For finance leases, our right-of-use assets are amortized on a straight-line basis over the earlier of the useful life of the right-of-use asset or the end of the lease term with rent expense recorded to operating
expenses. We adjust the lease liability to reflect lease payments made during the period and interest incurred on the lease liability using the effective interest method. The incurred interest expense is recorded in interest expense on the
consolidated statements of comprehensive income (loss).
The depreciable life of related leasehold improvements is based on the shorter of the useful life or the lease term. We also perform interim reviews of our lease assets for impairment when evidence exists that the
carrying value of an asset group, including a lease asset, may not be recoverable.
None of our lease agreements contain contingent rental payments, material residual value guarantees or material restrictive covenants. We have no sublease agreements and no lease agreements in which we are named as
a lessor. Refer to Note 4, “Leases” for further discussion of the Company’s leases.
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.
During the first quarter of 2020, we determined the economic impact from the COVID-19 pandemic created a triggering event for our fleet of stores, and we continued to believe the triggering event existed in each of
the remaining three quarters of 2020. For each of the four quarters of 2020 we performed recoverability testing at the store level with 26 stores failing recoverability testing and resulting in impairment expense of $1.1 million during the 2020
year. For the year ended December 31, 2019, three stores failed recoverability due to overall underperformance, and we recognized impairment expense of less than $0.1 million during the year.
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.
|
(in thousands, except share data)
|
|
2020(1)
|
|
|
2019(1)
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,901
|
)
|
|
$
|
(1,903
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Basic weighted-average common shares ouststanding
|
|
|
|
|
|
|
8,973,246
|
|
|
Diluted weighted-average common shares outstanding
|
|
|
|
|
|
|
8,973,246
|
|
|
(1) For the years ended December 31, 2020 and 2019, there were 6,401 and 9,203 shares, respectively, 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 10, Stockholders’ Equity – Equity Compensation Plans.
Other intangibles and goodwill
Our intangible assets and related accumulated amortization consisted of the following:
|
(in thousands)
|
|
As of December 31, 2020
|
|
|
|
|
Gross
|
|
|
Accumulated Amortization
|
|
|
Net
|
|
|
Trademarks/copyrights
|
|
$
|
554
|
|
|
$
|
548
|
|
|
$
|
6
|
|
|
TOTAL
|
|
$
|
554
|
|
|
$
|
548
|
|
|
$
|
6
|
|
|
|
|
As of December 31, 2019
|
|
|
|
|
Gross
|
|
|
Accumulated Amortization
|
|
|
Net
|
|
|
Trademarks/copyrights
|
|
$
|
554
|
|
|
$
|
547
|
|
|
$
|
7
|
|
|
TOTAL
|
|
$
|
554
|
|
|
$
|
547
|
|
|
$
|
7
|
|
All our intangible assets 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 2020, and 2019 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.
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.
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, 2020 and 2019, 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, 2020 and 2019.
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, 2020, we held no short-term investments. 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 classified
these investments in debt securities as held-to-maturity. Such investments were recorded at amortized cost with book value approximating fair value which is based on Level 1 inputs for these investments.
Income taxes
Income taxes are estimated for each jurisdiction in which we operate. This involves assessing current tax exposure together with temporary differences resulting from differing treatment of items for tax and
financial statement accounting purposes. Any resulting deferred tax assets are evaluated for recoverability based on estimated future taxable income. To the extent it is more likely than not that all or a portion of a deferred tax asset will not
be realized, a valuation allowance is recorded. Our evaluation regarding whether a valuation allowance is required or should be adjusted also considers, among other things, the nature, frequency, and severity of recent losses, forecasts of future
profitability and the duration of statutory carryforward periods.
Deferred tax assets and liabilities are measured using the enacted tax rates in effect in the years when those temporary differences are expected to reverse. The effect on deferred taxes from a change in tax rate is
recognized through continuing operations in the period that includes the enactment date of the change. Changes in tax laws and rates could affect recorded deferred tax assets and liabilities in the future.
A tax benefit from an uncertain tax position may be recognized when it is more-likely-than-not that the position will be sustained upon examination, including resolutions of any related appeals or litigation
processes, based on the technical merits. Income tax positions must meet a more-likely-than-not recognition threshold to be recognized.
We recognize tax liabilities for uncertain tax positions and adjust these liabilities when our judgement changes as a result of the evaluation of new information not previously available. Due to the complexity of
some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense and the
effective tax rate in the period in which new information becomes available. We recognize interest and/or penalties related to all tax positions in income tax expense. To the extent that accrued interest and penalties do not ultimately become
payable, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision in the period that such determination is made.
We may be subject to periodic audits by the Internal Revenue Service and other taxing authorities. These audits may challenge certain of our tax positions, such as the timing and amount of deductions and allocation
of taxable income to the various jurisdictions.
Stock-based compensation
The Company’s stock-based compensation relates primarily to restricted stock unit (“RSU”) awards. Accounting guidance requires measurement and recognition of compensation expense at an amount equal to the grant date
fair value. Compensation expense is recognized for service-based stock awards on a straight-line basis or ratably over the requisite service period, based on the closing price of the Company’s stock on the date of grant. The service-based awards
typically vest ratably over the requisite service period, provided that the participant is employed on the vesting date. Compensation expense is reduced by actual forfeitures as they occur over the requisite service period of the awards.
Performance-based RSUs vest, if at all, upon the Company satisfying certain performance targets. The Company records compensation expense for awards with a performance condition when it is probable that the
condition will be achieved. If the Company determines it is not probable a performance condition will be achieved, no compensation expense is recognized. If the Company changes its assessment in a subsequent period and concludes it is probable a
performance condition will be achieved, the Company will recognize compensation expense ratably between the period of the change in assessment through the expected date of satisfying the performance condition for vesting. If the Company
subsequently assesses that it is no longer probable that a performance condition will be achieved, the accumulated expense that has been previously recognized will be reversed. The compensation expense ultimately recognized, if any, related to
performance-based awards will equal the grant date fair value based on the number of shares for which the performance condition has been satisfied. We issue shares from authorized shares upon the lapsing of vesting restrictions on RSUs. We do not
use cash to settle equity instruments issued under stock-based compensation awards.
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 $3.2 million and $2.1 million for the
years ended December 31, 2020 and 2019, respectively.
Advertising
Advertising costs include the cost of print, digital, direct mail, community events, trade shows, and our ecommerce platform. Advertising costs are expensed as incurred. Total advertising expense was $1.1 million
and $3.4 million in 2020 and 2019, respectively.
Recently Adopted Accounting Pronouncements
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). We adopted this ASU on January 1, 2020; the adoption of this
ASU did not have a material effect on the Company’s 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. We adopted this ASU on January 1, 2020; the adoption of this ASU did not have a material effect on the Company’s
financial condition, results of operations or cash flows.
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.
3. BALANCE SHEET COMPONENTS
Inventory
|
(in thousands)
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
On hand:
|
|
|
|
|
|
|
|
Finished goods held for sale
|
|
$
|
32,654
|
|
|
$
|
20,575
|
|
|
Raw materials and work in process
|
|
|
828
|
|
|
|
717
|
|
|
Inventory in transit
|
|
|
3,297
|
|
|
|
2,750
|
|
|
TOTAL
|
|
$
|
36,779
|
|
|
$
|
24,042
|
|
Property and Equipment
|
(in thousands)
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
Building
|
|
$
|
9,240
|
|
|
$
|
9,257
|
|
|
Land
|
|
|
1,451
|
|
|
|
1,451
|
|
|
Leasehold improvements
|
|
|
1,853
|
|
|
|
1,828
|
|
|
Equipment and machinery
|
|
|
7,361
|
|
|
|
6,516
|
|
|
Furniture and fixtures
|
|
|
7,339
|
|
|
|
8,082
|
|
|
Vehicles
|
|
|
224
|
|
|
|
337
|
|
|
|
|
|
27,468
|
|
|
|
27,471
|
|
|
Lesss: accumulated depreciation
|
|
|
(15,078
|
)
|
|
|
(14,552
|
)
|
|
TOTAL
|
|
$
|
12,390
|
|
|
$
|
12,919
|
|
Our property and equipment, net was located in the following countries:
|
(in thousands)
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
United States
|
|
$
|
12,077
|
|
|
$
|
12,541
|
|
|
Canada
|
|
|
309
|
|
|
|
373
|
|
|
United Kingdom
|
|
|
2
|
|
|
|
3
|
|
|
Spain
|
|
|
2
|
|
|
|
2
|
|
|
|
|
$
|
12,390
|
|
|
$
|
12,919
|
|
Depreciation expense was $1.0 million and $1.7 million for the years ended December 31, 2020 and 2019, respectively.
Short-term Liabilities
|
Accrued Expenses and Other Liabilities
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Accrued bonuses and payroll
|
|
|
1,121
|
|
|
|
1,104
|
|
|
Unearned gift card revenue
|
|
|
301
|
|
|
|
319
|
|
|
Estimated returns
|
|
|
241
|
|
|
|
285
|
|
|
Sales and payroll taxes payable
|
|
|
935
|
|
|
|
459
|
|
|
Accrued severance
|
|
|
-
|
|
|
|
38
|
|
|
Accrued vendor payables
|
|
|
1,044
|
|
|
|
451
|
|
|
TOTAL
|
|
$
|
3,642
|
|
|
$
|
2,656
|
|
4. LEASES
The Company leases certain real estate and warehouse equipment under long-term lease agreements.
On January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842) (“Topic 842”), and all subsequent amendments, using the optional transition method applied to leases
existing on January 1, 2019, with no restatement of comparative periods.
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 that 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 liabilities was 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 adoption. The Company had no existing finance leases, previously termed capital leases under ASC 840, as of its adoption of Topic 842. During the fourth quarter of 2020, the
Company executed two financing leases for two forklifts used in the warehouse operations totaling less than $0.1 million.
The Company performs interim reviews of its operating and finance lease assets for impairment when evidence exists that the carrying value of an asset group, including a lease asset, may not be recoverable. During
the year ended December 31, 2020, the Company recognized an impairment expense of approximately $0.6 million associated with certain operating lease assets. 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 $0.1 million associated with its operating lease assets during
2019.
Additional information regarding the Company’s operating leases is as follows (in thousands, except for lease term and discount rate information):
|
Leases
|
|
Balance Sheet Classification
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Operating
|
|
Operating lease assets
|
|
$
|
11,772
|
|
|
$
|
13,897
|
|
|
Finance
|
|
Financing lease assets
|
|
|
44
|
|
|
|
-
|
|
|
Total assets
|
|
|
|
$
|
11,816
|
|
|
$
|
13,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
Operating lease liabilities
|
|
$
|
3,530
|
|
|
$
|
3,823
|
|
|
Finance
|
|
Current maturities of financing lease obligations
|
|
|
14
|
|
|
|
-
|
|
|
Non-current
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
Operating lease liabilities, non-current
|
|
|
9,245
|
|
|
|
10,655
|
|
|
Finance
|
|
Financing lease liabilities, net of current obligation
|
|
|
29
|
|
|
|
-
|
|
|
Total lease liabilities
|
|
|
|
$
|
12,818
|
|
|
$
|
14,478
|
|
|
Lease Cost
|
|
Income Statement Classification
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
Operating expenses
|
|
$
|
3,809
|
|
|
$
|
4,151
|
|
|
Operating lease cost
|
|
Impairment expense
|
|
|
601
|
|
|
|
4
|
|
|
Variable lease cost (1)
|
|
Operating expenses
|
|
|
937
|
|
|
|
895
|
|
|
Finance:
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of lease assets (2)
|
|
Operating expenses
|
|
|
-
|
|
|
|
-
|
|
|
Interest on lease liabilities (2)
|
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
|
Total lease cost
|
|
|
|
$
|
5,347
|
|
|
$
|
5,050
|
|
(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.
(2) Finance lease costs are less than $1,000 for December 31, 2020; we had no finance lease costs in 2019.
|
|
|
December 31, 2020
|
|
|
Maturity of Lease Liabilities
|
|
Operating Leases
|
|
|
Finance Leases
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
2021
|
|
$
|
3,591
|
|
|
$
|
16
|
|
|
2022
|
|
|
2,835
|
|
|
|
16
|
|
|
2023
|
|
|
2,035
|
|
|
|
15
|
|
|
2024
|
|
|
1,564
|
|
|
|
-
|
|
|
2025
|
|
|
1,220
|
|
|
|
-
|
|
|
Thereafter
|
|
|
3,205
|
|
|
|
-
|
|
|
Total lease payments
|
|
$
|
14,450
|
|
|
$
|
47
|
|
|
Less: Interest
|
|
|
(1,675
|
)
|
|
|
(4
|
)
|
|
Present value of lease liabilities
|
|
$
|
12,775
|
|
|
$
|
43
|
|
|
Lease Term and Discount Rate
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
Weighted-average remaining lease term (years):
|
|
|
|
|
|
|
|
Operating leases
|
|
|
5.9
|
|
|
|
6.0
|
|
|
Finance leases
|
|
|
2.9
|
|
|
|
-
|
|
|
Weighted-average discount rate:
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
4.4
|
%
|
|
|
4.1
|
%
|
|
Finance leases
|
|
|
6.5
|
%
|
|
|
-
|
|
|
Other Information
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
|
Operating cash flows used in operating leases
|
|
$
|
3,866
|
|
|
$
|
4,079
|
|
|
Operating cash flows used in finance leases
|
|
|
-
|
|
|
|
-
|
|
|
Financing cash flows used in finance leases
|
|
|
1
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease assets obtained in exchange for lease obligations
|
|
|
|
|
|
|
|
|
|
Operating leases, initial recognition
|
|
|
317
|
|
|
|
18,077
|
|
|
Operating leases, modifications and remeasurements
|
|
|
1,340
|
|
|
|
-
|
|
|
Finance leases, initial recognition
|
|
|
45
|
|
|
|
-
|
|
5. NOTES PAYABLE AND LONG-TERM DEBT
During the second quarter of 2020, the Company borrowed $0.4 million from Banco Santander S.A. under the Institute of Official Credit Guarantee for Small and Medium-sized Enterprises in order to facilitate the
continuation of employment and to attenuate the economic effects of the 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.
We restated our previously issued audited financial statements as of and for the years ended December 31, 2018 and 2017 as well as the quarterly and year-to-date periods within fiscal 2018 included in the Company’s
previously filed Quarterly Reports on Form 10-Q, and the three months ended March 31, 2019, included in the Company’s previously filed Quarterly Report on Form 10-Q. Under the terms of the Promissory Note agreements we had in place with our
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. Details of the terms of the Promissory Note agreements with BOKF are as follows.
On September 18, 2015, we executed a Promissory Note 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, 2020 and 2019, there were no amounts drawn on this line of credit.
Also, on September 18, 2015, we executed a Promissory Note 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 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. During the first quarter of 2019, we paid $9.0 million to pay off this line of credit with no pre-payment penalties incurred. There were no amounts
outstanding on this line of credit as of December 31, 2020 and 2019.
The amount outstanding under the above agreement consisted of the following:
|
|
|
December 31,
|
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Institute of Official Credit (“ICO”) Guarantee for Small and Medium-sized Enterprises with Banco Santander S.A. (Spain) as described more fully above - interest due
monthly at 1.50%; matures June 4, 2025
|
|
$
|
446
|
|
|
$
|
-
|
|
|
|
|
$
|
446
|
|
|
$
|
-
|
|
|
Less current maturities
|
|
|
-
|
|
|
|
-
|
|
|
TOTAL
|
|
$
|
446
|
|
|
$
|
-
|
|
6. 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 2020, and 2019, 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 the years ended December 31, 2020 and 2019, we
recorded employer match expense of $0.2 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 2020 or 2019.
We offer no postretirement or postemployment benefits to our employees.
7. INCOME TAXES
The provision for income taxes consists of the following:
|
(in thousands)
|
|
Year Ended December 31,
|
|
|
Income Tax Benefit
|
|
2020
|
|
|
2019
|
|
|
Current provision (benefit):
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(1,385
|
)
|
|
$
|
(582
|
)
|
|
State
|
|
|
65
|
|
|
|
7
|
|
|
Foreign
|
|
|
6
|
|
|
|
(10
|
)
|
|
Related to UTP
|
|
|
20
|
|
|
|
26
|
|
|
|
|
|
(1,294
|
)
|
|
|
(559
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Deferred provision (benefit):
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(62
|
)
|
|
|
(94
|
)
|
|
State
|
|
|
(3
|
)
|
|
|
(24
|
)
|
|
Foreign
|
|
|
(19
|
)
|
|
|
(13
|
)
|
|
|
|
|
(84
|
)
|
|
|
(131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total tax benefit
|
|
$
|
(1,378
|
)
|
|
$
|
(690
|
)
|
We have $4.6 million of net operating loss (“NOL”) carryovers and carrybacks which will begin to expire in 2025.
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 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.
Income (loss) before income taxes was earned in the following tax jurisdictions:
|
(in thousands)
|
|
Year Ended December 31,
|
|
|
Income (Loss) Before Income Taxes
|
|
2020
|
|
|
2019
|
|
|
United States
|
|
$
|
(6,222
|
)
|
|
$
|
(1,959
|
)
|
|
Spain
|
|
|
161
|
|
|
|
21
|
|
|
Canada
|
|
|
(204
|
)
|
|
|
(131
|
)
|
|
Australia
|
|
|
(7
|
)
|
|
|
(170
|
)
|
|
United Kingdom
|
|
|
(7
|
)
|
|
|
(354
|
)
|
|
TOTAL
|
|
$
|
(6,279
|
)
|
|
$
|
(2,593
|
)
|
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:
|
|
2020
|
|
|
2019
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Inventory
|
|
$
|
498
|
|
|
$
|
468
|
|
|
Stock-based compensation
|
|
|
63
|
|
|
|
51
|
|
|
Accounts receivable
|
|
|
4
|
|
|
|
5
|
|
|
Sales returns
|
|
|
105
|
|
|
|
119
|
|
|
Foreign currency translation gain/loss in OCI
|
|
|
323
|
|
|
|
359
|
|
|
Goodwill and other intangible assets amortization
|
|
|
5
|
|
|
|
33
|
|
|
Net operating loss
|
|
|
665
|
|
|
|
459
|
|
|
Accrued expenses
|
|
|
170
|
|
|
|
-
|
|
|
Leases
|
|
|
250
|
|
|
|
145
|
|
|
Other
|
|
|
1
|
|
|
|
-
|
|
|
Total deferred income tax assets
|
|
|
2,084
|
|
|
|
1,639
|
|
|
Less: valuation allowance
|
|
|
(1,320
|
)
|
|
|
(382
|
)
|
|
Total deferred income tax assets, net of valuation allowance
|
|
$
|
764
|
|
|
$
|
1,257
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment depreciation
|
|
$
|
682
|
|
|
$
|
740
|
|
|
Accrued expenses
|
|
|
-
|
|
|
|
90
|
|
|
Total deferred income tax liabilities
|
|
|
682
|
|
|
|
830
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset (liability)
|
|
$
|
82
|
|
|
$
|
427
|
|
We are required to reduce deferred tax assets by a valuation allowance if, based on the weight of the available evidence, it is more likely than not that all or a portion of a deferred tax asset will not be realized.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are deductible. We determined a $0.9 million increase to the valuation allowance for
deferred income tax assets was necessary as of December 31, 2020, as compared to 2019. Our evaluation considered, among other things, the nature, frequency, and severity of losses, forecasts of future profitability and the duration of statutory
carryforward periods.
Our effective tax rate differs from the federal statutory rate primarily due to U.S. state income tax expense, the difference in tax rates for loss carryback periods, foreign income/loss positions, expenses that are
nondeductible for tax purposes, the change in our valuation allowance associated with our deferred tax assets, and differences in tax rates. Below is a reconciliation of our effective tax rate from the statutory rate:
|
|
|
Year Ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Statutory rate – Federal U.S. income tax
|
|
|
21
|
%
|
|
|
21
|
%
|
|
State and local taxes
|
|
|
3
|
%
|
|
|
0
|
%
|
|
Permanent book/tax differences
|
|
|
(2
|
)%
|
|
|
(6
|
)%
|
|
Difference in tax rates in loss carryback periods
|
|
|
8
|
%
|
|
|
3
|
%
|
|
Change in valuation allowance
|
|
|
(10
|
)%
|
|
|
(5
|
)%
|
|
Rate differential on UTP reversals
|
|
|
0
|
%
|
|
|
13
|
%
|
|
Other, net
|
|
|
2
|
%
|
|
|
1
|
%
|
|
Effective rate
|
|
|
22
|
%
|
|
|
27
|
%
|
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 uncertain tax positions (“UTP”) is as follows:
|
Fiscal Year
|
|
2020
|
|
|
2019
|
|
|
UTP at beginning of the year
|
|
$
|
296
|
|
|
$
|
1,416
|
|
|
Gross increase (decrease) to tax positions in current period
|
|
|
77
|
|
|
|
(1,146
|
)
|
|
Interest expense
|
|
|
20
|
|
|
|
26
|
|
|
Lapses in statute
|
|
|
-
|
|
|
|
-
|
|
|
UTP at end of year
|
|
$
|
393
|
|
|
$
|
296
|
|
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 UTPs as of December 31, 2020 and 2019 are $0.1 million and $0.1 million, respectively, of tax benefits that, if recognized, would affect the effective tax rate. Also included in the balance of UTPs as of December 31,
2020 and 2019 are $0.3 million and $.02 million, respectively, of tax benefits that, if recognized, would result in adjustments primarily to deferred taxes.
8. 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 process of restating its financial statements as described above. 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
In 2019, the Company self-reported to the SEC information concerning the internal investigation of previously disclosed accounting matters resulting in the restatement for the full year 2017 and
full year 2018, including interim quarters in 2018, and the first quarter of 2019. In response, the Division of Enforcement of the SEC initiated an investigation into the Company’s historical accounting practices. In July 2021, the Company
entered into a settlement agreement with the SEC to conclude this investigation. Under the terms of the settlement, in addition to other non-monetary settlement terms, (1) the Company paid a civil monetary penalty of
$200,000, and (2) the Company’s former Chief Financial Officer and Chief Executive Officer, agreed to pay a civil monetary penalty of $25,000. In accepting the Company’s
settlement offer, the SEC took into account remedial actions the Company took promptly after learning of the issues detailed in the SEC’s order.
9. 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 0.3% of our
consolidated revenues in 2020 or 2019, and sales to our five largest customers represented 1.1% and 1.7%, 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, 2020 and 2019, two customers’ balances
represented 29.9% and 35.3% 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.
10. 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. 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 (of which, there were 606,712 shares available for future awards as of December 31, 2020). 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 2020, as part of their annual director compensation, certain of our non-employee directors were granted a total of 24,010 service-based RSUs under the 2013 Plan which will vest ratably over the next 3 years provided that the
participant is employed on the vesting date. In July 2020, our new CFO was granted a total of 9,063 service-based RSUs under the 2013 Plan which were scheduled to vest ratably over the next 3 years, provided that the participant is employed on the
vesting date. This award was forfeited in January 2021when the grantee left the employ of the Company. In December 2020, certain of our key employees were granted a total of 18,255 service-based RSUs which vested immediately, under the 2013 Plan.
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
|
|
|
Weighted Average
Share Price
|
|
|
Balance, January 1, 2019
|
|
$
|
658
|
|
|
$
|
7.39
|
|
|
Granted
|
|
|
46
|
|
|
|
5.67
|
|
|
Forfeited
|
|
|
(5
|
)
|
|
|
5.64
|
|
|
Vested
|
|
|
(93
|
)
|
|
|
7.39
|
|
|
Balance, December 31, 2019
|
|
$
|
606
|
|
|
$
|
7.27
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2020
|
|
$
|
606
|
|
|
$
|
7.27
|
|
|
Granted
|
|
|
51
|
|
|
|
3.94
|
|
|
Vested
|
|
|
(135
|
)
|
|
|
6.63
|
|
|
Balance, December 31, 2020
|
|
$
|
522
|
|
|
$
|
7.11
|
|
The Company’s stock-based compensation relates to restricted stock and RSU awards. For these service-based awards, our stock-based compensation expense, included in operating expenses, was $0.9 million and $0.8
million in 2020 and 2019, respectively.
As of December 31, 2020, 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, 2020, there was unrecognized compensation cost related to non-vested, service-based awards of $2.1 million which will be recognized over 1.9 weighted average years in each of the following years:
|
Unrecognized Expense
|
|
|
2021
|
|
$
|
811,580
|
|
|
2022
|
|
|
759,540
|
|
|
2023
|
|
|
516,286
|
|
|
|
|
$
|
2,087,406
|
|
We issue shares from authorized shares upon the lapsing of vesting restrictions on restricted stock and RSUs. In 2020 and 2019, we issued 128,619 and 93,408 shares, respectively, resulting from the vesting of
restricted stock. We do not use cash to settle equity instruments issued under stock-based compensation awards.
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, 2020 and 2019, we repurchased the following shares:
|
Year ended
December 31,
|
|
Total shares repurchased
|
|
|
Average price per share
|
|
|
2020
|
|
|
-
|
|
|
$
|
-
|
|
|
2019
|
|
|
131,782
|
|
|
$
|
5.58
|
|
As of December 31, 2020, we could repurchase $5,000,000 of our common stock.
On August 9, 2020, the Board of Directors approved a new program to repurchase up to $5.0 million of its common stock between August 9, 2020 and July 31, 2022, subject to the completion of our financial restatement
and the filing of all Delinquent Filings with the SEC. The Company’s previous share repurchase program expired in August 2020. As of December 31, 2020, the full $5.0 million of our common stock remained available for repurchase under this program.
On January 28, 2021, we entered into an agreement with an institutional shareholder of the Company, to repurchase 500,000 shares of our common stock, par value $0.0024 in a private transaction. The purchase price was
$3.35 per share for a total of $1.7 million. The closing of the repurchase of these shares took place on February 1, 2021. Prior to the repurchase, the shares represented approximately 5.5% of our outstanding common stock. This repurchase was
separately authorized by our Board of Directors and did not reduce the remaining amount authorized to be repurchased under the plan described in the previous paragraph.
11. 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. This left Spain as our only store outside of North America,
and our chief operating decision maker was no longer making operating performance assessments and resource allocation decisions for this one single store. As a result, we no longer report International as a reportable segment.
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
The Company is providing quarterly and year-to-date unaudited consolidated financial information for interim periods occurring within the years ended December 31, 2020 and 2019 in order to comply with SEC
requirements.
|
(in thousands, except share and per share data)
2020
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
Net sales
|
|
$
|
17,145
|
|
|
$
|
9,146
|
|
|
$
|
15,990
|
|
|
$
|
21,803
|
|
|
Gross profit
|
|
|
9,866
|
|
|
|
5,243
|
|
|
|
9,289
|
|
|
|
11,660
|
|
|
Net loss
|
|
|
(1,738
|
)
|
|
|
(1,775
|
)
|
|
|
(982
|
)
|
|
|
(406
|
)
|
|
Net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.19
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.04
|
)
|
|
Diluted (1)
|
|
$
|
(0.19
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.04
|
)
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
9,029,212
|
|
|
|
9,042,991
|
|
|
|
|
|
|
|
9,134,621
|
|
|
Diluted
|
|
|
9,029,212
|
|
|
|
|
|
|
|
|
|
|
|
9,134,621
|
|
(1) For the three months ended March 31, 2020, June 30, 2020, September 30, 2020, and December 31, 2020, there were 492, 2,290, 1,875 and 3,300 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.
(in thousands, except share and per share data)
2019
|
|
First
Quarter
Restated
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
Net sales
|
|
$
|
20,941
|
|
|
$
|
17,197
|
|
|
$
|
16,311
|
|
|
$
|
20,469
|
|
|
Gross profit
|
|
|
12,244
|
|
|
|
9,371
|
|
|
|
8,849
|
|
|
|
11,495
|
|
|
Net income (loss)
|
|
|
1,520
|
|
|
|
(875
|
)
|
|
|
(1,719
|
)
|
|
|
(830
|
)
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.17
|
|
|
$
|
(0.10
|
)
|
|
$
|
(0.19
|
)
|
|
$
|
(0.09
|
)
|
|
Diluted (2)
|
|
$
|
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
|
|
(2) For the three months ended June 30, 2019, September 30, 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.
|
ITEM 9.
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
None.
Evaluation of Disclosure Controls and Procedures
As previously disclosed in our Comprehensive Form 10-K filing for the period ended December 31, 2019, and in connection with the filing of this Form 10-K for the period ended December 31, 2020, our management, with
the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”). As a result of this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were not effective due to the material weaknesses described below, which
resulted in reporting errors requiring a restatement of our financial statements for the years ended December 31, 2017 and 2018 and for the first quarter ended March 31, 2019.
Management’s Annual Report on Internal Control over Financial Reporting
Our management, including our CEO and CFO, is responsible for establishing and maintaining adequate internal control over our financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.
Management’s establishing and maintaining adequate internal control over financial reporting is based upon the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the “COSO Framework”). A system of internal control over financial reporting should be designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with GAAP.
An effective internal control system, no matter how well designed, has inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud, and therefore can provide
only reasonable assurance with respect to reliable financial reporting. Because of its inherent limitations, our internal control over financial reporting may not prevent or detect all misstatements.
A material weakness is defined as a deficiency, or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material
misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Based on this definition, our management, with the participation of our CEO and CFO, evaluated the effectiveness and design of our
internal control over financial reporting against the COSO Framework and concluded that our internal control over financial reporting was not effective as of December 31, 2020 due to material weaknesses arising from flaws in our control
environment, risk oversight measures, control activities, information processing and communication and our monitoring systems, each of which is described in more detail below.
Control environment. We concluded that we did not maintain effective controls in the following areas: (i) managerial functions, procedures and oversight;
(ii) organizational structure, delegation of authority and responsibilities; (iii) segregation of duties; (iv) adequacy of trained accounting and financial reporting personnel to ensure that internal control responsibilities were performed
effectively and material accounting errors were detected; and (v) maintenance and enforcement of internal control responsibilities, including holding individuals accountable for their internal control responsibilities.
Risk oversight environment. We did not maintain adequate risk oversight measures related to the (i) identification and assessment of risks that could
impact achieving our objectives and (ii) identification and analysis of the potential changes that could affect our internal controls environment.
Control activities. We concluded that we did not have effective control activities in the following areas: (i) selecting and developing control policies,
procedures and activities to mitigate risks, including with respect to the methodologies used to calculate and report financial information and results; and (ii) selecting and implementing information technology and related systems supportive to
our internal control over financial reporting.
Information processing and communication. We identified deficiencies associated with information processing and communication within our internal control
framework. Specifically, we did not effectively communicate objectives and internal control responsibilities throughout the organization which contributed to inadequate documentation of processes and methodologies used to calculate and reconcile
regular consolidation adjustments hindering clear communication with management, the Board of Directors and our independent auditors.
In addition, the documentation of inventory purchasing relied on paper-based vendor invoices and multi-step manual data-entry processes, some of which were subject to
management override, which resulted in errors at multiple steps of the process, and deficiencies in communicating accurate information to management, the Board of Directors and our independent auditors.
Monitoring activities. We concluded that we did not design and implement effective monitoring activities related to (i) selecting,
developing, and performing separate evaluations of our internal control over financial reporting; and (ii) evaluating and communicating internal control deficiencies in a timely manner to parties responsible for taking corrective actions.
The issues described above resulted in the following errors in our financial statements previously filed with the SEC:
|
•
|
Inventory was not stated on a FIFO basis nor was it stated at the lower of FIFO cost or net realizable value;
|
|
•
|
Freight-in, warehousing and handling expenditures, factory labor and overhead and freight-out costs were not correctly capitalized;
|
|
•
|
Warehousing and handling expenditures were incorrectly classified as operating expenses;
|
|
•
|
Allowance for sales returns was incorrectly calculated and accounted for;
|
|
•
|
Net gift card liability was not correctly accounted for in 2017;
|
|
•
|
Lease asset and liability under ASC Topic 842 was incorrectly calculated;
|
|
•
|
PTO related accrued liabilities were incorrectly calculated;
|
|
•
|
Provision for income taxes, including adjustments related to the Tax Cuts and Jobs Act (the “Tax Act”), uncertain tax position (UTP) liability and related interest expense, and correction of taxable income on
the return of our Canada and Spain foreign subsidiaries;
|
|
•
|
Foreign currency gains and losses associated with the Company’s Canadian subsidiary were incorrectly classified as a component of accumulated other comprehensive loss and the cumulative translation
adjustments included in accumulated other comprehensive loss were not tax effected; and
|
|
•
|
Shares repurchased and subsequently cancelled were incorrectly accounted for as treasury stock.
|
Remediation Efforts to Address Material Weaknesses
Our management, including our CEO and CFO, has worked with expert accounting consultants and our Audit Committee to design and implement both a short-term and a long-term remediation
plan to correct the material weaknesses in our disclosure controls and procedures and our internal control over financial reporting. The following activities highlight our commitment to remediating our identified material weaknesses:
Since October 2019 and through the filing date of this Form 10-K, we have taken the following measures, among others:
|
i.
|
Hired a new, highly-qualified CFO in January 2021 with extensive public-company experience;
|
|
ii.
|
Replaced critical roles within our accounting team with contract accounting resources and ultimately (ongoing) full-time employees with expertise in GAAP accounting, SEC reporting and disclosure, internal
audit and internal controls;
|
|
iii.
|
Replaced our legacy accounting systems with an integrated enterprise resource planning (“ERP”) solution which includes general ledger, warehouse management and factory production modules designed to calculate
inventory on a FIFO basis;
|
|
iv.
|
Made improvements to our accounting close process, including a formalized accounting close checklist establishing accountability for oversight and review;
|
|
v.
|
Documented process narratives in the following areas: (i) financial reporting, (ii) inventory, (iii) purchasing and accounts payable, (iv) revenue, (v) fixed assets and lease accounting, (vi) general
accounting, treasury and financial planning & analysis, (vii) tax, (viii) information technology (IT) governance, and (ix) HR and payroll;
|
|
vi.
|
Created a risk controls matrix which includes, among other things, a comprehensive list of key and mitigating controls, a description of the risk the control is designed to mitigate, the individual
responsible for each control, the frequency in which the control is performed, and a mapping of each control to the five COSO Framework components (control environment, risk assessment, control activities, information and communication, or
monitoring activities).
|
Our continuing plan and additional steps for remediation include:
|
i.
|
Ongoing recruitment and hiring of permanent, qualified public-company accounting personnel;
|
|
ii.
|
Point-of-sale systems implementation that will be fully integrated with our new ERP system;
|
|
iii.
|
Redesigning our accounting procedures and activities to align with our new ERP system that will include built-in controls to improve upon the reliability of financial reporting and the
preparation of financial statements in accordance with GAAP;
|
|
iv.
|
Reporting the progress and results of our remediation plan to the Audit Committee on a recurring basis, including the identification, status, and resolution of internal control deficiencies; and
|
|
v.
|
Creating a comprehensive approach to regularly evaluate the operating effectiveness of our disclosure controls and procedures and our internal control over financial reporting using the COSO Framework as a guide.
|
Control Environment
Our management, including our CEO and CFO, our Audit Committee and our Board of Directors have taken certain steps to set the proper tone-at-the-top in support of the Company’s values and climate to develop and
maintain an effective internal control environment. These actions include:
|
◾
|
Recurring meetings with leadership, finance and accounting and other key functional areas to train staff on processes for oversight and emphasize each individual’s accountability for internal control
compliance, and to create a pattern of regular discussion of such controls.
|
|
◾
|
Periodic communications from the CEO, CFO and other key senior leaders on the Company’s mission, core values, Code of Business Conduct and Ethics, whistleblower policies, and each employee’s individual
responsibility for internal control compliance.
|
|
◾
|
Reorganization of the finance and accounting team to ensure appropriate segregation of duties, oversight and review of work, and recruiting and hiring qualified, competent employees with relevant experience
for the roles.
|
|
◾
|
Regular performance evaluations to include position-specific criteria for functional competence, including performance of internal control responsibilities.
|
Risk Oversight Measures
We continue to identify risks and enhance risk oversight measures. In late 2019, we developed an annual strategic planning process designed to identify specific operating objectives for the
organization and to conduct an assessment across the organization of the risks to meeting those objectives, including the risk of fraud. Furthermore, on a quarterly basis, management will review our periodic filings to ensure that identified risks
have been appropriately disclosed. In the areas of reporting and compliance objectives, we are also developing a process to conduct monthly business reviews by functional area that would include risk assessments of reporting accuracy based on
complexity and transaction levels as well as compliance with GAAP and other regulatory requirements, in order to evaluate whether our existing control activities appropriately mitigate such risks or if additional controls need to be employed.
Control Activities
We continue to redesign and implement our internal control activities. Specifically, we conducted detailed working sessions to document our current and prior finance and accounting policies,
procedures and step-by-step activities as a prerequisite to selecting a new systems vendor. These sessions identified specific areas that required short-term improvement and long-term redesign of processes, structure, authorities and controls, and
those actions include:
|
◾
|
New systems designed to calculate inventory at FIFO and create efficiency and accuracy through integration: we implemented the warehouse management, factory production system and general ledger systems
modules as part of our new ERP system implementation which went live on September 1, 2020. We are still in the process of implementing our new point-of-sale system, which will be fully integrated with our ERP system and with a phased
implementation across our fleet of stores throughout 2021.
|
|
◾
|
Creation and implementation of newly-designed processes, structures, delegation of authority and controls, in accordance with the COSO Framework, including:
|
|
o
|
The creation of a risk controls matrix;
|
|
o
|
Driving a greater sense of accountability by requiring sub-certifications below the CEO and CFO level for certain key accounting, finance and operations personnel;
|
|
o
|
Quarterly updates for the CFO regarding upcoming accounting pronouncement and proposed changes to GAAP accounting standards, tax regulations, and other requirements that may impact the Company’s financial
reporting;
|
|
o
|
Quarterly reviews of the most significant accounting estimates and judgements;
|
|
o
|
Validation of results through detailed variance analyses and reconciliation of account balances;
|
|
o
|
Monthly business review of actual financial performance compared to forecasts with participation from leadership across the organization; and
|
|
o
|
Establishing a disclosure committee comprised of key management throughout the different areas of the organization to evaluate the appropriateness of disclosures in the Company’s periodic filings on Forms
10-K and 10-Q and to support the CEO and CFO with the certification process.
|
Information Processing and Communication
The implementation of our new ERP system is expected to eliminate the need for many of the topside adjustment calculations that had to be performed because our legacy systems were not integrated
and many of our accounting processes were manual. This new ERP system allows us to automate certain accounting processes, reducing the risk of management override, and over time will eliminate the need for topside adjustments outside of the
system. In addition, management is developing detailed policies, procedures and internal controls related to our financial reporting and working with our ERP vendor to develop regular reporting from our new systems that can validate the quality of
our data and provide accurate information to support internal and external reporting and audit requirements.
Monitoring Activities
In addition to the items noted above, as we continue to evaluate, remediate, and improve our internal control over financial reporting, our management expects to continue to implement additional
measures to address control deficiencies and further refine and improve the remediation efforts described above. Specifically, we are developing a checklist of activities based on the criteria established in the COSO Framework against which we
will assess the design of entity-level and activity-level controls, and the operational effectiveness of such controls. Deficiencies identified in this process will be addressed by management, including our CEO and CFO. This assessment, any
deficiencies and any remedial actions will be shared and discussed with our Audit Committee and our independent auditors on a quarterly basis.
Cybersecurity
We utilize information technology for internal and external communications with vendors, customers and banks as well as systems technology for reporting and managing our operations. Loss, disruption or compromise
of these systems could significantly impact operations and results. Other than temporary disruption to operations that may be caused by a cybersecurity breach, we believe cash transactions to be the primary risk for potential loss. We work with
our financial institutions to take steps to minimize the risk by requiring multiple levels of authorization, encryption and other controls. The Company utilizes third party intrusion prevention and detection systems and performs periodic
penetration testing to monitor its cybersecurity environment. However, the Company has not performed a formalized risk assessment to address cybersecurity risks or documented internal controls that assist in alleviating such risks.
Changes in Internal Control Over Financial Reporting
As discussed in the remediation section above, we implemented the warehouse management, factory production system and general ledger systems modules as part of our new ERP system implementation which had a
go-live date of September 1, 2020. We are still in the process of implementing our new point-of-sale system, with a phased implementation throughout 2021. Also, during January 2021, we hired a new highly-qualified CFO with public
company experience. Although we had not fully remediated the material weaknesses in our internal control over financial reporting as of December 31, 2020, as the phased implementation of this system continues, we are experiencing certain
changes to our processes and procedures which, in turn, result in changes to our internal control over financial reporting. While we expect our new ERP system to strengthen our internal financial controls by automating certain manual processes
and standardizing business processes and reporting across our organization, management will continue to evaluate and monitor our internal controls as each of the affected areas evolves.
None.
|
ITEM 10.
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
GENERAL INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS
|
Name
|
|
Age
|
|
Director/Executive
Officer Since
|
|
Position
|
|
Janet Carr
|
|
60
|
|
2018
|
|
Director, Chief Executive Officer
|
|
Michael Galvan
|
|
52
|
|
2021
|
|
Chief Financial Officer
|
|
Vicki Cantrell
|
|
63
|
|
2017
|
|
Director
|
|
Elaine D. Crowley
|
|
62
|
|
2021
|
|
Director
|
|
Jefferson Gramm
|
|
46
|
|
2014
|
|
Chairman of the Board of Directors
|
|
Sharon M. Leite
|
|
59
|
|
2017
|
|
Director
|
|
James Pappas
|
|
40
|
|
2016
|
|
Director
|
|
Sejal Patel
|
|
42
|
|
2017
|
|
Director
|
|
William M. Warren
|
|
76
|
|
2013
|
|
Director
|
Janet Carr, 60, has served as our Chief Executive Officer and as a member of our Board of Directors since October 2018. Prior to her
current role, Ms. Carr served as the Senior Vice-President of Global Business Development for Caleres Inc. (formerly Brown Shoe Company Inc.) from 2016 to 2017. While there, she was responsible for international wholesale and retail for all of
their brands. Prior to Caleres, Ms. Carr was the President of the Handbag Division of Nine West Group Inc. from 2013 to 2014, where she was responsible for all aspects of design, development and sales in both wholesale and retail. Ms. Carr has
deep experience in strategy and consumer insights in various roles at a number of prominent retailers, including Tapestry, Inc. (formerly Coach, Inc.), Gap Inc. and Safeway.
Michael Galvan, 52, has served as our Chief Financial Officer since January 2021. He first joined the Company in May 2020, initially serving as Interim Chief Financial
Officer. Mr. Galvan brings over 25 years of finance and accounting experience to the Company, including executive leadership roles serving as Interim Chief Financial Officer, Chief Accounting Officer and Treasurer for a variety of publicly traded
companies, including Main Street Capital Corporation and Mattress Firm. Prior to joining the Company, Mr. Galvan served in various management roles including Senior Vice President, Chief Accounting Officer and Treasurer of NexTier Oilfield
Solutions, Inc. (formerly C&J Energy Services, Inc.), from June 2016 until April 2020, including serving as Interim Chief Financial Officer from March through September 2018.
Vicki Cantrell, 63, is a retail veteran with over 20 years of operational experience. Since January 2020 she has served as Chief Executive Officer for
Vendors in Partnership LLC. From September 2017 until June 2018, she served as Retail Transformation Officer for Aptos Inc., where Ms. Cantrell brought transformation strategies to the retailer’s businesses and to the vendor/retail partnership.
Prior to that role, Ms. Cantrell served from October 2011 to October 2016 as a Senior Vice President at National Retail Federation, which is the world’s largest retail association. From May 2008 until June 2011, she served as Chief Operating
Officer of Tory Burch LLC while it experienced 300% growth. From April 2003 until May 2008 she served as Chief Information Officer of Giorgio Armani, as it underwent a multi-phase CRM implementation. Ms. Cantrell has worked in all facets of the
retail industry, as retailer, vendor/partner and industry spokesperson. She has deep expertise in building and executing strategies to meet evolving needs including enhancing customer acquisition, service and loyalty; determining optimal
organizational structure in ever-changing environments; and in building robust cyber security programs.
Elaine D. Crowley, 62, served as Chief Restructuring Officer of Stage Stores, Inc. from May 2020 to October 2020 and served as a member
of its Board of Directors from 2014 to 2020. From 2010 until her retirement in 2012, Ms. Crowley served as Executive Vice President and Chief Financial Officer for Mattress Giant Corporation, a mattress retailer. From 2008 to 2010, Ms. Crowley
served as Executive Vice President and Chief Financial Officer and Senior Vice President, Controller and Chief Accounting Officer/Chief Financial Officer for Michaels Stores, Inc., an arts and crafts retailer. From August 1990 to September 2007,
Ms. Crowley was employed by The Bombay Company, Inc., a furniture and home goods retailer, most recently as Senior Vice President, Chief Financial Officer and Treasurer. She held that title for administrative purposes while also having served as
Liquidation Trustee for the Bombay Liquidation Trust from September 2007 to December 2017. She has 11 years of public accounting experience principally with Price Waterhouse. She holds a B.B.A. in accounting from Texas Christian University and is
licensed as a certified public accountant in Texas. Ms. Crowley’s tenure in senior executive and financial roles with other retailers and experience as a Certified Public Accountant in the practice of public accounting provides the Board with
valuable leadership experience and financial and retail expertise.
Jefferson Gramm, 46, is a portfolio manager at Bandera Partners LLC, which might be deemed to be an affiliate of ours by
virtue of holding approximately 33% of our outstanding common stock. See “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT” for information regarding Bandera Partners LLC’s ownership of our common stock. Mr. Gramm has been in his present position with Bandera since 2006. His prior experience includes serving as Managing Director of Arklow Capital, LLC, a hedge fund manager focused on distressed and value investments, from
October 2004 to July 2006. He has been a Director of Rubicon Technology since November 2017. He also served as a Director of Ambassadors Group from May 2014 until October 2015 and of Morgan’s Foods Inc. from April 2013 to March 2014. He served
as a Director of Peerless Systems Corp from June 2009 to November 2010. He received an M.B.A. from Columbia University in 2003 and a B.A. in Philosophy from University of Chicago in 1996. Mr. Gramm provides a unique and valuable
perspective with respect to corporate governance, our stockholder base and stockholder issues in general.
Sharon M. Leite, 59, has been Chief Executive Officer of Vitamin Shoppe, Inc. since August 2018. She previously served as Managing Director, President of
Godiva Chocolatier in North America from October 2017 until August, 2018. Prior to joining Godiva, from February 2016 until May 2017, Ms. Leite was the President of Sally Beauty, US and Canada (NYSE: SBH), an international specialty retailer and
distributor of professional beauty products, with over 3,000 stores. Prior to joining SBH, from 2007 until January 2016, Ms. Leite was the Executive Vice President of Sales, Customer Experience, & Real Estate at Pier 1 Imports (NYSE: PIR). In
addition, Ms. Leite has held various executive leadership roles at Bath and Body Works (L Brands) as well as various sales and operations positions with other prominent retailers including Gap, Inc. and The Walt Disney Company. She currently
serves as a member of the Board of Directors of the National Retail Federation (NRF). Ms. Leite brings significant general management experience as well as retail sales, operations, digital, e-commerce, real estate,
merchandising, marketing and human resource strategies.
James Pappas, 40, is the managing member and owner of JCP Investment Management. Mr. Pappas serves on the board of Innovative Food Holdings, Inc. since
2020. Mr. Pappas also served as a director of US Geothermal, Inc. from September 2016 until April 2018. He served as a director of Jamba, Inc., a health and wellness brand and leading retailer of freshly squeezed juice, from January 2015 to
September 2018; he also served on Jamba, Inc.’s Nominating, Corporate Governance and Audit Committees. He served on the board of directors of The Pantry, Inc., the largest independently operated convenience store chains in the U.S. from March 2014
until it was acquired in February 2015. Mr. Pappas also served on the board of directors, including Chairman of the Board, of Morgan’s Foods from February 2012 to May 2014 until it was acquired. Mr. Pappas received a BBA in Information Technology
and a Masters in Finance from Texas A&M University. Mr. Pappas has substantial skills in marketing and branding, as well as experience with growth-oriented businesses. Mr. Pappas also offers a strong tactical and financial background.
Sejal Patel, 42, is a Portfolio Manager at Skale Investments since January 2019. From July 2015 through September 2018, she was a Partner/Advisor at Lake
Trail Capital, a private investment firm. Her prior work experience includes serving as Vice President of Indus Capital, a hedge fund manager focused on Asian and Japanese equities, from 2012 to 2015 and Director for Kelusa Capital Management, a
hedge fund manager focused on Asian equities, from 2006 to 2012. She served on the Boards of Value Quest Capital, a value fund based in India, since 2014 and the Tiger Foundation, a non-profit organization based in New York, from 2009 to 2018. She
received a B.S. in Economics from the University of Pennsylvania. Ms. Patel brings a strong financial and business background to our Board.
William M. Warren, 76, is president and sole Director of William M. Warren, PLLC, an independent law firm. He also
serves as of Counsel to Loe Warren P.C., a law firm located in Fort Worth Texas, where he was President and Director from 1979 until December 2019. He has served as one of our directors from 1993 to 2003 and since 2013 and also served as our
Secretary and General Counsel from 1993 until 2018. Mr. Warren brings to our Board extensive legal and industry experience, as well as a long history with, and deep institutional knowledge of, the Company.
The information relating to the occupations and security holdings of our directors and nominees is based upon information received from them.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Sections 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers and holders of more than 10% of our common stock to file reports regarding their ownership and changes in
ownership of our securities with the SEC. Based solely on a review of the copies of such reports and amendments thereto furnished to us with respect to fiscal 2020 and written representations from our directors and executive officers, we believe
that, during fiscal 2020, our directors, executive officers and 10% stockholders complied with all Section 16(a) filing requirements, except that a Form 3 and Form 4 were not filed reporting Steven Swank’s initial ownership upon joining the Company
as Chief Financial Officer and an initial grant of restricted stock units made to him (which was reported on a Form 8-K).
CODE OF ETHICS
The Company’s Board of Directors has adopted the Tandy Leather Factory, Inc. Code of Business Conduct and Ethics, which applies to the Company’s Chief Executive Officer, Chief Financial Officer, Controller and all
other employees and Directors of the Company. This Code can be found at the Company’s website, www.tandyleather.com, under the Investor Relations/Corporate Governance tabs.
AUDIT COMMITTEE
The Audit Committee’s basic role is to assist the Board of Directors in fulfilling its fiduciary responsibility pertaining to our accounting policies and reporting practices. Among other duties, the Audit Committee
is to be the Board of Directors’ principal agent in assuring the independence of our outside auditor, the integrity of management, and the adequacy of disclosures to stockholders. The Audit Committee has been structured to comply with the
requirements of Section 3(a)(58)(A) of the Exchange Act. The Board of Directors has determined that all members of the Audit Committee are “independent” under the applicable rules of the Nasdaq and that James Pappas, Chairman of the Audit
Committee, qualifies as an “audit committee financial expert” within the meaning of Item 407(d)(5) of Regulation S-K. The Board of Directors has adopted a written charter for the Audit Committee, which is available on our website at www.tandyleather.com.
The Audit Committee met seven times during 2020. The Report of the Audit Committee for the fiscal year ended December 31, 2020 appears below.
Report of the Audit Committee
As members of the Audit Committee, we oversee Tandy Leather Factory, Inc.’s financial reporting process on behalf of the Board of Directors. Management is responsible for the preparation, presentation, and integrity
of our financial statements, accounting and financial reporting principles, internal controls, and procedures designed to ensure compliance with accounting standards, applicable laws, and regulations.
During 2020 we recommended, and the Board of Directors approved, the appointment of Weaver as independent auditors for the year ended December 31, 2020. Our auditors are responsible for performing an independent
audit of the consolidated financial statements and expressing an opinion on the conformity of those audited financial statements with accounting principles generally accepted in the United States.
The Audit Committee has received from Weaver the written disclosures and the letter required by the applicable requirements of the PCAOB regarding Weaver’s communications with the Audit Committee concerning
independence and the Audit Committee has discussed with Weaver their independence from us and our management.
As previously disclosed, in October 2019 the Company’s management, in consultation with the Audit Committee, determined that the Company’s previously issued Consolidated Financial Statements for the years 2017 and
2018 and quarterly periods between January 1, 2017 and March 31, 2019 should no longer be relied upon due to misstatements related to the Company’s accounting processes for inventory transactions. The Company undertook to make the necessary
accounting corrections and restate such financial statements.
The foregoing report was submitted by the Audit Committee and shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A promulgated by the SEC or Section 18 of the
Exchange Act.
|
|
AUDIT COMMITTEE:
|
|
|
James Pappas, Chairman
|
|
|
Elaine D. Crowley
|
|
|
Sharon M. Leite
|
|
|
Sejal Patel
|
COMPENSATION DISCUSSION AND ANALYSIS
The primary focus of our executive compensation programs is to improve our performance year over year and over a longer-term period. The compensation programs were designed to provide the tools necessary to hire
executives with the skills needed to manage Tandy Leather Factory, Inc. to meet these goals and to retain them over the long-term. In developing the programs, a key consideration was to have plans that were easy to understand and administer, while
being competitive with companies of similar size and philosophy. Over the past several years, management and the Compensation Committee have worked to refine the compensation programs used to ensure that they support these goals and our ongoing
business objectives. Our philosophy has been to reward team performance, measured by our overall results. Each executive officer’s compensation is linked to their individual contribution toward increases in the size of our operations, our income,
and increases in stockholder value. At the 2020 Annual Meeting, stockholders were asked to approve Tandy Leather Factory, Inc.’s 2019 executive compensation programs. Approximately 99% of the shares voted approved the program. In consideration
of these results and other factors the Compensation Committee evaluates on a regular basis, the Compensation Committee concluded that Tandy Leather Factory, Inc.’s existing executive compensation programs continue to be appropriate to support Tandy
Leather Factory, Inc.’s compensation philosophy and objectives described in this discussion.
Compensation for our executive officers consists of the following components:
|
•
|
Annual incentive bonus;
|
|
•
|
Restricted stock unit grants;
|
|
•
|
Retirement and other benefits, and
|
Each of these elements of pay is described below.
Company Performance. In 2020, Tandy Leather Factory, Inc.’s sales decreased approximately 15% from 2019, as the Company’s entire fleet of stores was temporarily shut down by
the COVID-19 pandemic. Because of the ongoing financial restatement, the Company has not yet announced (as of the date of this information statement) its full-year gross profits or operating expenses for 2020.
Base Salary
Base salaries are intended to reward our executive officers based upon their roles within Tandy Leather Factory, Inc. and for their performance in those roles. Base salaries are established when an executive officer
is hired, based on prior experience and compared to salaries for comparable positions in other companies. Base salaries are generally increased annually, if market factors dictate such increases and assuming our financial performance is
satisfactory. The Company did not increase, and temporarily lowered because of the COVID-19 pandemic, base salaries for its executive officers during 2020.
Bonuses
We award discretionary bonuses to our executive officers, as determined by the Compensation Committee. We determine these bonuses on a subjective basis, considering business prospects for the upcoming year and the
improvement in our net income and financial position for the year in question. These discretionary bonuses are awarded annually and paid in the first quarter of the following year. We did not award any bonuses to our executive officers for 2020.
Restricted Stock Unit Grants
We award restricted stock unit grants to promote long-term retention of executive officers and permit them to accumulate equity ownership in Tandy Leather Factory, Inc., so that the interests of our management team
are directly aligned with the interest of our stockholders. We believe it is important to have an element of compensation that is focused directly on retaining talent so that we can minimize potential loss of company and industry knowledge and the
disruption inherent in unplanned turnovers. Restricted stock unit grants also align our executive officers with our stockholders by making them stockholders themselves. Retaining talent and aligning interests encourages our executive officers to
take actions to enhance the value of our business and increase stockholder value. Time-based restricted stock unit awards generally vest equally over four years. We did not grant any restricted stock units to our Chief Executive Officer during
2020. In July 2020, the Company awarded Steven Swank, its Chief Financial Officer, a new-hire grant of restricted stock units valued at $30,000, which were scheduled to vest one year after the grant date; these units were cancelled when Mr. Swank
left the Company in March 2021.
Retirement and Other Benefits
Our benefits program includes a retirement plan and a group insurance program. The objective of the program is to provide executive officers with reasonable and competitive levels of protection against the four
contingencies (retirement, death, disability and ill health) that could interrupt the executive officer’s employment and/or income received as an active employee. Our retirement plans are designed to provide a competitive level of retirement
income to our executive officers and to reward them for continued service with Tandy Leather Factory, Inc. The retirement program for executive officers consists of a tax-qualified 401(k) Plan that covers all full-time employees. The group
insurance program consists of life and health insurance benefits plans that cover all full-time employees.
Employment Agreement with Ms. Carr
We have entered into an employment agreement with Janet Carr, CEO, dated as of October 2, 2018. Under this agreement, Ms. Carr is entitled to receive an annual base salary of $500,000
and is eligible to receive an annual discretionary bonus, as determined by the Board. Also under this agreement, On October 2, 2018, Ms. Carr received: (i) a time-based equity grant of 460,000 restricted stock units (“RSUs”) that vest over five
years from the date of the grant; (ii) a performance-based equity grant of 92,000 RSUs that will vest if/when the Company’s operating income exceeds $12 million dollars two fiscal years in a row; and (iii) a performance-based equity grant of
92,000 RSUs that will vest if/when the Company’s operating income exceeds $14 million dollars in one fiscal year. Ms. Carr was also reimbursed for reasonable costs and expenses in connection with her commute and relocation from New York to Texas
in 2019. If Ms. Carr’s employment is terminated by the Company without Cause or by Ms. Carr for Good Reason (each as defined in her employment agreement), Ms. Carr would receive twelve months of base salary and an annual reimbursement of COBRA
payments and vest in a pro-rata portion of the time-based RSUs, based on the number of days that Ms. Carr is employed. Any unvested performance-based RSUs would be forfeited. In the event that Ms. Carr’s employment is terminated by the Company
without Cause or by Ms. Carr for Good Reason within six months prior to or one year after a Change in Control (as defined in her employment agreement), Ms. Carr would receive thirty-six months of base salary and an annual reimbursement of COBRA
payments and vest in a pro-rata portion of the time-based RSUs, based on the number of days that Ms. Carr had been employed. Any unvested performance-based RSUs would be forfeited. Under this agreement, a “Change in Control” is a
defined term that includes a merger, a sale of all or substantially all of our assets or a similar transaction involving us, a third party acquiring more than 50% of our shares which includes, in general, a person or entity becoming a 50% or
greater stockholder of us, a covered removal of directors on our board of directors, or our liquidation or dissolution.
Change in Control Effect on other Restricted Stock Units
Our 2013 Restricted Stock Plan (which does not govern the grants to Ms. Carr described above) also provides for accelerated vesting in the event of a “change of control”, whose meaning is materially the same as a
Change in Control described above for Ms. Carr’s employment agreement. Except to the extent that the Compensation Committee provides a result more favorable to holders of awards, in the event of a change of control, restricted stock units that are
not vested before a change of control will vest on the date of the change of control.
Separation and Release Agreement with Steven Swank
We entered into a Separation and Release Agreement with Steven Swank, the Company’s Chief Financial Officer from July 2020 until January 2021, dated as of January 6, 2021. Pursuant to this agreement, Mr. Swank
remained with the Company until March 5, 2021 (the “Separation Date”) to assist with transition. During this period, Mr. Swank continued to receive his base salary of $275,000 per year and continued to participate in all company health and
retirement plans and other benefits programs. The Company also agreed not to seek reimbursement from Mr. Swank for relocation or health insurance-related payments totaling $44,544 made to Mr. Swank at the time of his hire.
Compensation Committee Report
The Compensation Committee has reviewed and discussed the foregoing Compensation Discussion and Analysis (“CD&A”) with management.
The foregoing report was submitted by the Compensation Committee and shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A promulgated by the SEC, other than as
provided in Item 407 of Regulation S-K, or to the liabilities of Section 18 of the Exchange Act.
|
|
COMPENSATION COMMITTEE:
|
|
|
Sharon M. Leite, Chair
Vicki Cantrell
Jefferson Gramm
|
COMPENSATION TABLES AND OTHER INFORMATION
The following table includes information required by Item 402 of Regulation S-K promulgated by the SEC. The amounts shown represent the compensation paid to our named executive officers for each fiscal year noted in
the table, for services rendered to us. For a more complete discussion of the elements of compensation included in this table, please refer to the discussion reflected in “Compensation Discussion and Analysis” above.
SUMMARY COMPENSATION TABLE
|
Name and Principal
Position
|
|
Year
|
|
|
Salary
|
|
|
Bonus
|
|
|
Restricted Stock Awards
|
|
|
All Other Compensation
|
|
|
|
Total
|
|
|
Janet Carr, Chief Executive
Officer (1)
|
|
|
2020
2019
2018
|
|
|
$
$
$
|
361,574
500,000
113,010
|
|
|
$
|
-
-
-
|
|
|
$
$
|
-
-
4,759,160
|
|
|
$
$
|
10,000
20,230
|
(3)
(3)
-
|
|
|
$
$
$
|
371,574
520,230
4,872,170
|
|
|
Steven Swank, Chief Financial Officer (2)
|
|
|
2020
|
|
|
$
|
123,077
|
|
|
$
|
-
|
|
|
$
|
30,000
|
|
|
$
|
44,544
|
(4)
|
|
|
$
|
197,621
|
|
|
(1)
|
In October 2018, Ms. Carr was appointed CEO with an annual salary of $500,000. In addition, Ms. Carr was granted 644,000 restricted stock units; the amount reported as the value of these restricted stock units is based on the grant date
fair value of $7.39 per share, computed in accordance with FASB ASC Topic 718.
|
|
(2)
|
In July 2020, Mr. Swank was granted restricted stock units valued on the grant date at $30,000 based on the grant date fair value of $3.31 per share, computed in accordance with FASB ASC Topic 718. Mr. Swank’s position as an executive
officer of the Company terminated in January 2021, although he continued to remain employed by the Company in a non-executive-officer capacity until March 2021, at which time these restricted stock units were cancelled.
|
|
(3)
|
For 2019, represents Company-reimbursed moving expenses for Ms. Carr. For 2020, represents matching funds contributed to Ms. Carr’s Company 401(k) plan.
|
|
(4)
|
Represents $42,376 paid by the Company to Mr. Swank for his relocation to Texas and $2,168 reimbursed to Mr. Swank for extending his health insurance coverage from his prior employer.
|
GRANTS OF PLAN-BASED AWARDS
The Company did not grant any plan-based or non-plan-based equity awards to its Chief Executive Officer during 2020. In July 2020, the Company awarded Steven Swank, its Chief Financial Officer, a new-hire grant of
restricted stock units valued at $30,000, which were scheduled to vest one year after the grant date; these units were cancelled when Mr. Swank left the Company in March 2021.
OUTSTANDING STOCK AWARDS
as of December 31, 2020
|
Name
|
|
Number of shares of stock
that have not vested (#)
|
|
|
Market value of shares of stock
that have not vested ($)
|
|
|
Janet Carr (1)
|
|
|
460,000
|
|
|
$
|
1,472,000
|
|
|
Steven Swank (2)
|
|
|
9,063
|
|
|
$
|
29,002
|
|
|
(1)
|
Vesting is subject to Ms. Carr’s continued employment with the Company and to the achievement of performance criteria set forth in 184,000 performance-based restricted stock award units granted to her in 2018.
|
|
(2)
|
All stock awards held by Mr. Swank were cancelled upon his departure from the Company in March 2021.
|
EQUITY COMPENSATION PLANS
The following table sets forth information regarding our equity compensation plans (including individual compensation arrangements) that authorize the issuance of shares of our common stock. The information is
aggregated in two categories: plans previously approved by our stockholders and plans not approved by our stockholders. The table includes information for officers, directors, employees and non-employees. All information is as of December 31,
2020.
|
Plan Category
|
|
Column (A)
Number of
Securities to be
issued upon exercise
of outstanding
options, warrants
and rights
|
|
|
Column (B)
Weighted-average
exercise price of
outstanding
options, warrants
and rights
|
|
|
Column (C)
Number of securities
remaining available for
future issuance under equity
compensation plans
(excluding securities
reflected in Column (A)
|
|
|
Equity compensation plans approved by stockholders
|
|
|
61,215
|
|
|
$
|
-
|
|
|
|
630,202
|
|
|
Equity compensation plans not approved by stockholders
|
|
|
460,000
|
|
|
|
-
|
|
|
|
-
|
|
|
TOTAL
|
|
|
521,215
|
|
|
$
|
-
|
|
|
|
630,202
|
|
DIRECTOR COMPENSATION
Compensation of non-employee directors is determined by the Board. Our non-employee directors are paid an annual cash retainer of $16,000; in addition, the Chairman of the Audit Committee is paid an additional annual
retainer of $5,000, and other members of the Audit Committee are paid an additional retainer of $2,000. All directors are reimbursed for reasonable expenses incurred in connection with their service on our Board of Directors, including the
committees thereof.
We generally award restricted stock units annually to each non-employee director in accordance with our 2013 Restricted Stock Plan; these grants generally have a value equal to approximately $14,000 (based on the
fair market value of our common stock as of the date of grant) and vest equally over a four-year period from the date of grant. Between February 2017 and the end of 2018, we did not award any equity to our non-employee directors, and the Board
has determined that this was an oversight that should be corrected with increased grants in 2019 and 2020. Accordingly, in February 2020, we awarded each non-employee director other than Mr. Gramm (who voluntarily declined this equity grant) an
increased grant of restricted stock units with a fair market value equal to $23,000 as of the grant date; the shares underlying the 2020 awards will vest equally over a three-year period from the date of grant. In February 2021, we awarded each
non-employee director other than Mr. Gramm (who voluntarily declined this equity grant) a grant of restricted stock units with a fair market value equal to $14,000 as of the grant date; the shares underlying the 2021 awards will vest equally over a
four-year period from the date of grant. Upon joining the Board in May 2021, Elaine Crowley was awarded a grant of restricted stock units with these same terms.
The goal of our restricted stock unit grants to directors is to attract and retain competent non-employee personnel to serve on our Board of Directors by offering them long-term equity incentives. Each of our
non-employee directors is eligible to participate in this plan.
DIRECTOR COMPENSATION TABLE
The table below summarizes the compensation paid by us to our non-employee directors for their service on the Board during the year ended December 31, 2020. Our directors who are also employees receive no additional
compensation for serving as directors.
|
Name
|
|
Fees Earned or Paid in
Cash ($)
|
|
|
Restricted Stock
Awards($)
|
|
|
Total
($)
|
|
|
Vicki Cantrell
|
|
$
|
16,000
|
|
|
$
|
23,000
|
|
|
$
|
39,000
|
|
|
Jefferson Gramm
|
|
|
16,000
|
|
|
|
-
|
|
|
|
16,000
|
|
|
Sharon M. Leite
|
|
|
18,000
|
|
|
|
23,000
|
|
|
|
41,000
|
|
|
James Pappas
|
|
|
21,000
|
|
|
|
23,000
|
|
|
|
44,000
|
|
|
Sejal Patel
|
|
|
18,000
|
|
|
|
23,000
|
|
|
|
41,000
|
|
|
William Warren
|
|
|
16,000
|
|
|
|
23,000
|
|
|
|
39,000
|
|
|
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
The following table sets forth information regarding the following as of May 20, 2021, the record date for the Annual Meeting:
|
•
|
Beneficial owners of more than 5 percent of the outstanding shares of our common stock, other than our officers and directors;
|
|
•
|
Beneficial ownership by our current directors and nominees and the named executive officers set forth in the Summary Compensation table below; and
|
|
•
|
Beneficial ownership by all our current directors and executive officers as a group, without naming them.
|
The percentage of beneficial ownership is calculated on the basis of 8,663,921 shares of our common stock outstanding as of July 31, 2021. The information provided in the table is based on our records, information
filed with the SEC, and information provided to us, except where otherwise noted.
Security Ownership of Certain Beneficial Owners
|
Title of Class
|
|
Name and Address of Beneficial Owner
|
|
Amount and Nature of
Beneficial Ownership (1)
|
|
|
Percent
of Class
|
|
|
Common Stock
|
|
Bandera Partners LLC (2)
50 Broad Street, Suite 1820
New York, NY 10004
|
|
|
2,857,936
|
|
|
|
33.0
|
%
|
|
Common Stock
|
|
JCP Investment Partnership, LP (3)
1177 West Loop South, Suite 1650
Houston, TX 77027
|
|
|
859,197
|
|
|
|
9.9
|
%
|
Security Ownership of Management
|
Title of Class
|
|
Name of Beneficial Owner
|
|
Amount and Nature of
Beneficial Ownership (1)(4)
|
|
|
Percent
of Class
|
|
|
Common Stock
|
|
Janet Carr
|
|
|
192,800
|
|
|
|
2.2
|
%
|
|
Common Stock
|
|
Michael Galvan
|
|
|
-
|
|
|
|
*
|
|
|
Common Stock
|
|
Vicki Cantrell
|
|
|
3,374
|
|
|
|
*
|
|
|
Common Stock
|
|
Elaine D. Crowley
|
|
|
-
|
|
|
|
*
|
|
|
Common Stock
|
|
Jefferson Gramm(2)
|
|
|
2,864,055
|
|
|
|
33.1
|
%
|
|
Common Stock
|
|
Sharon M. Leite
|
|
|
3,374
|
|
|
|
*
|
|
|
Common Stock
|
|
James Pappas (3)
|
|
|
863,922
|
|
|
|
10.0
|
%
|
|
Common Stock
|
|
Sejal Patel
|
|
|
3,374
|
|
|
|
*
|
|
|
Common Stock
|
|
William Warren
|
|
|
28,516
|
|
|
|
*
|
|
|
All Current Directors and Executive Officers as a Group (9 persons)
|
|
3,959,415
|
|
|
|
45.7
|
%
|
* Represents beneficial ownership of less than 1% of our outstanding shares of common stock.
|
(1)
|
All shares of common stock are owned beneficially, and such owner has sole voting and investment power, unless otherwise stated. The inclusion
herein of shares listed as beneficially owned does not constitute an admission of beneficial ownership.
|
|
(2)
|
Holdings shown for Jefferson Gramm and Bandera Partners, LLC are based on a Schedule 13D/A filed on February 5, 2021 by Mr. Gramm and Bandera Partners, LLC. Bandera Partners, LLC is the investment manager of
Bandera Master Fund L.P. in whose name 2,857,936 of our shares are held. Messrs. Gregory Bylinksy and Jefferson Gramm are Managing Partners, Managing Directors and Portfolio Managers of Bandera Partners LLC. Bandera Master Fund L.P. has
delegated to Bandera Partners the sole and exclusive authority to vote and dispose of the securities held by Bandera Master Fund. As a result, each of Bandera Partners and Messrs. Bylinksy and Gramm may be deemed to beneficially own the
shares held by Bandera Master Fund.
|
|
(3)
|
Holdings shown JCP Investment Management, LLC are based on a Schedule 13D/A filed on December
6, 2018 by JCP Investment Management, LLC. Mr. Pappas, one of our Directors, is a Managing Member and Owner of JCP Investment Management, LLC. As a result, Mr. Pappas may be deemed to beneficially own the shares held by JCP Investment
Management, LLC. Ownership percentages in the table are rounded to the nearest 1/10%; actual ownership percentage for Mr. Pappas is 9.97%.
|
|
(4)
|
To our knowledge, none of these shares have been pledged.
|
|
ITEM 13.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
On January 28, 2021, the Company entered into an agreement with Central Square Management (the “Seller”), an institutional shareholder of more than 5% of the Company’s common stock, to repurchase 500,000 shares of
the Company’s common stock in a private transaction. The purchase price was $3.35 per share and $1,675,000 in total. The closing of the repurchase of those shares took place on February 1, 2021. Prior to the repurchase, the Shares represented
approximately 5.5% of the Company’s outstanding common stock. The Company believes that the transaction was an arm’s length transaction, at the then-current market price for the Company’s common stock and otherwise on favorable terms to the
Company.
For our last two fiscal years, there have been no other transactions, and there is no currently proposed transaction, in which we were or are to be a participant and the amount involved exceeds the lesser of $120,000
or one percent (1%) of the average of our total assets at year-end for our last two most recently completed fiscal years, and in which any related person, as defined under Item 404(a) of Regulation S-K, had or will have a direct or indirect
material interest. Such related persons include our directors, executive officers, nominees for director, any beneficial owner of more than five percent (5%) of our common stock, and their immediate family members.
Our Code of Business Conduct, which applies to all employees, including our executive officers and our directors, provides that our employees and officers and members of our Board of Directors are expected to use
sound judgement to help us maintain appropriate compliance procedures and to carry out our business with honesty and in compliance with law and high ethical standards. In addition, our directors and officers are expected to report any potential
related party transactions to the Board of Directors. Our Audit Committee, on behalf of the Board of Directors, reviews the material facts of all reported matters, by taking into account, among other factors it deems appropriate, whether a
transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the related person’s interest in the transaction to determine whether an actual
conflict of interest exists. No director may participate in any discussion or approval of a matter for which he or she is a related party. An annual review and assessment of any ongoing relationship with a related party is performed by the Audit
Committee and reported to the Board of Directors.
|
ITEM 14.
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
Weaver & Tidwell performed the audit of our 2018 financial statements, as well as the reviews of the financial statements included in our Forms 10-Q during 2018 and the first quarter of 2019. They also have
performed services in connection with the pending restatement of our 2017 – 2018 financial statements and with the pending preparation of financial statements for periods since January 1, 2019. The amounts shown below are the aggregate amounts
paid to Weaver during 2020 and 2019 for services in the categories indicated.
|
Types of Fees
|
|
2020
|
|
|
2019
|
|
|
Audit fees
|
|
$
|
352,691
|
|
|
$
|
125,850
|
|
|
Audit-related fees
|
|
|
-
|
|
|
|
-
|
|
|
Tax fees
|
|
|
-
|
|
|
|
-
|
|
|
All other fees
|
|
|
-
|
|
|
|
-
|
|
|
Total
|
|
$
|
352,691
|
|
|
$
|
125,850
|
|
In accordance with the charter of our Audit Committee as in effect at the relevant times and the rules of the SEC, the Audit Committee approved all of the fees indicated above before the services were provided,
except for the portions of the 2019 and 2020 fees relating to the financial restatement of the prior years, which were not able to be determined before the services were begun. The Audit Committee considered the services listed above to be
compatible with maintaining Weaver’s independence.
|
ITEM 15.
|
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
|
|
(a)
|
The following are filed as part of this Form 10-K:
|
1. Financial Statements
The following Consolidated Financial Statements are included in Item 8, Financial Statements and Supplementary Data:
|
•
|
Report of Independent Registered Public Accounting Firm
|
|
•
|
Consolidated Balance Sheets as of December 31, 2020 and 2019
|
|
•
|
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2020 and 2019
|
|
•
|
Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019
|
|
•
|
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2020 and 2019
|
2. Financial Statement Schedules
All financial statement schedules are omitted because the required information is not present or not present in sufficient amounts to require submission of the schedule or because the information is reflected in the
Consolidated Financial Statements or notes thereto.
3. Exhibits
|
|
TANDY LEATHER FACTORY, INC. AND SUBSIDIARIES
EXHIBIT INDEX
|
|
Exhibit
Number
|
Description
|
|
|
Certificate of Incorporation of The Leather Factory, Inc., and Certificate of Amendment to Certificate of Incorporation of The Leather Factory, Inc. filed as Exhibit 3.1 to Tandy Leather Factory, Inc.’s Quarterly Report on Form 10-Q
filed with the Securities and Exchange Commission on August 12, 2005 and incorporated by reference herein.
|
|
|
|
|
|
Bylaws of The Leather Factory, Inc. (n/k/a Tandy Leather Factory, Inc.), filed as Exhibit 3.5 to the Current Report on Form 8-K (Commission File No. 001-12368) filed by Tandy Leather Factory, Inc (f/k/a The Leather Factory, Inc.) with
the Securities and Exchange Commission on July 14, 2004 and incorporated by reference herein.
|
|
|
|
|
|
Certificate of Designations of Series A Junior Participating Preferred Stock of Tandy Leather Factory, Inc. filed as Exhibit 3.1 to Tandy Leather Factory, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on June 10, 2013 and incorporated by reference herein.
|
|
|
|
|
|
Description of Securities filed as Exhibit 4.1 to Tandy Leather Factory, Inc.’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on June 22, 2021 and incorporated by reference herein.
|
|
|
|
|
|
Tandy Leather Factory, Inc. 2013 Restricted Stock Plan, filed as Exhibit 10.1 to Tandy Leather Factory’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 14, 2013 and incorporated by reference
herein.
|
|
|
|
|
|
Amendment #1 to Tandy Leather Factory, Inc. 2013 Restricted Stock Plan filed as Exhibit 10.5 to Tandy Leather Factory, Inc.’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on June 22, 2021 and
incorporated by reference herein.
|
|
|
|
|
|
Form of Non-Employee Director Restricted Stock Agreement under Tandy Leather Factory, Inc.’s 2013 Restricted Stock Plan, filed as Exhibit 10.1 to Tandy Leather Factory, Inc.’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on February 14, 2014 and incorporated by reference herein.
|
|
|
|
|
|
Form of Employee Restricted Stock Award Agreement under Tandy Leather Factory, Inc.’s 2013 Restricted Stock Plan, filed as Exhibit 10.7 to Tandy Leather Factory, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on February 14, 2014 and incorporated by reference herein.
|
|
|
|
|
|
Form of Employment Agreement dated October 2, 2018 between the Company and Janet Carr, filed as Exhibit 10.1 to Tandy Leather Factory Inc.’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 5,
2018 and incorporated by reference herein.
|
|
|
|
|
|
Form of Stand-Alone Restricted Stock Unit Agreement dated October 2, 2018 between the Company and Janet Carr, filed as Exhibit 10.2 to Tandy Leather Factory Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 5, 2018 and incorporated by reference herein.
|
|
|
Form of Stand-Alone Restricted Stock Unit Agreement dated October 2, 2018 between the Company and Janet Carr, filed as Exhibit 10.3 to Tandy Leather Factory Inc.’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 5, 2018 and incorporated by reference herein.
|
|
|
|
|
|
Form of Stock Purchase Agreement dated January 28, 2021 between the Company and Central Square Management, filed as Exhibit 10.14 to the Tandy Leather Factory, Inc.’s 2019 Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on June 22, 2021 and incorporated by reference herein.
|
|
|
|
|
14.1
|
Code of Business Conduct and Ethics of Tandy Leather Factory, Inc., adopted by the Board of Directors on December 4, 2018, filed as Exhibit 14.1 to Tandy Leather Factory, Inc.’s Quarterly Report on Form 10-Q filed with the Securities
and Exchange Commission on June 22, 2021 and incorporated by reference herein.
|
|
|
|
|
|
Subsidiaries of Tandy Leather Factory, Inc.
|
|
|
|
|
|
Consent of Independent Registered Public Accounting Firm.
|
|
|
|
|
|
Certification by the Chief Executive Officer and President pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended.
|
|
|
|
|
|
Certification by the Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended.
|
|
|
|
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
*101.INS
|
XBRL Instance Document.
|
|
|
|
|
*101.SCH
|
XBRL Taxonomy Extension Schema Document.
|
|
|
|
|
*101.CAL
|
XBRL Taxonomy Extension Calculation Document.
|
|
|
|
|
*101.DEF
|
XBRL Taxonomy Extension Definition Document.
|
|
|
|
|
*101.LAB
|
XBRL Taxonomy Extension Labels Document.
|
|
|
|
|
*101.PRE
|
XBRL Taxonomy Extension Presentation Document.
|
*Filed Herewith
None.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Form 10-K to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
TANDY LEATHER FACTORY, INC.
|
|
|
By:
|
|
|
|
|
/s/ Janet Carr
|
|
|
|
Janet Carr
|
|
|
|
Chief Executive Officer
|
|
|
|
|
|
Dated: September 2, 2021
|
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934 as amended, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Jefferson Gramm
|
|
Chairman of the Board
|
|
|
|
Jefferson Gramm
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Janet Carr
|
|
Chief Executive Officer, Director
|
|
|
|
Janet Carr
|
|
(principal executive officer)
|
|
|
|
|
|
|
|
|
|
/s/ Michael Galvan
|
|
Chief Financial Officer
|
|
|
|
Michael Galvan
|
|
(principal financial officer and
|
|
|
|
|
|
principal accounting officer)
|
|
|
|
|
|
|
|
|
|
/s/ William M. Warren
|
|
Director
|
|
|
|
William M. Warren
|
|
|
|
|
|
|
|
|
|
|
|
/s/ James Pappas
|
|
Director
|
|
|
|
James Pappas
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Vicki Cantrell
|
|
Director
|
|
|
|
Vicki Cantrell
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Sharon M. Leite
|
|
Director
|
|
|
|
Sharon M. Leite
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Sejal Patel
|
|
Director
|
|
|
|
Sejal Patel
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Elaine D. Crowley
|
|
Director
|
|
|
|
Elaine D. Crowley
|
|
|
|
|
84