Item 1. Business.
As used in this Report, the terms "we," "us," "our," "TLF," "management," and the "Company" mean The Leather Factory, Inc. and its subsidiaries (unless the context indicates a different meaning).
General
The Leather Factory, Inc. ("TLF" or the "Company") is a Delaware corporation whose common stock trades on the American Stock Exchange under the symbol "TLF."
The Company sells its products worldwide and is managed on a business entity basis, with those businesses being TLF, Tandy Leather Company ("Tandy Leather"), and Roberts, Cushman & Company, Inc. ("Cushman"). See Note 13 to the Consolidated Financial Statements for financial and additional information concerning the Company's segments.
TLF, located in Fort Worth, Texas, is an international wholesale manufacturer and distributor of a broad product line of leather, leatherworking tools, buckles and other belt supplies, shoe care and repair supplies, leather dyes and finishes, adornments for belts, bags, and garments, saddle and tack hardware, and do-it-yourself leathercraft kits. TLF also carries a product line of small finished leather goods such as cigar cases, wallets and western accessories distributed under the name "Royal Crown Custom Leather".
Tandy Leather, located in Fort Worth, Texas, sells the same products as TLF. Cushman, located in New York, produces and sells a related product line of hat trims (the decorative piece of material that adorns the outside of a hat).
The Company frequently introduces new products either through its own manufacturing capability or by purchasing from vendors. The Company holds a substantial number of copyrights for its designs. These designs have been incorporated throughout the Company's product line as a means of increasing its competitive advantage.
Tandy Leather Acquisition
On November 30, 2000, Leather Tan Acquisition, Inc. ("Leather Tan"), a newly-formed subsidiary of the Company, acquired the operating assets (the "Tandy Leather assets") of TLC Direct, Inc., a Texas corporation, and Tandy Leather Dealer, Inc., a Texas corporation, (collectively called the "Sellers"). The Sellers are subsidiaries of Tandycrafts, Inc. ("Tandycrafts"), a New York Stock Exchange-listed company. Prior to this transaction, the Tandy Leather assets were operated as the "Tandy Leather" business of Tandycrafts. The Tandy Leather assets include machinery, equipment, materials, supplies, inventory, trade booth inventory, catalog inventory, fixtures, goods in process, intellectual property, goodwill, trade names including "Tandy Leather" and "Tandy Leather Company," patents, trademarks, copyrights, leases, subleases, contracts, agreements, accounts and other receivables, rights to the Sellers' Internet Domain, certain leathercraft art, mailing lists and certain historic furniture.
The consideration paid by Leather Tan for the Tandy Leather assets was cash in the amount of $2.85 million plus the assumption of (a) all of the Sellers' trade payables incurred in the ordinary course of business within ninety days prior to November 30, 2000, (b) all liabilities relating to any contracts assumed by the Company (including the obligations of the Sellers under certain listed licenses, sub-licenses, leases, sub-leases, contracts, and other arrangements), (c) certain other listed obligations, (d) filing, recording and other similar fees, and (e) any liabilities arising after November 30, 2000. The total amount of the liabilities assumed by Leather Tan was $658,000 at November 30, 2000. The purchase price was determined by arms' length negotiations between representatives of the Company and Tandycrafts.
The source of Leather Tan's cash for this transaction was funds drawn on the Company's line of credit with Wells Fargo Business Credit, Inc. See "Management's Discussion of Financial Condition and Results of Operations." Subsequent to the acquisition, Leather Tan was renamed Tandy Leather Company, Inc. ("Tandy Leather").
Tandy Leather sells similar products as TLF; however, the current target market of Tandy Leather is retail customers via the Internet and mail order sales and wholesales to authorized dealers. Further details regarding the Tandy Leather acquisition are provided in Note 12 to the Consolidated Financial Statements and the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on December 15, 2000, as amended on February 14, 2001.
Management anticipates that this acquisition will create a great opportunity for continued expansion. In years past, Tandy Leather had a strong reputation for quality products, and its name recognition is highest in the industry. Management believes that with its history and improving reputation for product and customer service, Tandy Leather can expand its market share to once again become one of the premier leaders in the industry.
Distribution and Manufacturing
The Company's customer base is comprised of over 60,000 customers including individuals, institutions, retailers, wholesalers, assemblers, distributors, and other manufacturers dispersed geographically throughout the world. Most of our customers are wholesalers, while retail sales have historically comprised less than 10% of the Company's sales. However, we have been experiencing a shift in our sales mix during the last few years as our retail sales have increased. In 1999, our sales mix was 85% wholesale and 15% retail. In 2000, the mix was 80% wholesale and 20% retail. Sales of the Company's products do not reflect significant seasonal patterns. Looking toward 2001, we expect this trend to continue to shift as Tandy's sales consist of a much higher percentage of retail sales.
The Company primarily distributes its products through 28 sales/distribution units ("Units") located in nineteen states and Canada, its manufacturing facility and show room in New York, Tandy Leather's mail-order warehouse in Texas and through its websites. The location of the Units is selected based on the location of its customers, so that delivery time to customers is minimized. A two-day maximum delivery time is the Company's goal. In addition to offering its customers rapid delivery, the Company also offers a "one-stop shopping" concept for both leather and leathercraft materials. These Units service customers through various means including walk-in traffic, phone and mail order. Both wholesale and retail customers purchase from Units. These same Units also service the Authorized Sales Centers (discussed below) as well as the craft, western and other retail establishments located in close geographic proximity.
Our Authorized Sales Center ("ASC") program was developed to generate sales in geographical areas that we currently do not have a sales/distribution unit without the capital investment needed to open a Unit. An unrelated person who desires to become an ASC must apply with the Company and upon approval, place a minimum initial order. There are also minimum annual purchase amounts set that the ASC must adhere to in order to maintain ASC status. In exchange, the ASC gets free advertising in certain sale flyers, price breaks on many products, advance notice of new products, priority shipping and handling on all orders, as well as various other benefits. Tandy Leather has an authorized dealer program as well which is based on a similar concept. We plan to continue this program by offering an expanded line of product combining both TLF and Tandy Leather merchandise. The retail appeal of the Tandy Leather name should enhance this program considerably.
TLF operates two manufacturing facilities - one in Fort Worth, Texas, that primarily manufactures product (suede lace, garment fringe, leathercraft and craft-related kits) that is sold through the Units, and one in Long Island City, NY (Cushman), that sells its product directly to hat manufacturers. We also purchase products from other manufacturers and distributors in twenty-two countries.
The Company's principal offices are located at 3847 East Loop 820 South, Fort Worth, Texas 76119 and its phone number is (817) 496-4414.
History
The Company was first incorporated under the laws of the State of Colorado in 1984 and reincorporated under the laws of the State of Delaware in June 1994. The Company is the successor to certain entities that were parties to a series of transactions including a merger in July 1993 which involved The Leather Factory, Inc., a Texas corporation ("TLF-Texas"), and National Transfer & Register Corp. ("National"), a Colorado corporation, which had no operations and whose capital stock was widely held but had no active trading market prior to the merger. The surviving entity changed its name to The Leather Factory, Inc. and its business became that conducted by TLF-Texas. In the following year, the Company reincorporated in Delaware.
As part of its strategy to develop a multi-location chain of wholesale units the Company has made numerous acquisitions since its incorporation, including the purchase of six wholesale units from Brown Group, Inc., a major footwear retailer. The Company has also acquired several businesses located throughout the United States that distribute shoe-related supplies to the shoe repair and shoe store industry. In addition, the Company purchased Cushman, a leading producer of hat trims, in 1995. In March of 1996, the Company acquired all of the issued and outstanding capital stock of its Canadian distributor, The Leather Factory of Canada, Ltd. As mentioned above, the Company acquired the Tandy Leather assets in November 2000.
Business Strategy
The Company operates through the 28 Units described above that are designed to combine the economies of scale of warehouse locations with the marketing efficiencies that can be achieved through direct mail. Walk-in traffic and mail order customers are served from the same location. The type of premises utilized for the Unit locations is generally light industrial office/warehouse space in proximity to a major freeway or with other similar access. This kind of location typically provides lower rental expense compared to other more retail-oriented locations.
The size and configuration of the Units are planned to allow large quantities of product to be displayed in an easily accessible and visually appealing manner. Leather is displayed by the pallet where the customer can see and touch it, assessing first-hand the numerous sizes, styles, and grades of leather and leather goods. The Company maintains higher inventories of certain imported items to ensure a continuous supply.
The Company's Units are staffed by experienced managers who are primarily compensated based upon the operating profit of their location. Sales from the Units are generated by the selling efforts of the location personnel themselves, participation by the Company at trade shows, the use of sales representative organizations and the aggressive use of direct mail advertising. In addition to generating mail order business, the purpose of the Company's direct mail program is to stimulate sales for the Units. The Company utilizes an internally developed and maintained mailing list, which allows for very targeted mailing to its various customer groups. As for the utilization of direct mail and rapid delivery, the Company locates Units in order to get merchandise in the customers' hands as soon as possible, with the added benefit of lower freight cost.
The Company attempts to maintain the number of stock-keeping units ("SKU's") in the primary Leather Factory line of merchandise at the optimum number of items necessary to balance the maintaining of the proper stock to minimize out-of-stock situations with the carrying costs involved with such an inventory level. The number of SKU's has been refined over the years by the introduction of new products and the discontinuing of selected products. The Company maintains approximately 4,600 items in the current lines of merchandise - - 1,800 of which are exclusively TLF's, 1,800 of which are exclusively Tandy Leather's, and 1,000 of which are carried in both.
Tandy Leather operates from one warehouse location and sells its products via mail and phone orders and through its website. It currently does not service walk-in customers at its location.
Competition
The Company sells its products in three highly fragmented markets - leathercraft, leather accessories, and retail craft. Management believes that the Company encounters competition in connection with certain product lines and in certain areas from different companies, but has no direct competition affecting the entire product line. The Company is larger than most of its direct competitors, and we believe that the recent Tandy Leather acquisition will continue this advantage. The fragmented nature of these markets is the primary reason for the lack of broad-based competition.
The Company competes on price, availability of merchandise, and speed of delivery. The size of the Company relative to most of its competitors creates competitive advantage in its ability to stock a full range of products as well as in buying merchandise. The Company believes it has a competitive advantage on price in most product lines because it purchases in bulk and has an international network of suppliers that can provide quality merchandise at lower costs. Most of the Company's competitors do not have the multiple sources of supply and cannot purchase sufficient quantities to compete along a broad range of products. In fact, some of the Company's competitors are also customers, relying on the Company as a supplier.
Expansion and Other Acquisitions
In 1997 and 1998, management focused on stabilizing operations and obtaining long-term financing, and no acquisitions were made. As a result of the improving operating results, the Company opened two new Units during 2000 and four new Units during 1999. The Company plans to continue its expansion by: (i) adding two to three Units per year, as and when such additions are determined feasible; and (ii) acquiring companies in related areas/markets which offer synergistic aspects based on the locations and/or product lines of the businesses.
Products/Customers
The Company's core business consists of manufacturing, importing and distributing leather, traditional leathercraft materials (do-it-yourself kits, stamping sets, and leatherworking tools), craft-related items (leather lace, beads, and wearable art accessories), hardware, metal garment accessories (belt buckles, belt buckle designs, and conchos), fancy hat trims in braids, leather, and woven fabrics, shoe care and repair supplies, leather finishes, and small finished leather goods.
The products manufactured in Fort Worth generally involve cutting leather into various shapes and patterns using metal dies ("clicking"), fabrication, assembly, and packaging/repackaging tasks. Items made in Fort Worth are primarily for wholesale distribution using the Company's sales/distribution units. The Cushman facility manufactures hat trims and small finished leather goods. Hat trims are sold to hat manufacturers and distributors directly. Small finished leather goods are sold to various distributors and retailers through attendance at trade shows and the use of sales representatives.
The customer groups served include wholesale distributors, tack and saddle shops, shoe-findings customers, institutions (prisons and prisoners, schools, hospitals), dealer stores, western stores, craft stores and craft store chains, hat manufacturers and distributors, other large volume purchasers, manufacturers, and retailers. No single customer's purchases represent more than 10% of the Company's total sales. Approximately five percent (5%) of the Company's 2000 sales were export sales.
Suppliers
The Company currently purchases merchandise and raw materials from approximately 200 vendors dispersed throughout the United States as well as in twenty-one foreign countries. In 2000, the Company's ten largest vendors accounted for approximately sixty-five percent (65%) of its total purchases. Management believes that its relationships with suppliers are strong and does not anticipate any material changes in these supplier relationships in the future. Due to the number of alternative sources of supply, the loss of any or all of these principal suppliers would not have a material impact on the operations of the Company.
The Company receives some of its supplies and inventory from Europe. In addition, because leather is sold internationally, market conditions abroad are likely to affect the price of leather in the United States. We believe that the recent outbreak of hoof-and-mouth disease (or foot-and-mouth disease) in the United Kingdom and other parts of Europe and the resulting mass destruction of herds is likely to influence the price of leather used in the Company's products. At this time, we cannot predict the amount, if any, of this increase in costs or if we will be able to pass some or all of the costs on to our customers.
Patents and Copyrights
The Company presently owns 130 copyrights covering 239 registered works, seven trademarks covering seven names, and two patents covering three products. Registered trademarks include a federal trade name registration on The Leather Factory. The trademarks expire at various times starting in 2002 and ending in 2008, but can be renewed indefinitely. Most copyrights granted or pending are on metal products, such as conchos, belt buckles, and instruction books. The expiration period for the copyrights begins in 2062 and ends in 2072. The Company has patents on two belt buckles and certain leather-working equipment known as the "Speedy Embosser." The patents expire in 2011. Management considers these intangibles to be valuable assets and defends them as necessary.
Compliance With Environmental Laws
Compliance by the Company with federal, state and local environmental protection laws has not had, and is not expected to have, a material effect upon capital expenditures, earnings or the competitive position of the Company.
Employees
As of December 31, 2000, the Company employed 274 people, with 263 on a full- time basis. The Company is not a party to any collective bargaining agreement. Eligible employees participate in The Leather Factory, Inc. Employees' Stock Ownership Plan and Trust ("ESOP"). As of December 31, 2000, 174 employees and former employees were participants in or beneficiaries of the ESOP. The Company has the option of contributing up to 15% of eligible employees' compensation into the ESOP. Net contributions for 2000, 1999, and 1998 were 5.9%, 5.6%, and 11.6%, respectively, of eligible compensation. These contributions are used to purchase shares of the Company's Common Stock. Generally, contributions to the ESOP follow a similar pattern as overall profitability. On January 21, 1999, the Company made an additional contribution to the Plan (for the 1998 plan year) of $262,000 in order for the ESOP to pay the entire balance owed on securities acquisition loans. Without the additional contribution, the 1998 net contribution percentage would have been 3.7%.
Overall, management believes that relations with employees are good.
------------- * Represents the average minimum annual rent over the balance of the unexpired lease term. ** As converted into U.S. dollars.
The Company's Fort Worth location includes the Fort Worth Unit, the Company's central warehouse, the light manufacturing facility, Tandy Leather's offices and warehouse, and the sales and administrative/executive offices. The Company also leases a 284 square foot showroom in the Denver Merchandise Mart for $4,896 per year. This lease will expire in October 2002.
Item 3.
Item 3. Legal Proceedings.
The Company is involved in litigation in the ordinary course of its business but is not currently a party to any material pending legal proceedings.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of the Company's security holders during the fourth quarter of the Company's fiscal year ended December 31, 2000.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Common Stock of the Company is traded on the American Stock Exchange using the symbol TLF. The high and low prices for each calendar quarter during the last two fiscal years are as follows:
1999 2000 ---- ---- Quarter Ended High Low High Low ------------- ---- --- ---- --- March 31, $0.8750 $0.2188 $1.6875 $0.8125 June 30, $0.7500 $0.3750 $1.5000 $0.9375 September 30, $0.7500 $0.5625 $1.4375 $0.9375 December 31, $1.1250 $0.8125 $1.5000 $0.9375
There were approximately 627 stockholders of record on March 15, 2001.
There have been no cash dividends paid on the shares of the Company's Common Stock and currently dividends cannot be declared or paid without the prior written consent of Wells Fargo Business Credit, Inc., the Company's lender. The Board of Directors has historically followed a policy of reinvesting the earnings of the Company in the expansion of its business. This policy is subject to change based on future industry and market conditions, as well as other factors beyond the control of the Company.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations
The Company continues to experience improved profitability as sales and gross profit margins continue to rise. Gross profit margins rose from 45.1% in 1999 to another record-breaking high of 49.7% in 2000. Net sales for 2000 were $30.1 million, up $2.9 million (10.8%) from fiscal 1999 while operating expenses in 2000 increased by $1.3 million. Part of the operating expense increase was due to the increase in sales while the acquisition of the Tandy Leather assets in November 2000 also accounted for a portion of the increase. As a percentage of sales, these expenses increased a mere 0.8% over 1999. The dramatic improvement in profitability resulted primarily from:
o continued increases in retail sales,
o the opening of two new sales units in 2000, and
o increased efficiency in the purchasing of merchandise.
The results of operations in 1999 were encouraging as gross profit margins reached a high of 45.1% and operating expenses decreased as a percentage of sales over the prior year. During 1999, total sales were $27.2 million, while operating expenses were $10.3 million. See also "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Operating results for the fourth quarter of 2000 revealed slightly better results in profit margins at 50.1% compared to the total year. Fourth quarter 2000 revenues were up modestly ($226,000) from the same period last year due to Tandy Leather's December sales of $575,000. Without Tandy Leather's sales contribution, sales for the quarter would have been down $349,000 due to decreases in export sales and certain wholesale categories (primarily shoe care/repair). As discussed in previous years, the reduction in sales to shoe care/repair customers is intentional as this industry historically produces very low margins. Operating costs were up 10.5% from the fourth quarter of 1999 due to the addition of operating expenses from Tandy Leather operations for the month of December.
Obviously, we anticipate that the operations acquired from Tandy Leather will represent a larger portion of the operational results for 2001.
Revenues
Sales for 2000 continued its growth trend with a 10.8% increase over 1999 with our retail sales and ASC programs accounting for the majority of the increase. We also opened two new sales/distribution units in 2000, located in Dallas and Houston, TX. Tandy Leather's sales for December 2000 added $575,000 to the total for the year.
The primary sales growth is currently being generated from the retail customer market. Retail sales in 2000 increased 35% from 1999. In years past, we have focused our marketing efforts primarily toward the wholesale customer. Beginning in 1999, as a result of other companies' intentional decrease and/or elimination of their marketing efforts toward the retail customer, we began to specifically target retail customers in our direct mail advertising program as well as in our sales/distribution units. As a result, we have experienced significant growth in this market. Tandy Leather's mail-order and Internet sales is dominated by retail sales and even though our sales for 2000 weren't impacted (due to the timing of the acquisition), we expect it to contribute significantly to our retail sales growth in the future.
Revenues
The Company experienced encouraging growth in net sales during 1999 primarily due to the absorption of a portion of Tandycrafts' market share that it abandoned during the year and the early signs of renewed interest in the western apparel and craft markets. In addition, we opened four new sales/distribution units in 1999, located in Portland, OR, Billings, MT, Austin, TX, and Tucson, AZ.
It has been our experience that the western and craft industries are subject to fads, to some extent. Movies, entertainers, etc. have a great impact on the popularity of western apparel in particular. The key to success in the craft industry, oversimplifying of course, is being the first company with a popular idea - whether it be wearable art, photo albums and scrapbook creations, etc. As a result, the Company's success in selling to these two industries depends to a point on the latest successful craft idea, what is popular at the box office, or who won Entertainer of the Year. We believe we are seeing the beginnings of these two industries' popularity on the rise.
Partially offsetting the sales increases in retail, western and craft markets was the continued reduction of sales of certain low margin items. Because of the historically low margins earned in our shoe care/repair product line, we intentionally eliminated a large portion of the line. This reduced 1999 sales to this industry by approximately $1 million from 1998. We compensated for this reduction with the development and implementation of our new ASC program.
The ASC program began in April 1999, and as of December 31, 1999, we had approximately 80 approved ASCs. In 1999, the ASCs generated sales of over $900,000. Sales in our institutional (prisons and prisoners, schools, hospitals, etc.) and other core markets (saddle and tack, semi-professional hobbyists, small manufacturers) showed steady and positive growth trends as well.
Costs, Gross Profit, and Expenses
Cost of sales for 1999 totaled $14.9 million or 54.9% of sales. The percentage increase over 1998 was 20%. The impact of this increase becomes evident when compared to the 22.5% increase in sales. The 2.5% gain in gross profit to sales in 1999 resulted in a gross profit percentage of 45.1% - the highest in the Company's history - compared to 43.9% in 1998. The most significant factor supporting this improvement is the increase in our retail business as retail sales historically produce the highest profit margins. In 1999, we experienced a 70% jump in retail sales from 1998.
Operating expenses increased $1.45 million or 16.4% compared to 1998. This increase is a result of higher payroll costs resulting from higher sales, ESOP contribution (management's desire to reward employees for the Company's financial improvement), managers' bonuses as a result of higher profits earned at the sales/distribution units, and professional fees.
Other (Income) Expense
Other expenses were down 7.2% from 1998. This reduction is primarily in interest expense due to the decrease in average outstanding debt balances in 1999 as compared to 1998.
Provision (Benefit) for Income Taxes
The provision for federal and state income taxes was 57% of 1999 income before taxes due to $420,000 of non-deductible expenses, principally amortization of goodwill. Without these non-deductible expenses, the Company's effective tax rate approximates the Company's historical rate for combined federal, state and local income taxes of 40%.
Financial Condition
At the end of 1999, the Company had inventory of $8.8 million and $983,000 of property and equipment (net of depreciation and amortization). Goodwill and intangible assets (net of amortization) were $4.8 million and $191,000. Net total assets were $18.2 million. Current liabilities were $9.3 million (including current maturities of long-term indebtedness), and long-term liabilities were $121,000. Total stockholders' equity was $8.7 million.
During 2000, net cash provided from operating activities was $3.9 million. Prior to the Tandy Leather transaction on November 30, 2000, the Company had applied $2.54 million to reduce the outstanding balance of its credit facility described below, leaving an outstanding principal balance of $3.28 million. On November 30, 2000, the Company drew an additional $2.75 million on this line to fund the cash portion of the purchase price for the Tandy Leather assets. The Company also assumed $658,000 of current liabilities of the seller.
Upon consummation of the purchase of the Tandy Leather assets, the Company recorded the following additions to the Company's assets:
Recorded Value Assets at ------ Nov. 30, 2000 ---------------- Accounts receivable, net $ 268,199 Inventory 1,960,209 Goodwill 409,920 Other Intangibles 391,179 Artwork 250,000 Property and equipment 167,742 Other 60,622 ----------------- TOTAL $ 3,507,871 =================
At December 31, 2000, the Company had inventory of $9.2 million and net property and equipment of $1.2 million. Goodwill and other intangibles (net of amortization and depreciation) were $5.0 million and $615,000, with the Tandy Leather transaction resulting in the addition of $250,000 in artwork. Net total assets were $19.7 million. Current liabilities were $9.3 million (including current maturities of long-term indebtedness), while long-term liabilities were $13,000. Total stockholders' equity at the end of 2000 had increased to $10.3 million, principally as a result of the $1.5 million of net income recorded by the Company during 2000.
As a result of various adjustments arising out of the Tandy Leather transaction, a total of $157,000 was owed to the Company by Tandycrafts, Inc. at December 31, 2000, of which the entire amount has been paid as of March 15, 2001.
Capital Resources and Liquidity
On November 19, 1999, the Company entered into a Credit and Security Agreement with Wells Fargo Business Credit, Inc. ("WFBC"), in which WFBC agreed to provide a credit facility of up to $8,650,000 (the "Credit Facility"). The Credit Facility has a three-year term and is secured by all of the assets of the Company. The initial borrowings from WFBC were used to pay all amounts due by the Company to FINOVA Capital Corporation and The Schlinger Foundation.
On November 30, 2000, the Company and its subsidiaries entered into a First Amendment to Credit and Security Agreement (the Amendment"), with WFBC. There, WFBC consented to the Tandy Leather transaction and amended certain financial tests to reflect the acquisition of the Tandy Leather assets and to make previously contemplated extensions of these tests. Among these changes, the Amendment dropped a minimum debt service requirement in the existing credit agreement, and increased the percent of eligible inventory book value and the total amount of eligible inventory (both computed as provided in the credit agreement) that can be included in the Company's borrowing base under the credit agreement. Also, the Company's required minimum book net worth and minimum net income (as these are computed under the agreement) were adjusted for the balance of the calendar year 2000. In addition, extensions of these requirements were negotiated that raised the standards for the Company from the earlier provisions. The higher standards reflected the Company's improved financial performance since the credit agreement was signed.
The primary source of liquidity and capital resources during 2000 was cash flow provided by operating activities. Cash flows from operations for 2000 were $3.9 million. The largest portion of the operating cash flow was generated from the decrease in inventory levels.
Accounts receivable decreased slightly to $2.2 million despite the addition of $268,000 in accounts receivable from Tandy Leather acquisition compared to $2.3 million at December 31, 1999. Inventory increased to $9.2 million at December 31, 2000 from $8.8 million at December 31, 1999. The Tandy Leather acquisition on November 30, 2000 accounted for a $1.9 million inventory increase while TLF's inventory decreased $1.4 million from December 31, 1999. The aging of accounts receivable (excluding the impact of the accounts receivable acquired from Tandy in November 2000) has remained virtually unchanged from 1999 to 2000. Management is exploring various options to improve the aging and increase the efficiency in which the accounts are monitored and managed.
Inventory turned 3.64 times during 2000 (excluding the impact of the Tandy inventory acquired in November 2000), improving slightly from the 1999 ratio of 3.45 times and the 1998 ratio of 3.11 times. The implementation of a new information system has been very helpful in the monitoring of inventory levels throughout the Company.
Accounts payable increased to $2.2 million at December 31, 2000 from $1.8 million at the end of 1999. The balance would have remained constant with the prior year had it not been for the trade payables assumed in connection with the Tandy Leather acquisition.
The Company's current ratio remained fairly constant at December 31, 2000 and 1999 (1.36 and 1.31, respectively). If, however, accounting rules had not required the Company's debt with WFBC to be classified as short-term (even though the maturity is in November 2002), the current ratio at December 31, 2000 would have been 3.57.
The largest use of cash generated from the decrease in inventory and accounts receivable in 2000 was for debt reduction prior to the Tandy Leather acquisition and various capital expenditures. Capital expenditures totaled $378,000 and $254,000 for the years ended December 31, 2000 and 1999, respectively. Approximately 50% of 2000 capital spending was for new computer equipment and software with the remainder split between office and warehouse fixtures, machinery and other equipment, and leasehold improvements.
Item 7A.
Item 7A. 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. An increase of one percentage point in the prime rate would not have a material impact on the Company's future earnings.
Item 8.
Item 8. Financial Statements and Supplementary Data.
The Financial Statements and Financial Statement Schedule are filed as a part of this report. See page 15, Index to Consolidated Financial Statements.
Item 9.
Item 9. Change In and Disagreements with Accountants on Accounting and Financial Disclosure.
None
THE LEATHER FACTORY, INC. -------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------
Consolidated Balance Sheets at December 31, 2000 and 1999 .............. 20 Consolidated Statements of Operations for the Years Ended December 31, 2000, 1999, and 1998 .................................... 21 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998 .................................... 22 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2000, 1999, and 1998 .............................. 23 Notes to Consolidated Financial Statements ............................. 24
Financial Statement Schedules for the years ended December 31, 2000, 1999, and 1998:
II - Valuation and Qualifying Accounts and Reserves .................... 36
All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule or because the information required is included in the consolidated financial statements and notes thereto.
Report of Independent Auditors .................................... 37
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
THE LEATHER FACTORY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999, AND 1998
1. ORGANIZATION AND NATURE OF OPERATIONS
The Leather Factory, Inc. and subsidiaries (the "Company") is engaged in the manufacture and distribution of a broad product line of leather, leather crafts and finished goods, western apparel and related accessory items. The Company operates sales/distribution units in 19 states and Canada. Numerous customers including retailers, wholesalers, assemblers, distributors and other manufacturers geographically disbursed throughout the world purchase the Company's products. The Company also has light manufacturing facilities in Texas and New York.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. Significant intercompany accounts and transactions have been eliminated in consolidation.
Inventory
The Company's inventory is valued at the lower of first-in, first-out cost or market and consists of the following at December 31:
2000 1999 ---- ---- Finished goods held for sale $8,175,429 $7,629,995 Raw Materials and work in process 1,030,469 1,177,968 ---------- ---------- $9,205,898 $8,807,963 ========== ==========
Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to expense when incurred. The cost of assets retired or sold and the related amounts of accumulated depreciation are removed from the accounts, and any gain or loss is included in the statement of income. Depreciation is determined using the straight-line method over the estimated useful lives as follows:
Leasehold improvements 5-7 years (or lease term if shorter) Equipment 5-10 years Furniture and fixtures 5-7 years Automobiles 5 years
Depreciation expense was $358,787; $347,651; and $308,568 for the years ended December 31, 2000, 1999 and 1998, respectively.
Goodwill
Goodwill resulting from business purchases accounted for using the purchase method of accounting is being amortized on a straight-line basis over estimated useful lives ranging from ten to forty years.
The Company assesses the recoverability of goodwill by determining whether the asset balance can be recovered over its remaining life through undiscounted future operating cash flows of the acquired asset. The amount of impairment, if any, is measured based on projected discounted future operating cash flows.
Amortization expense of $223,991 in 2000; $219,801 in 1999; and $218,875 in 1998 was recorded in operating expenses.
Advertising Costs
With the exception of catalog costs, advertising costs are expensed as incurred. Catalog costs are capitalized and expensed over the estimated useful life of the particular catalog in question, which is typically twelve to fifteen months. Such capitalized costs are included in other current assets and totaled $40,579 and $29,635 at December 31, 2000 and 1999, respectively. Total advertising expense was $1,353,520 in 2000; $1,040,671 in 1999; and $908,432 in 1998.
Revenue Recognition
Sales are recorded when goods are shipped to customers.
Income Taxes
Deferred income taxes result from temporary differences in the basis of assets and liabilities reported for financial statement and income tax purposes.
Earnings Per Share
The Company computes earnings (loss) per share in accordance with the requirements of Statement of Financial Accounting Standards No. 128, Earnings per Share ("SFAS 128"). SFAS No. 128 requires the disclosure of both "basic" and "diluted" earnings per share. Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding increased for potentially dilutive common shares outstanding during the period. The dilutive effect of stock options, warrants and their equivalents is calculated using the treasury stock method. Unearned shares held by the Employees' Stock Ownership Plan are deemed not to be outstanding for earnings per share calculations.
Accounting Estimates
The consolidated financial statements include estimates and assumptions made by management that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
Long-Lived Assets
The Company applies SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. SFAS No. 121 requires that long-lived assets and certain identifiable intangible assets be reviewed for impairment whenever events indicate that the carrying amount of an asset may not be recoverable. The Company determined that as of December 31, 2000 and 1999, it had no long-lived assets that met the impairment criteria of SFAS No. 121.
Stock-Based Compensation
SFAS No. 123, Accounting for Stock-Based Compensation, establishes financial accounting and reporting standards for stock-based employee compensation plans. As permitted by SFAS No. 123, the Company has elected to continue to use Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25") and related Interpretations, in accounting for its stock option plans.
Foreign Currency Translation
Foreign currency translation adjustments arise from activities of the Company's Canadian operations. Results of operations are translated into U.S. dollars using the average exchange rates during the period, while assets and liabilities are translated using period-end exchange rates. Foreign currency translation adjustments of assets and liabilities are recorded in stockholders' equity.
Comprehensive Income
Comprehensive income represents all changes in stockholders' equity, exclusive of transactions with stockholders. The accumulated balance of foreign currency translation adjustments is presented in the consolidated financial statements as "accumulated other comprehensive income or loss".
Reclassification
Certain reclassifications have been made to conform the 1998 financial statements to the presentation in 1999 and 2000. The reclassifications had no effect on net income.
3. OTHER CURRENT ASSETS
Other current assets consisted of the following at December 31:
2000 1999 ---- ---- Accounts receivable - employees $106,370 $ 63,643 Accounts receivable - other 160,417 189,373 Prepaid expenses 177,535 237,152 Other 66,151 43,673 ---------- ---------- $510,473 $533,841 ========== ==========
4. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consisted of the following at December 31:
2000 1999 ---- ---- Accrued bonuses $ 784,528 $ 462,503 Accrued payroll 118,138 100,771 Accrued ESOP contribution 86,000 160,000 Sales and payroll taxes payable 52,851 41,047 Other 249,096 214,648 ----------- ----------- $1,290,613 $ 978,969 =========== ===========
5. NOTES PAYABLE AND LONG-TERM DEBT
On November 19, 1999, the Company entered into a Credit and Security Agreement with Wells Fargo Business Credit, Inc. ("Wells Fargo"), pursuant to which Wells Fargo agreed to provide a credit facility of up to $8,650,000 in debt (the "Debt Facility"). The Debt Facility has a three-year term and is made up of a revolving credit facility and a $150,000 term note.
The current portion of long-term debt includes the Wells Fargo Revolving Credit Loan although this obligation does not mature until November 30, 2002. The classification of this debt was attributable to an accounting requirement that a revolving credit agreement that includes both a subjective acceleration clause and a requirement to maintain an arrangement, whereby cash collections from the borrower's customers directly reduce the debt outstanding, to be classified as a short-term obligation (Emerging Issues Task Force Issue 95-22). A covenant of the Debt Facility is that collections from customers are to be deposited into a cash collateral account that directly pays down the Revolving Credit Loan. The balance in this account comprises the restricted cash on the Company's balance sheet. Because of this arrangement and the fact that the debt agreement contains a clause that would allow acceleration of payment of the debt in case of a "material adverse change", this rule applies. Management does not believe that any such acceleration will occur.
The Company periodically has outstanding letters of credit for inventory purchase commitments with terms ranging from sight to 90 days. As of December 31, 2000, there were no letters of credit outstanding.
Pursuant to the Credit and Security Agreement with Wells Fargo, the overall combined borrowings under the revolving credit facility and outstanding balance on letters of credit is limited to a combined amount of $8,500,000. Of the $8,500,000 limit, letters of credit cannot exceed $500,000. The unused portion of the letter of credit limit can be utilized for borrowings, up to the limits imposed for the indebtedness. Total borrowings under this arrangement are subject to a percentage of trade accounts receivable and inventory reduced by the outstanding balance of letters of credit and any required reserves. The unused portion of the credit facility at December 31, 2000 and 1999 was $884,759 and $508,410, respectively.
The terms of the Debt Facility contain various covenants which among other things require the Company to maintain a certain level of income and book net worth and limit capital expenditures. Other covenants prohibit the Company from incurring indebtedness except as permitted by the terms of the Debt Facility, from declaring or paying cash dividends upon any of its stock and from entering into any new business or making material changes in any of the Company's business objectives, purposes or operations.
Scheduled maturities of the Company's notes payable and long-term debt are as follows:
2001 $ 108,661 2002 5,663,990 ----------- $ 5,772,651 ===========
6. EMPLOYEE BENEFIT PLAN
The Company has an Employee Stock Ownership Plan (the "Plan") for employees with at least one year of service (as defined by the Plan) and who have reached their 21st birthday. Under the Plan, the Company makes annual cash or stock contributions to a trust for the benefit of eligible employees. The trust invests in shares of the Company's common stock. The amount of the Company's annual contribution is discretionary. Benefits under the Plan are 100% vested after three years of service and are payable upon death, disability or retirement. Vested benefits are payable upon termination of employment.
The Company applies Statement of Position 93-6 (SOP 93-6"), "Employers' Accounting for Employee Stock Ownership Plans," of the Accounting Standards Division of the American Institute of CPAs. Contributions made during 1994 and 1995 in the amount of $99,962 and $226,222, respectively, represented securities acquisition loans. In accordance with SOP 93-6, securities purchased with these loans were recorded as unearned ESOP shares. The unearned ESOP share account is reduced by the cost of the shares when they are committed to be released to participants as payments are made on the loans using the principal and interest method. Compensation expense is measured using the average fair market value when shares are committed to be released to the employee. The Company contributed $249,017, $208,214; and $125,408 in cash as current year contributions to the plan during 2000, 1999, and 1998, respectively, and recognized compensation expense related to these payments of $249,017, $208,214; and $42,046 in 2000, 1999, and 1998, respectively. Furthermore, on January 21, 1999, the Company made an additional contribution to the Plan for December 1998 in the amount of $261,920. As a result of this contribution, the Company recognized an additional compensation expense of $10,538 during 1998 relating to the Plan.
The following table summarizes the number of shares held by the Plan and the market value as of December 31, 2000, 1999, and 1998:
No. of Shares Market Value ------------- ------------ 2000 1999 1998 2000 1999 1998 ---- ---- ---- ---- ---- ---- Allocated 808,539 598,132 692,606 $808,539 $486,281 $173,152 Unearned - - - - - - ------- ------- ------- -------- -------- -------- Total 808,539 598,132 692,606 $808,539 $486,281 $173,152 ======= ======= ======= ======== ======== ========
The Company currently offers no postretirement or postemployment benefits to its employees.
7. INCOME TAXES
The provision for income taxes consists of the following:
2000 1999 1998 ---- ---- ---- Current provision (benefit): Federal $ 849,994 $ 370,053 $ (60,240) State 191,070 207,171 (12,340) ---------- ---------- ---------- 1,041,064 577,224 (72,580)
Deferred provision (benefit): Federal 7,418 (2,373) (10,900) State 1,503 - (2,044) ---------- ---------- ---------- 8,921 (2,373) (12,944) ---------- ---------- ---------- $1,049,985 $ 574,851 $ (85,524) ========== ========== ==========
The income tax effects of temporary differences that give rise to significant portions of deferred income tax assets and liabilities are as follows:
2000 1999 ---- ---- Deferred income tax assets: Allowance for doubtful accounts $ 33,621 $ 66,453 Capitalized inventory costs 88,575 85,175 Accrued expenses, reserves, and other 8,606 8,537 --------- ---------
Total deferred income tax assets 130,802 160,165 --------- --------- Deferred income tax liabilities: Property and equipment depreciation 63,395 83,598 Goodwill and other intangible assets amortization 11,643 11,337 Tax effect of translation adjustment and other (2,565) 2,845 --------- ---------
Total deferred income tax liabilities 72,473 97,780 --------- ---------
Net deferred tax asset $ 58,329 $ 62,385 ========= =========
Litigation
The Company is involved in various litigation that arise in the ordinary course of its business and operations. There are no such matters pending that the Company expects to have a material impact on its financial position and results of operations.
9. SIGNIFICANT BUSINESS CONCENTRATIONS AND CREDIT RISK
Major Customers
The Company's revenues are derived from a diverse group of customers primarily involved in the sale of leather crafts and western apparel items. While no single customer accounts for more than 10% of the Company's consolidated revenues in 2000, 1999 and 1998, sales to the Company's five largest customers represented 14%, 19% and 18%, respectively, of consolidated revenues in those years. While management does not believe the loss of one of these customers would have a negative impact on the Company's operations, it does believe the loss of several of these customers simultaneously or a substantial reduction in sales generated by them could temporarily affect the Company's operating results.
For additional disclosures regarding the employee stock options and the warrants, see note 11. Unexercised employee and director stock options to purchase 6,000 and 150,000 shares of common stock as of December 31, 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 prices of the common stock and, therefore, the effect would be antidilutive. The net effect of converting stock options to purchase 452,000 and 447,000 shares of common stock at option prices less than the average market prices has been included in the computations of diluted EPS for the years ended December 31, 2000 and 1999, respectively.
11. STOCKHOLDERS' EQUITY
Stock Option Plans
1995 Stock Option Plan In connection with its 1995 Stock Option Plan for officers and key management employees, the Company has outstanding options to purchase its common stock. The plan provides for the granting of either qualified incentive stock options or non-qualified options at the discretion of the Compensation Committee of the Board of Directors. Options are granted at the fair market value of the underlying common stock at the date of grant and vest over a five-year period. The Company has reserved 1,000,000 shares of common stock for issuance under this plan.
The following table summarizes outstanding options into groups based upon exercise price ranges at December 31, 2000:
Pro forma information regarding net income (loss) and earnings (loss) per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its stock options under the fair value method. The fair value for these options was estimated at the date of grant using the Black Scholes option pricing model with the following weighted-average assumptions: risk-free interest rates of 5.75% in 2000; 5.88% in 1999; and 5.00% in 1998; dividend yields of 0% for all years; volatility factors of .821 for 2000, .851 for 1999; and .693 for 1998; and an expected life of the valued options of 5 years for all years other than some exchanged options reissued in 1997 which had an expected remaining life of 4 years.
Warrants
In connection with the issuance of a Subordinated Debenture in 1997, which has since then been satisfied in its entirety, the Company issued warrants to acquire up to 100,000 shares of Common Stock at $.54 per share to certain unrelated individuals. The warrants may be exercised at anytime until expiration on November 21, 2002.
Warrants to acquire up to 200,000 shares of common stock at approximately $0.44 per share were issued in conjunction with a consulting agreement to an unrelated individual in August 1998. The warrants may be exercised at anytime until expiration on August 3, 2003. The fair value for these warrants was estimated at the date of grant using the Black Scholes option pricing model with the following weighted-average assumptions: risk-free interest rate of 5.0%; dividend yield of 0%; volatility factor of .645; and an expected life of 3 years. The estimated fair value of the warrants of $40,000 was recorded as an expense in 1998.
Notes Receivable Secured by Common Stock
During 1996, the Company purchased certain notes from NationsBank that are collateralized by the Company's common stock. These notes relate to shares issued under the Company's 1993 Non-Qualified Incentive Stock Option Plan. These notes, as renewed in 2000, are due from certain individuals including officers and other members of management, require monthly payments, and have various maturity dates ranging from June 30, 2001 to December 31, 2002.
12. BUSINESS ACQUISITION
In November 2000, the Company acquired the assets, primarily accounts receivable, inventory, fixtures, and equipment, of TLC Direct, Inc. and Tandy Leather Dealer, Inc. (dba Tandy Leather Company), a distributor of leather and related products located in Fort Worth, Texas. Additionally, the Company acquired the exclusive right to certain trademarks associated with the Tandy Leather business. The total purchase price for the operating and intangible assets was approximately $2,850,000, subject to adjustment. The purchase price was funded with proceeds from the Company's revolving credit facility (see note 5). The transaction was accounted for under the purchase method of accounting and the purchase price was allocated to the net assets acquired based on their estimated fair values. The excess of cost over the fair value of net assets acquired of approximately $410,000 was recorded as goodwill and is being amortized over a period of 15 years. The operations of the acquired business have been included in the Company's financial statements beginning December 1, 2000.
The following pro forma information (unaudited) has been prepared as if the acquisition of Tandy Leather had occurred at the beginning of each of the years ended December 31, 2000 and 1999. Such information is not necessarily reflective of the actual results that would have occurred had the acquisition occurred on those dates. 2000 1999 ---- ---- Net Sales $36,708,000 $43,996,000 Net Income (loss) $ 1,637,000 $(4,327,000) Net Income (loss) per common share $0.17 $(0.44) Net Income (loss per common share - assuming dilution $0.16 $(0.44)
THE LEATHER FACTORY, INC. SCHEDULE II - ALLOWANCE FOR DOUBTFUL ACCOUNTS YEARS ENDED DECEMBER 31, 2000, 1999, and 1998
2000 1999 1998 ---- ---- ---- Balance at beginning of year $ 177,000 $ 52,000 $ 28,000 Reserve "purchased" during year (Tandy) 248,000 - - Additions (reductions) charged to income 22,000 157,000 3,000 Balances written off, net of recoveries (109,000) (32,000) 21,000 --------- --------- -------- Balance at end of year $ 338,000 $ 177,000 $ 52,000 ========= ========= ========
REPORT OF INDEPENDENT AUDITORS
The Board of Directors The Leather Factory, Inc.
We have audited the accompanying consolidated balance sheets of The Leather Factory, Inc. as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. Our audits also included the financial statement schedule referred to in the index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
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 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, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Leather Factory, Inc. at December 31, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
Hein + Associates LLP
Dallas, Texas February 15, 2001
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant.
Information required by this item is incorporated by reference to the material appearing under the heading "Election of Directors" and "Executive Officers of the Company" in the Proxy Statement for the 2001 Annual Meeting of Stockholders.
Item 11.
Item 11. Executive Compensation.
Information required by this item is incorporated by reference to the material appearing under the heading "Executive Compensation" in the Proxy Statement for the 2001 Annual Meeting of Stockholders.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information required by this item is incorporated by reference to the material appearing under the heading "Security Ownership of Certain Beneficial Owners and Management" and "Certain Transactions" in the Proxy Statement for the 2001 Annual Meeting of Stockholders.
Item 13.
Item 13. Certain Relationships and Related Transactions.
Information required by this item is incorporated by reference to the material appearing under the heading "Certain Transactions" in the Proxy Statement for the 2001 Annual Meeting of Stockholders.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial statements and financial statement schedules ---------------------------------------------------------
The financial statements and schedule listed in the accompanying index to consolidated financial statements at Item 8 are filed as part of this Report.
2. Exhibits -----------
The exhibits listed on the accompanying Exhibit Index, which immediately precedes such exhibits, are filed or incorporated by reference as part of this Report and such Exhibit Index.
(b) Reports on Form 8-K -------------------
On December 15, 2000, the Company filed a report on Form 8-K (Items 2, 5 and 7) describing the asset purchase of Tandy Leather Company and the resulting amendment to the Credit and Security Agreement with WFBC. This report was amended on February 14, 2001 to include required financial information.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE LEATHER FACTORY, INC. (Registrant)
Date: March 27, 2001 By: /s/ Wray Thompson ---------------------------- ----------------- Wray Thompson Chairman of the Board and Chief Executive Officer
Date: March 27, 2001 By: /s/ Shannon L. Greene ----------------------------- --------------------- Shannon L. Greene Chief Financial Officer and Treasurer
In accordance with the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
Signature & Title Date
/s/ Wray Thompson March 27, 2001 - ------------------------------------ Wray Thompson, Chairman of the Board
/s/ Ronald C. Morgan March 27, 2001 - ------------------------------------ Ronald C. Morgan, Director
/s/ Robin L. Morgan March 27, 2001 - ------------------------------------ Robin L. Morgan, Director
/s/ William M. Warren March 27, 2001 - ------------------------------------ William M. Warren, Director
/s/ H. W. Markwardt March 27, 2001 - ------------------------------------ H. W. Markwardt, Director
/s/ Joseph R. Mannes March 27, 2001 - ------------------------------------ Joseph R. Mannes, Director
/s/ Anthony C. Morton March 27, 2001 - ------------------------------------ Anthony C. Morton, Director
/s/ Shannon L. Greene March 27, 2001 - ------------------------------------ Shannon L. Greene, Director
/s/ Michael A. Markwardt March 27, 2001 - ------------------------------------ Michael A. Markwardt, Director
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.
4.1 The Leather Factory, Inc. Stock Purchase Warrant for 200,000 shares common stock, $.0024 par value issued to Evert I. Schlinger dated August 3, 1998 and terminating on August 3, 2003, filed as Exhibit 4.13 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 November 12, 1998, and incorporated by reference herein.
4.2 Credit and Security Agreement dated November 22, 1999, by and between The Leather Factory, Inc., a Delaware corporation, The Leather Factory, Inc., a Texas corporation, The Leather Factory, Inc., an Arizona corporation, Roberts, Cushman & Company, Inc., and Hi-Line Leather & Manufacturing and Wells Fargo Business Credit, Inc., filed as Exhibit 4.1 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 December 16, 1999, and incorporated by reference herein.
4.3 Revolving Note (Revolving Credit Loan) dated November 22, 1999, in the principal amount of $8,500,000, payable to the order of Wells Fargo Business Credit, Inc., which matures November 30, 2002, filed as Exhibit 4.2 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 December 16, 1999, and incorporated by reference herein.
4.4 Term Note dated November 22, 1999, in the principal amount of $150,000, payable to the order of Wells Fargo Business Credit, Inc., which matures May 1, 2000, filed as Exhibit 4.3 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 December 16, 1999, and incorporated by reference herein.
4.5 Copyright Security Agreement dated November 22, 1999, by and between The Leather Factory, Inc., a Delaware corporation, The Leather Factory, Inc., a Texas corporation, The Leather Factory, Inc., an Arizona corporation, Roberts, Cushman & Company, Inc., and Hi-Line Leather & Manufacturing and Wells Fargo Business Credit, Inc., filed as Exhibit 4.4 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 December 16, 1999, and incorporated by reference herein.
4.6 Amendment to Loan and Security Agreement dated November 30, 2000, by and between The Leather Factory, Inc. a Delaware corporation, The Leather Factory, Inc., a Texas corporation, The Leather Factory, Inc., an Arizona corporation, Roberts, Cushman & Company, Inc., Hi-Line Leather & Manufacturing, and Tandy Leather Company, Inc. (f/k/a Leather Tan Acquisition, Inc.) and Wells Fargo Business Credit, Inc. filed as Exhibit 99.1 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 December 15, 2000, and incorporated by reference herein.
10.1 Letter Agreement for Consulting Services dated July 24, 1998, by and between The Leather Factory, Inc. and Evert I. Schlinger, filed as Exhibit 4.13 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 November 12, 1998, and incorporated by reference herein.
10.2 Asset Purchase Agreement dated November 30, 2000, by Tandy Leather Company, Inc. (f/k/a Leather Tan Acquisition, Inc.), a Texas corporation, TLC Direct, Inc., a Texas corporation, and Tandy Leather Dealer, Inc., a Texas corporation, 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 December 15, 2000, and incorporated herein by reference.
*21.1 Subsidiaries of the Company.
*23.1 Consent of Hein + Associates LLP dated March 29, 2001.
*27.1 Financial Data Schedule ------------ *Filed herewith.