10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

Form 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2017

or

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to __________

Commission File Number 1-12368

TANDY LEATHER FACTORY, INC.

(Exact name of registrant as specified in its charter)

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

1900 Southeast Loop 820, Fort Worth, Texas  76140

(Address of principal executive offices) (Zip code)

(817) 872-3200

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [X]  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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X]  No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,”  “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  (Check one):  Large accelerated filer [  ] Accelerated filer [  ] Non-accelerated filer [  ] Smaller reporting company [X ] Emerging growth company [  ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

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

Class	Shares outstanding as of August 1, 2017
Common Stock, par value $0.0024 per share	9,270,862

1

TANDY LEATHER FACTORY, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2017

TABLE OF CONTENTS

	PAGE NO.
PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements
Consolidated Balance Sheets	3
Consolidated Statements of Comprehensive Income	4
Consolidated Statements of Cash Flows	5
Consolidated Statements of Stockholders' Equity	6
Notes to Consolidated Financial Statements	7
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.  Quantitative and Qualitative Disclosures About Market Risk	17
Item 4.  Controls and Procedures	17
PART II.  OTHER INFORMATION
Item 1.  Legal Proceedings	17
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 6.  Exhibits	18
SIGNATURES	19

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Tandy Leather Factory, Inc.

Consolidated Balance Sheets

	June 30, 2017 (unaudited)			December 31, 2016 (audited)
ASSETS
CURRENT ASSETS:
Cash	$	14,841,370		$	16,862,304
Accounts receivable-trade, net of allowance for doubtful accounts
of $16,209 and $2,404 in 2017 and 2016, respectively		497,317			560,984
Inventory		37,327,488			33,177,539
Prepaid income taxes		455,423			964,323
Prepaid expenses		1,478,762			1,608,860
Other current assets		140,488			140,232
Total current assets		54,740,848			53,314,242
PROPERTY AND EQUIPMENT, at cost		26,585,838			25,536,352
Less accumulated depreciation and amortization		(10,831,122	)		(9,884,559	)
		15,754,716			15,651,793
DEFERRED INCOME TAXES		404,615			375,236
GOODWILL		959,797			956,201
OTHER INTANGIBLES, net of accumulated amortization of approximately
$709,000 and $708,000 in 2017 and 2016, respectively		19,954			20,840
OTHER ASSETS		363,529			334,408
TOTAL ASSETS	$	72,243,459		$	70,652,720
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable-trade	$	1,484,043		$	1,621,884
Accrued expenses and other liabilities		4,471,813			5,937,187
Current maturities of capital lease obligations		72,686			72,686
Current maturities of long-term debt		1,535,778			614,311
Total current liabilities		7,564,320			8,246,068
DEFERRED INCOME TAXES		1,838,066			1,956,032
LONG-TERM DEBT, net of current maturities		5,835,952			6,757,419
COMMITMENTS AND CONTINGENCIES		-			-
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.10 par value; 20,000,000 shares authorized;					-
none issued or outstanding; attributes to be determined on issuance		-
Common stock, $0.0024 par value; 25,000,000 shares authorized;
11,313,692 and 11,235,992 shares issued at 2017 and 2016, respectively;
9,270,862 and 9,193,162 shares outstanding at 2017 and 2016, respectively		27,153			26,966
Paid-in capital		6,762,832			6,368,455
Retained earnings		61,728,490			59,469,493
Treasury stock at cost (2,042,830 shares at 2017 and 2016, respectively)		(10,278,584	)		(10,278,584	)
Accumulated other comprehensive income		(1,234,770	)		(1,893,129	)
Total stockholders’ equity		57,005,121			53,693,201
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	72,243,459		$	70,652,720

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

3

Tandy Leather Factory, Inc.

Consolidated Statements of Comprehensive Income (Unaudited)

For the Three and Six Months Ended June 30

	THREE MONTHS						SIX MONTHS
	2017			2016			2017			2016
NET SALES	$	19,280,770		$	19,522,905		$	39,430,615		$	40,195,132
COST OF SALES		6,385,236			6,627,115			14,249,036			14,646,596
Gross profit		12,895,534			12,895,790			25,181,579			25,548,536
OPERATING EXPENSES		11,240,097			10,056,899			21,788,651			20,346,855
INCOME FROM OPERATIONS		1,655,437			2,838,891			3,392,928			5,201,681
OTHER INCOME (EXPENSE):
Interest expense		(53,680	)		(42,027	)		(90,024	)		(65,456	)
Other, net		17,012			23,434			19,663			23,395
Total other income (expense)		(36,668	)		(18,593	)		(70,361	)		(42,061	)
INCOME BEFORE INCOME TAXES		1,618,769			2,820,298			3,322,567			5,159,620
PROVISION FOR INCOME TAXES		591,037			999,383			1,063,570			1,817,708
NET INCOME	$	1,027,732		$	1,820,915		$	2,258,997		$	3,341,912
Foreign currency translation adjustments		302,019			(382,762	)		658,359			254,753
COMPREHENSIVE INCOME	$	1,329,751		$	1,438,153		$	2,917,356		$	3,596,665
NET INCOME PER COMMON SHARE:
Basic	$	0.11		$	0.19		$	0.24		$	0.35
Diluted	$	0.11		$	0.19		$	0.24		$	0.35
Weighted Average Number of Shares Outstanding:
Basic		9,225,960			9,209,446			9,212,846			9,418,645
Diluted		9,229,129			9,227,941			9,225,474			9,437,620

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

4

Tandy Leather Factory, Inc.

Consolidated Statements of Cash Flows (Unaudited)

For the Six Months Ended June 30

	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	2,258,997		$	3,341,912
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		929,408			831,793
(Gain) / loss on disposal or abandonment of assets		515			(6,560	)
Non-cash stock-based compensation		171,160			113,302
Deferred income taxes		(147,345	)		(4,676	)
Foreign currency translation		627,609			256,309
Net changes in assets and liabilities:
Accounts receivable-trade		63,667			1,382
Inventory		(4,149,949	)		(2,720,056	)
Prepaid expenses		130,098			(108,971	)
Other current assets		(256	)		(62,788	)
Accounts payable-trade		(137,841	)		(589,863	)
Accrued expenses and other liabilities		(1,465,374	)		(1,066,056	)
Income taxes payable		508,900			(216,328	)
Total adjustments		(3,469,408	)		(3,572,512	)
Net cash used in operating activities		(1,210,411	)		(230,600	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(1,004,906	)		(898,007	)
Proceeds from sale of assets		100			26,703
Decrease in other assets		(29,121	)		352
Net cash used in investing activities		(1,033,927	)		(870,952	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and long term debt		-			3,660,505
Payments on capital lease obligations		-			(6,710	)
Repurchase of common stock (treasury stock)		-			(3,675,654	)
Proceeds from exercise of stock options		223,404			-
Net cash provided by (used in) financing activities		223,404			(21,859	)
NET DECREASE IN CASH		(2,020,934	)		(1,123,411	)
CASH, beginning of period		16,862,304			10,962,615
CASH, end of period	$	14,841,370		$	9,839,204
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the period	$	90,024		$	65,456
Income tax paid during the period, net of refunds	$	554,670		$	2,034,036

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

5

Tandy Leather Factory, Inc.

Consolidated Statements of Stockholders’ Equity (Unaudited)

For the Six Months Ended June 30

	Number of Shares			Par Value		Paid-in Capital		Treasury Stock			Retained Earnings		Accumulated Other Comprehensive Income			Total
BALANCE, December 31, 2015		9,753,293		$	27,062	$	6,168,489	$	(6,602,930	)	$	53,067,234	$	(1,687,679	)	$	50,972,176
Purchase of treasury stock		(520,482	)		-		-		(3,675,654	)		-		-			(3,675,654	)
Stock-based compensation		33,685			80		113,222		-			-		-			113,302
Net income		-			-		-		-			3,341,912		-			3,341,912
Translation adjustment		-			-		-		-			-		254,753			254,753
BALANCE, June 30, 2016		9,266,496		$	27,142	$	6,281,711	$	(10,278,584	)	$	56,409,146	$	(1,432,926	)	$	51,006,489
	Number of Shares			Par Value		Paid-in Capital		Treasury Stock			Retained Earnings		Accumulated Other Comprehensive Income			Total
BALANCE, December 31, 2016		9,193,162		$	26,966	$	6,368,455	$	(10,278,584	)	$	59,469,493	$	(1,893,129	)	$	53,693,201
Exercise of stock options		44,400			107		223,297.		-			-		-			223,404
Stock-based compensation		33,300			80		171,080		-			-		-			171,160
Net income		-			-		-		-			2,258,997		-			2,258,997
Translation adjustment		-			-		-		-			-		658,359			658,359
BALANCE, June 30, 2017		9,270,862		$	27,153	$	6,762,832	$	(10,278,584	)	$	61,728,490	$	(1,234,770	)	$	57,005,121

6

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

6

TANDY LEATHER FACTORY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND CERTAIN SIGNIFICANT ACCOUNTING POLICIES

In the opinion of management, the accompanying consolidated financial statements for Tandy Leather Factory, Inc. and its consolidated subsidiaries contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly its financial position as of June 30, 2017 and December 31, 2016, and its results of operations and cash flows for the three and six-month periods ended June 30, 2017 and 2016.  Operating results for the three and six-month periods ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.  These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2016.

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Actual results could differ from those estimates.

Reclassifications.  Certain prior year amounts have been reclassified to conform to the current year presentation.

Inventory.  Inventory is valued at the lower of first-in, first-out cost or market.  In addition, the value of inventory is periodically reduced to net realizable value for slow-moving or obsolete inventory based on management's review of items on hand compared to their estimated future demand.Based on negotiations with vendors, title generally passes to us when merchandise is put on board.  Merchandise to which we have title but have not yet received is recorded as inventory in transit.

	June 30, 2017		December 31, 2016
Inventory on hand:
Finished goods held for sale	$	33,665,227	$	30,684,026
Raw materials and work in process		1,574,142		1,034,041
Inventory in transit		2,088,119		1,459,472
	$	37,327,488	$	33,177,539

Goodwill and Other Intangibles.  Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. Goodwill is required to be evaluated for impairment on an annual basis, absent indicators of impairment during the interim.  Application of the goodwill impairment test requires exercise of judgment, including the estimation of future cash flows, determination of appropriate discount rates and other important assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment for each reporting unit.

A two-step process is used to test for goodwill impairment.  The first phase screens for impairment, while the second phase (if necessary) measures the impairment.  We have elected to perform the annual analysis during the fourth calendar quarter of each year.  As of December 31, 2016, management determined that the present value of the discounted estimated future cash flows of the stores associated with the goodwill is sufficient to support their respective goodwill balances.  No indicators of impairment were identified during the first half  of 2017.

The only change in our goodwill for the six-month periods ended June 30, 2017 and 2016 resulted from foreign currency translation of $3,596 and $6,512, respectively.

Other intangibles consist of the following:

	June 30, 2017						December 31, 2016
	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Trademarks, Copyrights	$	554,369	$	545,665	$	8,704	$	554,369	$	545,279	$	9,090
Non-Compete Agreements		175,316		164,066		11,250		175,316		163,566		11,750
	$	729,685	$	709,731	$	19,954	$	729,685	$	708,845	$	20,840

We recorded amortization expense of $886 during the six months ended June 30, 2017 compared to $5,054 during the first half of 2016.  All of our intangible assets, other than goodwill, are subject to amortization under U.S. GAAP.  Based on the current amount of intangible assets subject to amortization, the estimated amortization expense for each of the succeeding 5 years is as follows:

2017		871
2018		1,417
2019		666
2020		666
2021		666
Thereafter	$	5,668

7

Revenue Recognition.  Our sales generally occur via two methods: (1) at the counter in our stores, and (2) shipment by common carrier.  Sales at the counter are recorded and title passes as transactions occur.  Otherwise, sales are recorded and title passes when the merchandise is shipped to the customer.  Shipping terms are normally FOB shipping point.  Sales tax and comparable foreign tax is excluded from revenue.

We offer an unconditional satisfaction guarantee to our customers and accept all product returns.  Net sales represent gross sales less negotiated price allowances, product returns, and allowances for defective merchandise.

Comprehensive Income (loss). Comprehensive income includes net income and certain other items that are recorded directly to Stockholders’ Equity.  Our only source of other comprehensive income is foreign currency translation adjustments

Recent Accounting Pronouncements.  In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, which amends ASC Topic 606, “Revenue from Contracts with Customers”. The amendments in this ASU are intended to provide a more robust framework for addressing revenue issues, improve comparability of revenue recognition practices and improve disclosure requirements. The amendments in this accounting standard update are effective for interim and annual reporting periods beginning after December 15, 2016. In April 2015, FASB issued ASU No. 2015-24, Revenue from Contracts with Customers: Deferral of the Effective Date which proposed a deferral of the effective date by one year, and on July 7, 2015, FASB decided to delay the effective date by one year. The deferral results in the new revenue standard being effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. We are therefore required to apply the new revenue guidance beginning in our 2018 interim and annual financial statements. This ASU can be adopted either retrospectively or as a cumulative-effect adjustment as of the date of adoption. Entities reporting under U.S. GAAP are not permitted to adopt this standard earlier than the original effective date for public entities (that is, no earlier than 2017 for calendar year-end entities.) We are currently evaluating what impact, if any, the adoption of this guidance will have on our financial condition, results of operations, cash flows and financial disclosures.  Based on our procedures to date, we believe that the adoption will not have a material impact to our financial condition, results of operations or cash flows although our disclosures will be expanded.  We expect to adopt ASU No. 2014-09 under the modified retrospective method.  Given the nature of our business and that our sales generally occur at the counter or by shipment through common carrier at observable transaction prices with little, if any, variable consideration factors, we do not expect there to be significant changes to the amount and timing of revenue recognition.  Finally, while we offer an unconditional right of return to our customers, this has historically been immaterial to our financial condition, results of operations and cash flows (annual gross product returns historically have represent less than 0.5% of our net sales over the last three years).

In February 2016, the FASB issued ASU 2016-02, “Leases”, a comprehensive new standard that amends various aspects of existing accounting guidance for leases, including the recognition of a right of use asset and a lease liability for leases with a duration greater than one year.  The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  Early adoption is permitted.  We have not completed our review of the new guidance; however, we anticipate that upon adoption of the standard, using a modified retrospective approach, we will recognize additional assets and corresponding liabilities related to leases on our balance sheet.

2. NOTES PAYABLE AND LONG-TERM DEBT

On September 18, 2015, we executed a Promissory Note and Business Loan Agreement with BOKF, NA d/b/a Bank of Texas (“BOKF”) which provides us with a line of credit facility of up to $10,000,000 for the purpose of purchasing shares of our common stock pursuant to our stock repurchase program, announced in August 2015 and subsequently amended, which permits us to repurchase up to 2.2 million shares of our common stock at prevailing market prices through August 2018.  On August 25, 2016, this line of credit was amended to increase the availability from $10,000,000 to $15,000,000 for the purchase of shares of our common stock through the earlier of August 25, 2017 or the date on which the entire amount is drawn.  During this time period, we are required to make monthly interest-only payments. At the end of this time period, we expect that the principal balance will be rolled into a 4-year term note. We are currently working to amend this Promissory Note to extend the drawdown period and conversion date from August 25, 2017 to August 25, 2018 to align with our stock buyback program.  This Promissory Note is secured by a Deed of Trust on the real estate located at 1900 SE Loop 820, Fort Worth, Texas.   There were no amounts drawn on this line during the six months ended June 30, 2017.  For the six months ended June 30, 2016, we drew approximately $3.7 million on this line which was used to purchase approximately 520,500 shares of our common stock.  At June 30, 2017, the unused portion of the line of credit was approximately $7.6 million.

Also, on September 18, 2015, we executed a Promissory Note and Business Loan Agreement with BOKF which provides us with a line of credit facility of up to $6,000,000 and is secured by our inventory.   On August 25, 2016, this line of credit was amended to extend the maturity from September 18, 2017 to September 18, 2018.  The Business Loan Agreement contains covenants that require us to maintain a funded debt to EBITDA ratio of no greater than 1.5 to 1 and that we will maintain a Fixed Charge Coverage Ratio greater than or equal to 1.2 to 1.  Both ratios are calculated quarterly on a trailing four quarter basis.  For the six month periods ended June 30, 2017 and 2016, there were no amounts drawn on this line.

Amounts drawn under either facility accrue interest at the London interbank Eurodollar market rate for U.S. dollars (commonly known as “LIBOR”) plus 1.85% (2.860% and 2.557% at June 30, 2017 and December 31, 2016, respectively).

The amount outstanding under the above agreements consisted of the following:

	6/30/2017		12/31/2016
Line of Credit, as amended, in the maximum principal amount of $15,000,000 with features as more fully described above –matures September 18, 2021	$	7,371,730	$	7,371,730
Line of Credit, as amended, in the maximum principal amount of $6,000,000 with revolving features as more fully described above – matures September 18, 2018		-		-
	$	7,371,730	$	7,371,730
Less current maturities		1,535,778		614,311
	$	5,835,952	$	6,757,419

3.  CAPITAL LEASE OBLIGATIONS

We lease certain telecommunication equipment under a capital lease agreement.  The asset subject to the agreement totaled $227,783, of which $217,114 and $210,904 is included in Property and Equipment at June 30, 2017 and December 31, 2016, respectively, and $10,669 and $16,879 is included in Prepaid expenses (not placed in service) as of June 30, 2017 and December 31, 2016, respectively.  Accumulated depreciation on the assets placed in service was approximately $33,300 and $21,400 at June 30, 2017 and December 31, 2016, respectively.  Amortization of the capitalized cost is charged to depreciation expense.   The final installment of our capital lease obligations, due at the end of 2017, is equal to $72,686 and is included in current liabilities as of June 30, 2017.

8

4. STOCK-BASED COMPENSATION

We have one stock option plan that terminated in March 2017.  This plan permitted annual stock option grants to non-employee directors with an exercise price equal to the fair market value of the shares at the date of grant.  Options outstanding and exercisable were granted at a stock option price which was not less than the fair market value of our common stock on the date the option was granted and no option has a term in excess of ten years.  Under this plan, no options were awarded to directors during the six months ended June 30, 2017 or 2016 and therefore, no share based compensation expense was recorded for the six months ended June 30, 2017 or 2016.  During the six months ended June 30, 2017 and 2016, the stock option activity under this now expired stock option plans was as follows:

	Weighted Average Exercise Price		# of shares			Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding, January 1, 2017	$	5.14		56,400
Granted		-		-
Cancelled	$	5.14		(12,000	)
Exercised	$	5.14		(44,400	)		3.99	$	155,606
Outstanding, June 30, 2017	$	-		-			-	$	-
Exercisable, June 30, 2017	$	-		-			-	$	-
Outstanding, January 1, 2016	$	5.17		68,400
Granted		-		-
Cancelled		-		-
Exercised		-		-
Outstanding, June 30, 2016	$	5.17		68,400			4.99	$	83,933
Exercisable, June 30, 2016	$	5.17		68,400			4.99	$	83,933

We have a restricted stock plan that was adopted by our Board of Directors in January 2013 and approved by our stockholders in June 2013.  The plan reserves up to 300,000 shares of our common stock for restricted stock awards to our executive officers, non-employee directors and other key employees.  Awards granted under the plan may be stock awards or performance awards, and may be subject to a graded vesting schedule with a minimum vesting period of four years, unless otherwise determined by the committee that administers the plan.

In February 2017, our five independent directors were awarded restricted stock grants consisting of 1,801 shares each. In March 2016, our Chief Executive Officer and President were awarded restricted stock grants consisting of 11,765 shares each, and our five independent directors were awarded restricted stock grants consisting of 2,031 shares each. All of these grants vest in equal annual amounts over a four-year period.  The fair value of these restricted stock grants is based on the market value of our common stock on the date of grant.  Compensation costs for these awards is recognized on a straight-line basis over the four-year vesting period.

On June 6, 2017, vesting for certain restricted stock grants to three of our independent directors whose Board service had just completed were accelerated which resulted in $104,000 of compensation expense that was recognized in the three and six months ended June 30, 2017.

A summary of the activity for non-vested restricted common stock awards as of June 30, 2017 and 2016 is presented below:

	Shares			Award Fair Value
Balance, January 1, 2017		62,046		$	8.24
Granted		9,005			8.05
Forfeited		(5,403	)		8.05
Vested		(28,847	)		7.84
Unvested Balance, June 30, 2017		36,801		$	7.93
Balance, January 1, 2016		60,433		$	8.97
Granted		33,685			7.14
Forfeited		(8,187	)		8.97
Vested		(20,784	)		8.97
Unvested Balance, June 30, 2016		65,147		$	8.03

As of June 30, 2017, unrecognized compensation cost related to non-vested restricted stock awards was $241,242 which we expect will be recognized in each of the following years as follows:

2017	$	66,928
2018		100,127
2019		58,126
2020		14,853
2021		1,208

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5. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share (“EPS”) for the three and six months ended June 30:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
Net income	$	1,027,732	$	1,820,915	$	2,258,997	$	3,341,912
Numerator for basic and diluted earnings per share		1,027,732		1,820,915		2,258,997		3,341,912
Denominator for basic EPS: weighted-average shares		9,225,960		9,209,446		9,212,846		9,418,645
Effect of dilutive securities:
Stock options		-		18,495		9,810		18,975
Restricted stock		3,169		-		2,818		-
Dilutive potential common shares		3,169		18,495		12,628		18,975
Denominator for diluted EPS-weighted-average shares		9,229,129		9,227,941		9,225,474		9,437,620
Basic earnings per share	$	0.11	$	0.19	$	0.24	$	0.35
Diluted earnings per share	$	0.11	$	0.19	$	0.24	$	0.35

The net effect of assuming the exercise of all potentially dilutive common share equivalents, including stock options to purchase common stock at exercise prices less than the average market prices and restricted stock awards of an aggregate of 36,801 and 133,562 shares of common stock have been included in the computations of diluted EPS for the quarters ended June 30, 2017 and 2016, respectively.

6. COMMITMENTS AND CONTINGENCIES

Legal Proceedings.  We are periodically involved in litigation that arises in the ordinary course of business and operations.  There are no such matters pending that we expect to have a material impact on our financial position or operating results.  Legal costs associated with the resolution of claims, lawsuits and other contingencies are expensed as incurred.

7. SEGMENT INFORMATION

Effective January 1, 2017, we updated our reporting segments to better reflect how management analyzes the business and allocates resources, as follows:

Prior Reporting Structure	New Reporting Structure
1. Wholesale – chain of wholesale stores operating under the name, The Leather Factory, located in North America	1. North America – chain of stores located in North America (combined prior Wholesale and Retail)
2. Retail – chain of retail stores operating under the name, Tandy Leather Company, located in North America	2. International – no change
3. International – four stores, 2 located in UK, 1 in Spain and 1 in Australia

Our reportable operating segments have been determined as separately identifiable business units, and we measure segment earnings as operating earnings, defined as income before interest and income taxes.  The 2016 segment information has been restated to conform to the current segment structure.

	North America			International			Total
For the quarter ended June 30, 2017
Net sales	$	18,427,425		$	853,345		$	19,280,770
Gross profit		12,449,202			446,332			12,895,534
Operating income (loss)		1,814,887			(159,450	)		1,655,437
Interest (expense)		(53,680	)		-			(53,680	)
Other income (expense), net		15,195			1,817			17,012
Income (loss) before income taxes		1,776,402			(157,633	)		1,618,769
Depreciation and amortization		448,788			22,502			471,290
Fixed asset additions		387,054			18,095			405,149
Total assets	$	67,412,189		$	4,831,270		$	72,243,459
For the quarter ended June 30, 2016
Net sales	$	18,558,938		$	963,967		$	19,522,905
Gross profit		12,155,311			740,479			12,895,790
Operating income		2,714,312			124,579			2,838,891
Interest (expense)		(42,027	)		-			(42,027	)
Other income (expense), net		8,986			14,448			23,434
Income before income taxes		2,681,271			139,027			2,820,298
Depreciation and amortization		394,943			22,622			417,565
Fixed asset additions		242,235			48,840			291,075
Total assets	$	61,820,547		$	4,797,768		$	66,618,315

10

	North America			International			Total
For the six months ended June 30, 2017
Net sales	$	37,659,139		$	1,771,476		$	39,430,615
Gross profit		24,202,159			979,420			25,181,579
Operating income (loss)		3,626,450			(233,522	)		3,392,928
Interest (expense)		(90,024	)		-			(90,024	)
Other income (expense), net		32,849			(13,186	)		19,663
Income (loss) before income taxes		3,569,275			(246,708	)		3,322,567
Depreciation and amortization		885,069			44,339			929,408
Fixed asset additions		984,880			20,026			1,004,906
Total assets	$	67,412,189		$	4,831,270		$	72,243,459
For the six months ended June 30, 2016
Net sales	$	38,298,429		$	1,896,703		$	40,195,132
Gross profit		24,240,120			1,308,416			25,548,536
Operating income		5,055,521			146,160			5,201,681
Interest (expense)		(65,456	)		-			(65,456	)
Other income (expense), net		14,732			8,663			23,395
Income before income taxes		5,004,797			154,823			5,159,620
Depreciation and amortization		788,535			43,258			831,793
Fixed asset additions		845,099			52,908			898,007
Total assets	$	61,820,547		$	4,797,768		$	66,618,315

Net sales for geographic areas were as follows:

Three months ended June 30,	2017		2016
United States	$	16,546,075	$	16,610,634
Canada		1,646,224		1,746,547
All other countries		1,088,471		1,165,724
	$	19,280,770	$	19,522,905
Six months ended June 30,		2017		2016
United States	$	33,828,738	$	34,338,263
Canada		3,419,734		3,488,303
All other countries		2,182,143		2,368,566
	$	39,430,615	$	40,195,132

Geographic sales information is based on the location of the customer.  No single foreign country, except for Canada, accounted for any material amount of our consolidated net sales for the three and six-month periods ended June 30, 2017 and 2016.  We do not have any significant long-lived assets outside of the United States.

11

Item 2.Management’s Discussion and Analysis of Financial Conditionand Results of Operations.

Our Business

We are the world’s largest specialty retailer of leather and leathercraft related items.  We sell our products to our growing list of customers through company-owned stores and through orders generated from our website, www.tandyleather.com.  We are a Delaware corporation, and our common stock trades on the NASDAQ Global Market under the symbol “TLF.”  We have built our business by offering our customers quality products in one location at competitive prices.  We believe that the key to our success is our ability to profitably grow our base business.  We expect to grow that business by opening new locations and by increasing sales in our existing locations.  We are also focusing on improving our customer experience, increasing our brand awareness, and strengthening our store performance.   In early 2017, we announced a district restructuring with our store footprint divided into fifteen districts.   Each district contains six to ten stores, reporting to a district manager who is tasked with growing traffic and sales, as well as training the next generation of store managers to better serve our customers and succeed in today’s retail environment.  As of August 1, 2017, we have placed twelve of our fifteen district managers.

We operate in two segments:  North America and International.  Prior to January 1, 2017, we operated in three segments:  Wholesale, Retail and International.  To better reflect how management analyzes the business and allocates resources, we combined Wholesale and Retail into North America effective January 1, 2017, while International remains the same. All prior year data discussed throughout this Form 10Q has been restated to conform to the new reporting segment structure.  There is no change to our consolidated financial position or results.

As of August 1, 2017, our North America segment operates 115 company-owned stores located in 42 U.S. states and 7 Canadian provinces.  Tandy Leather Factory has long been known for its specialty retail leathercraft store chain, offering quality tools, leather, accessories, kits and teaching materials. We expect to grow the number of stores to approximately 150 in the future.  Our pace of store openings has recently picked up due to a change in strategy with a focus on growth.  To date in 2017, we have reopened one store in Harrisburg, PA and opened new stores in Allen, TX; Miami, FL; and McAllen, TX.  We expect more North America new store openings in the future.

Our International Leathercraft segment operates four company-owned stores located in each of Northampton, United Kingdom; Manchester, United Kingdom; Sydney, Australia; and Jerez, Spain.  We expect to continue opening international stores in the future, but do not intend to open any new International stores in 2017.

Critical Accounting Policies

A description of our critical accounting policies appears in Item 7 “Management's Discussions and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

Forward-Looking Statements

Certain statements contained in this report and other materials we file with the Securities and Exchange Commission, as well as information included in oral statements or other written statements made or to be made by us, other than statements of historical fact, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  Forward-looking statements generally are accompanied by words such as “may,” “will,” “could,” “should,” “anticipate,” “believe,” “budgeted,” “expect,” “intend,” “plan,” “project,” “potential,” “estimate,” “continue,” or “future” variations thereof or other similar statements. There are certain important risks that could cause results to differ materially from those anticipated by some of the forward-looking statements. Some, but not all, of the important risks, including, without limitation, those described below, could cause actual results to differ materially from those suggested by the forward-looking statements.  Please refer also to our Annual Report on Form 10-K for fiscal year ended December 31, 2016 for additional information concerning these and other uncertainties that could negatively impact the Company. Potential factors, which could cause our actual results of operations to differ materially from those in the forward-looking statements include, among others:

Ø General economic conditions in the United States and abroad;

Ø Increased pressure on margins;

Ø Increases in the cost of the products we sell or a reduction in availability of those products;

Ø Challenges in implementing our planned expansion and district restructuring program;

Ø Failure to hire and train qualified personnel to operate new and existing stores;

Ø Failure to protect our trademarks and other proprietary intellectual property rights;

Ø Negative impact of foreign currency fluctuations on our financial condition and results of operations;

Ø Information technology system failures or network disruptions;

Ø Significant data security or privacy breach of our information systems;

Ø Loss or prolonged disruption in the operation of our centralized distribution center; and

Ø Damage to our brand.

We assume no obligation to update or otherwise revise our forward-looking statements even if experience or future changes make it clear that any projected results, express or implied, will not be realized.

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Results of Operations

Three Months Ended June 30, 2017 and 2016

The following tables present selected financial data for each of our segments:

	Quarter Ended June 30, 2017					Quarter Ended June 30, 2016
	Net Sales		Income from Operations			Net Sales		Income from Operations
North America	$	18,427,425	$	1,814,887		$	18,558,938	$	2,714,312
International		853,345		(159,450	)		963,967		124,579
Total	$	19,280,770	$	1,655,437		$	19,522,905	$	2,838,891

Consolidated net sales for the quarter ended June 30, 2017 decreased $242,135, or 1.2%, compared to the same period in 2016.  North America and International reported sales declines of 0.7% and 11.5%, respectively.   Income from operations on a consolidated basis for the quarter ended June 30, 2017 decreased $1,183,454, from the second quarter of 2016 primarily due to the decrease in sales and an increase in operating expenses, primarily related to the six new stores opened since October 2016, as well as investments in our district manager program.

The following table shows in comparative form our consolidated net income for the second quarter of 2017 and 2016:

	2017		2016		% change
Net income	$	1,027,732	$	1,820,915		(43.6	%)

Additional information appears below for each segment (see also the information contained in Note 7 to the consolidated financial statements included in Item 1 of this Report).

North America

North America consisted of 115 stores at June 30, 2017 and 109 stores at June 30, 2016.  Six new stores opened since the beginning of the second quarter of 2016, with one each in Philadelphia, PA (October 2016); Lyndhurst, NJ (November 2016); Johnston, RI (December 2016); Allen, TX (April 2017); Miami, FL (May 2017); and McAllen, TX (May 2017).  Our Harrisburg, PA store was temporarily closed from April 2016 to December 2016.  A store is categorized as “new” until it is operating for the full comparable period in the prior year.

	# Stores		Qtr Ended 06/30/17		# Stores		Qtr Ended 06/30/16		$ Change			% Change
Same stores		108	$	17,861,074		108	$	18,485,428	$	(624,354	)		(3.4	%)
New stores		6		447,059				-		447,059			N/A
Temp closed store		1		119,292		1		73,510		45,782			62.3	%
Total net sales		115	$	18,427,425		109	$	18,558,938	$	(131,513	)		(0.7	)%

The following table presents our sales mix by customer categories for the quarters ended June 30:

Customer Group	2017	2016
RETAIL (end users, consumers, individuals)	56%	53%
INSTITUTION (prisons, prisoners, hospitals, schools, youth organizations, etc.)	4%	4%
WHOLESALE (resellers & distributors, saddle & tack shops, authorized dealers, etc.)	37%	39%
MANUFACTURERS	3%	4%
	100%	100%

Net sales decreased 0.7%, or $132,000, for the second quarter of 2017 compared to the second quarter of 2016, primarily due to unfavorable currency exchange fluctuations in the Canadian dollar and soft sales in April 2017.  By customer group, sales to our retail customers increased in the second quarter of 2017 compared to the second quarter of 2016, while sales to our wholesale and manufacturer groups declined.

Income from operations for North America during the quarter ended June 30, 2017 decreased by $899,000 from the comparative 2016 quarter due to increase in operating expenses of $1,193,000 offset by an increase in gross profit of $294,000. Gross profit as a percentage of sales improved from 65.5% in the second quarter of 2016 to 67.6% in the second quarter of 2017, due to an increase in sales of higher margin products compared to last year’s second quarter and customer mix with more retail than business sales.  Operating expenses increased 12.6% compared to last year’s comparable period.  The most significant expense increases occurred in personnel, occupancy and selling costs related to the six new stores that have opened since October 2016 as well as the increase in our store manager salaries and the investment in our district manager program.  We believe these investments in personnel and new stores are laying the foundation for future profitable growth.

13

International Leathercraft

International Leathercraft consists of all stores located outside of North America.  As of June 30, 2017 and 2016, the segment contained four stores, two of which are located in United Kingdom and one each in Australia and Spain (there were no new or closed stores). This segment’s sales totaled approximately $853,000 for the second quarter of 2017, compared to approximately $964,000 in the second quarter of 2016, a decrease of $111,000 or 11.5%, primarily due to lower average tickets and unfavorable foreign currency exchange rates in the UK and to a lesser extent, Spain.  These unfavorable exchange rates also negatively impacted our gross profit margin which declined from 77% in 2016 to 52% in 2017.  The impact of changes in foreign currency exchange rates in the UK and Spain makes our products more expensive and compresses gross profit.  International’s operating expenses of $606,000 for the second quarter of 2017 decreased by $10,000 compared to second quarter of 2016, primarily due to lower accrued bonus as a result of the unfavorable operating income performance quarter over quarter. Overall, advertising and marketing expenses are this segment’s largest expense, followed by employee compensation, rent, travel, and shipping costs to customers.

Other Expenses

We paid $54,000 in interest on our bank debt in the second quarter of 2017, compared to $42,000 in the second quarter of 2016 due to a slightly higher interest rate and higher weighted average outstanding balance in 2017 compared to 2016.  We recorded income of $17,000 for currency fluctuations in the second quarter of 2017, compared to $23,000 in the second quarter of 2016.

Six Months Ended June 30, 2017 and 2016

The following tables present selected financial data for each of our segments:

	Six Months Ended June 30, 2017					Six Months Ended June 30, 2016
	Net Sales		Income from Operations			Net Sales		Income from Operations
North America	$	37,659,139	$	3,626,450		$	38,298,429	$	5,055,521
International		1,771,476		(233,522	)		1,896,703		146,160
Total	$	39,430,615	$	3,392,928		$	40,195,132	$	5,201,681

Consolidated net sales for the six months ended June 30, 2017 decreased $764,517, or 1.9%, compared to the same period in 2016.  North America and International reported sales declines of 1.7% and 6.6%, respectively.  Income from operations on a consolidated basis for the six months ended June 30, 2017 decreased 35%, or $1,808,753, from the first half of 2016 primarily due to the decrease in sales and an increase in operating expenses, primarily related to seven new stores opened since the beginning of 2016, as well as investments in our district manager program.

The following table shows in comparative form our consolidated net income for the first half of 2017 and 2016:

	2017		2016		% change
Net income	$	2,258,997	$	3,341,912		(32.4	%)

Additional information appears below for each segment (see also the information contained in Note 7 to the consolidated financial statements included in Item 1 of this Report).

North America

In addition to the six new stores mentioned previously, Nyack, NY opened in March 2016 and is considered a new store in the table below:

	# Stores		Six Months Ended 06/30/17		# Stores		Six Months Ended 06/30/16		$ Change			% Change
Same stores		107	$	36,501,344		107	$	37,401,837	$	(900,493	)		(2.4	%)
New stores		7		952,325		1		338,774		613,551			181.1	%
Closed/temp closed stores		3		205,470		3		557,818		(352,348	)		(63.2	%)
Total net sales		115	$	37,659,139		109	$	38,298,429	$	(639,290	)		(1.7	)%

14

The following table presents our sales mix by customer categories for the six months ended June 30:

Customer Group	2017	2016
RETAIL (end users, consumers, individuals)	58%	55%
INSTITUTION (prisons, prisoners, hospitals, schools, youth organizations, etc.)	3%	3%
WHOLESALE (resellers & distributors, saddle & tack shops, authorized dealers, etc.)	36%	38%
MANUFACTURERS	3%	4%
	100%	100%

Net sales decreased 1.7%, or $639,000, for the first half of 2017 compared to the first half of 2016, primarily due to a soft start to the year and an overall lower average ticket as sales to our retail customers increased, while sales to our wholesale and manufacturer groups declined.   However, we have seen an uptick in the number of sales transactions in May and June, compared to the same periods in 2016.   We expect that this trend will continue into the second half of 2017 as our we roll out new products and our district managers continue to work with our store managers to develop local business and drive sales to our wholesale and manufacturer groups.

Income from operations for North America for the six months ended June 30, 2017 decreased $1,429,000 from the comparative 2016 period.  A decrease in gross profit of $38,000 and an increase in operating expenses of $1,391,000 contributed to the decline in income from operations.  Gross profit as a percentage of sales increased from 63.3% in the first half of 2016 to 64.3% in the first half of 2017, due to an increase in sales of higher margin products compared to last year’s first half and customer mix.  Operating expenses increased 7.3% compared to last year’s comparable period.  The most significant expense increases occurred in personnel, occupancy and selling costs related to the seven new stores opened as well as the increase in our store manager salaries and the investment in our district manager program.  We believe these investments in personnel and new stores are laying the foundation for future profitable growth.

International Leathercraft

International’s sales totaled approximately $1,771,000 for the first half of 2017, compared to approximately $1,897,000 in the first half of 2016, a decrease of $125,000 or 6.6%, primarily due to lower average tickets and unfavorable foreign currency exchange rates in the UK and to a lesser extent, Spain.  These unfavorable exchange rates also negatively impacted our gross profit margin which declined from 69.0% in 2016 to 55.3% in 2017.   The impact of changes in foreign currency exchange rates in the UK and Spain makes our products more expensive and compresses gross profit.  International’s operating expenses increased by $51,000 due to higher rent and advertising costs.  Operating expenses totaled approximately $1,213,000 in the first half of 2017, up from approximately $1,162,000 in the first half of 2016.  Overall, advertising and marketing expenses are this segment’s largest expense, followed by employee compensation, rent, travel, and shipping costs to customers.

Other Expenses

We paid approximately $90,000 in interest on our bank debt in the first six months of 2017, compared to approximately $65,000 in the first six months of 2016.  We recorded approximately $4,400 in interest income on our cash balances in the six months ended June 30, 2017 compared to approximately $3,100 in the six months ended June 30, 2016.  We recorded expense of $15,000 for currency fluctuations in the first half of 2017.  Comparatively, in the first half of 2016, we recorded income of $5,400 for currency fluctuations.

15

Capital Resources, Liquidity and Financial Condition

On September 18, 2015, we executed a Promissory Note and Business Loan Agreement with BOKF, NA d/b/a Bank of Texas (“BOKF”) which provides us with a line of credit facility of up to $10,000,000 for the purpose of purchasing shares of our common stock pursuant to our stock repurchase program, announced in August 2015 and subsequently amended, which permits us to repurchase up to 2.2 million shares of our common stock at prevailing market prices through August 2018.  On August 25, 2016, this line of credit was amended to increase the availability from $10,000,000 to $15,000,000 for the purchase of shares of our common stock through the earlier of August 25, 2017 or the date on which the entire amount is drawn.  During this time period, we are required to make monthly interest-only payments. At the end of this time period, we expect that the principal balance will be rolled into a 4-year term note. We are currently working to amend this Promissory Note to extend the drawdown period and conversion date from August 25, 2017 to August 25, 2018 to align with our stock buyback program.  This Promissory Note is secured by a Deed of Trust on the real estate located at 1900 SE Loop 820, Fort Worth, Texas.   There were no amounts drawn on this line during the six months ended June 30, 2017.  For the six months ended June 30, 2016, we drew approximately $3.7 million on this line which was used to purchase approximately 520,500 shares of our common stock.  At June 30, 2017, the unused portion of the line of credit was approximately $7.6 million.

Also, on September 18, 2015, we executed a Promissory Note and Business Loan Agreement with BOKF which provides us with a line of credit facility of up to $6,000,000 and is secured by our inventory.   On August 25, 2016, this line of credit was amended to extend the maturity from September 18, 2017 to September 18, 2018.  The Business Loan Agreement contains covenants that require us to maintain a funded debt to EBITDA ratio of no greater than 1.5 to 1 and that we will maintain a Fixed Charge Coverage Ratio greater than or equal to 1.2 to 1.  Both ratios are calculated quarterly on a trailing four quarter basis.  For the six month periods ended June 30, 2017 and 2016, there were no amounts drawn on this line.

Amounts drawn under either facility accrue interest at the London interbank Eurodollar market rate for U.S. dollars (commonly known as “LIBOR”) plus 1.85% (2.860% and 2.557% at June 30, 2017 and December 31, 2016, respectively).

On our consolidated balance sheet, total assets increased from $70.7 million at year-end 2016 to $72.2 million at June 30, 2017.  Total stockholders’ equity increased from $53.7 million at December 31, 2016 to $57.0 million at June 30, 2017, primarily due to net income earned in the first half of 2017, the exercise of stock options and impact of foreign currency translation.  Our current ratio increased from 6.5 at December 31, 2016 to 7.2 at June 30, 2017 due primarily to the reduction in accrued liabilities for bonuses paid in the first half of 2017 and an increase in inventory.

As of June 30, 2017, our investment in inventory increased by $4.1 million from year-end 2016, as we stocked up following the holiday sales and invest in our new stores and new products.  Inventory turnover reached an annualized rate of 2.2 times during the first half of 2017, decreasing from 2.3 times for the half of 2016.  Inventory turnover was 2.5 times for all of 2016.  We compute our inventory turns as sales divided by average inventory.

Accounts payable decreased approximately $138,000 to $1.5 million at June 30, 2017 compared to $1.6 million at year-end 2016 due to timing of payments. Accrued expenses decreased from $5.9 million at December 31, 2016 to $4.5 million at June 30, 2017.  The payment of the 2016 manager bonuses during the first half of 2017 primarily accounted for the reduction.

During the first half of 2017, cash flow used in operating activities was $1.2 million, composed of net income of $2.3 million, plus $929,000 of depreciation and amortization, plus $628,000 of foreign currency translation, offset by changes in working capital including purchases of inventory and payments of 2016 bonus.

By comparison, during the first half of 2016, cash flow used in operating activities was approximately $231,000, composed of net income of $3.3 million, plus $832,000 of depreciation and amortization, plus $256,000 of foreign currency translation, offset by the increase in inventory and decrease in accounts payable and accrued expenses totaling $4.4 million.

Cash flow used in investing activities totaled approximately $1,034,000 and $871,000 in the first half of 2017 and 2016, respectively, consisting primarily of the purchase of fixtures for new stores, store moves and remodels and computer equipment, and in 2017, vehicles and computer equipment for our new district managers.

There was $223,000 of cash provided by financing activities in the first half of 2017, related to proceeds from the exercise of stock options, compared to $22,000 used in financing activities in the first half of 2016.  In 2016, we purchased $3.7 million of treasury stock, funded primarily through drawdowns on our line of credit with BOKF, as well as made a scheduled payment on our capital lease obligation for $6,710.

We expect to fund our operating and liquidity needs as well as our store growth from a combination of current cash balances and internally generated funds.

16

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

For disclosures about market risk affecting us, see Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for fiscal year ended December 31, 2016.  We believe that our exposure to market risks has not changed significantly since December 31, 2016.

Item 4.  Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management team, under the supervision and with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of the last day of the fiscal period covered by this report, June 30, 2017. The term disclosure controls and procedures means our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive officer and our principal financial officer concluded that, as of June 30, 2017, our disclosure controls and procedures were effective at a reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the fiscal quarter ended June 30, 2017 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings.

The information contained in Note 6 to the consolidated financial statements included in Item 1 of this Report is hereby incorporated into this Item 1 by reference.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

There were no unregistered sales of equity securities during the quarter ended June 30, 2017.   Further, there were no purchases of equity securities during the quarter ended June 30, 2017.

17

Item 6. Exhibits.

Exhibit Number	Description
3.1	Certificate of Incorporation of The Leather Factory, Inc., and Certificate of Amendment to Certificate of Incorporation of The Leather Factory, Inc. filed as Exhibit 3.1 to Tandy Leather Factory, Inc.’s Form 10-Q filed with the Securities and Exchange Commission on August 12, 2005 and incorporated by reference herein.
3.2	Bylaws of The Leather Factory, Inc. (n/k/a Tandy Leather Factory, Inc.), filed as Exhibit 3.5 to the Current Report on Form 8-K filed by Tandy Leather Factory, Inc (f/k/a The Leather Factory, Inc.) with the Securities and Exchange Commission on July 14, 2004 and incorporated by reference herein.
3.3	Certificate of Designations of Series A Junior Participating Preferred Stock of Tandy Leather Factory, Inc. filed as Exhibit 3.1 to Tandy Leather Factory’s Inc.’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 10, 2013 and incorporated by reference herein.
*31.1	13a-14(a) or 15d-14(a) Certification by Shannon L. Greene, Chief Executive Officer.
*31.2	13a-14(a) or 15d-14(a) Certification by Tina L. Castillo, Chief Financial Officer and Treasurer.
*32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*101.INS	XBRL Instance Document.
*101.SCH	XBRL Taxonomy Extension Schema Document.
*101.CAL	XBRL Taxonomy Extension Calculation Document.
*101.DEF	XBRL Taxonomy Extension Definition Document.
*101.LAB	XBRL Taxonomy Extension Labels Document.
*101.PRE	XBRL Taxonomy Extension Presentation Document.
____________
*Filed herewith.

18

SIGNATURES

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

	TANDY LEATHER FACTORY, INC.
	(Registrant)
Date:  August 3, 2017	By:  /s/ Shannon L. Greene
	Shannon L. Greene
	Chief Executive Officer
Date:  August 3, 2017	By:  /s/ Tina L. Castillo
	Tina L. Castillo
	Chief Financial Officer

19

EXHIBIT INDEX

Exhibit Number	Description
3.1	Certificate of Incorporation of The Leather Factory, Inc., and Certificate of Amendment to Certificate of Incorporation of The Leather Factory, Inc. filed as Exhibit 3.1 to Tandy Leather Factory, Inc.’s Form 10-Q filed with the Securities and Exchange Commission on August 12, 2005 and incorporated by reference herein.
3.2	Bylaws of The Leather Factory, Inc. (n/k/a Tandy Leather Factory, Inc.), filed as Exhibit 3.5 to the Current Report on Form 8-K filed by Tandy Leather Factory, Inc (f/k/a The Leather Factory, Inc.) with the Securities and Exchange Commission on July 14, 2004 and incorporated by reference herein.
3.3	Certificate of Designations of Series A Junior Participating Preferred Stock of Tandy Leather Factory, Inc. filed as Exhibit 3.1 to Tandy Leather Factory’s Inc.’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 10, 2013 and incorporated by reference herein.
*31.1	13a-14(a) or 15d-14(a) Certification by Shannon L. Greene, Chief Executive Officer.
*31.2	13a-14(a) or 15d-14(a) Certification by Tina L. Castillo, Chief Financial Officer and Treasurer.
*32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*101.INS	XBRL Instance Document.
*101.SCH	XBRL Taxonomy Extension Schema Document.
*101.CAL	XBRL Taxonomy Extension Calculation Document.
*101.DEF	XBRL Taxonomy Extension Definition Document.
*101.LAB	XBRL Taxonomy Extension Labels Document.
*101.PRE	XBRL Taxonomy Extension Presentation Document.
____________
*Filed herewith.

20

EX-31.1

EXHIBIT 31.1

RULE 13a-14(a) CERTIFICATION

I, Shannon L. Greene, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Tandy Leather Factory, 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(s) 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 first fiscal quarter 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 controls over financial reporting.

Date:  August 3, 2017
	/s/ Shannon L. Greene
	Shannon L. Greene
	Chief Executive Officer
	(principal executive officer)

EX-31..2

EXHIBIT 31.2

RULE 13a-14(a) CERTIFICATION

I, Tina L. Castillo, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Tandy Leather Factory, 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(s) 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 first fiscal quarter 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 controls over financial reporting.

Date:  August 3, 2017
	/s/ Tina L. Castillo
	Tina L. Castillo
	Treasurer and Chief Financial 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 of Tandy Leather Factory, Inc. (the “Company”) for the quarter ended June 30, 2017 as filed with the United States Securities and Exchange Commission on the date hereof (the "Report"), Shannon L. Greene, as Chief Executive Officer of the Company, and Tina L. Castillo, as Treasurer and Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

ii. The information contained in the Report fully presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

August 3, 2017	By: /s/ Shannon L. Greene
	Shannon L. Greene
	Chief Executive Officer

August 3, 2017	By: /s/ Tina L. Castillo
	Tina L. Castillo Chief Financial Officer and Treasurer

XML

Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2017	Aug. 01, 2017
Document Information [Line Items]
Entity Registrant Name	TANDY LEATHER FACTORY INC
Entity Central Index Key	0000909724
Trading Symbol	tlf
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		9,270,862
Document Type	10-Q
Document Period End Date	Jun. 30, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q2
Amendment Flag	false

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Jun. 30, 2017	Dec. 31, 2016
CURRENT ASSETS:
Cash	$ 14,841,370	$ 16,862,304
Accounts receivable-trade, net of allowance for doubtful accounts of $16,209 and $2,404 in 2017 and 2016, respectively	497,317	560,984
Inventory	37,327,488	33,177,539
Prepaid income taxes	455,423	964,323
Prepaid expenses	1,478,762	1,608,860
Other current assets	140,488	140,232
Total current assets	54,740,848	53,314,242
PROPERTY AND EQUIPMENT, at cost	26,585,838	25,536,352
Less accumulated depreciation and amortization	(10,831,122)	(9,884,559)
	15,754,716	15,651,793
DEFERRED INCOME TAXES	404,615	375,236
GOODWILL	959,797	956,201
OTHER INTANGIBLES, net of accumulated amortization of approximately $709,000 and $708,000 in 2017 and 2016, respectively	19,954	20,840
OTHER ASSETS	363,529	334,408
TOTAL ASSETS	72,243,459	70,652,720
CURRENT LIABILITIES:
Accounts payable-trade	1,484,043	1,621,884
Accrued expenses and other liabilities	4,471,813	5,937,187
Current maturities of capital lease obligations	72,686	72,686
Current maturities of long-term debt	1,535,778	614,311
Total current liabilities	7,564,320	8,246,068
DEFERRED INCOME TAXES	1,838,066	1,956,032
LONG-TERM DEBT, net of current maturities	5,835,952	6,757,419
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.10 par value; 20,000,000 shares authorized; none issued or outstanding; attributes to be determined on issuance	0	0
Common stock, $0.0024 par value; 25,000,000 shares authorized; 11,313,692 and 11,235,992 shares issued at 2017 and 2016, respectively; 9,270,862 and 9,193,162 shares outstanding at 2017 and 2016, respectively	27,153	26,966
Paid-in capital	6,762,832	6,368,455
Retained earnings	61,728,490	59,469,493
Treasury stock at cost (2,042,830 shares at 2017 and 2016, respectively)	(10,278,584)	(10,278,584)
Accumulated other comprehensive income	(1,234,770)	(1,893,129)
Total stockholders’ equity	57,005,121	53,693,201
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$ 72,243,459	$ 70,652,720

XML

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($)	Jun. 30, 2017	Dec. 31, 2016
Accounts receivable-trade, allowance for doubtful accounts	$ 16,209	$ 2,404
Other intangibles, accumulated amortization	$ 709,731	$ 708,845
Preferred stock, par value (in dollars per share)	$ 0.10	$ 0.10
Preferred stock, shares authorized (in shares)	20,000,000	20,000,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.0024	$ 0.0024
Common stock, shares authorized (in shares)	25,000,000	25,000,000
Common stock, shares issued (in shares)	11,313,692	11,235,992
Common stock, shares outstanding (in shares)	9,270,862	9,193,162
Treasury stock, shares (in shares)	2,042,830	2,042,830

XML

Consolidated Statements of Comprehensive Income (Unaudited) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
NET SALES	$ 19,280,770	$ 19,522,905	$ 39,430,615	$ 40,195,132
COST OF SALES	6,385,236	6,627,115	14,249,036	14,646,596
Gross profit	12,895,534	12,895,790	25,181,579	25,548,536
OPERATING EXPENSES	11,240,097	10,056,899	21,788,651	20,346,855
INCOME FROM OPERATIONS	1,655,437	2,838,891	3,392,928	5,201,681
OTHER INCOME (EXPENSE):
Interest expense	(53,680)	(42,027)	(90,024)	(65,456)
Other, net	17,012	23,434	19,663	23,395
Total other income (expense)	(36,668)	(18,593)	(70,361)	(42,061)
INCOME BEFORE INCOME TAXES	1,618,769	2,820,298	3,322,567	5,159,620
PROVISION FOR INCOME TAXES	591,037	999,383	1,063,570	1,817,708
NET INCOME	1,027,732	1,820,915	2,258,997	3,341,912
Foreign currency translation adjustments	302,019	(382,762)	658,359	254,753
COMPREHENSIVE INCOME	$ 1,329,751	$ 1,438,153	$ 2,917,356	$ 3,596,665
NET INCOME PER COMMON SHARE:
Basic (in dollars per share)	$ 0.11	$ 0.19	$ 0.24	$ 0.35
Diluted (in dollars per share)	$ 0.11	$ 0.19	$ 0.24	$ 0.35
Weighted Average Number of Shares Outstanding:
Basic (in shares)	9,225,960	9,209,446	9,212,846	9,418,645
Diluted (in shares)	9,229,129	9,227,941	9,225,474	9,437,620

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($)	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 2,258,997	$ 3,341,912
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	929,408	831,793
(Gain) / loss on disposal or abandonment of assets	515	(6,560)
Non-cash stock-based compensation	171,160	113,302
Deferred income taxes	(147,345)	(4,676)
Foreign currency translation	627,609	256,309
Net changes in assets and liabilities:
Accounts receivable-trade	63,667	1,382
Inventory	(4,149,949)	(2,720,056)
Prepaid expenses	130,098	(108,971)
Other current assets	(256)	(62,788)
Accounts payable-trade	(137,841)	(589,863)
Accrued expenses and other liabilities	(1,465,374)	(1,066,056)
Income taxes payable	508,900	(216,328)
Total adjustments	(3,469,408)	(3,572,512)
Net cash used in operating activities	(1,210,411)	(230,600)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(1,004,906)	(898,007)
Proceeds from sale of assets	100	26,703
Decrease in other assets	(29,121)	352
Net cash used in investing activities	(1,033,927)	(870,952)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and long term debt		3,660,505
Payments on capital lease obligations		(6,710)
Repurchase of common stock (treasury stock)		(3,675,654)
Proceeds from exercise of stock options	223,404
Net cash provided by (used in) financing activities	223,404	(21,859)
NET DECREASE IN CASH	(2,020,934)	(1,123,411)
CASH, beginning of period	16,862,304	10,962,615
CASH, end of period	14,841,370	9,839,204
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the period	90,024	65,456
Income tax paid during the period, net of refunds	$ 554,670	$ 2,034,036

XML

Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($)	Common Stock [Member]	Additional Paid-in Capital [Member]	Treasury Stock [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Total
Balance at Jun. 30, 2016	$ 27,142	$ 6,281,711	$ (10,278,584)	$ 56,409,146	$ (1,432,926)	$ 51,006,489
Balance (in shares) at Dec. 31, 2015	9,753,293
Balance at Dec. 31, 2015	$ 27,062	6,168,489	(6,602,930)	53,067,234	(1,687,679)	50,972,176
Purchase of treasury stock (in shares)	(520,482)
Purchase of treasury stock			(3,675,654)			$ (3,675,654)
Exercise of stock options (in shares)
Stock-based compensation (in shares)	33,685
Stock-based compensation	$ 80	113,222				$ 113,302
Net income				3,341,912		3,341,912
Translation adjustment					254,753	254,753
Balance (in shares) at Jun. 30, 2016	9,266,496
Balance at Jun. 30, 2017	$ 27,153	6,762,832	(10,278,584)	61,728,490	(1,234,770)	57,005,121
Balance (in shares) at Dec. 31, 2016	9,193,162
Balance at Dec. 31, 2016	$ 26,966	6,368,455	$ (10,278,584)	59,469,493	(1,893,129)	$ 53,693,201
Exercise of stock options (in shares)	44,400					44,400
Exercise of stock options	$ 107	223,297				$ 223,404
Stock-based compensation (in shares)	33,300
Stock-based compensation	$ 80	$ 171,080				171,160
Net income				$ 2,258,997		2,258,997
Translation adjustment					$ 658,359	$ 658,359
Balance (in shares) at Jun. 30, 2017	9,270,862

XML

Note 1 - Basis of Presentation and Certain Significant Accounting Policies

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Basis of Presentation and Significant Accounting Policies [Text Block]

1. BASIS OF PRESENTATION AND CERTAIN SIGNIFICANT ACCOUNTING POLICIES

In the opinion of management, the accompanying consolidated financial statements for Tandy Leather Factory, Inc. and its consolidated subsidiaries contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly its financial position as of

June 30, 2017

and

December 31, 2016,

and its results of operations and cash flows for the

three

and

six

-month periods ended

June 30, 2017

and

2016.

Operating results for the

three

and

six

-month periods ended

June 30, 2017

are

not

necessarily indicative of the results that

may

be expected for the year ending

December 31, 2017.

These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form

10

-K for the year ended

December 31, 2016.

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Reclassificati

ons

.

Certain prior year amounts have been reclassified to conform to the current year presentation.

Inventory

.

Inventory is valued at the lower of

first

-in,

first

-out cost or market. In addition, the value of inventory is periodically reduced to net realizable value for slow-moving or obsolete inventory based on management's review of items on hand compared to their estimated future demand.

Based on negotiations with vendors, title generally passes to us when merchandise is put on board. Merchandise to which we have title but have

not

yet received is recorded as inventory in transit.

	June 30, 2017		December 31, 2016
Inventory on hand:
Finished goods held for sale	$	33,665,227	$	30,684,026
Raw materials and work in process		1,574,142		1,034,041
Inventory in transit		2,088,119		1,459,472
	$	37,327,488	$	33,177,539

Goodwill and Other Intangibles

.

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. Goodwill is required to be evaluated for impairment on an annual basis, absent indicators of impairment during the interim. Application of the goodwill impairment test requires exercise of judgment, including the estimation of future cash flows, determination of appropriate discount rates and other important assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment for each reporting unit.

A

two

-step process is used to test for goodwill impairment. The

first

phase screens for impairment, while the

second

phase (if necessary) measures the impairment. We have elected to perform the annual analysis during the

fourth

calendar quarter of each year. As of

December 31, 2016,

management determined that the present value of the discounted estimated future cash flows of the stores associated with the goodwill is sufficient to support their respective goodwill balances.

No

indicators of impairment were identified during the

first

half of

2017.

The only change in our goodwill for the

six

-month periods ended

June 30, 2017

and

2016

resulted from foreign currency translation of

$3,596

and

$6,512,

respectively.

Other intangibles consist of the following:

	June 30, 2017						December 31, 2016
	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Trademarks, Copyrights	$	554,369	$	545,665	$	8,704	$	554,369	$	545,279	$	9,090
Non-Compete Agreements		175,316		164,066		11,250		175,316		163,566		11,750
	$	729,685	$	709,731	$	19,954	$	729,685	$	708,845	$	20,840

We recorded amortization expense of

$886

during the

six

months ended

June 30, 2017

compared to

$5,054

during the

first

half of

2016.

All of our intangible assets, other than goodwill, are subject to amortization under U.S. GAAP. Based on the current amount of intangible assets subject to amortization, the estimated amortization expense for each of the succeeding

5

years is as follows:

2017		871
2018		1,417
2019		666
2020		666
2021		666
Thereafter	$	5,668

Revenue Recognition

.

Our sales generally occur via

two

methods: (

1

) at the counter in our stores, and (

2

) shipment by common carrier. Sales at the counter are recorded and title passes as transactions occur. Otherwise, sales are recorded and title passes when the merchandise is shipped to the customer. Shipping terms are normally FOB shipping point. Sales tax and comparable foreign tax is excluded from revenue

.

We offer an unconditional satisfaction guarantee to our customers and accept all product returns. Net sales represent gross sales less negotiated price allowances, product returns, and allowances for defective merchandise.

Comprehensive Income (

loss

).

Comprehensive income includes net income and certain other items that are recorded directly to Stockholders’ Equity. Our only source of other comprehensive income is foreign currency translation adjustments

Recent Account

ing Pronouncements.

 In

May 2014,

the Financial Accounting Standards Board (“FASB”) issued ASU

No.

 

2014

-

09,

which amends ASC Topic

606,

“Revenue from Contracts with Customers”. The amendments in this ASU are intended to provide a more robust framework for addressing revenue issues, improve comparability of revenue recognition practices and improve disclosure requirements. The amendments in this accounting standard update are effective for interim and annual reporting periods beginning after

December 

15,

2016.

In

April 2015,

FASB issued ASU

No.

2015

-

24,

Revenue from Contracts with Customers: Deferral of the Effective Date which proposed a deferral of the effective date by

one

year, and on

July 7, 2015,

FASB decided to delay the effective date by

one

year. The deferral results in the new revenue standard being effective for fiscal years, and interim periods within those fiscal years, beginning after

December 15, 2017.

We are therefore required to apply the new revenue guidance beginning in our

2018

interim and annual financial statements. This ASU can be adopted either retrospectively or as a cumulative-effect adjustment as of the date of adoption. Entities reporting under U.S. GAAP are

not

permitted to adopt this standard earlier than the original effective date for public entities (that is,

no

earlier than

2017

for calendar year-end entities.) We are currently evaluating what impact, if any, the adoption of this guidance will have on our financial condition, results of operations, cash flows and financial disclosures. Based on our procedures to date, we believe that the adoption will

not

have a material impact to our financial condition, results of operations or cash flows although our disclosures will be expanded. We expect to adopt ASU

No.

2014

-

09

under the modified retrospective method. Given the nature of our business and that our sales generally occur at the counter or by shipment through common carrier at observable transaction prices with little, if any, variable consideration factors, we do

not

expect there to be significant changes to the amount and timing of revenue recognition. Finally, while we offer an unconditional right of return to our customers, this has historically been immaterial to our financial condition, results of operations and cash flows (annual gross product returns historically have represent less than

0.5%

of our net sales over the last

three

years).

In

February 2016,

the FASB issued ASU

2016

-

02,

“Leases”, a comprehensive new standard that amends various aspects of existing accounting guidance for leases, including the recognition of a right of use asset and a lease liability for leases with a duration greater than

one

year. The guidance is effective for fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years. Early adoption is permitted. We have

not

completed our review of the new guidance; however, we anticipate that upon adoption of the standard, using a modified retrospective approach, we will recognize additional assets and corresponding liabilities related to leases on our balance sheet.

XML

Note 2 - Notes Payable and Long-term Debt

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Debt Disclosure [Text Block]

2. N OTES PAYABLE AND LONG-TERM DEBT

On

September 18, 2015,

we executed a Promissory Note and Business Loan Agreement with BOKF, NA d/b/a Bank of Texas (“BOKF”) which provides us with a line of credit facility of up to

$10,000,000

for the purpose of purchasing shares of our common stock pursuant to our stock repurchase program, announced in

August 2015

and subsequently amended, which permits us to repurchase up to

2.2

million shares of our common stock at prevailing market prices through

August 2018.

On

August 25, 2016,

this line of credit was amended to increase the availability from

$10,000,000

to

$15,000,000

for the purchase of shares of our common stock through the earlier of

August 25, 2017

or the date on which the entire amount is drawn. During this time period, we are required to make monthly interest-only payments. At the end of this time period, we expect that the principal balance will be rolled into a

4

-year term note. We are currently working to amend this Promissory Note to extend the drawdown period and conversion date from

August 25, 2017

to

August 25, 2018

to align with our stock buyback program. This Promissory Note is secured by a Deed of Trust on the real estate located at

1900

SE Loop

820,

Fort Worth, Texas. There were

no

amounts drawn on this line during the

six

months ended

June 30, 2017.

For the

six

months ended

June 30, 2016,

we drew approximately

$3.7

million on this line which was used to purchase approximately

520,500

shares of our common stock. At

June 30, 2017,

the unused portion of the line of credit was approximately

$7.6

million.

Also, on

September 18, 2015,

we executed a Promissory Note and Business Loan Agreement with BOKF which provides us with a line of credit facility of up to

$6,000,000

and is secured by our inventory. On

August 25, 2016,

this line of credit was amended to extend the maturity from

September 18, 2017

to

September 18, 2018.

The Business Loan Agreement contains covenants that require us to maintain a funded debt to EBITDA ratio of

no

greater than

1.5

to

1

and that we will maintain a Fixed Charge Coverage Ratio greater than or equal to

1.2

to

1.

Both ratios are calculated quarterly on a trailing

four

quarter basis. For the

six

month periods ended

June 30, 2017

and

2016,

there were

no

amounts drawn on this line.

Amounts drawn under either facility accrue interest at the London interbank Eurodollar market rate for U.S. dollars (commonly known as “LIBOR”) plus

1.85%

(

2.860%

and

2.557%

at

June 30, 2017

and

December 31, 2016,

respectively).

The amount outstanding under the above agreements consisted of the following:

	6/30/2017		12/31/2016
Line of Credit, as amended, in the maximum principal amount of $15,000,000 with features as more fully described above –matures September 18, 2021	$	7,371,730	$	7,371,730
Line of Credit, as amended, in the maximum principal amount of $6,000,000 with revolving features as more fully described above – matures September 18, 2018		-		-
	$	7,371,730	$	7,371,730
Less current maturities		1,535,778		614,311
	$	5,835,952	$	6,757,419

XML

Note 3 - Capital Lease Obligations

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Debt and Capital Leases Disclosures [Text Block]

3.

CAPITAL LEASE OBLIGATIONS

We lease certain telecommunication equipment under a capital lease agreement. The asset subject to the agreement totaled

$227,783,

of which

$217,114

and

$210,904

is included in Property and Equipment at

June 30, 2017

and

December 31, 2016,

respectively, and

$10,669

and

$16,879

is included in Prepaid expenses (

not

placed in service) as of

June 30, 2017

and

December 31, 2016,

respectively. Accumulated depreciation on the assets placed in service was approximately

$33,300

and

$21,400

at

June 30, 2017

and

December 31, 2016,

respectively. Amortization of the capitalized cost is charged to depreciation expense. The final installment of our capital lease obligations, due at the end of

2017,

is equal to

$72,686

and is included in current liabilities as of

June 30, 2017.

XML

Note 4 - Stock-based Compensation

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

4.

STOCK-BASED COMPENSATI

ON

We have

one

stock option plan that terminated in

March 2017.

This plan permitted annual stock option grants to non-employee directors with an exercise price equal to the fair market value of the shares at the date of grant. Options outstanding and exercisable were granted at a stock option price which was

not

less than the fair market value of our common stock on the date the option was granted and

no

option has a term in excess of

ten

years. Under this plan,

no

options were awarded to directors during the

six

months ended

June 30, 2017

or

2016

and therefore,

no

share based compensation expense was recorded for the

six

months ended

June 30, 2017

or

2016.

During the

six

months ended

June 30, 2017

and

2016,

the stock option activity under this now expired stock option plans was as follows:

	Weighted Average Exercise Price		# of shares			Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding, January 1, 2017	$	5.14		56,400
Granted		-		-
Cancelled	$	5.14		(12,000	)
Exercised	$	5.14		(44,400	)		3.99	$	155,606
Outstanding, June 30, 2017	$	-		-			-	$	-
Exercisable, June 30, 2017	$	-		-			-	$	-
Outstanding, January 1, 2016	$	5.17		68,400
Granted		-		-
Cancelled		-		-
Exercised		-		-
Outstanding, June 30, 2016	$	5.17		68,400			4.99	$	83,933
Exercisable, June 30, 2016	$	5.17		68,400			4.99	$	83,933

We have a restricted stock plan that was adopted by our Board of Directors in

January 2013

and approved by our stockholders in

June 2013.

The plan reserves up to

300,000

shares of our common stock for restricted stock awards to our executive officers, non-employee directors and other key employees. Awards granted under the plan

may

be stock awards or performance awards, and

may

be subject to a graded vesting schedule with a minimum vesting period of

four

years, unless otherwise determined by the committee that administers the plan.

In

February 2017,

our

five

independent directors were awarded restricted stock grants consisting of

1,801

shares each. In

March 2016,

our Chief Executive Officer and President were awarded restricted stock grants consisting of

11,765

shares each, and our

five

independent directors were awarded restricted stock grants consisting of

2,031

shares each. All of these grants vest in equal annual amounts over a

four

-year period. The fair value of these restricted stock grants is based on the market value of our common stock on the date of grant. Compensation costs for these awards is recognized on a straight-line basis over the

four

-year vesting period.

On

June 6, 2017,

vesting for certain restricted stock grants to

three

of our independent directors whose Board service had just completed were accelerated which resulted in

$104,000

of compensation expense that was recognized in the

three

and

six

months ended

June 30, 2017.

A summary of the activity for non-vested restricted common stock awards as of

June 30, 2017

and

2016

is presented below:

	Shares			Award Fair Value
Balance, January 1, 2017		62,046		$	8.24
Granted		9,005			8.05
Forfeited		(5,403	)		8.05
Vested		(28,847	)		7.84
Unvested Balance, June 30, 2017		36,801		$	7.93
Balance, January 1, 2016		60,433		$	8.97
Granted		33,685			7.14
Forfeited		(8,187	)		8.97
Vested		(20,784	)		8.97
Unvested Balance, June 30, 2016		65,147		$	8.03

As of

June 30, 2017,

unrecognized compensation cost related to non-vested restricted stock awards was

$241,242

which we expect will be recognized in each of the following years as follows:

2017	$	66,928
2018		100,127
2019		58,126
2020		14,853
2021		1,208

XML

Note 5 - Earnings Per Share

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Earnings Per Share [Text Block]

5.

EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share (“EPS”) for the

three

and

six

months ended

June 30:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
Net income	$	1,027,732	$	1,820,915	$	2,258,997	$	3,341,912
Numerator for basic and diluted earnings per share		1,027,732		1,820,915		2,258,997		3,341,912
Denominator for basic EPS: weighted-average shares		9,225,960		9,209,446		9,212,846		9,418,645
Effect of dilutive securities:
Stock options		-		18,495		9,810		18,975
Restricted stock		3,169		-		2,818		-
Dilutive potential common shares		3,169		18,495		12,628		18,975
Denominator for diluted EPS-weighted-average shares		9,229,129		9,227,941		9,225,474		9,437,620
Basic earnings per share	$	0.11	$	0.19	$	0.24	$	0.35
Diluted earnings per share	$	0.11	$	0.19	$	0.24	$	0.35

The net effect of assuming the exercise of all potentially dilutive common share equivalents, including stock options to purchase common stock at exercise prices less than the average market prices and restricted stock awards of an aggregate of

36,801

and

133,562

shares of common stock have been included in the computations of diluted EPS for the quarters ended

June 30, 2017

and

2016,

respectively.

XML

Note 6 - Commitments and Contingencies

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

6.

COMMITMENTS AND CONTINGENCIES

Legal Proceedings.

We are periodically involved in litigation that arises in the ordinary course of business and operations. There are

no

such matters pending that we expect to have a material impact on our financial position or operating results. Legal costs associated with the resolution of claims, lawsuits and other contingencies are expensed as incurred.

XML

Note 7 - Segment Information

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

7.

SEGMENT INFORMATION

Effective

January 1, 2017,

we updated our reporting segments to better reflect how management analyzes the business and allocates resources, as follows:

Prior Reporting Structure	New Reporting Structure
1. Wholesale  –  chain of wholesale stores operating under the name, The Leather Factory, located in North America	1. North America  – chain of stores located in North America (combined prior Wholesale and Retail)
2. Retail  –  chain of retail stores operating under the name, Tandy Leather Company, located in North America	2. International – no change
3. International  –  four stores, 2 located in UK, 1 in Spain and 1 in Australia

Our reportable operating segments have been determined as separately identifiable business units, and we measure segment earnings as operating earnings, defined as income before interest and income taxes. The

2016

segment information has been restated to conform to the current segment structure.

	North America			International			Total
For the quarter ended June 30 , 20 17
Net sales	$	18,427,425		$	853,345		$	19,280,770
Gross profit		12,449,202			446,332			12,895,534
Operating income (loss)		1,814,887			(159,450	)		1,655,437
Interest (expense)		(53,680	)		-			(53,680	)
Other income (expense), net		15,195			1,817			17,012
Income (loss) before income taxes		1,776,402			(157,633	)		1,618,769
Depreciation and amortization		448,788			22,502			471,290
Fixed asset additions		387,054			18,095			405,149
Total assets	$	67,412,189		$	4,831,270		$	72,243,459
For the quarter ended June 30 , 20 16
Net sales	$	18,558,938		$	963,967		$	19,522,905
Gross profit		12,155,311			740,479			12,895,790
Operating income		2,714,312			124,579			2,838,891
Interest (expense)		(42,027	)		-			(42,027	)
Other income (expense), net		8,986			14,448			23,434
Income before income taxes		2,681,271			139,027			2,820,298
Depreciation and amortization		394,943			22,622			417,565
Fixed asset additions		242,235			48,840			291,075
Total assets	$	61,820,547		$	4,797,768		$	66,618,315

	North America			International			Total
For the six months ended June 30 , 20 17
Net sales	$	37,659,139		$	1,771,476		$	39,430,615
Gross profit		24,202,159			979,420			25,181,579
Operating income (loss)		3,626,450			(233,522	)		3,392,928
Interest (expense)		(90,024	)		-			(90,024	)
Other income (expense), net		32,849			(13,186	)		19,663
Income (loss) before income taxes		3,569,275			(246,708	)		3,322,567
Depreciation and amortization		885,069			44,339			929,408
Fixed asset additions		984,880			20,026			1,004,906
Total assets	$	67,412,189		$	4,831,270		$	72,243,459
For the six months ended June 30 , 20 16
Net sales	$	38,298,429		$	1,896,703		$	40,195,132
Gross profit		24,240,120			1,308,416			25,548,536
Operating income		5,055,521			146,160			5,201,681
Interest (expense)		(65,456	)		-			(65,456	)
Other income (expense), net		14,732			8,663			23,395
Income before income taxes		5,004,797			154,823			5,159,620
Depreciation and amortization		788,535			43,258			831,793
Fixed asset additions		845,099			52,908			898,007
Total assets	$	61,820,547		$	4,797,768		$	66,618,315

Net sales for geographic areas were as follows:

Three months ended June 30,	20 17		20 16
United States	$	16,546,075	$	16,610,634
Canada		1,646,224		1,746,547
All other countries		1,088,471		1,165,724
	$	19,280,770	$	19,522,905

Six months ended June 30,	2017		20 16
United States	$	33,828,738	$	34,338,263
Canada		3,419,734		3,488,303
All other countries		2,182,143		2,368,566
	$	39,430,615	$	40,195,132

Geographic sales information is based on the location of the customer.

No

single foreign country, except for Canada, accounted for any material amount of our consolidated net sales for the

three

and

six

-month periods ended

June 30, 2017

and

2016.

We do

not

have any significant long-lived assets outside of the United States.

XML

Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2017

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

In the opinion of management, the accompanying consolidated financial statements for Tandy Leather Factory, Inc. and its consolidated subsidiaries contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly its financial position as of

June 30, 2017

and

December 31, 2016,

and its results of operations and cash flows for the

three

and

six

-month periods ended

June 30, 2017

and

2016.

Operating results for the

three

and

six

-month periods ended

June 30, 2017

are

not

necessarily indicative of the results that

may

be expected for the year ending

December 31, 2017.

These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form

10

-K for the year ended

December 31, 2016.

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Reclassification, Policy [Policy Text Block]

Reclassificati

ons

.

Certain prior year amounts have been reclassified to conform to the current year presentation.

Inventory, Policy [Policy Text Block]

Inventory

.

Inventory is valued at the lower of

first

-in,

first

-out cost or market. In addition, the value of inventory is periodically reduced to net realizable value for slow-moving or obsolete inventory based on management's review of items on hand compared to their estimated future demand.

Based on negotiations with vendors, title generally passes to us when merchandise is put on board. Merchandise to which we have title but have

not

yet received is recorded as inventory in transit.

	June 30, 2017		December 31, 2016
Inventory on hand:
Finished goods held for sale	$	33,665,227	$	30,684,026
Raw materials and work in process		1,574,142		1,034,041
Inventory in transit		2,088,119		1,459,472
	$	37,327,488	$	33,177,539

Goodwill and Intangible Assets, Policy [Policy Text Block]

Goodwill and Other Intangibles

.

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. Goodwill is required to be evaluated for impairment on an annual basis, absent indicators of impairment during the interim. Application of the goodwill impairment test requires exercise of judgment, including the estimation of future cash flows, determination of appropriate discount rates and other important assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment for each reporting unit.

A

two

-step process is used to test for goodwill impairment. The

first

phase screens for impairment, while the

second

phase (if necessary) measures the impairment. We have elected to perform the annual analysis during the

fourth

calendar quarter of each year. As of

December 31, 2016,

management determined that the present value of the discounted estimated future cash flows of the stores associated with the goodwill is sufficient to support their respective goodwill balances.

No

indicators of impairment were identified during the

first

half of

2017.

The only change in our goodwill for the

six

-month periods ended

June 30, 2017

and

2016

resulted from foreign currency translation of

$3,596

and

$6,512,

respectively.

Other intangibles consist of the following:

	June 30, 2017						December 31, 2016
	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Trademarks, Copyrights	$	554,369	$	545,665	$	8,704	$	554,369	$	545,279	$	9,090
Non-Compete Agreements		175,316		164,066		11,250		175,316		163,566		11,750
	$	729,685	$	709,731	$	19,954	$	729,685	$	708,845	$	20,840

We recorded amortization expense of

$886

during the

six

months ended

June 30, 2017

compared to

$5,054

during the

first

half of

2016.

All of our intangible assets, other than goodwill, are subject to amortization under U.S. GAAP. Based on the current amount of intangible assets subject to amortization, the estimated amortization expense for each of the succeeding

5

years is as follows:

2017		871
2018		1,417
2019		666
2020		666
2021		666
Thereafter	$	5,668

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

.

Our sales generally occur via

two

methods: (

1

) at the counter in our stores, and (

2

) shipment by common carrier. Sales at the counter are recorded and title passes as transactions occur. Otherwise, sales are recorded and title passes when the merchandise is shipped to the customer. Shipping terms are normally FOB shipping point. Sales tax and comparable foreign tax is excluded from revenue

.

We offer an unconditional satisfaction guarantee to our customers and accept all product returns. Net sales represent gross sales less negotiated price allowances, product returns, and allowances for defective merchandise.

Comprehensive Income, Policy [Policy Text Block]

Comprehensive Income (

loss

).

Comprehensive income includes net income and certain other items that are recorded directly to Stockholders’ Equity. Our only source of other comprehensive income is foreign currency translation adjustments

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Account

ing Pronouncements.

 In

May 2014,

the Financial Accounting Standards Board (“FASB”) issued ASU

No.

 

2014

-

09,

which amends ASC Topic

606,

“Revenue from Contracts with Customers”. The amendments in this ASU are intended to provide a more robust framework for addressing revenue issues, improve comparability of revenue recognition practices and improve disclosure requirements. The amendments in this accounting standard update are effective for interim and annual reporting periods beginning after

December 

15,

2016.

In

April 2015,

FASB issued ASU

No.

2015

-

24,

Revenue from Contracts with Customers: Deferral of the Effective Date which proposed a deferral of the effective date by

one

year, and on

July 7, 2015,

FASB decided to delay the effective date by

one

year. The deferral results in the new revenue standard being effective for fiscal years, and interim periods within those fiscal years, beginning after

December 15, 2017.

We are therefore required to apply the new revenue guidance beginning in our

2018

interim and annual financial statements. This ASU can be adopted either retrospectively or as a cumulative-effect adjustment as of the date of adoption. Entities reporting under U.S. GAAP are

not

permitted to adopt this standard earlier than the original effective date for public entities (that is,

no

earlier than

2017

for calendar year-end entities.) We are currently evaluating what impact, if any, the adoption of this guidance will have on our financial condition, results of operations, cash flows and financial disclosures. Based on our procedures to date, we believe that the adoption will

not

have a material impact to our financial condition, results of operations or cash flows although our disclosures will be expanded. We expect to adopt ASU

No.

2014

-

09

under the modified retrospective method. Given the nature of our business and that our sales generally occur at the counter or by shipment through common carrier at observable transaction prices with little, if any, variable consideration factors, we do

not

expect there to be significant changes to the amount and timing of revenue recognition. Finally, while we offer an unconditional right of return to our customers, this has historically been immaterial to our financial condition, results of operations and cash flows (annual gross product returns historically have represent less than

0.5%

of our net sales over the last

three

years).

In

February 2016,

the FASB issued ASU

2016

-

02,

“Leases”, a comprehensive new standard that amends various aspects of existing accounting guidance for leases, including the recognition of a right of use asset and a lease liability for leases with a duration greater than

one

year. The guidance is effective for fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years. Early adoption is permitted. We have

not

completed our review of the new guidance; however, we anticipate that upon adoption of the standard, using a modified retrospective approach, we will recognize additional assets and corresponding liabilities related to leases on our balance sheet.

XML

Note 1 - Basis of Presentation and Certain Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	June 30, 2017		December 31, 2016
Inventory on hand:
Finished goods held for sale	$	33,665,227	$	30,684,026
Raw materials and work in process		1,574,142		1,034,041
Inventory in transit		2,088,119		1,459,472
	$	37,327,488	$	33,177,539

Schedule of Finite-Lived Intangible Assets [Table Text Block]

	June 30, 2017						December 31, 2016
	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Trademarks, Copyrights	$	554,369	$	545,665	$	8,704	$	554,369	$	545,279	$	9,090
Non-Compete Agreements		175,316		164,066		11,250		175,316		163,566		11,750
	$	729,685	$	709,731	$	19,954	$	729,685	$	708,845	$	20,840

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

2017		871
2018		1,417
2019		666
2020		666
2021		666
Thereafter	$	5,668

XML

Note 2 - Notes Payable and Long-term Debt (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Schedule of Debt [Table Text Block]

	6/30/2017		12/31/2016
Line of Credit, as amended, in the maximum principal amount of $15,000,000 with features as more fully described above –matures September 18, 2021	$	7,371,730	$	7,371,730
Line of Credit, as amended, in the maximum principal amount of $6,000,000 with revolving features as more fully described above – matures September 18, 2018		-		-
	$	7,371,730	$	7,371,730
Less current maturities		1,535,778		614,311
	$	5,835,952	$	6,757,419

XML

Note 4 - Stock-based Compensation (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Share-based Compensation, Stock Options, Activity [Table Text Block]

	Weighted Average Exercise Price		# of shares			Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding, January 1, 2017	$	5.14		56,400
Granted		-		-
Cancelled	$	5.14		(12,000	)
Exercised	$	5.14		(44,400	)		3.99	$	155,606
Outstanding, June 30, 2017	$	-		-			-	$	-
Exercisable, June 30, 2017	$	-		-			-	$	-
Outstanding, January 1, 2016	$	5.17		68,400
Granted		-		-
Cancelled		-		-
Exercised		-		-
Outstanding, June 30, 2016	$	5.17		68,400			4.99	$	83,933
Exercisable, June 30, 2016	$	5.17		68,400			4.99	$	83,933

Schedule of Share-based Compensation, Restricted Stock and Restricted Stock Units Activity [Table Text Block]

	Shares			Award Fair Value
Balance, January 1, 2017		62,046		$	8.24
Granted		9,005			8.05
Forfeited		(5,403	)		8.05
Vested		(28,847	)		7.84
Unvested Balance, June 30, 2017		36,801		$	7.93
Balance, January 1, 2016		60,433		$	8.97
Granted		33,685			7.14
Forfeited		(8,187	)		8.97
Vested		(20,784	)		8.97
Unvested Balance, June 30, 2016		65,147		$	8.03

Schedule of Unrecognized Compensation Cost, Nonvested Awards [Table Text Block]

2017	$	66,928
2018		100,127
2019		58,126
2020		14,853
2021		1,208

XML

Note 5 - Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
Net income	$	1,027,732	$	1,820,915	$	2,258,997	$	3,341,912
Numerator for basic and diluted earnings per share		1,027,732		1,820,915		2,258,997		3,341,912
Denominator for basic EPS: weighted-average shares		9,225,960		9,209,446		9,212,846		9,418,645
Effect of dilutive securities:
Stock options		-		18,495		9,810		18,975
Restricted stock		3,169		-		2,818		-
Dilutive potential common shares		3,169		18,495		12,628		18,975
Denominator for diluted EPS-weighted-average shares		9,229,129		9,227,941		9,225,474		9,437,620
Basic earnings per share	$	0.11	$	0.19	$	0.24	$	0.35
Diluted earnings per share	$	0.11	$	0.19	$	0.24	$	0.35

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Note 7 - Segment Information (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	North America			International			Total
For the quarter ended June 30 , 20 17
Net sales	$	18,427,425		$	853,345		$	19,280,770
Gross profit		12,449,202			446,332			12,895,534
Operating income (loss)		1,814,887			(159,450	)		1,655,437
Interest (expense)		(53,680	)		-			(53,680	)
Other income (expense), net		15,195			1,817			17,012
Income (loss) before income taxes		1,776,402			(157,633	)		1,618,769
Depreciation and amortization		448,788			22,502			471,290
Fixed asset additions		387,054			18,095			405,149
Total assets	$	67,412,189		$	4,831,270		$	72,243,459
For the quarter ended June 30 , 20 16
Net sales	$	18,558,938		$	963,967		$	19,522,905
Gross profit		12,155,311			740,479			12,895,790
Operating income		2,714,312			124,579			2,838,891
Interest (expense)		(42,027	)		-			(42,027	)
Other income (expense), net		8,986			14,448			23,434
Income before income taxes		2,681,271			139,027			2,820,298
Depreciation and amortization		394,943			22,622			417,565
Fixed asset additions		242,235			48,840			291,075
Total assets	$	61,820,547		$	4,797,768		$	66,618,315

	North America			International			Total
For the six months ended June 30 , 20 17
Net sales	$	37,659,139		$	1,771,476		$	39,430,615
Gross profit		24,202,159			979,420			25,181,579
Operating income (loss)		3,626,450			(233,522	)		3,392,928
Interest (expense)		(90,024	)		-			(90,024	)
Other income (expense), net		32,849			(13,186	)		19,663
Income (loss) before income taxes		3,569,275			(246,708	)		3,322,567
Depreciation and amortization		885,069			44,339			929,408
Fixed asset additions		984,880			20,026			1,004,906
Total assets	$	67,412,189		$	4,831,270		$	72,243,459
For the six months ended June 30 , 20 16
Net sales	$	38,298,429		$	1,896,703		$	40,195,132
Gross profit		24,240,120			1,308,416			25,548,536
Operating income		5,055,521			146,160			5,201,681
Interest (expense)		(65,456	)		-			(65,456	)
Other income (expense), net		14,732			8,663			23,395
Income before income taxes		5,004,797			154,823			5,159,620
Depreciation and amortization		788,535			43,258			831,793
Fixed asset additions		845,099			52,908			898,007
Total assets	$	61,820,547		$	4,797,768		$	66,618,315

Schedule of Revenue from External Customers and Long-Lived Assets, by Geographical Areas [Table Text Block]

Three months ended June 30,	20 17		20 16
United States	$	16,546,075	$	16,610,634
Canada		1,646,224		1,746,547
All other countries		1,088,471		1,165,724
	$	19,280,770	$	19,522,905

Six months ended June 30,	2017		20 16
United States	$	33,828,738	$	34,338,263
Canada		3,419,734		3,488,303
All other countries		2,182,143		2,368,566
	$	39,430,615	$	40,195,132

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Note 1 - Basis of Presentation and Certain Significant Accounting Policies (Details Textual) - USD ($)	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Goodwill, Impairment Loss	$ 0
Goodwill, Foreign Currency Translation Gain (Loss)	3,596	$ 6,512
Amortization of Intangible Assets	$ 886	$ 5,054
Maximum [Member]
Sales Revenue, Annual Gross Product Returns	0.50%

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Note 1 - Basis of Presentation and Certain Significant Accounting Policies - Components of Inventory (Details) - USD ($)	Jun. 30, 2017	Dec. 31, 2016
Inventory on hand:
Finished goods held for sale	$ 33,665,227	$ 30,684,026
Raw materials and work in process	1,574,142	1,034,041
Inventory in transit	2,088,119	1,459,472
	$ 37,327,488	$ 33,177,539

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Note 1 - Basis of Presentation and Certain Significant Accounting Policies - Intangible Assets (Details) - USD ($)	Jun. 30, 2017	Dec. 31, 2016
Other intangibles, gross	$ 729,685	$ 729,685
Accumulated Amortization	709,731	708,845
Other intangibles, net	19,954	20,840
Trademarks and Copyrights [Member]
Other intangibles, gross	554,369	554,369
Accumulated Amortization	545,665	545,279
Other intangibles, net	8,704	9,090
Noncompete Agreements [Member]
Other intangibles, gross	175,316	175,316
Accumulated Amortization	164,066	163,566
Other intangibles, net	$ 11,250	$ 11,750

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Note 1 - Basis of Presentation and Certain Significant Accounting Policies - Estimated Amortization Expense (Details)	Jun. 30, 2017 USD ($)
2017	$ 871
2018	1,417
2019	666
2020	666
2021	666
Thereafter	$ 5,668

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Note 2 - Notes Payable and Long-term Debt (Details Textual)		6 Months Ended
	Sep. 18, 2015 USD ($)	Jun. 30, 2017 USD ($)	Jun. 30, 2016 USD ($) shares	Dec. 31, 2016	Aug. 25, 2016 USD ($)	Aug. 24, 2016 USD ($)	Jun. 07, 2016 shares
Stock Repurchase Program, Number of Shares Authorized to be Repurchased | shares							2,200,000
Proceeds from Issuance of Long-term Debt			$ 3,660,505
Promissory Note with BOKF [Member]
Treasury Stock, Shares, Acquired | shares			520,500
Line of Credit Facility, Remaining Borrowing Capacity		$ 7,600,000
Line of Credit Facility, Maximum Borrowing Capacity	$ 10,000,000				$ 15,000,000	$ 10,000,000
Line of Credit Facility, Term of the Term Note into which the Principal Balance Will Be Rolled		4 years
Proceeds from Issuance of Long-term Debt		$ 0	$ 3,700,000
Promissory Note and Business Loan Agreement with BOKF [Member]
Line of Credit Facility, Maximum Borrowing Capacity	$ 6,000,000
Proceeds from Issuance of Long-term Debt		$ 0	$ 0
Promissory Note and Business Loan Agreement with BOKF [Member] | Maximum [Member]
Debt Instrument, Covenants, Debt to EBITDA Ratio	1.5
Promissory Note and Business Loan Agreement with BOKF [Member] | Minimum [Member]
Debt Instrument, Covenants, Fixed Charge Coverage Ratio	1.2
Two Promissory Notes with BOKF [Member]
Debt Instrument, Interest Rate, Effective Percentage		2.86%		2.557%
Two Promissory Notes with BOKF [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate		1.85%

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Note 2 - Notes Payable and Long-term Debt - Summary of Credit Agreement and Line of Credit Note (Details) - USD ($)	Jun. 30, 2017	Dec. 31, 2016
	$ 7,371,730	$ 7,371,730
Less current maturities	1,535,778	614,311
LONG-TERM DEBT, net of current maturities	5,835,952	6,757,419
Promissory Note with BOKF [Member]
Line of Credit Note	7,371,730	7,371,730
Promissory Note and Business Loan Agreement with BOKF [Member]
Line of Credit Note

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Note 2 - Notes Payable and Long-term Debt - Summary of Credit Agreement and Line of Credit Note (Details) (Parentheticals) - USD ($)	Jun. 30, 2017	Dec. 31, 2016
Promissory Note with BOKF [Member]
Line of Credit Note, Principal Amount	$ 15,000,000	$ 15,000,000
Promissory Note and Business Loan Agreement with BOKF [Member]
Line of Credit Note, Principal Amount	$ 6,000,000	$ 6,000,000

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Note 3 - Capital Lease Obligations (Details Textual) - USD ($)	Jun. 30, 2017	Dec. 31, 2016
Capital Leased Assets, Gross	$ 227,783
Capital Leases, Lessee Balance Sheet, Assets by Major Class, Accumulated Depreciation	33,300	$ 21,400
Capital Lease Obligations, Current	72,686	72,686
Property and Equipment [Member]
Capital Leased Assets, Gross	217,114	210,904
Prepaid Equipment [Member]
Capital Leased Assets, Gross	$ 10,669	$ 16,879

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Note 4 - Stock-based Compensation (Details Textual) - USD ($)	1 Months Ended		3 Months Ended	6 Months Ended
	Feb. 28, 2017	Mar. 31, 2016	Jun. 30, 2017	Jun. 30, 2017	Jun. 30, 2016
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period				9,005	33,685
Director [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross				0	0
Allocated Share-based Compensation Expense				$ 0	$ 0
2007 Director Non-Qualified Stock Option Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period				10 years
Restricted Stock Plan [Member] | Restricted Stock [Member]
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Share-based Awards Other than Options			$ 241,242	$ 241,242
Restricted Stock Plan [Member] | Executive Officers, Non-employee Directors and Other Key Employees [Member] | Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period				4 years
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized			300,000	300,000
Restricted Stock Plan [Member] | Independent Director 1 Member] | Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	1,801	2,031
Restricted Stock Plan [Member] | Chief Executive Officer [Member] | Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period		11,765
Restricted Stock Plan [Member] | Interim Chief Executive Officer, Interim President and 5 Directors [Member] | Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period		4 years
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition		4 years
Restricted Stock Plan [Member] | Three Independent Directors [Member] | Restricted Stock [Member]
Allocated Share-based Compensation Expense			$ 104,000	$ 104,000
Restricted Stock Plan [Member] | Independent Director 2 [Member] | Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	1,801	2,031
Restricted Stock Plan [Member] | Independent Director 3 [Member] | Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	1,801	2,031
Restricted Stock Plan [Member] | Independent Director 4 [Member] | Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	1,801	2,031
Restricted Stock Plan [Member] | Independent Directors 5 [Member] | Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	1,801	2,031
Restricted Stock Plan [Member] | President [Member] | Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period		11,765

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Note 4 - Stock-based Compensation - Summary of Stock Option Activity (Details) - USD ($)	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Outstanding, number of shares (in shares)		68,400
Outstanding, weighted average remaining contractual term (Year)		4 years 361 days
Outstanding, aggregate intrinsic value		$ 83,933
Exercisable, weighted average exercise price (in dollars per share)		$ 5.17
Exercisable, number of shares (in shares)		68,400
Exercisable, weighted average remaining contractual term (Year)		4 years 361 days
Exercisable, aggregate intrinsic value		$ 83,933
Outstanding, weighted average exercise price (in dollars per share)	$ 5.14	$ 5.17
Outstanding, number of shares (in shares)	56,400	68,400
Granted, number of shares (in shares)
Cancelled, weighted average exercise price (in dollars per share)	$ 5.14
Cancelled, number of shares (in shares)	(12,000)
Exercised, weighted average exercise price (in dollars per share)	$ 5.14
Exercised, number of shares (in shares)	(44,400)
Exercised, weighted average remaining contractual term (Year)	3 years 361 days
Exercised, aggregate intrinsic value	$ 155,606
Outstanding, weighted average exercise price (in dollars per share)		$ 5.17

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Note 4 - Stock-based Compensation - Activity for Nonvested Restricted Common Stock Awards (Details) - Restricted Stock [Member] - $ / shares	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Balance, grant fair value (in dollars per share)	$ 8.24	$ 8.97
Balance, grant fair value (in dollars per share)	$ 7.93	$ 8.03
Balance, shares (in shares)	62,046	60,433
Granted, shares (in shares)	9,005	33,685
Granted, grant fair value (in dollars per share)	$ 8.05	$ 7.14
Forfeited, shares (in shares)	(5,403)	(8,187)
Forfeited, grant fair value (in dollars per share)	$ 8.05	$ 8.97
Vested, shares (in shares)	(28,847)	(20,784)
Vested, grant fair value (in dollars per share)	$ 7.84	$ 8.97
Balance, shares (in shares)	36,801	65,147

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Note 4 - Stock-based Compensation - Unrecognized Compensation Expense for Nonvested Restricted Stock Awards (Details)	Jun. 30, 2017 USD ($)
2017	$ 66,928
2018	100,127
2019	58,126
2020	14,853
2021	$ 1,208

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Note 5 - Earnings Per Share (Details Textual) - shares	3 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Weighted Average Number Diluted Shares Outstanding Adjustment	36,801	133,562

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Note 5 - Earnings Per Share - Computation of Basic and Diluted Earnings Per Share (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Net income	$ 1,027,732	$ 1,820,915	$ 2,258,997	$ 3,341,912
Numerator for basic and diluted earnings per share	$ 1,027,732	$ 1,820,915	$ 2,258,997	$ 3,341,912
Denominator for basic EPS: weighted-average shares (in shares)	9,225,960	9,209,446	9,212,846	9,418,645
Effect of dilutive securities:
Effect of dilutive securities (in shares)	3,169	18,495	12,628	18,975
Denominator for diluted EPS-weighted-average shares (in shares)	9,229,129	9,227,941	9,225,474	9,437,620
Basic earnings per share (in dollars per share)	$ 0.11	$ 0.19	$ 0.24	$ 0.35
Diluted earnings per share (in dollars per share)	$ 0.11	$ 0.19	$ 0.24	$ 0.35
Employee Stock Option [Member]
Effect of dilutive securities:
Effect of dilutive securities (in shares)		18,495	9,810	18,975
Restricted Stock [Member]
Effect of dilutive securities:
Effect of dilutive securities (in shares)	3,169		2,818

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Note 7 - Segment Information (Details Textual)	Jun. 30, 2017
Number of Stores	4
UNITED KINGDOM | International Leathercraft [Member]
Number of Stores	2
SPAIN | International Leathercraft [Member]
Number of Stores	1
AUSTRALIA | International Leathercraft [Member]
Number of Stores	1

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Note 7 - Segment Information - Summary of Reportable Operating Segments (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Fixed asset additions	$ 405,149	$ 291,075	$ 1,004,906	$ 898,007
Total assets	72,243,459	66,618,315	72,243,459	66,618,315	$ 70,652,720
Net sales	19,280,770	19,522,905	39,430,615	40,195,132
Gross profit	12,895,534	12,895,790	25,181,579	25,548,536
Operating income (loss)	1,655,437	2,838,891	3,392,928	5,201,681
Interest (expense)	(53,680)	(42,027)	(90,024)	(65,456)
Other income (expense), net	17,012	23,434	19,663	23,395
Income (loss) before income taxes	1,618,769	2,820,298	3,322,567	5,159,620
Depreciation and amortization	471,290	417,565	929,408	831,793
Wholesale Leathercraft [Member]
Fixed asset additions	387,054	242,235	984,880	845,099
Total assets	67,412,189	61,820,547	67,412,189	61,820,547
Net sales	18,427,425	18,558,938	37,659,139	38,298,429
Gross profit	12,449,202	12,155,311	24,202,159	24,240,120
Operating income (loss)	1,814,887	2,714,312	3,626,450	5,055,521
Interest (expense)	(53,680)	(42,027)	(90,024)	(65,456)
Other income (expense), net	15,195	8,986	32,849	14,732
Income (loss) before income taxes	1,776,402	2,681,271	3,569,275	5,004,797
Depreciation and amortization	448,788	394,943	885,069	788,535
International Leathercraft [Member]
Fixed asset additions	18,095	48,840	20,026	52,908
Total assets	4,831,270	4,797,768	4,831,270	4,797,768
Net sales	853,345	963,967	1,771,476	1,896,703
Gross profit	446,332	740,479	979,420	1,308,416
Operating income (loss)	(159,450)	124,579	(233,522)	146,160
Interest (expense)
Other income (expense), net	1,817	14,448	(13,186)	8,663
Income (loss) before income taxes	(157,633)	139,027	(246,708)	154,823
Depreciation and amortization	$ 22,502	$ 22,622	$ 44,339	$ 43,258

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Note 7 - Segment Information - Net Sales for Geographic Areas (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Net sales	$ 19,280,770	$ 19,522,905	$ 39,430,615	$ 40,195,132
UNITED STATES
Net sales	16,546,075	16,610,634	33,828,738	34,338,263
CANADA
Net sales	1,646,224	1,746,547	3,419,734	3,488,303
All Other Countries [Member]
Net sales	$ 1,088,471	$ 1,165,724	$ 2,182,143	$ 2,368,566