  preferred  stock  (ii) the  payment of the
remaining loan balance would be scheduled over a period of six years,  and (iii)
the company would  received a grace period of one year,  until July 31, 2000, to
make additional  principal  payments.  The preferred stock will be structured to
assure OPIC that its stock would have an equal claim on the Company's  assets as
does its loan balance. As of this date, OPIC has not responded to the request of
April 23, 1999.

     The effect of this request, if granted,  would reduce the loan balance from
approximately  $826,000  at April  30,  1999 to  approximately  600,000;  reduce
interest expense by approximately  $22,550  annually,  and enhance the company's
effort to restore its sales and profit by allowing a period to increase  working
capital.  Since the total debt  outstanding  with the OPIC is due on October 31,
1999,  the Company's  Balance Sheet  reflects the debt as a "Current  Liability"
under  "Current  maturities  on Long Term Debt".  If OPIC  grants the  Company's
request,  approximately  $225,000  will become  equity and the  balance  will be
reflected on the Balance Sheet as a Long Term Debt.

     The OPIC loan prohibits the payment of dividends and other distributions by
Wellington  Hall and requires  that it maintain a stated  amount of tangible net
worth as well as certain financial  ratios,  including current assets to current
liabilities and total  indebtedness to tangible net worth. In addition,  WHCC is
required  to  maintain a stated  amount of  current  assets in excess of current
liabilities,  and WHCC and MWH are required to maintain stated ratios of current
assets to current liabilities and indebtedness to tangible net worth. Wellington
Hall, WHCC an MWH are each in compliance with the requirements of the OPIC loan.

     Under the OPIC loan arrangement, Wellington Hall is obligated to supply any
necessary funds to WHCC to meet WHCC's obligations thereunder,  and MWH has also
guaranteed the  obligations  of WHCC. The OPIC loan is secured by  substantially
all of the tangible assets of the Honduran Facilities.

     The  Company's  primary  sources of liquidity  are bank lines of credit and
cash flow from operations.  For its domestic  operations,  the Company has three
lines of credit with Lexington  State Bank.  Under its primary line, the Company
may borrow the lesser of (i) $1,200,000 or (ii) the sum of 70% of the Wellington
Hall's  accounts  receivable  less than 60 days old,  50% of its  finished  good
inventories and 10% of work in process and raw material inventories. As of April
30, 1999, the Company had $870,000 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. Principal payments are due on demand. The line of
credit also contains  restrictive  covenants that prohibit  Wellington Hall from
paying  dividends  and making  other  distributions  with respect to its capital
stock and require it to maintain certain  financial  ratios,  including  current
assets to current credit. The line of credit is reviewed annually for renewal.

     Wellington  Hall is also  indebted to  Lexington  State Bank under a demand
loan for $100,000  borrowed in 1993 to finance working  capital.  The loan bears
interest at the prime rate plus 1% payable monthly,  and the outstanding balance
at April 30, 1999 was $100,000.

     On January 16,  1997,  Wellington  Hall  executed the loan  documents  that
increased  its  line of  credit  from  Lexington  State  Bank in the  amount  of
$250,000.  Outstanding  borrowings under this facility will bear interest at the
rate of prime plus 1 1/2%,  payable monthly,  and the outstanding  balance as of
April 30, 1999 was $250,000. The line of credit was reviewed on January 16, 1999
and renewed until July 16, 1999. In aggregate $330,000 was available

                                      -23-
<PAGE>

from LSB for future borrowings at April 30, 1999. The Lexington State Bank lines
of credit and demand  loan are  secured by  substantially  all of the  Company's
domestic assets.

     MWH has lines of credit with two  Honduran  banks and as of April 30, 1999,
an aggregate of about $434,000 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.

     The  Company's  other  primary  source of liquidity is net cash provided by
operating  activities  which was  $78,004  and  $96,316 in fiscal 1999 and 1998,
respectively.  The primary  contributing  factor to the positive cash flow was a
decline in inventories of approximately  $423,000. If the Company is to meet its
liquidity needs in the future,  it must continue to generate positive cash flows
and avoid any significant losses in the future.

     As of April 30, 1999,  accounts  receivable had decreased by  approximately
$102,508  since the  beginning of the fiscal  year,  mostly as a result of lower
domestic sales in the fourth  quarter.  The  receivables  represented a turnover
rate of about  forty-one days, a decrease of about ten days when compared to the
turnover rate reported at April 30, 1998. The company's normal terms of sale for
the payment of invoices is Net 30 days for domestically produced goods (DPG) and
3% 10; Net 30 for foreign  produced goods (FPG). In the case of export sales, an
Irrevocable Letter-Of-Credit is required

     Consolidated inventories decreased by about $413,000 during the fiscal year
primarily  a  result  of a  decrease  of  about  $213,000  to the  inventory  of
domestically  produced goods and about $287,000 in foreign produced goods at the
Company's  Honduran  facility.  These  decreases  were off set by an increase of
about $34,000 in imported goods from new resources and about $43,000 of Honduran
produced  goods  located at the domestic  facility.  The inventory are expect to
continue to decline to both generate  operating  capital and to improve the turn
on the inventory value. Sales and backlogs are further discussed herein below.

     Property  and  equipment  is  reported  to  have  declined  about  $218,000
reflecting the removal of  approximately  $191,000 of full  depreciate  domestic
assets which also reduced depreciation.  The balance of the decline reflects the
devaluation  of the Honduran  currency  during the fiscal year.  Actual  capital
expenditures for the fiscal years were approximately  $12,000.  The value of the
Company's  foreign fixed assets are revalued to reflect the  fluctuation  in the
value of the foreign currency.  The decline in that value during the fiscal year
1999 was  approximately  $31.5000 and the  devaluation of the Honduran  currency
relative to the prior fiscal year end was about 6.1%.  The  historical  value of
the  Company's  Honduran  assets are carried on the  subsidiaries'  books in the
local currency, the lempira.  Lempiras are converted to dollars at the spot rate
in  effect  at  period  end  when  the  Company's   financial   statements   are
consolidated, and the reduction to the reported value of these assets appears as
part of the translation adjustment.

     There are no significant capital  expenditures planned for 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
fiscal year ended April 30, 1999 was  approximately  $12,000 used  primarily for
various maintenance needs.

     Current  Maturities  on Long  Term Debt  increased  by about  $613,175  and
reflects the balloon payment required by the terms of the OPIC loan agreement on
October 31, 1999.  (See the  discussion of the OPIC loan above).  Long-term debt
less  current  maturities  increased by  approximately  $181,623 as a results of
moving the OPIC  balance  to  current  maturities,  repayment  of  approximately
$125,192  during the fiscal year and adding a new long term loan with  Lexington
State Bank as a result of the  Company's  loans being  restructured  on June 16,
1999 (see subsequent events discussed below)

     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 is 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  (see  subsequent  events
discussed below).

     Other Current  liabilities  decreased by approximately  $83,503 mostly as a
result of a decrease in the accrual of severance pay, a contingent liability, at
the Honduran facility. This reduction is not expected to reoccur.

     The Company is subject to the risk that foreign  currency  fluctuation  may
have an adverse impact on its operations,  For example, if the Honduran currency
were to stabilize in the future or to increase in value against the dollar,  the
Honduran  subsidiary's  cost might increase causing profit margins to erode. The
Company,  however,  does  not  engage  in  any  hedging  of  the  exchange  rate
fluctuations.  Since the  acquisition  of the Honduran  subsidiary in 1989,  the
lempira has continually  devalued against the U.S.  dollar,  from 2.0 lempira to
the dollar in 1989 to 14.05  lempira to the dollar at April 30,  1999.  Although
the devaluation of the lempira has resulted in reductions in the historical book
value  of  the  assets  and  liabilities   and  a  corresponding   reduction  to
shareholders'  equity  in the  form of a $1.91  million  cumulative  translation
adjustment,  the  Company  also  benefits  from  lower  product  cost  from  the
subsidiary  as the  lempira  devalues.  In view of the  long-term  trend  of the
devaluation,  management  believes that hedging of the exchange rate fluctuation
is unnecessary and could reduce or eliminate the benefits of lower product costs
resulting from any continued devaluation.

                                      -24-
<PAGE>


     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.

SUBSEQUENT EVENTS

     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  (see Proxy
Statement).  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 April. 30, 1999 the Company's Balance Sheet stated
a $288,000 long term liability as a result of this accrual.

     The revisions to the "Deferred Compensation Agreement",  not yet finalized,
are expected to reduce the  compensation  to $20,000 per year but not before May
1, 2005. In exchange,  Mr. Hackney would receiving  restricted stock,  1,000,000
shares of common stock at $.30,  which can not be sold until after retirement or
death and then only in increments of 1/10 of the shares per year for a period of
10 years.  This action could  capitalize the $300,000  liability and thus remove
the long term liability from the Company's balance sheet when the transaction is
executed.

     The  primary  purpose  of  the  revisions  to  the  "Deferred  Compensation
Agreement"  is  an  incentive  to  the  Company's  lenders  to  restructure  the
outstanding  Company loans  whereby the potential  outlay of $50,000 per year is
removed,  reduced and/or  delayed to enhance the Company's  ability to repay its
debt over all or part of the period the  restructured  loan long agreement would
specify.

     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.  On June
16, 1999 the Company owed $20,000  against this line of credit.  The three lines
of credit retired  carried  interest  rates ranging  between prime plus 1% and 1
1/2%.  The long term loan retired had an interest  rate of prime plus 1.5%.  The
new long term loan and line of credit bear interest rates of prime plus 3/4% and
are secured by substantially  all of the Company's  domestic  assets.  Principal
payments on the line of credit are is due on demand. The line of credit and long
term loan also contains restrictive covenants that prohibit Wellington Hall from
paying  dividends  and making  other  distributions  with respect to its capital
stock. The line of credit is reviewed annually for renewal.

     The effect of the  restructured  LSB debt  reduced the  Company's  "Current
Liabilities" by  approximately  $1,530,000 and depending on the level the Demand
Notes  utilized over time,  hold the Company's  interest and principal to almost
the  level of those  requirements  prior to the  restructuring  of the debt thus
minimizing the effect on the Company's working capital.

                                      -25-
<PAGE>


     In March of 1999, the Company and Furniture  Classics Limited (FCL) entered
into a verbal 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 this agreement R. Douglas Ricks, the FCL
president will became a shareholder  by investing  $27,000 for 100,000 shares of
the  Company's  common stack,  will be nominated as a Director,  and will assist
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. At the High Point International Furniture Market held in April 1999
the Company  displayed  these products and initial  shipment of a portion of the
resulting  orders will be  reflected  in the  Company's  sales during the fiscal
first  quarter  ending  on July 31,  1999.  The  balance  of the  products  will
initially ship during the second quarter ending October 31, 1999.  Subsequent to
the fiscal year ended April 30, 1999 the Company and FCL executed a  contractual
agreement on May 4, 1999 and on June 22, 1999 the Company  received  $27,000 for
the Company's  common stock (see the Proxy  Statement).  The warrants  issued as
part of the FCL agreement are priced a 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

Under the terms of the agreement the company can purchase the products  involved
directly from the foreign source in container loads, purchases partial container
loads  or from  Furniture  Classics  Limited's  inventory.  FLC in any  event is
responsible  for providing  letters of credit or  satisfying  other credit terms
with the  foreign  vendors.  FCL  receives  a 10%  brokers  fee on all  products
delivered to the Company.  For orders  placed as partial  containers or from FCL
inventories,  FCL  received  addition  fee  to  cover  handling,  delivery,  and
warehousing expense as applicable.  Both parties have the right to terminate the
agreement  with ninety day notice but must honor all  outstanding  orders at the
time of termination.

RESULTS OF OPERATIONS

Fiscal Year ended April 30, 1998 compared to Fiscal Year ended April 30, 1997

     Consolidated revenues for the fourth quarter of fiscal year ended April 30,
1999 were  approximately  $1,436,746  up about  $143,000  when  compared  to the
revenues of approximately  $1,293,406  reported for the fourth quarter of fiscal
1998.  For the fiscal year 1999,  revenue were  $5,721,205 and up about $59,896.
Sales  of   domestically   produced   furniture  for  the  fourth  quarter  were
approximately $846,000 up about $9,000 from the fourth quarter the previous year
and these sales for the year were  approximately  $3,594,086  down about $38,000
when  compared to the previous  year.  Sales for the fourth  quarter of products
produced in the Honduran facility, net of intercompany sales, were approximately
$549,000 up about $148,000 (33.2%) versus the  approximately  $447,000  reported
last year.  For the year,  these sales were  approximately  $2,159,227  up about
$94,000  (4.5%) when compared  with the  approximately  $2,065,500  reported the
previous year.

     The decline in the sales of domestic products products is continuation of a
trend that the Company  has  experience  over the last four  years.  The Company
experienced a significant drop in the rate of incoming orders for these products
in fiscal 1995 and has experienced a continuing  downward trend since that time.
Management believe that several  fundamental  factors probably contribute to the
cause of this trend  including  a  shrinking  distribution  base,  more and more
retailers  have gone out of  business,  changing  consumer  taste away from more
formal  designs such as the  Company's  products,  and the high cost of domestic
production  which can not compete with imports  which are possibly  undercut the
value of domestically produced goods.

     To possibly  counter act this decline the Company has developed and adopted
a marketing  plan that includes  strategic  measures such as (i)  augmenting the
Company's  traditional  product  line  with new  categories  of home  furnishing
products even as mirrors and Chinese  antiques,  (ii)  augmenting  the Company's
traditional  product  line  with  lower  priced  products  produced  by  foreign
manufactures  (other  than and in addition to the  Company's  Honduran  produced
goods),  and (iii)  updating and upgrading  catalogs and other sales aids in all
distribution channels.

     In pursuit of this strategy the Company has developed  approximately thirty
designs  that are  being  produced  exclusively  for the  Company  by a  foreign
manufacture.  The  Company  begin  marketing  these  items in  February of 1998,
formally  introduced  the  products  at the High Point  International  Furniture
Market held in April 1999.  The first  shipments  of the good is expected in the
second  quarter of fiscal  year 1999.  The Company  does not have a  contractual
relationship with the primary manufacturer of these products. In addition and in
March of 1999, the Company and Furniture  Classics  Limited (FCL) entered into a
verbal 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.  See Subsequent  events  discussed above. At the High Point
International Furniture Market held in April 1999 the

                                      -26-
<PAGE>

Company  displayed  these products and initial  shipment of a limited portion of
the resulting  orders will be reflected in the Company's sales during the fiscal
first  quarter  ending  on July 31,  1999.  The  balance  of the  products  will
initially ship during the second quarter ending October 31, 1999. See discussion
of backlogs  that follows  below.  All the products  from off shore  sources now
being offered by the Company are being marketed under the name  Wellington  Hall
Imports.  The sales for the  products  during the fiscal year end April 30, 1999
were negligible.

     These sales of Honduran  produced  products are marketed  under the name of
the Company's  subsidiary,  Wellington  Hall  Caribbean  Corp.  (WHCC  products)
reportedly  increased  (see  discussion of sales above) by about $94,000  (4.5%)
when compared with the the fiscal  previous  year.  These sales include both the
finished products sold primarily through retailer  (retailer sales) and to other
manufacturers  (OEM sales).  For the fiscal year the retailer sales increased by
about $457,000 or 29% while OEM sales declined by about $363,000 down from about
$488,000  the  previous  year.  The  increase  in  retailer  sales can mostly be
attributed  to a single order  received  from a foreign  retailer late in fiscal
1998  which  shipped  during  the  first  half of  fiscal  1999.  However,  with
production  and  distribution  of new  catalogs on most of these  products  and,
possibly other  contributing  factors,  the Company seems to be  experiencing an
improved rate of incoming orders which could support  continue  increases to the
retailer sales excluding the sales to the before mention foreign retailer.

     This foreign  retailer is,  however,  expected to continue  purchasing  the
products and should be a  significant  contributor  to sales during  fiscal year
2000.  Though this foreign  retail  accounted for almost 13% of the WHCC sale in
fiscal year ended April 30, 1999, no single account or entity  accounted for 10%
or more of consolidated sales or revenues.

     The decline in domestic  sales has also  negatively  effected the Company's
foreign  operations.  The domestic operation was consuming a significant portion
of the foreign output as dimension  stock,  carved and/or turned  components and
unfinished assemblies into domestic production. The decline has effectively cost
the  foreign  operation  its best and largest  customer.  This  situation,  most
significantly,  resulted in the Honduran  facility  operating under capacity and
unprofitably over the more recent past. To counteract this loss of inter Company
sales and to increase revenues and operations at the Honduran  facility,  effort
has been directed through WHCC at selling other  manufactures and wood consumers
their products and production  requirements;  OEM sales.  These sales, as stated
above  declined from about  $488,000 in fiscal 1998 to only about  $124,000 even
though a number of manufacturer  and a significant  amount of product was quoted
and in many  cases  sampled.  Management  contribute  this  lack of  success  to
possibly two factors.  First,  and like the  Company,  most of the  manufactures
pursued produce domestically higher priced products and the items quoted did not
sale.  Secondly,  the  competition  for OEM  sales is more  competitive  and the
products are probably  more  readily  available  than in years past from sources
significantly  less expensive  than  Honduras.  Even though the Company enjoys a
significant  advantage in production cost at its Honduran  facility  relative to
domestic cost, such countries,  for example,  as Indonesia or China seem to have
even greater advantages.

     As another means of increasing WHCC sales, other than the efforts discussed
above,  the Company will convert some  products  from it  domestically  produced
product  line to the WHCC line and add new  products.  In October a bedroom  and
dining room will be added which utilizes Pine and a minimal number will be added
that will be part the new  import  line,  Wellington  Hall  Imports.  An English
bedroom and a quantity of  occasional  furniture  items,  which in the past were
included in the domestic  product  line have been switch to Honduran  production
and will begin  shipping  during the second  quarter  ending  October 31,  1999.
Management  believes these items can be sold a lower price and at higher margins
by making this switch.

     This  switch in product  will  accelerate  the  decline in the level of the
Company's domestic  production  activities which contributed most heavily to the
losses reported the last two years. The domestic  facility is expected to become
primarily a facility to received,  deluxe,  package,  wharehouse and distributed
products  both  from the  Honduran  facility  and  from  other  foreign  sources
discussed  above.  Considerable  effort  is  being  made to bring  the  domestic
operating  costs and overheads down to a level such that the remaining  domestic
production,  WHCC sales, and Wellington Hall Export sales will absorb these cost
and return the Company to profitability.

     To reduce inventories and to generate operating funds, the Company has sold
inventories  deemed to be slow moving,  of unacceptable  quality or discontinued
product  at  highly   discounted   prices.   The  consolidated   sales  included
approximately  $98,000 for the fourth  quarter and about $214,202 for the fiscal
year ended April 30, 1999 versus approximately  $31,000 and about $592,000,  for
the fourth quarter and fiscal year end April 30, 1998, respectively. These sales
were generated in fiscal year 1998 at a clearance center,  for which the Company
paid, in addition to the cost of  discounted  prices,  rent and other  operating
cost,  or at two "Tent"  sales held at the  Lexington  N.C.  facility in May and
October of 1997. In fiscal 1999,  the sales were  generated in an outlet created
in September of 1998 and open to the public at the domestic  facility and at two
" tent"  sales as was  done in  fiscal  1998.  All of  these  sales  contributed
significantly and materially to cost of goods sold and to the reported operating
losses.

     The  Company's  firm backlog of orders on April 30, 1999 was  approximately
$2,342,513  about the same as its backlog of  $2,382,421  reported for April 30,
1998.   The   April   30,   1999   backlog    included   about   $1,191,649   of
domestically-manufactured  products,  as opposed to about $1,327,111 included in
the 1998  backlog.  The backlog for WHCC and  Honduran-produced  products,  less
intercompany  orders, was approximately  $598,070 on April 30, 1999 versus about
$1,055,321 on April 30, 1998.  This decrease mostly reflects an orders for about
$450,000 from a new off shore retail customer received late in fiscal 1998 which
tended to hype the backlog reported on April 30,1998.  The Company had a backlog
of orders for new  imported  products  of about  $552,794 at April  30,1999.  No
orders for these products were included in the backlog reported for fiscal 1998

                                      -27-
<PAGE>

     Cost of sales decreased  approximately $196,439 to about $1,249,415 for the
fourth quarter and about $255,578 to about  $4,577,499 for the fiscal year ended
April 30, 1999. For the quarter the Cost of Sales were 86.96% of sales down from
about 112% the previous year. For the fiscal year the Cost of Sales as a percent
of sales were about 80% down from about 86% for fiscal  year 1998.  The  primary
reason for the  decline in Cost of Sales were the decline in the sales of highly
discounted  inventory  during fiscal 1998 versus those sold the previous year as
discussed  above.  However,  the cost of good sold for Honduran  produced  goods
dropped as as a percent of sales from about 79.5% in fiscal year


<PAGE>



1998 to 67.1% in  fiscal  1999  while  the  cost of good  sold for  domestically
produced  goods as a percent of sales  remain  about  constant at about 88.4% in
fiscal year 1998 and about 87.4% in fiscal 1999.

     Reported revenues and cost of goods sold as a percentage of sales have been
affected  by  changes  in the  Company's  prices on those  products  distributed
through retailers.  Those prices, both for domestically produced product and for
Honduran  produced  products  were  increased  between  four and five percent in
October 1997 ( fiscal year 1998). The prices for  domestically  produced product
were additionally increased, effective August 15, 1998, by an additional 5 to 6%
to improve  margins on that portion of the company's  product lines.  Prices for
Honduran produced products were increased about 6% affective on April 15, 1999.

     Selling,  general and  administrative  expenses  did not change  materially
during the fourth quarter or for the fiscal year 1999. During the fourth quarter
these expense were down about $14,000 to about $308,000 and about 21.5 % percent
of sale and were down about  $108,885  during the year to about  $1,297,527  and
represent about 23.9% of sales.

     Interest  expenses of  approximately  $92,000 for the fiscal fourth quarter
represent a decrease of about $14,000  versus that paid during the previous year
fourth quarter.  For the fiscal year 1998, interest expenses were about $403,159
versus  about  $448,510 in fiscal year 1998,  down about  $45,351 over the prior
year as a result of a slight  decline in long term and short term debt and lower
interest rates..

     For the the fiscal quarter ended April 30, 1998, operating income (earnings
before interest and taxes) was a loss of about ($43,467), (1.9) cents per share,
compared  to a loss of  approximately  ($519,000),  (14.3)  cents  per share for
quarter  ended  April 30,  1998.  For the fiscal  year ended  April 30, 1999 the
operating income was a loss of ($153,821),  ($.04) per share versus the previous
year's  loss of about  ($578,  180) or ($.157)  per share.  The net loss for the
fourth  quarter was about  ($122,397),  (4.0)  cents per share  versus a loss of
about  ($615,000)  or  (16.9)  cents per share  for the  previous  years  fourth
quarter,  while for the fiscal year there is a net loss of ($573,793) or ($.158)
per share,  compared to a net loss of  ($1,013,225) or ($.278) per share for the
prior year, fiscal 1998.

     The net loss reported in the fourth quarter and fiscal year ended April 30,
1999 are a result  generally  of slow sales,  the  company's  limited  operating
capital and relatively high level of indebtedness. Because of the slow sales and
to avoid increasing inventories,  it was necessary,  during most of the year, to
reduce production  volumes,  primarily  assembled  production,  in the Company's
domestic facility and foreign operations to levels below that required to manage
labor and overhead  cost.  In  addition,  the Company  sold off  inventories  at
discounted  prices to generate cash to cover the  operating  loss and to finance
continued operations.

     Sales of foreign  produced  products  and the level of  production  for the
upcoming  year  at  the  Honduran  facility  are  expected  to  improve,  and in
combination  with higher  prices,  those gross  profits  contribution  should be
greater  next year.  To return to a level of profit  suitable to  servicing  the
Company's  debt,  and  in  addition  to  improving  profits  from  the  Honduran
operation,  the  operating  expense at the  domestic  operation  will be reduced
substantially  and the level of sales of the Company's new import line will need
to meet or exceed expectations.

     The Company  believes  that it computer  software has been upgraded to cope
with the potential year 2000 computer problem.  Though the Company has not taken
a formal  survey of its  vendors  and  service  companies,  management  does not
anticipate any significant material problems as a result of the Y2K situation.

                                      -28-
<PAGE>

TURLINGTON AND COMPANY, L.L.P.

                          INDEPENDENT AUDITORS' REPORT

To the Stockholders

Wellington Hall, Limited and Subsidiaries
Lexington, North Carolina

We have audited the accompanying consolidated balance sheets of Wellington Hall,
Limited  and  Subsidiaries  as of April  30,  1999  and  1998,  and the  related
consolidated statements of income,  comprehensive income,  stockholders' equity,
and cash flows for the years then ended. These consolidated financial statements
are the responsibility of Wellington Hall, Limited and Subsidiaries' management.
Our  responsibility  is to express an  opinion on these  consolidated  financial
statements  based on our audits.  We did not audit the  financial  statements of
Muebles  Wellington  Hall, S. A., a wholly-owned  subsidiary,  which  statements
reflect total assets of $1,325,651 and $1,522,535, respectively, as of April 30,
1999 and 1998, and total revenues of $2,140,352  and  $1,870,046,  respectively,
for the years ended April 30, 1999 and 1998.  These  statements  were audited by
other auditors  whose report has been furnished to us, and our opinion,  insofar
as it relates to the amounts  included for Muebles  Wellington  Hall,  S. A., is
based solely on the report of the other auditors.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable  assurance about whether the  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

In our  opinion,  based on our  audits  and the  report of other  auditors,  the
consolidated  financial  statements  referred to above  present  fairly,  in all
material  respects,  the  financial  position of  Wellington  Hall,  Limited and
Subsidiaries as of April 30, 1999 and 1998, and the results of their operations,
and their  cash  flows for the years then  ended in  conformity  with  generally
accepted accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that Wellington Hall, Limited and Subsidiaries will continue as a going concern.
As discussed in Note 20 to the consolidated financial statements, under existing
circumstances,  there is substantial doubt about the ability of Wellington Hall,
Limited and Subsidiaries to continue as a going concern.  Management's  plans in
regard to that matter also are described in Note 20. The consolidated  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.

July 12, 1999

                                      -29-
<PAGE>

KPMG PEAT MARWICK ASESORES, S. de R.L.
Auditoria, Consultoria e Impuestos

Apartado 3398, Tequcigalpa              Apartado 257, San Pedro Sula
Honduras, C.A.                          Honduras, C.A.
Telefono:232-2806, 232-5907             Telefono:553-3545, 553-0146
Telefax: 232-5925                       Telefax: 552-2223
E-Mail: kpmgtgu@hondudata.com           E-Mail: kpmgsps@hondudata.com

                          INDEPENDENT AUDITOR'S REPORT

Board of Directors
MUEBLES WELLINGTON HALL, S.A. DE C.V.:

We have audited the accompanying balance sheets of Muebles Wellington Hall, S.A.
de C.V., San Pedro Sula, Honduras, as of April 30, 1999 and 1998 and the related
statements of earnings  (loss),  retained  earnings and cash flows for the years
then ended.  Such financial  statements are the  responsibility of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits

We conducted our audits in accordance with generally accepted auditing standards
in  Honduras.  Those  standards  require  that we plan and  perform the audit to
obtain reasonable  assurance about whether the financial  statements are free of
material  misstatement.  An audit includes examining,  in a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Muebles Wellington Hall, S.A.,
de C.V., as of April 30, 1999 and 1998 and the results of its operations and its
cash flows for the years then  ended,  in  conformity  with  generally  accepted
accounting principles in Honduras.

                                                     /s/ KPMG

June 28, 1999

                                      -30-
<PAGE>

                    WELLINGTON HALL, LIMITED AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           ---------------------------

<TABLE>
<CAPTION>
                                                                 April 30
                                                            1999            1998
                                                        -----------     -----------
ASSETS
Current assets:
<S>                                                     <C>             <C>
     Cash                                               $    49,938     $    32,514
     Accounts receivable:
          Trade                                             617,191         726,612
          Less, allowance for doubtful accounts             (63,843)        (66,947)
     Note receivable - officer                                   --          12,605
     Inventories                                          3,587,043       4,010,961
     Prepaid expenses                                        47,224          79,568
     Deferred income taxes                                   19,476          18,165
                                                        -----------     -----------
                                                          4,257,029       4,813,478
                                                        -----------     -----------
Property and equipment:
     Cost                                                 1,976,882       2,187,922
     Less, accumulated depreciation                       1,244,920       1,366,915
                                                        -----------     -----------
                                                            731,962         821,007
                                                        -----------     -----------
Other assets:
     Deferred income taxes                                  101,329         107,686
     Other                                                    8,352          35,059
                                                        -----------     -----------
                                                            109,681         142,745
                                                        -----------     -----------
                                                        $ 5,098,672     $ 5,777,230
                                                        ===========     ===========
LIABILITIES
Current liabilities:
     Current maturities on long-term debt               $   969,438     $   356,262
     Notes payable - other                                  433,994       1,998,360
     Accounts payable - trade                               597,672         567,100
     Customer deposits                                       91,828          64,177
     Other current liabilities                              308,500         382,813
                                                        -----------     -----------
                                                          2,401,432       3,368,712
                                                        -----------     -----------
Noncurrent liabilities:
     Long-term debt, less current maturities              1,386,658         905,026
     Deferred compensation accrual                          288,000         264,000
                                                        -----------     -----------
                                                          4,076,090       4,537,738
                                                        -----------     -----------
STOCKHOLDERS' EQUITY
Common stock; authorized 6,000,000 shares; no par;
  shares issued and  outstanding for 1999 and 1998 -
  3,623,220 and 2,289,887, respectively                   3,754,531       3,354,531

Preferred stock;  authorized  5,000,000 shares; $5
  par; no shares issued and outstanding for 1999
  and 1998                                                      -0-             -0-

Accumulated other comprehensive income (loss)            (1,914,398)     (1,870,875)

Retained earnings (deficit)                                (817,551)       (244,164)
                                                        -----------     -----------
                                                          1,022,582       1,239,492
                                                        -----------     -----------
                                                        $ 5,098,672     $ 5,777,230
                                                        ===========     ===========
</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements

                                      -31-
<PAGE>

                    WELLINGTON HALL, LIMITED AND SUBSIDIARIES
                        CONSOLIDATED STOCKHOLDERS' EQUITY
                        ---------------------------------

                                                       Years Ended April 30
                                                       1999            1998
                                                    -----------     -----------
Common stock:
     Authorized 6,000,000 shares; no par:
          Balances, beginning of years              $ 3,354,531     $ 3,354,531
          Shares issued during the years                400,000              --
                                                    -----------     -----------
          Balances, end of years                      3,754,531       3,354,531
                                                    -----------     -----------

Preferred stock:
     Authorized 5,000,000 shares; $5 par;
     issued and outstanding beginning and
     end of years                                           -0-             -0-
                                                    -----------     -----------
Accumulated other comprehensive income (loss):
     Balances, beginning of years                    (1,870,875)     (1,856,648)
     Changes during the years                           (43,523)        (14,227)
                                                    -----------     -----------
     Balances, end of years                          (1,914,398)     (1,870,875)
                                                    -----------     -----------
Retained earnings (deficit):
     Balances, beginning of years                      (244,164)        769,061
     Net loss for the years                            (573,387)     (1,013,225)
     Balances, end of years                            (817,551)       (244,164)
                                                    -----------     -----------
                                                    $ 1,022,582     $ 1,239,492
                                                    ===========     ===========

               The accompanying notes are an integral part of the
                       consolidated financial statements

                                      -32-
<PAGE>

                    WELLINGTON HALL, LIMITED AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                        ---------------------------------

                                                        Years Ended April 30
                                                        1999            1998
                                                    -----------     -----------
Revenue:
     Sale of furniture                              $ 5,721,206     $ 5,661,309
     Other income                                         1,884           5,859
                                                    -----------     -----------
                                                      5,723,090       5,667,168
                                                    -----------     -----------
Costs and expenses:
     Cost of goods sold                               4,577,499       4,833,077
     Selling, general, and
          administrative expenses                     1,297,527       1,406,412
     Interest expense                                   403,159         448,510
                                                    -----------     -----------
                                                      6,278,185       6,687,999
                                                    -----------     -----------

          Loss before income tax expense (benefit)     (555,095)     (1,020,831)

Income tax expense (benefit)                             18,292          (7,606)

          Net loss for the years                    ($  573,387)    ($1,013,225)
                                                    ===========     ===========

Earnings (loss) per share of common stock:
     Basic and diluted:
          Net loss for the years                    ($      .25)    ($      .45)
                                                    ===========     ===========

               The accompanying notes are an integral part of the
                       consolidated financial statements

                                      -33-
<PAGE>

                    WELLINGTON HALL, LIMITED AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                 -----------------------------------------------

                                                        Years Ended April 30
                                                        1999            1998
                                                    -----------     -----------
Net loss for the years                              ($  573,387)    ($1,013,225)

Other comprehensive income (loss) -
     net of changes during the years:

Foreign currency translation adjustments                (43,523)        (14,227)
                                                    -----------     -----------

Comprehensive loss for the years                    ($  616,910)    ($1,027,452)
                                                    ===========     ===========

               The accompanying notes are an integral part of the
                       consolidated financial statements

                                      -34-
<PAGE>

                    WELLINGTON HALL, LIMITED AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                      -------------------------------------

<TABLE>
<CAPTION>
                                                                Years Ended April 30
                                                                1999            1998
                                                            -----------     -----------
Cash flows from operating activities:
<S>                                                         <C>             <C>
     Net loss for the years                                 ($  573,387)    ($1,013,225)
     Adjustments to reconcile net loss to
        net cash provided by operating activities:
          Depreciation                                           82,697          88,694
          Amortization                                           22,070              --
          Adjustment for allowance for fringe benefits          (46,039)             --
          Deferred compensation                                  24,000          24,000
          Allowance for slow-moving inventory                    75,613         (45,271)
          Deferred income taxes                                   5,046          (7,606)
     Changes in assets and liabilities:
          Accounts receivable                                   102,508         262,034
          Note receivable - officer                              12,605          15,788
          Inventories                                           296,317         381,037
          Prepaid expenses                                       31,829          90,608
          Other assets                                            3,339            (898)
          Accounts payable, customer deposits,
            and other current liabilities                        41,406         301,155
                                                            -----------     -----------
               Net cash provided by operating activities         78,004          96,316
                                                            -----------     -----------
Cash flows from investing activities:
     Purchase of equipment                                      (11,845)        (46,566)
     Cash flows from financing activities:
          Short-term borrowings (payments)                     (316,179)         70,077
          Payments on long-term debt                           (125,192)       (140,446)
          Proceeds from issuance of stock                       400,000              --
                                                            -----------     -----------
               Net cash used for financing activities           (41,371)        (70,369)
                                                            -----------     -----------
Effect of exchange rate changes on cash                          (7,364)           (982)
                                                            -----------     -----------
     Net increase (decrease) in cash                             17,424         (21,601)

Cash, beginning of years                                         32,514          54,115
                                                            -----------     -----------
Cash, end of years                                          $    49,938     $    32,514
                                                            ===========     ===========

Cash paid during the years for:
     Income taxes                                                 $ -0-           $ -0-
                                                            ===========     ===========
     Interest                                               $   417,553     $   425,831
                                                            ===========     ===========
</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements

                                      -35-
<PAGE>

                    WELLINGTON HALL, LIMITED AND SUBSIDIARIES
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              As of and for the Years Ended April 30, 1999 and 1998

1.   Summary of Significant Accounting Policies:

These consolidated  financial statements were prepared on the basis of generally
accepted  accounting  principles.  The more  significant of these principles are
described as follows:

Inventories  are stated at the lower of cost or market with cost computed by use
of the  first-in,  first-out  method.  Provision  has been made for obsolete and
slow-moving inventory.

Property and  equipment is carried at cost less  accumulated  depreciation.  New
assets and  expenditures  which  substantially  increase the useful lives of the
existing  assets are  capitalized.  Maintenance  and  repairs  are  expensed  as
incurred.  Depreciation is computed by use of the straight-line  method over the
estimated useful lives of the assets.

Earnings  (loss) per share is  computed  by  dividing  net income  (loss) by the
weighted average shares outstanding and diluted share equivalents outstanding.

Revenue from sales is recognized when materials are shipped to the customers.

The consolidated  financial  statements include the accounts of Wellington Hall,
Limited and its  wholly-owned  subsidiaries,  Wellington  Hall Caribbean  Corp.,
Muebles  Wellington  Hall,  S.  A.,  and  Palmetto  Furniture  Galleries,   Inc.
(hereinafter referred to collectively as the Company). All intercompany accounts
and transactions have been eliminated in consolidation. Muebles Wellington Hall,
S. A. was formed  during the year ended April 30, 1990,  and Palmetto  Furniture
Galleries,  Inc. was formed during the year ended April 30, 1998.  Both of these
subsidiaries were accounted for as purchases.

The financial statements of foreign subsidiaries have been translated into U. S.
dollars in accordance with Statement of Financial  Accounting  Standards  (SFAS)
No. 52. All  balance  sheet  accounts  have been  translated  using the  current
exchange  rates at the balance sheet date.  Income  statement  amounts have been
translated using the average exchange rate for the year.  Adjustments  resulting
from the changes in exchange  rates during the years are included in accumulated
other comprehensive income, a separate component of stockholders' equity.

The  preparation  of  consolidated   financial  statements  in  conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of contingent  assets and liabilities at the date of the consolidated
financial  statements and the reported  amounts of revenues and expenses  during
the reporting period. Actual results could differ from those estimates.

2.   Nature of Operations and Concentration of Credit Risk:

Wellington Hall, Limited and its subsidiary, Muebles Wellington Hall, S. A., are
manufacturers of wall systems,  dining room, bedroom,  and accent and occasional
furniture,  with plant facilities  located in Lexington,  North Carolina and San
Pedro  Sula,  Honduras.   The  accent  and  occasional  furniture  accounts  for
approximately 50% of the Company's total sales. The remaining 50% of total sales
is split about  evenly  over the other  three  product  lines.  Wellington  Hall
Caribbean  Corp. is a sales  organization  located in Lexington,  North Carolina
responsible  for selling Muebles  Wellington  Hall, S. A.'s products to both the
general public and Wellington Hall, Limited.  Palmetto Furniture Galleries, Inc.
is also a sales organization  located in Lexington,  North Carolina  responsible
for selling  second  quality  furniture of both  manufacturing  affiliates.  The
Company grants credit to customers who are located primarily in the U. S.

The  Company's  policy is to maintain its cash  balances in reputable  financial
institutions insured by the Federal Deposit Insurance Corporation which provides
$100,000 of insurance coverage on each customer's cash balances. At times during
the years, the Company's cash balances exceeded  $100,000.  Management  believes
that this policy will not cause any adverse effect to the Company.

                                      -36-
<PAGE>

                    WELLINGTON HALL, LIMITED AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3.   Note Receivable - Officer:

On January 30,  1992,  Hoyt  Hackney,  President  and Chief  Executive  Officer,
exercised  options and awards for 180,000  shares of common  stock at the option
price of $.80 per share resulting in a net increase in common stock of $144,000.
This increase was accomplished by cash of $40,000 being paid over to the Company
along with the  issuance  of a demand  note to the  Company  by Hoyt  Hackney of
$104,000.  The note receivable - officer was collateralized by the assignment of
the  interest the officer has in the  Company's  deferred  compensation  accrual
account and bears interest at the federal rate as issued from time to time. This
note was paid in full during the year ended April 30, 1999.

4.   Inventories:

Inventories consisted of the following:

                                                       1999             1998
                                                   -----------      -----------
Finished goods                                     $ 2,098,895      $ 1,867,072
Work-in-process                                      1,180,069        1,482,191
Raw materials                                          450,079          730,144
                                                   -----------      -----------
                                                     3,729,043        4,079,407
Less, allowance for slow-moving inventory             (142,000)         (68,446)
                                                   -----------      -----------
                                                   $ 3,587,043      $ 4,010,961
                                                   ===========      ===========

5.   Property and Equipment:

The major classes are as follows:

                                                        1999            1998
                                                     ----------      ----------
Land and buildings                                   $1,114,568      $1,117,651
Machinery and equipment                                 716,292         889,574

Furniture, fixtures, and other equipment                146,022         180,697
                                                     ----------      ----------
                                                     $1,976,882      $2,187,922
                                                     ==========      ==========

Depreciation  expense for the years  ended  April 30, 1999 and 1998  amounted to
$82,697 and $88,694, respectively.

                                      -37-
<PAGE>

                    WELLINGTON HALL, LIMITED AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6.   Notes Payable - Other:

Notes payable - other consisted of the following

<TABLE>
<CAPTION>
                                                               1999          1998
                                                            ----------    ----------
<S>                                                         <C>           <C>
Banco La Capitalizadora Hondurena, S. A
     Interest rates from 29% to 36%, secured by
     second mortgage on fixed assets and a lien on
     inventories of Muebles Wellington Hall, S. A           $  321,737    $  351,607

Banco de Honduras, S. A
     Interest rates from 29% to 36%, secured by
     inventories and a third mortgage on
     certain machinery and equipment of
     Muebles Wellington Hall, S. A                             112,257       138,981

Lexington State Bank
     Demand loan with weighted average interest
     rate of 9.56%, unsecured                                       --        93,600

Lexington State Bank
     Short-term line of credit, secured by a computed
     percentage of the Company's accounts receivable,
     inventories, and certain personal property assets,
     interest rate prime plus 1%                                    --     1,168,172

Lexington State Bank
     Short-term line of credit arrangement, secured by
     substantially all of the Company's assets, interest
     rate of prime plus 1.5%                                        --       246,000
                                                            ----------    ----------
                                                            $  433,994    $1,998,360
                                                            ==========    ==========
</TABLE>

On June 16, 1999,  Wellington Hall, Limited refinanced certain of its short-term
notes payable to  long-term.  In  accordance  with SFAS No. 6, these  short-term
loans have been  classified as long-term on the Company's  Consolidated  Balance
Sheets and are more fully described in Note 7 below.

                                      -38-
<PAGE>

                    WELLINGTON HALL, LIMITED AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7.   Long-term Debt:

Long-term debt consisted of the following:

                                                         1999          1998
                                                      ----------    ----------
E. Kemm
     Interest payable monthly at 1% above prime       $   25,000    $   25,000

Overseas Private Investment Corporation
     Interest rate 10.00%, payable in quarterly
     installments of $30,969 plus interest through
     April 30, 1998.  Beginning July 31, 1998,
     quarterly installments increase to $61,937
     plus interest with a balloon payment due
     October 1999                                        826,479       898,092

Lexington State Bank
     Interest rate 10.00%, payable in monthly
     installments of $7,000 with interest at
     1.5% above prime                                         --       338,196

Lexington State Bank
     Interest rate prime plus .75% (8.50% at
     June 16, 1999), payable in monthly
     installments of $19,000 including interest        1,204,617            --

Lexington State Bank
     Interest rate prime plus .75% (8.75% at
     June 16, 1999), payable in full on
     June 16, 2000                                       300,000            --
                                                      ----------    ----------
                                                       2,356,096     1,261,288

Less, current maturities                                 969,438       356,262
                                                      ----------    ----------
                                                      $1,386,658    $  905,026
                                                      ==========    ==========

The weighted  average  interest  rate paid E. Kemm  amounted to 10.0% and 9.50%,
respectively, for the years ended April 30, 1999 and 1998.

E. Kemm is a stockholder and an officer of the Company.

The Overseas Private  Investment  Corporation loan is secured by a first lien on
all real estate and all current and future  fixed  assets of Muebles  Wellington
Hall,  S. A. and a security  interest  in the Sales  Agreement  between  Muebles
Wellington Hall, S. A. and Wellington Hall Caribbean Corp.

The  Lexington  State  Bank  loans are  secured by a first lien on all assets of
Wellington Hall,  Limited.  The projected  payments of long-term debt in each of
the years subsequent to April 30, 1999 reflecting the amounts refinanced are:

                   Year Ending April 30            Amount
                   --------------------            ------

                           2000                 $  969,438
                           2001                    440,171
                           2002                    946,487

                                      -39-
<PAGE>

                    WELLINGTON HALL, LIMITED AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8.   Stock Option Plan:

On February 10,  1997,  the Board of Directors  approved  the  Wellington  Hall,
Limited 1997 Stock Option and Restricted  Stock Plan (the Plan).  The Plan has a
term of ten years, expiring on February 9, 2007. Under the Plan, the Company may
grant  options  or  restricted  stock  awards  to key  employees,  officers,  or
directors for up to an aggregate of 1,200,000  shares of common  stock,  with no
individual  receiving more than 600,000  shares.  The price of the shares issued
under the Plan is to be  determined  at the time of the  grant,  not to be below
100% of the fair market value of the common stock at the time of the grant.  The
Plan was  approved  by the  stockholders  of the  Company at the October 1, 1997
annual stockholders'  meeting. At April 30, 1999, no options or stock awards had
been granted.

9.   Capital Stock and Capital Structure:

The Company,  in accordance with its long-term loan agreement and line of credit
with Lexington  State Bank, is restricted  from paying  dividends on its capital
stock without prior written consent of the Bank.

All shares of capital stock represent voting shares.

In 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 at $.50 per share.  During  the fiscal  year  ended  April 30,  1998,  the
proposed stock offering was abandoned.

During the year ended April 30, 1999, the Company issued an additional 1,333,333
shares of common stock at $.30 per share to an existing officer/stockholder.

10.  Income Taxes:

Wellington  Hall,  Limited and  Subsidiaries  have the  following  net operating
losses to offset future tax liabilities, if any, as follows:

                              Federal                State
Year of                       Net Operating          Net Operating
Origin                        Losses                 Losses
------                        ----------             ----------

April 30, 1995                $   24,281                     --
April 30, 1996                        --             $   90,701
April 30, 1997                   397,158                339,816
April 30, 1998                   774,367                774,367
April 30, 1999                   799,286                721,331
                              ----------             ----------
                              $1,995,092             $1,926,215
                              ----------             ----------

Generally, the federal losses may be carried forward for fifteen years and North
Carolina  losses may be carried  forward  for five  years.  Effective  for years
beginning  January 1, 1999,  North  Carolina  laws were  amended to increase the
number of years a net operating  loss may be carried  forward to fifteen  years.
The change applies to losses incurred in tax years beginning on or after January
1, 1993 and limits a loss that is more than fifteen  years old to 15% of taxable
income before the remaining portion may be carried forward.  For years beginning
January 1, 2002, the percentage limitation is repealed. Additionally, for losses
incurred in 1998 and after,  federal net operating losses may be carried forward
for twenty years.

                                      -40-
<PAGE>

                    WELLINGTON HALL, LIMITED AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10.  Income Taxes (continued):

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:

                                                         1999            1998
                                                      ---------       ---------
Deferred tax assets:
Book over tax depreciation                            $  17,411              --
Book allowance for inventory                             30,051              --
Book allowance for doubtful accounts                     19,476       $  19,596
Tax over book inventory                                  33,281          38,311
Deferred compensation                                   111,715         102,828
State net operating loss carryforward                   129,838          74,475
Federal net operating loss carryforward                 543,467         380,481
                                                      ---------       ---------
                                                        885,239         615,691
                                                      ---------       ---------
Valuation allowance for deferred tax assets            (764,434)       (488,284)
                                                      ---------       ---------
                                                        120,805         127,407
Deferred tax liability:
Tax over book depreciation                                   --       $   1,556
     Net deferred tax asset                           $ 120,805       $ 125,851
                                                      ---------       ---------

Due to the certain conditions, the valuation allowance was increased by $276,150
during the year ended April 30, 1999.

Classification on the Company's Consolidated Balance Sheets is as follows:

                                                      1999                1998
                                                    --------            --------
Current asset                                       $ 19,476            $ 18,165

Noncurrent asset                                     101,329             107,686
                                                    --------            --------
                                                    $120,805            $125,851
                                                    --------            --------

There  follows a  reconciliation  of the income taxes per the income tax returns
with the income tax expense (benefit) per the Consolidated Statements of Income:

                                                         1999           1998
                                                       --------       --------
Amounts shown by returns (net)                         $ 13,246       $    -0-

Deferred income taxes                                     5,046         (7,606)

                                                       $ 18,292       ($ 7,606)
                                                       --------       --------
Effective income tax rates                                  3.3%          (.7%)
                                                       --------       --------

                                      -41-
<PAGE>

                    WELLINGTON HALL, LIMITED AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10.  Income Taxes (continued):

No provision has been made for U. S. income taxes on unremitted  earnings of the
foreign subsidiary (approximately $146,638 and $155,289,  respectively) at April
30,  1999  and  1998,  since  it is  the  present  intention  of  management  to
indefinitely reinvest these earnings.

The components of income (loss) before income taxes are as follows:

                                                1999                    1998
                                            -----------             -----------
Domestic                                    ($  558,350)            ($  778,955)
Foreign                                           3,255                (241,876)
                                            -----------             -----------
                                            ($  555,095)            ($1,020,831)
                                            -----------             -----------

Federal,  foreign,  and state  income tax  expense  (benefit)  consisted  of the
following:

                                                   1999                  1998
                                                 --------              --------
                 Federal                         $  3,317              ($ 5,800)
                 Foreign                              -0-                   -0-
                 State                             14,975                (1,806)
                                                 --------              --------
                                                 $ 18,292               ($7,606)
                                                 --------              --------

The following  schedule  reconciles  the  differences  between the U. S. federal
income tax rate and the effective tax rate:

                                                             1999        1998
                                                             -----       -----
Tax computed at the U. S. federal rate                        34.0%       34.0%
Deferred income taxes                                           .6         (.7)
Nondeductible expenses and benefit of
 domestic net operating loss                                 (34.0)      (34.0)
State income taxes, net                                        2.7          --
                                                             -----       -----
                                                               3.3%        (.7%)
                                                             -----       -----

11.  Leases:

The Company leases showroom space under a five-year  operating lease expiring in
April 2004.

The Company also leases office equipment under noncancelable  leases expiring in
2000 through 2004.

Net minimum lease payments on the foregoing leases are as follows:

                     2000              $   68,003
                     2001                  68,003
                     2002                  66,308
                     2003                  63,128
                     2004                  61,318

Net lease  expenses  of the  foregoing  leases for the years are  summarized  as
follows:

                                           1999               1998
                                         --------           --------
          Lease expenses                 $ 98,621           $ 97,634

          Sublease income                      --             46,214
                                         --------           --------
               Net lease expenses        $ 98,621           $ 51,420
                                         --------           --------

                                      -42-
<PAGE>

                    WELLINGTON HALL, LIMITED AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12.  Contingent Liabilities:

In accordance  with the Honduran  Labor Code,  the Company has the obligation to
pay  severance  compensation  to its  employees in the event of dismissal  under
certain  specific  circumstances.  It is the  policy of the  Company to pay such
severance  payments in accordance  with the Law. At April 30, 1999 and 1998, the
estimated contingent liability aggregated  approximately  $325,352 and $153,030,
respectively.

On June 26, 1998,  the Board of Directors of  Wellington  Hall  Caribbean  Corp.
voted to pursue the sale of its Honduran subsidiary, Muebles Wellington Hall, S.
A.

13.  Earnings Per Share:

During the year ended April 30, 1998,  Wellington Hall, Limited and Subsidiaries
adopted SFAS No. 128,  "Earnings Per Share".  SFAS No. 128 requires  entities to
present basic earnings per share computed by dividing income available to common
stockholders  by the  weighted  average  number  of  common  shares  outstanding
(2,315,458  shares in 1999 and  2,289,887  shares in 1998).  The  Company has no
diluted share equivalents outstanding and, therefore, the computation of diluted
earnings per share results in the same earnings as basic earnings per share.

14.  Incentive Plan:

The Company has an Incentive  Plan covering  certain  officers and key employees
who have the greatest  opportunities  to contribute to current  earnings and the
future  success of the Company's  operations.  The amount  determined  under the
Incentive Plan is based upon profits of the Company.

On January 1, 1987,  the  President  of the  Company  executed a new  employment
contract  and  forfeited  his  rights  under  the  Incentive  Plan as one of the
conditions of the new contract.

15.  Deferred Compensation Agreement:

On May 8, 1987, the Company adopted a Deferred  Compensation  Agreement with the
President of the Company  which will provide for the payment of $50,000 per year
for 10 years in  monthly  installments  when the  President  reaches  age 62 and
retires. The Agreement provides that if he dies before he has received the total
payments or if he dies before retirement, then his beneficiary shall receive the
benefit balance thereof in monthly  installments.  In future years, the deferred
compensation will be accrued over the remaining term of service by the President
on a present  value  basis.  The accruals for the years ended April 30, 1999 and
1998 were $24,000 each year.

At the April 19, 1999 meeting of the Board of Directors,  the Board  approved an
amendment to this Deferred  Compensation  Agreement.This  amendment  changes the
annual payment under the Agreement to $20,000 per year not to begin prior to May
1, 2000.  In  exchange  for the  $30,000  decrease  in the annual  payment,  the
President is to receive  1,000,000 shares of the Company's stock. This amendment
is to take effect at such time as it is executed by the  officers of the Company
and its President. At the date of the audit, the Agreement amendment had not yet
been executed.

16.  Profit Sharing Plan:

During the year ended  April 30,  1987,  the Company  adopted a combined  Profit
Sharing and Salary  Reduction Plan. The Company  contributes 50% of the employee
contributions with a 2% maximum Company  contribution on each employee's salary.
The Plan also has a feature  whereby the Directors can set aside certain profits
as determined annually by the Directors. The Profit Sharing and Salary Reduction
Plans are tax exempt under applicable sections of the Internal Revenue Code. The
contributions  by the  Company  for the years ended April 30, 1999 and 1998 were
$7,572 and $2,714, respectively.

                                      -43-
<PAGE>

                    WELLINGTON HALL, LIMITED AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

17.  Quarterly  Financial  Data - Unaudited:  The  following is a summary of the
quarterly results of operations for the years ended April 30, 1999 and 1998:

                                Earnings (Loss)
                                  Per Share of
                                  Common Stock

<TABLE>
<CAPTION>
Quarter               Net Sales             Gross Profit (Loss)            Net Income (Loss)         (Basic and Diluted)
Ended            1999          1998          1999         1998            1999           1998          1999       1998
              ----------    ----------    ----------    ---------     -----------     -----------     ------     ------
<S>           <C>           <C>           <C>           <C>           <C>             <C>             <C>        <C>
July 31       $1,556,520    $1,572,819    $  400,925    $ 222,228     ($   62,717)    ($  289,389)    ($0.02)    ($0.13)
October 31     1,351,361     1,467,983       308,897      463,650        (183,809)          5,783      (0.08)
January 31     1,376,578     1,327,101       246,553      294,799        (204,464)       (114,505)     (0.09)     (0.05)
April 30       1,436,747     1,293,406       187,332     (152,445)       (122,397)       (615,114)     (0.06)     (0.27)
              ----------    ----------    ----------    ---------     -----------     -----------     ------     ------
              $5,721,206    $5,661,309    $1,143,707    $ 828,232     ($  573,387)    ($1,013,225)     (0.25)    ($ .45)
              ==========    ==========    ==========    =========     ===========     ===========     ======     ======
</TABLE>

18.  Disclosures About Fair Value of Financial Instruments:

SFAS No. 107, "Disclosures About Fair Value of Financial Instruments",  requires
that the Company disclose  estimated fair values for its financial  instruments.
The following  methods and  assumptions  were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:

Cash:
The carrying amount approximates fair value.

Note receivable - officer:
The carrying amount approximates fair value.

Notes payable - other:
Due to the fact that these are  short-term  notes payable  within one year,  the
carrying amount approximates fair value.

Long-term debt:
The fair value of  long-term  debt is estimated  based on the current  rates the
Company could obtain on debt of the same remaining maturities.

The estimated fair values of the Company's financial instruments are as follows:

                                      1999                        1998
                            ------------------------    ------------------------
                             Carrying        Fair        Carrying        Fair
                              Amount        Value         Amount        Value
                            ----------    ----------    ----------    ----------
Cash                        $   49,938    $   49,938    $   32,514    $   32,514
Note receivable - officer           --            --        12,605        12,605
Notes payable - other          433,994       433,994     1,998,360     1,998,360
Long-term debt               2,356,096     2,356,096     1,261,288     1,261,288

                                      -44-
<PAGE>

                    WELLINGTON HALL, LIMITED AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

19.  Year 2000 Issue - Unaudited:

The year 2000 problem exists since certain  computer  programs and  applications
were written using two digits  instead of four to identify the year in the field
assigned to the date.  These  programs may  recognize  the year 2000 as the year
1900, which could produce incorrect data.

The Company's  management  believes that they are prepared for the year 2000 and
that they will not be significantly affected by internal applications.

Failure to achieve  year 2000  compliance  by the Company or a third party could
negatively  affect the  Company's  ability to conduct  business  for an extended
period  of  time.  There  can be no  assurance  that  all  internal  information
technology  systems and  components  will be year 2000  compliant;  in addition,
other companies on which Wellington Hall,  Limited and Subsidiaries'  operations
rely may or may not be compliant on a timely basis.  Any such failure could have
materially adverse effects on the Company.

20.  Going Concern Considerations:

As reflected in the accompanying consolidated financial statements,  the Company
incurred a $573,387 loss in the year ended April 30, 1999 and a $1,013,225  loss
in the year  ended  April  30,  1998.  The  Company's  gross  profit  percentage
increased  from 15% in the year  ended  April 30,  1998 to 20% in the year ended
April 30, 1999.  While this increase is  encouraging,  it is still less than the
23% that was achieved in the year ended April 30, 1997.  The Company's  lines of
credit and short-term  borrowings  were at near maximum levels at April 30, 1999
and 1998. A final balloon  payment of the  remaining  principal on the Company's
loan with the Overseas Private  Investment  Corporation (OPIC) is due in October
1999.

Management is continuing  to develop new product lines with a  concentration  in
higher volume items which should result in lower costs. Management also plans to
continue  to cut  costs at its  domestic  manufacturing  facility  and  increase
production  at  its  foreign  manufacturing   facility  where  costs  are  less.
Additionally, the Company's management is working toward converting a portion of
the debt with OPIC to capital.

21.  Statutory Reserve:

According to the  Commercial  Code of the Republic of  Honduras,  the  statutory
reserve must be constituted  annually  appropriating  at least 5% of the periods
earnings until it reaches 20% of capital stock. The statutory reserve,  which is
included in retained earnings, amounted to $23,558 at April 30, 1999 and 1998.

22.  Segment Information:

The  Company's  reportable  segments  are  strategic  business  units that offer
different  services  or are  geographically  integrated.  They  are  managed  in
different ways because each requires different  marketing  strategies or is in a
different geographical area.

Wholesale - Wellington Hall,  Limited and Wellington Hall Caribbean Corp. engage
in the wholesale marketing and sales of fine furniture. Wellington Hall, Limited
manufactures  much of the furniture that it sells, and Wellington Hall Caribbean
Corp. purchases the furniture that it sells from its wholly-owned subsidiary.

Retail - Palmetto Furniture  Galleries,  Inc. engages in the retail sales of any
second quality furniture manufactured by its affiliates.

Foreign - Muebles  Wellington Hall, S. A., a company  wholly-owned by Wellington
Hall  Caribbean  Corp.,  is engaged in the  manufacturing  of fine furniture and
components at its facilities in San Pedro Sula, Honduras.  Recently,  all of its
sales have been to its sole owner.

                                      -45-
<PAGE>

                    WELLINGTON HALL, LIMITED AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

22.  Segment Information (continued):

<TABLE>
<CAPTION>
                                 Wholesale        Retail          Foreign      Eliminations    Consolidated
                                -----------     -----------     -----------     -----------     -----------
<S>                     <C>     <C>             <C>             <C>             <C>             <C>
Sales revenues          1999    $ 5,506,934     $   214,272              --              --     $ 5,721,206
                        1998      5,455,635         205,674              --              --       5,661,309

Affiliated revenues     1999      1,271,812              --     $ 2,071,637     ($3,343,449)             --
                        1998        675,312              --       1,870,046      (2,545,358)             --

Depreciation and        1999         49,071              --          55,696              --         104,767
amortization            1998         66,055              --          22,639              --          88,694

Interest income         1999         32,082              --              --         (31,554)            528
                        1998          5,718              --              --          (4,843)            875

Interest expense        1999        251,562              --         183,151         (31,554)        403,159
and other               1998        274,167              --         179,186          (4,843)        448,510

Income tax expense      1999         18,292              --              --              --          18,292
                        1998         (7,606)             --              --              --          (7,606)

Net income              1999       (328,182)       (182,578)          5,767         (68,394)       (573,387)
                        1998       (660,240)       (111,109)       (241,876)             --      (1,013,225)

Total assets            1999      3,816,709         261,725       1,325,651        (305,413)      5,098,672
                        1998      4,305,277              --       1,522,535         (50,586)      5,777,230

Capital expenditures    1999             --              --          11,845              --          11,845
                        1998         16,806              --          29,760              --          46,566
</TABLE>

                                      -46-
<PAGE>

                    WELLINGTON HALL, LIMITED AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

22.  Segment Information (Continued):

Other Geographic Information - Sales to unaffiliated customers:

                                                    1999                 1998
                                                    ----                 ----
United States                                    $5,321,467           $5,661,309
Japan                                               393,053                   --
Republic of Korea                                     6,686
                                                 $5,721,206           $5,661,309

                                      -47-
<PAGE>

                             OFFICERS AND DIRECTORS
                                    OFFICERS

Hoyt M. Hackney, Jr.                         Ralph L. Eskelson, Jr.
     President and Treasurer                      General Manager
                                                  Muebles Wellington Hall, S.A.

Ernst B. Kemm                                William W. Woodruff
     Executive Vice President                     Secretary

                                    DIRECTORS

Donald W. Leonard                            William W. Woodruff
     Chairman of the Board                        President of Woodruff
                                                  Shoe Store

Hoyt M. Hackney, Jr.                         Ernst B. Kemm
     President and Treasurer                      Executive Vice
                                                  President

Arthur F. Bingham
     Senior Executive Vice President

                                 TRANSFER AGENT

                  Continental Stock Transfer and Trust Company

                                      -48-