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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
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

TANDY LEATHER FACTORY, INC.
(Exact name of registrant as specified in its charter)

Delaware |  | 75-2543540
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

1900 Southeast Loop 820, Fort Worth, Texas 76140
(Address of principal executive offices) (Zip code)
(817) 872-3200
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Title of each class | Trading Symbol | Name of each exchange on which registered
Common Stock, par value $0.0024 | TLFA | N/A*

*Tandy Leather Factory, Inc.’s common stock previously traded on the NASDAQ Global Market under the symbol “TLF”. On August 13, 2020, Tandy Leather Factory, Inc.’s common stock began trading on the OTC Link (previously “Pink Sheets”) operated by OTC Markets Group under the symbol “TLFA”. Deregistration under Section 12(b) of the Exchange Act of 1934, as amended, became effective on May 10, 2021.
Indicate by check mark whether the registrant: (1) has filed all reports required to be 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 ☐ No ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

| Large accelerated filer ☐ | Non-accelerated filer ☒
| Accelerated filer ☐ | Smaller reporting company ☒
|  | Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 29, 2021, the registrant had 8,755,921 shares of Common Stock, par value $0.0024 per share, outstanding.

TANDY LEATHER FACTORY, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION | 2
| Item 1. Consolidated Financial Statements. | 2
|  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | 6
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 19
| Item 4. Controls and Procedures. | 28
PART II. OTHER INFORMATION | 33
| Item 1. Legal Proceedings. | 33
| Item 1A. Risk Factors. | 33
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. | 33
| Item 6. Exhibits. | 34
|  | SIGNATURES | 35

ii

Table of Contents
Cautionary Statement Regarding Forward-Looking Statements and Information
The following discussion, as well as other portions of this Form 10-Q, contains forward-looking statements that reflect our plans, estimates and beliefs. Any such forward-looking statements (including, but not limited to, statements to the effect that Tandy Leather Factory, Inc. (“TLFA”) or its management “anticipates,” “plans,” “estimates,” “expects,” “believes,” “intends,” and other similar expressions) that are not statements of historical fact should be considered forward-looking statements and should be read in conjunction with our Consolidated Financial Statements and related notes contained elsewhere in this report. These forward-looking statements are made based upon management’s current plans, expectations, estimates, assumptions and beliefs concerning future events impacting us and should be read carefully because they involve risks and uncertainties. We assume no obligation to update or otherwise revise these forward-looking statements, except as required by law. Specific examples of forward-looking statements include, but are not limited to, statements regarding our forecasts of financial performance, share repurchases, store openings or store closings, capital expenditures and working capital requirements. Our actual results could materially differ from those discussed in such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and particularly in “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Unless the context otherwise indicates, references in this Form 10-Q to “TLFA,” “we,” “our,” “us,” the” Company,” “Tandy,” or “Tandy Leather” mean Tandy Leather Factory, Inc., together with its subsidiaries.
1

Table of Contents
PART I. FINANCIAL INFORMATION

Item 1. | Consolidated Financial Statements.

Tandy Leather Factory, Inc.
Consolidated Balance Sheets
(amounts in thousands, except share data and per share data)

|  | June 30, 2021 Unaudited |  |  | December 31, 2020 |
ASSETS |  |  |  |  |  |  |  |
CURRENT ASSETS: |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 5,704 |  |  | $ | 10,329 |
Accounts receivable-trade, net of allowance for doubtful accounts of $14 at June 30, 2021 and December 31, 2020 |  |  | 440 |  |  |  | 350 |
Inventory |  |  | 43,675 |  |  |  | 36,779 |
Income tax receivable |  |  | 1,391 |  |  |  | 2,753 |
Prepaid expenses |  |  | 865 |  |  |  | 536 |
Other current assets |  |  | 270 |  |  |  | 265 |
Total current assets |  |  | 52,345 |  |  |  | 51,012 |
Property and equipment, at cost |  |  | 27,684 |  |  |  | 27,468 |
Less accumulated depreciation |  |  | (15,557 | ) |  |  | (15,078 | )
Property and equipment, net |  |  | 12,127 |  |  |  | 12,390 |
Operating lease assets |  |  | 10,938 |  |  |  | 11,772 |
Finance lease assets |  |  | 41 |  |  |  | 44 |
Deferred income taxes |  |  | 63 |  |  |  | 82 |
Other intangibles, net of accumulated amortization of $548 at June 30, 2021 and December 31, 2020 |  |  | 6 |  |  |  | 6 |
Other assets |  |  | 394 |  |  |  | 387 |
TOTAL ASSETS |  | $ | 75,914 |  |  | $ | 75,693 |
LIABILITIES AND STOCKHOLDERS' EQUITY |  |  |  |  |  |  |  |
CURRENT LIABILITIES: |  |  |  |  |  |  |  |
Accounts payable-trade |  | $ | 6,593 |  |  | $ | 5,737 |
Accrued expenses and other liabilities |  |  | 3,968 |  |  |  | 3,642 |
Current portion of operating lease liabilities |  |  | 3,080 |  |  |  | 3,530 |
Current portion of finance lease liabilities |  |  | 14 |  |  |  | 14 |
Current maturities of long-term debt |  |  | 12 |  |  |  | - |
Total current liabilities |  |  | 13,667 |  |  |  | 12,923 |
Uncertain tax positions |  |  | 393 |  |  |  | 393 |
Other non-current liabilities |  |  | 463 |  |  |  | 463 |
Operating lease liabilities, non-current |  |  | 8,736 |  |  |  | 9,245 |
Finance lease liabilities, non-current |  |  | 22 |  |  |  | 29 |
Long-term debt, net of current maturities |  |  | 421 |  |  |  | 446 |
COMMITMENT AND CONTINGENCIES (Note 6) |  |  |  |  |  |  |  |
STOCKHOLDERS' EQUITY: |  |  |  |  |  |  |  |
Preferred stock, $0.10 par value; 20,000,000 shares authorized; none issued or outstanding; attributes to be determined on issuance |  |  | - |  |  |  | - |
Common stock, $0.0024 par value; 25,000,000 shares authorized; 10,088,297 and 10,575,182 shares issued at June 30, 2021 and December 31, 2020, respectively; 8,663,921 and 9,150,806 shares outstanding at June 30, 2021 and December 31, 2020, respectively |  |  | 24 |  |  |  | 25 |
Paid-in capital |  |  | 4,622 |  |  |  | 5,924 |
Retained earnings |  |  | 58,595 |  |  |  | 57,310 |
Treasury stock at cost (1,424,376 shares at June 30, 2021 and December 31, 2020) |  |  | (9,773 | ) |  |  | (9,773 | )
Accumulated other comprehensive loss, net of tax |  |  | (1,256 | ) |  |  | (1,292 | )
Total stockholders' equity |  |  | 52,212 |  |  |  | 52,194 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |  | $ | 75,914 |  |  | $ | 75,693 |

The accompanying notes are an integral part of these Consolidated Financial Statements.
2

Table of Contents
Tandy Leather Factory, Inc.
Consolidated Statements of Operations and Comprehensive Income (Loss)
Unaudited
(in thousands, except share and per share data)

|  | Three Months Ended June 30, |  |  | Six Months Ended June 30 |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Net sales |  | $ | 18,566 |  |  | $ | 9,146 |  |  | $ | 39,960 |  |  | $ | 26,291 |
Cost of sales |  |  | 7,285 |  |  |  | 3,903 |  |  |  | 16,493 |  |  |  | 11,182 |
Gross profit |  |  | 11,281 |  |  |  | 5,243 |  |  |  | 23,467 |  |  |  | 15,109 |
Operating expenses |  |  | 10,557 |  |  |  | 7,580 |  |  |  | 21,778 |  |  |  | 18,676 |
Impairment expense |  |  | - |  |  |  | 9 |  |  |  | - |  |  |  | 1,078 |
Income (loss) from operations |  |  | 724 |  |  |  | (2,346 | ) |  |  | 1,689 |  |  |  | (4,645 | )
Other (income) expense: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest expense |  |  | 5 |  |  |  | - |  |  |  | 10 |  |  |  | - |
Other, net |  |  | 22 |  |  |  | (51 | ) |  |  | 14 |  |  |  | (104 | )
Total other (income) expense |  |  | 27 |  |  |  | (51 | ) |  |  | 24 |  |  |  | (104 | )
Income (loss) before income taxes |  |  | 697 |  |  |  | (2,295 | ) |  |  | 1,665 |  |  |  | (4,541 | )
Provision (benefit) for income taxes |  |  | 157 |  |  |  | (520 | ) |  |  | 380 |  |  |  | (1,028 | )
Net income (loss) |  | $ | 540 |  |  | $ | (1,775 | ) |  | $ | 1,285 |  |  | $ | (3,513 | )
Foreign currency translation adjustments, net of tax |  |  | 69 |  |  |  | 130 |  |  |  | 36 |  |  |  | (216 | )
Comprehensive income (loss) |  | $ | 609 |  |  | $ | (1,645 | ) |  | $ | 1,321 |  |  | $ | (3,729 | )
Net income (loss) per common share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.06 |  |  | $ | (0.20 | ) |  | $ | 0.15 |  |  | $ | (0.39 | )
Diluted |  | $ | 0.06 |  |  | $ | (0.20 | ) |  | $ | 0.15 |  |  | $ | (0.39 | )
Weighted average number of shares outstanding: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 8,664,768 |  |  |  | 9,042,991 |  |  |  | 8,737,854 |  |  |  | 9,036,101 |
Diluted |  |  | 8,670,093 |  |  |  | 9,042,991 |  |  |  | 8,740,116 |  |  |  | 9,036,101 |

The accompanying notes are an integral part of these Consolidated Financial Statements.
3

Table of Contents
Tandy Leather Factory, Inc.
Consolidated Statements of Cash Flows
Unaudited
(in thousands)

|  | For the Six Months Ended June 30, |
|  | 2021 |  |  | 2020 |
Cash flows from operating activities: |  |  |  |  |  |
Net income (loss) |  | $ | 1,285 |  |  | $ | (3,513 | )
Adjustments to reconcile net income (loss) to net cash used in operating activities: |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 539 |  |  |  | 509 |
Operating lease asset amortization |  |  | 1,619 |  |  |  | 1,664 |
Impairment of long-lived assets |  |  | - |  |  |  | 1,078 |
(Gain) loss on disposal of assets |  |  | (1 | ) |  |  | 142 |
Stock-based compensation |  |  | 387 |  |  |  | 411 |
Deferred income taxes |  |  | 19 |  |  |  | (220 | )
Exchange gain |  |  | - |  |  |  | (3 | )
Changes in operating assets and liabilities: |  |  |  |  |  |  |  |
Accounts receivable-trade |  |  | (84 | ) |  |  | (60 | )
Inventory |  |  | (6,247 | ) |  |  | (6,954 | )
Prepaid expenses |  |  | (329 | ) |  |  | (63 | )
Other current assets |  |  | (5 | ) |  |  | (7 | )
Accounts payable-trade |  |  | 405 |  |  |  | 834 |
Accrued expenses and other liabilities |  |  | 44 |  |  |  | (679 | )
Income taxes, net |  |  | 1,355 |  |  |  | (869 | )
Other assets |  |  | (5 | ) |  |  | (1,664 | )
Operating lease liabilities |  |  | (1,743 | ) |  |  | (1,737 | )
Total adjustments |  |  | (4,046 | ) |  |  | (7,618 | )
Net cash used in operating activities |  |  | (2,761 | ) |  |  | (11,131 | )
Cash flows from investing activities: |  |  |  |  |  |  |  |
Purchase of property and equipment |  |  | (212 | ) |  |  | (285 | )
Purchase of short-term investments |  |  | - |  |  |  | (1,697 | )
Proceeds from sales of assets |  |  | - |  |  |  | 1 |
Proceeds from sales of short-term investments |  |  | - |  |  |  | 6,310 |
Net cash provided by (used in) investing activities |  |  | (212 | ) |  |  | 4,329 |
Cash flows from financing activities: |  |  |  |  |  |  |  |
Proceeds from long-term debt |  |  | - |  |  |  | 402 |
Payment of finance lease obligations |  |  | (7 | ) |  |  | - |
Purchase of vested stock for employee payroll tax withholding |  |  | (15 | ) |  |  | - |
Purchase of common stock |  |  | (1,675 | ) |  |  | - |
Net cash provided by (used in) financing activities |  |  | (1,697 | ) |  |  | 402 |
Effect of exchange rate changes on cash and cash equivalents |  |  | 45 |  |  |  | (91 | )
Net decrease in cash and cash equivalents |  |  | (4,625 | ) |  |  | (6,491 | )
Cash and cash equivalents, beginning of period |  |  | 10,329 |  |  |  | 15,905 |
Cash and cash equivalents, end of period |  | $ | 5,704 |  |  | $ | 9,414 |

The accompanying notes are an integral part of these Consolidated Financial Statements.
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Tandy Leather Factory, Inc.
Consolidated Statements of Stockholders' Equity
Unaudited
(in thousands, except share data)

|  | Number of Shares Common Stock Outstanding |  |  | Par Value |  |  | Additional Paid-in Capital |  |  | Treasury Stock |  |  | Retained Earnings |  |  | Accumulated Other Comprehensive Income (Loss) |  |  | Total |
BALANCE, December 31, 2020 |  |  | 9,150,806 |  |  | $ | 25 |  |  | $ | 5,924 |  |  | $ | (9,773 | ) |  | $ | 57,310 |  |  | $ | (1,292 | ) |  | $ | 52,194 |
Stock-based compensation expense |  |  | - |  |  |  | - |  |  |  | 183 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 183 |
Issuance of restricted stock |  |  | 16,080 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Repurchase of common stock |  |  | (500,000 | ) |  |  | (1 | ) |  |  | (1,674 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1,675 | )
Net income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 745 |  |  |  | - |  |  |  | 745 |
Foreign currency translation adjustments, net of tax |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (33 | ) |  |  | (33 | )
Balance, March 31, 2021 |  |  | 8,666,886 |  |  | $ | 24 |  |  | $ | 4,433 |  |  | $ | (9,773 | ) |  | $ | 58,055 |  |  | $ | (1,325 | ) |  | $ | 51,414 |
Stock-based compensation expense |  |  | - |  |  |  | - |  |  |  | 204 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 204 |
Purchase of vested stock for employee payroll tax withholding |  |  | (2,965 | ) |  |  | - |  |  |  | (15 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (15 | )
Net income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 540 |  |  |  | - |  |  |  | 540 |
Foreign currency translation adjustments, net of tax |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 69 |  |  |  | 69 |
Balance, June 30, 2021 |  |  | 8,663,921 |  |  | $ | 24 |  |  | $ | 4,622 |  |  | $ | (9,773 | ) |  | $ | 58,595 |  |  | $ | (1,256 | ) |  | $ | 52,212 |
Balance, December 31, 2019 |  |  | 9,022,187 |  |  | $ | 25 |  |  | $ | 5,037 |  |  | $ | (9,773 | ) |  | $ | 62,211 |  |  | $ | (1,081 | ) |  | $ | 56,419 |
Stock-based compensation expense |  |  | - |  |  |  | - |  |  |  | 228 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 228 |
Issuance of restricted stock |  |  | 20,804 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1,738 | ) |  |  | - |  |  |  | (1,738 | )
Foreign currency translation adjustments, net of tax |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (346 | ) |  |  | (346 | )
Balance, March 31, 2020 |  |  | 9,042,991 |  |  | $ | 25 |  |  | $ | 5,265 |  |  | $ | (9,773 | ) |  | $ | 60,473 |  |  | $ | (1,427 | ) |  | $ | 54,563 |
Stock-based compensation expense |  |  | - |  |  |  | - |  |  |  | 183 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 183 |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1,775 | ) |  |  | - |  |  |  | (1,775 | )
Foreign currency translation adjustments, net of tax |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 130 |  |  |  | 130 |
Balance, June 30, 2020 |  |  | 9,042,991 |  |  | $ | 25 |  |  | $ | 5,448 |  |  | $ | (9,773 | ) |  | $ | 58,698 |  |  | $ | (1,297 | ) |  | $ | 53,101 |

The accompanying notes are an integral part of these Consolidated Financial Statements.
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TANDY LEATHER FACTORY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND CERTAIN SIGNIFICANT ACCOUNTING POLICIES
Tandy Leather Factory, Inc. (“TLFA,” “we,” “our,” “us,” the” Company,” “Tandy,” or “Tandy Leather” mean Tandy Leather Factory, Inc., together with its subsidiaries) is one of the world’s largest specialty retailers of leather and leathercraft-related items. Founded in 1919 in Fort Worth, Texas, the Company introduced leathercrafting to millions of American and later Canadian and other international customers and has built a track record as the trusted source of quality leather, tools, hardware, supplies, kits and teaching materials for leatherworkers everywhere. Today, our mission remains to build on our legacy of inspiring the timeless art and trade of leatherworking.
What differentiates Tandy from the competition is our high brand awareness and strong brand equity and loyalty, our network of retail stores that provides convenience, a high-touch customer service experience, and a hub for the local leathercrafting community, and our 100-year heritage. We believe that this combination of qualities is unique to Tandy and gives the brand competitive advantages that are difficult for others to replicate.
We sell our products primarily through company-owned stores and through orders generated from our four websites: tandyleather.com, tandyleather.ca, tandyleather.eu and tandyleather.com.au. We also manufacture leather lace, cut leather pieces and most of the do-it-yourself kits that are sold in our stores and on our websites. We also offer production services to our business customers such as cutting (“clicking”), splitting, and some assembly. We maintain our principal offices at 1900 Southeast Loop 820, Fort Worth, Texas 76140.
The Company currently operates a total of 106 retail stores. There are 95 stores in the U.S., ten stores in Canada and one store in Spain.
Nasdaq Stock Market LLC (“Nasdaq”) suspended trading in the Company’s shares as of August 13, 2020 due to the Company not being current with its SEC filings. Our stock has since traded on the OTC Link (previously “Pink Sheets”) operated by OTC Markets Group under the symbol “TLFA.” Nasdaq denied our appeal of this decision, resulting in our stock being formally delisted on February 9, 2021. We intend to reapply for Nasdaq listing once the Company has made the required Exchange Act filings.
The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for annual audited financial statements. 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 our financial position as of June 30, 2021 and December 31, 2020, our results of operations for the three and six month periods ended June 30, 2021 and 2020, our cash flows for the six month periods ended June 30, 2021 and 2020, and our statements of stockholders’ equity as of June 30, 2021 and 2020. The preparation of financial statements in accordance with GAAP requires the use of estimates that affect the reported value of assets, liabilities, revenues and expenses. These estimates are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for the Company’s conclusions. The Company continually evaluates the information used to make these estimates as the business and the economic environment changes. Actual results may differ from these estimates, and estimates are subject to change due to modifications in the underlying conditions or assumptions. These Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and accompanying notes included in our Form 10-K for the year ended December 31, 2020.
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COVID-19
In late 2019, COVID-19 was detected in Wuhan, China and has since spread to other parts of the world, including the U.S. On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic. Federal, state, and local governments implemented various restrictions, including travel restrictions, border closings, restrictions on public gatherings, quarantining of people who may have been exposed to the virus, shelter-in-place restrictions and limitations on business operations. As previously announced and for the health and safety of employees and customers, on March 17, 2020, the Company made the decision to begin temporary store closures. The onset of the COVID-19 pandemic in March 2020 temporarily shifted our strategic focus to company survival and cash preservation. We began closing stores on March 18, 2020, and by April 2, 2020, we temporarily closed all stores to the public. While we pivoted to serve customers only online, the Company experienced significant decreases in demand for its products in the second and third quarters of 2020, negatively impacting net sales.
In response, we took immediate action to mitigate the impact of temporary store closures on our cash flows by: (i) furloughing 406 Tandy employees, comprising two-thirds of the Tandy work force, (ii) temporarily cutting corporate salaries, with deeper cuts for the Executive Leadership Team, (iii) negotiating abatements, deferrals and other favorable lease terms with landlords, and (iv) negotiating longer payment terms with our key product vendors.
Due to our size, we were not eligible for the Paycheck Protection Program administered through the Small Business Administration. Also, due to our not being current on financial filings with the SEC, we were not able to obtain loans under the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act. During the second quarter of 2020, the Company borrowed $0.4 million through the Spanish government’s Institute of Official Credit Guarantee for Small and Medium-sized Enterprises, a COVID-19 relief program. The term of the agreement is for five years and the interest rate is fixed at 1.5%. Based on the terms of the loan agreement, we make interest-only payments for the first two years and monthly principal and interest payments for the remainder of the term of the agreement. In Canada, we participated in the Canada Emergency Commercial Rent Assistance (“CECRA”) program for rent relief. This program provided for a 75% reduction in the store rent for included stores for the months of April, May and June 2020. We received total rent abatements under the program of $0.05 million.
Nine stores were permanently closed during 2020 as leases expired or early terminations were negotiated, including at locations where we believe we can retain a majority of customers through geographically proximate stores and/or our enhanced website platform. After these permanent closures, Tandy operates 106 stores, including ten in Canada and one in Spain.
On May 22, 2020, our Fort Worth flagship store reopened to the public, the beginning of a phased approach to reopening our stores with limited hours, new protocols for sanitizing, social distancing, wearing masks and taking daily temperatures of employees. During the third quarter of 2020, all 106 of Tandy’s stores had reopened to the public. While customer response to our store reopening has been good, since then, various spikes in local infection rates and the “wave” created by the Delta variant of COVID-19 in the summer of 2021 have forced us to sporadically move stores to short-term “curbside only” operations or closures due to local conditions or staffing issues. We believe that the rollout of COVID-19 vaccines in 2021 has offset these closures somewhat, but it is difficult to predict whether these vaccines will be adopted by further large numbers of Americans or whether current or future vaccines will remain effective against Delta or other future variants of the virus. We expect that at least some further infections and temporary store shutdowns will continue for the foreseeable futur e.
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While we previously fulfilled our web orders out of our retail stores, during the second quarter of 2020, we built a centralized web fulfillment capability in our Fort Worth distribution center and have been and expect to continue to fulfill web orders primarily through Fort Worth going forward. Both our e-commerce business and stores have seen strong sales performance, but the future remains uncertain, and more store closures and/or other ongoing effects of the pandemic on the economy or employment market could cause a material negative impact on future sales.
As part of the Company’s accounting policy for long-lived asset impairments, we believe the COVID-19 impact on the Company’s results of operations, cash flows and financial position and the ongoing uncertainty the virus had created around future operating results represented a triggering event during the first quarter of 2020 and continued throughout the remainder of 2020.
For the six months ended June 30, 2020, the Company recorded impairment expense of $1.1 million, primarily related to property and equipment and operating lease assets for certain stores that underperformed to a level where the cash flows they generate will not be sufficient to cover their respective asset carry values. For the six months ended June 30, 2021, the Company recorded no impairment expense.
Significant Accounting Policies
Cash and cash equivalents. The Company considers investments with a maturity when purchased of three months or less to be cash equivalents. All credit card, debit card and electronic transfer transactions that process in less than seven days are classified as cash and cash equivalents.
Foreign currency translation and transactions. Foreign currency translation adjustments arise from activities of our foreign subsidiaries. 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 and presented net of tax. Gains and losses resulting from foreign currency transactions are reported in the statements of income under the caption “Other (income) expense, net” for all periods presented.
Revenue Recognition. Our revenue is earned from sales of merchandise and generally occurs via three methods: (1) at the store counter, (2) shipment of product generally via web sales, and (3) sales of product directly to commercial customers. We recognize revenue when we satisfy the performance obligation of transferring control of product merchandise over to a customer. At the store counter, our performance obligation is met and revenue is recognized when a sales transaction occurs with a customer. When merchandise is shipped to a customer, our performance obligation is met and revenue is recognized when control passes to the customer. Shipping terms are normally free on board (“FOB”) shipping point and control passes when the merchandise is shipped to the customer. Sales tax and comparable foreign tax is excluded from net sales, while shipping charged to our customers is included in net sales. Net sales are based on the amount of consideration that we expect to receive, reduced by estimates for future merchandise returns.
The sales return allowance is based each year on historical customer return behavior and other known factors and reduces net sales and cost of sales, accordingly.
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As of June 30, 2021 and December 31, 2020, we established a sales return allowance of $0.2 million for both period ends, based on historical customer return behavior and other known factors. The sales return allowance is included in accrued expenses and other liabilities, while an estimated value of the merchandise expected to be returned of $0.1 million is included in other current assets as of both June 30, 2021 and December 31, 2020.
We record a gift card liability for the unfulfilled performance obligation on the date we issue a gift card to a customer. We record revenue and reduce the gift card liability as the customer redeems the gift card. In addition, for gift card breakage, we recognize a proportionate amount for the expected unredeemed gift cards over the expected customer redemption period, which is one year. As of June 30, 2021 and December 31, 2020, our gift card liability, included in accrued expenses and other liabilities, totaled $0.2 million at each period end. We recognized gift card revenue of $0.2 million in the six months ended June 30, 2021 from the December 31, 2020 deferred revenue balance and $0.1 million during the six months ended June 30, 2020 from the December 31, 2019 deferred revenue balance.
For the three and six months ended June 30, 2021, we recognized $0.2 million and $0.4 million, respectively, in net sales associated with gift cards. For the three and six months ended June 30, 2020, we recognized less than $0.1 million and $0.2 million, respectively, in net sales associated with gift cards.
Disaggregated Revenue. In the following table, revenue for the three and six months ended June 30, 2021 and 2020 is disaggregated by geographic areas as follows:

(in thousands) |  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
United States |  | $ | 16,613 |  |  | $ | 8,057 |  |  | $ | 35,365 |  |  | $ | 23,389 |
Canada |  |  | 1,531 |  |  |  | 790 |  |  |  | 3,688 |  |  |  | 2,283 |
Spain |  |  | 422 |  |  |  | 299 |  |  |  | 907 |  |  |  | 619 |
Net sales |  | $ | 18,566 |  |  | $ | 9,146 |  |  | $ | 39,960 |  |  | $ | 26,291 |

Geographic sales information is based on the location of the customer. Excluding Canada, no single foreign country had net sales greater than 2.3% and 3.3%, respectively, of our consolidated net sales for the three or six month periods ended June 30, 2021 and 2020.
Discounts. We offer a single retail price level, plus three volume-based levels for commercial customers. Discounts from those price levels are offered to business, military/first responder and employee customers. Such discounts do not convey a material right to these customers since the discounted pricing they receive at the point of sale is not dependent upon any previous or subsequent purchases. As a result, sales are reported after deduction of discounts at the point of sale. We do not pay slotting fees or make other payments to resellers.
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Operating expense. Operating expenses include all selling, general and administrative costs, including wages and benefits, rent and occupancy costs, depreciation, advertising, store operating expenses, outbound freight charges (to ship merchandise to customers), and corporate office costs.
Property and equipment, net of accumulated depreciation. Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which are three to ten years for equipment and machinery, seven to fifteen years for furniture and fixtures, five years for vehicles, and forty years for buildings and related improvements. Leasehold improvements are amortized over the lesser of the life of the lease or the useful life of the asset. Repairs and maintenance costs are expensed as incurred.
Inventory. Inventory is stated at the lower of cost (first-in, first-out) or net realizable value. Finished goods held for sale includes the cost of merchandise purchases, the costs to bring the merchandise to our Texas distribution center, warehousing and handling expenditures, and distributing and delivering merchandise to our stores. These costs include depreciation of long-lived assets utilized in acquiring, warehousing and distributing inventory. Manufacturing inventory including raw materials and work-in-process is valued on a first‑in, first out basis using full absorption accounting which includes material, labor, and other applicable manufacturing overhead. Carrying values of inventory are analyzed and, to the extent that the cost of inventory exceeds the net realizable value, provisions are made to reduce the carrying amount of the inventory.
We regularly review all inventory items to determine if there are (i) damaged goods (e.g., for leather, excessive scars or damage from ultra-violet (“UV”) light), (ii) items that need to be removed from our product line (e.g., slow-moving items, inability of a supplier to provide items of acceptable quality or quantity, and to maintain freshness in the product line) and (iii) pricing actions that need to be taken to adequately value our inventory at the lower of cost or net realizable value.
Since the determination of net realizable value of inventory involves both estimation and judgement with regard to market values and reasonable costs to sell, differences in these estimates could result in ultimate valuations that differ from the recorded asset.
The majority of inventory purchases and commitments are made in U.S. dollars in order to limit the Company’s exposure to foreign currency fluctuations. Goods shipped to us are recorded as inventory owned by us when the risk of loss shifts to us from the supplier.
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Inventory is physically counted twice annually in the Texas distribution center. At the store level, inventory is physically counted each quarter. Inventory is then adjusted in our accounting system to reflect actual count results.

(in thousands) |  | June 30, 2021 |  |  | December 31, 2020 |
On hand: |  |  |  |  |  |
Finished goods held for sale |  | $ | 38,408 |  |  | $ | 32,654 |
Raw materials and work in process |  |  | 1,097 |  |  |  | 828 |
Inventory in transit |  |  | 4,170 |  |  |  | 3,297 |
TOTAL |  | $ | 43,675 |  |  | $ | 36,779 |

Leases. We lease certain real estate for our retail store locations and warehouse equipment for our Texas distribution center, both under long-term lease agreements. We determine if an arrangement is a lease at inception and recognize right-of-use (“ROU”) assets and lease liabilities at commencement date based on the present value of the lease payments over the lease term. We elected not to record leases with an initial term of 12 months or less on the balance sheet for all our asset classes.
For operating leases, the present value of our lease payments may include: (1) rental payments adjusted for inflation or market rates, and (2) lease terms with options to renew the lease or options to purchase leased equipment, when it is reasonably certain we will exercise such an option. The exercise of lease renewal or purchase option is generally at our discretion. Payments based on a change in an index or market rate are not considered in the determination of lease payments for purposes of measuring the related lease liability. We discount lease payments using our incremental borrowing rate based on information available as of the measurement date.
We recognize rent expense related to our operating leases on a straight-line basis over the lease term.
For finance leases, our right-of-use assets are amortized on a straight-line basis over the earlier of the useful life of the right-of-use asset or the end of the lease term with rent expense recorded to operating expenses. We adjust the lease liability to reflect lease payments made during the period and interest incurred on the lease liability using the effective interest method. The incurred interest expense is recorded in interest expense on the consolidated statements of operations and comprehensive income (loss).
The depreciable life of related leasehold improvements is based on the shorter of the useful life or the lease term. We also perform interim reviews of our lease assets for impairment when evidence exists that the carrying value of an asset group, including a lease asset, may not be recoverable.
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None of our lease agreements contain contingent rental payments, material residual value guarantees or material restrictive covenants. We have no sublease agreements and no lease agreements in which we are named as a lessor.
Impairment of Long-Lived Assets. We evaluate long-lived assets on a quarterly basis to identify events or changes in circumstances (“triggering events”) that indicate the carrying value of certain assets may not be recoverable. Upon the occurrence of a triggering event, ROU lease assets, property and equipment and definite-lived intangible assets are reviewed for impairment and an impairment loss is recorded in the period in which it is determined that the carrying amount of the assets is not recoverable. The determination of recoverability is made based upon the estimated undiscounted future net cash flows of assets grouped at the lowest level for which there are identifiable cash flows independent of the cash flows of other groups of assets with such cash flows to be realized over the estimated remaining useful life of the primary asset within the asset group. The Company determined the lowest level of identifiable cash flows that are independent of other asset groups to be primarily at the individual store level. If the estimated undiscounted future net cash flows for a given store are less than the carrying amount of the related store assets, an impairment loss is determined by comparing the estimated fair value with the carrying value of the related assets. The impairment loss is then allocated across the asset group's major classifications which in this case are operating lease assets and property and equipment. Triggering events at the store level could include material declines in operational and financial performance or planned changes in the use of assets, such as store relocation or store closure. This evaluation requires management to make judgements relating to future cash flows, growth rates and economic and market conditions. The fair value of an asset group is estimated using a discounted cash flow valuation method.
Fair Value of Financial Instruments. We measure fair value as an exit price, which is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering such assumptions, accounting standards establish a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

• | Level 1 – observable inputs that reflect quoted prices in active markets for identical assets or liabilities.

• | Level 2 – significant observable inputs other than quoted prices in active markets for similar assets and liabilities, such as quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

• | Level 3 – significant unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants.

Classification of the financial asset or liability within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
Our principal financial instruments held consist of short-term investments, accounts receivable, accounts payable, and long-term debt. As of June 30, 2021 and December 31, 2020, the carrying values of our financial instruments, included in our Consolidated Balance Sheets, approximated or equaled their fair values. There were no transfers into or out of Levels 1, 2 and 3 during the three and six months ended June 30, 2021 and 2020.
Short-Term Investments. We determine the appropriate classification of investments at the time of purchase, and we re-evaluate that determination at each balance sheet date. Investments are recorded as either short-term or long-term on the Consolidated Balance Sheet, based on contractual maturity date.
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Income Taxes. Income taxes are estimated for each jurisdiction in which we operate. This involves assessing current tax exposure together with temporary differences resulting from differing treatment of items for tax and financial statement accounting purposes. Any resulting deferred tax assets are evaluated for recoverability based on estimated future taxable income. To the extent it is more likely than not that all or a portion of a deferred tax asset will not be realized, a valuation allowance is recorded. Our evaluation regarding whether a valuation allowance is required or should be adjusted also considers, among other things, the nature, frequency, and severity of recent losses, forecasts of future profitability and the duration of statutory carryforward periods.
Deferred tax assets and liabilities are measured using the enacted tax rates in effect in the years when those temporary differences are expected to reverse. The effect on deferred taxes from a change in tax rate is recognized through continuing operations in the period that includes the enactment date of the change. Changes in tax laws and rates could affect recorded deferred tax assets and liabilities in the future.
A tax benefit from an uncertain tax position may be recognized when it is more-likely-than-not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more-likely-than-not recognition threshold to be recognized.
We recognize tax liabilities for uncertain tax positions and adjust these liabilities when our judgement changes as a result of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense and the effective tax rate in the period in which new information becomes available. We recognize interest and/or penalties related to all tax positions in income tax expense. To the extent that accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision in the period that such determination is made.
We may be subject to periodic audits by the Internal Revenue Service and other taxing authorities. These audits may challenge certain of our tax positions, such as the timing and amount of deductions and allocation of taxable income to the various jurisdictions.
Stock-based compensation. The Company’s stock-based compensation relates primarily to restricted stock unit (“RSU”) awards. Accounting guidance requires measurement and recognition of compensation expense at an amount equal to the grant date fair value. Compensation expense is recognized for service-based stock awards on a straight-line basis or ratably over the requisite service period, based on the closing price of the Company’s stock on the date of grant. The service-based awards typically vest ratably over the requisite service period, provided that the participant is employed on the vesting date. Compensation expense is reduced by actual forfeitures as they occur over the requisite service period of the awards.
Performance-based RSUs vest, if at all, upon the Company satisfying certain performance targets. The Company records compensation expense for awards with a performance condition when it is probable that the condition will be achieved. If the Company determines it is not probable a performance condition will be achieved, no compensation expense is recognized. If the Company changes its assessment in a subsequent period and concludes it is probable a performance condition will be achieved, the Company will recognize compensation expense ratably between the period of the change in assessment through the expected date of satisfying the performance condition for vesting. If the Company subsequently assesses that it is no longer probable that a performance condition will be achieved, the accumulated expense that has been previously recognized will be reversed. The compensation expense ultimately recognized, if any, related to performance-based awards will equal the grant date fair value based on the number of shares for which the performance condition has been satisfied. We issue shares from authorized shares upon the lapsing of vesting restrictions on RSUs. We do not use cash to settle equity instruments issued under stock-based compensation awards.
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Accounts Receivable and Expected Credit Losses. Our receivables primarily arise from the sale of merchandise to customers that have applied for and been granted credit. Accounts receivable are stated at amounts due, net of an allowance for doubtful accounts. Accounts receivable are generally due within 30 days of invoicing. We estimate expected credit losses based on factors such as the composition of accounts receivable, the age of the accounts, historical bad debt experience, and our evaluation of the financial condition and past collection history of each customer. Management believes that the historical loss information it has compiled is a reasonable base on which to determine expected credit losses for trade receivables held at June 30, 2021, because the composition of the trade receivables at that date is consistent with that used in developing the historical credit-loss percentages (i.e., the similar risk characteristics of its customers and its credit practices have not changed significantly over time). Accordingly, the allowance for expected credit losses at June 30, 2021 and December 31, 2020 each totaled less than $0.1 million.
Other Intangible Assets. Our intangible assets and related accumulated amortization relate to trademarks and copyrights that are definite-lived intangibles and are subject to amortization. The weighted average amortization period is 15 years for trademarks and copyrights. Amortization expense related to other intangible assets of less than $0.01 million during both the three and six months ended June 30, 2021 and 2020 was recorded in operating expenses. Based on the current amount of intangible assets subject to amortization, we estimate amortization expense to be less than $0.01 million annually over the next five years.
Comprehensive Income (Loss). Comprehensive income (loss) includes net income (loss) and certain other items that are recorded directly to stockholders’ equity. The Company’s only source of other comprehensive income (loss) is foreign currency translation adjustments, and those adjustments are presented net of tax.
Recently Adopted Accounting Pronouncements
Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. We adopted this ASU on January 1, 2021; the adoption of this ASU did not have a material effect on the Company’s financial condition, results of operations or cash flows.
2. NOTES PAYABLE AND LONG-TERM DEBT
During the second quarter of 2020, the Company borrowed $0.4 million from Banco Santander S.A. under the Institute of Official Credit Guarantee for Small and Medium-sized Enterprises in order to facilitate the continuation of employment and to attenuate the economic effects of the coronavirus (“COVID-19”) virus. This loan was provided for by the Spanish government as part of a COVID-19 relief program. The term of the agreement is five years and the interest rate is fixed at 1.5%. Based on the terms of the loan agreement, we are required to make monthly interest-only payments for the first two years and monthly principal and interest payments for the remainder of the term of the agreement.
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On April 2, 2020, the Company’s primary bank, BOKF, NA d/b/a Bank of Texas, terminated a $6.0 million working capital line of credit facility secured by inventory and a $15.0 million credit facility secured by the Company’s owned real estate as a result of the failure to provide timely quarterly financial statements and compliance certificates required under the facilities. The delay was the result of the need to restate previously filed financial statements and file subsequent delinquent filings with the SEC. As of the date of the termination, Tandy had no borrowings outstanding under these line of credit facilities or with any other lending institution.
3. INCOME TAX
Our effective tax rate for the three months ended June 30, 2021 and 2020 was 22.5% and 22.7%, respectively. Our effective tax rate for the six months ended June 30, 2021 and 2020 was 22.8% and 22.6%, respectively. Our effective tax rate differs from the federal statutory rate primarily due to U.S. state income tax expense, the difference in tax rates for loss carryback periods, foreign income/loss positions, expenses that are nondeductible for tax purposes, the change in our valuation allowance associated with our deferred tax assets, and differences in tax rates.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating loss (“NOL”) carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company has evaluated the impact of the CARES Act and estimates the NOL carryback provision of the CARES Act will result in a cash tax benefit in excess of $1.0 million.
4. STOCK-BASED COMPENSATION
The Tandy Leather Factory, Inc. 2013 Restricted Stock Plan (the “2013 Plan”) was adopted by our Board of Directors in January 2013 and approved by our stockholders in June 2013. The 2013 Plan initially reserved up to 300,000 shares for restricted stock and restricted stock unit (“RSU”) awards to our executive officers, non-employee directors and other key employees. In June 2020, our stockholders approved an increase to the plan reserve to 800,000 shares of our common stock and extended the 2013 Plan to June 2023. As of June 30, 2021, there were 591,138 shares available for future awards. Awards granted under the 2013 Plan may be service-based awards or performance-based awards, and may be subject to a graded vesting schedule with a minimum vesting period of four years, unless otherwise determined by the Compensation Committee of the Board of Directors that administers the plan. In February and May 2021, as part of their annual director compensation, certain of our non-employee directors were granted a total of 21,671 and 3,415 service-based RSUs, respectively, under the 2013 Plan, which will vest ratably over the next four years provided that the participant is still on the board on the vesting date.
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In addition to grants under the Company’s 2013 Restricted Stock Plan, in October 2018, we granted a total of 644,000 RSUs to the Company’s Chief Executive Officer (“CEO”), of which (i) 460,000 are service-based RSUs that vest ratably over a period of five years from the grant date based on our CEO’s continued employment in her role, (ii) 92,000 are performance-based RSUs that will vest if the Company’s operating income exceeds $12 million dollars two fiscal years in a row, and (iii) 92,000 are performance-based RSUs that will vest if the Company’s operating income exceeds $14 million dollars in one fiscal year.
A summary of the activity for non-vested restricted stock and RSU awards as of June 30, 2021 and 2020 is presented below:

|  | Shares (in thousands) |  |  | Weighted Average Share Price |
Balance, December 31, 2020 |  |  | 522 |  |  | $ | 7.11 |
Granted |  |  | 25 |  |  |  | 3.88 |
Forfeited |  |  | (11 | ) |  |  | 3.53 |
Vested |  |  | (16 | ) |  |  | 5.28 |
Balance, June 30, 2021 |  |  | 520 |  |  | $ | 7.08 |
Balance, December 31, 2019 |  |  | 606 |  |  | $ | 7.27 |
Granted |  |  | 24 |  |  |  | 4.78 |
Vested |  |  | (19 | ) |  |  | 6.61 |
Balance, June 30, 2020 |  |  | 611 |  |  | $ | 7.27 |

The Company’s stock-based compensation relates primarily to RSU awards. For these service-based awards, our stock-based compensation expense, included in operating expenses, was $0.2 million and $0.4 million for the three and six month periods, respectively, ended on both June 30, 2021 and 2020.
As of June 30, 2021, the Company has concluded it is not probable that the performance conditions related to performance-based RSUs granted to our CEO will be achieved, and as a result no compensation expense related to performance-based RSUs has been recorded.
As of June 30, 2021, there was unrecognized compensation cost related to non-vested, service-based restricted stock and RSU awards of $1.8 million, which will be recognized in each of the following years:

(in thousands) |  |  |
2021 |  | $ | 410 |
2022 |  |  | 784 |
2023 |  |  | 538 |
2024 |  |  | 24 |
2025 |  |  | 5 |
Unrecognized Expense |  | $ | 1,761 |

We issue shares from authorized shares upon the lapsing of vesting restrictions on restricted stock and RSUs. For the six months ended June 30, 2021, we issued 16,080 shares resulting from the vesting of restricted stock. We do not use cash to settle equity instruments issued under stock-based compensation awards.
5. EARNINGS PER SHARE
Basic earnings per share (“EPS”) are computed based on the weighted average number of common shares outstanding during the period. Diluted EPS includes additional common shares that would have been outstanding if potential common shares with a dilutive effect, such as stock awards from the Company’s restricted stock plan, had been issued. Anti-dilutive securities represent potentially dilutive securities which are excluded from the computation of diluted EPS as their impact would be anti-dilutive. Diluted EPS is computed using the treasury stock method.
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The following table sets forth the computation of basic and diluted EPS for the three and six months ended June 30, 2021 and 2020:

(in thousands, except share data) |  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
|  |  | 2021 |  |  |  | 2020 |  |  |  | 2021 |  |  |  | 2020 |
Numerator: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income (loss) |  | $ | 540 |  |  | $ | (1,775 | ) |  | $ | 1,285 |  |  | $ | (3,513 | )
Denominator: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic weighted-average common shares outstanding |  |  | 8,664,768 |  |  |  | 9,042,991 |  |  |  | 8,737,854 |  |  |  | 9,036,101 |
Dilutive effect of service-based restricted stock awards granted to Board of Directors under the Plan |  |  | 5,325 |  |  |  | - |  |  |  | 2,262 |  |  |  | - |
Diluted weighted-average common shares outstanding |  |  | 8,670,093 |  |  |  | 9,042,991 |  |  |  | 8,740,116 |  |  |  | 9,036,101 |

6. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
We are periodically involved in various litigation that arises in the ordinary course of business and operations. There are no such matters pending that we expect to have a material impact on our financial position or operating results. Legal costs associated with the resolution of claims, lawsuits and other contingencies are expensed as incurred.
In November 2019, a class action lawsuit seeking unspecified damages was brought by a stockholder in the Federal District Court in Los Angeles, California, and subsequently transferred to the Federal District Court for the Northern District of Texas, against the Company and members of its current and former management relating to our announcement of the circumstances leading to our restatement. We believe that suit was without merit, and the suit was withdrawn by the plaintiff in April 2020; however, there can be no assurance that additional litigation against the Company and/or its management or Board of Directors might not be threatened or brought in connection with matters related to our restatement.
Delisting of Company’s Common Stock
As previously disclosed, the Company was unable to timely file the delinquent filings due to the process of restating its financial statements as described above. As a result, on February 18, 2020, the Company received a notice from the Nasdaq Stock Market LLC (“Nasdaq”) indicating that, unless the Company timely requested a hearing before a Nasdaq Hearings Panel (the “Panel”), the Company’s common stock would be subject to suspension and delisting from Nasdaq due to non-compliance with Nasdaq Listing Rule 5250(c)(1). On May 1, 2020, the Panel granted the Company’s request to remain listed on Nasdaq, subject to the Company filing all current and overdue quarterly and annual reports with the Securities and Exchange Commission on or before August 10, 2020. Because the restatement process was not complete by such date, Nasdaq suspended trading in our shares as of August 13, 2020. Our stock has since traded on the OTC Link (previously “Pink Sheets”) operated by OTC Markets Group under the symbol “TLFA”. Nasdaq denied our appeal of this decision, resulting in our stock being formally delisted on February 9, 2021. We intend to reapply for Nasdaq listing once the Company has made the required Exchange Act filings.
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SEC Investigation
In 2019, the Company self-reported to the SEC information concerning the internal investigation of previously disclosed accounting matters resulting in the restatement for the full year 2017 and full year 2018, including interim quarters in 2018, and the first quarter of 2019. In response, the Division of Enforcement of the SEC initiated an investigation into the Company’s historical accounting practices. In July 2021, the Company entered into a settlement agreement with the SEC to conclude this investigation. Under the terms of the settlement, in addition to other non-monetary settlement terms, (1) the Company paid a civil monetary penalty of $200,000, and (2) the Company’s former Chief Financial Officer and Chief Executive Officer, agreed to pay a civil monetary penalty of $25,000. In accepting the Company’s settlement offer, the SEC took into account remedial actions the Company took promptly after learning of the issues detailed in the SEC’s order.
7. SHARE REPURCHASE PROGRAM AND SHARE REPURCHASE
On August 9, 2020, the Board of Directors approved a new program to repurchase up to $5.0 million of its common stock between August 9, 2020 and July 31, 2022, subject to the completion of our financial restatement and the filing of all delinquent filings with the SEC. The Company's previous share repurchase program expired in August 2020. As of June 30, 2021 and 2020, the full $5.0 million of our common stock remained available for repurchase under this program.
On January 28, 2021, we entered into an agreement with an institutional shareholder of the Company, to repurchase 500,000 shares of our common stock, par value $0.0024 in a private transaction. The purchase price was $3.35 per share for a total of $1.7 million. The closing of the repurchase took place on February 1, 2021, and these shares were subsequently cancelled. Prior to the repurchase, the shares represented approximately 5.5% of our outstanding common stock. This repurchase was separately authorized by our Board of Directors and did not reduce the remaining amount authorized to be repurchased under the plan described in the previous paragraph.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Our Business
Tandy Leather Factory, Inc. is one of the world’s largest specialty retailers of leather and leathercraft-related items. Founded in 1919 in Fort Worth, Texas, and organized in 2005 as a Delaware corporation, the Company introduced leathercrafting to millions of American and later Canadian and other international customers and has built a track record as the trusted source of quality leather, tools, hardware, supplies, kits and teaching materials for leatherworkers everywhere. Today, our mission remains to build on our legacy of inspiring the timeless art and trade of leatherworking.
What differentiates Tandy from the competition is our high brand awareness and strong brand equity and loyalty, our network of retail stores that provides convenience, a high-touch customer service experience, and a hub for the local leathercrafting community, and our 100-year heritage. We believe that this combination of qualities is unique to Tandy and gives the brand competitive advantages that are difficult for others to replicate.
We sell our products primarily through company-owned stores and through orders generated from our four websites: tandyleather.com, tandyleather.ca, tandyleather.eu and tandyleather.com.au. We also manufacture leather lace, cut leather pieces and most of the do-it-yourself kits that are sold in our stores and on our websites. We also offer production services to our business customers such as cutting (“clicking”), splitting, and some assembly. We maintain our principal offices at 1900 Southeast Loop 820, Fort Worth, Texas 76140.
Currently, the Company operates a total of 106 retail stores. There are 95 stores in the United States (“U.S,”), ten stores in Canada and one store in Spain.
New management joined the Company in October 2018 and set new strategic direction for both short and long term. The overarching goal is to invest in rebuilding a foundation for growth by: 1) improving our brand proposition, 2) reversing the sales decline with business customers, 3) building our talent, processes, tools and systems and 3) positioning us for long-term growth. A number of key initiatives to achieve these goals were begun in 2019 and continued into 2021. However, the onset of the COVID-19 pandemic in March of 2020 shifted our strategic focus to company survival and cash preservation. With all of the retail stores temporarily closed to the public by the end of March, 2020, web sales, digital marketing and centralized web fulfillment became the highest priority.
Key initiatives in 2020 and 2021 included:

| ◾ | Accelerating implementation of our new web platform which supported a significantly improved consumer experience (look-and-feel, searchability, relevant content including video, and product and pricing information) integration of inventory, shipping and other systems, and substantial reduction in the time, manual effort and need for outside resources to make additions and changes;

| ◾ | Accelerating centralization of our web fulfillment activities to our Fort Worth warehouse which provided significant improvement in fulfillment rates and shipping times, and supported early product testing, an increase in product breadth by offering online-only items that required limited inventory investment, and other inventory efficiencies;

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| ◾ | Shifting marketing resources from print and in-store activities to digital, with increased investments in SEO, SEM, email, digital advertising, social media, SMS/MMS, and affiliate links;

| ◾ | Accelerating the retail employee training program in the areas of product knowledge, leathercrafting knowledge and selling tools while stores were closed;

| ◾ | Continuing to drive the Commercial Program, through a dedicated team focused on the Company’s largest customers with a business model that meets these customers’ unique needs including dedicated sales representatives, clear and competitive volume-based pricing, personalized service and sourcing, shipping directly to customers from our distribution center, and improved product consistency, quality and availability;

| ◾ | Continuing to improve the quality and assortment of the product offering to better appeal to more advanced leather-crafters and business customers; and

| ◾ | Continuing to build the organization, processes, infrastructure, tools and systems to efficiently execute these strategies.

Delisting of Company Stock
Nasdaq suspended trading in the Company’s shares as of August 13, 2020 due to the Company not being current with its SEC filings. Our stock has since traded on the OTC Link (previously “Pink Sheets”) operated by OTC Markets Group under the symbol “TLFA.” Nasdaq denied the Company’s appeal of this decision, resulting in the Company’s stock being formally delisted by Nasdaq on February 9, 2021. We intend to reapply for Nasdaq listing once the Company has made the required Exchange Act filings.
COVID-19 and Outlook
In late 2019, COVID-19 was detected in Wuhan, China and has since spread to other parts of the world, including the U.S. On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic. Federal, state, and local governments implemented various restrictions, including travel restrictions, border closings, restrictions on public gatherings, quarantining of people who may have been exposed to the virus, shelter-in-place restrictions and limitations on business operations. As previously announced and for the health and safety of employees and customers, on March 17, 2020, the Company made the decision to begin temporary store closures. The onset of the COVID-19 pandemic in March 2020 temporarily shifted our strategic focus to company survival and cash preservation. We began closing stores on March 18, 2020, and by April 2, 2020, we temporarily closed all stores to the public. While we pivoted to serve customers only online, the Company experienced significant decreases in demand for its products in the second and third quarters of 2020, negatively impacting net sales.
In response, we took immediate action to mitigate the impact of temporary store closures on our cash flows by: (i) furloughing 406 Tandy employees, comprising two-thirds of the Tandy work force, (ii) temporarily cutting corporate salaries, with deeper cuts for the Executive Leadership Team, (iii) negotiating abatements, deferrals and other favorable lease terms with landlords, and (iv) negotiating longer payment terms with our key product vendors.
Due to our size, we were not eligible for the Paycheck Protection Program administered through the Small Business Administration. Also, due to our not being current on financial filings with the SEC, we were not able to obtain loans under the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act. During the second quarter of 2020, the Company borrowed $0.4 million through the Spanish government’s Institute of Official Credit Guarantee for Small and Medium-sized Enterprises, a COVID-19 relief program. The term of the agreement is for five years and the interest rate is fixed at 1.5%. Based on the terms of the loan agreement, we make interest-only payments for the first two years and monthly principal and interest payments for the remainder of the term of the agreement. In Canada, we participated in the Canada Emergency Commercial Rent Assistance (“CECRA”) program for rent relief. This program provided for a 75% reduction in the store rent for included stores for the months of April, May and June 2020. We received total rent abatements under the program of $0.05 million.
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Nine stores were permanently closed during 2020 as leases expired or early terminations were negotiated, including at locations where we believe we can retain a majority of customers through geographically proximate stores and/or our enhanced website platform. After these permanent closures, Tandy operates 106 stores, including ten in Canada and one in Spain.
On May 22, 2020, our Fort Worth flagship store reopened to the public, the beginning of a phased approach to reopening our stores with limited hours, new protocols for sanitizing, social distancing, wearing masks and taking daily temperatures of employees. During the third quarter of 2020, all 106 of Tandy’s stores had reopened to the public. While customer response to our store reopening has been good, since then, various spikes in local infection rates and the “wave” created by the Delta variant of COVID-19 in the summer of 2021 have forced us to sporadically move stores to short-term “curbside only” operations or closures due to local conditions or staffing issues. We believe that the rollout of COVID-19 vaccines in 2021 has offset these closures somewhat, but it is difficult to predict whether these vaccines will be adopted by further large numbers of Americans or whether current or future vaccines will remain effective against Delta or other future variants of the virus. We expect that at least some further infections and temporary store shutdowns will continue for the foreseeable future.
While we previously fulfilled our web orders out of our retail stores, during the second quarter of 2020, we built a centralized web fulfillment capability in our Fort Worth distribution center and have been and expect to continue to fulfill web orders primarily through Fort Worth going forward. Both our e-commerce business and stores have seen strong sales performance, but the future remains uncertain, and more store closures and/or the ongoing unemployment crisis could cause a material negative impact on future sales.
As part of the Company’s accounting policy for long-lived asset impairments, we believed the COVID-19 impact on the Company’s results of operations, cash flows and financial position and the ongoing uncertainty the virus had created around future operating results represented a triggering event starting in the first quarter of 2020 and continued throughout the remainder of 2020.
Critical Accounting Policies
A description of our critical accounting policies appears in Item 7 “Management's Discussions and Analysis of Financial Condition and Results of Operations” in our Form 10-K for the year ended December 31, 2020.
Revenue Recognition. Our revenue is earned from sales of merchandise and generally occurs via two methods: (1) at the store counter and (2) shipment of product generally via web sales. We recognize revenue when we satisfy the performance obligation of transferring control of product merchandise over to a customer. At the store counter, our performance obligation is met and revenue is recognized when a sales transaction occurs with a customer. When merchandise is shipped to a customer, our performance obligation is met and revenue is recognized when control passes to the customer. Shipping terms are normally free on board (“FOB”) shipping point and control passes when the merchandise is shipped to the customer. Sales tax and comparable foreign tax is excluded from net sales, while shipping charged to our customers is included in net sales. Net sales are based on the amount of consideration that we expect to receive, reduced by estimates for future merchandise returns. The sales return allowance is based each year on historical customer return behavior and other known factors and reduces net sales and cost of sales, accordingly.
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Inventory. Inventory is stated at the lower of cost (first-in, first-out) or net realizable value. Finished goods held for sale includes the cost of merchandise purchases, the costs to bring the merchandise to our Texas distribution center, warehousing and handling expenditures, and distributing and delivering merchandise to our stores. These costs include depreciation of long-lived assets utilized in acquiring, warehousing and distributing inventory. Manufacturing inventory including raw materials and work-in-process is valued on a first‑in, first out basis using full absorption accounting which includes material, labor, and other applicable manufacturing overhead. Carrying values of inventory are analyzed and, to the extent that the cost of inventory exceeds the net realizable value, provisions are made to reduce the carrying amount of the inventory. We regularly review all inventory items to determine if there are (i) damaged goods (e.g., for leather, excessive scars or damage from ultra-violet (“UV”) light), (ii) items that need to be removed from our product line (e.g., slow-moving items, inability of a supplier to provide items of acceptable quality or quantity, and to maintain freshness in the product line) and (iii) pricing actions that need to be taken to adequately value our inventory at the lower of cost or net realizable value. Since the determination of net realizable value of inventory involves both estimation and judgement with regard to market values and reasonable costs to sell, differences in these estimates could result in ultimate valuations that differ from the recorded asset. The majority of inventory purchases and commitments are made in U.S. dollars in order to limit the Company’s exposure to foreign currency fluctuations. Goods shipped to us are recorded as inventory owned by us when the risk of loss shifts to us from the supplier. Inventory is physically counted twice annually in the Texas distribution center. At the store level, inventory is physically counted each quarter. Inventory is then adjusted in our accounting system to reflect actual count results.
Leases. We lease certain real estate for our retail store locations under long-term lease agreements. Starting in 2019, with the adoption of Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), once we have determined an arrangement is a lease, at inception we recognize a lease asset and lease liability at commencement date based on the present value of the lease payments over the lease term. For our operating leases, the present value of our lease payments may include: (1) rental payments adjusted for inflation or market rates, and (2) lease terms with options to renew the lease when it is reasonably certain we will exercise such an option. The exercise of lease renewal options is generally at our discretion. Payments based on a change in an index or market rate are not considered in the determination of lease payments for purposes of measuring the related lease liability. We discount lease payments using our incremental borrowing rate based on information available as of the measurement date. Rent expense is recorded in operating expenses. The net excess of rent expense over the actual cash paid has been recorded as accrued expenses and other liabilities in the accompanying consolidated balance sheets. For finance leases, our right-of-use assets are amortized on a straight-line basis over the earlier of the useful life of the right-of-use asset or the end of the lease term with rent expense recorded to operating expenses. We adjust the lease liability to reflect lease payments made during the period and interest incurred on the lease liability using the effective interest method. The incurred interest expense is recorded in interest expense on the consolidated statements of operations and comprehensive income (loss). As of June 30, 2021, we have no sublease agreements and no lease agreements in which we are named as a lessor. Subsequent to the recognition of our operating lease assets and lease liabilities, we recognize lease expense related to our operating leases on a straight-line basis over the lease term. The depreciable life of related leasehold improvements is based on the shorter of the useful life or the lease term. We also perform interim reviews of our operating lease assets for impairment when evidence exists that the carrying value of an asset group, including a lease asset, may not be recoverable.
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Impairment of Long-Lived Assets. We evaluate long-lived assets on a quarterly basis to identify events or changes in circumstances (“triggering events”) that indicate the carrying value of certain assets may not be recoverable. Upon the occurrence of a triggering event, right-of-use (“ROU”) lease assets, property and equipment and definite-lived intangible assets are reviewed for impairment and an impairment loss is recorded in the period in which it is determined that the carrying amount of the assets is not recoverable. The determination of recoverability is made based upon the estimated undiscounted future net cash flows of assets grouped at the lowest level for which there are identifiable cash flows independent of the cash flows of other groups of assets with such cash flows to be realized over the estimated remaining useful life of the primary asset within the asset group. The Company determined the lowest level of identifiable cash flows that are independent of other asset groups to be primarily at the individual store level. If the estimated undiscounted future net cash flows for a given store are less than the carrying amount of the related store assets, an impairment loss is determined by comparing the estimated fair value with the carrying value of the related assets. The impairment loss is then allocated across the asset group's major classifications which in this case are operating lease assets and property and equipment. Triggering events at the store level could include material declines in operational and financial performance or planned changes in the use of assets, such as store relocation or store closure. This evaluation requires management to make judgements relating to future cash flows, growth rates and economic and market conditions. The fair value of an asset group is estimated using a discounted cash flow valuation method.
Stock-based Compensation. The Company’s stock-based compensation primarily relates to restricted stock unit (“RSU”) awards. Accounting guidance requires measurement and recognition of compensation expense at an amount equal to the grant date fair value. Compensation expense is recognized for service-based stock awards on a straight-line basis or ratably over the requisite service period, based on the closing price of the Company’s stock on the date of grant. The service-based awards typically vest ratably over the requisite service period, provided that the participant is employed on the vesting date. Compensation expense is reduced by actual forfeitures as they occur over the requisite service period of the awards. Performance-based RSUs vest, if at all, upon the Company satisfying certain performance targets. The Company records compensation expense for awards with a performance condition when it is probable that the condition will be achieved. If the Company determines it is not probable a performance condition will be achieved, no compensation expense is recognized. If the Company changes its assessment in a subsequent period and concludes it is probable a performance condition will be achieved, the Company will recognize compensation expense ratably between the period of the change in assessment through the expected date of satisfying the performance condition for vesting. If the Company subsequently assesses that it is no longer probable that a performance condition will be achieved, the accumulated expense that has been previously recognized will be reversed. The compensation expense ultimately recognized, if any, related to performance-based awards will equal the grant date fair value based on the number of shares for which the performance condition has been satisfied. We issue shares from authorized shares upon the lapsing of vesting restrictions on RSUs. We do not use cash to settle equity instruments issued under stock-based compensation awards.
Income Taxes. Income taxes are estimated for each jurisdiction in which we operate. This involves assessing current tax exposure together with temporary differences resulting from differing treatment of items for tax and financial statement accounting purposes. Any resulting deferred tax assets are evaluated for recoverability based on estimated future taxable income. To the extent it is more likely than not that all or a portion of a deferred tax asset will not be realized, a valuation allowance is recorded. Our evaluation regarding whether a valuation allowance is required or should be adjusted also considers, among other things, the nature, frequency, and severity of recent losses, forecasts of future profitability and the duration of statutory carryforward periods. Deferred tax assets and liabilities are measured using the enacted tax rates in effect in the years when those temporary differences are expected to reverse. The effect on deferred taxes from a change in tax rate is recognized through continuing operations in the period that includes the enactment date of the change. Changes in tax laws and rates could affect recorded deferred tax assets and liabilities in the future. A tax benefit from an uncertain tax position may be recognized when it is more-likely-than-not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more-likely-than-not recognition threshold to be recognized. We recognize tax liabilities for uncertain tax positions and adjust these liabilities when our judgement changes as a result of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense and the effective tax rate in the period in which new information becomes available. We recognize interest and/or penalties related to all tax positions in income tax expense. To the extent that accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision in the period that such determination is made. We may be subject to periodic audits by the Internal Revenue Service and other taxing authorities. These audits may challenge certain of our tax positions, such as the timing and amount of deductions and allocation of taxable income to the various jurisdictions.
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Results of Operations
Three Months Ended June 30, 2021 and 2020
The following table presents selected financial data:

(in thousands) |  | Three Months Ended June 30, |
|  | 2021 |  |  | 2020 |  |  | $ Change |  |  | % Change |
Sales |  | $ | 18,566 |  |  | $ | 9,146 |  |  | $ | 9,420 |  |  |  | 103.0 | %
Gross profit |  |  | 11,281 |  |  |  | 5,243 |  |  |  | 6,038 |  |  |  | 115.2 | %
Gross margin percentage |  |  | 60.8 | % |  |  | 57.3 | % |  |  | - |  |  |  | 3.5 | %
Operating expenses |  |  | 10,557 |  |  |  | 7,580 |  |  |  | 2,977 |  |  |  | 39.3 | %
Impairment expenses |  |  | - |  |  |  | 9 |  |  |  | (9 | ) |  |  | (100.0 | %)
Income (loss) from operations |  | $ | 724 |  |  | $ | (2,346 | ) |  | $ | 3,070 |  |  |  | 130.9 | %

Net Sales
Consolidated sales for the quarter ended June 30, 2021 increased $9.4 million, or 103.0%, compared to the same period in 2020, with almost all of our stores open throughout the quarter this year compared to the corresponding prior-year period in which most of our stores were closed for most of the period due to COVID-19.
Our store footprint consisted of 106 stores at both June 30, 2021 and June 30, 2020. We started 2020 with 115 stores, and during the first quarter of 2020, we closed one store in Beaverton, OR in February 2020. During the second quarter of 2020, we converted eight stores from temporary closures to permanent closures based on expiring leases, proximity to other stores, and local web sales penetration: Phoenix, AZ; Austin TX; Dallas, TX; Peoria, IL; Henrico (Richmond), VA; Nyack, NY; Johnston, RI and St Leonard (Montreal), QC. We have not opened any new stores during 2020 or 2021.
Gross Profit
Our gross margin percentage for the quarter ended June 30, 2021 increased to 60.8%, versus 57.3% in the same period in 2020. This increase was a result of a combination of factors including refining the process we use to capitalize cost into our inventory value for freight, warehousing and handling expenditures, updating from a manual, higher-level process to a more automated mechanism utilizing our new ERP system, partially offset by higher costs for warehouse handling and freight costs.
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Operating expenses

(in thousands) |  | Three Months Ended June 30, |
|  | 2021 |  |  | 2020 |
Operating expenses |  | $ | 10,557 |  |  | $ | 7,580 |
Non-routine items related to restatement |  |  | (326 | ) |  |  | (377 | )
Non-routine items related to CFO transition |  |  | - |  |  |  | (197 | )
Adjusted operating expenses |  | $ | 10,231 |  |  | $ | 7,006 |
Operating expenses % of sales |  |  | 56.4 | % |  |  | 82.9 | %
Adjusted Operating expenses % of sales |  |  | 54.7 | % |  |  | 76.6 | %

Operating expenses increased $3.0 million or 39.3% compared to the comparable period in 2020, mostly as a result of recalling store employees who had been furloughed while stores were closed in 2020 due to the COVID pandemic as well as higher sales-driven expenses like credit card fees and sales-based incentives. Adjusted operating expenses, which excludes the non-routine items related to the restatement and CFO turnover, increased $3.2 million or 46.0%. Adjusted operating expenses excluding non-routine items as shown above is a non-GAAP measure, included here to provide additional information regarding the Company’s financial performance on a recurring basis. Non-routine items are primarily legal and accounting fees associated with the restatement and recruiting fees, exit costs, interim CFO-related expenses, and expenses for a number of other contract accounting professionals associated with the turnover of our CFO.
Income Taxes
Our effective tax rate for the three months ended June 30, 2021 was 22.5% compared to 22.7% for the same period in 2020. Our effective tax rate differs from the federal statutory rate primarily due to U.S. state income tax expense, the difference in tax rates for loss carryback periods, foreign income/loss positions, expenses that are nondeductible for tax purposes, the change in our valuation allowance associated with our deferred tax assets, and differences in tax rates.
Six Months Ended June 30, 2021 and 2020
The following table presents selected financial data:

(in thousands) |  | Six Months Ended June 30, |
|  | 2021 |  |  | 2020 |  |  | $ Change |  |  | % Change |
Sales |  | $ | 39,960 |  |  | $ | 26,291 |  |  | $ | 13,669 |  |  |  | 52.0 | %
Gross profit |  |  | 23,467 |  |  |  | 15,109 |  |  |  | 8,358 |  |  |  | 55.3 | %
Gross margin percentage |  |  | 58.7 | % |  |  | 57.5 | % |  |  | - |  |  |  | 1.2 | %
Operating expenses |  |  | 21,778 |  |  |  | 18,676 |  |  |  | 3,102 |  |  |  | 16.6 | %
Impairment expenses |  |  | - |  |  |  | 1,078 |  |  |  | (1,078 | ) |  |  | (100.0 | %)
Income (loss) from operations |  | $ | 1,689 |  |  | $ | (4,645 | ) |  | $ | 6,334 |  |  |  | 136.4 | %

Net Sales
Consolidated sales for the six months ended June 30, 2021 increased $13.7 million, or 52.0%, compared to the same period in 2020, with almost all of our stores open throughout the first half of this year compared to COVID-related closures in the corresponding prior-year period, in which most of our stores were closed for most of the second quarter due to COVID-19.
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Gross Profit
Our gross margin percentage for the six months ended June 30, 2021 increased to 58.7%, versus 57.5% in the same period in 2020. This increase was a result of a combination of factors including product and customer mix shifts and refining the process we use to capitalize cost into our inventory value for freight, warehousing and handling expenditures, updating from a manual, higher-level process to a more automated mechanism utilizing our new ERP system, partially offset by higher costs for warehouse handling and freight costs.
Operating expenses

(in thousands) |  | Six Months Ended June 30, |
|  | 2021 |  |  | 2020 |
Operating expenses |  | $ | 21,778 |  |  | $ | 18,676 |
Non-routine items related to restatement |  |  | (1,033 | ) |  |  | (1,045 | )
Non-routine items related to CFO transition |  |  | - |  |  |  | (389 | )
Adjusted operating expenses |  | $ | 20,745 |  |  | $ | 17,242 |
Operating expenses % of sales |  |  | 54.3 | % |  |  | 71.0 | %
Adjusted operating expenses % of sales |  |  | 51.7 | % |  |  | 65.6 | %

Operating expenses increased $3.1 million or 16.6% compared to the comparable period in 2020, mostly as a result of recalling store employees who had been furloughed while stores were closed in 2020 due to the COVID pandemic as well as sales-driven expenses like credit card fees and sales-based incentives. Adjusted operating expenses, which excludes the non-routine items related to the restatement and CFO turnover, increased $3.5 million or 20.3%. Adjusted operating expenses excluding non-routine items as shown above is a non-GAAP measure, included here to provide additional information regarding the Company’s financial performance on a recurring basis. Non-routine items are primarily legal and accounting fees associated with the restatement and recruiting fees, exit costs, interim CFO-related expenses, and expenses for a number of other contract accounting professionals associated with the turnover of our CFO.
Income Taxes
Our effective tax rate for the six months ended June 30, 2021 was 22.8% compared to 22.6% for the same period in 2020. Our effective tax rate differs from the federal statutory rate primarily due to U.S. state income tax expense, the difference in tax rates for loss carryback periods, foreign income/loss positions, expenses that are nondeductible for tax purposes, the change in our valuation allowance associated with our deferred tax assets, and differences in tax rates.
Capital Resources, Liquidity and Financial Condition
We require cash principally for day-to-day operations, to purchase inventory and to finance capital investments. We expect to fund our operating and liquidity needs primarily from a combination of current cash balances and cash generated from operating activities. Any excess cash will be invested as determined by our Board of Directors in accordance with its approved investment policy. Our cash balances as of June 30, 2021 totaled $5.7 million.
Lines of Credit
On April 2, 2020, the Company’s primary bank terminated a $6 million working capital line of credit facility secured by inventory and a $15 million credit facility secured by the Company’s owned real estate as a result of the failure to provide timely quarterly financial statements and compliance certificates required under the facilities. The delay was the result of the need to restate previously filed financial statements and file subsequent delinquent filings with the SEC. As of the date of the termination, Tandy had no borrowings under these credit facilities or with any other lending institution.
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Debt Agreements
During the second quarter of 2020, the Company borrowed $0.4 million from Banco Santander S.A. under the Institute of Official Credit Guarantee for Small and Medium-sized Enterprises in order to facilitate the continuation of employment and to attenuate the economic effects of the COVID-19 virus. This loan was provided for by the Spanish government as part of a COVID-19 relief program. The term of the agreement is five years and the interest rate is fixed at 1.5%. Based on the terms of the loan agreement, we are required to make monthly interest-only payments for the first two years and monthly principal and interest payments for the remainder of the term of the agreement.
Share Repurchase Program and Share Repurchase
In August 2015, our Board of Directors authorized a share repurchase program, pursuant to which we were authorized to repurchase up to 1.2 million shares of our common stock at prevailing market rates through August 2016. Subsequently, the program was amended to increase the number of shares available for repurchase to 2.2 million and to extend the program through August 2019. In June 2019, the program was again amended to decrease the number of shares available for repurchase to one million as of such date and to extend the program through August 9, 2020.
On August 9, 2020, the Board of Directors approved a new program to repurchase up to $5 million of its common stock between August 9, 2020 and July 31, 2022, subject to the completion of our financial restatement and the filing of all delinquent filings with the SEC. The Company's previous share repurchase program expired in August 2020.
On January 28, 2021, we entered into an agreement with an institutional shareholder of the Company, to repurchase 500,000 shares of our common stock, par value $0.0024 in a private transaction separate from our share repurchase program. The purchase price was $3.35 per share for a total of $1.7 million. The closing of the repurchase took place on February 1, 2021, and these shares were subsequently cancelled. Prior to the repurchase, the shares represented approximately 5.5% of our outstanding common stock.
Cash Flows

(in thousands) |  | For the Six Months Ended June 30, |
|  | 2021 |  |  | 2020 |
Net cash used in operating activities |  | $ | (2,761 | ) |  | $ | (11,131 | )
Net cash provided by (used in) investing activities |  |  | (212 | ) |  |  | 4,329 |
Net cash provided by (used in) financing activities |  |  | (1,697 | ) |  |  | 402 |
Effect of exchange rate changes on cash and cash equivalents |  |  | 45 |  |  |  | (91 | )
Net decrease in cash and cash equivalents |  | $ | (4,625 | ) |  | $ | (6,491 | )

For the six months ended June 30, 2021, cash from operations used $2.8 million driven by the net buildup of inventory of $6.2 million and a reduction in lease liabilities of $1.7 million, partially offset by net income of $1.3 million, non-cash expenses of $2.6 million, including depreciation, amortization, and stock-based compensation, a federal income tax refund of $1.0 million related to the 2019 tax year, and other changes in operating assets and liabilities. We invested $0.2 million in capital expenditures primarily related to system implementations. Cash used in financing activities was primarily due to the purchase of 500,000 shares of our common stock for $3.35 per share, or $1.7 million, from an institutional shareholder of the Company in a private transaction. The activities above, in addition to the effect of exchange rate changes, resulted in a net decrease in cash of $4.6 million.
For the six months ended June 30, 2020, we used $11.1 million of cash from operations driven by our net loss of $3.5 million offset by non-cash expenses of $3.6 million, including depreciation, amortization, impairments, and stock-based compensation. Changes in our working capital used $11.2 million of cash primarily due to the build-up of inventory. We invested $1.7 million in the purchase of short-term U.S. Treasuries and sold short-term U.S. Treasuries at maturity for $6.3 million. We invested $0.3 million in capital expenditures for the purchase of store fixtures and systems implementations. We borrowed $0.4 million from the Spanish government as part of a COVID-19 relief program. The activities above, in addition to the effect of exchange rate changes, resulted in a net decrease in cash of $6.5 million.
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Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As previously disclosed in our Form 10-K filing for the period ended December 31, 2020, and in connection with the filing of this Form 10-Q for the period ended June 30, 2021, our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As a result of this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were not effective due to the material weaknesses described below, which resulted in reporting errors requiring a restatement of our financial statements for the years ended December 31, 2017 and 2018 and for the first quarter ended March 31, 2019.
Management’s Annual Report on Internal Control over Financial Reporting
Our management, including our CEO and CFO, is responsible for establishing and maintaining adequate internal control over our financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Management’s establishing and maintaining adequate internal control over financial reporting is based upon the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO Framework”). A system of internal control over financial reporting should be designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
An effective internal control system, no matter how well designed, has inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud, and therefore can provide only reasonable assurance with respect to reliable financial reporting. Because of its inherent limitations, our internal control over financial reporting may not prevent or detect all misstatements.
A material weakness is defined as a deficiency, or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Based on this definition, our management, with the participation of our CEO and CFO, evaluated the effectiveness and design of our internal control over financial reporting against the COSO Framework and concluded that our internal control over financial reporting was not effective as of June 30, 2021 due to material weaknesses arising from flaws in our control environment, risk oversight measures, control activities, information processing and communication and our monitoring systems, each of which is described in more detail below.
Control environment. We concluded that we did not maintain effective controls in the following areas: (i) managerial functions, procedures and oversight; (ii) organizational structure, delegation of authority and responsibilities; (iii) segregation of duties; (iv) adequacy of trained accounting and financial reporting personnel to ensure that internal control responsibilities were performed effectively and material accounting errors were detected; and (v) maintenance and enforcement of internal control responsibilities, including holding individuals accountable for their internal control responsibilities.
Risk oversight environment. We did not maintain adequate risk oversight measures related to the (i) identification and assessment of risks that could impact achieving our objectives; and (ii) identification and analysis of the potential changes that could affect our internal controls environment.
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Control activities. We concluded that we did not have effective control activities in the following areas: (i) selecting and developing control policies, procedures and activities to mitigate risks, including with respect to the methodologies used to calculate and report financial information and results; and (ii) selecting and implementing information technology and related systems supportive to our internal control over financial reporting.
Information processing and communication. We identified deficiencies associated with information processing and communication within our internal control framework. Specifically, we did not effectively communicate objectives and internal control responsibilities throughout the organization which contributed to inadequate documentation of processes and methodologies used to calculate and reconcile regular consolidation adjustments hindering clear communication with management, the Board of Directors and our independent auditors.
In addition, the documentation of inventory purchasing relied on paper-based vendor invoices and multi-step manual data-entry processes, some of which were subject to management override, which resulted in errors at multiple steps of the process, and deficiencies in communicating accurate information to management, the Board of Directors and our independent auditors.
Monitoring activities. We concluded that we did not design and implement effective monitoring activities related to (i) selecting, developing, and performing separate evaluations of our internal control over financial reporting; and (ii) evaluating and communicating internal control deficiencies in a timely manner to parties responsible for taking corrective actions.
The issues described above resulted in the following errors in our financial statements previously filed with the SEC:

| • | Inventory was not stated on a FIFO basis nor was it stated at the lower of FIFO cost or net realizable value;

| • | Freight-in, warehousing and handling expenditures, factory labor and overhead and freight-out costs were not correctly capitalized;

| • | Warehousing and handling expenditures were incorrectly classified as operating expenses;

| • | Allowance for sales returns was incorrectly calculated and accounted for;

| • | Net gift card liability was not correctly accounted for in 2017;

| • | Lease asset and liability under ASC Topic 842 was incorrectly calculated;

| • | PTO related accrued liabilities were incorrectly calculated;

| • | Provision for income taxes, including adjustments related to the Tax Cuts and Jobs Act (the “Tax Act”), uncertain tax position (UTP) liability and related interest expense, and correction of taxable income on the return of our Canada and Spain foreign subsidiaries; Foreign currency gains and losses associated with the Company’s Canadian subsidiary were incorrectly classified as a component of accumulated other comprehensive loss and the cumulative translation adjustments included in accumulated other comprehensive loss were not tax effected; and

| • | Shares repurchased and subsequently cancelled were incorrectly accounted for as treasury stock.

Remediation Efforts to Address Material Weaknesses
Our management, including our CEO and CFO, has worked with expert accounting consultants and our Audit Committee to design and implement both a short-term and a long-term remediation plan to correct the material weaknesses in our disclosure controls and procedures and our internal control over financial reporting. The following activities highlight our commitment to remediating our identified material weaknesses:
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Since October 2019 and through the filing date of this Form 10-Q, we have taken the following measures, among others:

| i. | Hired a new, highly-qualified CFO in January 2021 with extensive public-company experience;

| ii. | Replaced critical roles within our accounting team with contract accounting resources and ultimately (ongoing) full-time employees with expertise in GAAP accounting, SEC reporting and disclosure, internal audit and internal controls;

| iii. | Replaced our legacy accounting systems with an integrated enterprise resource planning (“ERP”) solution which includes general ledger, warehouse management, factory production and point-of-sale modules designed to calculate inventory on a FIFO basis;

| iv. | Made improvements to our accounting close process, including a formalized accounting close checklist establishing accountability for oversight and review;

| v. | Documented process narratives in the following areas: (i) financial reporting, (ii) inventory, (iii) purchasing and accounts payable, (iv) revenue, (v) fixed assets and lease accounting, (vi) general accounting, treasury and financial planning & analysis, (vii) tax, (viii) information technology (IT) governance, and (ix) HR and payroll; and

| vi. | Created a risk controls matrix which includes, among other things, a comprehensive list of key and mitigating controls, a description of the risk the control is designed to mitigate, the individual responsible for each control, the frequency in which the control is performed, and a mapping of each control to the five COSO Framework components (control environment, risk assessment, control activities, information and communication, or monitoring activities).

Our continuing plan for remediation includes:

| i. | Ongoing recruitment and hiring of permanent, qualified public-company accounting personnel;

| ii. | Point-of-sale systems implementation that will be fully integrated with our new ERP system;

| iii. | Redesigning our accounting procedures and activities to align with our new ERP system that will include built-in controls to improve upon the reliability of financial reporting and the preparation of financial statements in accordance with GAAP;

| iv. | Reporting the progress and results of our remediation plan to the Audit Committee on a recurring basis, including the identification, status, and resolution of internal control deficiencies; and

| v. | Creating a comprehensive approach to regularly evaluate the operating effectiveness of our disclosure controls and procedures and our internal control over financial reporting using the COSO Framework as a guide.

Control Environment
Our management, including our CEO and CFO, our Audit Committee and our Board of Directors have taken certain steps to set the proper tone-at-the-top in support of the Company’s values and climate to develop and maintain an effective internal control environment. These actions include:

| ◾ | Recurring meetings with leadership, finance and accounting and other key functional areas to train staff on processes for oversight and emphasize each individual’s accountability for internal control compliance, and to create a pattern of regular discussion of such controls.

| ◾ | Periodic communications from the CEO, CFO and other key senior leaders on the Company’s mission, core values, Code of Business Conduct and Ethics, whistleblower policies, and each employee’s individual responsibility for internal control compliance.

| ◾ | Reorganization of the finance and accounting team to ensure appropriate segregation of duties, oversight and review of work, and recruiting and hiring qualified, competent employees with relevant experience for the roles.

| ◾ | Regular performance evaluations to include position-specific criteria for functional competence.

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Risk Oversight Measures
We continue to identify risks and enhance risk oversight measures. In late 2019, we developed an annual strategic planning process designed to identify specific operating objectives for the organization and to conduct an assessment across the organization of the risks to meeting those objectives, including the risk of fraud. Furthermore, on a quarterly basis, management will review our periodic filings to ensure that identified risks have been appropriately disclosed. In the areas of reporting and compliance objectives, we are also developing a process to conduct monthly business reviews by functional area that would include risk assessments of reporting accuracy based on complexity and transaction levels as well as compliance with GAAP and other regulatory requirements, in order to evaluate whether our existing control activities appropriately mitigate such risks or if additional controls need to be employed.
Control Activities
We continue to redesign and implement our internal control activities. Specifically, we conducted detailed working sessions to document our current and prior finance and accounting policies, procedures and step-by-step activities as a prerequisite to selecting a new systems vendor. These sessions identified specific areas that required short-term improvement and long-term redesign of processes, structure, authorities and controls, and those actions include:

| ◾ | New systems designed to calculate inventory at FIFO and create efficiency and accuracy through integration: we implemented the warehouse management, factory production system and general ledger systems modules as part of our new ERP system implementation which went live on September 1, 2020. We are still in the process of implementing our new point-of-sale system, which will be fully integrated with our ERP system and with a phased implementation across our fleet of stores throughout 2021.

| ◾ | Creation and implementation of newly-designed processes, structures, delegation of authority and controls, in accordance with the COSO Framework, including:

| o | The creation of a risk controls matrix;

| o | Driving a greater sense of accountability by requiring sub-certifications below the CEO and CFO level for certain key accounting, finance and operations personnel;

| o | Quarterly updates for the CFO regarding upcoming accounting pronouncement and proposed changes to GAAP accounting standards, tax regulations, and other requirements that may impact the Company’s financial reporting;

| o | Quarterly reviews of the most significant accounting estimates and judgements;

| o | Validation of results through detailed variance analyses and reconciliation of account balances;

| o | Monthly business review of actual financial performance compared to forecasts with participation from leadership across the organization; and

| o | Establishing a disclosure committee comprised of key management throughout the different areas of the organization to evaluate the appropriateness of disclosures in the Company’s periodic filings on Forms 10-K and 10-Q and to support the CEO and CFO with the certification process.

Information Processing and Communication
The implementation of our new ERP system is expected to eliminate the need for many of the topside adjustment calculations that had to be performed because our legacy systems were not integrated and many of our accounting processes were manual. This new ERP system allows us to automate certain accounting processes, reducing the risk of management override, and over time will eliminate the need for topside adjustments outside of the system. In addition, management is developing detailed policies, procedures and internal controls related to our financial reporting and working with our ERP vendor to develop regular reporting from our new systems that can validate the quality of our data and provide accurate information to support internal and external reporting and audit requirements.
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Monitoring Activities
In addition to the items noted above, as we continue to evaluate, remediate, and improve our internal control over financial reporting, our management expects to continue to implement additional measures to address control deficiencies and further refine and improve the remediation efforts described above. Specifically, we are developing a checklist of activities based on the criteria established in the COSO Framework against which we will assess the design of entity-level and activity-level controls, and the operational effectiveness of such controls. Deficiencies identified in this process will be addressed by management, including our CEO and CFO. This assessment, any deficiencies and any remedial actions will be shared and discussed with our Audit Committee and our independent auditors on a quarterly basis.
Cybersecurity
We utilize information technology for internal and external communications with vendors, customers and banks as well as systems technology for reporting and managing our operations. Loss, disruption or compromise of these systems could significantly impact operations and results. Other than temporary disruption to operations that may be caused by a cybersecurity breach, we believe cash transactions to be the primary risk for potential loss. We work with our financial institutions to take steps to minimize the risk by requiring multiple levels of authorization, encryption and other controls. The Company utilizes third party intrusion prevention and detection systems and performs periodic penetration testing to monitor its cybersecurity environment. However, the Company has not performed a formalized risk assessment to address cybersecurity risks or documented internal controls that assist in alleviating such risks.
Changes in Internal Control Over Financial Reporting
As discussed in the remediation section above, we implemented the warehouse management, factory production system and general ledger systems modules as part of our new ERP system implementation which had a go-live date of September 1, 2020. We are still in the process of implementing our new point-of-sale system, with a phased implementation throughout 2021. Also, during January 2021, we hired a new highly-qualified CFO with public company experience. Although we had not fully remediated the material weaknesses in our internal control over financial reporting as of June 30, 2021, as the phased implementation of this system continues, we are experiencing certain changes to our processes and procedures which, in turn, result in changes to our internal control over financial reporting. While we expect our new ERP system to strengthen our internal financial controls by automating certain manual processes and standardizing business processes and reporting across our organization, management will continue to evaluate and monitor our internal controls as each of the affected areas evolves.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The information contained in Note 6, Commitments and Contingencies to the Consolidated Financial Statements included in Part I, Item 1 of this Report is hereby incorporated into this Item 1 by reference.
Item 1A. Risk Factors.
Our Risk Factors are discussed fully in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and incorporated herein by reference.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table provides information about purchases we have made of our common stock during the quarter ended June 30, 2021:

ISSUER PURCHASES OF EQUITY SECURITIES |
Period (2) |  | (a) Total number of shares purchased (3) |  |  | (b) Average price paid per share |  |  | (c) Total number of shares purchased as part of publicly announced plans or programs (2) |  |  | (d) Maximum value of shares that may yet be purchased under the plans or programs (1) |
April 1 – April 30, 2021 |  |  | — |  |  |  | — |  |  |  | — |  |  | $ | 5,000,000 |
May 1 – May 31, 2021 |  |  | 2,965 |  |  | $ | 5.08 |  |  |  | — |  |  |  | 5,000,000 |
June 1 – June 30, 2021 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 5,000,000 |
Total |  |  | 2,965 |  |  | $ | 5.08 |  |  |  | — |  |  |  |  |

| (1) | Represents shares which may be purchased through our stock repurchase program, adopted by the Company’s Board of Directors on August 9, 2020, which established a new stock repurchase program allowing the Company to repurchase up to $5 million value of shares of our common stock on or prior to July 31, 2022.

| (2) | The Company suspended repurchasing any shares under its program beginning in July 2019, because of the lack of publicly-available financial information of the Company during this period. Management expects to resume the Company’s repurchase program (as conditions allow) once the Company has filed all outstanding periodic reports with the SEC.

| (3) | Consists of shares that were withheld by us to satisfy tax withholding obligations of employees that arose upon the vesting of restricted shares. The value of such shares is based on the closing price of our common shares on the vesting date.

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Item 6. Exhibits.

Exhibit Number | Description |
3.1 | Certificate of Incorporation of The Leather Factory, Inc., and Certificate of Amendment to Certificate of Incorporation of The Leather Factory, Inc. filed as Exhibit 3.1 to Tandy Leather Factory, Inc.’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 12, 2005 and incorporated by reference herein. |
3.2 | Bylaws of The Leather Factory, Inc. (n/k/a Tandy Leather Factory, Inc.), filed as Exhibit 3.5 to the Current Report on Form 8-K (Commission File No. 001-12368) filed by Tandy Leather Factory, Inc (f/k/a The Leather Factory, Inc.) with the Securities and Exchange Commission on July 14, 2004 and incorporated by reference herein. |
3.3 | Certificate of Designations of Series A Junior Participating Preferred Stock of Tandy Leather Factory, Inc. filed as Exhibit 3.1 to Tandy Leather Factory’s Inc.’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 10, 2013 and incorporated by reference herein. |
4.1 | Description of Securities filed as Exhibit 4.1 to Tandy Leather Factory, Inc.’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on June 22, 2021 and incorporated by reference herein. |
10.1 | Tandy Leather Factory, Inc. 2013 Restricted Stock Plan, filed as Exhibit 10.1 to Tandy Leather Factory’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 14, 2013 and incorporated by reference herein. |
10.2 | Amendment #1 to Tandy Leather Factory, Inc. 2013 Restricted Stock Plan filed as Exhibit 10.5 to Tandy Leather Factory, Inc.’s Quarterly Report on Form 10-Q filed with the Securities and Exchange on June 22, 2021 and incorporated by reference herein. |
10.3 | Form of Non-Employee Director Restricted Stock Agreement under Tandy Leather Factory, Inc.’s 2013 Restricted Stock Plan, filed as Exhibit 10.1 to Tandy Leather Factory, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 14, 2014 and incorporated by reference herein. |
10.4 | Form of Employee Restricted Stock Award Agreement under Tandy Leather Factory, Inc.’s 2013 Restricted Stock Plan, filed as Exhibit 10.7 to Tandy Leather Factory, Inc.’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on June 22, 2021 and incorporated by reference herein. |
10.5 | Form of Employment Agreement dated October 2, 2018 between the Company and Janet Carr, filed as Exhibit 10.1 to Tandy Leather Factory Inc.’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 5, 2018 and incorporated by reference herein. |
10.6 | Form of Stand-Alone Restricted Stock Unit Agreement dated October 2, 2018 between the Company and Janet Carr, filed as Exhibit 10.2 to Tandy Leather Factor’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 5, 2018 and incorporated by reference herein. |
10.7 | Form of Stand-Alone Restricted Stock Unit Agreement dated October 2, 2018 between the Company and Janet Carr, filed as Exhibit 10.3 to Tandy Leather Factor’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 5, 2018 and incorporated by reference herein. |
10.8 | Form of Stock Purchase Agreement dated January 28, 2021 between the Company and Central Square Management, filed as Exhibit 10.14 to Tandy Leather Factory, Inc.’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on June 22, 2021 and incorporated by reference herein.
14.1 | Code of Business Conduct and Ethics of Tandy Leather Factory, Inc., adopted by the Board of Directors in May, 2021, filed as Exhibit 14.1 to Tandy Leather Factory, Inc.’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on June 22, 2021 and incorporated by reference herein.
21.1 | Subsidiaries of Tandy Leather Factory, Inc., filed as Exhibit 21.1 to Tandy Leather Factory, Inc.’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on June 22, 2021 and incorporated by reference herein.
*31.1 | 13a-14(a) or 15d-14(a) Certification by Janet Carr, Chief Executive Officer. |
*31.2 | 13a-14(a) or 15d-14(a) Certification by Michael Galvan, Chief Financial Officer. |
*32.1 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
*101.INS | XBRL Instance Document. |
*101.SCH | XBRL Taxonomy Extension Schema Document. |
*101.CAL | XBRL Taxonomy Extension Calculation Document. |
*101.DEF | XBRL Taxonomy Extension Definition Document. |
*101.LAB | XBRL Taxonomy Extension Labels Document. |
*101.PRE | XBRL Taxonomy Extension Presentation Document. |

*Filed herewith.
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Table of Contents
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.

| TANDY LEATHER FACTORY, INC.
| (Registrant)
Date: December 3, 2021 | By: /s/ Janet Carr
| Janet Carr
| Chief Executive Officer
Date: December 3, 2021 | By: /s/ Michael Galvan
| Michael Galvan
| Chief Financial Officer

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