10-Q 1 leathermar10q2001.txt 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 March 31, 2001 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 May 14, 2001 ---------------------------------------- ------------------------------------- Common Stock, par value $.0024 per share 9,968,161 Forward-Looking Statements This report contains forward-looking statements of management. There are certain important risks that could cause results to differ materially than those anticipated by some of the forward-looking statements. Some, but not all, of the important risks which could cause actual results to differ materially from those suggested by the forward-looking statements include, among other things, o changes from anticipated levels of sales, whether due to future national or regional economic and competitive conditions, including, but not limited to, retail craft buying patterns, and possible negative trends in the craft and western retail markets, o failure to realized the anticipated benefits of the recent acquisition of the assets of Tandy Leather, o customer acceptance of existing and new products, or otherwise, pricing pressures due to competitive industry conditions, o increases in prices for leather (which is a world-wide commodity) and the Company's inability to pass these increased costs on to customers, o change in tax or interest rates, o change in the commercial banking environment, o problems with the importation of the products that the Company buys in 22 countries around the world, including, but not limited to, transportation problems or changes in the political climate of the countries involved, including the maintenance by these countries of Most Favored Nation status with the United States of America, and o other uncertainties, all of which are difficult to predict and many of which are beyond the control of the Company. The Company does not intend to update forward-looking statements. 2 THE LEATHER FACTORY, INC. FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001 TABLE OF CONTENTS ----------------- PAGE NO. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets March 31, 2001 and December 31, 2000............................... 4 Consolidated Statements of Income Three months ended March 31, 2001 and 2000......................... 5 Consolidated Statements of Cash Flows Three months ended March 31, 2001 and 2000......................... 6 Consolidated Statements of Stockholders' Equity Three months ended March 31, 2001 and 2000......................... 7 Notes to Consolidated Financial Statements.......................... 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................... 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk... 13 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K............................. 13 SIGNATURES.............................................................. 13 3
-------------------------------------------------------------------------------- THE LEATHER FACTORY, INC. CONSOLIDATED BALANCE SHEETS -------------------------------------------------------------------------------- March 31, December 31, 2001 2000 ------------ ------------ (UNAUDITED) ASSETS CURRENT ASSETS: Cash $ -- $ 234,141 Cash restricted for payment on revolving credit facility 355,402 390,467 Accounts receivable-trade, net of allowance for doubtful accounts of $357,000 and $338,000 in 2001 and 2000, respectively 2,557,269 2,191,996 Inventory 8,383,248 9,205,898 Deferred income taxes 130,069 130,802 Other current assets 440,575 510,473 ------------ ------------ Total current assets 11,866,563 12,663,777 ------------ ------------ PROPERTY AND EQUIPMENT, at cost 4,110,832 3,657,601 Less-accumulated depreciation and amortization (2,607,512) (2,494,732) ------------ ------------ Property and equipment, net 1,503,320 1,162,869 GOODWILL, net of accumulated amortization of $1,423,000 and $1,367,000 in 2001 and 2000, respectively 4,894,074 4,964,704 OTHER INTANGIBLES, net of accumulated amortization of $125,000 and $100,000, in 2001 and 2000, respectively 593,977 615,647 OTHER assets 280,160 279,082 ------------ ------------ $ 19,138,094 $ 19,686,079 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 2,003,398 $ 2,159,910 Accrued expenses and other liabilities 801,510 1,290,613 Income taxes payable 287,908 94,795 Notes payable and current maturities of long-term debt 5,109,239 5,759,626 ------------ ------------ Total current liabilities 8,202,055 9,304,944 ------------ ------------ DEFERRED INCOME TAXES 69,847 72,473 NOTES PAYABLE AND LONG-TERM DEBT, net of current maturities 21,553 13,025 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, 9,968,161 and 9,908,161 shares issued and outstanding at 2001 and 2000, respectively 23,924 23,780 Paid-in capital 4,006,201 3,946,608 Retained earnings 6,969,037 6,471,754 Less: Notes receivable - secured by common stock (118,589) (120,339) Accumulated other comprehensive loss (35,934) (26,166) ------------ ------------ Total stockholders' equity 10,844,639 10,295,637 ------------ ------------ $ 19,138,094 $ 19,686,079 ============ ============
The accompanying notes are an integral part of these financial statements. 4 -------------------------------------------------------------------------------- THE LEATHER FACTORY, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) THREE MONTHS ENDED MARCH 31, 2001 AND 2000 -------------------------------------------------------------------------------- 2001 2000 ---------- ---------- NET SALES $9,372,613 $7,405,557 COST OF SALES 4,488,397 3,834,966 ---------- ---------- Gross profit 4,884,216 3,570,591 OPERATING EXPENSES 3,908,877 2,778,389 ---------- ---------- INCOME FROM OPERATIONS 975,339 792,202 OTHER EXPENSE: Interest expense 148,593 169,195 Other, net 7,291 5,342 ---------- ---------- Total other expense 155,884 174,537 ---------- ---------- INCOME BEFORE INCOME TAXES 819,455 617,665 PROVISION FOR INCOME TAXES 322,172 233,723 ---------- ---------- NET INCOME $ 497,283 $ 383,942 ========== ========== NET INCOME (LOSS) PER COMMON SHARE $ 0.05 $ 0.04 ========== ========== NET INCOME (LOSS) PER COMMON SHARE--Assuming Dilution $ 0.05 $ 0.04 ========== ========== The accompanying notes are an integral part of these financial statements. 5
-------------------------------------------------------------------------------- THE LEATHER FACTORY, INC. CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED) THREE MONTHS ENDED MARCH 31, 2001 AND 2000 -------------------------------------------------------------------------------- 2001 2000 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 497,283 $ 383,942 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation & amortization 193,643 141,242 Amortization of deferred financing costs 11,438 15,235 Other (11,662) 8,866 Net changes in assets and liabilities: Accounts receivable-trade, net (365,273) 153,382 Inventory 822,650 596,150 Income taxes 193,113 (187,309) Other current assets 69,898 (224,649) Accounts payable (156,510) (463,634) Accrued expenses and other liabilities (489,104) (268,789) --------- --------- Total adjustments 268,193 (229,506) --------- --------- Net cash provided by operating activities 765,476 154,436 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (453,230) (30,961) Increase in other assets (1,078) -- Other intangible costs -- 426 --------- --------- Net cash used in investing activities (454,308) (30,535) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net decrease in revolving credit loans (635,354) (84,692) Proceeds from notes payable and long-term debt 18,676 -- Payments on notes payable and long-term debt (25,182) (112,212) Decrease in cash restricted for payment on revolving credit facility 35,064 90,661 Payments received on notes secured by common stock 1,750 3,188 Proceeds from issuance of common stock 59,737 10,000 --------- --------- Net cash used in financing activities (545,309) (93,055) --------- --------- NET INCREASE (DECREASE) IN CASH (234,141) 30,846 CASH, beginning of period 234,141 134,465 --------- --------- CASH, end of period $ -- $ 165,311 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid during the period $ 148,337 $ 157,391 Income taxes paid during the period, net of (refunds) 135,248 409,631
The accompanying notes are an integral part of these financial statements. 6
-------------------------------------------------------------------------------- THE LEATHER FACTORY, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) THREE MONTHS ENDED MARCH 31, 2001 AND 2000 -------------------------------------------------------------------------------- Common Stock Notes Accumulated --------------------------- receivable Other Number Par Paid-in Retained - secured by Cumulative 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 -- -- -- -- 3,188 -- Shares issued - employee Stock options exercised 20,000 48 9,952 -- -- -- Net Income -- -- -- 383,942 -- -- Translation adjustment -- -- -- -- -- (144) ------------ ------------ ------------ ------------ ------------ ------------ BALANCE, March 31, 2000 9,873,161 $ 23,696 $ 3,911,692 $ 5,314,376 $ (150,228) $ (22,125) ============ ============ ============ ============ ============ ============ BALANCE, December 31, 2000 9,908,161 $ 23,780 $ 3,946,608 $ 6,471,754 $ (120,339) $ (26,166) Payments on notes receivable - secured by common stock -- -- -- -- 1,750 -- Shares issued - employee Stock options exercised 60,000 144 59,593 -- -- -- Net Income -- -- -- 497,283 -- -- Translation adjustment -- -- -- -- -- (9,768) ------------ ------------ ------------ ------------ ------------ ------------ BALANCE, March 31, 2001 9,968,161 $ 23,924 $ 4,006,201 $ 6,969,037 $ (118,589) $ (35,934) ============ ============ ============ ============ ============ ============ Comprehensive Total Income (Loss) ------------ ------------ BALANCE, December 31, 1999 $ 8,680,425 Payments on notes receivable - secured by common stock 3,188 Shares issued - employee Stock options exercised 10,000 Net Income 383,942 383,942 Translation adjustment (144) (144) ------------ BALANCE, March 31, 2000 $ 9,077,411 ============ ------------ Comprehensive income for the three months ended March 31, 2000 $ 383,798 ============ BALANCE, December 31, 2000 10,295,637 Payments on notes receivable - secured by common stock 1,750 Shares issued - employee Stock options exercised 59,737 Net Income 497,283 497,283 Translation adjustment (9,768) (9,768) ------------ BALANCE, March 31, 2001 $ 10,844,639 ============ ------------ Comprehensive income for the three months ended March 31, 2001 $ 487,515 ============
The accompanying notes are an integral part of these financial statements. 7
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 March 31, 2001 and December 31, 2000, and the results of operations and cash flows for the three-month periods ended March 31, 2001 and 2000. The results of operations for the three-month period 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 2000 Annual Report on Form 10-K ("Annual Report"). 2. INVENTORY The components of inventory consist of the following: As of --------------------------- March 31, December 31, 2001 2000 ----------- ------------ Finished goods held for sale $ 7,331,130 $ 8,175,429 Raw materials and work in process 1,052,118 1,030,469 ----------- ----------- $ 8,383,248 $ 9,205,898 =========== ============ 3. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share ("EPS"): Three Months Ended March 31, ---------------------------- 2001 2000 ----------- ----------- Numerator: Net income $ 497,283 $ 383,942 ----------- ----------- Numerator for basic and diluted earnings per share 497,283 383,942 Denominator: Denominator for basic earnings per share - Weighted-average shares 9,949,494 9,859,754 Effect of dilutive securities: Stock options 92,424 101,236 Warrants 162,690 160,216 ----------- ----------- Dilutive potential common shares 255,114 261,452 ----------- ----------- Denominator for diluted earnings per share - weighted-average shares 10,204,608 10,121,206 =========== =========== Basic earnings per share $ 0.05 $ 0.04 =========== =========== Diluted earnings per share $ 0.05 $ 0.04 =========== ===========
Unexercised stock options owned by certain employees and directors to purchase 16,000 and 6,000 shares of common stock as of March 31, 2001 and 2000, respectively, were not included in the computations of diluted EPS because the options' exercise prices were greater than or equal to the average market price of the common stock during the period. 8
4. SEGMENT INFORMATION SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", establishes standards for public companies relating to the reporting of financial and descriptive information about their operating segments in financial statements. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by chief operating decision makers in deciding how to allocate resources and in accessing performance. The Company identifies its segments based on the activities of three distinct businesses: The Leather Factory, which sells product to both wholesale and retail customers, consists of a chain of sales/distribution units located in the United States and Canada; Tandy Leather Company, which sells product throughout the United States via the Internet and mail-order, and internationally through authorized dealers; and Roberts, Cushman & Company, which manufactures decorative hat trims sold directly to hat manufactures and distributors. The Company previously defined its operations as consisting of a single reporting segment as provided for under the aggregation criteria of SFAS No. 131. During 2000, the Company revised its presentation of segment information to reflect the Company initiative to establish strategic business units. The Company's reportable operating segments have been determined as separately identifiable business units. The Company measures segment earnings as operating earnings, defined as income before interest and income taxes. The "Tandy Leather Company" column contains operating results beginning after its November 30, 2000 acquisition. The Leather Tandy Leather Roberts, Factory Company Cushman & Co Total ------------ ------------ ------------ ------------ For the quarter ended March 31, 2001 Net Sales $ 7,103,792 $ 1,775,116 $ 493,705 $ 9,372,613 Gross Profit 3,764,419 978,310 141,487 4,884,216 Operating earnings (loss) 1,003,701 (19,664) (8,698) 975,339 Interest expense (148,593) -- -- (148,593) Other, net (7,444) 153 -- (7,291) ------------ Income (loss) before income taxes 883,620 (19,511) (44,654) 819,455 ------------ Depreciation and amortization 131,044 35,861 38,176 205,081 Total assets $ 10,852,853 $ 3,213,420 $ 5,071,821 $ 19,138,094 ------------ ------------ ------------ ------------ For the quarter ended March 31, 2000 Net Sales $ 6,847,545 -- $ 558,012 $ 7,405,557 Gross Profit 3,368,265 -- 202,326 3,570,591 Operating earnings (loss) 678,633 -- 113,569 792,202 Interest expense (169,195) -- -- (169,195) Other, net (5,342) -- -- (5,342) ------------ Income (loss) before income taxes 588,666 -- 28,999 617,665 ------------ Depreciation and amortization 117,327 -- 39,150 156,477 Total assets $ 12,259,079 -- $ 5,233,368 $ 17,492,447 ------------ ------------ ------------ ------------ Net sales for geographic areas was as follows: Three months ended March 31, 2001 March 31, 2000 -------------- -------------- United States $ 8,869,011 $ 7,093,710 All other countries 503,602 311,847 ------------ ------------ $ 9,372,613 $ 7,405,557 ============ ============
9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 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 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 4 to the Consolidated Financial Statements for additional information concerning the Company's segments. TLF 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. We also carry 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 sells the same products as TLF. Roberts, Cushman & Company, Inc. produces and sells a related product line of hat trims in braids, leather and woven fabrics. As previously disclosed, the Company acquired the operating assets of TLC Direct, Inc. and Tandy Leather Dealer, Inc. (collectively called the "Sellers") on November 30, 2000 to form Tandy Leather Company. The Sellers were subsidiaries of Tandycrafts, Inc. Further details regarding the Tandy Leather acquisition, including the consideration paid, are provided in Note 12 to the Consolidated Financial Statements contained in the Company's 2000 Annual Report on Form 10-K 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. 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 2000 to 2001: % of Net Sales Quarterly period ended March 31, Change in $ and % ---------------------- -------------------------- 2001 2000 $ Change % Change --------- --------- -------------- --------- Net sales 100.0% 100.0% $ 1,967,056 26.56% Cost of sales 47.9 51.8 653,431 17.04 --------- --------- -------------- Gross Profit 52.1 48.2 1,313,625 36.79 Operating expenses 41.7 37.5 1,130,488 40.69 --------- --------- -------------- Income from operations 10.4 10.7 183,137 23.12 Interest expense and other 1.7 2.4 (18,653) (10.69) --------- --------- -------------- Income before income taxes 8.7 8.3 201,790 32.67 Income tax provision 3.4 3.2 88,449 37.84 --------- --------- -------------- Net income 5.3% 5.1% $ 113,341 29.52 ========= ========= ============== Revenues The Company produced another quarter of strong sales, totaling $9.4 million for the first quarter of 2001 compared to $7.4 million for the first quarter of 2000. Tandy Leather's sales of $1.8 million accounted for the majority of the increase. Two new sales units opened since October 2000 contributed sales of $215,000 in the first quarter of 2001. Our retail sales continue to climb each quarter, producing a 22% increase over first quarter 2000 retail sales. Sales to our craft customers generated $190,000 in sales above the first quarter of 2000, primarily due to expanded programs to our largest accounts. Leather is again becoming a popular item in crafts and fashion. New products combined with additional items being sold to the major retailers have resulted in our crafts sales trending upward. 10 Our sales to the shoe care/repair market continue its intentional decline as historically, this market does not meet the Company's gross margins targets. The sales decrease to this market for the first quarter of 2001 was offset by steady increases in sales to other wholesale customer markets, such as small manufacturers. Our Authorized Sales Center ("ASC") program generated strong sales again in the current quarter - an 18% increase over this same category a year ago. Export sales, institutional sales (prisons, prisoners, schools, hospitals), and other wholesale sales remained relatively constant compared to last year at this time. Costs, Gross Profit, and Expenses Cost of sales as a percentage of revenue was 47.9% for the first quarter of 2001 as compared to 51.8% for the same quarter in 2000. This translates into gross profit margins of 52.1% and 48.2% for the quarters ended March 31, 2001 and 2000, respectively. This improvement is primarily the result of the continued change in our sales mix and our aggressive purchasing of product. Over the past several years, our retail to wholesale ratio has shifted from 10%/90% to a 20%/80% mix. For the first quarter of 2001, our retail sales were 22% of our total sales. As retail sales historically produce the highest profit margins, the growth of retail business has positively impacted our cost of sales and gross profit percentages. Operating expenses were $1,130,000 higher in the first quarter of 2001 than in the first quarter of 2000. Tandy Leather contributed $998,000 of this increase. As a percentage of sales, excluding the impact of Tandy Leather, operating expenses increased less than 1% of sales from last year's totals. The increase is due primarily to increases in advertising expenses. Retail sales historically bring higher margins; however, they also require an increase in advertising efforts. Direct mail pieces must be distributed more often and with more color to get the attention of the retail customer. Higher mailing frequency along with the increase in postal rates have accounted for the majority of the increase in our advertising costs. Tandy Leather presently operates less efficiently than TLF as operating expenses were 56% of sales for the first quarter of 2001 compared to 38% for TLF. Management is working diligently to improve Tandy Leather's operating efficiency and believes a ratio more consistent with that of TLF can be achieved. The Company has experienced some recent increases in its costs of leather, and we anticipate that leather prices paid by us may increase further as a result of the foot and mouth and mad cow diseases in Europe. The Company is taking some steps to address price increases (described below), but the Company's profit margins may be adversely affected, despite these efforts. Other (Income) Expense Other expenses were down 10.7% from 2000. This reduction is primarily in interest expense due to the decrease in average outstanding debt balances and lower average interest rates in 2001 as compared to 2000. 11 Net Income The Company reported net income of $497,000 during the first quarter of 2001 compared to net income of $384,000 for the same period a year ago. The significant improvement was principally due to the higher gross profit margins earned on the increased retail sales. Capital Resources, Liquidity and Financial Condition ---------------------------------------------------- The primary sources of liquidity and capital resources during the first quarter of 2001 were funds provided by operating activities in the amount of $765,000 and the Company's Credit and Security Agreement with Wells Fargo Business Credit, Inc. ("WFBC"). The largest portion of the operating cash flow was used to pay down debt balances, other liabilities, and purchase property and equipment. Approximately 48% of 2001 capital spending was for new computer equipment and software with the remainder split between leasehold improvements and equipment. The Company also uses a revolving credit facility under the Credit and Security Agreement to manage cash flow. Because extra cash was applied to the balance on this revolving credit facility, the Company recorded a zero balance of unrestricted cash at March 31, 2001. At the same date, however, the Company had in excess of $1 million in available credit under the revolving credit facility. The Company's investment in accounts receivable was $2.5 million at March 31, 2001, up $365,000 from $2.2 million at year-end 2000. This is a result of an increase in credit sales in the later part of the quarter ended March 31, 2001 as compared to that of quarter ended December 31, 2000. Inventory decreased $823,000 to $8.4 million at March 31, 2001 from $9.2 million at year-end 2000. Inventory turnover increased to an annualized rate of 4.26 times during the first quarter of 2001, an improvement over the turnover of 3.64 times for all of 2000. Management believes a realistic turnover rate is between 3.5 and 4.5 turns per year and is pleased with the rate for the first quarter. Because of uncertainties following the foot and mouth disease and mad cow scare in Europe, we are attempting to maintain a certain amount of stability in availability and price by purchasing larger quantities of leather in bulk. This step may reduce the number of inventory turns in the next several quarters. Accounts payable decreased 7.25% to $2.0 million at the end of the first quarter, due primarily to the operating cash flow generated from the decrease in inventory levels for the quarter. Under the Credit and Security Agreement, WFBC agreed to provide a revolving credit facility of up to $8,500,000. On November 30, 2000, the Company entered into the First Amendment to the 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, to make previously contemplated extensions of these tests, and to raise the standards required in those tests based on the Company's improved financial performance since the credit agreement was originally signed. The revolving credit facility with WFBC is based upon the level of the Company's accounts receivable and inventory. At March 31, 2001 and December 31, 2000, the available and unused portion of the credit facility was approximately $1,013,000 and $885,000, 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 2001, the funding for the opening of any new units is expected to be provided by operating leases, cash flows from operating activities, and the revolving credit facility. 12 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. 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 -------- None. (b) Reports on Form 8-K ------------------- On February 14, 2001, the Company amended its Current Report on Form 8-K that was originally filed on December 15, 2000. This amendment included the Financial Statements of Businesses Acquired and Pro Forma Financial Information (Items 7(a) & (b)) pertaining to the acquisition of the assets of Tandy Leather Company. 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: May 14, 2001 By: /s/ Wray Thompson ---------------------------------- Wray Thompson Chairman of the Board and Chief Executive Officer Date: May 14, 2001 By: /s/ Shannon L. Greene ---------------------------------- Shannon L. Greene Chief Financial Officer and Treasurer (Chief Accounting Officer) 13