Tandy Leather Factory, Inc.
Consolidated Balance Sheet
Unaudited
|
|
September 30, 2018
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
As Restated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
16,814,972
|
|
|
$
|
-
|
|
|
|
|
$
|
16,814,972
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable-trade, net of allowance for doubtful accounts of $9,839
|
|
|
418,612
|
|
|
|
-
|
|
|
|
|
|
|
418,612
|
|
Inventory
|
|
|
40,720,630
|
|
|
|
(2,308,873
|
)
|
|
|
(1)(2)(3)(4)
|
|
|
38,411,757
|
|
Prepaid income taxes
|
|
|
452,389
|
|
|
|
(386,595
|
)
|
|
|
(6)
|
|
|
65,794
|
|
Prepaid expenses
|
|
|
1,348,113
|
|
|
|
64,393
|
|
|
|
(7)
|
|
|
1,412,506
|
|
Other current assets
|
|
|
290,028
|
|
|
|
93,308
|
|
|
|
(7)
|
|
|
383,336
|
|
Total current assets
|
|
|
60,044,744
|
|
|
|
(2,537,767
|
)
|
|
|
|
|
|
57,506,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, at cost
|
|
|
27,950,353
|
|
|
|
33,314
|
|
|
|
(7)
|
|
|
27,983,667
|
|
Less accumulated depreciation
|
|
|
(12,976,025
|
)
|
|
|
(17,940
|
)
|
|
|
(7)
|
|
|
(12,993,965
|
)
|
Property and equipment, net
|
|
|
14,974,328
|
|
|
|
15,374
|
|
|
|
|
|
|
14,989,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
281,721
|
|
|
|
1,139,475
|
|
|
|
(6)
|
|
|
1,421,196
|
|
Goodwill
|
|
|
960,304
|
|
|
|
-
|
|
|
|
|
|
|
960,304
|
|
Other intangibles, net of accumulated amortization of $712,000
|
|
|
17,166
|
|
|
|
-
|
|
|
|
|
|
|
17,166
|
|
Other assets
|
|
|
387,487
|
|
|
|
-
|
|
|
|
|
|
|
387,487
|
|
Other assets
|
|
$
|
76,665,750
|
|
|
$
|
(1,382,918
|
)
|
|
|
|
|
$
|
75,282,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable-trade
|
|
$
|
3,718,393
|
|
|
|
-
|
|
|
|
|
|
$
|
3,718,393
|
|
Accrued expenses and other liabilities
|
|
|
2,235,793
|
|
|
|
1,174,004
|
|
|
|
(4)(7)
|
|
|
3,409,797
|
|
Current maturities of long-term debt
|
|
|
174,056
|
|
|
|
-
|
|
|
|
|
|
|
174,056
|
|
Total current liabilities
|
|
|
6,128,242
|
|
|
|
1,174,004
|
|
|
|
|
|
|
7,302,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uncertain tax positions
|
|
|
-
|
|
|
|
1,197,078
|
|
|
|
(6)
|
|
|
1,197,078
|
|
Deferred income taxes
|
|
|
1,467,481
|
|
|
|
(1,467,481
|
)
|
|
|
(6)(9)
|
|
|
-
|
|
Other non-current liabilities
|
|
|
-
|
|
|
|
598,188
|
|
|
|
(6)
|
|
|
598,188
|
|
Long-term debt, net of current maturities
|
|
|
8,180,613
|
|
|
|
-
|
|
|
|
|
|
|
8,180,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Note 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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; 10,336,717 shares issued
|
|
|
27,193
|
|
|
|
(2,385
|
)
|
|
|
(10)
|
|
|
24,808
|
|
Paid-in capital
|
|
|
6,907,678
|
|
|
|
(2,891,682
|
)
|
|
|
(10)
|
|
|
4,015,996
|
|
Retained earnings
|
|
|
66,345,110
|
|
|
|
(2,983,997
|
)
|
|
|
(1)(2)(3)(4)(6)(7)(9)
|
|
|
63,361,113
|
|
Treasury stock at cost (1,182,509 shares)
|
|
|
(11,273,822
|
)
|
|
|
2,894,067
|
|
|
|
(10)
|
|
|
(8,379,755
|
)
|
Accumulated other comprehensive loss (net of tax)
|
|
|
(1,116,745
|
)
|
|
|
99,290
|
|
|
|
(9)
|
|
|
(1,017,455
|
)
|
Total stockholders’ equity
|
|
|
60,889,414
|
|
|
|
(2,884,707
|
)
|
|
|
|
|
|
58,004,707
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
76,665,750
|
|
|
$
|
(1,382,918
|
)
|
|
|
|
|
$
|
75,282,832
|
|
Tandy Leather Factory, Inc.
Consolidated Statement of Comprehensive Income (Loss)
Unaudited
|
|
Three Months Ended September 30, 2018
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
18,887,099
|
|
|
$
|
(8,836
|
)
|
|
|
(4)
|
|
|
18,878,263
|
|
Cost of sales
|
|
|
7,040,266
|
|
|
|
(57,886
|
)
|
|
|
(1)(2)(3)(4)(5)
|
|
|
6,982,380
|
|
Gross profit
|
|
|
11,846,833
|
|
|
|
49,050
|
|
|
|
|
|
|
11,895,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
11,531,389
|
|
|
|
(535,400
|
)
|
|
|
(5)(7)
|
|
|
10,995,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
315,444
|
|
|
|
584,450
|
|
|
|
|
|
|
899,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
80,710
|
|
|
|
-
|
|
|
|
|
|
|
80,710
|
|
Other, net
|
|
|
(40,846
|
)
|
|
|
-
|
|
|
|
|
|
|
(40,846
|
)
|
Total other expense
|
|
|
39,864
|
|
|
|
-
|
|
|
|
|
|
|
39,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
275,580
|
|
|
|
584,450
|
|
|
|
|
|
|
860,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
|
|
397,114
|
|
|
|
(145,785
|
)
|
|
|
(6)
|
|
|
251,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(121,534
|
)
|
|
$
|
730,235
|
|
|
|
|
|
$
|
608,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax
|
|
|
118,165
|
|
|
|
(29,541
|
)
|
|
|
(9)
|
|
|
88,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
(3,369
|
)
|
|
$
|
700,694
|
|
|
|
|
|
$
|
697,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.01
|
)
|
|
$
|
0.08
|
|
|
|
|
|
$
|
0.07
|
|
Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
0.08
|
|
|
|
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
9,154,209
|
|
|
|
9,154,215
|
|
|
|
|
|
|
9,154,215
|
|
Diluted
|
|
|
9,155,031
|
|
|
|
9,160,022
|
|
|
|
|
|
|
9,160,022
|
|
Tandy Leather Factory, Inc.
Consolidated Statement of Comprehensive Income
Unaudited
|
|
Nine Months Ended September 30, 2018
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
58,353,784
|
|
|
$
|
212,279
|
|
|
|
(4)
|
|
$
|
58,566,063
|
|
Cost of sales
|
|
|
20,545,547
|
|
|
|
1,202,081
|
|
|
|
(1)(2)(3)(4)(5)(7)
|
|
|
21,747,628
|
|
Gross profit
|
|
|
37,808,237
|
|
|
|
(989,802
|
)
|
|
|
|
|
|
36,818,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
33,742,351
|
|
|
|
(1,460,053
|
)
|
|
|
(5)(7)
|
|
|
32,282,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
4,065,886
|
|
|
|
470,251
|
|
|
|
|
|
|
4,536,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
223,534
|
|
|
|
-
|
|
|
|
|
|
|
223,534
|
|
Other, net
|
|
|
(126,459
|
)
|
|
|
(199,607
|
)
|
|
|
(9)
|
|
|
(326,066
|
)
|
Total other (income) expense
|
|
|
97,075
|
|
|
|
(199,607
|
)
|
|
|
|
|
|
(102,532
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
3,968,811
|
|
|
|
669,858
|
|
|
|
|
|
|
4,638,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
|
|
1,376,634
|
|
|
|
(21,065
|
)
|
|
|
(6)
|
|
|
1,355,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,592,177
|
|
|
$
|
690,923
|
|
|
|
|
|
$
|
3,283,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax
|
|
|
(154,642
|
)
|
|
|
(100,500
|
)
|
|
|
(9)
|
|
|
(255,142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
2,437,535
|
|
|
$
|
590,423
|
|
|
|
|
|
$
|
3,027,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.28
|
|
|
$
|
0.08
|
|
|
|
|
|
$
|
0.36
|
|
Diluted
|
|
$
|
0.28
|
|
|
$
|
0.08
|
|
|
|
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
9,199,173
|
|
|
|
9,199,173
|
|
|
|
|
|
|
9,199,173
|
|
Diluted
|
|
|
9,199,959
|
|
|
|
9,201,577
|
|
|
|
|
|
|
9,201,577
|
|
Tandy Leather Factory, Inc.
Consolidated Statement of Cash Flows
Unaudited
|
|
For the Nine Months Ended September 30, 2018
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
As Restated
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,592,177
|
|
|
$
|
690,923
|
|
|
|
|
$
|
3,283,100
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,310,774
|
|
|
|
2,056
|
|
|
(7)
|
|
|
1,312,830
|
|
(Gain) loss on disposal of assets
|
|
|
4,556
|
|
|
|
-
|
|
|
|
|
|
4,556
|
|
Stock-based compensation
|
|
|
76,447
|
|
|
|
-
|
|
|
|
|
|
76,447
|
|
Deferred income taxes
|
|
|
(115,460
|
)
|
|
|
(174,831
|
)
|
|
|
(6)(9)
|
|
|
(290,291
|
)
|
Exchange (gain) loss
|
|
|
(93,163
|
)
|
|
|
(43,735
|
)
|
|
|
(9)
|
|
|
(136,898
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable-trade
|
|
|
42,600
|
|
|
|
(53,500
|
)
|
|
|
(7)
|
|
|
(10,900
|
)
|
Inventory
|
|
|
(3,409,433
|
)
|
|
|
(552,298
|
)
|
|
|
(1)(2)(4)
|
|
|
(3,961,731
|
)
|
Prepaid expenses
|
|
|
125,034
|
|
|
|
(90,533
|
)
|
|
|
(6)(7)
|
|
|
34,501
|
|
Other current assets
|
|
|
(111,688
|
)
|
|
|
111,688
|
|
|
|
(7)
|
|
|
-
|
|
Accounts payable-trade
|
|
|
28,525
|
|
|
|
1,374,694
|
|
|
|
(7)
|
|
|
1,403,219
|
|
Accrued expenses and other liabilities
|
|
|
(609,577
|
)
|
|
|
(1,043,249
|
)
|
|
|
(4)(7)
|
|
|
(1,652,826
|
)
|
Income taxes
|
|
|
(475,082
|
)
|
|
|
56,112
|
|
|
|
(6)
|
|
|
(418,970
|
)
|
Other assets
|
|
|
(5,736
|
)
|
|
|
358,049
|
|
|
|
(7)
|
|
|
352,313
|
|
Total adjustments
|
|
|
(3,232,203
|
)
|
|
|
(55,547
|
)
|
|
|
|
|
|
(3,287,750
|
)
|
Net cash provided (used) by operating activities
|
|
|
(640,026
|
)
|
|
|
635,376
|
|
|
|
|
|
|
(4,650
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(887,679
|
)
|
|
|
-
|
|
|
|
|
|
|
(887,679
|
)
|
Proceeds from sales of assets
|
|
|
17,718
|
|
|
|
-
|
|
|
|
|
|
|
17,718
|
|
Net cash used in investing activities
|
|
|
(869,961
|
)
|
|
|
-
|
|
|
|
|
|
|
(869,961
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
|
982,939
|
|
|
|
-
|
|
|
|
|
|
|
982,939
|
|
Repurchase of treasury stock
|
|
|
(995,238
|
)
|
|
|
-
|
|
|
|
|
|
|
(995,238
|
)
|
Net cash used in financing activities
|
|
|
(12,299
|
)
|
|
|
-
|
|
|
|
|
|
|
(12,299
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
-
|
|
|
|
(380,975
|
)
|
|
|
(9)
|
|
|
(380,975
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(1,522,286
|
)
|
|
|
254,401
|
|
|
|
|
|
|
(1,267,885
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
18,337,258
|
|
|
|
(254,401
|
)
|
|
|
|
|
|
18,082,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
16,814,972
|
|
|
$
|
-
|
|
|
|
|
|
$
|
16,814,972
|
|
Tandy Leather Factory, Inc.
Consolidated Balance Sheet
Unaudited
|
|
June 30, 2018
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
As Restated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
18,955,328
|
|
|
$
|
-
|
|
|
|
|
$
|
18,955,328
|
|
Accounts receivable-trade, net of allowance for doubtful accounts of $9,911
|
|
|
496,255
|
|
|
|
-
|
|
|
|
|
|
496,255
|
|
Inventory
|
|
|
38,020,269
|
|
|
|
(2,897,936
|
)
|
|
|
(1)(2)(3)(4)
|
|
|
35,122,333
|
|
Prepaid income taxes
|
|
|
233,002
|
|
|
|
(233,002
|
)
|
|
|
(6)
|
|
|
-
|
|
Prepaid expenses
|
|
|
1,374,944
|
|
|
|
64,393
|
|
|
|
(7)
|
|
|
1,439,337
|
|
Other current assets
|
|
|
75,459
|
|
|
|
87,557
|
|
|
|
(7)
|
|
|
163,016
|
|
Total current assets
|
|
|
59,155,257
|
|
|
|
(2,978,988
|
)
|
|
|
|
|
|
56,176,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, at cost
|
|
|
27,551,811
|
|
|
|
33,314
|
|
|
|
(7)
|
|
|
27,585,125
|
|
Less accumulated depreciation
|
|
|
(12,552,648
|
)
|
|
|
(16,886
|
)
|
|
|
(7)
|
|
|
(12,569,534
|
)
|
Property and equipment, net
|
|
|
14,999,163
|
|
|
|
16,428
|
|
|
|
|
|
|
15,015,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
269,512
|
|
|
|
1,016,036
|
|
|
|
(6)
|
|
|
1,285,548
|
|
Goodwill
|
|
|
958,464
|
|
|
|
-
|
|
|
|
|
|
|
958,464
|
|
Other intangibles, net of accumulated amortization of $712,000
|
|
|
18,083
|
|
|
|
-
|
|
|
|
|
|
|
18,083
|
|
Other assets
|
|
|
384,744
|
|
|
|
-
|
|
|
|
|
|
|
384,744
|
|
TOTAL ASSETS
|
|
$
|
75,785,223
|
|
|
|
(1,946,524
|
)
|
|
|
|
|
$
|
73,838,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable-trade
|
|
$
|
3,115,778
|
|
|
|
-
|
|
|
|
|
|
$
|
3,115,778
|
|
Accrued expenses and other liabilities
|
|
|
1,971,026
|
|
|
|
1,165,165
|
|
|
|
(4)(7)
|
|
|
3,136,191
|
|
Income taxes payable
|
|
|
-
|
|
|
|
153,593
|
|
|
|
(6)
|
|
|
153,593
|
|
Current maturities of long-term debt
|
|
|
1,740,556
|
|
|
|
-
|
|
|
|
|
|
|
1,740,556
|
|
Total current liabilities
|
|
|
6,827,360
|
|
|
|
1,318,758
|
|
|
|
|
|
|
8,146,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uncertain tax positions
|
|
|
-
|
|
|
|
1,197,078
|
|
|
|
(6)
|
|
|
1,197,078
|
|
Deferred income taxes
|
|
|
1,474,675
|
|
|
|
(1,474,675
|
)
|
|
|
(6)(9)
|
|
|
-
|
|
Other non-current liabilities
|
|
|
-
|
|
|
|
597,716
|
|
|
|
(6)
|
|
|
597,716
|
|
Long-term debt, net of current maturities
|
|
|
6,614,112
|
|
|
|
-
|
|
|
|
|
|
|
6,614,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Note 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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; 10,336,717 shares issued
|
|
|
27,193
|
|
|
|
(2,385
|
)
|
|
|
(10)
|
|
|
24,808
|
|
Paid-in capital
|
|
|
6,883,919
|
|
|
|
(2,891,682
|
)
|
|
|
(10)
|
|
|
3,992,237
|
|
Retained earnings
|
|
|
66,466,644
|
|
|
|
(3,714,232
|
)
|
|
|
(2)(3)(4)(6)(7)(9)
|
|
|
62,752,412
|
|
Treasury stock at cost (1,182,502 shares)
|
|
|
(11,273,770
|
)
|
|
|
2,894,067
|
|
|
|
(10)
|
|
|
(8,379,703
|
)
|
Accumulated other comprehensive loss
|
|
|
(1,234,910
|
)
|
|
|
128,831
|
|
|
|
(9)
|
|
|
(1,106,079
|
)
|
Total stockholders’ equity
|
|
|
60,869,076
|
|
|
|
(3,585,401
|
)
|
|
|
|
|
|
57,283,675
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
75,785,223
|
|
|
|
(1,946,524
|
)
|
|
|
|
|
$
|
73,838,699
|
|
Consolidated Statement of Comprehensive Income (Loss)
Unaudited
|
|
Three Months Ended June 30, 2018
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
19,177,767
|
|
|
$
|
9,455
|
|
|
|
(4)
|
|
$
|
19,187,222
|
|
Cost of sales
|
|
|
6,059,325
|
|
|
|
894,405
|
|
|
|
(1)(2)(3)(4)(5)
|
|
|
6,953,730
|
|
Gross profit (loss)
|
|
|
13,118,442
|
|
|
|
(884,950
|
)
|
|
|
|
|
|
12,233,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
11,136,961
|
|
|
|
(485,575
|
)
|
|
|
(5)(7)
|
|
|
10,651,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
1,981,481
|
|
|
|
(399,375
|
)
|
|
|
|
|
|
1,582,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
78,182
|
|
|
|
-
|
|
|
|
|
|
|
78,182
|
|
Other, net
|
|
|
(46,741
|
)
|
|
|
(85,101
|
)
|
|
|
(9)
|
|
|
(131,842
|
)
|
Total other (income) expense
|
|
|
31,441
|
|
|
|
(85,101
|
)
|
|
|
|
|
|
(53,660
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
1,950,040
|
|
|
|
(314,274
|
)
|
|
|
|
|
|
1,635,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
|
|
509,948
|
|
|
|
(31,925
|
)
|
|
|
(6)
|
|
|
478,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,440,092
|
|
|
$
|
(282,349
|
)
|
|
|
|
|
$
|
1,157,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax
|
|
|
(294,598
|
)
|
|
|
9,824
|
|
|
|
(9)
|
|
|
(284,774
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
1,145,494
|
|
|
$
|
(272,525
|
)
|
|
|
|
|
$
|
872,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.15
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
$
|
0.13
|
|
Diluted
|
|
$
|
0.15
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
9,180,076
|
|
|
|
9,180,076
|
|
|
|
|
|
|
9,180,076
|
|
Diluted
|
|
|
9,180,727
|
|
|
|
9,182,527
|
|
|
|
|
|
|
9,182,527
|
|
Tandy Leather Factory, Inc.
Consolidated Statement of Comprehensive Income (Loss)
Unaudited
|
|
Six Months Ended June 30, 2018
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
39,466,685
|
|
|
$
|
221,115
|
|
|
|
(4)
|
|
$
|
39,687,800
|
|
Cost of sales
|
|
|
13,505,281
|
|
|
|
1,259,967
|
|
|
|
(1)(2)(3)(4)(5)(7)
|
|
|
14,765,248
|
|
Gross profit (loss)
|
|
|
25,961,404
|
|
|
|
(1,038,852
|
)
|
|
|
|
|
|
24,922,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
22,210,962
|
|
|
|
(924,653
|
)
|
|
|
(5)(7)
|
|
|
21,286,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
3,750,442
|
|
|
|
(114,199
|
)
|
|
|
|
|
|
3,636,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
142,824
|
|
|
|
-
|
|
|
|
|
|
|
142,824
|
|
Other, net
|
|
|
(85,613
|
)
|
|
|
(199,607
|
)
|
|
|
(9)
|
|
|
(285,220
|
)
|
Total other (income) expense
|
|
|
57,211
|
|
|
|
(199,607
|
)
|
|
|
|
|
|
(142,396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
3,693,231
|
|
|
|
85,408
|
|
|
|
|
|
|
3,778,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
|
|
979,520
|
|
|
|
124,720
|
|
|
|
(6)
|
|
|
1,104,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
2,713,711
|
|
|
$
|
(39,312
|
)
|
|
|
|
|
$
|
2,674,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax
|
|
|
(272,807
|
)
|
|
|
(70,959
|
)
|
|
|
(9)
|
|
|
(343,766
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
2,440,904
|
|
|
$
|
(110,271
|
)
|
|
|
|
|
$
|
2,330,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.29
|
|
|
$
|
0.01
|
|
|
|
|
|
$
|
0.29
|
|
Diluted
|
|
$
|
0.29
|
|
|
$
|
0.01
|
|
|
|
|
|
$
|
0.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
9,222,028
|
|
|
|
9,222,028
|
|
|
|
|
|
|
9,222,028
|
|
Diluted
|
|
|
9,222,533
|
|
|
|
9,223,086
|
|
|
|
|
|
|
9,223,086
|
|
Tandy Leather Factory, Inc.
Consolidated Statement of Cash Flows
Unaudited
|
|
Six Months Ended June 30, 2018
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
As Restated
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
2,713,711
|
|
|
$
|
(39,312
|
)
|
|
|
|
$
|
2,674,399
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
878,955
|
|
|
|
1,139
|
|
|
|
(7)
|
|
|
880,094
|
|
(Gain) loss on disposal of assets
|
|
|
4,556
|
|
|
|
-
|
|
|
|
|
|
|
4,556
|
|
Stock-based compensation
|
|
|
52,688
|
|
|
|
-
|
|
|
|
|
|
|
52,688
|
|
Deferred income taxes
|
|
|
(96,057
|
)
|
|
|
(58,586
|
)
|
|
|
(6)(9)
|
|
|
(154,643
|
)
|
Exchange (gain) loss
|
|
|
(268,321
|
)
|
|
|
52,455
|
|
|
|
(9)
|
|
|
(215,866
|
)
|
Changes in operating assets and liablities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable-trade
|
|
|
(35,043
|
)
|
|
|
12,509
|
|
|
|
(7)
|
|
|
(22,534
|
)
|
Inventory
|
|
|
(709,072
|
)
|
|
|
20,638
|
|
|
|
(1)(2)(4)
|
|
|
(688,434
|
)
|
Prepaid expenses
|
|
|
98,203
|
|
|
|
67,654
|
|
|
|
(6)(7)
|
|
|
165,857
|
|
Other current assets
|
|
|
113,570
|
|
|
|
(113,570
|
)
|
|
|
(7)
|
|
|
-
|
|
Accounts payable-trade
|
|
|
(189,928
|
)
|
|
|
911,645
|
|
|
|
(7)
|
|
|
721,717
|
|
Accrued expenses and other liabilities
|
|
|
(1,258,506
|
)
|
|
|
(662,391
|
)
|
|
|
(4)(7)
|
|
|
(1,920,897
|
)
|
Income taxes
|
|
|
(255,695
|
)
|
|
|
53,044
|
|
|
|
(6)
|
|
|
(202,651
|
)
|
Other assets
|
|
|
(3,910
|
)
|
|
|
426,212
|
|
|
|
(7)
|
|
|
422,302
|
|
Total adjustments
|
|
|
(1,668,560
|
)
|
|
|
710,749
|
|
|
|
|
|
|
(957,811
|
)
|
Net cash provided by operating activities
|
|
|
1,045,151
|
|
|
|
671,437
|
|
|
|
|
|
|
1,716,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(421,861
|
)
|
|
|
-
|
|
|
|
|
|
|
(421,861
|
)
|
Proceeds from sales of assets
|
|
|
7,028
|
|
|
|
-
|
|
|
|
|
|
|
7,028
|
|
Net cash used in investing activities
|
|
|
(414,833
|
)
|
|
|
-
|
|
|
|
|
|
|
(414,833
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
|
982,938
|
|
|
|
-
|
|
|
|
|
|
|
982,938
|
|
Repurchase of treasury stock
|
|
|
(995,186
|
)
|
|
|
-
|
|
|
|
|
|
|
(995,186
|
)
|
Net cash used in financing activities
|
|
|
(12,248
|
)
|
|
|
-
|
|
|
|
|
|
|
(12,248
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
-
|
|
|
|
(417,036
|
)
|
|
|
(9)
|
|
|
(417,036
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
618,070
|
|
|
|
254,401
|
|
|
|
|
|
|
872,471
|
|
Cash and cash equivalents, beginning of period
|
|
|
18,337,258
|
|
|
|
(254,401
|
)
|
|
|
|
|
|
18,082,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
18,955,328
|
|
|
$
|
-
|
|
|
|
|
|
$
|
18,955,328
|
|
Tandy Leather Factory, Inc.
Consolidated Balance Sheet
(Unaudited)
|
|
March 31, 2018
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
As Restated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
19,252,878
|
|
|
$
|
-
|
|
|
|
|
$
|
19,252,878
|
|
Accounts receivable-trade, net of allowance for doubtful accounts of $16,075
|
|
|
503,322
|
|
|
|
-
|
|
|
|
|
|
503,322
|
|
Inventory
|
|
|
36,771,860
|
|
|
|
(2,494,226
|
)
|
|
|
(1)(2)(3)(4)
|
|
|
34,277,634
|
|
Prepaid expenses
|
|
|
1,576,205
|
|
|
|
64,393
|
|
|
|
(7)
|
|
|
1,640,598
|
|
Other current assets
|
|
|
78,412
|
|
|
|
91,150
|
|
|
|
(7)
|
|
|
169,562
|
|
Total current assets
|
|
|
58,182,677
|
|
|
|
(2,338,683
|
)
|
|
|
|
|
|
55,843,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, at cost
|
|
|
27,403,608
|
|
|
|
33,314
|
|
|
|
(7)
|
|
|
27,436,922
|
|
Less accumulated depreciation
|
|
|
(12,162,066
|
)
|
|
|
(15,831
|
)
|
|
|
(7)
|
|
|
(12,177,897
|
)
|
Property and equipment, net
|
|
|
15,241,542
|
|
|
|
17,483
|
|
|
|
|
|
|
15,259,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
265,456
|
|
|
|
782,684
|
|
|
|
(6)
|
|
|
1,048,140
|
|
Goodwill
|
|
|
960,353
|
|
|
|
-
|
|
|
|
|
|
|
960,353
|
|
Other intangibles, net of accumulated amortization of $711,000
|
|
|
18,667
|
|
|
|
-
|
|
|
|
|
|
|
18,667
|
|
Other assets
|
|
|
379,292
|
|
|
|
-
|
|
|
|
|
|
|
379,292
|
|
TOTAL ASSETS
|
|
$
|
75,047,987
|
|
|
$
|
(1,538,516
|
)
|
|
|
|
|
$
|
73,509,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable-trade
|
|
$
|
2,922,764
|
|
|
$
|
-
|
|
|
|
|
|
$
|
2,922,764
|
|
Accrued expenses and other liabilities
|
|
|
2,372,090
|
|
|
|
1,174,621
|
|
|
|
(4)(7)
|
|
|
3,546,711
|
|
Income taxes payable
|
|
|
105,176
|
|
|
|
386,595
|
|
|
|
(6)
|
|
|
491,771
|
|
Current maturities of long-term debt
|
|
|
1,153,931
|
|
|
|
-
|
|
|
|
|
|
|
1,153,931
|
|
Total current liabilities
|
|
|
6,553,961
|
|
|
|
1,561,216
|
|
|
|
|
|
|
8,115,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uncertain tax position
|
|
|
-
|
|
|
|
1,197,078
|
|
|
|
(6)
|
|
|
1,197,078
|
|
Deferred income taxes
|
|
|
1,581,178
|
|
|
|
(1,581,178
|
)
|
|
|
(6)(9)
|
|
|
-
|
|
Other non-current liabilities
|
|
|
-
|
|
|
|
597,243
|
|
|
|
(6)
|
|
|
597,243
|
|
Long-term debt, net of current maturities
|
|
|
6,758,739
|
|
|
|
-
|
|
|
|
|
|
|
6,758,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Note 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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; 10,336,717 shares issued
|
|
|
27,193
|
|
|
|
(2,385
|
)
|
|
|
(10)
|
|
|
24,808
|
|
Paid-in capital
|
|
|
6,860,200
|
|
|
|
(2,891,682
|
)
|
|
|
(10)
|
|
|
3,968,518
|
|
Retained earnings
|
|
|
65,026,552
|
|
|
|
(3,431,882
|
)
|
|
|
(1)(2)(3)(4)(6)(7)(9)
|
|
|
61,594,670
|
|
Treasury stock at cost (1,121,607 shares)
|
|
|
(10,819,524
|
)
|
|
|
2,894,067
|
|
|
|
(10)
|
|
|
(7,925,457
|
)
|
Accumulated other comprehensive loss (net of tax of $240,045)
|
|
|
(940,312
|
)
|
|
|
119,007
|
|
|
|
(9)
|
|
|
(821,305
|
)
|
Total stockholders’ equity
|
|
|
60,154,109
|
|
|
|
(3,312,875
|
)
|
|
|
|
|
|
56,841,234
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
75,047,987
|
|
|
$
|
(1,538,516
|
)
|
|
|
|
|
$
|
73,509,471
|
|
Tandy Leather Factory, Inc.
Consolidated Statement of Comprehensive Income
(Unaudited)
|
|
For the Three Months Ended March 31, 2018
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
20,288,918
|
|
|
$
|
211,660
|
|
|
|
(4)
|
|
$
|
20,500,578
|
|
Cost of sales
|
|
|
7,445,956
|
|
|
|
365,562
|
|
|
|
(1)(2)(3)(4)(5)(7)
|
|
|
7,811,518
|
|
Gross profit
|
|
|
12,842,962
|
|
|
|
(153,902
|
)
|
|
|
|
|
|
12,689,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
11,074,001
|
|
|
|
(439,078
|
)
|
|
|
(5)(7)
|
|
|
10,634,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
1,768,961
|
|
|
|
285,176
|
|
|
|
|
|
|
2,054,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
64,642
|
|
|
|
-
|
|
|
|
|
|
|
64,642
|
|
Other, net
|
|
|
(38,872
|
)
|
|
|
(114,506
|
)
|
|
|
(9)
|
|
|
(153,378
|
)
|
Total other (income) expense
|
|
|
25,770
|
|
|
|
(114,506
|
)
|
|
|
|
|
|
(88,736
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,743,191
|
|
|
|
399,682
|
|
|
|
|
|
|
2,142,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
469,572
|
|
|
|
156,645
|
|
|
|
(6)
|
|
|
626,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,273,619
|
|
|
$
|
243,037
|
|
|
|
|
|
$
|
1,516,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax
|
|
|
21,791
|
|
|
|
(80,783
|
)
|
|
|
(9)
|
|
|
(58,992
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
1,295,410
|
|
|
$
|
162,254
|
|
|
|
|
|
$
|
1,457,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.14
|
|
|
$
|
0.03
|
|
|
|
|
|
$
|
0.16
|
|
Diluted
|
|
$
|
0.14
|
|
|
$
|
0.03
|
|
|
|
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
9,264,446
|
|
|
|
9,264,446
|
|
|
|
|
|
|
9,264,446
|
|
Diluted
|
|
|
9,264,811
|
|
|
|
9,264,604
|
|
|
|
|
|
|
9,264,604
|
|
Tandy Leather Factory, Inc.
Consolidated Statement of Cash Flows
(Unaudited)
|
|
For the Three Months Ended March 31, 2018
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,273,619
|
|
|
$
|
243,037
|
|
|
|
|
|
$
|
1,516,656
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
465,522
|
|
|
|
1,111
|
|
|
|
(7)
|
|
|
|
466,633
|
|
Loss on disposal of assets
|
|
|
798
|
|
|
|
1,131
|
|
|
|
(7)
|
|
|
|
1,929
|
|
Stock-based compensation
|
|
|
28,969
|
|
|
|
-
|
|
|
|
|
|
|
|
28,969
|
|
Deferred income taxes
|
|
|
(49,498
|
)
|
|
|
132,263
|
|
|
|
(6)
|
|
|
|
82,765
|
|
Exchange (gain) loss
|
|
|
2,994
|
|
|
|
(124,717
|
)
|
|
|
(9)
|
|
|
|
(121,723
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable - trade
|
|
|
(42,110
|
)
|
|
|
(256,048
|
)
|
|
|
(4)(7)
|
|
|
|
(298,158
|
)
|
Inventory
|
|
|
539,337
|
|
|
|
(17,812
|
)
|
|
|
(1)(2)(3)(4)(6)
|
|
|
|
521,525
|
|
Prepaid expenses
|
|
|
(103,058
|
)
|
|
|
1,723,149
|
|
|
|
(7)
|
|
|
|
1,620,091
|
|
Other current assets
|
|
|
110,617
|
|
|
|
(1,307,715
|
)
|
|
|
(7)
|
|
|
|
(1,197,098
|
)
|
Accounts payable - trade
|
|
|
6,055
|
|
|
|
(1,018,467
|
)
|
|
|
(7)
|
|
|
|
(1,012,412
|
)
|
Accrued expenses and other liabilities
|
|
|
(1,246,439
|
)
|
|
|
714,239
|
|
|
|
(4)(7)
|
|
|
|
(532,200
|
)
|
Income taxes
|
|
|
146,483
|
|
|
|
(9,979
|
)
|
|
|
(6)
|
|
|
|
136,504
|
|
Other assets
|
|
|
957
|
|
|
|
76,218
|
|
|
|
(7)
|
|
|
|
77,175
|
|
Total adjustments
|
|
|
(139,373
|
)
|
|
|
(86,627
|
)
|
|
|
|
|
|
|
(226,000
|
)
|
Net cash provided by operating activities
|
|
|
1,134,246
|
|
|
|
156,410
|
|
|
|
|
|
|
|
1,290,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(240,020
|
)
|
|
|
222,399
|
|
|
|
(7)
|
|
|
|
(17,621
|
)
|
Net cash used in (provided by) investing activities
|
|
|
(240,020
|
)
|
|
|
222,399
|
|
|
|
|
|
|
|
(17,621
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
|
540,940
|
|
|
|
-
|
|
|
|
|
|
|
|
540,940
|
|
Repurchase of treasury stock
|
|
|
(540,940
|
)
|
|
|
-
|
|
|
|
|
|
|
|
(540,940
|
)
|
Net cash used in financing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
21,394
|
|
|
|
(124,408
|
)
|
|
|
(9)
|
|
|
|
(103,014
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
915,620
|
|
|
|
254,401
|
|
|
|
|
|
|
|
1,170,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
18,337,258
|
|
|
|
(254,401
|
)
|
|
|
|
|
|
|
18,082,857
|
|
Cash and cash equivalents, end of period
|
|
$
|
19,252,878
|
|
|
$
|
-
|
|
|
|
|
|
|
$
|
19,252,878
|
|
3.
|
SIGNIFICANT ACCOUNTING POLICIES
|
Management estimates and reporting
The preparation of the Company’s Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States (“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. The policies discussed below require estimates that contain a significant degree of judgement. The use of estimates is pervasive throughout the Consolidated Financial Statements, but
the accounting policies and estimates considered most significant are as follows.
Principles of consolidation
Our Consolidated Financial Statements include the accounts of Tandy Leather Factory, Inc. and its active wholly-owned subsidiaries, The Leather Factory, L.P. (a Texas limited partnership), Tandy Leather Company,
L.P. (a Texas limited partnership), The Leather Factory of Canada, Ltd. (a Canadian corporation), Tandy Leather Factory UK Limited (a UK corporation), Tandy Leather Factory Australia Pty. Limited (an Australian corporation), and Tandy Leather
Factory España, S.L. (a Spanish corporation). All intercompany accounts and transactions have been eliminated in consolidation.
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, net of tax charge of $0.1 million in 2019, tax benefit of $0.2 million in
2018 and tax charge of $0.5 million in 2017.
Gains and losses resulting from foreign currency transactions are reported in the statements of income (loss) under the caption “Other, net,” for all periods presented. We recognized a foreign currency transaction
loss of less than $0.01 million in 2019 and foreign currency transaction gains of $0.4 million and $0.1 million in both 2018, and 2017, respectively.
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 title passes to the customer. Shipping terms are normally free on board (“FOB”) shipping point and title 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 is 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. The sales return allowance included in accrued
expense and other liabilities was $0.3 million, $0.4 million and $0.3 million as of December 31, 2019, 2018 and 2017, respectively. The estimated value of merchandise expected to be returned included in other current assets was $0.1 million,
$0.2 million and $0.1 million as of December 31, 2019, 2018 and 2017.
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 December 31, 2019, 2018, and 2017 our gift card
liability, included in accrued expenses and other liabilities, was $0.3 million and $0.2 million and $0.3 million, respectively.
During 2019, we ended our wholesale pricing club program where customers received lower prices in exchange for a yearly membership fee. Under this program, the yearly membership fee when paid is recorded as
deferred revenue and is recognized in net sales throughout the one-year period. As of December 31, 2018 and 2017, our deferred revenue associated with this program and included in accrued expenses and other liabilities was $0.6 million and $0.8
million, respectively. We recognized gift card revenue of $0.1 million in 2019 from the December 31, 2018 deferred revenue balance, $0.2 million in 2018 from the December 31, 2017 deferred revenue balance and $0.2 million in 2017 from the
December 31, 2016 deferred revenue balance.
For the years ended December 31, 2019, 2018 and 2017, we recognized $1.1 million, $1.9 million and $2.1 million, respectively, in net sales associated with gift cards and the wholesale pricing club membership fees.
Disaggregated revenue
In the following table, revenue for the years ended December 31, 2019, 2018 and 2017 is disaggregated by geographic areas as follows:
|
|
2019
|
|
|
2018
Restated
|
|
|
2017
Restated
|
|
United States
|
|
$
|
65,745,750
|
|
|
$
|
72,563,038
|
|
|
$
|
71,473,430
|
|
Canada
|
|
|
6,513,631
|
|
|
|
7,095,697
|
|
|
|
7,194,116
|
|
All other countries
|
|
|
2,658,779
|
|
|
|
3,544,834
|
|
|
|
3,753,049
|
|
Net sales
|
|
$
|
74,918,160
|
|
|
$
|
83,203,569
|
|
|
$
|
82,420,595
|
|
Geographic sales information is based on the location of the customer. Excluding Canada, no single foreign country had net sales greater than 1.7% of our consolidated net sales in 2019, 2018, or 2017.
Discounts
Prior to 2019, we maintained five price levels: retail, wholesale gold, wholesale elite, business, and manufacturer. Since May of 2019 (April of 2019 in Canada), 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.
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 are 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 an operating lease asset and lease liability at commencement date based on the present value of the lease payments over the lease term. 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.
Prior to 2019, rent expense on operating leases, including rent holidays and scheduled rent increases, was recorded on a straight‑line basis over the term of the lease, commencing on the date we took possession of
the leased property. Rent expense is recorded in operating expenses. The net excess of rent expense over the actual cash paid was recorded as accrued expenses and other liabilities in the accompanying consolidated balance sheets.
As of December 31, 2019, we have no finance leases, 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.
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.
For the years ended December 31, 2019 and 2018, three stores and four stores, respectively, were reviewed for impairment due to overall underperformance. Based on the results of the review, impairment expense of
less than $0.1 million and $0.3 million was recorded for 2019 and 2018, respectively. Using a discounted cash flow valuation method, we assumed a discount rate of 12.5% based on a remaining useful life of the asset groups ranging from one to two
years. For 2018, prior to the adoption of Topic 842, the only asset within the store asset group was property and equipment, and the fair value was estimated using a market based approach. There were no impairment charges in 2017.
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.
|
|
Years Ended December 31,
|
|
|
|
2019
(1)
|
|
|
2018
Restated
|
|
|
2017
Restated
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,903,781
|
)
|
|
$
|
4,398,365
|
|
|
$
|
2,478,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average common shares ouststanding
|
|
|
8,973,246
|
|
|
|
9,185,203
|
|
|
|
9,242,092
|
|
Dilutive effect of service-based restricted stock awards granted to Board of Directors under the Plan
|
|
|
-
|
|
|
|
-
|
|
|
|
177
|
|
Dilutive effect of service-based restricted stock awards granted to employees under the Plan
|
|
|
-
|
|
|
|
19,805
|
|
|
|
3,268
|
|
Diluted weighted-average common shares outstanding
|
|
|
8,973,246
|
|
|
|
9,205,008
|
|
|
|
9,245,537
|
|
(1) For the year ended December 31, 2019, there were 9,203 shares excluded from the diluted EPS calculation because the impact of their assumed vesting would be anti-dilutive due to a net loss in that period.
For additional disclosures regarding restricted stock awards and employee stock options, see Note 12, Stockholder’s Equity – Equity Compensation Plans, to the Consolidated
Financial Statements.
Goodwill and other intangible assets
Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. Goodwill is allocated across one reporting unit: Tandy Leather Factory. Goodwill is not
amortized but is evaluated at least annually for impairment. At the reporting unit level, the Company tests goodwill for impairment on an annual basis as of December 31 of each year, or more frequently if events or changes in circumstances,
referred to as triggering events, indicate the carrying value of goodwill may not be recoverable and that a potential impairment exists. Application of the goodwill impairment test requires exercise of judgement, including the estimation of future
cash flows, determination of appropriate discount rates and other Level 3 assumptions (significant unobservable inputs which are supported by little or no market activity). Changes in these estimates and assumptions could materially affect the
determination of fair value and/or goodwill impairment for the reporting unit.
On October 1, 2019, we elected to early adopt ASU 2017-04, Intangibles—Goodwill and Other (Topic 350)—Simplifying the Test for Goodwill Impairment and applied the simplified accounting method as part of the Company’s annual goodwill impairment assessment as of December 31, 2019.
We completed our annual goodwill impairment assessment as of December 31, 2019 using a quantitative Step 1 approach with the income approach methodologies discussed below.
The discounted cash flow (“DCF”) model utilizes present values of cash flows to estimate fair value. Future cash flows were projected based on estimates of projected sales growth, store count, pricing, gross margin
rates, operating expense rates, working capital fluctuations, income tax expense and capital expenditures. Forecasted cash flows took into account known market conditions as of December 31, 2019, and management’s anticipated business outlook. The
future cash flows were discounted using a market-participant risk-adjusted weighted average cost of capital for the reporting unit. A terminal year value was calculated under two approaches: (i) using an EBITDA exit multiple supported by guideline
public company data using selected public companies operating within the retail industry and (ii) applying a perpetual growth rate methodology to the terminal year. These assumptions were derived from both observable and unobservable inputs and
were combined to reflect management’s judgements and assumptions.
The estimated fair values determined under both approaches above were consistent. The concluded fair value for the reporting unit was based on a 50/50 weighting of the two valuation approaches above. The results of
the Step 1 impairment testing for goodwill resulted in the Company recognizing an impairment expense of $1.0 million during the fourth quarter of 2019, representing the entire balance of goodwill for the reporting unit. No adjustment to the
carrying value of goodwill was required for the years ended December 31, 2018 and 2017.
The change in our goodwill for each of 2018 and 2017 resulted from foreign currency translation gains (losses) of less than $0.01 million which was recorded in accumulated other comprehensive loss.
Other intangibles
Our intangible assets, excluding goodwill, and related accumulated amortization consisted of the following:
|
As of December 31, 2019
|
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
|
Trademarks/copyrights
|
|
$
|
554,369
|
|
|
$
|
547,369
|
|
|
$
|
7,000
|
|
TOTAL
|
|
$
|
554,369
|
|
|
$
|
547,369
|
|
|
$
|
7,000
|
|
|
As of December 31, 2018
|
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
|
Trademarks/copyrights
|
|
$
|
554,369
|
|
|
$
|
546,702
|
|
|
$
|
7,667
|
|
Non-compete agreements
|
|
|
153,000
|
|
|
|
144,167
|
|
|
|
8,833
|
|
TOTAL
|
|
$
|
707,369
|
|
|
$
|
690,869
|
|
|
$
|
16,500
|
|
|
As of December 31, 2017
|
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
|
Trademarks/copyrights
|
|
$
|
554,369
|
|
|
$
|
545,980
|
|
|
$
|
8,389
|
|
Non-compete agreements
|
|
|
153,000
|
|
|
|
142,167
|
|
|
|
10,833
|
|
TOTAL
|
|
$
|
707,369
|
|
|
$
|
688,147
|
|
|
$
|
19,222
|
|
All our intangible assets, other than goodwill, 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 in each of 2019, 2018, and 2017 was recorded in operating expenses, and non-compete intangible assets were fully amortized during 2019
upon the expiration of such agreements. 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.
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 December 31, 2019, 2018 and 2017, the carrying values of our financial
instruments, included in our Consolidated Balance Sheets, approximated their fair values. There were no transfers into or out of Levels 1, 2 and 3 during the years ended December 31, 2019, 2018 and 2017.
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.
As of December 31, 2019, we held investments in U.S. Treasuries with maturity values of $9.2 million and maturities less than one year. We have classified these investments in debt securities as held-to-maturity.
Such investments are recorded at amortized cost with book value approximating fair value which is based on Level 1 inputs for these investments.
The Company believes there is no current expected credit allowance necessary for our short-term investments as: 1) Treasury securities typically are the most highly rated securities among rating agencies; 2)
Treasury securities have a long history of no credit losses; and 3) Treasury securities are guaranteed by a sovereign entity (the U.S. Government) that can print its own money and whose currency (the U.S. dollar) is the reserve currency.
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 recovery is deemed not likely, 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.
We had one stock option plan that expired in March 2017. This plan permitted annual stock option grants to non-employee directors with an exercise price equal to the fair market value of the shares at the date of
grant. These options vested and became exercisable six months from the option grant date. Under this plan, no stock options were awarded in 2015 or after, therefore, we did not recognize any stock-based compensation expense for these options
during those periods.
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.
Shipping and handling costs
Costs to ship products from our stores to our customers are included in operating expenses on the Consolidated Statements of Comprehensive Income (Loss). These costs totaled $2.1 million, $1.8 million, and $2.0
million for the years ended December 31, 2019, 2018, and 2017, respectively.
Advertising
Advertising costs include the cost of print, digital, direct mail, community events, trade shows, and our ecommerce platform. With the exception of catalog costs, advertising costs are expensed as incurred. Catalog
costs are capitalized and expensed over an estimated period in which such catalogs will be issued, which is typically twelve months. We issue catalogs every other year and did not issue a catalog for the 2019 year. Such capitalized costs are
included in other current assets and totaled $0.2 million at both December 31, 2018 and 2017. Total advertising expense was $3.4 million in 2019; $3.9 million in 2018; and $5.0 million in 2017.
Cash flows presentation
For purposes of the Consolidated Statements of Cash Flows, we consider all highly liquid investments with initial maturities of three months or less from the date of purchase 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.
Recently Adopted Accounting Pronouncements
Goodwill Impairment
In January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350)—Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairments by eliminating the requirement to compare the implied fair value of goodwill with
its carrying amount as part of Step 2 of the goodwill impairment test referenced in ASC Topic 350, Intangibles - Goodwill and Other. As a result, an entity should perform its annual, or interim, goodwill
impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the impairment loss
recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for annual reporting periods beginning after December 15, 2019, including any interim impairment tests within those annual
periods, with early application permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We elected early adoption of ASU 2017-04 as of October 1, 2019. As a result, we removed Step 2 of the
goodwill impairment test as part of our annual impairment assessment of goodwill as of December 31, 2019. See section above: Goodwill and other intangibles.
Leases
In February 2016, the FASB issued ASU 2016-02, Leases (“Topic 842”), which amends the accounting guidance on leases and establishes a ROU model that requires a lessee to
record an ROU asset and a lease liability on the Consolidated Balance Sheet for all leases with terms longer than 12 months. The Company adopted Topic 842 and all subsequent amendments on January 1, 2019, using the optional transition method
applied to leases existing at January 1, 2019, with no restatement of comparative periods. Results for reporting periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts have not been adjusted and continue
to be reported in accordance with the Company’s historical accounting policies under Accounting Standard Codification Topic 840, Leases (“ASC 840”).
The Company elected the package of practical expedients available under the transition guidance within Topic 842, which among other things, permits the Company to carry forward its historical lease classification.
The Company also elected other practical expedients under Topic 842 to: (1) apply hindsight when determining its reasonably certain lease terms or assessing impairment of its ROU assets at transition, (2) not record leases with an initial term of
12 months or less on the Consolidated Balance Sheet, and (3) combine and account for both lease and non-lease components within a contract as a single component for its sole asset class, real estate leases.
Upon adoption of Topic 842, the Company recognized operating ROU assets (referred herein as “lease assets”) and lease liabilities based on the present value of its remaining minimum rental payments for existing
operating leases as of the adoption date, utilizing the Company’s applicable incremental borrowing rate as of the adoption date. The adoption of Topic 842 resulted in the Company recognizing $17.6 million and $18.1 million of operating lease
assets and lease liabilities, respectively, as of January 1, 2019. The difference between the lease assets and lease liabilities is primarily due to the recognition of a $0.5 million pre-tax cumulative effect adjustment to retained earnings on
January 1, 2019, resulting from the impairment of certain operating lease assets upon transition which was based on fair value using Level 3 inputs. The Company has no finance leases, previously termed capital leases under ASC 840. The adoption
of Topic 842 had no material impact on the Company’s Consolidated Statements of Comprehensive Income (Loss) or Consolidated Statements of Cash Flows and did not impact the Company’s compliance with its debt covenants under its debt agreements. For
further information, see Note 6 of the Notes to the Consolidated Financial Statements, Leases.
During the year ended December 31, 2019, the Company recognized an impairment charge of less than $0.01 million related to one of its operating lease assets in the U.S.
Recent Accounting Standards Not Yet Adopted
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. This guidance will be effective for entities for the fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 on a prospective basis, with early adoption permitted. We do not believe that the
adoption of this standard will have a material impact on our financial condition, results of operations or cash flows.
Internal-Use Software
In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40). This update provides additional
guidance to ASU No. 2015-05, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40), which was issued in April 2015. The amendments in this ASU align the requirements for capitalizing
implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use
software license). This ASU is effective for annual reporting periods beginning on or after December 15, 2019, and interim periods within those annual periods with early adoption permitted in any interim period for which financial statements have
not yet been issued. We do not believe that the adoption of this standard will have a material effect on our financial condition, results of operations or cash flows.
Credit Losses
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments,” which requires entities to measure
impairment of certain financial instruments, including trade receivables, based on expected losses rather than incurred losses. This guidance is effective for annual and interim periods beginning after December 15, 2019. Early adoption is
permitted. The Company does not expect the adoption of this standard will have a material impact on the Company’s financial condition, results of operations or cash flows.
4. ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
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 maintain allowances for bad debts 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. Write-offs have historically not been material, but receivables are evaluated for write off as they are deemed uncollectible based on a periodic review of accounts.
5. BALANCE SHEET COMPONENTS
Inventory
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
On hand:
|
|
|
|
|
|
|
|
|
|
Finished goods held for sale
|
|
$
|
20,575,216
|
|
|
$
|
31,263,806
|
|
|
$
|
32,042,251
|
|
Raw materials and work in process
|
|
|
717,053
|
|
|
|
919,202
|
|
|
|
1,155,680
|
|
Inventory in transit
|
|
|
2,749,558
|
|
|
|
1,119,541
|
|
|
|
1,348,153
|
|
TOTAL
|
|
$
|
24,041,827
|
|
|
$
|
33,302,549
|
|
|
$
|
34,546,084
|
|
Property and Equipment
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
Building
|
|
$
|
9,257,066
|
|
|
$
|
9,257,066
|
|
|
$
|
9,257,066
|
|
Land
|
|
|
1,451,133
|
|
|
|
1,451,133
|
|
|
|
1,451,133
|
|
Leasehold improvements
|
|
|
1,828,448
|
|
|
|
1,980,547
|
|
|
|
1,729,281
|
|
Equipment and machinery
|
|
|
6,516,068
|
|
|
|
6,594,487
|
|
|
|
6,447,776
|
|
Furniture and fixtures
|
|
|
8,080,427
|
|
|
|
8,335,926
|
|
|
|
7,907,704
|
|
Vehicles
|
|
|
337,403
|
|
|
|
521,186
|
|
|
|
539,339
|
|
|
|
|
27,470,545
|
|
|
|
28,140,345
|
|
|
|
27,332,299
|
|
Lesss: accumulated depreciation
|
|
|
(14,551,645
|
)
|
|
|
(13,625,261
|
)
|
|
|
(11,765,416
|
)
|
TOTAL
|
|
$
|
12,918,900
|
|
|
$
|
14,515,084
|
|
|
$
|
15,566,883
|
|
Our property and equipment, net was located in the following countries:
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
United States
|
|
$
|
12,540,891
|
|
|
$
|
13,849,019
|
|
|
$
|
15,038,459
|
|
Canada
|
|
|
373,083
|
|
|
|
434,201
|
|
|
|
240,560
|
|
United Kingdom
|
|
|
2,654
|
|
|
|
211,368
|
|
|
|
217,254
|
|
Spain
|
|
|
2,272
|
|
|
|
4,308
|
|
|
|
14,639
|
|
Australia
|
|
|
-
|
|
|
|
16,188
|
|
|
|
55,971
|
|
|
|
$
|
12,918,900
|
|
|
$
|
14,515,084
|
|
|
$
|
15,566,883
|
|
Depreciation expense was $1.7 million, $1.8 million, and $1.9 million for the years ended December 31, 2019, 2018, and 2017, respectively.
Short-term Liabilities
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Accrued Expenses and Other Liabilities
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
|
|
|
|
|
|
|
|
|
Accrued bonuses, PTO and payroll
|
|
$
|
1,104,757
|
|
|
$
|
2,762,170
|
|
|
$
|
2,904,294
|
|
Deferred revenue
|
|
|
-
|
|
|
|
647,277
|
|
|
|
905,657
|
|
Unearned gift card revenue
|
|
|
319,124
|
|
|
|
195,901
|
|
|
|
271,109
|
|
Estimated returns
|
|
|
284,734
|
|
|
|
416,091
|
|
|
|
348,732
|
|
Sales and payroll taxes payable
|
|
|
458,882
|
|
|
|
572,497
|
|
|
|
584,726
|
|
Exit obligations
|
|
|
-
|
|
|
|
150,529
|
|
|
|
-
|
|
Accrued severance
|
|
|
37,782
|
|
|
|
367,387
|
|
|
|
-
|
|
Accrued vendor payables
|
|
|
451,439
|
|
|
|
289,656
|
|
|
|
30,497
|
|
TOTAL
|
|
$
|
2,656,718
|
|
|
$
|
5,401,508
|
|
|
$
|
5,045,015
|
|
6. LEASES
The Company leases certain real estate for its retail store locations under long-term lease agreements. For leases effective on or after January 1, 2019, the Company determines if an arrangement is a lease at
inception and recognizes operating lease assets and lease liabilities at commencement date based on the present value of lease payments over the lease term. The present value of the Company’s 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 the Company will exercise such an option. The exercise of lease renewal options is generally at the Company’s discretion.
Payments based on a change in an index or market rates are not considered in the determination of lease payments for purposes of measuring the related lease liability. The Company discounts lease payments using its incremental borrowing rate based
on information available as of the measurement date. Subsequent to the recognition of its operating lease assets and lease liabilities, the Company recognizes lease expense related to its operating leases on a straight-line basis over the lease
term.
None of the Company’s lease agreements contain contingent rental payments, material residual value guarantees or material restrictive covenants. The depreciable life of related leasehold improvements is based on the
shorter of the useful life or the lease term. The Company has no finance leases, no sublease agreements, and no lease agreements in which it is named as a lessor.
The Company performs interim reviews of its long-lived assets for impairment when evidence exists that the carrying value of an asset group, including a lease asset, may not be recoverable. Excluding the January 1, 2019 impairment charge to retained earnings upon the adoption of Topic 842, the Company recognized an impairment expense of less than $0.01 million associated
with operating lease assets during 2019.
Additional information regarding the Company’s operating leases is as follows:
Leases
|
|
Balance Sheet Classification
|
|
December 31, 2019
|
|
Assets:
|
|
|
|
|
|
Non-current
|
|
Operating lease assets
|
|
$
|
13,897,422
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
Current
|
|
Operating lease liabilities
|
|
$
|
3,822,748
|
|
Non-current
|
|
Operating lease liabilities, noncurrent
|
|
|
10,654,631
|
|
Total lease liabilities
|
|
|
|
$
|
14,477,379
|
|
Lease Cost
|
|
Income Statement Classification
|
|
December 31, 2019
|
|
Operating lease cost
|
|
Operating expenses
|
|
$
|
4,151,220
|
|
Variable lease cost (1)
|
|
Operating expenses
|
|
|
895,373
|
|
Total lease cost
|
|
|
|
$
|
5,046,593
|
|
(1) Variable lease cost includes payment for certain real estate taxes, insurance, common area maintenance, and other charges related to lease agreements, which are not included in the measurement of the operating
lease liabilities.
Maturity of Lease Liabilities
|
|
December 31, 2019
|
|
2020
|
|
$
|
3,891,153
|
|
2021
|
|
|
3,282,122
|
|
2022
|
|
|
2,411,124
|
|
2023
|
|
|
1,722,991
|
|
2024
|
|
|
1,309,459
|
|
Thereafter
|
|
|
3,697,717
|
|
Total lease payments (2)
|
|
$
|
16,314,566
|
|
Less: Interest
|
|
|
(1,837,187
|
)
|
Present value of lease liabilities
|
|
$
|
14,477,379
|
|
(2) Operating lease payments exclude $0.3 million of legally binding minimum lease payments for leases signed, but not yet commenced as of December 31, 2019.
|
At December 31, 2019, the weighted average remaining lease term for our operating leases was 6.0 years, and the weighted average discount rate used to measure our operating leases was 4.1%.
Other Information
|
|
December 31, 2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating cash flows used in operating leases
|
|
$
|
4,078,695
|
|
|
|
|
|
|
Operating lease assets obtained in exchange for lease obligations
|
|
|
18,076,962
|
|
Prior Disclosures under ASC 840
The Company incurred rent expenses of $5.0 million and $4.6 million related to its operating leases during the years ended December 31, 2018 and 2017, respectively. Future minimum lease payments under noncancelable
operating leases as of December 31, 2018 were as follows:
|
|
December 31, 2018
|
|
2019
|
|
$
|
4,417,806
|
|
2020
|
|
|
3,750,324
|
|
2021
|
|
|
3,042,779
|
|
2022
|
|
|
2,102,463
|
|
2023
|
|
|
1,289,874
|
|
Thereafter
|
|
|
2,139,218
|
|
Total minimum lease payments
|
|
$
|
16,742,464
|
|
7. NOTES PAYABLE AND LONG-TERM DEBT
As previously disclosed, on October 14, 2019, our management, in consultation with the Audit Committee, determined that Tandy’s previously issued Consolidated Financial Statements as of and for (i) the years ended
December 31, 2018 and 2017, (ii) the three and six-month periods ended June 30, 2018, (iii) the three and nine-month periods ended September 30, 2018, and (iv) the three-month period ended March 31, 2019, should no longer be relied upon due to
misstatements related to our accounting processes for inventory transactions, and we would restate such financial statements as part of the Restatement Process. See the Restatement Footnote for further information around the Restatement Process.
As a result, the Company did not timely file with the SEC its Quarterly Reports on Form 10-Q for the periods ended June 30, and September 30, 2019, March 31, June 30, and September 30, 2020, and March 31, 2021, or its Annual Report on Form 10-K for
fiscal 2019 and fiscal 2020 (collectively, the “Delinquent Filings”). Under the terms of the Promissory Note agreements the Company had in place with its primary bank, BOKF, NA d/b/a Bank of Texas (“BOKF”), we were required to provide BOKF
quarterly financial statements and compliance certificates. We were unable to provide these financial statements and compliance certificates for the Delinquent Filings noted above. In response, on April 2, 2020, BOKF provided notice under the
terms of the Promissory Note agreements that such Promissory Notes were cancelled. As of the date of cancellation, Tandy had no borrowings outstanding under these credit facilities or with any other lending institution. As of the date of this
filing, Tandy has no lines of credit outstanding.
On September 18, 2015, we executed a Promissory Note and Business Loan Agreement with BOKF which provided us with a working capital line of credit facility of up to $6 million which was secured by our inventory. On
August 20, 2018, this line of credit was amended to extend the maturity to September 18, 2020 and to reduce the interest rate by 0.35%, and on September 18, 2019, the maturity date was further extended through September 18, 2021. The Business Loan
Agreement contained covenants that required us to maintain a funded debt to EBITDA ratio of no greater than 1.5 to 1 and a Fixed Charge Coverage Ratio greater than or equal to 1.2 to 1. Both ratios were calculated quarterly on a trailing four
quarter basis. For the years ended December 31, 2019, 2018 and 2017, there were no amounts drawn on this line of credit.
Also, on September 18, 2015, we executed a Promissory Note and Business Loan Agreement with BOKF which provided us with a line of credit facility of up to $10 million for the purpose of repurchasing shares of our
common stock pursuant to our stock repurchase program, announced in August 2015 and subsequently amended, which permitted us to repurchase up to 2.2 million shares of our common stock at prevailing market prices through August 2020. Subsequently,
this line of credit was amended to increase the availability from $10 million to $15 million for the repurchase of shares of our common stock pursuant to our stock repurchase program through the end of the draw down period which was the earlier of
August 9, 2020 or the date on which the entire amount was drawn. In addition, this Promissory Note was amended on August 20, 2018 to reduce the interest rate by 0.35%, and on September 18, 2019, the maturity date was further extended through
September 18, 2024. We were required to make monthly interest-only payments through September 18, 2020. After this date, the principal balance would have rolled into a 4-year term note with principal and interest paid on a monthly basis with a
maturity date of September 18, 2024. This Promissory Note was secured by a Deed of Trust on the real estate located at 1900 SE Loop 820, Fort Worth, Texas. There were no amounts drawn on this line of credit during 2017. During the year ended
December 31, 2018, we drew $1.6 million on this line of credit which was used to purchase 243,387 shares of our common stock pursuant to our stock repurchase program. As of December 31, 2018, the outstanding balance on this line of credit was $9.0
million. During the quarter ended March 31, 2019, we paid off this line of credit with no pre-payment penalties incurred.
Prior to August 20, 2018, amounts drawn under either Promissory Note accrued interest at the London Interbank Offered Rate for U.S. dollars (commonly known as “LIBOR”) plus 1.85% (3.351% as of December 31, 2017).
Beginning August 20, 2018, the notes accrued interest at LIBOR plus 1.5% (4.0% as of December 31, 2018). Neither line of credit carried commitment fees.
The amounts outstanding under the above agreements consisted of the following:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Business loan agreement with BOKF – collateralized by real estate; payable as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of credit note, as amended, in the maximum principal amount of $15,000,000 with features as more fully described above – interest due monthly at LIBOR plus 1.5%; matures September 18, 2024
|
|
$
|
-
|
|
|
$
|
8,968,018
|
|
|
$
|
7,371,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of credit note, as amended, in the maximum principal amount of $6,000,000 with revolving features as more fully described above – interest due monthly at LIBOR plus 1.5%; matures September 18, 2021
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
-
|
|
|
$
|
8,968,018
|
|
|
$
|
7,371,730
|
|
Less current maturities
|
|
|
-
|
|
|
|
519,516
|
|
|
|
614,311
|
|
TOTAL
|
|
$
|
-
|
|
|
$
|
8,448,502
|
|
|
$
|
6,757,419
|
|
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.
8. EMPLOYEE BENEFIT AND SAVINGS PLANS
We have a 401(k) plan to provide retirement benefits for our employees. As allowed under Section 401(k) of the Internal Revenue Code, the plan provides tax-deferred salary contributions for eligible employees and
allows employees to contribute a percentage of their annual compensation to the plan on a pretax basis. Employee contributions are limited to a maximum annual amount as set periodically by the Internal Revenue Code. In 2019, 2018, and 2017, we
matched 100% of the pretax employee contributions on the first 3% of eligible earnings and 50% of the pretax employee contributions on the next 2% of eligible earnings that are contributed by employees. For 2019, 2018 and 2017, we recorded
employer match expense of $0.3 million, $0.4 million, and $0.3 million, respectively.
The plan allows employees who meet the age requirements and reach the plan contribution limits to make a catch-up contribution. The catch-up contributions are not eligible for matching contributions. In addition,
the plan provides for discretionary matching contributions as determined by the Board of Directors. There were no discretionary matching contributions made in 2019, 2018, or 2017.
We offer no postretirement or postemployment benefits to our employees.
9. INCOME TAXES
The provision for income taxes consists of the following:
|
|
Years Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Income Tax Provision
|
|
|
|
|
Restated
|
|
|
Restated
|
|
Current provision:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(582,502
|
)
|
|
$
|
879,822
|
|
|
$
|
2,999,960
|
|
State
|
|
|
7,341
|
|
|
|
223,156
|
|
|
|
343,954
|
|
Foreign
|
|
|
(10,477
|
)
|
|
|
356,199
|
|
|
|
544,495
|
|
Interest expense related to UTB
|
|
|
25,640
|
|
|
|
80,868
|
|
|
|
45,942
|
|
|
|
|
(559,998
|
)
|
|
|
1,540,045
|
|
|
|
3,934,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred provision (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(94,001
|
)
|
|
|
194,735
|
|
|
|
(59,918
|
)
|
State
|
|
|
(23,559
|
)
|
|
|
36,629
|
|
|
|
(52,637
|
)
|
Foreign
|
|
|
(12,905
|
)
|
|
|
42,045
|
|
|
|
38,036
|
|
|
|
|
(130,465
|
)
|
|
|
273,409
|
|
|
|
(74,519
|
)
|
Total tax provision (benefit)
|
|
$
|
(690,463
|
)
|
|
$
|
1,813,454
|
|
|
$
|
3,859,832
|
|
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 is evaluating the impact of the CARES Act and expects that the NOL carryback provision of the CARES Act will result in a cash tax benefit to the Company.
On December 22, 2017, the Tax Act was enacted which included a number of changes to U.S. tax laws that impact the Company, including beginning in calendar 2018, a reduction of the U.S. corporate tax rate from 35% to
21%, the repeal of the domestic production activities deduction, new taxes on certain foreign sourced income, and new limitations on certain business deductions. The Tax Act also provided for a one-time transition tax on certain foreign earnings.
Because the Tax Act was enacted in 2017, we recorded an estimated $1.3 million (Restated) of income tax expense in the fourth quarter of 2017 as follows:
Transition tax on deemed repatriation of certain foreign earnings (1)
|
|
$
|
603,976
|
|
Foreign withholding taxes (1)
|
|
|
290,128
|
|
Remeasuring deferred tax position (2)
|
|
|
402,135
|
|
|
|
$
|
1,296,239
|
|
(1) classified as part of the Federal current provision in 2017
|
(2) classified as part of the Federal deferred provision in 2017
|
The amounts in 2017 were recorded based on estimates and our current interpretation of the Tax Act and Staff Accounting Bulletin (“SAB”) No. 118, which provides guidance related to ASC Topic 740, Income Tax. After completing our accounting for the income tax effects of the Tax Act and taking the filings of our 2017 tax returns across all of our jurisdictions into consideration, we estimated additional
income tax expense of approximately $0.1 million primarily related to an increase in the transition tax. Also negatively impacting our effective tax rate in 2018, certain of our international locations incurred operating losses for which no tax
benefit was recorded, additional U.S. federal income was recognized related to cross-border intercompany transactions with our Canadian subsidiary, and the Tax Act created new taxes on foreign sourced income while eliminating the domestic
manufacturing deduction.
Income (loss) before income taxes was earned in the following tax jurisdictions:
|
|
Years Ended December 31,
|
|
Income (Loss) Before Income Taxes
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
United States
|
|
$
|
(1,960,121
|
)
|
|
$
|
5,352,088
|
|
|
$
|
5,811,797
|
|
Spain
|
|
|
20,595
|
|
|
|
66,799
|
|
|
|
(40,505
|
)
|
Canada
|
|
|
(130,878
|
)
|
|
|
1,166,176
|
|
|
|
937,655
|
|
Australia
|
|
|
(169,718
|
)
|
|
|
7,124
|
|
|
|
(115,809
|
)
|
United Kingdom
|
|
|
(354,122
|
)
|
|
|
(380,368
|
)
|
|
|
(254,862
|
)
|
TOTAL
|
|
$
|
(2,594,244
|
)
|
|
$
|
6,211,819
|
|
|
$
|
6,338,276
|
|
The income tax effects of temporary differences that give rise to significant portions of deferred income tax assets and liabilities are as follows:
Deferred income tax assets:
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Inventory
|
|
$
|
468,438
|
|
|
$
|
578,029
|
|
|
$
|
542,820
|
|
Stock-based compensation
|
|
|
51,430
|
|
|
|
46,165
|
|
|
|
29,332
|
|
Accounts receivable
|
|
|
3,977
|
|
|
|
-
|
|
|
|
3,239
|
|
Sales returns
|
|
|
119,404
|
|
|
|
61,251
|
|
|
|
52,205
|
|
Deferred revenue
|
|
|
-
|
|
|
|
48,878
|
|
|
|
67,642
|
|
Accrued expenses
|
|
|
-
|
|
|
|
222,538
|
|
|
|
227,489
|
|
FX gain/loss in OCI
|
|
|
359,078
|
|
|
|
480,112
|
|
|
|
240,045
|
|
Goodwill and other intangible assets amortization
|
|
|
32,670
|
|
|
|
-
|
|
|
|
-
|
|
Net operating loss
|
|
|
459,196
|
|
|
|
344,578
|
|
|
|
337,904
|
|
Change in tax method
|
|
|
-
|
|
|
|
375,595
|
|
|
|
631,015
|
|
Accrued bonuses
|
|
|
-
|
|
|
|
250,355
|
|
|
|
363,710
|
|
Leases
|
|
|
144,699
|
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
25
|
|
|
|
-
|
|
|
|
-
|
|
Total deferred income tax assets
|
|
$
|
1,638,917
|
|
|
$
|
2,407,501
|
|
|
$
|
2,495,401
|
|
Less: valuation allowance
|
|
|
(381,872
|
)
|
|
|
(260,313
|
)
|
|
|
(208,350
|
)
|
Total deferred income tax assets, net of valuation allowance
|
|
$
|
1,257,045
|
|
|
$
|
2,147,188
|
|
|
$
|
2,287,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment depreciation
|
|
$
|
739,633
|
|
|
$
|
897,494
|
|
|
$
|
1,004,163
|
|
Goodwill and other intangible assets amortization
|
|
|
-
|
|
|
|
157,401
|
|
|
|
151,983
|
|
Accrued expenses
|
|
|
90,079
|
|
|
|
-
|
|
|
|
-
|
|
Total deferred income tax liabilities
|
|
$
|
829,712
|
|
|
$
|
1,054,895
|
|
|
$
|
1,156,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset (liability)
|
|
$
|
427,333
|
|
|
$
|
1,092,293
|
|
|
$
|
1,130,905
|
|
The valuation allowance for deferred income tax assets increased by $0.1 million in each of the years ended December 31, 2019, 2018, and 2017.
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, and differences in tax rates. Below is a reconciliation of our effective tax rate from the statutory rate:
|
|
Years Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Statutory rate – Federal U.S. income tax
|
|
|
21%
|
|
|
|
21%
|
|
|
|
34%
|
|
State and local taxes
|
|
|
0%
|
|
|
|
4%
|
|
|
|
5%
|
|
Impact of Tax Act
|
|
|
0%
|
|
|
|
0%
|
|
|
|
20%
|
|
Non-U.S. income tax at different rates
|
|
|
0%
|
|
|
|
3%
|
|
|
|
(3)%
|
|
Permanent book/tax differences
|
|
|
(6)%
|
|
|
|
0%
|
|
|
|
1%
|
|
Difference in tax rates in loss carryback periods
|
|
|
3%
|
|
|
|
0%
|
|
|
|
0%
|
|
Change in valuation allowance
|
|
|
(5)%
|
|
|
|
1%
|
|
|
|
1%
|
|
Rate differential on UTB reversals
|
|
|
13%
|
|
|
|
0%
|
|
|
|
0%
|
|
Other, net
|
|
|
1%
|
|
|
|
0%
|
|
|
|
3%
|
|
Effective rate
|
|
|
27%
|
|
|
|
29%
|
|
|
|
61%
|
|
We file a consolidated U.S. income tax return as well as state tax returns on a consolidated, combined, or stand-alone basis, depending on the jurisdiction. We are no longer subject to U.S. federal income tax
examinations by tax authorities for years prior to the tax year ended December 2016. Depending on the jurisdiction, we are no longer subject to state examinations by tax authorities for years prior to the December 2015 and December 2016 tax years.
A reconciliation of the beginning and ending amount of unrecognized tax benefits (UTB) is as follows:
Fiscal Year
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
UTB at beginning of the year
|
|
$
|
1,415,714
|
|
|
$
|
1,197,077
|
|
|
$
|
937,705
|
|
Gross decrease to tax positions in prior periods
|
|
|
(1,145,227
|
)
|
|
|
(102,236
|
)
|
|
|
-
|
|
Gross increase to tax positions in current period
|
|
|
-
|
|
|
|
351,304
|
|
|
|
213,430
|
|
Interest expense
|
|
|
25,640
|
|
|
|
80,869
|
|
|
|
45,942
|
|
Lapses in statute
|
|
|
-
|
|
|
|
(111,300
|
)
|
|
|
-
|
|
UTB at end of year
|
|
$
|
296,127
|
|
|
$
|
1,415,714
|
|
|
$
|
1,197,077
|
|
We file tax returns in the U.S. and a limited number of foreign jurisdictions. With few exceptions, we are no longer subject to federal, state and local, or non-U.S. income tax examinations for years before 2015.
Included in the balance of UTBs as of December 31, 2019, 2018 and 2017 are $0.1 million, $0.1 million, and $0.2 million, respectively, of tax benefits that, if recognized, would affect the effective tax rate. Also included in the balance of UTBs
as of December 31, 2019, 2018 and 2017 are $0.2 million, $1.3 million and $1.0 million, respectively, of tax benefits that, if recognized, would result in adjustments primarily to deferred taxes.
10. 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 the Company’s Common Stock
As previously disclosed, the Company was unable to timely file the Delinquent Filings due to the Restatement Process. As a result, on February 18, 2020, the Company received a notice from 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 stock on Nasdaq 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, and our stock was formally delisted on February 9, 2021. We intend to reapply for Nasdaq listing once the Company has made the required Exchange Act
filings.
SEC Investigation
The Company has self-reported to the SEC information concerning the internal investigation of accounting matters described in the Explanatory Note included in Part I, Item 1 of this Comprehensive Form 10-K and in
Note 2, “Restatement of Previously Issued Consolidated Financial Statements”. Subsequently, the Division of Enforcement of the SEC informed the Company that it had initiated an investigation into the Company’s historical accounting practices. The
Company is fully cooperating with the investigation and is in discussions with the SEC regarding a possible negotiated resolution. In October 2020, an agreement (which was updated on May 12, 2021) in principle was reached on the material terms of
such a resolution, which includes an agreement by the Company to pay a $0.2 million penalty. However, this provisional resolution is still subject to finalizing the necessary documents and obtaining final approval from the SEC, which cannot be
assured. Accordingly, as of December 31, 2020, a $0.2 million liability has been recorded in accrued expenses and other liabilities on our Consolidated Balance Sheet.
11. SIGNIFICANT BUSINESS CONCENTRATIONS AND RISK
Major Customers
Our revenues are derived from a diverse group of customers, from hobbyist crafters to small and large businesses across a wide variety of industries. No single customer accounted for more than 0.5% of our
consolidated revenues in 2019, 2018, or 2017, and sales to our five largest customers represented 1.7%, 1.0%, and 1.2%, respectively, of consolidated revenues in those years. While we do not believe the loss of one of these customers would have a
significant negative impact on our operations, we do believe the loss of several of these customers simultaneously or a substantial reduction in sales generated by them could temporarily affect our operating results.
Major Vendors
We purchase a significant portion of our inventory through one supplier. Due to the number of alternative sources of supply, we do not believe that the loss of this supplier would have an adverse impact on our
operations.
Credit Risk
Due to the large number of customers comprising our customer base, concentrations of credit risk with respect to customer receivables are limited, although as of December 31, 2019, 2018 and 2017, two customers’
balances represented 35.3%, 33.3% and 21.4% of net accounts receivable balance, respectively. We do not generally require collateral for accounts receivable, but we do perform periodic credit evaluations of our customers and believe the allowance
for doubtful accounts is adequate. It is our opinion that if any one or a group of customer receivable balances should be deemed uncollectable, it would not have a material adverse effect on our results of operations or financial condition.
We maintain a majority of our cash in bank deposit accounts that, at times, may exceed federally insured limits. We have not experienced any losses in such accounts. We believe we are not exposed to any significant
credit risk on our cash and cash equivalents.
12. STOCKHOLDERS’ EQUITY
Equity Compensation Plans
Restricted Stock Plan
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 of our common stock for restricted stock and restricted stock unit (“RSU”) awards, on or prior to June 2018, to our executive officers, non-employee directors and other key employees (of which, there were 149,605 shares available
for future awards as of December 31, 2019). 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 March 2019, as part of their annual director compensation, certain of our non-employee directors were granted a total of 28,191 service-based RSUs
under the 2013 Plan which will vest ratably over the next three years provided that the participant is still on the board on the vesting date. In December 2019 certain of our key employees were granted a total of 17,988 service-based RSUs under
the 2013 Plan which will vest ratably over the next three years provided that the participants are employed on the vesting date.
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 through June 2023.
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 is as follows:
|
|
Shares
|
|
|
Grant Fair Value
|
|
Balance, January 1, 2017
|
|
|
61,098
|
|
|
$
|
8.03
|
|
Granted
|
|
|
9,005
|
|
|
|
8.05
|
|
Vested
|
|
|
(33,300
|
)
|
|
|
8.14
|
|
Balance, December 31, 2017
|
|
|
36,803
|
|
|
$
|
7.93
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2018
|
|
|
36,803
|
|
|
$
|
7.93
|
|
Granted
|
|
|
654,000
|
|
|
|
5.31
|
|
Vested
|
|
|
(33,086
|
)
|
|
|
7.94
|
|
Balance, December 31, 2018
|
|
|
657,717
|
|
|
$
|
7.39
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2019
|
|
|
657,717
|
|
|
$
|
7.39
|
|
Granted
|
|
|
46,179
|
|
|
|
5.67
|
|
Forfeited
|
|
|
(5,319
|
)
|
|
|
5.64
|
|
Vested
|
|
|
(93,408
|
)
|
|
|
7.39
|
|
Balance, December 31, 2019
|
|
|
605,169
|
|
|
$
|
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 $0.8 million, $0.3 million, and $0.2
million in 2019, 2018 and 2017, respectively.
As of December 31, 2019, the Company has concluded it is not probable that the performance conditions related to performance-based RSUs will be achieved, and as a result no compensation expense related to
performance-based RSUs has been recorded.
As of December 31, 2019, there was unrecognized compensation cost related to non-vested, service-based awards of $2.8 million which will be recognized over 3.6 weighted average years in each of the following years:
Unrecognized Expense
|
|
2020
|
|
$
|
777,537
|
|
2021
|
|
|
758,325
|
|
2022
|
|
|
721,284
|
|
2023
|
|
|
509,910
|
|
|
|
$
|
2,767,056
|
|
We issue shares from authorized shares upon the lapsing of vesting restrictions on restricted stock and RSUs. In 2019, 2018 and 2017, we issued 93,408, 33,086 and 33,300 shares, respectively, resulting from the
vesting of restricted stock. We do not use cash to settle equity instruments issued under stock-based compensation awards.
Stock Options
We had a stock option plan that terminated in March 2017, which permitted stock option grants to non-employee directors with an exercise price equal to the fair market value of the shares at the date of grant.
Options outstanding and exercisable were granted at a stock option price which was not less than the fair market value of our common stock on the date the option was granted, and no option has a term in excess of ten years.
A summary of stock option transactions for the year ended December 31, 2017 is as follows (no amounts shown for 2018, as the plan was terminated in March 2017):
|
|
Option
|
|
|
Weighted Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
Outstanding at January 1
|
|
|
56,400
|
|
|
$
|
5.14
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Forfeited or cancelled
|
|
|
(12,000
|
)
|
|
|
5.14
|
|
Exercised
|
|
|
(44,400
|
)
|
|
|
5.14
|
|
Outstanding at December 31
|
|
|
-
|
|
|
$
|
-
|
|
Exercisable at end of year
|
|
|
-
|
|
|
$
|
-
|
|
Weighted-average fair value of
|
|
|
|
|
|
|
|
|
options granted during year
|
|
|
n/a
|
|
|
|
|
|
Because there were no grants of stock options or vested options outstanding in 2019, 2018 or 2017, there were no amounts of compensation cost recorded. The intrinsic value of stock options exercised in 2017 was $0.2
million. Cash received from the exercise of stock options for 2017 was $0.2 million.
Share Repurchase Program
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 increase the number of shares
available to one million as of such date and to extend the program through August 9, 2020.
For the years ended December 31, we repurchased the following shares:
Year ended
December 31,
|
|
Total shares repurchased
|
|
|
Average price
per share
|
|
2019
|
|
|
131,782
|
|
|
$
|
5.58
|
|
2018
|
|
|
243,387
|
|
|
$
|
6.79
|
|
As of December 31, 2019, there were 996,163 shares that remained available for repurchase under the plan.
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.
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 of these shares took place on February 1, 2021. Prior to the repurchase, the shares represented approximately 5.5% of our outstanding common stock.
13. SEGMENT INFORMATION
As of January 1, 2019, we operate as a single segment and report on a consolidated basis. Prior to January 1, 2019, we operated and reported in two segments - North America and International. In early 2019, we
announced several strategic initiatives to drive future sales growth and long-term profitability, which resulted in the Company closing two of its three stores outside of North America, leaving Spain as our only
store outside of North America. Due to these strategic decisions, our CODM changed the way operating performance assessments and resource allocation decisions are made by incorporating a consolidated view. As a result, we no longer report
International as a reportable segment. All prior year data discussed throughout this Comprehensive Form 10-K has been retrospectively revised to conform to the new single-reportable segment structure. There is no change to our
consolidated financial position or results based on the change in segment reporting.
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
The Company is providing restated quarterly and year-to-date unaudited consolidated financial information for interim periods occurring within the years ended December 31, 2019 and 2018 in order to comply with SEC
requirements. See the Restatement Footnote for further background concerning the events preceding the restatement of financial information in this Comprehensive Form 10-K.
2019
|
|
First
Quarter
Restated
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
Net sales
|
|
$
|
20,941,322
|
|
|
$
|
17,196,815
|
|
|
$
|
16,310,887
|
|
|
$
|
20,469,136
|
|
Gross profit
|
|
|
12,244,670
|
|
|
|
9,370,446
|
|
|
|
8,848,648
|
|
|
|
11,495,688
|
|
Net income (loss)
|
|
|
1,519,811
|
|
|
|
(875,667
|
)
|
|
|
(1,718,452
|
)
|
|
|
(829,473
|
)
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.17
|
|
|
$
|
(0.10
|
)
|
|
$
|
(0.19
|
)
|
|
$
|
(0.09
|
)
|
Diluted (1)
|
|
$
|
0.17
|
|
|
$
|
(0.10
|
)
|
|
$
|
(0.19
|
)
|
|
$
|
(0.09
|
)
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
9,009,752
|
|
|
|
8,933,648
|
|
|
|
8,932,246
|
|
|
|
9,020,187
|
|
Diluted
|
|
|
9,011,107
|
|
|
|
8,933,648
|
|
|
|
8,932,246
|
|
|
|
9,020,187
|
|
(1) For the three months ended June 30, 2019, September 31, 2019 and December 31, 2019, there were 2,290, 2,704 and 8,387 shares, respectively, excluded from the diluted EPS calculation because the impact of their assumed exercise would
be anti-dilutive due to a net loss in those periods.
|
2018
|
|
First
Quarter
Restated
|
|
|
Second
Quarter
Restated
|
|
|
Third
Quarter
Restated
|
|
|
Fourth
Quarter
Restated
|
|
Net sales
|
|
$
|
20,500,578
|
|
|
$
|
19,187,222
|
|
|
$
|
18,878,263
|
|
|
$
|
24,637,506
|
|
Gross profit
|
|
|
12,689,060
|
|
|
|
12,233,492
|
|
|
|
11,895,883
|
|
|
|
14,122,510
|
|
Net income
|
|
|
1,516,656
|
|
|
|
1,157,743
|
|
|
|
608,701
|
|
|
|
1,115,265
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.16
|
|
|
$
|
0.13
|
|
|
$
|
0.07
|
|
|
$
|
0.12
|
|
Diluted
|
|
$
|
0.16
|
|
|
$
|
0.13
|
|
|
$
|
0.07
|
|
|
$
|
0.12
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
9,264,446
|
|
|
|
9,180,076
|
|
|
|
9,154,215
|
|
|
|
9,143,746
|
|
Diluted
|
|
|
9,264,604
|
|
|
|
9,182,527
|
|
|
|
9,160,022
|
|
|
|
9,144,020
|
|
15. SUBSEQUENT EVENTS
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 have since 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 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 online, the Company experienced significant decreases in demand for its products in Q2 and Q3 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. By June 2020, we also permanently closed eight stores with expiring leases and/or negative cash flows, creating additional savings in operating expenses.
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. 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.
Eight stores were permanently closed during the second quarter of 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 and the store re-openings were well received by our employees and
customers. During the fourth quarter of 2020 and into the present, we continue to manage through the pandemic as we saw increased spikes in COVID-19 infections, and continue to see varying levels of infection
rates, and are forced to close certain stores or move certain stores to “curbside only” operations.
While we previously fulfilled our web orders out of our retail stores, we have built a centralized web fulfillment capability in our Fort Worth distribution center and will be fulfilling web
orders primarily through Fort Worth going forward. Both our e-commerce business and stores, during the limited period since reopening, have been performing above last year sales levels, 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 believe the COVID-19 impact on the Company’s results of operations, cash flows and financial position and the
ongoing uncertainty the virus has created around future operating results represented a triggering event during the first quarter of 2020 and continued throughout 2020. For fiscal year 2020, the Company expects to record impairment expense of
approximately $1.1 million, primarily related to property and equipment and operating lease assets for certain stores that are projected to underperform to a level where the cash flows they generate will not be sufficient to cover their respective
asset carry values.