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 March 31, 2012

Commission File Number 0-18927

TANDY BRANDS ACCESSORIES, INC.

(Exact name of registrant as specified in its charter)

Delaware	75-2349915
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	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.

[x] Yes     [  ] 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).

[x] Yes     [  ] 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 [  ]	Accelerated filer [  ]
Non-accelerated filer [  ] (Do not check if a smaller reporting company)	Smaller reporting company [x]

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

[  ] Yes     [x] 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 May 11, 2012
Common stock, $1.00 par value	7,078,931

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION
Item 1	Financial Statements	4 - 10
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	15
SIGNATURES		16

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, our ability to maintain proper inventory levels, 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 2011 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 March 31						Nine Months Ended March 31
	2012			2011			2012			2011
Net sales	$	23,862		$	28,406		$	96,039		$	100,541
Cost of goods sold		16,288			19,560			65,285			67,251
Gross margin		7,574			8,846			30,754			33,290
Selling, general and administrative expenses		9,817			10,912			29,234			35,369
Depreciation and amortization		549			646			1,699			1,937
Acquisition related costs		-			-			-			50
Total operating expenses		10,366			11,558			30,933			37,356
Operating loss		(2,792	)		(2,712	)		(179	)		(4,066	)
Interest expense		(207	)		(209	)		(956	)		(680	)
Other income (expense)		(2	)		1			(13	)		156
Loss before income taxes		(3,001	)		(2,920	)		(1,148	)		(4,590	)
Income tax expense		64			155			266			452
Net loss	$	(3,065	)	$	(3,075	)	$	(1,414	)	$	(5,042	)
Loss per common share	$	(0.43	)	$	(0.44	)	$	(0.20	)	$	(0.72	)
Loss per common share assuming dilution	$	(0.43	)	$	(0.44	)	$	(0.20	)	$	(0.72	)
Weighted average common shares outstanding		7,074			6,972			7,074			6,970
Weighted average common shares outstanding assuming dilution		7,074			6,972			7,074			6,970

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

4

Tandy Brands Accessories, Inc. And Subsidiaries

Unaudited Consolidated Balance Sheets

(in thousands)

	March 31 2012			June 30 2011			March 31 2011
Assets
Current assets:
Cash and cash equivalents	$	287		$	414		$	283
Restricted cash		-			1,450			1,443
Accounts receivable		7,881			14,286			18,886
Inventories		26,894			28,945			35,781
Other current assets		3,508			8,073			3,596
Total current assets		38,570			53,168			59,989
Property and equipment, net		5,719			6,525			6,753
Other assets:
Intangibles		4,311			4,936			5,152
Other assets		929			790			781
Total other assets		5,240			5,726			5,933
	$	49,529		$	65,419		$	72,675
Liabilities And Stockholders' Equity
Current liabilities:
Accounts payable	$	5,326		$	8,145		$	5,986
Accrued compensation		1,361			1,900			1,697
Accrued expenses		1,534			2,267			1,740
Credit facility		7,563			17,935			19,942
Total current liabilities		15,784			30,247			29,365
Other liabilities		4,433			4,243			4,084
Stockholders' equity:
Preferred stock, $1.00 par value, 1,000 shares authorized, none issued		-			-			-
Common stock, $1.00 par value, 10,000 shares authorized, 7,075 shares, 7,075 shares and 6,972 shares issued and outstanding, respectively		7,075			7,075			6,972
Additional paid-in capital		34,141			34,119			34,193
Accumulated deficit		(13,732	)		(12,318	)		(3,884	)
Other comprehensive income		1,828			2,053			1,945
Total stockholders' equity		29,312			30,929			39,226
	$	49,529		$	65,419		$	72,675

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

5

Tandy Brands Accessories, Inc. And Subsidiaries

Unaudited Consolidated Statements Of Cash Flows

(in thousands)

	Nine Months Ended March 31
	2012			2011
Cash flows provided (used) by operating activities:
Net loss	$	(1,414	)	$	(5,042	)
Adjustments to reconcile net loss to net cash provided (used) by operating activities:
Deferred income taxes		54			54
Doubtful accounts receivable provision		907			324
Depreciation and amortization		1,889			2,118
Stock compensation expense		72			(68	)
Amortization of debt costs		168			52
Other		(5	)		(116	)
Changes in assets and liabilities:
Accounts receivable		5,470			(525	)
Inventories		1,946			(4,118	)
Other assets		4,018			3,166
Accounts payable		(3,221	)		(7,314	)
Accrued expenses		(1,132	)		(1,083	)
Net cash provided (used) by operating activities		8,752			(12,552	)
Cash flows provided (used) by investing activities:
Acquisition		-			(245	)
Purchases of property and equipment		(495	)		(736	)
Sales of property and equipment		191			2,778
Net cash provided (used) by investing activities		(304	)		1,797
Cash flows provided (used) by financing activities:
Change in cash overdrafts		414			(265	)
Change in restricted cash		1,447			-
Net borrowings (repayments) under credit facility		(10,369	)		10,474
Net cash provided (used) by financing activities		(8,508	)		10,209
Effect of exchange-rate changes on cash and cash equivalents		(67	)		(1	)
Net decrease in cash and cash equivalents		(127	)		(547	)
Cash and cash equivalents beginning of year		414			830
Cash and cash equivalents end of period	$	287		$	283

The accompanying notes are an integral part of these unaudited 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 2011 financial statements to conform to the fiscal 2012 presentation, including recasting business segment information to allocate certain distribution costs to each reportable segment.

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, 2011 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 2011 Annual Report on Form 10-K filed with the Securities and Exchange Commission on September 1, 2011.

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.  As a result, sales and operating results for the nine months of fiscal 2012 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2012.

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 inputs that are unobservable and significant to the fair value measurement (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 entered into effective August 25, 2011 (and amended January 20, 2012 and May 11, 2012), bears interest at floating market interest rates; therefore, we believe the fair value of amounts borrowed approximates the carrying value.  At March 31, 2012 and June 30, 2011, no other material assets or liabilities were measured at fair value.

Note 3 - Acquisition

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.

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

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

7

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 value of net assets’ acquired 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 three 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, specialty stores, catalog retailers, 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 and small leather 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 2011 Annual Report on Form 10-K filed with the Securities and Exchange Commission on September 1, 2011.  No inter-segment revenue is recorded.  Assets, related depreciation and amortization, and selling, general and administrative expenses are not allocated to the segments.

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

	Three Months Ended March 31						Nine Months Ended March 31
	2012			2011			2012			2011
Net sales:
Accessories	$	22,158		$	26,828		$	66,402		$	79,409
Gifts		1,704			1,578			29,637			21,132
	$	23,862		$	28,406		$	96,039		$	100,541
Segment income (loss):
Accessories	$	4,703		$	4,891		$	14,086		$	13,118
Gifts		(962	)		(861	)		3,657			2,432
		3,741			4,030			17,743			15,550
Selling, general and administrative expenses		(5,984	)		(6,096	)		(16,223	)		(17,629	)
Depreciation and amortization		(549	)		(646	)		(1,699	)		(1,937	)
Acquisition related costs		-			-			-			(50	)
Operating loss	$	(2,792	)	$	(2,712	)	$	(179	)	$	(4,066	)

Note 5 – Credit Facility     

We have a $35 million credit facility, which expires in August 2015.  This facility was amended effective January 20, 2012 and May 11, 2012 to extend the time period required to deliver certain post-close deliverables and title matters related to real property, and to modify certain definitions used in the credit agreement.  At March 31, 2012, we had $3.4 million borrowing availability based on our accounts receivable and inventory levels, outstanding letters of credit totaling $1.4 million, and $7.6 million outstanding borrowings under the facility.  Borrowings and letters of credit bear interest at either the daily three-month LIBOR rate plus 3.75% or a fixed LIBOR rate for three months plus 3.75%.

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.  The credit facility contains certain negative covenants and it requires the maintenance of a specified profitability, fixed charge coverage and minimum availability covenant, which, if not met, could adversely impact our liquidity.  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 debt, and making certain property transfers.  In addition, the facility contains customary representations and warranties and we have agreed to certain affirmative covenants, including reporting requirements.

8

On May 11, 2012 we obtained a waiver from our lender for violation of the profitability covenant and fixed charge coverage covenant.  These violations were driven by recognizing a $900,000 provision for doubtful accounts for one customer as of March 31, 2012, due to the customer’s financial difficulties raising doubts about the customer’s ability to make payment in the foreseeable future.  Excluding the impact of this event, which drove the violation and subsequent waiver, we were in compliance with all covenants as of March 31, 2012.

The maximum line of credit under the credit facility, which includes the revolver and letters of credit, is $35 million.  The credit facility is asset-based and the available line of credit may be limited pursuant to certain borrowing base limitations, including (1) the amount of certain of our eligible accounts, (2) the amount of our eligible accounts with our largest customer, (3) the value of our eligible inventory, which is more specifically determined in part based on specific periods during our fiscal year, and (4) the amount of our borrowing base reserve.

Our Canadian subsidiary had 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 was secured by cash, credit balances, and/or deposit instruments of CAD $1.4 million.  In connection with the consummation of our current $35 million credit facility in the first quarter of fiscal 2012, our Canadian subsidiary’s facility was terminated and all borrowings were paid and obligations were fulfilled.

Note 6 - Long-Term Incentive Award

During the nine months of fiscal 2012, we issued 1.0 million 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 either $1.725 or $1.975 per share.  The units earned (or to be earned) during the performance cycle (July 1, 2011 through June 30, 2013) vary from 0% to 200% of the units awarded based on our basic earnings per share for each of the two fiscal years ending June 30, 2012 and June 30, 2013, respectively, excluding the effects of accounting principles changes, extraordinary items, recognized capital gains and losses and, as determined by our board of directors (the “Board”), one-time, non-operating items.  Assuming continued employment, if, at the end of the two-year performance cycle, at least the threshold performance level has been achieved, the performance units will cliff vest and all such performance units, including those comprised of phantom shares of our common stock, 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, (i) if there is a change in control, 100% of the phantom units awarded to employees vest and, (ii) upon death, disability, or normal (age 65) or early (age 55 and 15 years service) retirement of an employee who has been awarded such performance units, a fraction of such performance units earned by such employee vest based on the number of years employed during the performance cycle.  As of March 31, 2012, we expect 439,000 of the 1.0 million units granted to vest (60,000 units were forfeited), which, based on a combination of (A) $1.00 value per performance unit (for the portion comprised in cash) and (B) the market price of our common stock on March 31, 2012 (for the portion comprised in phantom shares of our common stock), would be payable in cash equal to $407,000.

Note 7 - Income Taxes

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

	Three Months Ended March 31						Nine Months Ended March 31
	2012			2011			2012			2011
Federal and state	$	8		$	12		$	81		$	46
Deferred federal and state		(1,010	)		(1,216	)		(286	)		(1,944	)
Foreign		(15	)		80			87			194
Uncertain tax positions		65			35			81			99
Deferred tax valuation allowance		1,016			1,244			303			2,057
	$	64		$	155		$	266		$	452

9

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

	Three Months Ended March 31						Nine Months Ended March 31
	2012			2011			2012			2011
Statutory rate		(34.0	)%		(34.0	)%		(34.0	)%		(34.0	)%
State and foreign taxes net of federal tax benefit		0.2			(0.4	)		15.6			(0.4	)
Uncertain tax positions		2.2			1.2			7.1			2.2
Repatriation of foreign earnings		(0.1	)		-			8.1			-
Deferred tax valuation allowance		33.8			38.5			26.4			42.1
		2.1	%		5.3	%		23.2	%		9.9	%

At March 31, 2012 we had federal income tax net operating loss carryovers of approximately $49.7 million expiring in 2029 through 2031.  Our deferred tax valuation allowance was approximately $23.5 million.

Through June 30, 2011, we asserted that our foreign earnings were indefinitely reinvested outside the United States, and we were, therefore, not required to provide for U.S. income taxes on those earnings. In connection with our current credit facility, entered into effective August 2011, our Canadian subsidiary guaranteed the outstanding borrowings under this facility. This guarantee is deemed to be an investment by our subsidiary in U.S. property, triggering the repatriation of the subsidiary's earnings in the form of a dividend. The dividend does not result in a current tax liability due to our net operating loss carryforwards; however, the net effect of the repatriation is captured in the tax rate reconciliation above.

Note 8 - Comprehensive Loss

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

	Three Months Ended March 31						Nine Months Ended March 31
	2012			2011			2012			2011
Net loss	$	(3,065	)	$	(3,075	)	$	(1,414	)	$	(5,042	)
Currency translation adjustments		154			140			(225	)		388
Comprehensive loss	$	(2,911	)	$	(2,935	)	$	(1,639	)	$	(4,654	)

Note 9 - Loss Per Share

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

	Three Months Ended March 31						Nine Months Ended March 31
	2012			2011			2012			2011
Numerator for basic and diluted earnings per share:
Net loss	$	(3,065	)	$	(3,075	)	$	(1,414	)	$	(5,042	)
Denominator for basic and diluted earnings per share:		7,074			6,972			7,074			6,970
Loss per common share	$	(0.43	)	$	(0.44	)	$	(0.20	)	$	(0.72	)
Loss per common share assuming dilution	$	(0.43	)	$	(0.44	)	$	(0.20	)	$	(0.72	)

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

	March 31
	2012		2011
Stock options (exercise prices per share: 2012 - $1.98 to $15.60; 2011 - $5.31 to $15.60)		269		321

10

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 2011 Annual Report on Form 10-K filed with the Securities and Exchange Commission on September 1, 2011 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, gifts, and small leather goods.  Our merchandise is marketed under a broad portfolio of nationally recognized licensed and proprietary brand names, including TOTES®, WOLVERINE®, EDDIE BAUER®, THE SHARPER IMAGE®, ELIE TAHARI®, MISS ME®, SPERRY®,HAGGAR®, EILEEN WEST®, BONE COLLECTOR®, ARNOLD PALMER®, KODIAK®, TERRA®, ROLFS®, AMITY®, 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 all major retail distribution channels throughout North America, including, without limitation, mass merchants, national chain stores, department stores, specialty stores, catalog retailers, 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.

Significant Events

During the nine months of fiscal 2012, net sales of our gifts segment increased $8.5 million, or 40%, primarily driven by strong performance of our totes® and Eddie Bauer® licenses.  During the second fiscal quarter, we executed an amendment to extend our totes® license for an additional four years.

During the first half of fiscal 2012, our largest customer decreased inventory replenishment ordering levels which reduced our net sales by approximately $5.7 million.  Our share of space on the retail fixtures with this customer has not materially changed.  We believe lower consumer demand for apparel drove retail inventories higher at this customer for the first half of the fiscal year.  During the third quarter of fiscal 2012, inventory replenishment ordering levels normalized.

During the third quarter of fiscal 2012, we recognized a $900,000 provision for doubtful accounts for one customer due to the customer’s financial difficulties raising doubts about the customer’s ability to make payment in the foreseeable future.

During the nine months of fiscal 2012, we made investments to procure and launch our new licenses and incurred costs of $213,000 and $597,000 for the third quarter and nine months of fiscal 2012, respectively.  These costs include charges for personnel, travel, and samples, which are included in selling, general and administrative expenses.   During the nine months of fiscal 2012, there were an immaterial amount of sales to offset these initial investment costs.

During the third quarter of fiscal 2012, we consolidated certain facilities to simplify operations and reduce operating expenses.  In connection with this consolidation, we incurred lease termination ($39,000), severance ($73,000) and other costs ($110,000) which were included in selling, general and administrative expenses.  We expect these consolidation initiatives will result in approximately $475,000 in annual cost savings.

During the third quarter of fiscal 2012, we announced the execution of new licensing agreements with brands Sperry Top-Sider® and Arnold Palmer®.  The terms for each of the Sperry Top-Sider® and Arnold Palmer® agreements are through January 31, 2016 and December 31, 2016, respectively.  Under the terms of the Sperry Top-Sider® agreement, we will distribute belts, shoulder bags and small leather goods for both men and women through department stores, specialty retail locations throughout the United States and Canada, Sperry Top-Sider’s own retail stores, and on sperrytopsider.com.  Under the terms of the Arnold Palmer® agreement, we will distribute belts through green grass shops, off-course golf specialty stores, department stores as well as in corporate and e-commerce shops.  Revenues from both of these new licenses are expected to benefit accessories segment results in calendar 2013.

During the first quarter of fiscal 2012, we announced the execution of new licensing agreements with brands Elie Tahari® (accessories segment), Miss Me® (accessories segment), and The Sharper Image® (gifts segment).  The terms for each of the Elie Tahari®, Miss Me® and The Sharper Image® agreements are through December 31, 2014, December 31, 2014 and December 31, 2016, respectively.  Under the terms of the agreements, we will distribute belts or gifts among a wide array of channels, including but not limited to, national retail and department stores, clubs and specialty and boutique stores.  Revenues from these new licenses are expected to benefit results in the fourth quarter of fiscal 2012.

11

Effective August 25, 2011, we replaced our prior $27.5 million credit facility with our current $35 million credit facility, which expires August 2015.  Our current credit facility is guaranteed by substantially all of our and our subsidiaries assets, and requires a specified profitability and fixed charge coverage and a minimum availability.  We believe this facility will provide us with sufficient availability to fund our operations in the foreseeable future and give us the additional flexibility to purchase inventory required to meet our organic growth expectations.

Related Party Transaction

During the nine months of fiscal year 2012, we purchased $3.7 million of accessories inventory from an entity affiliated with Chiang Chih-Chiang, a passive shareholder of the Company.  Although it is likely that we will continue our purchasing relationship with this existing shareholder, we believe there are numerous sources of products available at similar terms and conditions, and we do not believe the success of our operations is dependent on this or any one or more of our present suppliers.

FISCAL 2012 COMPARED TO FISCAL 2011

Business Segments

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

	Three Months Ended March 31						Nine Months Ended March 31
	2012			2011			2012			2011
Net sales:
Accessories	$	22,158		$	26,828		$	66,402		$	79,409
Gifts		1,704			1,578			29,637			21,132
	$	23,862		$	28,406		$	96,039		$	100,541
Gross margin:
Accessories	$	7,533		$	8,755		$	22,489		$	26,046
Gifts		41			91			8,265			7,244
	$	7,574		$	8,846		$	30,754		$	33,290
Gross margin percent of sales:
Accessories		34.0	%		32.6	%		33.9	%		32.8	%
Gifts		2.4	%		5.8	%		27.9	%		34.3	%
		31.7	%		31.1	%		32.0	%		33.1	%
Operating expenses:
Accessories	$	2,830		$	3,865		$	8,403		$	12,928
Gifts		1,003			951			4,608			4,812
	$	3,833		$	4,816		$	13,011		$	17,740

Net Sales and Gross Margins

Our fiscal 2012 third quarter net sales were $23.9 million, which was $4.5 million, or 16%, lower than the comparable prior year period.  Net sales for our accessories segment were $22.2 million for the third quarter of fiscal 2012, which was $4.7 million, or 17%, lower than in the third quarter of fiscal 2011, primarily due to lower sales from exited product categories ($1.8 million) and new men’s belt assortments that shipped to a major customer in the prior period as a result of additional retail space procured.  This decline was partially offset by lower customer deductions.  Gifts segment net sales of $1.7 million for the third quarter of fiscal 2012 were $126,000, or 8% higher than in the prior year, primarily due to new sales under our Eddie Bauer® and The Sharper Image® licenses.

Our net sales for the nine months of fiscal 2012 were $96.0 million, which was $4.5 million lower than the comparable prior year period.  Accessories segment net sales of $66.4 million for the nine months of fiscal 2012 were $13.0 million, or 16%, lower than in the nine months of fiscal 2011 primarily due to lower sales from exited product categories ($4.5 million), lower levels of replenishment orders by our largest customer in the first half of the fiscal year, and not repeating the new men’s belt assortment roll-out that occurred in the prior year.  This decline was partially offset by lower customer deductions and belt returns in the prior year that did not recur.  Gifts segment net sales of $29.6 million for the nine months of fiscal 2012 were $8.5 million, or 40%, greater than in the prior year, primarily due to increased holiday shipments resulting from organic growth in our totes® license and new sales under our Eddie Bauer® license.

12

Gross margins were 31.7% and 31.1% for the third quarters of fiscal 2012 and 2011, respectively.  Accessories segment margins increased from 32.6% in the third quarter of fiscal 2011 to 34.0% in the third quarter of the current fiscal year primarily because of improvements in sales mix due to exiting unprofitable non-core product categories, lower inventory write-offs and lower customer deductions.  The gifts segment margin was 340 basis points lower in the fiscal 2012 third quarter compared to the same quarter last year, primarily due to product mix of close-out sales.

Gross margins were 32.0% and 33.1% for the nine months of fiscal 2012 and 2011, respectively.  Accessories segment margins increased from 32.8% in the nine months of fiscal 2011 to 33.9% for the nine months of the current fiscal year, primarily because of lower sales in less profitable exited product categories and lower write-offs associated with belt inventory returned by certain customers.  The gifts segment margin was 640 basis points lower in the nine months of 2012 compared to the comparable period in the prior year due to a higher mix of customer-direct shipments in the current year period, higher freight and materials costs and higher sales to our higher volume, lower margin customers. Customer-direct shipments carry lower gross margins because these goods are shipped from our suppliers to our customers and are not handled in our distribution centers, reducing the associated selling, general and administrative costs.

Operating Expenses

Total segment operating expenses were lower in the third quarter and in the nine months of fiscal 2012 by $1.0 million and $4.7 million, respectively, when compared to comparable prior year periods, primarily due to decreases in variable distribution labor, customer chargebacks and facilities costs.

Total selling, general and administrative expenses of $9.8 million for the third quarter of fiscal 2012 were $1.1 million, or 10%, lower than the third quarter of fiscal 2011 ($10.9 million).  The reductions were primarily due to decreases in expenses such as variable distribution labor and compensation and facilities costs.  This decline was offset partially by higher bad debt provisions ($900,000), investment in new licenses ($213,000) and facilities consolidation charges ($222,000) which are not expected in future periods.

Total selling, general and administrative expenses of $29.2 million for the nine months of fiscal 2012 were $6.1 million, or 17%, lower than the nine months of fiscal 2011 ($35.3 million).  The reductions were primarily due to decreases in expenses such as variable distribution labor, compensation and facilities costs, and professional services.  This decline was offset partially by higher bad debt provisions ($900,000), investment in new licenses ($597,000) and facilities consolidation charges ($222,000) which are not expected in future periods.

Interest and Taxes

Interest expense was flat in the third fiscal quarter when compared to the prior year period due to savings from lower outstanding borrowings during the current year quarter, offset by interest incurred from an early payment program we entered into with our lender and our largest customer late in the first quarter of fiscal 2012.  The early payment program bears interest at the LIBOR rate plus 1.25%.

Interest expense was higher in the nine months of fiscal 2012 by $276,000 when compared to the prior year period.  This increase was primarily due to a $98,000 write-off of costs capitalized in connection with our previous credit facility and interest incurred from the early payment program with our lender and largest customer.  This increase was offset partially by savings from lower outstanding borrowings during the current year.

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.

13

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.  As a result, sales and operating results for the nine months of fiscal 2012 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2012.

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 facility ($3.4 million borrowing availability at March 31, 2012).  Information about our credit facility is incorporated herein by reference to Note 5 of the notes to unaudited consolidated financial statements included in Item 1 of this Quarterly Report.

Nine months fiscal 2012 net cash from operating activities was $21.3 million higher than in the comparable period of the prior year, primarily driven by the following:  $6.0 million lower current year accounts receivable due to faster collections on receivables with our largest customer; $6.9 million lower current year inventory and other assets due to efforts to reduce our inventory levels; and $4.0 million lower funding of accounts payable and accrued expenses due to earlier payments for gift inventory in the fourth quarter of the prior fiscal year.

Investing activities for the nine months of fiscal 2012 primarily consisted of purchases of operating equipment for our distribution facilities and sale of one of our idle facilities located in Yoakum, Texas.  Investing activities for the comparable period of the prior year primarily consisted of the $2.7 million sale of our idle distribution center located in West Bend, Wisconsin, purchases of additional racking and other various leasehold improvements for our distribution facilities and completion of our acquisition of MCM.

Financing activities included credit facility net repayments of $10.4 million in the nine months of fiscal 2012 and net borrowings of $10.5 million for the prior year period.  This $20.9 million improvement from the prior year was due to cash inflows generated from operations during the current year, the elimination of the requirement to maintain compensating balances with our Canadian subsidiary’s lender in connection with the termination of the Canadian subsidiary’s credit facility, and the use of previously restricted cash to pay down our outstanding debt balance.

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, 2011.

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 Chief Accounting 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 Quarterly Report.  Based on that evaluation, our Chief Executive Officer and Chief Accounting Officer have concluded that our disclosure controls and procedures were effective as of March 31, 2012.

Changes In Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during the third quarter of fiscal 2012 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, 2011 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 2011 Annual Report on Form 10-K.

14

ITEM 6 - EXHIBITS

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

15

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)
May 14, 2012	/s/ N. Roderick McGeachy, III
	N. Roderick McGeachy, III President and Chief Executive Officer (Principal Executive Officer)
	/s/ Joseph C. Talley
	Joseph C. Talley Chief Accounting Officer (Principal Financial and Accounting Officer)

16

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	0-18927	3.1
	4.3	Credit Agreement by and between Tandy Brands Accessories, Inc. and Wells Fargo Bank dated as of August 25, 2011	10-K/A	4/19/12	0-18927	4.8
	4.4	Amendment No. 1 to Credit Agreement dated as of August 25, 2011 by and between Tandy Brands Accessories, Inc. and Wells Fargo Bank dated as of January 20, 2012	10-Q	2/10/12	0-18927	4.9
	4.5	Amendment No. 2 to Credit and Security Agreement dated as of August 25, 2011 and Waiver by and between Tandy Brands Accessories, Inc. and Wells Fargo Bank dated as of May 11, 2012 **	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) (Chief Accounting Officer)**	N/A	N/A	N/A	N/A
(32)	Section 1350 Certifications
	32.1	Section 1350 Certifications (Chief Executive Officer and Chief Accounting Officer)**	N/A	N/A	N/A	N/A

1

TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES

EXHIBIT INDEX

			Incorporated by Reference (if applicable)
		Exhibit Number and Description	Form	Date	File No.	Exhibit
(101)	Interactive Data Files***
	101.INS  XBRL Instance**
	101.SCH XBRL Taxonomy Extension Schema**
	101.CAL XBRL Taxonomy Extension Calculation**
	101.LAB XBRL Taxonomy Extension Labels**
	101.PRE XBRL Taxonomy Extension Presentation**
	101.DEF XBRL Taxonomy Extension Definition**

_______

**  Filed herewith

*** In accordance with Rule 406T of Regulation S-T, the information in these exhibits is furnished and deemed not filed or a part of registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections and shall not be incorporated by reference into any registration statement or document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing

2

EX-4.5

EXHIBIT 4.5

EXECUTION VERSION

SECOND AMENDMENT TO CREDIT AND

SECURITY AGREEMENT AND WAIVER

THIS SECOND AMENDMENT TO CREDIT AND SECURITY AGREEMENT AND WAIVER (this “Amendment”) executed on May 11, 2012, is by and among Tandy Brands Accessories, Inc., a Delaware corporation (“Parent”), H.A. Sheldon Canada Ltd., an Ontario corporation (“HA Sheldon”; Parent and HA Sheldon are herein collectively called “Company”), Wells Fargo Bank, National Association (“Wells Fargo”), acting through its Wells Fargo Business Credit operating division, and TBAC Investment Trust and TBAC-TOREL, Inc. consenting to this Amendment and ratifying their respective Guaranties (as defined in the Credit Agreement) each dated even date with the Credit Agreement (defined below).

W I T N E S S E T H:

WHEREAS, Parent, HA Sheldon and Wells Fargo entered into that certain Credit and Security Agreement dated as of August 25, 2011 (as heretofore amended, supplemented or otherwise modified, the “Original Credit Agreement”, and as amended hereby, the “Credit Agreement”; capitalized terms used but not defined herein shall have the meanings specified for such terms in the Credit Agreement), for  the purposes and consideration therein expressed, pursuant to which Wells Fargo became obligated to make loans to the Company as therein provided;

WHEREAS, the Company has failed to satisfy (i) the Fixed Charge Coverage Ratio covenant in Section 5.2(a) of the Original Credit Agreement for the fiscal month of Parent ending March 31, 2012, which failure constitutes an Event of Default under Section 6.1(b) of the Original Credit Agreement, and  (ii) the Pre-tax Income covenant in Section 5.2(d) of the Original Credit Agreement for the fiscal month of Parent ending March 31, 2012, which failure constitutes an Event of Default under Section 6.1(b) of the Original Credit Agreement (collectively, the “Specified Events of Default”); and

WHEREAS, the Company and Wells Fargo desire to grant the waivers set forth below and to amend the Original Credit Agreement as provided herein.

NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein and in the Credit Agreement, in consideration of the loans made and which may hereafter be made by Wells Fargo to Company, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

SECOND AMENDMENT TO CREDIT AND SECURITY AGREEMENT AND WAIVER - Page 1

ARTICLE I

DEFINITIONS

Section 1.1Terms Defined in the Original Credit Agreement.  Unless the context otherwise requires or unless otherwise expressly defined herein, the terms defined in the Original Credit Agreement shall have the same meanings whenever used in this Amendment.

ARTICLE II

WAIVER

Section 2.1Waiver of Specified Events of Default.  Subject to the terms and conditions hereof, Wells Fargo hereby waives the Specified Events of Default.

Section 2.2Limited Waiver; Reservation of Rights and Remedies.  The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of Wells Fargo under the Credit Agreement or any other Loan Document nor constitute a waiver of any provision of the Credit Agreement or any other Loan Document. Without limiting the generality of the foregoing, Wells Fargo, on the one hand, and the Company, on the other hand, agree that nothing in this Amendment constitutes or shall be deemed to constitute a waiver of (x) any breach, default or event of default that may exist or hereafter occur under the Loan Documents other than the Specified Events of Default, (y) compliance with Section 5.2 of the Credit Agreement except for the covenants and time periods specified in the definition herein of Specified Events of Default, or (z) except as expressly set forth herein, any of Wells Fargo’s rights or remedies under the terms of the Credit Agreement, any other Loan Document or applicable law, all of which are hereby reserved.

ARTICLE III

AMENDMENTS TO ORIGINAL CREDIT AGREEMENT

Section 3.1Amendment to Definitions. The following Definitions in Exhibit A of the Original Credit Agreement are hereby amended and restated in their entirety to read as follows:

“ ‘EBITDA’ shall mean, with respect to the Parent and its Subsidiaries on a consolidated basis for any period of determination, the sum of, without duplication, (a) net income for such period minus (b) extraordinary gains included in such net income for such period, plus (c) interest expense, income taxes, depreciation, amortization, non-cash charges, extraordinary losses (net of insurance related cash receipts), plus (d) $900,000 for the month of March 2012, minus (e) other non-cash items added in the calculation of net income, all determined in accordance with GAAP consistently applied in form and content acceptable to Wells Fargo.”

“ ‘Pre-Tax Income’ shall mean, with respect to the Parent and its Subsidiaries on a consolidated basis for any period of determination, the sum of, without duplication, (a) net income for such period, plus (b) income tax, each calculated in accordance with GAAP for such period consistently applied, plus (c) $900,000 for the month of March 2012.”

SECOND AMENDMENT TO CREDIT AND SECURITY AGREEMENT AND WAIVER - Page 2

Section 3.2Amendment to Third Party Review. Section 5.30 of the Original Credit Agreement is hereby amended and restated in its entirety to read as follows:

“5.30           Third Party Review.  At any time during the 60 day period following May 11, 2012, Wells Fargo may (in its sole discretion) require the Company to engage a third party acceptable to Wells Fargo to review the company’s projections, business plan and financial condition.  Such right shall be exercised by Wells Fargo within such 60 day period by giving written notice thereof to Parent.”

Section 3.3Amendment to Post-Closing Obligations. Section 5.9 of the Original Credit Agreement is hereby amended and restated in its entirety to read as follows:

“5.9             Title.  Parent shall, not later than December 31, 2012, provide evidence satisfactory to Wells Fargo as to its ownership, subject to no Liens other than Permitted Liens, of the real property located at 500 Airport Road, 502 Airport Road and 107 W. Gonzales, Yoakum, Texas in Lavaca County.”

ARTICLE IV

CONDITIONS OF EFFECTIVENESS

Section 4.1Effective Date.  This Amendment shall become effective as of the date first written above (the “Effective Date”) when and only when each of the following conditions precedent shall have been satisfied in full:

(a)Wells Fargo shall have received, at Wells Fargo’s office a duly executed counterpart by Parent and HA Sheldon of this Amendment;

(b)Company shall have paid to Wells Fargo a $20,000 amendment fee and all other outstanding fees and expenses owing to Wells Fargo under the Loan Documents as of such date;

(c)The representations and warranties contained herein and in the Credit Agreement and other Loan Documents are true and correct with the same effect as though such representations and warranties had been made on and as of the date hereof and after giving effect to the amendments contemplated hereby, except to the extent such representations and warranties expressly relate solely to an earlier date (in which case such representations and warranties shall have been true and accurate on and as of such earlier date) or changes resulting from transactions expressly permitted under the Credit Agreement or other Loan Documents; and

(d)Other than the Specified Events of Default, no Event of Default or other event which with the giving of notice or passing of time, or both, would constitute an Event of Default, shall have occurred and be continuing.

SECOND AMENDMENT TO CREDIT AND SECURITY AGREEMENT AND WAIVER - Page 3

ARTICLE V

REPRESENTATIONS AND WARRANTIES

Section 5.1Representations and Warranties of Company.  In order to induce Wells Fargo  to enter into this Amendment, each of Parent and HA Sheldon hereby represents and warrants to Wells Fargo that:

(a)After giving effect to this Amendment, the representations and warranties contained in the Original Credit Agreement are true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the date hereof and after giving effect to the amendments contemplated hereby, except to the extent such representations and warranties expressly relate solely to an earlier date (in which case such representations and warranties shall have been true and accurate in all material respects on and as of such earlier date) or changes resulting from transactions expressly permitted under the Credit Agreement or other Loan Documents.

(b)Each such Person is duly authorized to execute and deliver this Amendment and is and will continue to be duly authorized to perform its obligations under the Credit Agreement and the other Loan Documents to which it is a party and such Person is and will continue to be duly authorized to borrow under the Credit Agreement.  Each such Person has duly taken all corporate action necessary to authorize the execution and delivery of this Amendment and to authorize the performance of their respective obligations hereunder.

(c)The execution and delivery by such Person of this Amendment, the performance by it of its obligations hereunder and the consummation of the transactions contemplated hereby do not and will not conflict with any provision of law, statute, rule or regulation or of its articles of incorporation or bylaws, or of any agreement, judgment, license, order or permit applicable to or binding upon it.  Except for those which have been duly obtained and are in full force and effect, no consent, approval, authorization or order of any court or governmental authority or third party is required in connection with the execution and delivery by such Person of this Amendment or to consummate the transactions contemplated hereby.

(d)When duly executed and delivered, this Amendment will be a legal and binding instrument and agreement of Company, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency and similar laws applying to creditors’ rights generally and by principles of equity applying to creditors’ rights generally.

ARTICLE VI

MISCELLANEOUS

Section 6.1Ratification of Agreement.  The Original Credit Agreement as hereby amended is hereby ratified and confirmed in all respects.  This Amendment shall constitute a “Loan Document” under and as defined in the Credit Agreement in all respects and for all purposes.  Any reference to the Credit Agreement in any Loan Document shall be deemed to refer to the Original Credit Agreement as amended by this Amendment also.  The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of Wells Fargo under the Credit Agreement or any other Loan Document nor constitute a waiver of any provision of the Credit Agreement or any other Loan Document.

SECOND AMENDMENT TO CREDIT AND SECURITY AGREEMENT AND WAIVER - Page 4

Section 6.2Survival of Agreements.  All representations, warranties, covenants and agreements of Company herein shall survive the execution and delivery of this Amendment and the performance hereof, and shall further survive until all of the Indebtedness is paid in full.  All statements and agreements contained in any certificate or instrument delivered by Company and any Guarantors hereunder or under the Credit Agreement to Wells Fargo shall be deemed to constitute representations and warranties by, or agreements and covenants of, such Person or any such Guarantor, as applicable, under this Amendment and under the Credit Agreement.

Section 6.3Severability.  Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable; provided that the parties hereto shall endeavor in good faith to promptly replace any such invalid or unenforceable provisions with substantially similar provisions that are enforceable.

Section 6.4Further Assurances.  Each of Parent and HA Sheldon hereby agrees to establish, make, prepare, execute, deliver, file, amend, authorize, ratify, affirm and/or approve any and all agreements, instruments, notes, waivers, consents, licenses, accounts and other documents, and take any and all other actions and do all other things necessary or desirable to consummate or otherwise give effect to the transactions and grant of security contemplated by this Amendment and the Credit Agreement..

Section 6.5GOVERNING LAW; JURISDICTION, VENUE; WAIVER OF JURY TRIAL.  THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (OTHER THAN CONFLICT LAWS) OF THE STATE OF TEXAS.  THE PARTIES TO THIS AMENDMENT (A) CONSENT TO THE PERSONAL JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN THE STATE OF TEXAS IN CONNECTION WITH ANY CONTROVERSY RELATED TO THIS AMENDMENT; (B) WAIVE ANY ARGUMENT THAT VENUE IN ANY SUCH FORUM IS NOT CONVENIENT; (C) AGREE THAT ANY LITIGATION INITIATED BY WELLS FARGO OR COMPANY IN CONNECTION WITH THIS AMENDMENT OR THE OTHER LOAN DOCUMENTS MAY BE VENUED IN EITHER THE STATE OR FEDERAL COURTS LOCATED IN THE COUNTY OF DALLAS, STATE OF TEXAS, AND (D) AGREE THAT A FINAL JUDGMENT IN ANY SUCH SUIT, ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. THE PARTIES HERETO WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION AT LAW OR IN EQUITY OR IN ANY OTHER PROCEEDING BASED ON OR PERTAINING TO THIS AMENDMENT.

Section 6.6Counterparts; Fax.  This Amendment may be separately executed in counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to constitute one and the same Amendment.  This Amendment may be duly executed and delivered by facsimile transmission, electronic mail or other electronic means.

SECOND AMENDMENT TO CREDIT AND SECURITY AGREEMENT AND WAIVER - Page 5

Section 6.7FINAL AGREEMENT.  THIS AMENDMENT TOGETHER WITH  THE OTHER LOAN DOCUMENTS COMPRISES THE COMPLETE AND INTEGRATED AGREEMENT OF THE PARTIES ON THE SUBJECT MATTER OF THIS AMENDMENT AND SUPERSEDES ALL PRIOR AGREEMENTS, WHETHER ORAL OR EVIDENCED IN A RECORD..

THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

[The remainder of this page is intentionally left blank.]

SECOND AMENDMENT TO CREDIT AND SECURITY AGREEMENT AND WAIVER - Page 6

IN WITNESS WHEREOF, the undersigned by their respective duly authorized officers thereunto have executed and delivered this Amendment as of the date first above written.

TANDY BRANDS ACCESSORIES, INC.
By:
	Name:
	Title:
H.A. SHELDON CANADA, LTD.
By:
	Name:
	Title:
WELLS FARGO BANK, NATIONAL ASSOCIATION
By:
	Name:
	Title:

SECOND AMENDMENT TO CREDIT AND SECURITY AGREEMENT AND WAIVER - Signature Page

Each of the undersigned by their respective signatures hereunto acknowledges its receipt and review of this Amendment and hereby consents to the execution and delivery of, and the terms of, this Amendment and hereby ratifies and confirms their respective Guaranty and the obligations guarantied thereunder in all respects and for all purposes.

TBAC INVESTMENT TRUST
By:
not in his/her individual capacity, but solely  as Trustee
TBAC-TOREL, INC.
By:
Name:	N. Roderick McGeachy, III
Title:	President and Chief Executive Officer

SECOND AMENDMENT TO CREDIT AND SECURITY AGREEMENT AND WAIVER - Signature Page to Consent and Ratification

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.

May 14, 2012	/s/ N. Roderick McGeachy, III
	N. Roderick McGeachy, III Chief Executive Officer (Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO

RULE 13a-14(a)/15d-14(a)

(PRINCIPAL FINANCIAL OFFICER)

CERTIFICATION BY CHIEF ACCOUNTING OFFICER

I, Joseph C. Talley, 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.

May 14, 2012	/s/ Joseph C. Talley
	Joseph C. Talley Chief Accounting Officer (Principal 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 March 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, N. Roderick McGeachy, III and Joseph C. Talley, Chief Executive Officer and Chief Accounting 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.

May 14, 2012	/s/ N. Roderick McGeachy, III
	N. Roderick McGeachy, III Chief Executive Officer (Principal Executive Officer)
	/s/ Joseph C. Talley
	Joseph C. Talley Chief Accounting Officer (Principal Financial Officer)

XML

Note 4 - Business Segment Information

9 Months Ended

Mar. 31, 2012

Segment Reporting Disclosure [Text Block]

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, specialty stores, catalog retailers, 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 and small leather 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 2011 Annual Report on Form 10-K filed with the Securities and Exchange Commission on September 1, 2011.  No inter-segment revenue is recorded.  Assets, related depreciation and amortization, and selling, general and administrative expenses are not allocated to the segments.

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

	Three Months Ended March 31						Nine Months Ended March 31
	2012			2011			2012			2011
Net sales:
Accessories	$	22,158		$	26,828		$	66,402		$	79,409
Gifts		1,704			1,578			29,637			21,132
	$	23,862		$	28,406		$	96,039		$	100,541
Segment income (loss):
Accessories	$	4,703		$	4,891		$	14,086		$	13,118
Gifts		(962	)		(861	)		3,657			2,432
		3,741			4,030			17,743			15,550
Selling, general and administrative expenses		(5,984	)		(6,096	)		(16,223	)		(17,629	)
Depreciation and amortization		(549	)		(646	)		(1,699	)		(1,937	)
Acquisition related costs		-			-			-			(50	)
Operating loss	$	(2,792	)	$	(2,712	)	$	(179	)	$	(4,066	)

XML

Note 3 - Acquisition

9 Months Ended

Mar. 31, 2012

Business Combination Disclosure [Text Block]

Note 3 - Acquisition

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.

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

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 value of net assets’ acquired 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 three years.

XML

Unaudited Consolidated Statements of Operations (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Mar. 31, 2012	Mar. 31, 2011	Mar. 31, 2012	Mar. 31, 2011
Net sales	$ 23,862	$ 28,406	$ 96,039	$ 100,541
Cost of goods sold	16,288	19,560	65,285	67,251
Gross margin	7,574	8,846	30,754	33,290
Selling, general and administrative expenses	9,817	10,912	29,234	35,369
Depreciation and amortization	549	646	1,699	1,937
Acquisition related costs				50
Total operating expenses	10,366	11,558	30,933	37,356
Operating loss	(2,792)	(2,712)	(179)	(4,066)
Interest expense	(207)	(209)	(956)	(680)
Other income (expense)	(2)	1	(13)	156
Loss before income taxes	(3,001)	(2,920)	(1,148)	(4,590)
Income tax expense	64	155	266	452
Net loss	$ (3,065)	$ (3,075)	$ (1,414)	$ (5,042)
Loss per common share (in Dollars per share)	$ (0.43)	$ (0.44)	$ (0.20)	$ (0.72)
Loss per common share assuming dilution (in Dollars per share)	$ (0.43)	$ (0.44)	$ (0.20)	$ (0.72)
Weighted average common shares outstanding (in Shares)	7,074	6,972	7,074	6,970
Weighted average common shares outstanding assuming dilution (in Shares)	7,074	6,972	7,074	6,970

XML

Note 1 - Accounting Principles

9 Months Ended

Mar. 31, 2012

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

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 2011 financial statements to conform to the fiscal 2012 presentation, including recasting business segment information to allocate certain distribution costs to each reportable segment.

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, 2011 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 2011 Annual Report on Form 10-K filed with the Securities and Exchange Commission on September 1, 2011.

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.  As a result, sales and operating results for the nine months of fiscal 2012 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2012.

XML

Note 2 - Fair Value Measurements

9 Months Ended

Mar. 31, 2012

Fair Value Disclosures [Text Block]

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 inputs that are unobservable and significant to the fair value measurement (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 entered into effective August 25, 2011 (and amended January 20, 2012 and May 11, 2012), bears interest at floating market interest rates; therefore, we believe the fair value of amounts borrowed approximates the carrying value.  At March 31, 2012 and June 30, 2011, no other material assets or liabilities were measured at fair value.

XML

Unaudited Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Mar. 31, 2012	Jun. 30, 2011	Mar. 31, 2011
Current assets:
Cash and cash equivalents	$ 287	$ 414	$ 283
Restricted cash		1,450	1,443
Accounts receivable	7,881	14,286	18,886
Inventories	26,894	28,945	35,781
Other current assets	3,508	8,073	3,596
Total current assets	38,570	53,168	59,989
Property and equipment, net	5,719	6,525	6,753
Other assets:
Intangibles	4,311	4,936	5,152
Other assets	929	790	781
Total other assets	5,240	5,726	5,933
	49,529	65,419	72,675
Current liabilities:
Accounts payable	5,326	8,145	5,986
Accrued compensation	1,361	1,900	1,697
Accrued expenses	1,534	2,267	1,740
Credit facility	7,563	17,935	19,942
Total current liabilities	15,784	30,247	29,365
Other liabilities	4,433	4,243	4,084
Stockholders' equity:
Preferred stock, $1.00 par value, 1,000 shares authorized, none issued
Common stock, $1.00 par value, 10,000 shares authorized, 7,075 shares, 7,075 shares and 6,972 shares issued and outstanding, respectively	7,075	7,075	6,972
Additional paid-in capital	34,141	34,119	34,193
Accumulated deficit	(13,732)	(12,318)	(3,884)
Other comprehensive income	1,828	2,053	1,945
Total stockholders' equity	29,312	30,929	39,226
	$ 49,529	$ 65,419	$ 72,675

XML

Document And Entity Information	9 Months Ended
	Mar. 31, 2012	May 11, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	TANDY BRANDS ACCESSORIES INC
Document Type	10-Q
Current Fiscal Year End Date	--06-30
Entity Common Stock, Shares Outstanding		7,078,931
Amendment Flag	false
Entity Central Index Key	0000869487
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Smaller Reporting Company
Entity Well-known Seasoned Issuer	No
Document Period End Date	Mar. 31, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3

XML

Unaudited Consolidated Balance Sheets (Parentheticals) (USD $)	Mar. 31, 2012	Jun. 30, 2011	Mar. 31, 2011
Preferred stock par value (in Dollars per share)	$ 1.00	$ 1.00	$ 1.00
Preferred stock, shares authorized	1,000	1,000	1,000
Preferred stock, shares issued
Common stock par value (in Dollars per share)	$ 1.00	$ 1.00	$ 1.00
Common stock, shares authorized	10,000	10,000	10,000
Common stock, shares issued	7,075	7,075	6,972
Common stock, shares outstanding	7,075	7,075	6,972

XML

Note 7 - Income Taxes

9 Months Ended

Mar. 31, 2012

Income Tax Disclosure [Text Block]

Note 7 - Income Taxes

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

	Three Months Ended March 31						Nine Months Ended March 31
	2012			2011			2012			2011
Federal and state	$	8		$	12		$	81		$	46
Deferred federal and state		(1,010	)		(1,216	)		(286	)		(1,944	)
Foreign		(15	)		80			87			194
Uncertain tax positions		65			35			81			99
Deferred tax valuation allowance		1,016			1,244			303			2,057
	$	64		$	155		$	266		$	452

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

	Three Months Ended March 31						Nine Months Ended March 31
	2012			2011			2012			2011
Statutory rate		(34.0	)%		(34.0	)%		(34.0	)%		(34.0	)%
State and foreign taxes net of federal tax benefit		0.2			(0.4	)		15.6			(0.4	)
Uncertain tax positions		2.2			1.2			7.1			2.2
Repatriation of foreign earnings		(0.1	)		-			8.1			-
Deferred tax valuation allowance		33.8			38.5			26.4			42.1
		2.1	%		5.3	%		23.2	%		9.9	%

At March 31, 2012 we had federal income tax net operating loss carryovers of approximately $49.7 million expiring in 2029 through 2031.  Our deferred tax valuation allowance was approximately $23.5 million.

Through June 30, 2011, we asserted that our foreign earnings were indefinitely reinvested outside the United States, and we were, therefore, not required to provide for U.S. income taxes on those earnings. In connection with our current credit facility, entered into effective August 2011, our Canadian subsidiary guaranteed the outstanding borrowings under this facility. This guarantee is deemed to be an investment by our subsidiary in U.S. property, triggering the repatriation of the subsidiary's earnings in the form of a dividend. The dividend does not result in a current tax liability due to our net operating loss carryforwards; however, the net effect of the repatriation is captured in the tax rate reconciliation above.

XML

Note 6 - Long-Term Incentive Award

9 Months Ended

Mar. 31, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

Note 6 - Long-Term Incentive Award

During the nine months of fiscal 2012, we issued 1.0 million 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 either $1.725 or $1.975 per share.  The units earned (or to be earned) during the performance cycle (July 1, 2011 through June 30, 2013) vary from 0% to 200% of the units awarded based on our basic earnings per share for each of the two fiscal years ending June 30, 2012 and June 30, 2013, respectively, excluding the effects of accounting principles changes, extraordinary items, recognized capital gains and losses and, as determined by our board of directors (the “Board”), one-time, non-operating items.  Assuming continued employment, if, at the end of the two-year performance cycle, at least the threshold performance level has been achieved, the performance units will cliff vest and all such performance units, including those comprised of phantom shares of our common stock, 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, (i) if there is a change in control, 100% of the phantom units awarded to employees vest and, (ii) upon death, disability, or normal (age 65) or early (age 55 and 15 years service) retirement of an employee who has been awarded such performance units, a fraction of such performance units earned by such employee vest based on the number of years employed during the performance cycle.  As of March 31, 2012, we expect 439,000 of the 1.0 million units granted to vest (60,000 units were forfeited), which, based on a combination of (A) $1.00 value per performance unit (for the portion comprised in cash) and (B) the market price of our common stock on March 31, 2012 (for the portion comprised in phantom shares of our common stock), would be payable in cash equal to $407,000.

XML

Note 8 - Comprehensive Loss

9 Months Ended

Mar. 31, 2012

Comprehensive Income (Loss) Note [Text Block]

Note 8 - Comprehensive Loss

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

	Three Months Ended March 31						Nine Months Ended March 31
	2012			2011			2012			2011
Net loss	$	(3,065	)	$	(3,075	)	$	(1,414	)	$	(5,042	)
Currency translation adjustments		154			140			(225	)		388
Comprehensive loss	$	(2,911	)	$	(2,935	)	$	(1,639	)	$	(4,654	)

XML

Note 9 - Loss Per Share

9 Months Ended

Mar. 31, 2012

Earnings Per Share [Text Block]

Note 9 - Loss Per Share

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

	Three Months Ended March 31						Nine Months Ended March 31
	2012			2011			2012			2011
Numerator for basic and diluted earnings per share:
Net loss	$	(3,065	)	$	(3,075	)	$	(1,414	)	$	(5,042	)
Denominator for basic and diluted earnings per share:		7,074			6,972			7,074			6,970
Loss per common share	$	(0.43	)	$	(0.44	)	$	(0.20	)	$	(0.72	)
Loss per common share assuming dilution	$	(0.43	)	$	(0.44	)	$	(0.20	)	$	(0.72	)

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

	March 31
	2012		2011
Stock options (exercise prices per share: 2012 - $1.98 to $15.60; 2011 - $5.31 to $15.60)		269		321

XML

Unaudited Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Cash flows provided (used) by operating activities:
Net loss	$ (1,414)	$ (5,042)
Adjustments to reconcile net loss to net cash provided (used) by operating activities:
Deferred income taxes	54	54
Doubtful accounts receivable provision	907	324
Depreciation and amortization	1,889	2,118
Stock compensation expense	72	(68)
Amortization of debt costs	168	52
Other	(5)	(116)
Changes in assets and liabilities:
Accounts receivable	5,470	(525)
Inventories	1,946	(4,118)
Other assets	4,018	3,166
Accounts payable	(3,221)	(7,314)
Accrued expenses	(1,132)	(1,083)
Net cash provided (used) by operating activities	8,752	(12,552)
Cash flows provided (used) by investing activities:
Acquisition		(245)
Purchases of property and equipment	(495)	(736)
Sales of property and equipment	191	2,778
Net cash provided (used) by investing activities	(304)	1,797
Cash flows provided (used) by financing activities:
Change in cash overdrafts	414	(265)
Change in restricted cash	1,447	0
Net borrowings (repayments) under credit facility	(10,369)	10,474
Net cash provided (used) by financing activities	(8,508)	10,209
Effect of exchange-rate changes on cash and cash equivalents	(67)	(1)
Net decrease in cash and cash equivalents	(127)	(547)
Cash and cash equivalents beginning of year	414	830
Cash and cash equivalents end of period	$ 287	$ 283

XML

Note 5 - Credit Facility

9 Months Ended

Mar. 31, 2012

Schedule of Line of Credit Facilities [Table Text Block]

Note 5 – Credit Facility     

We have a $35 million credit facility, which expires in August 2015.  This facility was amended effective January 20, 2012 and May 11, 2012 to extend the time period required to deliver certain post-close deliverables and title matters related to real property, and to modify certain definitions used in the credit agreement.  At March 31, 2012, we had $3.4 million borrowing availability based on our accounts receivable and inventory levels, outstanding letters of credit totaling $1.4 million, and $7.6 million outstanding borrowings under the facility.  Borrowings and letters of credit bear interest at either the daily three-month LIBOR rate plus 3.75% or a fixed LIBOR rate for three months plus 3.75%.

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.  The credit facility contains certain negative covenants and it requires the maintenance of a specified profitability, fixed charge coverage and minimum availability covenant, which, if not met, could adversely impact our liquidity.  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 debt, and making certain property transfers.  In addition, the facility contains customary representations and warranties and we have agreed to certain affirmative covenants, including reporting requirements.

On May 11, 2012 we obtained a waiver from our lender for violation of the profitability covenant and fixed charge coverage covenant.  These violations were driven by recognizing a $900,000 provision for doubtful accounts for one customer as of March 31, 2012, due to the customer’s financial difficulties raising doubts about the customer’s ability to make payment in the foreseeable future.  Excluding the impact of this event, which drove the violation and subsequent waiver, we were in compliance with all covenants as of March 31, 2012.

The maximum line of credit under the credit facility, which includes the revolver and letters of credit, is $35 million.  The credit facility is asset-based and the available line of credit may be limited pursuant to certain borrowing base limitations, including (1) the amount of certain of our eligible accounts, (2) the amount of our eligible accounts with our largest customer, (3) the value of our eligible inventory, which is more specifically determined in part based on specific periods during our fiscal year, and (4) the amount of our borrowing base reserve.

Our Canadian subsidiary had 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 was secured by cash, credit balances, and/or deposit instruments of CAD $1.4 million.  In connection with the consummation of our current $35 million credit facility in the first quarter of fiscal 2012, our Canadian subsidiary’s facility was terminated and all borrowings were paid and obligations were fulfilled.