UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 1-12368
THE LEATHER FACTORY, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2543540
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3847 East Loop 820 South, Ft. Worth, Texas 76119
(Address of principal executive offices) (Zip code)
(817) 496-4414
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to by filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Shares outstanding as of August 14, 1997
- - ------------------------------ ----------------------------------------
Common Stock, par value $.0024 9,853,161
per share
<PAGE>
THE LEATHER FACTORY, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
TABLE OF CONTENTS
-----------------
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1997 and December 31, 1996 .............................. 3
Consolidated Statements of Income
Three and six months ended
June 30, 1997 and 1996 ........................................... 4
Consolidated Statements of Cash Flow
Six months ended June 30, 1997 and 1996 ........................... 5
Consolidated Statement of Stockholders' Equity
Six months ended June 30, 1997 .............................. 6
Notes to Consolidated Financial Statements ......................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................ 8-11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders ......... 12
Item 6. Exhibits and Reports on Form 8-K .............................. 12
SIGNATURES............................................................... 13
EXHIBIT INDEX............................................................ 14-18
2
<PAGE>
THE LEATHER FACTORY, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<S> <C> <C>
June 30, December 31,
1997 1996
---------------- ----------------
ASSETS (UNAUDITED)
CURRENT ASSETS:
Cash
$ 299,652 $ 488,192
Accounts receivable-trade, net of allowance for
doubtful accounts of $48,000 and $54,000
in 1997 and 1996, respectively 2,352,701 1,947,698
Inventory 7,267,265 7,737,320
Prepaid income taxes 423,748 538,458
Deferred income taxes 115,821 126,955
Other current assets 486,713 542,809
----------- -----------
Total current assets 10,945,900 11,381,432
----------- -----------
PROPERTY AND EQUIPMENT, at cost 2,842,318 2,672,253
Less-accumulated depreciation and amortization (1,421,079) (1,273,609)
----------- -----------
Property and equipment, net 1,421,239 1,398,644
GOODWILL and other, net of accumulated amortization of
$770,000 and $660,000 in 1997 and 1996, respectively 5,404,961 5,484,471
---------- -----------
$ 17,772,100 $18,264,547
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,259,425 $ 940,549
Accrued expenses and other liabilities 540,817 597,007
Notes payable and current maturities of
long-term debt 7,682,154 8,549,366
------------- -----------
Total current liabilities 9,482,396 10,086,922
------------- -----------
DEFERRED INCOME TAXES 132,633 137,310
NOTES PAYABLE AND LONG-TERM DEBT,
net of current maturities 85,684 17,378
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $0.10 par value; 20,000,000
shares authorized, none issued or outstanding - -
Common stock, $0.0024 par value; 25,000,000 shares
authorized, 9,853,161 shares issued in 1997 and 1996 23,648 23,648
Paid-in capital 4,130,796 4,130,796
Retained earnings 4,515,950 4,464,277
Less: Notes receivable - secured by common stock (269,305) (269,305)
Cumulative translation adjustments (3,518) (295)
Less: Unearned shares held by ESOP, 64,631
shares in 1997 and 1996 (326,184) (326,184)
Total stockholders' equity 8,071,387 8,022,937
------------- ------------
$ 17,772,100 $18,264,547
============= ===========
</TABLE>
The accompanying notes are an integral part of these financialstatements.
3
<PAGE>
THE LEATHER FACTORY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<S> <C> <C> <C> <C>
THREE MONTHS SIX MONTHS
1997 1996 1997 1996
------------ ------------ ---------- ----------
NET SALES $ 6,526,992 $ 7,155,218 $12,986,884 $14,512,023
COST OF SALES 3,787,708 4,817,256 7,683,789 9,279,397
------------ ------------ ------------ ------------
Gross Profit 2,739,284 2,337,962 5,303,095 5,232,626
OPERATING EXPENSES 2,304,413 3,007,498 4,701,755 5,761,090
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 434,871 (669,536) 601,340 (528,464)
OTHER (INCOME) EXPENSE:
Interest expense 217,429 378,371 418,767 549,354
Other, net 4,132 (2,047) 3,288 (7,144)
------------ ------------ ------------ ------------
Total other (income) expense 221,561 376,324 422,055 542,210
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 213,310 (1,045,860) 179,285 (1,070,674)
PROVISION (BENEFIT)FOR INCOME TAXES 125,452 (234,897) 127,612 (237,717)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 87,858 $ (810,963) $ 51,673 $ (832,957)
============ ============ ============ ============
NET INCOME (LOSS)
PER SHARE OF COMMON STOCK $ 0.01 $ (0.08) $ 0.01 $ (0.09)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 9,788,530 9,788,530 9,788,530 9,788,530
============ ============ ============ ============
DIVIDENDS PAID PER SHARE $ - $ - $ - $ -
------------ ------------ ------------ ------------
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
4
THE LEATHER FACTORY, INC
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<S> <C> <C>
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 51,673 $ (832,957)
Adjustments to reconcile net income to net
cash provided by (used in) operating activities-
Depreciation & amortization 257,532 380,409
(Gain) loss on sales of assets -- (7,554)
Deferred financing costs -- 123,456
Deferred income taxes 6,457 (1,829)
Other (1,614) 1,839
Net changes in assets and liabilities, net of effect of acquisitions:
Accounts receivable-trade, net (405,003) 70,662
Inventory 470,055 (1,077,256)
Income taxes 114,710 (291,312)
Other current assets 56,096 15,770
Accounts payable 318,876 306,737
Accrued expenses and other liabilities (56,190) (47,219)
----------- -----------
Total adjustments 760,919 (526,297)
----------- -----------
Net cash provided by (used in) operating activities 812,592 (1,359,254)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (170,165) (148,494)
Proceeds from sales of assets -- 7,444
Cash paid for acquisitions, net of cash acquired -- (300,000)
Other intangible costs (32,061) --
----------- -----------
Net cash used in investing activities (202,226) (441,050)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and long-term debt 302,957 2,750,000
Payments on notes payable and long-term debt (1,101,863) (1,323,223)
----------- -----------
Net cash provided by (used in) financing activities (798,906) 1,426,777
----------- -----------
NET INCREASE (DECREASE) IN CASH (188,540) (373,527)
CASH, beginning of period 488,192 477,159
----------- -----------
CASH, end of period $ 299,652 $ 103,632
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the period $ 422,555 $ 203,806
Income taxes paid during the period, net of refunds 6,445 57,685
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE>
THE LEATHER FACTORY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<S> <C> <C> <C> <C>
Common Stock Notes Cumulative
receivable
---------------------
Number Paid-in Retained - secured by Translation Unearned
of Shares Par Value Capital Earnings common stock Adjustments ESOP
Shares Total
---------- ---------- -------------- ------------- -------------- ---------- ----------- ----------
BALANCE, December
31, 1996 9,853,161 $ 23,648 $ 4,130,796 $ 4,464,277 $ (269,305) $ (295) $ (326,184) $ 8,022,937
Translation
adjustment - - - - - (3,223) - (3,223)
Net income - - - 51,673 - - - 51,673
---------- ---------- -------------- ------------- ------------- ---------- ----------- ----------
BALANCE, June
30, 1997 9,853,161 $ 23,648 $ 4,130,796 $ 4,515,950 $ (269,305) (3,518) $ (326,184 $ 8,071,387
========== ========== ============== ============= ============= ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
6
<PAGE>
THE LEATHER FACTORY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
In the opinion of the Company, the accompanying consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly its financial position as of June 30,
1997 and December 31, 1996, and the results of operations and cash flows for the
three and six month periods ended June 30, 1997 and 1996. The results of
operations for the three and six month periods are not necessarily indicative of
the results to be expected for the full fiscal year. The consolidated financial
statements should be read in conjunction with the financial statement
disclosures contained in the Company's 1996 Annual Report to Stockholders.
2. Inventories
The components of inventory consist of the following:
June 30, December 31,
1997 1996
---------- ----------
Finished goods held for sale $5,904,072 $6,516,517
Raw materials and work in process 1,363,193 1,220,803
========== ==========
$7,267,265 $7,737,320
========== ==========
3. Notes Payable and Long-Term Debt
As previously reported in the Company's 1996 Annual Report on Form 10-K,
and Quarterly Report on Form 10-Q for the period ended March 31, 1997, the
Company has certain financing arrangements with NationsBank of Texas, N.A.
("NationsBank") which mature on August 31, 1997.
Management believes that the restructuring of the Company's financing
arrangements on a favorable, long term basis will be accomplished. Currently,
new senior and mezzanine lenders are performing due diligence procedures. In the
event the alternative financing cannot be arranged, the Company would enter
negotiations with NationsBank to restructure the existing loans. If neither of
these strategies were successful, the Company could experience a material
adverse impact.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
- - -------
The Leather Factory, Inc. ("the Company") is a leading one stop source
for leather, traditional leathercraft materials involving such products as
do-it-yourself kits, stamping sets, and leatherworking tools, craft-related
items including various types of leather lace, beads, and wearable art
accessories, hardware, metal garment accessories such as belt buckles, belt
buckle designs and conchos, shoe repairing supplies and leather finishes.
Moreover, the Company is a manufacturer and distributor of hat trims, cigar
cases and cigar accessories. These products are distributed primarily on a
wholesale level.
Results of Operations
Analysis of Second Quarter 1997 Compared to Second Quarter 1996
Income Statement Comparison
The following table sets forth, for the interim periods indicated,
certain items from the Company's Consolidated Statements of Income expressed as
a percentage of net sales:
Quarterly Period Ended
June 30,
1997 1996
------ ------
Net sales 100.00% 100.0%
Cost of sales 58.0 67.3
----- -----
Gross profit 42.0 32.7
Operating expenses 35.3 42.0
----- -----
Income (loss) from operations 6.7 -9.3
Interest expense, net 3.4 5.3
----- -----
Income (loss) before income taxes 3.3 -14.6
Provision for income taxes 1.9 -3.3
----- -----
Net income (loss) 1.4% -11.3%
===== =====
Revenues
- - -------
The Company's net sales decreased by 8.8% to $6,526,992 during the
second fiscal quarter ended June 30, 1997 from $7,155,218 generated in the
second quarter of 1996. The 8.8% decrease in revenues resulted from minor
decreases in six sales categories that were partially offset by increases in
five categories. Sales to the craft and western markets appear to have
stabilized.
The Company is continuing efforts to develop new products and sell to
new markets and expects these efforts to gradually replace some of the declines
that have been experienced in current markets.
Costs, Gross Profit, and Expenses
- - ---------------------------------
The Company's cost of sales decreased by 21.4% to $3,787,708 during the
second fiscal quarter ended June 30, 1997 from $4,817,256 in the second quarter
of 1996. Approximately 70.9% of this 21.4% reduction resulted from efforts by
Company management to increase manufacturing productivity, obtain better product
sourcing and sell into higher margin markets. The balance of the decrease
resulted from non-recurring items that occurred in the second quarter of 1996.
Operating expenses decreased $703,085 or 23.4% to $2,304,413 during the
second fiscal quarter of 1997 from $3,007,498 during the quarter ended June 30,
1996. Approximately 56.1% of this 23.4% decrease resulted from a determined
8
<PAGE>
effort by Company management to reduce expenses and improve efficiency so that
cost levels are more in line with current sales levels. The balance of the
decrease resulted from non-recurring items that occurred in the second quarter
of 1996.
Other (Income) Expense
- - ---------------------
Other expenses decreased $154,763 or 41.1% to $221,561 for the second
fiscal quarter of 1997 from $376,324 during the same quarter in 1996. This
decrease resulted primarily from the write-off of the commitment and facility
fees attributable to the acquisition financing commitments which expired in July
1996. Actual interest expense increased $34,282 due to higher interest rates on
existing debt and a reduction in discounts taken for early invoice payment.
Net Income
Net income increased to $87,858 during the second fiscal quarter of
1997 from a net loss of $810,963 during the quarter ended June 30, 1996. The
increased net income resulted from the factors noted above regarding revenues,
costs and expenses.
Analysis of Six Months Ended June 30, 1997
to Six Months Ended June 30, 1996
Income Statement Comparison
The following table sets forth, for the interim periods indicated,
certain items from the Company's Consolidated Statements of Income expressed as
a percentage of net sales:
Six Months Ended
June 30,
1997 1996
------ ------
Net sales 100.0% 100.0%
Cost of sales 59.2 63.9
------ ------
Gross profit 40.8 36.1
Operating expenses 36.2 39.7
------ ------
Income (loss) from operations 4.6
- - -3.6
Interest expense, net 3.2 3.7
------ ------
Income (loss) before income taxes 1.4 -7.3
Provision for income taxes 1.0 -1.6
------ ------
Net income (loss) 0.4% -5.7%
====== ======
Revenues
- - --------
The Company's net sales decreased by 10.5% to $12,986,884 during the
six months June 30, 1997 from $14,512,023 generated in the same period of 1996.
The decrease in revenues was primarily due to reduced sales of western hatbands
and to the retail craft industry. Sales to the craft and western markets appear
to have stabilized.
The Company is continuing efforts to develop new products and sell to
new markets and expects these efforts to gradually replace some of the declines
that have been experienced in current markets.
9
<PAGE>
Costs, Gross Profit, and Expenses
- - ---------------------------------
The Company's cost of sales decreased by 17.2% to $7,683,789 for the
six months of 1997 as compared to $9,279,397 for the same six months in 1996.
Approximately 81.2% of this decrease resulted from efforts by Company management
to increase manufacturing productivity, obtain better product sourcing and sell
into higher margin markets. The balance of the decrease resulted from
non-recurring items that occurred in the second quarter of 1996.
Operating expenses decreased $1,059,335 or 18.4% to $4,701,755 during
the first six months of 1997 from $5,761,090 during the same six months of 1996.
Approximately 70.9% of this 18.4% decrease resulted from a determined effort by
Company management to reduce expenses and improve efficiency so that cost levels
are more in line with current sales levels. The balance of the decrease resulted
from non-recurring items that occurred in the second quarter of 1996.
Other (Income) Expense
- - ----------------------
Other expenses decreased $120,155 or 22.2% to $422,055 for the first
six months ended June 30, 1997 from $542,210 during the same period in 1996.
This decrease resulted primarily from the write-off of the commitment and
facility fees attributable to the acquisition financing commitments which
expired in July 1996. Actual interest expense increased $75,069 due to higher
interest rates on existing debt and a reduction in discounts taken for early
invoice payment.
Net Income
- - ----------
Net income increased to $51,673 during the first six months of 1997
from a net loss of $832,957 during the six months ended June 30, 1996. The
increased net income resulted from the factors noted above regarding revenues,
costs and expenses.
Capital Resources and Liquidity
- - -------------------------------
The primary source of funds for the Company during the first quarter of
1997 resulted from funds generated by a $470,055 reduction in inventory. The
current inventory turn rate of 2.05 indicates that additional funds should be
available as management continues its efforts to adjust inventory levels to be
more in line with the 2.25, 2.32 and 2.84 turn rates during 1996, 1995 and 1994
respectively.
The availability of funds under the Company's credit facility with
NationsBank of Texas, N.A. ("NationsBank") continues to be the primary source of
liquidity and capital resources.
Background of Agreement with Bank.
- - ----------------------------------------
The NationsBank financingarrangements, which include a working capital line of
credit and a term facility, are governed by the Second Restated Loan Agreement
dated July 24, 1995 as amended (the "Loan Agreement"). The Company presently has
outstanding principal balances on its working capital line of credit and its
term facility of $5,125,000 and $2,500,000, respectively. From June 30, 1996
through December 31, 1996, the Company had been in default under certain
financial covenants contained in the Loan Agreement. These financial covenants
related to the following ratio tests:
(1) Current Assets to Current Liabilities;
(2) Total Liabilities to Tangible Net Worth;
(3) Senior Funded Debt to Earnings Before Interest, Taxes, Depreciation
and Amortization ("EBITDA"); and
(4) Cash Flow Ratio.
On August 14, 1996, effective June 30, 1996, NationsBank and the Company
entered into an amendment to the Loan Agreement pursuant to which NationsBank
agreed to forbear the exercising of their legal rights due to the aforementioned
events of default under the Loan Agreement until September 30, 1996 (the
"Forbearance Period"). NationsBank also waived a default under the Borrowing
Base and the element of the Borrowing Base which gave rise to the default, the
net income test, was eliminated as part of said Borrowing Base.
10
<PAGE>
On September 30, 1996, NationsBank and the Company entered into another
amendment to the Loan Agreement whereby NationsBank agreed to extend the
Forbearance Period until December 31, 1996 (the "Extended Forbearance Period").
NationsBank and the Company also agreed to decrease the amount of the working
capital line of credit from $10 million to $7.5 million. Additionally the
Company agreed to grant NationsBank a lien on its facility located in Tampa,
Florida.
The Company remained in default under the financial covenants described
above.
December 31, 1996 Agreement. As of December 31, 1996, NationsBank and the
Company entered into the Fifth Amendment to the Second Restated Loan Agreement
(the "Fifth Amendment") whereby NationsBank and the Company agreed to modify the
Loan Agreement. In the Fifth Amendment the Company agreed to employ Price
Waterhouse to assist in obtaining alternative financing of the obligations to
NationsBank. The Company and Nations Bank also agreed:
1. To decrease the amount of the working capital line of credit from $7.5
million to $6.5 million; 2. To modify the maturity date of the working
capital line of credit note to April 30, 1997; 3. To modify the maturity
date of the Roberts Cushman & Company note to April 30, 1997. 4. The
financial covenants under which the Company was in default previously were
eliminated or modified.
Current Agreement. Effective April 30, 1997 the Company and NationsBank
entered into the Sixth Amendment to the Second Restated Loan Agreement whereby
the maturity dates of the working capital line of credit and the term loan are
extended until August 31, 1997. The Company and NationsBank also agreed:
1. To modify the interest rate from prime plus 1.5% to prime plus 2.0%;
2. To apply all proceeds from expected tax refunds of approximately
$500,000 to reduce the term note:
3. That Wray Thompson, Ron Morgan and Robin Morgan would pledge their stock
in the Company as collateral on the notes and
4. The Company would pay a $15,417 fee for the extension.
Management remains confident that the restructuring of our financing
arrangements on a favorable, long term basis will be accomplished. Currently,
potential new senior and mezzanine lenders are performing due diligence
procedures. However, in the event alternative financing cannot be arranged, the
Company would enter negotiations with NationsBank to restructure the existing
loans. If neither of these strategies were successful, the Company could
experience a material adverse impact.
While subject to the issues surrounding the Company's financing arrangements,
the Company's management believes that current sources of liquidity and capital
resources will be sufficient to fund current operations and internal growth.
Cautionary Statement
- - --------------------
The disclosures under "-Results of Operations" and "-Capital Resources
and Liquidity" and in the Notes to Consolidated Financial Statements as provided
elsewhere herein contain forward-looking statements. There are certain important
factors which could cause results to differ materially than those anticipated by
some of the forward-looking statements. Some of the important factors which
could cause actual results to differ materially from those in the
forward-looking statements include, among other things, changes from anticipated
levels of sales, whether due to future national or regional economic and
competitive conditions, including, but not limited to, retail craft buying
patterns, and possible negative trends in the craft and western retail markets,
customer acceptance of existing and new products, or otherwise, pricing
pressures due to competitive industry conditions, increases in prices for
leather, which is a world-wide commodity, which for some reason, may not be
passed on to the customers of the Company's products, change in tax rates,
change in interest rates, problems with the importation of the products which
the Company buys in 14 countries around the world, including, but not limited
to, transportation problems or changes in the political climate of the countries
involved, including the maintenance by said countries of Most Favored Nation
status with the United States of America, and other uncertainties, all of which
are difficult to predict and many of which are beyond the control of the
Company.
11
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On May 22, 1997 the Annual Meeting of the Stockholders of the Company
was held in the Scott and Van Zandt rooms at the Radisson Hotel, fort worth,
Texas to consider and act on the following matters:
(1) To elect the following individuals to serve as directors until the
Company's 1998 Annual Meeting of Stockholders or until their successors
are duly elected and qualified:
Wray Thompson Fred N. Howell
Ronald C. Morgan Luther A. Henderson
Robin L. Morgan H. W. "Hub" Markwardt
William M. Warren
(2) To ratify the appointment of Ernst & Young LLP as independent
auditors for the Company for the fiscal year ended December 31, 1997.
The stockholders of the Company approved matter (2) above by a vote of
(i) 5,613,858, or 57.0% of the total outstanding, in favor, (ii) 7,134 or .07%
of the total outstanding, against, and (iii) 379 abstained from voting.
As to item (1) above, the following table depicts the votes cast for and
against, as well as those which abstained from voting, as to the election of the
aforementioned individuals as a director of the Company as noted above:
For Against Abstaining
--- ------ ---------
Wray Thompson 5,590,407 7,432 23,531
Ronald C. Morgan 5,590,407 7,432 23,531
Robin L. Morgan 5,593,232 4,607 23,531
William M. Warren 5,593,232 4,607 23,531
Fred N. Howell 5,593,232 4,607 23,531
Luther A. Henderson 5,593,232 4,607 23,531
H. W. "Hub" Markwardt 5,593,232 4,607 23,531
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
- - ------------
A list of exhibits required to be filed as part of this report is set
forth in the Exhibit Index which immediately precedes such exhibits, and is
incorporated herein by reference.
(b) Reports on Form 8-K
None
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE LEATHER FACTORY, INC.
(Registrant)
Date: August 14, 1997 By /s/ Wray Thompson
--------------------
Wray Thompson
Chairman of the Board,
President and
Chief Executive Officer
Date: August 14, 1997 By /s/ Fred N. Howell
-----------------------
Fred N. Howell
Chief Financial Officer,
Treasurer and Director
(Chief Financial and
Accounting Officer)
13
<PAGE>
THE LEATHER FACTORY, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Description
----- -----------
3.1 Certificate of Incorporation of The Leather Factory, Inc., filed as
Exhibit 3.1 to the Registration Statement on Form SB-2 of The Leather
Factory, Inc. (Commission File No. 33-81132) filed with the Securities
and Exchange Commission on July 5, 1994, and incorporated by reference
herein.
3.2 Bylaws of The Leather Factory, Inc., filed as Exhibit 3.2 to the
Registration Statement on Form SB-2 of The Leather Factory, Inc.
(Commission File No. 33-81132) filed with the Securities and Exchange
Commission on July 5, 1994, and incorporated by reference herein.
3.3 Amendment to Certificate of Incorporation of The Leather Factory, Inc.
-- Certificate of Designation, Preferences and Rights of the Senior
Cumulative Convertible Preferred Stock Dated July 24, 1995, filed as
Exhibit 3.3 to the Quarterly Report on Form 10-QSB of The Leather
Factory, Inc. (Commission File No. 1-12368) filed with the Securities
and Exchange Commission on August 10, 1995, and incorporated by
reference herein.
4.1 Second Restated Loan Agreement dated July 24, 1995, by and between The
Leather Factory, Inc., a Delaware corporation, and NationsBank of
Texas, N.A., filed as Exhibit 4.1 to the Quarterly Report on Form
10-QSB of The Leather Factory, Inc. (Commission File No. 1-12368)
filed with the Securities and Exchange Commission on August 10, 1995,
and incorporated by reference herein.
4.2 Promissory Note (Working Capital Line of Credit) dated September 30,
1996, in the principal amount of $7,500,000, payable to the order of
NationsBank of Texas, N.A., which matures March 31, 1997.
4.3 Promissory Note (Acquisition Line) dated July 24, 1995, in the
principal amount of $10,000,000, payable to the order of NationsBank
of Texas, N.A., which matures August 1, 2000, filed as Exhibit 4.3 to
the Quarterly Report on Form 10-QSB of The Leather Factory, Inc.
(Commission File No. 1-12368) filed with the Securities and Exchange
Commission on August 10, 1995, and incorporated by reference herein.
4.4 Promissory Note dated December 28, 1994 in the principal amount of
$5,000,000, payable to the order of NationsBank of Texas, N.A., which
matures December 28, 1999, filed as Exhibit No. 4.5 to the 1994 Annual
Report on Form 10-KSB of The Leather Factory, Inc. (Commission File
No. 1-12368) filed with the Securities and Exchange Commission on
March 27, 1995, and incorporated herein by reference.
4.5 Stock Purchase Agreement dated as of July 28, 1995, by and between
Center Street Capital Partners, L.P., a Delaware Limited Partnership,
Stratford Capital Partners, L.P., a Texas Limited Partnership, and The
Leather Factory, Inc., a Delaware Corporation, filed as Exhibit 4.5 to
the Quarterly Report on Form 10-QSB of The Leather Factory, Inc.
(Commission File No. 1-12368) filed with the Securities and Exchange
Commission on August 10, 1995, and incorporated by reference herein.
14
<PAGE>
THE LEATHER FACTORY, INC. AND SUBSIDIARIES
EXHIBIT INDEX
(Continued)
Exhibit
Number Description
------- -----------
4.6 Commitment Agreement dated July 28, 1995, by and among The Leather
Factory, Inc., a Delaware Corporation, Center Street Capital Partners,
L.P., a Delaware Limited Partnership, and Stratford Capital Partners,
L.P., a Texas Limited Partnership, filed as Exhibit 4.6 to the
Quarterly Report on Form 10-QSB of The Leather Factory, Inc.
(Commission File No. 1-12368) filed with the Securities and Exchange
Commission on August 10, 1995, and incorporated by reference herein.
4.7 Registration Rights Agreement dated July 28, 1995, by and between
Center Street Capital Partners, L.P., a Delaware Limited Partnership,
Stratford Capital Partners, L.P., a Texas Limited Partnership, and The
Leather Factory, Inc., a Delaware Corporation, filed as Exhibit 4.7 to
the Quarterly Report on Form 10-QSB of The Leather Factory, Inc.
(Commission File No. 1-12368) filed with the Securities and Exchange
Commission on August 10, 1995, and incorporated by reference herein.
4.8 Shareholders Agreement dated July 28, 1995, by and between Wray
Thompson, an individual and resident of the State of Texas, Sally A.
Thompson, an individual and resident of the State of Texas, Ronald C.
Morgan, an individual and resident of the State of Texas, Robin L.
Morgan, an individual and resident of the State of Texas, Center
Street Capital Partners, L.P., a Delaware Limited Partnership,
Stratford Capital Partners, L.P., a Texas Limited Partnership, and The
Leather Factory, Inc., a Delaware Corporation, filed as Exhibit 4.8 to
the Quarterly Report on Form 10-QSB of The Leather Factory, Inc.
(Commission File No. 1-12368) filed with the Securities and Exchange
Commission on August 10, 1995, and incorporated by reference herein.
4.9 First Amendment to Second Restated Loan Agreement effective as of
December 31, 1995, by and between The Leather Factory, Inc., a
Delaware Corporation, and NationsBank of Texas, N.A., filed as Exhibit
No. 4.9 to the 1995 Annual Report on Form 10-KSB of The Leather
Factory, Inc. (Commission File No. 1-12368), filed with the Securities
and Exchange Commission on March 28, 1996, and incorporated herein by
reference.
4.10 Second Amendment to Second Restated Loan Agreement effective as of
March 31, 1996, by and between The Leather Factory, Inc., a Delaware
Corporation, and NationsBank of Texas, N.A., filed as Exhibit No. 4.10
to the Quarterly Report on Form 10-Q of The Leather Factory, Inc.
(Commission File No. 1-12368) filed with the Securities and Exchange
Commission on May 20, 1996, and incorporated by reference herein.
4.11 Forbearance Agreement and Third Amendment to the Second Restated Loan
Agreement effective as of June 30, 1996, by and between The Leather
Factory, Inc., a Delaware Corporation, and NationsBank of Texas, N.A.,
filed as Exhibit No. 4.11 to the Quarterly Report on Form 10-Q of The
Leather Factory, Inc. (Commission File No. 1-12368) filed with the
Securities and Exchange Commission on August 19, 1996, and
incorporated by reference herein.
4.12 Forbearance Agreement and Fourth Amendment to Second Restated Loan
Agreement effective as of September 30, 1996, by and between The
Leather Factory, Inc., a Delaware Corporation, and NationsBank of
Texas, N.A.
15
<PAGE>
THE LEATHER FACTORY, INC. AND SUBSIDIARIES
EXHIBIT INDEX
(Continued)
Exhibit
Number Description
------ ----------
4.13 Fifth Amendment to Second Restated Loan Agreement effective as of
December 31, 1996, by and between The Leather Factory, Inc., a
Delaware Corporation, and NationsBank of Texas, N.A.
4.14 Sixth Amendment to Second Restated Loan Agreement effective as of
April 30, 1997, by and between The Leather Factory, Inc., a Delaware
Corporation, and NationsBank of Texas, N.A.
10.1 Stock Exchange Agreement dated July 9, 1993, by and among The Leather
Factory, Inc., a Texas corporation, National Transfer & Register
Corp., a Colorado corporation, J. Wray Thompson, Sr., Ronald C.
Morgan, Robin L. Morgan and The Leather Factory, Inc. Employees' Stock
Ownership Plan & Trust, filed as Exhibit No. 10.1 to the Registration
Statement on Form 10-SB of The Leather Factory, Inc. (Commission File
No. 0-22128), including any amendments thereto, filed with the
Securities and Exchange Commission on July 22, 1993, and incorporated
herein by reference.
10.2 Stock Exchange Agreement dated July 10, 1993, by and between National
Transfer & Register Corp., a Colorado corporation and Vicki Byrd,
filed as Exhibit No. 10.2 to the Registration Statement on Form 10-SB
of The Leather Factory, Inc. (Commission File No. 0-22128), including
any amendments thereto, filed with the Securities and Exchange
Commission on July 22, 1993, and incorporated herein by reference.
10.3 Stock Purchase Agreement dated as of June 30, 1993, by and between The
Leather Factory, Inc., a Texas corporation and Steve Lindley, filed as
Exhibit No. 10.3 to the Registration Statement on Form 10-SB of The
Leather Factory, Inc. (Commission File No. 0-22128), including any
amendments thereto, filed with the Securities and Exchange Commission
on July 22, 1993, and incorporated herein by reference.
10.4 Amendment to Stock Purchase Agreement executed September 20, 1993, to
be effective June 30, 1993, by and between The Leather Factory, Inc.,
a Texas corporation and Steve Lindley, filed as Exhibit No. 19.1 to
the 1993 Annual Report on Form 10-KSB of The Leather Factory, Inc.
(Commission File No. 1-12368), filed with the Securities and Exchange
Commission on March 30, 1994, and incorporated herein by reference.
10.5 Stock Purchase Agreement dated as of June 30, 1993, by and between The
Leather Factory, Inc., a Texas corporation and Kevin F. White and
Durham Hefta, filed as Exhibit No. 10.4 to the Registration Statement
on Form 10-SB of The Leather Factory, Inc. (Commission File No.
0-22128), including any amendments thereto, filed with the Securities
and Exchange Commission on July 22, 1993, and incorporated herein by
reference.
10.6 Stock Purchase Agreement dated as of June 30, 1993, by and between The
Leather Factory, Inc., a Texas corporation and James Durr, filed as
Exhibit No. 10.5 to the Registration Statement on Form 10-SB of The
Leather Factory, Inc. (Commission File No. 0-22128), including any
amendments thereto, filed with the Securities and Exchange Commission
on July 22, 1993, and incorporated herein by reference.
16
<PAGE>
THE LEATHER FACTORY, INC. AND SUBSIDIARIES
EXHIBIT INDEX
(Continued)
Exhibit
Number Description
------- -----------
10.7 The Leather Factory, Inc. 1993 Non-Qualified Incentive Stock Option
Plan, filed as Exhibit No. 10.6 to the 1993 Annual Report on Form
10-KSB of The Leather Factory, Inc. (Commission File No. 1-12368)
filed with the Securities and Exchange Commission on March 30, 1994,
and incorporated herein by reference.
10.8 Acquisition Agreement dated as of January 10, 1994, by and between The
Leather Factory, Inc., a Colorado corporation and Hi-Line Leather &
Manufacturing Company, filed as Exhibit No. 2.1 to the Current Report
on Form 8-K of The Leather Factory, Inc. (Commission File No. 1-12368)
filed with the Securities and Exchange Commission on January 10, 1994,
and incorporated herein by reference.
10.9 Asset Purchase Agreement dated as of April 15, 1994, by and among The
Leather Factory, Inc., a Colorado corporation, The Leather Warehouse
Company, a Michigan corporation, Daniel W. Holbert, Linda S. McCleary,
Richard J. Hill, and the Richard J. Hill Trust, filed as Exhibit No.
2.1 to the Current Report on Form 8-K of The Leather Factory, Inc.
(Commission File No. 1-12368) filed with the Securities and Exchange
Commission on April 15, 1994, and incorporated herein by reference.
10.10 Acquisition Agreement by and among The Leather Factory, Inc. and
David Lieberman, Individually and as the Shareholder of Roberts,
Cushman & Company, Inc., related to the acquisition of the issued and
outstanding capital stock of Roberts, Cushman & Company, Inc., filed
as Exhibit No. 2.1 to the Current Report on Form 8-K of The Leather
Factory, Inc. (Commission File No. 1-12368) filed with the Securities
and Exchange Commission on January 9, 1995, and incorporated herein by
reference.
10.11 The Leather Factory, Inc. Employees' Stock Ownership Plan and Trust
(Restated), dated February 22, 1994, effective as of October 1, 1993,
filed as Exhibit No. 4.1 to the Registration Statement on Form S-8 of
The Leather Factory, Inc. (Commission File No. 33-81214), including
any amendments thereto, filed with the Securities and Exchange
Commission on July 5, 1994, and incorporated herein by reference.
10.12 Amendment No. 1 to The Leather Factory, Inc. Employees' Stock
Ownership Plan and Trust (Restated as of October 1, 1993), dated
October 5, 1994 to be effective December 28, 1990, filed as Exhibit
No. 10.12 to the 1994 Annual Report on Form 10-KSB of The Leather
Factory, Inc. (Commission File No. 1-12368) filed with the Securities
and Exchange Commission on March 27, 1995, and incorporated herein by
reference.
10.13 Participation Agreement in The Leather Factory, Inc. Employees' Stock
Ownership Plan and Trust (Restated as of October 1, 1993), dated
February 28, 1995 to be effective January 2, 1995, filed as Exhibit
No. 10.13 to the 1994 Annual Report on Form 10-KSB of The Leather
Factory, Inc. (Commission File No. 1-12368) filed with the Securities
and Exchange Commission on March 27, 1995, and incorporated herein by
reference.
17
<PAGE>
THE LEATHER FACTORY, INC. AND SUBSIDIARIES
EXHIBIT INDEX
(Continued)
Exhibit
Number Description
------- -----------
10.14 Indemnification Agreement dated October 17, 1994, by and among The
Leather Factory, Inc., a Delaware corporation, Securities Transfer
Corporation, a Texas corporation, and Halter Capital Corporation, a
Texas corporation, filed as Exhibit No. 10.14 to the 1994 Annual
Report on Form 10-KSB of The Leather Factory, Inc. (Commission File
No. 1-12368) filed with the Securities and Exchange Commission on
March 27, 1995, and incorporated herein by reference.
10.15 Guaranty, as amended, dated July 24, 1995, by and between NationsBank
of Texas, N. A., The Leather Factory, Inc., Wray Thompson, Ronald
Morgan, and Robin Morgan, filed as Exhibit No. 10.15 to the Quarterly
Report on Form 10-QSB of The Leather Factory, Inc. (Commission File
No. 1-12368) filed with the Securities and Exchange Commission on
November 9, 1995, and incorporated herein by reference.
10.16 The Leather Factory, Inc. 1995 Director Non-Qualified Stock Option
Plan and Stock Option Agreement, effective as of September 26, 1995,
subject to approval by the Company's stockholders at the 1996 Annual
Meeting of Stockholders, filed as Exhibit No. 10.16 to the Quarterly
Report on Form 10-QSB of The Leather Factory, Inc. (Commission File
No. 1-12368) filed with the Securities and Exchange Commission on
November 9, 1995, and incorporated herein by reference.
10.17 The Leather Factory, Inc. 1995 Stock Option Plan and Stock Option
Agreements, effective as of September 26, 1995, subject to approval by
the Company's stockholders at the 1996 Annual Meeting of Stockholders,
filed as Exhibit No. 10.17 to the Quarterly Report on Form 10-QSB of
The Leather Factory, Inc. (Commission File No. 1-12368) filed with the
Securities and Exchange Commission on November 9, 1995, and
incorporated herein by reference.
22.1 Subsidiaries of the Company, filed as Exhibit No. 22.1 to the 1995
Annual Report on Form 10-KSB of The Leather Factory, Inc. (Commission
File No. 1-12368), filed with the Securities and Exchange Commission
on March 28, 1996, and incorporated herein by reference.
* 27.1 Financial Data Schedule
- - ------------
*Filed herewith.
18
<PAGE>
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