SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
Form 8-K/A
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): November 30, 2000
--------------------------
The Leather Factory, Inc..
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(Exact Name of Registrant as Specified in Its Charter)
Delaware
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(State or Other Jurisdiction of Incorporation)
1-12368 75-2543540
------------------------------------ ------------------------------------
(Commission File Number) (IRS Employer Identification Number)
3847 East Loop 820 South, Fort Worth, Texas 76119
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(Address of Principal Executive Offices) (Zip Code)
(817) 496-4414
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(Registrant's Telephone Number, Including Area Code)
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(Former Name or Former Address, if Changed Since Last Report)
The Form 8-K filed by the Registrant on December 15, 2000 is amended by
the supplemental filing of the information required by Items 7(a) and 7(b).
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired.
The financial statements required by Item 7(a) are attached as
Attachment A, along with the accountants' report of Hein and
Associates LLP.
(b) Pro Forma Financial Information.
The pro forma financial information required by Item 7(b) is
attached as Attachment B.
This Report contains forward-looking statements based on current
expectations that involve a number of uncertainties. Details on the factors that
could affect The Leather Factory, Inc.'s financial results are included in The
Leather Factory, Inc.'s Securities and Exchange Commission (SEC) filings,
including the latest Annual Report on Form 10-K and on its Quarterly Reports on
Form 10-Q.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf of the
undersigned hereunto duly authorized.
THE LEATHER FACTORY, INC.
Date: February 12, 2001 BY: /s/ Wray Thompson
----------------------------------------
Wray Thompson, Chairman of the Board and
Chief Executive Officer
ATTACHMENT A
INDEPENDENT AUDITOR'S REPORT
December 22, 2000
Board of Directors
TLC Direct, Inc.
Tandy Leather Dealer, Inc.
Fort Worth, Texas
We have audited the accompanying combined balance sheet of TLC Direct, Inc. and
Tandy Leather Dealer, Inc. (collectively the "Tandy Leather Company") as of June
30, 2000, and the related combined statements of operations and changes in
stockholder's equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, 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 audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to in the first
paragraph present fairly, in all material respects, the combined financial
position of Tandy Leather Company as of June 30, 2000, and the combined results
of its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
HEIN + ASSOCIATES, LLP
Certified Public Accountants
TANDY LEATHER COMPANY
(wholly owned by Tandycrafts, Inc.)
COMBINED BALANCE SHEETS
ASSETS
------
SEPTEMBER 30, JUNE 30,
2000 2000
------------- -------------
(Unaudited)
CURRENT ASSETS:
Trade accounts receivable, net of allowance for doubtful
accounts of $234,000 and $226,000, respectively $ 310,327 $ 398,020
Inventory 2,280,072 2,237,333
Prepaid expenses 84,003 16,150
------------- -------------
Total current assets 2,674,402 2,651,503
PROPERTY AND EQUIPMENT, net 61,456 64,811
------------- -------------
Total assets $ 2,735,858 $ 2,716,314
============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 263,367 $ 314,177
Accrued expenses and other liabilities 191,132 115,356
Due to Parent 2,013,415 2,062,257
------------- -------------
Total current liabilities 2,467,914 2,491,790
STOCKHOLDER'S EQUITY
Common stock 20 20
Paid-in capital 1,980 1,980
Retained earnings 265,944 222,524
------------- -------------
Total stockholder's equity 267,944 224,524
------------- -------------
Total stockholder's equity $ 2,735,858 $ 2,716,314
============= =============
See accompanying notes to these combined financial statements.
2
TANDY LEATHER COMPANY
(wholly owned by Tandycrafts, Inc.)
COMBINED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, JUNE 30,
------------------------- -----------
2000 1999 2000
----------- ----------- -----------
(Unaudited) (Unaudited)
NET SALES $ 1,562,421 $ 1,496,574 $ 7,124,176
COST OF SALES 828,451 764,321 3,628,003
----------- ----------- -----------
Gross profit 733,970 732,253 3,496,173
OPERATING EXPENSES:
Selling, general and administrative expenses 661,216 1,169,496 3,128,481
Depreciation 3,355 2,289 10,899
----------- ----------- -----------
Income (loss) before income taxes 69,399 (439,532) 356,793
PROVISION FOR INCOME TAXES 25,979 -- 134,269
----------- ----------- -----------
NET INCOME (LOSS) $ 43,420 $ (439,532) $ 222,524
=========== =========== ===========
See accompanying notes to these combined financial statements.
3
TANDY LEATHER COMPANY
(wholly owned by Tandycrafts, Inc.)
COMBINED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE PERIOD FROM JULY 1, 1999 TO SEPTEMBER 30, 2000
COMMON TOTAL
STOCK PAID-IN RETAINED STOCKHOLDER'S
AMOUNT CAPITAL EARNINGS EQUITY
-------- -------- -------- -------------
BALANCES, July 1, 1999 $ -- $ -- $ -- $ --
Common stock issued for cash 20 1,980 -- 2,000
Net income -- -- 222,524 222,524
-------- -------- -------- --------
BALANCES, June 30, 2000 20 1,980 222,524 224,524
Net income (Unaudited) -- -- 43,420 43,420
-------- -------- -------- --------
BALANCES, September 30, 2000
(Unaudited) $ 20 $ 1,980 $265,944 $267,944
======== ======== ======== ========
See accompanying notes to these combined financial statements.
4
TANDY LEATHER COMPANY
(wholly owned by Tandycrafts, Inc.)
COMBINED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, JUNE 30,
-------------------------- -----------
2000 1999 2000
----------- ----------- -----------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 43,420 $ (439,532) $ 222,524
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 3,355 2,289 10,899
Changes in operating assets and liabilities:
Trade accounts receivable 87,693 133,388 (33,583)
Inventory (42,739) 297,229 (501,503)
Prepaid expenses (67,853) (7,213) 7,757
Accounts payable (50,810) 174,058 167,837
Accrued expenses and other liabilities 75,776 29,583 111,916
----------- ----------- -----------
Net cash provided (used) by operating activities 48,842 189,802 (14,153)
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchases of property and equipment -- (2,800) (24,416)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net advances (repayments) from Parent (48,842) (189,002) 36,569
Common stock issued for cash -- 2,000 2,000
----------- ----------- -----------
Net cash used in financing activities (48,842) (187,002) 38,569
----------- ----------- -----------
NET CHANGE IN CASH -- -- --
CASH, beginning of period -- -- --
----------- ----------- -----------
CASH, end of period $ -- $ -- $ --
=========== =========== ===========
NON-CASH ACTIVITY:
Transfer of assets and liabilities from Parent:
Trade accounts receivable, net -- 364,437 364,437
Inventory -- 1,735,830 1,735,830
Prepaids -- 23,907 23,907
Property and equipment, net -- 51,293 51,293
Accounts payable and accrued liabilities -- (149,779) (149,779)
Due to Parent -- (2,025,688) (2,025,688)
See accompanying notes to these combined financial statements.
5
TANDY LEATHER COMPANY
(wholly owned by Tandycrafts, Inc.)
NOTES TO COMBINED FINANCIAL STATEMENTS
(the three-month periods ended September 30, 2000 and 1999 are unaudited)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
-------------------------------------------------
The Company markets and distributes leather and leather craft products sold
throughout the United States via the Internet and mail order, and
internationally through authorized dealers.
The Company's combined financial statements include the accounts of TLC
Direct, Inc. ("TLC") and Tandy Leather Dealer, Inc. ("TLD"), which were
incorporated in July 1999 as wholly-owned subsidiaries of Tandycrafts, Inc.
("the Parent"). All significant intercompany accounts and transactions have
been eliminated in the combination. TLC and TLD are referred to
collectively as Tandy Leather Company ("the Company").
On August 1, 1999, the Parent contributed certain assets and liabilities to
the Company that had previously comprised its leather and crafts operating
division. The assets and liabilities were recorded at the Parent's book
value.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Inventory
---------
Inventory consists of finished goods held for resale, valued at the lower
of average cost or market.
Property and Equipment
----------------------
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives, generally three to seven years, of the underlying assets.
Accumulated depreciation is $26,522 at June 30, 2000.
Expenditures for maintenance, repairs, renewals and betterments which do
not materially prolong the useful lives of the assets are charged to income
as incurred. The cost of property retired or sold, and the related
accumulated depreciation, is removed from the accounts and any gain or
loss, after taking into consideration proceeds from sales, is reflected in
income.
Revenue Recognition
-------------------
Sales are recorded when goods are shipped to customers.
Allocated Corporate Expenses
----------------------------
The accompanying statements of operations include certain expenses incurred
by the Parent on the Company's behalf. These corporate expenses consist
primarily of rent and labor, associated with the use of the Parent's
warehouse facility, and other general and administrative expenses. The
Parent charges rent expense at rates that it believes would be incurred for
similar facilities. The Parent has established performance budgets for the
Company and allocates labor costs relative to budgeted operating results.
The Parent allocates general and administrative expenses in proportion to
the Company's use of corporate services. The Parent believes these methods
are reasonable.
Advertising Costs
-----------------
With the exception of catalog costs, advertising costs are expensed as
incurred. Catalog costs are capitalized and expensed when the catalog is
released. Total advertising expense was $900,166 for the year ended June
30, 2000 and $127,034 and $544,199 for the three month periods ended
September 30, 2000 and 1999, respectively.
6
TANDY LEATHER COMPANY
(wholly owned by Tandycrafts, Inc.)
NOTES TO COMBINED FINANCIAL STATEMENTS
(the three-month periods ended September 30, 2000 and 1999 are unaudited)
Income Taxes
------------
Income taxes are calculated in accordance with the liability method, which
requires that deferred tax assets and liabilities be recognized based on
differences between the financial statement and tax bases of assets and
liabilities using presently enacted rates.
The Company is included in the consolidated federal income tax return of
the Parent. However, the Company records income taxes for financial
reporting purposes as if it filed a separate tax return. Current and
deferred income tax assets and liabilities are included in Due to Parent on
the balance sheet.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates
and those differences could be material. Significant estimates made by the
Company include the net realizable values of accounts receivable and
inventory.
Unaudited Information
---------------------
The combined financial statements as of September 30, 2000 and for the
three-month periods ended September 30, 2000 and 1999 were taken from the
Company's books and records without audit. However, in the opinion of
management, such information includes all adjustments (consisting only of
normal recurring accruals) which are necessary to properly reflect the
financial position and results of operations for the applicable periods.
3. RELATED PARTY TRANSACTIONS
--------------------------
Net amounts advanced to the Company by the Parent for working capital and
other operating purposes, including net assets transferred at inception,
totaled $2,013,415 and $2,062,257 at September 30, 2000 and June 30, 2000,
respectively. Such advances are non-interest bearing and contain no
specific terms of repayment. Expenses allocated by the Parent are described
in Note 2.
The Company's assets are included as collateral for the Parent's bank debt
along with other assets of the Parent. Funds from the sale of the Company's
assets described in Note 7 were used to reduce the Parent's debt.
4. STOCKHOLDER'S EQUITY
--------------------
TLC and TLD have each authorized 1,000 shares of common stock, $.01 par
value, for a total of 2,000 shares, all of which were issued and
outstanding as of June 30, 2000.
7
TANDY LEATHER COMPANY
(wholly owned by Tandycrafts, Inc.)
NOTES TO COMBINED FINANCIAL STATEMENTS
(the three-month periods ended September 30, 2000 and 1999 are unaudited)
5. INCOME TAXES
------------
The provision for income taxes for the year ended June 30, 2000 consisted
primarily of current tax expense. The difference between the tax expense
and the amount expected based on the statutory tax rate is primarily due to
the effect of state taxes.
As of June 30, 2000, the income tax effects of temporary differences that
give rise to significant portions of the Company's deferred tax assets and
liabilities were as set forth below. As described in Note 2, the deferred
tax asset balance is included in Due to Parent in the balance sheet.
Deferred tax assets:
Allowance for doubtful accounts $ 76,000
Reserve for obsolete inventory 10,000
---------------
Total deferred tax asset 86,000
Deferred tax liability -
---------------
86,000
Valuation allowance (86,000)
---------------
$ -
===============
6. MAJOR CUSTOMERS, CREDIT RISK AND GEOGRAPHIC AREA INFORMATION
------------------------------------------------------------
The Company's revenues are derived from a diverse group of customers
principally located in the United States and Canada. Approximately 11% of
the Company's sales were to customers outside the United States. No single
customer accounted for more than 10% of the Company's revenues for the
periods presented.
Credit risk with respect to accounts receivable is considered to be limited
due to the diversity of the Company's customer base and their geographic
dispersion. The Company does not generally require collateral for accounts
receivable. The Company performs periodic credit evaluations of its
customers' financial condition and believes the allowance for doubtful
accounts is adequate. At June 30, 2000, amounts due from an authorized
dealer located in Canada represented approximately 28% of total accounts
receivable, net of allowance for doubtful accounts.
7. SEGMENT INFORMATION
-------------------
The Company markets and distributes leather and leather craft products via
the Internet and mail order ("Direct") and to authorized dealers
("Dealer").
Management evaluates the performance of its reportable segments based on
segment profit or loss, defined as segment revenue less segment cost of
sales, excluding selling, general and administrative expenses, depreciation
and taxes on income. Segment assets are those assets that are used in each
reportable segment.
8
TANDY LEATHER COMPANY
(wholly owned by Tandycrafts, Inc.)
NOTES TO COMBINED FINANCIAL STATEMENTS
(the three-month periods ended September 30, 2000 and 1999 are unaudited)
THREE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, JUNE 30,
------------------------- -----------
2000 1999 2000
----------- ----------- -----------
(Unaudited) (Unaudited)
SEGMENT REVENUES:
Direct $ 1,159,000 $ 1,279,000 $ 5,419,000
Dealer 403,000 218,000 1,705,000
----------- ----------- -----------
Total segment revenues $ 1,562,000 $ 1,497,000 $ 7,124,000
=========== =========== ===========
SEGMENT PROFIT (LOSS):
Direct $ 613,000 $ 670,000 $ 3,032,000
Dealer 120,000 61,000 464,000
----------- ----------- -----------
Total segment profit 733,000 731,000 3,496,000
Selling, general and administrative expenses 661,000 1,169,000 3,128,000
Depreciation 3,000 2,000 11,000
----------- ----------- -----------
Income (loss) before income taxes $ 69,000 $ (440,000) $ 357,000
=========== =========== ===========
SEPTEMBER 30, JUNE 30,
2000 2000
------------ -----------
(Unaudited)
SEGMENT ASSETS:
Direct $ 2,510,000 $ 2,495,000
Dealer 226,000 221,000
----------- -----------
Total segment assets $ 2,736,000 $ 2,716,000
=========== ===========
8. SUBSEQUENT EVENT
----------------
Effective November 30, 2000, the Company entered into an asset purchase
agreement with The Leather Factory, Inc., whereby the Company's ongoing
operations were sold for cash consideration of $2,850,000, subject to
adjustment.
**************
9
ATTACHMENT B
The Leather Factory, Inc.
Unaudited Pro Forma Combined Financial Statements
The accompanying unaudited pro forma combined financial statements have been
prepared to reflect the acquisition of TLC Direct, Inc. and Tandy Leather
Dealer, Inc. (collectively the "Tandy Leather Company") by The Leather Factory,
Inc. ("TLF"). TLF acquired the Tandy Leather Company on November 30, 2000 for
cash consideration of $2,850,000, subject to certain adjustments specified in
the Agreement.
The unaudited pro forma combined balance sheet at September 30, 2000 is
presented as if the acquisition had occurred on that date. The unaudited pro
forma statements of income are presented for the three months ended September
30, 2000 and the year ended June 30, 2000. TLF has a December 31 calendar
year-end and Tandy Leather Company has a June 30 fiscal year end. The pro forma
statements of income are presented on a June 30 fiscal year basis because that
presentation is believed to be more meaningful as Tandy Leather Company was not
formed until July 1999. The pro forma statement of income of TLF for the year
ended June 30, 2000 combines the statements of income of TLF for the six month
period ended December 31, 1999 and the six month period ended June 30, 2000. The
unaudited pro forma combined statement of income for the year ended June 30,
2000 is presented as if the acquisition had occurred on July 1, 1999. The
unaudited pro forma combined statement of income for the three months ended
September 30, 2000 is presented as if the acquisition had occurred on July 1,
2000.
The unaudited pro forma combined financial statements should be read in
conjunction with the historical financial statements of TLF included in its most
recent Forms 10-K and 10-Q, and the historical financial statements of the Tandy
Leather Company included herein. These pro forma financial statements are not
indicative of the financial position or results of operations that would
actually have occurred if the transactions described above had occurred at the
dates presented or which may be obtained in the future.
PF-1
THE LEATHER FACTORY, INC. AND TANDY LEATHER COMPANY
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2000
TANDY
THE LEATHER LEATHER PRO FORMA PRO FORMA
FACTORY, INC. COMPANY ADJUSTMENTS BALANCES
--------------- --------------- --------------- ---------------
CURRENT ASSETS:
Cash $ 337,991 $ -- $ (100,000) (4) $ 237,991
Accounts receivable, net 2,270,329 310,327 -- 2,580,656
Inventories 7,759,946 2,280,072 -- 10,040,018
Deferred income taxes 138,416 -- -- 138,416
Other current assets 508,602 84,003 -- 592,605
--------------- --------------- --------------- ---------------
Total current assets 11,015,284 2,674,402 (100,000) 13,589,686
PROPERTY AND EQUIPMENT, net 880,134 61,456 100,000 (1) 1,041,590
GOODWILL, net 4,606,540 -- -- 4,606,540
OTHER INTANGIBLES, net 175,777 -- 200,000 (1) 375,777
OTHER ASSETS 29,415 $ -- 350,000 (1) 379,415
--------------- --------------- --------------- ---------------
Total assets $ 16,707,150 $ 2,735,858 $ 550,000 $ 19,993,008
=============== =============== =============== ===============
CURRENT LIABILITIES:
Accounts payable 1,047,635 $ 263,367 $ -- $ 1,311,002
Accrued expenses and other liabilities 1,258,151 191,132 81,359 (2) 1,530,642
Due to Parent -- 2,013,415 (2,013,415) (3) --
Notes payable and current maturities of
long-term debt 4,330,630 -- 2,750,000 (4) 7,080,630
--------------- --------------- --------------- ---------------
Total current liabilities 6,636,416 2,467,914 817,944 9,922,274
DEFERRED INCOME TAXES 73,173 -- -- 73,173
NOTES PAYABLE AND LONG-TERM DEBT,
net of current portion 103,992 -- -- 103,992
STOCKHOLDERS' EQUITY:
Preferred stock -- -- -- --
Common stock 23,720 20 (20) (5) 23,720
Paid-in capital 3,918,543 1,980 (1,980) (5) 3,918,543
Retained earnings 6,122,869 265,944 (265,944) (5) 6,122,869
Other stockholders' equity (171,563) -- -- (171,563)
--------------- --------------- --------------- ---------------
Total stockholders equity 9,893,569 267,944 (267,944) 9,893,569
--------------- --------------- --------------- ---------------
Total liabilities and stockholders' equity $ 16,707,150 $ 2,735,858 $ 550,000 $ 19,993,008
=============== =============== =============== ===============
Notes
(1) Adjustment to record preliminary value assigned to certain non-current and
identifiable intangible assets acquired
(2) Adjustment to record increase in accrued expenses relating to transaction
costs incurred.
(3) Elimination of intercompany debt with Parent of Tandy Leather Company.
(4) Adjustment to reflect cash paid and additional borrowing incurred for
purchase of Tandy Leather Company operations. The total purchase price of
$2,850,000 is subject to certain adjustments specified in the agreement.
(5) Adjustment to remove equity accounts of Tandy Leather Company
PF-2
THE LEATHER FACTORY, INC. AND TANDY LEATHER COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 2000
TANDY
THE LEATHER LEATHER PRO FORMA PRO FORMA
FACTORY, INC. COMPANY ADJUSTMENTS BALANCES
------------ ------------ ------------ ------------
Net sales $ 30,119,411 $ 7,124,176 $ -- $ 37,243,587
Cost of goods sold 15,663,814 3,628,003 -- 19,291,817
------------ ------------ ------------ ------------
Gross profit 14,455,597 3,496,173 -- 17,951,770
Operating expenses 11,121,161 3,139,380 33,000 (1) 14,293,541
------------ ------------ ------------ ------------
Income from operations 3,334,436 356,793 (33,000) 3,658,229
Other expense 847,097 -- 250,000 (2) 1,097,097
------------ ------------ ------------ ------------
Income before income taxes 2,487,339 356,793 (283,000) 2,561,132
Provision for income taxes 1,193,923 134,269 (96,000)(3) 1,232,192
------------ ------------ ------------ ------------
Net income $ 1,293,416 $ 222,524 $ (187,000) $ 1,328,940
============ ============ ============ ============
Net income per share, basic $ .13 $ .13
============ ============
Net income per share, diluted $ .13 $ .13
============ ============
Weighted average shares, basic 9,860,000 9,860,000
============ ============
Weighted average shares, diluted 10,033,000 10,033,000
============ ============
Notes
(1) Adjustment to record increase of $13,000 and $20,000, respectively, in
depreciation and amortization of certain non-current assets and
identifiable intangible assets acquired, which are depreciated/amortized
over a five and fifteen year period, respectively.
(2) Adjustment to record increase in interest expenses for the additional
borrowings incurred, at an average annual rate of 9%, to purchase the Tandy
Leather Company operations.
(3) Adjustment to record decrease in income taxes, provided at a 34% tax rate,
on the aggregate pro forma reduction in pre-tax income.
PF-3
THE LEATHER FACTORY, INC. AND TANDY LEATHER COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
TANDY
THE LEATHER LEATHER PRO FORMA PRO FORMA
FACTORY, INC. COMPANY ADJUSTMENTS BALANCES
-------------- -------------- -------------- --------------
Net sales $ 7,374,556 $ 1,562,421 $ -- $ 8,936,977
Cost of goods sold 3,660,995 828,451 -- 4,489,446
-------------- -------------- -------------- --------------
Gross profit 3,713,561 733,970 -- 4,447,531
Operating expenses 3,012,409 664,571 8,000 (1) 3,684,980
-------------- -------------- -------------- ------------
Income from operations 701,152 69,399 (8,000) 762,551
Other expense 149,863 - 69,000 (2) 218,863
-------------- -------------- -------------- ------------
Income before income taxes 551,289 69,399 (77,000) 543,688
Provision for income taxes 236,190 25,979 (26,000) (3) 236,169
-------------- -------------- --------------- ------------
Net income $ 315,099 $ 43,420 $ (51,000) $ 307,519
============== ============== =============== ============
Net income per share, basic $ .03 $ .03
============== ============
Net income per share, diluted $ .03 $ .03
============== ============
Weighted average shares, basic 9,876,000 9,876,000
============== ============
Weighted average shares, diluted 10,199,000 10,199,000
============== ============
Notes
(1) Adjustment to record increase of $3,000 and $5,000, respectively, in
depreciation and amortization of certain non-current assets and
identifiable intangible assets acquired, which are depreciated/amortized
over a five and fifteen year period, respectively.
(2) Adjustment to record increase in interest expenses for the additional
borrowings incurred, at an average annual rate of 10%, to purchase the
Tandy Leather Company operations.
(3) Adjustment to record decrease in income taxes, provided at a 34% rate, on
the aggregate pro forma reduction in pre-tax income.
PF-4