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Note 1 - Basis of Presentation and Certain Significant Accounting Policies
 6 Months Ended
Jun. 30, 2012
Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]
1.  BASIS OF PRESENTATION AND CERTAIN SIGNIFICANT ACCOUNTING POLICIES

In the opinion of management, the accompanying consolidated financial statements for Tandy Leather Factory, Inc. and its consolidated subsidiaries contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly its financial position as of June 30, 2012 and December 31, 2011, and its results of operations and cash flows for the three and/or six-month periods ended June 30, 2012 and 2011.  Operating results for the three and six-month periods ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.  These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2011.

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Actual results could differ from those estimates.

Inventory.  Inventory is stated at the lower of cost or market and is accounted for on the “first in, first out” method.  Based on negotiations with vendors, title generally passes to us when merchandise is put on board.  Merchandise to which we have title but which have not yet received is recorded as inventory in transit.  In addition, the value of inventory is periodically reduced for slow-moving or obsolete inventory based on management's review of items on hand compared to their estimated future demand.

The components of inventory consist of the following:

   
As of
 
   
June 30, 2012
   
December 31, 2011
 
Inventory on hand:
           
Finished goods held for sale
  $ 26,001,763     $ 17,742,298  
Raw materials and work in process
    1,377,627       479,686  
Inventory in transit
    2,370,421       1,718,267  
    $ 29,749,811     $ 19,940,251  

Goodwill and Other Intangibles.  Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. Goodwill is required to be evaluated for impairment on an annual basis, absent indicators of impairment during the interim.  Application of the goodwill impairment test requires exercise of judgment, including the estimation of future cash flows, determination of appropriate discount rates and other important assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment for each reporting unit.

A two-step process is used to test for goodwill impairment.  The first phase screens for impairment, while the second phase (if necessary) measures the impairment.  We have elected to perform the annual analysis during the fourth calendar quarter of each year.  As of December 31, 2011, management determined that the present value of the discounted estimated future cash flows of the stores associated with the goodwill is sufficient to support their respective goodwill balances.  No indicators of impairment were identified during the first half of 2012.

In accordance with recent guidance from the FASB, beginning in 2012, we are permitted to first assess qualitative factors in testing goodwill for impairment prior to performing a quantitative assessment.

A summary of changes in our goodwill for the periods ended June 30, 2012 and 2011 is as follows:

   
Leather Factory
   
Tandy Leather
   
Total
 
Balance, December 31, 2010
  $ 606,962     $ 383,406     $ 990,368  
Acquisitions and adjustments
    -       -       -  
Foreign exchange gain/loss
    4,301       -       4,301  
Impairments
    -       -       -  
Balance, June 30, 2011
  $ 611,263     $ 383,406     $ 994,669  

   
Leather Factory
   
Tandy Leather
   
Total
 
Balance, December 31, 2011
  $ 603,603     $ 383,406     $ 987,009  
Acquisitions and adjustments
    -       -       -  
Foreign exchange gain/loss
    625       -       625  
Impairments
    -       -       -  
Balance, June 30, 2012
  $ 604,228     $ 383,406     $ 987,634  

Other intangibles consist of the following:

   
As of June 30, 2012
   
As of December 31, 2011
 
   
Gross
   
Accumulated
Amortization
   
Net
   
Gross
   
Accumulated
Amortization
   
Net
 
Trademarks, Copyrights
  $ 544,369     $ 441,288     $ 103,081     $ 544,369     $ 425,418     $ 118,951  
Non-Compete Agreements
    182,509       120,550       61,959       182,365       114,024       68,341  
    $ 726,878     $ 561,838     $ 165,040     $ 726,734     $ 539,442     $ 187,292  

We recorded amortization expense of $22,342 during the first six months of 2012 compared to $22,139 during the first half of 2011.  All of our intangible assets are subject to amortization under U.S. GAAP.  Based on the current amount of intangible assets subject to amortization, the estimated amortization expense for each of the succeeding 5 years is as follows:

   
Wholesale Leathercraft
   
Retail Leathercraft
   
Total
 
2012
  $ 1,477     $ 37,634     $ 39,111  
2013
    -       33,337       33,337  
2014
    -       33,337       33,337  
2015
    -       28,636       28,636  
2016
    -       2,000       2,000  

Revenue Recognition.  Our sales generally occur via two methods:  (1) at the counter in our stores, and (2) shipment by common carrier.  Sales at the counter are recorded and title passes as transactions occur.  Otherwise, sales are recorded and title passes when the merchandise is shipped to the customer.  Our shipping terms are FOB shipping point.

We offer an unconditional satisfaction guarantee to our customers and accept all product returns.  Net sales represent gross sales less negotiated price allowances, product returns, and allowances for defective merchandise.

Comprehensive Income (loss) and Accumulated Other Comprehensive Income (loss). Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-stockholder sources and includes all changes in equity during a period except those resulting from investments by and dividends to stockholders.  Our comprehensive income (loss) consists of our net income and foreign currency translation adjustments from our international operations.

Recent Accounting Pronouncements.  In June 2011, FASB issued ASU 2011-05, “Comprehensive Income (Topic 220) – Presentation of Comprehensive Income” (ASU 2011-05).  This standard update requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of stockholders’ equity.  ASU 2011-05 is effective for the interim and annual periods beginning after December 15, 2011.  The adoption of the standard did not have a material impact on our consolidated financial statements.

In September 2011, FASB issued ASU 2011-08, “Intangibles-Goodwill and Other (Topic 350) – Testing Goodwill for Impairment”.  ASU 2011-08 provides companies with a new option to determine whether or not it is necessary to apply the traditional two-step quantitative goodwill impairment test in ASC 350, Intangibles – Goodwill and Other.  Under ASU 2011-08 companies are no longer required to calculate the fair value of a reporting unit unless it determines, on the basis of qualitative information, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount.  ASU 2011-08 is effective for periods ending after December 15, 2011.   The adoption of the standard did not have a material impact on our consolidated financial statements.