Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2000
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 November 14, 2000
------------------------------ ------------------------------------------
Common Stock, par value $.0024 9,883,161
per share
1
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Forward-Looking Statements
--------------------------
The disclosures in this report contain forward-looking statements and
projections of management. There are certain important factors which could cause
results to differ materially than those anticipated by some of the
forward-looking statements. These factors are detailed from time to time in
TLF's reports filed with the Securities and Exchange Commission. See the
Company's 1999 Annual Report on Form 10-K for the most recent discussion of
these factors.
2
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THE LEATHER FACTORY, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
-----------------
PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 2000 and December 31, 1999............................ 4
Consolidated Statements of Income
Three and nine months ended September 30, 2000 and 1999............. 5
Consolidated Statements of Cash Flows
Nine months ended September 30, 2000 and 1999....................... 6
Consolidated Statements of Stockholders' Equity
Nine months ended September 30, 2000 and 1999....................... 7
Notes to Consolidated Financial Statements........................... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.............................. 12
SIGNATURES............................................................... 13
EXHIBIT INDEX............................................................ 14
3
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<TABLE>
<CAPTION>
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THE LEATHER FACTORY, INC.
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
September 30, December 31,
2000 1999
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 113,897 $ 134,465
Cash restricted for payment on revolving credit facility 224,094 317,904
Accounts receivable-trade, net of allowance for doubtful accounts
of $152,000 and $177,000 in 2000 and 1999, respectively 2,270,329 2,292,645
Inventory 7,759,946 8,807,963
Deferred income taxes 138,416 160,165
Other current assets 508,602 533,841
------------- ------------
Total current assets 11,015,284 12,246,983
------------- ------------
PROPERTY AND EQUIPMENT, at cost 3,288,072 3,143,594
Less-accumulated depreciation and amortization (2,407,938) (2,160,336)
------------- ------------
Property and equipment, net 880,134 983,258
GOODWILL, net of accumulated amortization of $1,313,000
and $1,160,000 in 2000 and 1999, respectively 4,606,540 4,767,885
OTHER INTANGIBLES, net of accumulated amortization of
$86,000 and $45,000, in 2000 and 1999, respectively 175,777 191,048
OTHER assets 29,415 31,601
------------- ------------
$16,707,150 $18,220,775
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,047,635 $ 1,805,918
Accrued expenses and other liabilities 1,147,839 978,969
Income taxes payable 110,312 474,262
Notes payable and current maturities of long-term debt 4,330,630 6,061,735
------------- ------------
Total current liabilities 6,636,416 9,320,884
------------- ------------
DEFERRED INCOME TAXES 73,173 97,780
NOTES PAYABLE AND LONG-TERM DEBT, net of current maturities 103,992 121,686
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, 9,883,161 and 9,853,161 shares issued
and outstanding at 2000 and 1999, respectively 23,720 23,648
Paid-in capital 3,918,543 3,901,740
Retained earnings 6,122,869 4,930,434
Less: Notes receivable - secured by common stock (144,602) (153,416)
Accumulated other comprehensive loss (26,961) (21,981)
------------- ------------
Total stockholders' equity 9,893,569 8,680,425
------------- ------------
$ 16,707,150 $ 18,220,775
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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<TABLE>
<CAPTION>
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THE LEATHER FACTORY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE and NINE MONTHS ENDED SEPTEMBER 30, 2000 and 1999
--------------------------------------------------------------------------------
THREE MONTHS NINE MONTHS
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 7,374,556 $ 7,625,168 $ 22,382,518 $ 19,678,118
COST OF SALES 3,660,995 4,180,108 11,297,333 11,060,400
------------ ------------ ------------ ------------
Gross profit 3,713,561 3,445,060 11,085,185 8,617,718
OPERATING EXPENSES 3,012,409 2,723,615 8,609,705 7,546,169
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 701,152 721,445 2,475,480 1,071,549
OTHER EXPENSE:
Interest expense 135,316 183,403 449,416 581,297
Other, net 14,547 4,701 30,753 (9,679)
------------ ------------ ------------ ------------
Total other expense 149,863 188,104 480,169 571,618
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 551,289 533,341 1,995,311 499,931
PROVISION FOR INCOME TAXES 236,190 260,776 802,876 312,849
------------ ------------ ------------ ------------
NET INCOME $ 315,099 $ 272,565 $ 1,192,435 $ 187,082
============ ============ ============ ============
NET INCOME PER COMMON SHARE - Basic $ 0.03 $ 0.03 $ 0.12 $ 0.02
============ ============ ============ ============
NET INCOME PER COMMON SHARE--Assuming Dilution $ 0.03 $ 0.03 $ 0.12 $ 0.02
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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<TABLE>
<CAPTION>
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THE LEATHER FACTORY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2000 and 1999
--------------------------------------------------------------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,192,435 $ 187,082
Adjustments to reconcile net income to net
Cash provided by (used in) operating activities-
Depreciation & amortization 443,500 415,554
Loss on disposal of assets 3,689 --
Deferred financing costs 18,132 189,472
Deferred income taxes (2,858) (43,815)
Other (4,979) 945
Net changes in assets and liabilities:
Accounts receivable-trade, net 22,316 (929,525)
Inventory 1,048,017 (1,376,808)
Income taxes payable (363,950) 413,554
Other current assets 25,238 (249,255)
Accounts payable (758,283) 544,793
Accrued expenses and other liabilities 168,870 96,009
----------- -----------
Net cash provided by (used in) operating activities 1,792,127 (751,994)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (161,042) (441,932)
Proceeds from sale of assets 1,088 --
Other intangible costs 2,186 (8,174)
----------- -----------
Net cash used in investing activities (157,768) (450,106)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in revolving credit loans (1,530,281) 1,116,440
Proceeds from notes payable and long-term debt -- 217,493
Payments on notes payable and long-term debt (218,519) (342,446)
Decrease in cash restricted for payment on revolving credit facility 93,810 (200,042)
Payments received on notes secured by common stock 8,814 41,763
Deferred financing costs incurred (25,626) (14,118)
Proceeds from issuance of common stock 16,875 --
----------- -----------
Net cash (used in) provided by financing activities (1,654,927) 819,090
----------- -----------
NET (DECREASE) IN CASH (20,568) (383,010)
CASH, beginning of period 134,465 510,399
----------- -----------
CASH, end of period $ 113,897 $ 127,389
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the period $ 453,645 $ 511,332
Income taxes paid during the period, net of (refunds) 1,168,449 (56,326)
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
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<TABLE>
<CAPTION>
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THE LEATHER FACTORY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2000 and 1999
--------------------------------------------------------------------------------
Common Stock Notes Accumulated
------------------------- receivable Other
Number Par Paid-in Retained -secured by Comprehenvise
Of shares value capital earnings common stock Loss
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1998 9,853,161 $ 23,648 $ 3,901,740 $ 4,495,378 $ (224,750) $ (25,738)
Payments on notes receivable-
secured by common stock -- -- -- -- 41,763 --
Net Income -- -- -- 187,082 -- --
Translation adjustment -- -- -- -- -- 586
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, September 30, 1999 9,853,161 $ 23,648 $ 3,901,740 $ 4,682,460 $ (182,987) $ (25,152)
=========== =========== =========== =========== =========== ===========
Comprehensive
Total Income (Loss)
----------- -------------
BALANCE, December 31, 1998 8,170,278
Payments on notes receivable-
secured by common stock 41,763
Net Income 187,082 187,082
Translation adjustment 586 586
-----------
BALANCE, September 30, 1999 $ 8,399,709
===========
-----------
Comprehensive income for the nine months ended September 30, 1999 $ 187,668
===========
Common Stock Notes Accumulated
------------------------- receivable Other
Number Par Paid-in Retained -secured by Comprehenvise
Of shares value capital earnings common stock Loss
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1999 9,853,161 $ 23,648 $ 3,901,740 $ 4,930,434 $ (153,416) $ (21,981)
Payments on notes receivable
secured by common stock -- -- -- -- 8,814 --
Shares issued - employee
Stock options exercised 30,000 72 16,803 -- -- --
Net Income -- -- -- 1,192,435 -- --
Translation adjustment -- -- -- -- -- (4,980)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, September 30, 2000 9,883,161 $ 23,720 $ 3,918,543 $ 6,122,869 $ (144,602) $ (26,961)
=========== =========== =========== =========== =========== ===========
Comprehensive
Total Income (Loss)
----------- -------------
BALANCE, December 31, 1999 8,680,425
Payments on notes receivable
secured by common stock 8,814
Shares issued - employee
Stock options exercised 16,875
Net Income 1,192,435 1,192,435
Translation adjustment (4,980) (4,980)
-----------
BALANCE, September 30, 2000 $ 9,893,569
===========
-----------
Comprehensive income for the nine months ended September 30, 2000 $ 1,187,455
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
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<TABLE>
<CAPTION>
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 September
30, 2000 and December 31, 1999, and the results of operations and cash flows for
the three and nine month periods ended September 30, 2000 and 1999. The results
of operations for the three- and nine-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 statements and disclosures contained in the Company's 1999 Annual
Report on Form 10-K ("Annual Report").
2. INVENTORY
The components of inventory consist of the following:
As of
------------------------------
September 30, December 31,
2000 1999
------------- -------------
Finished goods held for sale $ 6,730,193 $ 7,629,995
Raw materials and work in process 1,029,753 1,177,968
------------- -------------
$ 7,759,946 $ 8,807,963
============= =============
3. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) $ 315,099 $ 272,565 $ 1,192,435 $ 187,082
----------- ----------- ----------- -----------
Numerator for basic and diluted earnings per share 315,099 282,532 1,192,435 187,082
Denominator:
Weighted-average shares outstanding-basic 9,876,422 9,853,161 9,869,803 9,853,161
Effect of dilutive securities:
Stock options 146,668 18,391 131,022 6,382
13% convertible debentures -- 690,608 -- --
Warrants 176,074 100,714 170,807 42,829
----------- ----------- ----------- -----------
Dilutive potential common shares 322,742 809,713 301,830 49,211
----------- ----------- ----------- -----------
Denominator for diluted earnings per share-
weighted-average shares 10,199,164 10,662,874 10,171,633 9,902,372
=========== =========== =========== ===========
Basic earnings per share $ 0.03 $ 0.03 $ 0.12 $ 0.02
=========== =========== =========== ===========
Diluted earnings per share $ 0.03 $ 0.03 $ 0.12 $ 0.02
=========== =========== =========== ===========
</TABLE>
Unexercised stock options owned by certain employees and directors to purchase
6,000 and 360,000 shares of common stock as of September 30, 2000 and 1999,
respectively, were not included in the computations of diluted earnings per
share ("EPS") because the options' exercise prices were greater than or equal to
the average market price of the common stock during the respective periods.
8
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The 13% convertible debt (see note 3 to consolidated financial statements in the
Annual Report) was not included in the computation of diluted earnings per share
for the nine months ended September 30, 1999 because the interest cost (net of
tax) per assumed converted share was more than basic earnings per share and,
therefore, the effect would be antidilutive. For the three months ended
September 30, 1999, the interest cost (net of tax) per assumed converted share
was less than basic EPS, therefore having a dilutive effect, and have been
included in the computation of diluted EPS.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
General
-------
The Leather Factory, Inc. (the "Company") is the premier distributor of leather
and leathercraft products to over 65,000 customers ranging from the individual
hobbyist to large retail chains. Customer groups served include: wholesale
distributors, tack and saddle shops, shoe-findings customers, institutions,
prisons and prisoners, dealer stores, western stores, craft stores and craft
store chains, hat manufacturers and distributors, other large volume purchasers,
manufacturers, and retailers. Our products are distributed primarily through 28
sales/distribution units in the United States and Canada or through our
subsidiary, Roberts, Cushman & Company, Inc. ("Cushman") in New York. Cushman
manufactures and distributes a related product line of hat trims in braids,
leather, and woven fabrics. We also carry a line of small finished leather
goods, including cigar cases, wallets and western accessories.
Results of Operations
---------------------
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 and the increase (decrease) in dollars and percent from 1999 to
2000:
% of Net Sales
Three months ended
September 30, Change in $ and %
------------------------ ------------------------
2000 1999 $ Change % Change
---------- ---------- ---------- ----------
Net sales 100.0% 100.0% $ (250,612) (3.29)%
Cost of sales 49.6 54.8 (519,113) (12.42)
---------- ---------- ----------
Gross Profit 50.4 45.2 268,500 7.79
Operating expenses 40.9 35.7 288,794 10.60
---------- ---------- ----------
Income from operations 9.5 9.5 (20,293) (2.80)
Interest expense and other 2.0 2.5 (38,242) (20.33)
---------- ---------- ----------
Income before income taxes 7.5 7.0 17,948 3.37
Income tax provision 3.2 3.4 (24,586) (9.43)
---------- ---------- ----------
Net income 4.3% 3.6% $42,534 15.61
========== ========== ==========
% of Net Sales
Nine months ended
September 30, Change in $ and %
------------------------ ------------------------
2000 1999 $ Change % Change
---------- ---------- ---------- ----------
Net sales 100.0% 100.0% $2,704,400 13.74%
Cost of sales 50.5 56.2 236,933 2.14
---------- ---------- ----------
Gross Profit 49.5 43.8 2,467,467 28.63
Operating expenses 38.5 38.4 1,063,536 14.09
---------- ---------- ----------
Income from operations 11.0 5.4 1,403,931 131.02
Interest expense and other 2.1 2.9 (91,449) (16.00)
---------- ---------- ----------
Income before income taxes 8.9 2.5 1,495,380 299.12
Income tax provision 3.6 1.6 490,028 156.63
---------- ---------- ----------
Net income 5.3% 0.9% $1,005,353 537.39
========== ========== ==========
9
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Revenues
Sales decreased slightly overall (3.3%), totaling $7.37 million for the third
quarter of 2000 compared to $7.63 million for the third quarter of 1999. For the
nine months ended September 30, 2000 and 1999, sales are up $2.7 million or
13.7%. Domestic retail sales increased 27% and 40%, respectively, for the
current quarter and nine months over these same periods of 1999. Our Canadian
sales unit continues to exceed sales goals as its quarterly and year-to-date
sales increases were 42% and 75%, respectively for the nine months ended
September 30, 2000 compared to those same periods ended September 30, 1999. Our
Authorized Sales Center ("ASC") program, which began in April 1999, contributed
comparable sales increases of 45% quarter to quarter and over 100% current year
to prior year.
The sales decline for the third quarter of 2000 occurred in our craft sales.
During the third quarter of 1999, we implemented a new program with a large
retail craft customer. The initial order of merchandise for the new program
totaled approximately $800,000, which was shipped to the customer's chain stores
as well as its warehouses. Given that the program has a bi-annual term (every
other year), there was no new "initial" order in the current quarter of 2000 to
compare to last year's. On a year-to-date basis, however, our current year craft
sales remain slightly ahead of the 1999 totals.
Costs, Gross Profit, and Expenses
Cost of sales as a percentage of revenue was 49.6% for the third quarter of 2000
as compared to 54.8% for the same quarter in 1999. This translates into gross
profit margins of 50.4% and 45.2% for the quarters ended September 30, 2000 and
1999, respectively. This improvement is primarily the result of continued
increases in retail sales which, in turn, produce higher margins. The
improvement in gross profit margins has been offset slightly by an increase in
leather costs in the third quarter of 2000. Management perceives the reason for
the cost increase is due to a shortage of supply, both domestically and
worldwide. The company has historically been slow to increase selling prices due
to temporary fluctuations in leather costs as they tend to stabilize within a
moderately short time period.
For the nine months ended September 30, 2000, the gross profit margin was up
5.7% over 1999 to 49.5%. Our sales mix continues to hold at 20% retail/80%
wholesale for the year, versus a 15%/85% mix in 1999. The $1 million increase in
retail sales for the nine months ended September 30, 2000 over this same period
in 1999 accounted for the improvement in gross margin. While we may experience a
slight softening of gross profit margins in the fourth quarter of 2000 due to
the increase in leather prices as discussed above, management expects the sales
mix and gross margins to maintain the trends of a higher ratio of retail sales
to wholesale and the resulting stronger margins.
Operating expenses were $289,000 higher in the third quarter of 2000 than in the
third quarter of 1999. The rise in operating expenses was caused by an increase
in accrued sales unit managers' incentive (resulting from the higher sales unit
profits), increases in accrued contribution to the ESOP (due to the improvement
in the company's financial results), advertising costs (due to a increase in
advertising pieces produced and distributed over last year) and a charitable
contribution of discontinued merchandise.
On a year-to-date basis, operating expenses are up approximately $1 million over
last year. As a percentage of sales, these expenses remain in line at
approximately 38.4% of sales. The $1 million increase is a result of increases
in advertising efforts to the retail customer base and employee costs (incentive
pay, ESOP contributions, etc.) Management believes that these expenses, while
perhaps increasing in dollars as sales increase, will hold steady as a
percentage to sales. Incentive pay to sales unit managers will continue to
increase as the sales units' profits increase. As long as the company continues
to enjoy improving financial success, it will continue to contribute
significantly to the ESOP in order to share that success with its employees.
10
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Other (Income) Expense
Other expenses decreased $38,000 to $150,000 for the third quarter of 2000 from
$188,000 during the same quarter in 1999 due to lower interest costs. The
company's average debt balance for the nine months ended September 30, 2000 was
$5.3 million while the average debt balance for the same period ended September
30, 1999 was $6.7 million.
For the nine months ended September 30, 2000, other expenses were down $91,000
over the same period in 1999. The decrease in interest costs account for the
majority of the decrease as the company's debt balance continues to decline.
Net Income
The Company reported net income of $315,000 for the third quarter of 2000
compared to net income of $272,000 for the same period a year ago. The increase
in net income was due primarily to lower interest costs and lower income tax
expense. The increase in gross profit margins was basically offset by the
increase in operating expenses as discussed above.
Net income for the nine months ended September 30, 2000 was $1,192,000 versus
$187,000 for the nine months ended September 30, 1999. The increase of $1
million was due to the significant improvement in gross profit margin. As
discussed above, sales for the year are up $2.7 million while cost of goods
increased only $237,000 resulting in an improvement gross profit of $2.5 million
over last year. Operating expense increases of $1 million and income tax expense
increases of $490,000 were absorbed easily by the gross profit increase.
Capital Resources, Liquidity and Financial Condition
----------------------------------------------------
The primary sources of liquidity and capital resources during the third quarter
of 2000 were funds provided by operating activities (primarily the reduction of
inventory) in the amount of $657,000, for a year-to-date total of $1,792,000.
The largest portion of the operating cash flow was applied to debt service,
trade payables and income taxes.
The Company's investment in accounts receivable was $2.27 million at September
30, 2000, virtually unchanged from $2.29 million at year-end 1999. A large
portion of the increase in sales for the first three quarters of the year has
been in cash sales (versus credit sales). Inventory decreased $1 million to $7.8
million at September 30, 2000 from $8.8 million at year-end 1999. Inventory
turnover improved slightly during the quarter to an annualized rate of 1.82
times for the first three quarters of 2000 (compared to 1.77 (annualized) for
the first half of 2000) which is slightly lower than the turnover of 1.89 times
for all of 1999. Although management is pleased with the $1 million reduction of
inventory since December 31, 1999, it continues to focus efforts on a further
reduction of inventory levels in order to increase inventory turnover.
Management believes that this can be achieved without affecting customer
service.
Accounts payable decreased 42% from December 31, 1999 to $1.05 million at the
end of the third quarter, due primarily to the decrease in inventory levels at
September 30, 2000.
As previously disclosed, on November 22, 1999, the Company entered into a Credit
and Security Agreement with Wells Fargo Business Credit, Inc. ("WFBC"), pursuant
to which WFBC agreed to provide a credit facility of up to $8,650,000 in debt
(the "Credit Facility"). The Credit Facility has a three-year term and is made
up of a revolving credit facility and a $150,000 term note. The term note was
paid in full in May 2000.
11
<PAGE>
The revolving credit facility with WFBC is based upon the level of the Company's
accounts receivable and inventory. At September 30, 2000 and December 31, 1999,
the available and unused portion of the credit facility was approximately
$988,000 and $508,000, respectively.
The Company believes that the current sources of liquidity and capital resources
will be sufficient to fund current operations and the opening of any potential
new sales/distribution units. In 2000, the funding for the opening of new units
is expected to be provided by operating leases, cash flows from operating
activities, and the Credit Facility. As previously disclosed, two new units are
to be opened in the fourth quarter of 2000. Historically, the Company invests
approximately $125,000 in opening a new unit. However, management expects the
two units opening in the fourth quarter of 2000 will require slightly less
capital to open.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company's Credit Facility includes loans with interest rates that vary with
changes in the prime rate. We believe that an increase of one percentage point
in the prime rate would not have a material impact on the Company's future
earnings.
PART II. OTHER INFORMATION
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.
-------------------
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: November 14, 2000 By: /s/ Wray Thompson
---------------------------------
Wray Thompson
Chairman of the Board,
President, and
Chief Executive Officer
Date: November 14, 2000 By: /s/ Shannon L. Greene
---------------------------------
Shannon L. Greene
Chief Financial Officer and
Treasurer (Chief Accounting
Officer)
12
<PAGE>
THE LEATHER FACTORY, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
*27.1 Financial Data Schedule
-------------------
*Filed herewith.
13
