LEATHER FACTORY INC - 10-Q Quarterly Report

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, 2005
or
[ ] Transition report pursuant to section 13 of 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 (State or other jurisdiction of incorporation or organization)		75-2543540 (I.R.S. Employer 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 by check mark whether the registrant is an accelerated filer.
Yes [ ]	No [ X ]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class Common Stock, par value $0.0024 per share	Shares outstanding as of May 10, 2005 10,607,802

THE LEATHER FACTORY, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005

TABLE OF CONTENTS

	PAGE NO.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets
March 31, 2005 and December 31, 2004 ..........................................................................................	3

Consolidated Statements of Income
Three months ended March 31, 2005 and 2004..................................................................................	4

Consolidated Statements of Cash Flows
Three months ended March 31, 2005 and 2004..................................................................................	5

Consolidated Statements of Stockholders' Equity
Three months ended March 31, 2005 and 2004..................................................................................	6

Notes to Consolidated Financial Statements......................................................................................	7

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................................................................................	10

Item 3. Quantitative and Qualitative Disclosures About Market Risk …………………………….	16

Item 4. Controls and Procedures ……………………………………………………………………....	16

PART II. OTHER INFORMATION

Item 6. Exhibits ………………………….…........................................................................................	16


SIGNATURES …...................................................................................................................................	18

The Leather Factory, Inc.

Consolidated Balance Sheets

	March 31, 2005 (unaudited)	December 31, 2004 (audited)
ASSETS
CURRENT ASSETS:
Cash	$2,467,091	$2,560,202
Accounts receivable-trade, net of allowance for doubtful accounts
of $140,000 and $85,000 in 2005 and 2004, respectively	2,545,218	2,032,289
Inventory	13,127,058	12,749,709
Deferred income taxes	209,166	199,308
Other current assets	874,987	629,723
Total current assets	19,223,520	18,171,231

PROPERTY AND EQUIPMENT, at cost	6,202,266	6,005,526
Less accumulated depreciation and amortization	(4,377,692)	(4,100,961)
	1,824,574	1,904,565

GOODWILL, net of accumulated amortization of $768,000 and
$758,000 in 2005 and 2004, respectively	742,084	742,860
OTHER INTANGIBLES, net of accumulated amortization of
$195,000 and $185,000 in 2005 and 2004, respectively	427,686	437,758
OTHER assets	999,252	910,749
	$23,217,116	$22,167,163

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable-trade	$ 1,521,494	$ 1,954,146
Accrued expenses and other liabilities	2,136,945	1,682,003
Income taxes payable	533,561	22,764
Current maturities of capital lease obligations	134,067	134,067
Total current liabilities	4,326,067	3,792,980

DEFERRED INCOME TAXES	240,897	313,006

LONG-TERM DEBT, net of current maturities	-	505,154
CAPITAL LEASE OBLIGATIONS, net of current maturities	212,273	245,790
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;
10,601,661 and 10,560,661 shares issued at 2005 and 2004, respectively;
10,595,802 and 10,554,711 outstanding at 2005 and 2004, respectively	25,443	25,345
Paid-in capital	4,852,251	4,796,999
Retained earnings	13,507,982	12,458,760
Treasury stock	(25,487)	(25,487)
Accumulated other comprehensive income	77,690	54,616
Total stockholders' equity	18,437,879	17,310,233
	$23,217,116	$22,167,163

The accompanying notes are an integral part of these financial statements.

The Leather Factory, Inc.

Consolidated Statements of Income

(Unaudited)

For the Three Months Ended March 31, 2005 and 2004

	2005	2004

NET SALES	$ 12,707,516	$12,180,877
COST OF SALES	5,550,233	5,455,964
Gross profit	7,157,283	6,724,913

OPERATING EXPENSES	5,587,736	5,277,778
INCOME FROM OPERATIONS	1,569,547	1,447,135

OTHER EXPENSE:
Interest expense	3,188	13,638
Other, net	15,465	1,737
Total other expense	18,653	15,375

INCOME BEFORE INCOME TAXES	1,550,894	1,431,760

PROVISION FOR INCOME TAXES	501,672	460,794

NET INCOME	$1,049,222	$ 970,966


NET INCOME PER COMMON SHARE - BASIC	$0.10	$ 0.09

NET INCOME PER COMMON SHARE - DILUTED	$0.10	$ 0.09

Weighted Average Number of Shares Outstanding:
Basic	10,584,244	10,506,995
Diluted	10,911,103	11,011,122

The accompanying notes are an integral part of these financial statements.

The Leather Factory, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

For the Three Months Ended March 31, 2005 and 2004

	2005	2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 1,049,222	$ 970,966
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization	118,431	129,418
Gain on disposal of assets	(7,703)	-
Deferred income taxes	(81,967)	(19,774)
Other	24,511	(9,766)
Net changes in assets and liabilities, net of effect of business acquisitions:
Accounts receivable-trade, net	(512,929)	(1,226,807)
Inventory	(377,349)	(267,966)
Income taxes	510,797	435,654
Other current assets	(245,264)	(351,800)
Accounts payable-trade	(432,652)	810,013
Accrued expenses and other liabilities	454,942	112,810
Total adjustments	(549,182)	(388,218)
Net cash provided by operating activities	500,040	582,748

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(29,030)	(82,115)
Payments in connection with businesses acquired	-	(125,452)
Proceeds from sale of assets	7,703	-
Decrease (increase) in other assets	(88,503)	14,076
Net cash used in investing activities	(109,830)	(193,491)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in revolving credit loans	(505,154)	(525,000)
Payments on notes payable and long-term debt	(33,517)	(1,134)
Payments received on notes secured by common stock	-	5,000
Proceeds from exercise of stock options and warrants	55,350	82,140
Net cash used in financing activities	(483,321)	(438,994)

NET DECREASE IN CASH	(93,111)	(49,737)

CASH, beginning of period	2,560,202	1,728,344

CASH, end of period	$2,467,091	$ 1,678,607


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the period	$ 3,188	$ 16,205
Income tax paid during the period, net of (refunds)