10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant To Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the Quarterly Period Ended December 31, 2010

Commission File Number 0-18927

TANDY BRANDS ACCESSORIES, INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization) 75-2349915
(I.R.S. Employer
Identification No.)

3631 West Davis, Suite A, Dallas, Texas 75211
(Address of principal executive offices and zip code)

214-519-5200
(Registrant’s telephone number, including area code)

Former name, former address and former fiscal year, if changed since last report:
Not Applicable

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

þ Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

o Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o	Non-accelerated filer o	Smaller reporting company þ
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes þ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

Class	Number of shares outstanding at February 8, 2011
Common stock, $1.00 par value	6,971,618

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
Item 1 Financial Statements	4-11
Item 2 Management’s Discussion And Analysis Of Financial Condition And Results Of Operations	11-14
Item 4 Controls And Procedures	14
PART II — OTHER INFORMATION
Item 1A Risk Factors	14
Item 6 Exhibits	14
SIGNATURES	15
Exhibit 10.1
Exhibit 10.2
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1

2

References in this Quarterly Report on Form 10-Q to “we,” “our,” “us,” or the “Company” refer to Tandy Brands Accessories, Inc. and its subsidiaries unless the context requires otherwise.

This Form 10-Q contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933 and the Securities Exchange Act of 1934. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “continues,” “may,” variations of such words, and similar expressions are intended to identify forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our business, and other characterizations of future events or circumstances are forward-looking statements. We have based these forward-looking statements on our current expectations about future events, estimates and projections about the industry in which we operate. These statements are not guarantees of future performance. Our actual results may differ materially from those suggested by these forward-looking statements as a result of a number of known and unknown risks and uncertainties that are difficult to predict including, without limitation, general economic and business conditions, competition in the accessories and gifts markets, acceptance of our product offerings and designs, issues relating to distribution, the termination or non-renewal of our material licenses, a significant decrease in business from or loss of any of our major customers or programs, and others identified under “Risk Factors” included in our 2010 Annual Report on Form 10-K. Given these risks and uncertainties, you are cautioned not to place undue reliance on forward-looking statements. The forward-looking statements included in this report are made only as of the date hereof. Except as required under federal securities laws and the rules and regulations of the United States Securities and Exchange Commission, we do not undertake, and specifically decline, any obligation to update any of these statements or to publicly announce the results of any revisions to any forward-looking statements after the distribution of this report, whether as a result of new information, future events, changes in assumptions, or otherwise.

3

PART I — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

Tandy Brands Accessories, Inc. And Subsidiaries

Unaudited Consolidated Statements Of Operations

(in thousands except per share amounts)

	Three Months Ended						Six Months Ended
	December 31						December 31
	2010			2009			2010			2009
Net sales	$	42,887		$	48,355		$	72,135		$	85,548
Cost of goods sold		28,654			31,041			47,691			54,005
Gross margin		14,233			17,314			24,444			31,543
Selling, general and administrative expenses		12,592			14,034			24,457			27,228
Depreciation and amortization		646			703			1,291			1,380
Acquisition transaction costs		20			—			50			289
Total operating expenses		13,258			14,737			25,798			28,897
Operating income (loss)		975			2,577			(1,354	)		2,646
Interest expense		(285	)		(418	)		(471	)		(686	)
Other income		112			347			155			383
Acquisition bargain purchase gain		—			—			—			1,379
Income (loss) before income taxes		802			2,506			(1,670	)		3,722
Income tax expense (benefit)		81			(4,303	)		297			(4,190	)
Net income (loss)	$	721		$	6,809		$	(1,967	)	$	7,912
Income (loss) per common share	$	0.10		$	0.98		$	(0.28	)	$	1.14
Income (loss) per common share assuming dilution	$	0.10		$	0.95		$	(0.28	)	$	1.11
Common shares outstanding		6,970			6,930			6,970			6,930
Common shares outstanding assuming dilution		7,095			7,136			6,970			7,126

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

4

Tandy Brands Accessories, Inc. And Subsidiaries

Unaudited Consolidated Balance Sheets

(in thousands)

	December 31			June 30
	2010			2010
Assets
Current assets:
Cash and cash equivalents	$	330		$	830
Restricted cash		1,404			1,333
Accounts receivable		25,043			18,630
Inventories		38,381			31,371
Other current assets		3,132			8,114
Total current assets		68,290			60,278
Property and equipment, net		7,159			8,658
Other assets:
Intangible assets		5,384			5,717
Other assets		764			879
Total other assets		6,148			6,596
	$	81,597		$	75,532
Liabilities And Stockholders’ Equity
Current liabilities:
Accounts payable	$	10,385		$	13,497
Accrued compensation		1,448			3,202
Accrued expenses		2,036			1,795
Note payable		21,520			9,425
Total current liabilities		35,389			27,919
Other liabilities		4,005			3,793
Stockholders’ equity:
Preferred stock, $1.00 par value, 1,000 shares authorized, none issued		—			—
Common stock, $1.00 par value, 10,000 shares authorized, 6,972 shares and 6,933 shares issued and outstanding, respectively		6,972			6,933
Additional paid-in capital		34,235			34,172
Retained earnings (deficit)		(809	)		1,158
Other comprehensive income		1,805			1,557
Total stockholders’ equity		42,203			43,820
	$	81,597		$	75,532

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

5

Tandy Brands Accessories, Inc. And Subsidiaries

Unaudited Consolidated Statements Of Cash Flows

(in thousands)

	Six Months Ended
	December 31
	2010			2009
Cash flows used for operating activities:
Net income (loss)	$	(1,967	)	$	7,912
Adjustments to reconcile net income (loss) to net cash used for operating activities:
Acquisition bargain purchase gain		—			(1,379	)
Deferred income taxes		16			(4,238	)
Doubtful accounts receivable provision		28			221
Depreciation and amortization		1,405			1,387
Stock compensation expense		21			358
Amortization of debt costs		34			168
Other		(167	)		(344	)
Changes in assets and liabilities:
Accounts receivable		(6,409	)		(9,952	)
Inventories		(6,810	)		186
Other assets		3,526			1,302
Accounts payable		(3,433	)		3,636
Accrued expenses		(1,146	)		(1,559	)
Net cash used for operating activities		(14,902	)		(2,302	)
Cash flows provided (used) by investing activities:
Acquisition		(245	)		(3,921	)
Purchases of property and equipment		(521	)		(2,862	)
Sales of property and equipment		2,774			781
Net cash provided (used) by investing activities		2,008			(6,002	)
Cash flows provided by financing activities:
Change in cash overdrafts		258			859
Acquisition earn-out payments		—			(2,072	)
Net note borrowings		12,076			8,351
Net cash provided by financing activities		12,334			7,138
Effect of exchange-rate changes on cash and cash equivalents		60			55
Net decrease in cash and cash equivalents		(500	)		(1,111	)
Cash and cash equivalents beginning of year		830			2,454
Cash and cash equivalents end of period	$	330		$	1,343
Noncash investing and financing activities:
Acquisition earn-out	$	—		$	4,373

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

6

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Accounting Principles

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain amounts have been reclassified in the fiscal 2010 financial statements to conform to the fiscal 2011 presentation, including reclassification of restricted cash.

The preparation of our consolidated financial statements requires the use of estimates that affect the reported value of assets, liabilities, revenues, and expenses. These estimates are based on historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for our conclusions. We continually evaluate the information used to make these estimates as the business and economic environment change, including evaluation of events subsequent to the end of the quarter through the financial statements issuance date. Actual results may differ from these estimates under different assumptions or conditions. Such differences could have a material impact on our future financial position, results of operations, and cash flows.

The consolidated balance sheet at June 30, 2010 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These interim unaudited consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in our 2010 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

Historically, our first and second quarter sales and operating results reflect a seasonal increase compared to the third and fourth quarters of our fiscal year. Sales and operating results for the first six months of fiscal 2011 are not necessarily indicative of the results that may be expected for the year ending June 30, 2011.

Note 2 — Fair Value Measurements

We measure fair values using unadjusted quoted prices in active markets (Level 1 inputs), quoted prices for similar instruments in active or inactive markets, or other directly-observable factors (Level 2 inputs), or our assumptions about the assumptions market participants would use (Level 3 inputs). Our financial instruments consist primarily of cash, trade receivables and payables, and our credit facility. The carrying values of cash and trade receivables and payables are considered to be representative of their respective fair values. Our credit facility, which was most recently amended effective May 10, 2010, bears interest at floating market interest rates; therefore, we believe the fair value of amounts borrowed approximates the carrying value as our credit rating is not materially different from when we last amended the agreement. At December 31, 2010 and June 30, 2010, no material assets or liabilities were measured at fair value.

Note 3 — Acquisition

On July 9, 2009, we purchased from Chambers Belt Company (“Chambers”), a wholly-owned subsidiary of Phoenix Footwear Group, Inc., its intellectual property, customer relationships, manufacturing equipment, and substantially all of its inventory. In July 2009, we paid $3.9 million to Chambers and certain of its vendors. The earn-out provisions of the purchase agreement required payment of 21.5% of net sales through July 9, 2010 of private label and other products formerly sold by Chambers.

Our estimate of the net assets’ fair value exceeded the estimated fair value of the total consideration we paid and would pay over the earn-out period which we believe resulted from Chambers’ financial difficulties and uncertainties relating to extending the terms of certain licenses. As a result, we recognized a $1.4 million bargain purchase gain in July 2009.

The equipment we acquired is being depreciated using the straight line method over periods of three to five years (first half fiscal 2011 and 2010 — $167,000). The customer list is being amortized over seven years in proportion to the estimated undiscounted cash flows which may be derived from the acquired assets (first half fiscal 2011 - $283,000; first half fiscal 2010 — $397,000). The trade names have indefinite lives and, therefore, are not being amortized.

7

On December 15, 2010, we acquired substantially all of the outstanding equity interests in Maquiladora Chambers de Mexico, S.A. de C.V. (“MCM”) through a purchase agreement with the previous equity interest holders for $245,000. Prior to the acquisition, MCM manufactured products for us under the direction and supervision of our employees, utilizing machinery we purchased from Chambers and raw materials which we supplied.

The following represents the estimated acquisition values of the net assets acquired as of December 15, 2010, the acquisition date:

Net working capital	$	(49	)
Land		107
Buildings		279
Equipment		64
Customer relationship intangible		107
Long-term employee retirement obligation assumed		(263	)
Net assets acquired	$	245

All assets and liabilities were recorded at their estimated fair values on the acquisition date. We derived the estimated fair values from assumptions we believe unrelated market participants would use based on both observable and unobservable marketplace factors. Our estimate of the net assets’ acquired value equaled the fair value of the total consideration paid. As a result, no goodwill was recognized.

The acquired buildings are being depreciated using the straight line method over their remaining economic lives, which range from 10 to 32 years. The acquired furniture, software and equipment are being depreciated using the straight line method over periods of two to five years. The customer relationship intangible is being amortized using the straight line method over 3 years.

Note 4 — Business Segment Information

We sell our products through all major retail distribution channels throughout North America, including mass merchants, national chain stores, department stores, men’s and women’s specialty stores, catalog retailers, grocery stores, drug stores, golf pro shops, sporting goods stores, and the retail exchange operations of the United States military. Our business segments are based on product categories: (1) accessories, which includes belts, small leather goods, eyewear, neckwear, and sporting goods and (2) gifts. Each segment is measured by management based on income consisting of net sales less cost of goods sold, product distribution expenses, and royalties utilizing accounting policies consistent in all material respects with those described in Note 2 of the notes to consolidated financial statements included in our 2010 Annual Report on Form 10-K filed with the Securities and Exchange Commission. No inter-segment revenue is recorded. Assets, related depreciation and amortization, and selling, general and administrative expenses are not allocated to the segments.

8

The following table presents operating information by segment and reconciliation of segment income to our consolidated operating income or loss (in thousands):

	Three Months Ended						Six Months Ended
	December 31						December 31
	2010			2009			2010			2009
Net sales:
Accessories	$	26,218		$	34,839		$	52,581		$	66,625
Gifts		16,669			13,516			19,554			18,923
	$	42,887		$	48,355		$	72,135		$	85,548
Segment income:
Accessories	$	6,262		$	8,863		$	13,013		$	17,392
Gifts		3,011			3,229			3,293			3,873
		9,273			12,092			16,306			21,265
Selling, general and administrative expenses		(7,632	)		(8,812	)		(16,319	)		(16,950	)
Depreciation and amortization		(646	)		(703	)		(1,291	)		(1,380	)
Acquisition transaction costs		(20	)		—			(50	)		(289	)
Operating income (loss)	$	975		$	2,577		$	(1,354	)	$	2,646

Note 5 — Credit Arrangements

We have a $27.5 million credit facility that matures in October 2012 for borrowings and letters of credit which bear interest at the daily adjusting one-month LIBOR rate plus 3.5% or, if such rate is not available under the terms of the credit facility note, the lender’s prime rate plus 2%. At December 31, 2010, we had $5.1 million borrowing availability based on our accounts receivable and inventory levels, outstanding letters of credit totaling $1.4 million, and $21.0 million outstanding borrowings under the facility.

The credit facility is guaranteed by substantially all of our subsidiaries and is secured by substantially all of our assets and those of our subsidiaries. It requires the maintenance of a specified tangible net worth ($36.5 million as of December 31, 2010; $35.0 million as of March 31, 2011) defined as total net assets less intangible assets, which, if not met, could adversely impact our liquidity. The facility contains customary representations and warranties and we have agreed to certain affirmative covenants, including reporting requirements. The facility also limits our ability to engage in certain actions without the lender’s consent, including, repurchasing our common stock, entering into certain mergers or consolidations, guaranteeing or incurring certain debt, engaging in certain stock or asset acquisitions, paying dividends, making certain investments in other entities, prepaying other debts, and making certain property transfers.

Our Canadian subsidiary has a CAD $1.4 million credit facility (direct advances limited to U.S. $1.1 million) with interest at the lender’s prime or U.S. base rates. The facility is secured by cash, credit balances, and/or deposit instruments of CAD $1.4 million (December 31, 2010 — U.S. $1.4 million, June 30, 2010 — U.S. $1.3 million). The credit facility does not have a specified maturity date and can be cancelled without penalty by us or the lender at any time. We had outstanding borrowings under the facility of $482,000 and $230,000 at December 31, 2010 and June 30, 2010, respectively.

Note 6 — Long-Term Incentive Award

During the first quarter of fiscal 2011, we issued 770,000 performance units comprised 50% of cash and 50% of phantom shares of our common stock, to certain employees. Each unit has a $1.00 assigned value and the number of phantom shares of common stock attributable to each award was determined based on the fair market value of our common stock on the date of grant, which was $3.765 per share. The units earned during the performance cycle (July 1, 2010 through June 30, 2013) vary from 0% to 200% of the units awarded based on our basic earnings per share for each of the three fiscal years ending June 30, 2013, excluding the effects of accounting principles changes, extraordinary items, recognized capital gains and losses and, as determined by our board of directors, one-time, non-operating items. Assuming continued employment, if, at the end of the three-year performance cycle, at least the threshold performance level has been achieved, the performance units will cliff vest and, to the extent earned, will generally be settled in cash (if shares are available under our benefit plans, the Board may, in its discretion, settle the phantom shares attributable to an award in shares of our common stock). Notwithstanding the foregoing, employees vest in 100% of the units awarded if there is a change in control or in a fraction of units earned based on the number of years employed during the performance cycle upon death, disability, or normal (age 65) or early (age 55 and 15 years service) retirement. As of December 31, 2010, we expect 462,000 of the 770,000 units granted to vest, which, based on the market price of our common stock on December 31, 2010, would be payable in cash equal to $405,000.

9

Note 7 — Income Taxes

The following presents components of our income tax provisions (in thousands):

	Three Months Ended						Six Months Ended
	December 31						December 31
	2010			2009			2010			2009
Federal and state expense (benefit)	$	15		$	(4,439	)	$	34		$	(4,439	)
Deferred federal and state		244			978			(728	)		1,420
Foreign		(1	)		(28	)		114			(7	)
Uncertain tax positions		36			18			64			73
Deferred tax valuation allowance		(213	)		(832	)		813			(1,237	)
	$	81		$	(4,303	)	$	297		$	(4,190	)

The federal statutory income tax rate reconciles to our effective income tax rate as follows:

	Three Months Ended						Six Months Ended
	December 31						December 31
	2010			2009			2010			2009
Statutory rate		34.0	%		34.0	%		(34.0	)%		34.0	%
State and foreign taxes net of federal tax benefit		(1.7	)		3.9			(0.6	)		3.9
Uncertain tax positions		4.5			0.7			3.8			2.0
Deferred tax valuation allowance		(26.7	)		(210.2	)		48.5			(152.5	)
		10.1	%		(171.6	)%		17.7	%		(112.6	)%

At December 31, 2010 we had federal income tax net operating loss carryovers of approximately $36 million expiring in 2029 through 2031. Our deferred tax valuation allowance was approximately $19 million.

The enactment in November 2009 of the Worker, Homeownership, and Business Assistance Act of 2009 changed the income tax rules for obtaining refunds of previously-paid federal income taxes by carrying back net operating losses to the preceding five years, rather than two years. Consequently, our deferred tax asset associated with approximately $13 million of our net operating loss carryovers no longer required a valuation allowance and we recognized a $4.4 million tax benefit for refunds received in fiscal 2010.

Note 8 — Comprehensive Income

The following presents the components of comprehensive income (loss) (in thousands):

	Three Months Ended				Six Months Ended
	December 31				December 31
	2010		2009		2010			2009
Net income (loss)	$	721	$	6,809	$	(1,967	)	$	7,912
Currency translation adjustments		162		119		248			499
Comprehensive income (loss)	$	883	$	6,928	$	(1,719	)	$	8,411

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Note 9 — Earnings Per Share

Our basic and diluted earnings (loss) per common share are computed as follows (in thousands except per share amounts):

	Three Months Ended				Six Months Ended
	December 31				December 31
	2010		2009		2010			2009
Numerator for basic and diluted earnings per share:
Net income (loss)	$	721	$	6,809	$	(1,967	)	$	7,912
Denominator:
Denominator for basic earnings per share		6,970		6,930		6,970			6,930
Effect of dilutive share-based compensation		125		206		—			196
Denominator for diluted earnings per share		7,095		7,136		6,970			7,126
Income (loss) per common share	$	0.10	$	0.98	$	(0.28	)	$	1.14
Income (loss) per common share assuming dilution	$	0.10	$	0.95	$	(0.28	)	$	1.11

Potentially dilutive securities which could have had an antidilutive effect on our per share results of operations were (in thousands except per share amounts):

	December 31
	2010		2009
Stock options (exercise prices per share: 2010 and 2009 - $5.31 to $15.60)		321		379

Note 10 — Subsequent Events

On February 8, 2011, our Board of Directors appointed Chuck Talley as Chief Accounting Officer and Corporate Vice President, effective immediately. Prior to his promotion, Mr. Talley, age 34, served as our Controller since October 2008. Mr. Talley is a Certified Public Accountant and his previous work experience includes managing audits of publicly traded companies in the retail and consumer products industries for PricewaterhouseCoopers, LLP, where he worked from September 2000 through October 2008. As the Chief Accounting Officer, Mr. Talley will oversee the Company’s treasury, corporate insurance, investor relations and real estate functions as well as maintain responsibility over the Company’s accounting and finance functions. Robert D. Martin will continue in the role of Interim Chief Financial Officer.

In January and February 2011 the Company implemented initiatives to simplify operations and reduce operating expenses. These initiatives included headcount reductions, reducing low volume stock keeping units (SKUs), and discontinuing non-core product lines. The Company expects to incur termination and severance costs of $350,000 during the third quarter of fiscal 2011. On February 8, 2011, our Chief Executive Officer requested, and our Board of Directors approved, a 10% reduction in his current annual salary through the end of fiscal 2011. These initiatives are expected to reduce operating expenses by $2.0 million to $2.5 million on an annualized basis.

ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Item 2 should be read in the context of the information included in our 2010 Annual Report on Form 10-K filed with the Securities and Exchange Commission and elsewhere in this Quarterly Report, including our unaudited consolidated financial statements and accompanying notes in Item 1 of this Quarterly Report.

BUSINESS

We are a leading designer and marketer of branded men’s, women’s and children’s accessories, including belts, small leather goods, eyewear, neckwear, sporting goods, and gifts. Our merchandise is marketed under a broad portfolio of nationally recognized licensed and proprietary brand names, including TOTES^®, WOLVERINE^®, WRANGLER^®, HAGGAR^®, DOCKERS^®, EDDIE BAUER^®, LEVI STRAUSS SIGNATURE^®, AMITY^®, ROLFS^®, CANTERBURY^®, PRINCE GARDNER^®, PRINCESS GARDNER^®, CHAMBERS BELT COMPANY^®, ABSOLUTELY FRESH^®, SURPLUS^®, as well as private brands for major retail customers. We sell our products through virtually all major retail distribution channels throughout North America, including mass merchants, national chain stores, department stores, men’s and women’s specialty stores, catalog retailers, grocery stores, drug stores, golf pro shops, sporting goods stores, and the retail exchange operations of the United States military. We were incorporated as a Delaware corporation on November 1, 1990.

11

Significant Events

In December 2010, we sold our idle distribution center in West Bend, Wisconsin for $2.7 million in cash. The sale of the property and equipment, which was previously classified as held for sale and included in other current assets on the unaudited consolidated balance sheet, resulted in a realized gain included in other income in the unaudited consolidated statement of operations that was not material.

During the second quarter of fiscal 2011, we entered into an arrangement with a customer pursuant to which we agreed to pay $1.2 million to procure additional retail space to sell our products.

In the first quarter of fiscal 2011, we completed our previously announced closure of our Yoakum, Texas operations and the consolidation of such operations into our Dallas, Texas facilities. Upon completion, we reclassified $1.6 million of property and equipment located in Yoakum, Texas from property and equipment into other current assets in our unaudited consolidated balance sheet. This property and equipment is held for sale without expectation of incurring a loss; however, amounts actually realized from the sale of such property and equipment may differ from our estimates.

FISCAL 2011 COMPARED TO FISCAL 2010

Business Segments

The following presents sales, gross margins, and operating expenses for our business segments (in thousands of dollars):

	Three Months Ended						Six Months Ended
	December 31						December 31
	2010			2009			2010			2009
Net sales:
Accessories	$	26,218		$	34,839		$	52,581		$	66,625
Gifts		16,669			13,516			19,554			18,923
	$	42,887		$	48,355		$	72,135		$	85,548
Gross margin:
Accessories	$	8,307		$	11,989		$	17,291		$	24,396
Gifts		5,926			5,325			7,153			7,147
	$	14,233		$	17,314		$	24,444		$	31,543
Gross margin percent of sales:
Accessories		31.7	%		34.4	%		32.9	%		36.6	%
Gifts		35.6			39.4			36.6			37.8
		33.2			35.8			33.9			36.9
Operating expenses:
Accessories	$	2,045		$	3,126		$	4,278		$	7,004
Gifts		2,915			2,096			3,860			3,274
	$	4,960		$	5,222		$	8,138		$	10,278

Our fiscal 2011 second quarter net sales were $42.9 million, which was $5.5 million, or 11%, lower than the prior year. Net sales for our accessories segment were $26.2 million for the second quarter of fiscal 2011, which was $8.6 million, or 25%, lower than in the second quarter of fiscal 2010 primarily due to reduced belt assortments and curtailed levels of replenishment orders by one of our largest customers and higher returns and sales concessions during the current fiscal year. Gifts segment net sales of $16.7 million for the second quarter of fiscal 2011 were $3.2 million, or 23%, greater than in the prior year primarily due to certain shipments occurring later during the current fiscal year and improved customer sell-through rates.

Our net sales for the first six months of fiscal 2011 were $72.1 million, which was $13.4 million, or 16%, lower than the comparable prior year period. Accessories segment net sales of $52.6 million for the first half of fiscal 2011 were $14.0 million, or 21%, lower than in the first half of fiscal 2010 primarily due to reduced belt assortments and curtailed levels of replenishment orders by one of our largest customers and higher returns and sales concessions. Gifts segment net sales of $19.6 million for the first half of fiscal 2011 were $631,000, or 3%, greater than in the prior year primarily due to improved customer sell-through rates.

12

Gross margins were 33.2% and 35.8% for the second quarters of fiscal 2011 and 2010, respectively. Accessories segment margins decreased from 34.4% in the second quarter of fiscal 2010 to 31.7% in the current fiscal year primarily because of lower sales of previously written-down inventory, higher freight costs, and higher write-offs associated with inventory expected to be returned by certain customers. The gifts segment margin was 380 basis points lower in the fiscal 2011 second quarter compared to the same quarter last year primarily due to higher freight costs and the timing of sales to certain of our higher volume, lower margin customers, which shifted into the second quarter of fiscal 2011. Higher freight costs in both segments were driven by a decreased supply of shipping containers and increased air freight expenses resulting from supplier production delays.

Gross margins were 33.9% and 36.9% for the first half of fiscal 2011 and 2010, respectively. Accessories segment margins decreased from 36.6% in the first half of fiscal 2010 to 32.9% in the current fiscal year primarily because of lower sales of previously written-down inventory, higher freight costs and higher write-offs associated with inventory expected to be returned by certain customers. The gifts segment margin was 120 basis points lower in the first half of 2011 compared to the comparable period in the prior year due to higher freight costs, which were offset slightly by improved assortments sourced from overseas suppliers at lower costs.

Total segment operating expenses were lower in the second quarter and in the first six months of fiscal 2011 by $262,000 and $2.1 million, respectively, when compared to comparable prior year periods. The primary contributors to our lower operating expenses were lower royalties and compensation costs in the current fiscal year and a larger doubtful accounts receivable provision in fiscal 2010. The increase in the gifts segment operating expenses for the second quarter and first six months of fiscal 2011 was due to higher variable labor costs incurred as a result of building holiday displays for certain customers during the current fiscal year.

Expenses And Taxes

Total selling, general and administrative expenses of $12.6 million for the second quarter of fiscal 2011 were $1.4 million, or 10%, lower than the second quarter of fiscal 2010 ($14.0 million). The reductions were primarily due to decreases in expenses such as compensation costs, facilities costs and professional services.

Total selling, general and administrative expenses of $24.5 million for the first half of fiscal 2011 were $2.8 million, or 10%, lower than the first half of fiscal 2010 ($27.2 million). The reductions were primarily due to decreases in expenses such as compensation costs, facilities costs, bad debt provisions, royalties and professional services.

The decrease in interest expense in the first half of fiscal 2011 was primarily attributable to lower interest rates on outstanding borrowings and lower debt cost amortization under our credit facility compared to the prior year and the Chambers acquisition earn-out liability discount accretion (second quarter — $48,000; six months — $117,000), which we did not incur in the first six months of fiscal 2011.

Information about our income taxes is incorporated herein by reference to Note 7 of the notes to unaudited consolidated financial statements in Item 1 of this Quarterly Report.

SEASONALITY

Historically, our first and second quarter sales and operating results reflect a seasonal increase compared to the third and fourth quarters of our fiscal year. Sales and operating results for the first six months of fiscal 2011 are not necessarily indicative of the results that may be expected for the year ending June 30, 2011.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity, which we believe will provide adequate financial resources for our foreseeable working capital needs, are cash flows from operating activities and our credit facilities ($6.0 million borrowing availability at December 31, 2010). Information about our credit arrangements is incorporated herein by reference to Note 5 of the notes to unaudited consolidated financial statements included in Item 1 of this Quarterly Report.

Our first half operating activities result in net cash outflows as accounts receivable increase due to the higher levels of holiday season sales and we procure inventory to be shipped to our customers in the third and fourth quarters. Also contributing to the fiscal 2011 outflow was the payment of incentive compensation accrued in fiscal 2010.

13

Investing activities for the first half of fiscal 2011 primarily consisted of the $2.7 million sale of our idle distribution center located in West Bend, Wisconsin and purchases of additional racking and other various leasehold improvements for our distribution facilities. Investing activities for the prior year related to the Chambers transaction and consisted of the $4.4 million estimated present value of an earn-out agreement, a noncash financing activity, and $3.9 million in cash from operating activities paid for the Chambers assets listed in Note 3 of the notes to unaudited consolidated financial statements in Item 1 of this Quarterly Report incorporated herein by reference. Purchases of property and equipment in the first half of fiscal 2010 were primarily for the move of our corporate offices into our lower-cost Dallas distribution facility. Property and equipment sale proceeds of $781,000 in fiscal 2010 were primarily from the sale of a warehouse in Yoakum, Texas which resulted in a $339,000 pretax gain.

Financing activities included credit facility net borrowings of $12.1 million and $8.4 million in the first six months of fiscal 2011 and 2010, respectively, used to fund our operating activities.

CRITICAL ACCOUNTING POLICIES

There have been no significant changes in the critical accounting policies disclosed in our Annual Report on Form 10-K for the year ended June 30, 2010.

ITEM 4 — CONTROLS AND PROCEDURES

Disclosure Controls And Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Interim Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Interim Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of December 31, 2010.

Changes In Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during the second quarter of fiscal 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1A — RISK FACTORS

In addition to the information in this Quarterly Report on Form 10-Q, consideration should be given to the risk factors in Part I, Item 1A — Risk Factors in our Annual Report on Form 10-K for the year ended June 30, 2010 which could materially and adversely affect our business, results of operations, and financial condition. There have been no significant changes in the risk factors disclosed in our 2010 Annual Report on Form 10-K.

ITEM 6 — EXHIBITS

The Exhibit Index immediately preceding the exhibits required to be filed is incorporated herein by reference.

14

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	TANDY BRANDS ACCESSORIES, INC. (Registrant)
February 10, 2011	/s/ N. Roderick McGeachy, III N. Roderick McGeachy, III
	President and Chief Executive Officer
	(principal executive officer)
	/s/ Robert D. Martin Robert D. Martin
	Interim Chief Financial Officer
	(principal financial officer and
	principal accounting officer)

15

TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES

EXHIBIT INDEX

	Incorporated by Reference
	(if applicable)
Exhibit Number and Description	Form		Date		File No.		Exhibit
(3) Articles of Incorporation and Bylaws
3.1 Certificate of Incorporation of Tandy Brands Accessories, Inc.		S-1		11/02/90		33-37588		3.1
3.2 Certificate of Amendment of the Certificate of Incorporation of Tandy Brands Accessories, Inc.		8-K		11/02/07		0-18927		3.1
3.3 Amended and Restated Bylaws of Tandy Brands Accessories, Inc., effective July 2007		8-K		7/13/07		0-18927		3.01
3.4 Amendment No. 1 to Amended and Restated Bylaws of Tandy Brands Accessories, Inc.		8-K		11/02/07		0-18927		3.2
(4) Instruments Defining the Rights of Security Holders, Including Indentures
4.1 Form of Common Stock Certificate of Tandy Brands Accessories, Inc.		S-1		12/17/90		33-37588		4.2
4.2 Certificate of Elimination of Series A Junior Participating Cumulative Preferred Stock of Tandy Brands Accessories, Inc.		8-K		10/24/07		01-18927		3.1
4.3 Credit Agreement by and between Tandy Brands Accessories, Inc. and Comerica Bank dated as of February 12, 2008		10-Q		2/12/10		0-18927		4.3
4.4 Amendment No. 1 to Credit Agreement dated as of February 12, 2008 by and between Tandy Brands Accessories, Inc. and Comerica Bank effective as of March 31, 2009		10-Q		2/12/10		0-18927		4.4
4.5 Amendment No. 2 to Credit Agreement dated as of February 12, 2008 by and between Tandy Brands Accessories, Inc. and Comerica Bank effective as of October 6, 2009		10-Q		2/12/10		0-18927		4.5
4.6 Amendment No. 3 to Credit Agreement dated as of February 12, 2008 by and between Tandy Brands Accessories, Inc. and Comerica Bank effective as of May 10, 2010		10-Q		5/13/10		0-18927		4.6

1

TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX

	Incorporated by Reference
	(if applicable)
Exhibit Number and Description	Form		Date		File No.		Exhibit
(10) Material Contracts
10.1 Services Agreement between RDMartin, Ltd. and Tandy Brands Accessories, Inc. dated as of January 2, 2011* **		N/A		N/A		N/A		N/A
10.2 Separation Agreement and Release of Claims between M.C. Mackey and Tandy Brands Accessories, Inc., effective January 14, 2011* **		N/A		N/A		N/A		N/A
(31) Rule 13a-14(a)/15d-14(a) Certifications
31.1 Certification Pursuant to Rule 13a-14(a)/15d-14(a) (Chief Executive Officer)**		N/A		N/A		N/A		N/A
31.2 Certification Pursuant to Rule 13a-14(a)/15d-14(a) (Interim Chief Financial Officer)**		N/A		N/A		N/A		N/A
(32) Section 1350 Certifications
32.1 Section 1350 Certifications (Chief Executive Officer and Interim Chief Financial Officer)**		N/A		N/A		N/A		N/A

*	Management Contract or Compensatory Plan
**	Filed herewith

2

EX-10.1

Exhibit 10.1

SERVICES AGREEMENT

THIS SERVICES AGREEMENT is made and entered into as of January 2, 2011, between RDMartin, Ltd, a Georgia corporation (“RDMartin”), and Tandy Brands Accessories, Inc. (the “Client”).

RECITALS:

WHEREAS, RDMartin, Ltd provides personnel (the “Assigned Personnel”) on a contract basis and Client wishes to engage RDMartin to provide Assigned Personnel pursuant to the terms of this Agreement;

NOW, THEREFORE, for and in consideration of the premises and the mutual promises made herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, RDMartin and Client hereby agree as follows:

1. Engagement of RDMartin. Client hereby engages RDMartin to provide Client with Assigned Personnel identified in the Services Exhibit attached hereto as Exhibit A (the “Services Exhibit”) to perform the services specified in the Services Exhibit (the “Services”), subject to the terms and conditions of this Agreement. The Services Exhibit shall be deemed part of this Agreement. It is understood and agreed by the parties that RDMartin and/or Assigned Personnel are an Independent Contractor and shall in no sense shall be considered an employee or agent of the Client, nor will have any power or right to enter into contracts or commitments on behalf of the Client. The Client shall not be responsible for, and shall not withhold or pay any federal, state or local income tax, nor payroll tax of any kind, on behalf of Independent Contractor or any employees of Independent Contractor. Independent Contractor shall be responsible for the filing and payment of all income related taxes associated with Independent Contractor. Independent Contractor shall not be treated as an employee with respect to the services performed hereunder for federal or state tax purposes.

2. Term and Termination of Agreement. The term of RDMartin’s engagement shall commence on the date of this Agreement unless otherwise specified in the Services Exhibit and end as specified in the Services Exhibit. Client may terminate Assigned Personnel at any time. In the event of termination, Client agrees to promptly pay RDMartin for all services rendered and all reimbursable expenses incurred through the date of termination. Consistent with the Rules of Professional Conduct, RDMartin reserves the right to withdraw with Client’s consent or for good cause, which includes breach of this Agreement by reason of failure to pay for Services as provided herein. Upon the effective termination of this Agreement by either party, the obligation of RDMartin to provide the Assigned Personnel to Client and Client’s right to utilize the services of the Assigned Personnel shall immediately cease, and the Assigned Personnel shall immediately cease providing services to Client.

3. Insurance Coverage. Client will include RDMartin and Assigned Personnel in the following corporate insurance policies: Primary and excess D&O, Fiduciary Liability, Crime, Special Crime (aka kidnap ransom).

4. Services Fees. In consideration of the provision of the Assigned Personnel to Client, Client shall pay RDMartin Services Fees according to the terms set forth in the Services Exhibit. Unless otherwise stated in the Services Exhibit, payment is due upon receipt of the invoice by Client.

5. Confidential Information. RDMartin acknowledges and agrees that any and all information concerning Client’s business which, at the time of disclosure, is not generally known by the public is confidential and proprietary and hereby agrees that it will not duplicate, use or disclose of any such information, unless such duplication, use or disclosure is specifically authorized by Client or contemplated by this Agreement. Confidential and proprietary information is defined to include, but is not limited to, customer requirements, trade secrets, business procedures, price lists, financial data, customer lists and prospective customer lists.

6. Warranty Disclaimer. The Services provided pursuant to this Agreement are provided without any express or implied warranties of any kind.

7. Damage Disclaimer. To the extent permitted by applicable law, the liability of RDMartin, its agents, employees and other personnel, officers, directors, members, successors or assigns for damages, whether for breach of this Agreement, breach of warranty or otherwise shall be limited to an amount equal to the fees paid to RDMartin by Client, whether the liability arises from contract, tort or other claims. RDMartin shall not be liable for any incidental, consequential or special damages which may arise from this Agreement, including without limitation costs or procurement of substitute services nor for any lost profits, lost business, loss of use of data or interruption of business arising out of any breach of this Agreement or any Services performed by RDMartin or Assigned Personnel.

8. General. The signatory for Client warrants that such person has the authority to execute this Agreement for Client as its binding agent and that this Agreement does not violate any law, agreement, bylaw or understanding by which Client is bound. This Agreement is governed by Texas law, and when executed by both parties, constitutes the entire agreement of the parties with respect to its subject matter and supersedes all previous agreements, quotations or negotiations between the parties, whether oral or written. This Agreement may only be amended in writing signed by RDMartin and Client. Client acknowledges that the authorized representative of the Client has read this Agreement and agrees to and understands all of its terms and conditions.

9. Arbitration and Waiver of Rights. Any dispute or controversy arising out of, in connection with, or relating to this Agreement or its termination must be settled exclusively by arbitration in Dallas, Texas, by one arbitrator in accordance with the arbitration rules of the American Arbitration Association then in effect; provided, however, that this arbitration agreement does not preclude the parties from seeking to enforce the covenants in Sections 4 and 5 of this Agreement in any court of competent jurisdiction without resort to arbitration. The arbitrator’s award may include the manner in which fees of counsel and other expenses in connection with the dispute or controversy are to be borne by the parties. The arbitrator’s authority and jurisdiction is limited to interpreting and applying the express provisions of the Agreement and the arbitrator has no authority to alter or add to the provisions of the Agreement. Judgment may be entered upon the arbitrator’s award in any court of competent jurisdiction. THE PARTIES UNDERSTAND THAT BY AGREEING TO ARBITRATE IN THIS MANNER, THEY ARE WAIVING THEIR RIGHTS TO HAVE ANY DISPUTE ARISING OUT OF THE AGREEMENT TRIED BEFORE AND ADJUDICATED BY A JURY.

10. Notices. All notices pursuant to this Agreement shall be in writing and sent certified mail, return receipt requested as follows:

Tandy Brands Accessories, Inc.	RDMartin Ltd
3631 West Davis, Suite A	1651 Tyler Green Trail
Dallas, Texas 75211	Smyrna, GA 30080
ATTN: Rod McGeachy III	ATTN: Robert D. Martin

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

Tandy Brands Accessories, Inc.		RDMartin, Ltd
By:	/s/ Rod McGeachy III Rod McGeachy III	By:	/s/ Robert D. Martin Robert D. Martin
	Title: Chairman and CEO		Title: President
Date: 1/7/11		Date: 1/2/11

EXHIBIT A

SERVICES EXHIBIT

This Services Exhibit is dated January 2, 2011 and is a part of the Services Agreement (the “Agreement”) between RDMartin Ltd and Tandy Brands Accessories Inc., dated January 2, 2011. Capitalized terms used in this Exhibit shall have the meanings set forth in the Agreement.

Client:	Tandy Brands Accessories Inc.
Assigned Personnel:	Robert D. Martin
Description of Services:	Financial and Business Consulting — Interim CFO

Fees and Terms: Hourly billing rate for Assigned Personnel is $350, with a maximum of $15,000 per week, and will be invoiced weekly. Payment is due upon receipt to the following address: RDMartin Ltd, 1651 Tyler Green Trail; Smyrna, GA 30080

Expenses: Client agrees to reimburse RDMartin Ltd or Assigned Personnel for all reasonable out-of-pocket expenses incurred (other than normal daily working and commuting expenses) in connection with the performance of the Services. Travel time (other than normal daily commute) will be billed at standard rate.

Start date:     January 2, 2011

End date:       June 30, 2011 or sooner

This Services Exhibit to the Services Agreement is hereby accepted:

Tandy Brands Accessories Inc		RDMartin, Ltd
By:	/s/ Rod McGeachy III Rod McGeachy III	By:	/s/ Robert D. Martin Robert D. Martin
	Title: Chairman and CEO		Title: President
Date: 1/7/11		Date: 1/2/11

EX-10.2

Exhibit 10.2

Separation Agreement and Release of Claims

This Separation Agreement and Release of Claims (“Agreement”) is made by and between Craig Mackey an Employee, and Tandy, Employer (collectively, the “Parties”).

R E C I T A L S:

WHEREAS, Mackey and the Company have mutually agreed that he will resign effective January 3, 2011, from the Company;

WHEREAS, Employer desires to provide Employee with separation benefits to assist him/her in the transition resulting from the termination of his/her position with Employer

WHEREAS, Employer desires that Mackey assist during the transition of his responsibilities to others in the organization by being available to answer questions and share information as directed by the Chief Executive Officer of the Company; and

WHEREAS, Employee agrees, in exchange for such separation benefits, to waive and release any and all claims that s/he may have against Employer.

WHEREAS, Employer agrees to waive and release Employee from the Non-Competition and Non-Solicitation of Customers provisions contained in sections 5(b) and (c) of Employee’s Bonus Agreement executed on or about January 27, 2009 (“Bonus Agreement”) and all other Bonus Agreements executed before or after this Bonus Agreement.

NOW, THEREFORE, in consideration of the mutual promises and releases contained herein, and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, the Parties agree as follows:

1. Salary and Benefits Continuation. Upon the execution of this Agreement, the Parties agree as follows:

a. Employee shall be terminated from employment with Employer effective January 3, 2011 (hereinafter the “Termination Date”).

b. Employee will be provided with his/her final paycheck, including any earned but unused paid time off, within (6) days of termination date.

c. In an effort to ease the transition into different employment, Employer agrees to pay Employee nine (9) months of Employee’s current base salary, less FIT and FICA withholding, as required by law, on regularly scheduled pay days commencing on the first scheduled pay day after the end of the Revocation Period, as defined herein.

d. Employee agrees that s/he will not apply or reapply for employment with Employer, and understands that if s/he does, such application will be rejected pursuant to this Agreement.

Revised January 2009 /s/ CM    Employee Initials

e. Employee acknowledges that by signing this Agreement and accepting the benefits provided herein, s/he is receiving benefits to which s/he would not otherwise be entitled. Employee pledges that s/he has carefully read and fully understands all the provisions of this Agreement, and that s/he is signing it voluntarily because s/he wants to take advantage of Employer’s separation offer as outlined in this Agreement.

f. Following the Termination Date, Employee shall be entitled to any and all other rights or benefits afforded to other terminated employees of Employer, including, without limitation, the right to elect to continue, at Employee’s cost, coverage under Employer’s health plan, in accordance with the health care continuation coverage provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) and applicable law. A separate notice of COBRA rights will be provided to Employee.

g. The Parties understand that any vested rights Employee may have under Employer’s health care program, life insurance program, employee stock purchase program, employee investment plan, flexible benefit plan, and flexible spending account are excluded from the scope of this Agreement, and are not terminated or released by it.

2. Release. Employee, on behalf of him/herself, his/her descendants, ancestors, dependents, heirs, executors, administrators, successors, and assigns, and each of them, hereby covenants not to sue and fully releases, acquits and discharges Employer, and its subsidiaries and affiliates, past, present, future, and each of them, as well as its owners, trustees, directors, officers, shareholders, agents, servants, employees, representatives, successors, and assigns, related companies or entities, jointly and individually, and each of them (collectively referred to as “Releasees”) with respect to and from any and all claims, wages, demands, assistance, support, rights, liens, agreements, contracts, covenants, actions, suits, rights to appeal, entitlements and notices, causes of action, obligations, debts, costs, expenses, interests, attorneys’ fees, contributions, damages, judgments, orders and liabilities of whatever kind or nature in law, equity, or otherwise, whether known or unknown, suspected or unsuspected, and whether or not concealed or hidden, which Employee has at any time heretofore owned or held against said Releasees, including, without limitation, those arising out of or in any way connected with his/her employment relationship with Employer, or Employee’s layoff or any other transactions, occurrences, acts or omissions, or any loss, damage, or injury whatever, known or unknown, suspected or unsuspected, resulting from any of them, committed or omitted prior to the date of this Agreement, and including, without limitation, claims for breach of contract, libel, slander, wrongful discharge, intentional infliction of emotional harm, or other tort, or discrimination or harassment based upon any federal, state, or municipal statute or local ordinance relating to discrimination in employment. Employee does not waive his/her right to pursue claims for unemployment compensation. The claims waived and discharged include, but are not limited to those arising under the following:

Title VII of the Civil Rights Act of 1964; Executive Order 11246; Equal Pay Act; Vietnam Era Veteran Readjustment Assistance Act; Civil Rights Act of 1991; 42 U.S.C. 1981 (the 1866 Civil Rights Act); Americans with Disabilities Act; Employee Retirement Income Security Act; Family and Medical Leave Act; Fair Labor Standards Act; all laws, including the common laws of the State of Texas regarding employment-related claims; disputed wages, including claims for any back wages or overtime; wrongful discharge and/or breach of contract claims; and tort claims, including invasion of privacy, defamation, fraud, and infliction of emotional distress.

Revised January 2009 /s/ CM    Employee Initials

Page 2

3. Indemnity Regarding Assignment of Claims. Employee represents and warrants that s/he has not heretofore assigned or transferred, or purported to assign or transfer, to any person, entity, or individual whatsoever, any of the claims released as set forth in Paragraph 2, above. Employee agrees to indemnify and hold harmless the Releasees (as defined in Paragraph 2, above) against any claim, demand, debt, obligation, liability, cost, expense, right of action, or cause of action based on, arising out of, or in assignment. Employee agrees that s/he will not bring any legal action against the Releasees for any claim that occurred prior to signing this Agreement. However, this stipulation does not prohibit Employee from filing a lawsuit for the sole purpose of enforcing his/her rights under this Agreement, or from enforcing rights that may arise subsequent to the signing of this Agreement. Employee agrees that if a claim s/he has waived or discharged under this Paragraph 3 is prosecuted in his/her name, or on his/her behalf before any court or administrative agency, s/he waives and agrees not to take any award of money or other damages from such suit. Employee also agrees that if a claim waived or discharged under this Paragraph 3 is prosecuted in his/her name, s/he will immediately request in writing that the claim on his/her behalf be withdrawn. Employee also agrees that s/he waives on behalf of him/herself and his/her attorneys all claims for attorneys’ fees and expenses, and court costs for any claim waived and discharged under this Paragraph 3.

4. Release, Waiver, and Covenant Not to Sue Under the ADEA. By signing this Agreement, Employee consents to the following:

a. Release and Waiver of Rights: Employee irrevocably and unconditionally releases Employer and the other Releasees, or any of them, from any and all claims, complaints, liabilities, damages, causes of action, suits, rights, costs and expenses (including attorneys’ fees) from any and all age discrimination, harassment, and/or retaliation claims under the Age Discrimination in Employment Act (“ADEA”).

b. Covenant Not to Sue: Employee agrees that s/he will not bring any legal action against the Releasees for any claim under the ADEA that existed prior to the time s/he signed this Agreement; however, this stipulation does not keep Employee from filing a lawsuit for the sole purpose of enforcing his/her rights under this Agreement, from enforcing or securing any rights that may arise subsequent to Employee signing this Agreement, or from enforcing or securing any rights provided Employee under the ADEA that may not be legally waived.

5. Employer’s Release of Non-Competition and Non-Solicitation of Customers. Employer agrees to waive and release Employee from the Non-Competition and Non-Solicitation of Customers provisions contained in sections 5(b) and (c) of Employee’s Bonus Agreement executed on or about January 27, 2009 (“Bonus Agreement”) and all other Bonus Agreements executed before or after this Bonus Agreement.

Revised January 2009 /s/ CM    Employee Initials

Page 3

6. Entire Agreement. This Agreement constitutes and contains the entire Agreement and understanding concerning Employee’s employment and layoff, and the other subject matters addressed herein between the Parties, and supersedes and replaces all prior negotiations and all prior Agreements proposed or otherwise, whether written or oral, concerning the subject matter hereof.

7. Governing Law. This Agreement shall be governed by and subject to the laws and exclusive jurisdiction of the courts of the State of Texas. In the event that Employee breaches any of the provisions of this Agreement, Employee agrees to pay Employer’s reasonable costs of prosecuting such claims, including costs and attorneys’ fees.

8. Severability. In the event that one or more of the provisions of this Agreement shall for any reason be held to be illegal or unenforceable, this Agreement shall be revised only to the extent necessary to make such provision(s) legal and enforceable.

9. Enforceability. Before Employee takes any legal action to challenge the validity or enforceability of this Agreement, for any reason, including, without limitation, any claim that Employee did not knowingly or voluntarily enter into in this Agreement, Employee agrees that s/he must first return to Employer the payment(s) received by Employee; provided, however, that this Paragraph 8 shall not apply to the release and waiver and covenant not to sue under the ADEA.

10. Return of Property. Employee agrees to return to Employer any and all property belonging to Employer or the other Releasees, including, but not limited to: originals and all copies of files, memoranda, records, software and related program passwords, computer printouts and disks, door and file keys, laptop computers, (excluding cell phones, smart phones, Blackberry), electronic cards, and all other property which Employee received or created in connection with his/her employment with Employer. All such property must be returned to Employer upon Employee’s execution of this Agreement. Employee agrees and guarantees that s/he has not kept any copies, electronic or otherwise, of any of Employer’s property. Upon request by Employer, Employee will provide a sworn certificate that s/he is in compliance with this Agreement, that s/he has returned all of Employer’s property, and that s/he is not using any confidential information belonging to Employer.

11. Confidential Information. During his/her employment with Employer, Employee was provided with, and had access to, information regarding Employer’s methods of business, and was also provided with, and had access to, other confidential information. Confidential information includes, but is not limited to, customer lists, customer information, business plans, marketing plans, cost information, sourcing information, compensation figures, product pricing information, product design specification, future business plans, any and all documents, memoranda, records and files, correspondence, notes, specifications, and plans, policies and procedures, computer programs, software, and other proprietary data of whatever type or nature. Employee understands that this confidential information is in the nature of a trade secret, and is the sole property of Employer. Employee promises and agrees that s/he will not directly or indirectly, use for his/her benefit, use to the injury of Employer, or divulge to persons other than authorized representatives of Employer, any confidential information of the Employer for a period of nine (9) months after the execution of this agreement. Upon execution of this Agreement, all confidential information shall be left with or returned to Employer. Employee agrees that his/her obligations under this Paragraph 10 shall outlast the execution of this Agreement.

Revised January 2009 /s/ CM    Employee Initials

Page 4

12. Nondisparagement. Employee agrees that s/he will not make any offensive remarks or statements to anyone regarding Employer and/or any of the other Releasees, including, but not limited to, statements or remarks regarding his/her employment with Employer or the termination of that employment. Employee also agrees that s/he will instruct his/her attorney and spouse (if married) to abide by the disparagement prohibition contained in this Paragraph 11. Employee also agrees that s/he will not say or do anything that damages or impairs in any way the business organization, goodwill, or reputation of Employer or any of the other Releasees.

13. No Solicitation of Employees. Employee understands and agrees that s/he will not solicit or hire, directly or indirectly, any individual employed by Employer, or who worked for Employer during the previous six (6) months, for a period of nine (9) months after execution of this Agreement.

14. Violation of Agreement. Employee understands and agrees that if s/he violates any of the promises made in this Agreement, s/he will not receive any additional payments due under this Agreement, must return any payments already received, and may be liable for additional damages, including costs and attorneys’ fees.

15. Voluntary Agreement. The Parties acknowledge that they have read the foregoing Agreement, understand its contents, and accept and agree to the provisions it contains, and hereby execute it voluntarily and knowingly, and with full understanding of its consequences. Employee acknowledges in executing this Agreement that s/he is not relying, and has not relied on, any guarantee or statement (except those contained in this Agreement) made by any of the Releasees or any agent of the Releasees with regard to the subject matter or effect of this Agreement or otherwise. This Agreement sets forth the entire Agreement between Employee and Employer, and takes the place of any and all prior arrangements or understandings between Employee and Employer. This Agreement is entered into in the State of Texas, and shall be interpreted in accordance with the laws of the State of Texas and in Tarrant County, Texas. The waiver by Employer of a breach of any provision of this Agreement by Employee shall not function or be construed as a waiver of any subsequent breach by Employee. Employee agrees that the provisions contained in this Agreement are fair and reasonable. Employee acknowledges that irreparable injury will result to Employer in the event of Employee’s breach of any of the provisions herein. Accordingly, in addition to any other rights or remedies available to Employer for breach of this Agreement by Employee, Employer shall be entitled to enforcement by preliminary restraining order and injunction. Employee covenants and agrees to keep this Agreement confidential, and promises not to disclose its existence or terms in any form or fashion without the prior written consent of Employer, unless disclosure is legally required. Employer agrees, however, that Employee may inform his/her spouse (if married), and also his/her attorney, accountant, and CPA of the existence and terms of this Agreement as required for legal and/or financial planning or advice.

Revised January 2009 /s/ CM    Employee Initials

Page 5

16. NOTICE TO EMPLOYEE. EMPLOYEE SHOULD CAREFULLY REVIEW AND UNDERSTAND THIS AGREEMENT BEFORE SIGNING IT. THIS AGREEMENT INCLUDES A RELEASE AND WAIVER OF LEGAL RIGHTS AND CLAIMS. EMPLOYER ADVISES EMPLOYEE TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTING THIS AGREEMENT. BY SIGNING THIS AGREEMENT, EMPLOYEE AGREES THAT S/HE FULLY UNDERSTANDS HIS/HER RIGHTS TO DISCUSS THIS AGREEMENT WITH AN ATTORNEY OF HIS/HER CHOICE (AT HIS/HER EXPENSE), AND THAT S/HE HAD ADEQUATE OPPORTUNITY TO DO SO. EMPLOYEE MAY ACT UPON THIS AGREEMENT ANYTIME PRIOR TO FEBRUARY 18, 2010, WHICH WILL ALLOW EMPLOYEE MORE THAN 45 DAYS TO CONSIDER IT AFTER IT HAS BEEN DELIVERED TO EMPLOYEE. IF EMPLOYEE WISHES TO ACCEPT AND AGREE TO THESE TERMS, EMPLOYEE SHOULD SIGN THE AGREEMENT IN THE PRESENCE OF A NOTARY PUBLIC, AND DELIVER IT TO SUE ELLIOTT PRIOR TO FEBRUARY 18, 2010. FOR A PERIOD OF 7 DAYS AFTER EMPLOYEE’S EXECUTION OF THIS AGREEMENT, EMPLOYEE MAY REVOKE THIS AGREEMENT BY DELIVERING A WRITTEN NOTICE TO SUE ELLIOTT. THIS AGREEMENT WILL NOT BECOME EFFECTIVE OR ENFORCEABLE (AND THE SALARY CONTINUATION PAYMENTS TO EMPLOYEE WILL NOT BEGIN UNTIL THIS 7-DAY REVOCATION PERIOD HAS PASSED.

17. Employee’s Representations. By signing this Agreement, Employee represents and warrants that s/he:

1. Understands completely his/her right to review all aspects of this Agreement with an attorney of his/her choice (at his/her expense), and that s/he has had adequate opportunity to do so;

2. Was given at least 45 days from the date s/he received this Agreement to consider it, and understands s/he has 7 days after signing it to revoke it (“Revocation Period”);

Revised January 2009 /s/ CM    Employee Initials

Page 6

3. Has been provided and has reviewed a list of departmental employees, along with the job titles and ages of all individuals eligible for Employer’s cash separation program; and

4. Has been provided and has reviewed a list of the job titles and ages of all individuals in the same department who were not selected for Employer’s cash separation program. This list is set out on Exhibit “A” attached hereto, and made a part of this Agreement for all purposes.

PLEASE READ CAREFULLY. THIS AGREEMENT INCLUDES A RELEASE OF
KNOWN AND UNKNOWN CLAIMS.

Revised January 2009 /s/ CM    Employee Initials

Page 7

EMPLOYEE	TANDY
/s/ Craig Mackey CRAIG MACKEY	By:	/s/ Sue Elliott SUE ELLIOTT
		Chief Performance Officer
Date: 1/7/11	Date: 1/7/11

STATE OF TEXAS           §

COUNTY OF DALLAS    §

SWORN TO AND SUBSCRIBED before me, the undersigned Notary Public, by Craig Mackey, on this 7^th day of January, 2011.

/s/ Janice Gooch  

NOTARY PUBLIC in and for 

The State of Texas 

My Commission Expires: 6-18-13

Revised January 2009 /s/ CM    Employee Initials

Page 8

EX-31.1

EXHIBIT 31.1
CERTIFICATION PURSUANT TO
RULE 13a-14(a)/15d-14(a)
(CHIEF EXECUTIVE OFFICER)

CERTIFICATION BY CHIEF EXECUTIVE OFFICER

I, N. Roderick McGeachy, III, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Tandy Brands Accessories, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

February 10, 2011	/s/ N. Roderick McGeachy, III
	N. Roderick McGeachy, III
	President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2
CERTIFICATION PURSUANT TO
RULE 13a-14(a)/15d-14(a)
(CHIEF FINANCIAL OFFICER)

CERTIFICATION BY CHIEF FINANCIAL OFFICER

I, Robert D. Martin, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Tandy Brands Accessories, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

February 10, 2011	/s/ Robert D. Martin
	Robert D. Martin
	Interim Chief Financial Officer

EX-32.1

EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, N. Roderick McGeachy, III and Robert D. Martin, President and Chief Executive Officer and Interim Chief Financial Officer, respectively, of Tandy Brands Accessories, Inc. (the “Company”), certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

February 10, 2011	/s/ N. Roderick McGeachy, III N. Roderick McGeachy, III
	President and Chief Executive Officer
	/s/ Robert D. Martin Robert D. Martin
	Interim Chief Financial Officer