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, 2018

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, 2018
Common Stock, par value $0.0024 per share	9,154,208

1

TANDY LEATHER FACTORY, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2018

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	11
Item 3.  Quantitative and Qualitative Disclosures About Market Risk	15
Item 4.  Controls and Procedures	15
PART II.  OTHER INFORMATION
Item 1.  Legal Proceedings	15
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds	15
Item 6.  Exhibits	16
SIGNATURES	17

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Tandy Leather Factory, Inc.

Consolidated Balance Sheets

	June 30, 2018			December 31, 2017
ASSETS
CURRENT ASSETS:
Cash	$	18,955,328		$	18,337,258
Accounts receivable-trade, net of allowance for doubtful accounts
of $9,911 and $22,642 in 2018 and 2017, respectively		496,255			461,212
Inventory		38,020,269			37,311,197
Prepaid income taxes		233,002			41,307
Prepaid expenses		1,374,944			1,473,147
Other current assets		75,459			189,029
Total current assets		59,155,257			57,813,150
PROPERTY AND EQUIPMENT, at cost		27,551,811			27,218,481
Less accumulated depreciation and amortization		(12,552,648	)		(11,750,639	)
Property and equipment, net		14,999,163			15,467,842
DEFERRED INCOME TAXES		269,512			271,738
GOODWILL		958,464			962,949
OTHER INTANGIBLES, net of accumulated amortization of approximately
$712,000 and $710,000 in 2018 and 2017, respectively		18,083			19,222
OTHER ASSETS		384,744			379,695
TOTAL ASSETS	$	75,785,223		$	74,914,596
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable-trade	$	1,223,522		$	1,413,450
Accrued expenses and other liabilities		3,863,282			4,953,477
Current maturities of long-term debt		1,740,556			614,311
Total current liabilities		6,827,360			6,981,238
DEFERRED INCOME TAXES		1,474,675			1,636,958
LONG-TERM DEBT, net of current maturities		6,614,112			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;
11,330,340 and 11,313,692 shares issued at 2018 and 2017, respectively;
9,154,215 and 9,270,862 shares outstanding at 2018 and 2017, respectively		27,193			27,153
Paid-in capital		6,883,919			6,831,271
Retained earnings		66,466,644			63,921,244
Treasury stock at cost (2,176,125 and 2,042,830 shares at 2018 and 2017, respectively)		(11,273,770	)		(10,278,584	)
Accumulated other comprehensive income (loss)		(1,234,910	)		(962,103	)
Total stockholders' equity		60,869,076			59,538,981
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	75,785,223		$	74,914,596

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

3

Tandy Leather Factory, Inc.

Consolidated Statements of Comprehensive Income

For the Three and Six Months Ended June 30

	THREE MONTHS						SIX MONTHS
	2018			2017			2018			2017
NET SALES	$	19,177,767		$	19,280,770		$	39,466,685		$	39,430,615
COST OF SALES		6,059,325			6,385,236			13,505,281			14,249,036
Gross profit		13,118,442			12,895,534			25,961,404			25,181,579
OPERATING EXPENSES		11,136,961			11,240,097			22,210,962			21,788,651
INCOME FROM OPERATIONS		1,981,481			1,655,437			3,750,442			3,392,928
OTHER INCOME (EXPENSE):
Interest expense		(78,182	)		(53,680	)		(142,824	)		(90,024	)
Other, net		46,741			17,012			85,613			19,663
Total other income (expense)		(31,441	)		(36,668	)		(57,211	)		(70,361	)
INCOME BEFORE INCOME TAXES		1,950,040			1,618,769			3,693,231			3,322,567
PROVISION FOR INCOME TAXES		509,948			591,037			979,520			1,063,570
NET INCOME	$	1,440,092		$	1,027,732		$	2,713,711		$	2,258,997
Foreign currency translation adjustments		(294,598	)		302,019			(272,807	)		658,359
COMPREHENSIVE INCOME	$	1,145,494		$	1,329,751		$	2,440,904		$	2,917,356
NET INCOME PER COMMON SHARE:
Basic	$	0.15		$	0.11		$	0.29		$	0.24
Diluted	$	0.15		$	0.11		$	0.29		$	0.24
Weighted Average Number of Shares Outstanding:
Basic		9,180,076			9,225,960			9,222,028			9,212,846
Diluted		9,180,727			9,229,129			9,222,533			9,225,474

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

4

Tandy Leather Factory, Inc.

Consolidated Statements of Cash Flows

For the Six Months Ended June 30

	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	2,713,711		$	2,258,997
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		878,955			929,408
Loss on disposal or abandonment of assets		4,556			515
Non-cash stock-based compensation		52,688			171,160
Deferred income taxes		(96,057	)		(147,345	)
Foreign currency translation		(268,321	)		627,609
Net changes in assets and liabilities:
Accounts receivable-trade		(35,043	)		63,667
Inventory		(709,072	)		(4,149,949	)
Prepaid expenses		98,203			130,098
Other current assets		113,570			(256	)
Accounts payable-trade		(189,928	)		(137,841	)
Accrued expenses and other liabilities		(1,258,506	)		(1,465,374	)
Income taxes payable		(255,695	)		508,900
Total adjustments		(1,664,650	)		(3,469,408	)
Net cash provided by (used in) operating activities		1,049,061			(1,210,411	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(421,861	)		(1,004,906	)
Proceeds from sale of assets		7,028			100
Increase in other assets		(3,910	)		(29,121	)
Net cash used in investing activities		(418,743	)		(1,033,927	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and long term debt		982,938			-
Repurchase of common stock (treasury stock)		(995,186	)		-
Proceeds from exercise of stock options		-			223,404
Net cash (used in) provided by financing activities		(12,248	)		223,404
NET INCREASE (DECREASE) IN CASH		618,070			(2,020,934	)
CASH, beginning of period		18,337,258			16,862,304
CASH, end of period	$	18,955,328		$	14,841,370
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the period	$	142,824		$	90,024
Income tax paid during the period, net of refunds	$	1,331,272		$	554,670

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

5

Tandy Leather Factory, Inc.

Consolidated Statements of Stockholders' Equity

For the Six Months Ended June 30

	Number of Shares			Par Value		Paid-in Capital		Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Income (loss)			Total
BALANCE, January 1, 2017		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
	Number of Shares			Par Value		Paid-in Capital		Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Income (loss)			Total
BALANCE, January 1, 2018		9,270,862		$	27,153	$	6,831,271	$	(10,278,584	)	$	63,921,244		$	(962,103	)	$	59,538,981
Cumulative effect of accounting      change (see Note 1)		-			-		-		-			(168,311	)		-			(168,311	)
Stock-based compensation		16,648			40		52,648		-			-			-			52,688
Purchase of treasury stock		(133,295	)		-		-		(995,186	)		-			-			(995,186	)
Net income		-			-		-		-			2,713,711			-			2,713,711
Translation adjustment		-			-		-		-			-			(272,807	)		(272,807	)
BALANCE, June 30, 2018		9,154,215		$	27,193	$	6,883,919	$	(11,273,770	)	$	66,466,644		$	(1,234,910	)	$	60,869,076

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

Tandy Leather Factory, Inc. is a specialty retailer of leather and leathercraft related items, offering a broad range of leather, quality tools, hardware, accessories, liquids, lace, kits and teaching materials. We sell our products through company-owned stores and through orders generated from our website, www.tandyleather.com. We also manufacture the leather lace and some of our do-it-yourself kits that are sold in our stores and website.

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, 2018 and December 31, 2017, and its results of operations and cash flows for the three and six-month periods ended June 30, 2018 and 2017.  Operating results for the three and six-month periods ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.  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, 2017.

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.

Inventory.  Inventory is valued at the lower of cost or net realizable value.  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, 2018		December 31, 2017
Inventory on hand:
Finished goods held for sale	$	35,033,257	$	34,824,728
Raw materials and work in process		1,094,756		1,138,316
Inventory in transit		1,892,256		1,348,153
Total	$	38,020,269	$	37,311,197

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. During the first six months of 2018, no indicators of impairment were identified.  Further, the only change in our goodwill for the six-month periods ended June 30, 2018 and 2017 resulted from foreign currency translation of $4,485 and $3,596, respectively.

Other intangibles consist of the following:

	June 30, 2018						December 31, 2017
	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Trademarks, Copyrights	$	554,369	$	546,369	$	8,000	$	554,369	$	545,897	$	8,472
Non-Compete Agreements		175,316		165,233		10,083		175,316		164,566		10,750
	$	729,685	$	711,602	$	18,083	$	729,685	$	710,463	$	19,222

We recorded amortization expense of approximately $1,100 during the six months ended June 30, 2018 compared to approximately $900 during the first half of 2017.  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 estimated to be less than $2,500 per year.

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 are 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.

Historically, the sale of gift cards has not been material to our financial condition, results of operations or cash flows.  As such, prior to January 1, 2018, gift cards were recognized as sales in the period the gift card was sold.  Effective January 1, 2018, in conjunction with the adoption of Accounting Standards Codification 606, "Revenue from Contracts with Customers" ("ASC 606"), we began recording a gift card liability on the date we issue a gift card to a customer.  We record revenue and reduce the gift card liability as the customer redeems the gift card.  In addition, for gift card breakage, we recognize a proportionate amount for the expected unredeemed gift cards over the expected customer redemption period which is one year.  At June 30, 2018, our gift card liability, included in accrued expenses and other liabilities, totaled approximately $152,543, of which $168,311 was recognized on January 1, 2018 as the cumulative effect of an accounting change.

7

Disaggregated Revenue.  In the following table, revenue is disaggregated by our major customer groups for the three and six-months ended June 30:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
RETAIL (end users, consumers, individuals)		58	%		56	%		60	%		58	%
NON-RETAIL (hospitals, organizations, distributors, businesses)		42	%		44	%		40	%		42	%
		100	%		100	%		100	%		100	%

North America represents approximately 95% of total sales, while International represents approximately 5% of total sales.  As such, revenue by customer group more closely aligns with North America than International.  Note 7 also contains additional disaggregated revenue information by segment and geographic area.

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.  ASC 606 requires revenue to be recognized based on the amount an entity is expected to be entitled to for promised goods or services provided to customers. ASC 606 also requires expanded disclosures regarding contracts with customers.  We adopted this standard effective January 1, 2018 using the modified retrospective basis which allows an adjustment to equity as of January 1, 2018 for all existing contracts and intend to apply the new standard to all new contracts that begin in 2018.  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, there were no significant changes to the amount and timing of revenue recognition, except for our accounting for gift cards which has been discussed above.  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 represent less than 0.5% of our net sales).   In conjunction with our adoption of ASC 606 on January 1, 2018, as it relates to our gift card liability, we recorded a net decrease to opening retained earnings of $168,311 for gift cards where satisfaction of our performance obligation had not yet been completed.

In February 2016, the Financial Accounting Standards Board ("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 $6,000,000 and is secured by our inventory.   On August 10, 2017, this line of credit was amended to extend the maturity to September 18, 2019.  The Business Loan Agreement contains covenants that requires us to maintain a funded debt to EBITDA ratio of no greater than 1.5 to 1 and a "Fixed Charge Coverage Ratio" greater than or equal to 1.2 to 1.  Both ratios are calculated quarterly and are based on a trailing four quarter basis.  For the six-month periods ended June 30, 2018 and 2017, there were no amounts drawn on this line.

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 $10,000,000 for the purpose of repurchasing 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 2019.  Subsequently, this line of credit has been amended to increase the availability from $10,000,000 to $15,000,000 for the repurchase of shares of our common stock through the earlier of August 25, 2018 or the date on which the entire amount is drawn. We are currently working to amend this facility to extend the drawdown period and conversion date to August 25, 2019.   During the draw down period, we are required to make monthly interest-only payments. At the end of this draw down period, we expect that the principal balance will be rolled into a 4-year term note. This Promissory Note is secured by a Deed of Trust on the real estate located at 1900 SE Loop 820, Fort Worth, Texas.   For the six months ended June 30, 2018, we drew approximately $983,000 on this line which was used to purchase 133,295 shares of our common stock.  There were no amounts drawn on this line during the six-months ended June 30, 2017.  At June 30, 2018, the unused portion of the line of credit was approximately $6.6 million.

Amounts drawn under either Promissory Note accrue interest at the London interbank Eurodollar market rate for U.S. dollars (commonly known as "LIBOR") plus 1.85% (3.934% and 3.351% at June 30, 2018 and December 31, 2017, respectively).

Amount outstanding under the above agreements consisted of the following:

	Jun 30, 2018		Dec 31, 2017
Business Loan Agreement with BOKF – collateralized by real estate; payable as follows:
Line of Credit Note, as amended, in the maximum principal amount of $15,000,000, interest due monthly at LIBOR plus 1.85%; matures September 18, 2022	$	8,354,668	$	7,371,730
Line of Credit Note, as amended, in the maximum principal amount of $6,000,000, interest due monthly at LIBOR plus 1.85%; matures September 18, 2019		-		-
	$	8,354,668	$	7,371,730
Less current maturities		1,740,556		614,311
	$	6,614,112	$	6,757,419

The terms of our lines of credit contain various covenants with which we were in compliance as of June 30, 2018 and December 31, 2017.

8

3.  INCOME TAX

Our effective tax rate for the three and six-months ended June 30 is presented below:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Effective tax rate		26.2	%		36.5	%		26.5	%		32.0	%

Our effective tax rate differs from the federal statutory rate primarily due to state income tax expense and timing of our deferred tax position, particularly in fixed assets. In addition, to a lesser extent, our effective tax rate is impacted by the new global intangible low-taxed income tax ("GILTI") for our estimated foreign earnings.  GILTI was established as part of the Tax Cuts and Jobs Act (the "Tax Act"), which was enacted on December 22, 2017. The Tax Act also reduced the federal statutory rate from 35% in 2017 to 21% in 2018.

We have not fully completed our accounting for the income tax effects of the Tax Act. As discussed in the SEC Staff Accounting Bulletin No. 118, the accounting for the Tax Act should be completed within one year from the Tax Act enactment.  During the three and six months ended June 30, 2018, we have made no adjustments to the provisional amounts recorded at December 31, 2017. Any adjustments to the provisional amounts recorded at December 31, 2017 will be reflected upon the completion of our accounting for the Tax Act.

For the six months ended June 30, 2018, we also recorded an estimate of $19,794 for GILTI related to our estimated foreign earnings.  This tax has been included as part of our current provision as a period cost, and we have not recognized any deferred GILTI provision as we do not expect that basis differences would be significant.  This GILTI tax was created as part of the Tax Act.  Accordingly, there was no such provision during the same period in 2017.

4. STOCK-BASED COMPENSATION

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.

The fair value of 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.

A summary of the activity for non-vested restricted common stock awards as of June 30, 2018 and 2017 is presented below:

	Shares			Award Fair Value
Balance, January 1, 2018		36,801		$	8.03
Granted		-			-
Forfeited		-			-
Vested		(16,648	)		8.22
Unvested Balance, June 30, 2018		20,153		$	7.69
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

As of June 30, 2018, there was unrecognized compensation cost related to non-vested restricted stock awards of $121,625 which will be recognized in each of the following years as follows:

2018	$	47,438
2019		58,125
2020		14,853
2021		1,209

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,
	2018		2017		2018		2017
Net income	$	1,440,092	$	1,027,732	$	2,713,711	$	2,258,997
Numerator for basic and diluted earnings per share		1,440,092		1,027,732		2,713,711		2,258,997
Denominator for basic EPS: weighted-average shares		9,180,076		9,225,960		9,222,028		9,212,846
Effect of dilutive securities:
Stock options		-		-		-		9,810
Restricted stock		651		3,169		505		2,818
Dilutive potential common shares		651		3,169		505		12,628
Denominator for diluted EPS-weighted-average shares		9,180,727		9,229,129		9,222,533		9,225,474
Basic earnings per share	$	0.15	$	0.11	$	0.29	$	0.24
Diluted earnings per share	$	0.15	$	0.11	$	0.29	$	0.24

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 20,153 and 36,801 shares of common stock have been included in the computations of diluted EPS for the periods ended June 30, 2018 and 2017, respectively.

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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

We operate in two segments:  North America and International.  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.

	North America			International			Total
For the quarter ended June 30, 2018
Net sales	$	18,276,885		$	900,882		$	19,177,767
Gross profit		12,519,089			599,353			13,118,442
Operating income (loss)		1,986,190			(4,709	)		1,981,481
Interest (expense)		(78,182	)		-			(78,182	)
Other income (expense), net		38,343			8,398			46,741
Income (loss) before income taxes		1,946,351			3,689			1,950,040
Depreciation and amortization		387,700			25,733			413,433
Fixed asset additions		105,422			76,419			181,841
Total assets	$	71,184,080		$	4,601,143		$	75,785,223
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

	North America			International			Total
For the six months ended June 30, 2018
Net sales	$	37,594,145		$	1,872,540		$	39,466,685
Gross profit		24,745,091			1,216,313			25,961,404
Operating income (loss)		3,816,849			(66,407	)		3,750,442
Interest (expense)		(142,824	)		-			(142,824	)
Other income (expense), net		73,527			12,086			85,613
Income (loss) before income taxes		3,747,552			(54,321	)		3,693,231
Depreciation and amortization		829,252			49,703			878,955
Fixed asset additions		343,080			78,781			421,861
Total assets	$	71,184,080		$	4,601,143		$	75,785,223
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

Net sales for geographic areas were as follows:

Three months ended June 30,	2018		2017
United States	$	16,361,760	$	16,546,075
Canada		1,619,430		1,646,224
All other countries		1,196,577		1,088,471
	$	19,177,767	$	19,280,770
Six months ended June 30,		2018		2017
United States	$	33,709,933	$	33,828,738
Canada		3,362,604		3,419,734
All other countries		2,394,148		2,182,143
	$	39,466,685	$	39,430,615

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, 2018 and 2017.  We do not have any significant long-lived assets outside of the United States.

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Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations.

Our Business

To our knowledge, we are the world's largest specialty retailer of leather and leathercraft related items (based on sales), offering a wide range of leather, quality tools, hardware, accessories, liquids, lace, kits and teaching materials. We sell our products through company-owned stores and through orders generated from our website, www.tandyleather.com.  We have built our business by offering our customers a broad selection of quality products combined with knowledgeable store associates, 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 stores and by increasing sales in our existing stores.  To date in 2018, we have opened new stores in Austin, Texas (July 2018) and Calgary, Alberta (July 2018).  We expect more North America new store openings in the future.

We operate in two segments, based on management responsibility and store location:  North America and International.  As of August 1, 2018, our North America segment operates 117 company-owned stores located in 42 U.S. states and 7 Canadian provinces.  We expect to grow the number of stores in North America 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.

Our International segment operates four company-owned stores with one 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 2018.

As more fully disclosed in our Form 10-K for the year ended December 31, 2017, our long term strategy is to drive sustainable growth in traffic and sales through the implementation of a number of priorities with a goal of achieving 2020 financial targets of $87 - $90 million in net sales and a return to greater than 10% operating income margins.  During the first six months of 2018, we reported a slight improvement in sales and a record level of gross profit margin which increased operating income by 10.5% as compared to the comparable period of 2017.  While encouraging, many of our key priorities are still being implemented and we expect to see continued improvement as the year progresses.

Our customer base is diverse, with individual retail customers as our largest customer group, representing approximately 60% of our 2017 sales.  The remaining 40% of our 2017 sales were to our wholesale, manufacturer and institutional groups (including horse and tack shops, Western wear, crafters, upholsterers, cobblers, auto repair, education, hospitals, prisons and other large businesses that use our products as raw materials to produce goods for resale).  Generally, our retail customers provide a higher gross profit than our wholesale and manufacturer groups.

Our initiatives to increase sales include new merchandising with an expanded product line intended to grow business to our retail customers, a refocus on business development to our wholesale and manufacturer groups, improvements to our digital and e-commerce channels, as well as increasing our average ticket.  We have also increased our training efforts with our store associates to strengthen their product knowledge.  We believe that our store associates, armed with a solid knowledge of our extensive product line, can drive higher average tickets and traffic conversion.

We are also focusing on improving our customer experience, increasing our brand awareness, and strengthening our store performance.   To help achieve those goals, in early 2017, we announced a district restructuring with our store footprint divided into fifteen districts (previously, our store footprint was divided into five regions).   Each district contains six to ten stores, reporting to a district manager who is tasked with growing traffic and sales, as well as training store managers and associates to better serve our customers and succeed in today's retail environment.  During the second quarter of 2018, we combined several districts so that there are now twelve districts instead of fifteen.  As of August 1, 2018, we have filled eleven of our twelve district manager positions.

Our growth strategy has required, and is expected to continue to require, investments in our new stores, expanded inventory and merchandising, as well as operating costs for additional headcount and competitive wages, travel, training and marketing expenses. We believe we are investing in areas that will drive sustainable long-term growth.

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, 2017.  See Note 1 for disclosures related to our adoption of the new revenue recognition standard.

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, 2017 for additional information concerning these and other uncertainties that could negatively impact the Company. Potential factors that 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;

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, 2018 and 2017

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

	Quarter Ended June 30, 2018					Quarter Ended June 30, 2017
	Net Sales		Income from Operations			Net Sales		Income from Operations
North America	$	18,276,885	$	1,986,190		$	18,427,425	$	1,814,887
International		900,882		(4,709	)		853,345		(159,450	)
Total	$	19,177,767	$	1,981,481		$	19,280,770	$	1,655,437

Consolidated net sales for the quarter ended June 30, 2018 decreased $103,003, or 0.5%, compared to the same period in 2017.  International reported a sales increase of 5.6%, while North America reported a sales decline of 0.8%.   Income from operations on a consolidated basis for the quarter ended June 30, 2018 increased $326,044, from the second quarter of 2017 primarily due to an improvement in gross profit margins and reductions in operating expenses.  As for gross profit, the improvement is a result of a continued shift in our customer base from non-retail to retail and from the mix of products sold.  Our operating expenses decreased primarily due to reductions in our advertising and marketing spend, partially offset by increases in personnel and occupancy costs.

The following table shows in comparative form our consolidated net income for the second quarter of 2018 and 2017:

	2018		2017		% change
Net income	$	1,440,092	$	1,027,732		40.1	%

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 both June 30, 2018 and 2017, as there were no changes in our store footprint between those dates, although three new stores were opened from the beginning of 2017: Allen, TX (April 2017); Miami, FL (May 2017); and McAllen, TX (May 2017).    A store is categorized as "new" until it is operating for the full comparable period in the prior year.

	# Stores		Qtr Ended 06/30/18		# Stores		Qtr Ended 06/30/17		$ Change			% Change
Same stores		112	$	17,966,357		112	$	18,292,128	$	(325,771	)		(1.8	%)
New stores		3		310,528		3		135,297		175,231			(130	%)
Total net sales		115	$	18,276,885		115	$	18,427,425	$	(150,540	)		(0.8	)%

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

Customer Group	2018			2017
RETAIL (end users, consumers, individuals)		59	%		57	%
NON-RETAIL (hospitals, organizations, resellers, distributors, businesses)		41	%		43	%
		100	%		100	%

Net sales decreased 0.8%, or $151,000, for the second quarter of 2018 compared to the second quarter of 2017, primarily due to increased competition to our non-retail customers who purchased lower quantities of leather compared to the comparable quarter in 2017.

Income from operations for North America during the quarter ended June 30, 2018 increased by $171,303 from the comparative 2017 quarter due to an increase in gross profit of $69,887 and a decrease in operating expenses of $101,416. Gross profit as a percentage of sales improved from 67.6% in the second quarter of 2017 to 68.5% in the second quarter of 2018, due to an increase in sales of higher margin products compared to last year's second quarter and customer mix with more retail than non-retail sales.  Operating expenses decreased 1.0% compared to last year's comparable period, as we reduced our advertising and marketing spend, offset by higher personnel and occupancy costs.

International

International consists of all stores located outside of North America.  As of June 30, 2018 and 2017, 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 during either such period).   This segment's sales totaled approximately $901,000 for the second quarter of 2018, compared to approximately $853,000 in the second quarter of 2017, an increase of $48,000 or 5.6%, primarily due to favorable exchange rates and recent price increases.

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

Customer Group	2018			2017
RETAIL (end users, consumers, individuals)		48	%		44	%
NON-RETAIL (hospitals, youth organizations, resellers, distributors, businesses)		52	%		56	%
		100	%		100	%

Gross profit margin increased from 52.3% in 2017 to 66.5% in 2018, primarily due to the recent price changes and shift in customer mix.  International's operating expenses of $604,000 for the quarter ended June 30, 2018 were relatively flat compared to $606,000 for the quarter ended June 30, 2017, as increases due to foreign currency exchange were offset by lower personnel and advertising costs.  Overall, advertising and marketing expenses are this segment's largest expense, followed by employee compensation, rent, travel, and shipping costs to customers.

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Other Expenses

We paid $78,000 in interest on our bank debt in the second quarter of 2018, compared to $54,000 in the second quarter of 2017 due to a slightly higher interest rate and higher weighted average outstanding balance in 2018 compared to 2017.  We recorded income of $47,000 in the second quarter of 2018 primarily for interest income, currency fluctuations, vendor rebates and discounts earned, compared to $17,000 in the second quarter of 2017.

Income Taxes

The decrease in the effective tax rate of 26.2% in the second quarter of 2018 compared to 36.5% in the prior year period is primarily due to the new lower federal rate of 21%, offset by the addition of the new global foreign income provision, the loss of the domestic production deduction, and a lower deferred tax benefit, primarily related to fixed assets.

Six Months Ended June 30, 2018 and 2017

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

	Six Months Ended June 30, 2018					Six Months Ended June 30, 2017
	Net Sales		Income from Operations			Net Sales		Income from Operations
North America	$	37,594,145	$	3,816,849		$	37,659,139	$	3,626,450
International		1,872,540		(66,407	)		1,771,476		(233,522	)
Total	$	39,466,685	$	3,750,442		$	39,430,615	$	3,392,928

Consolidated net sales for the six months ended June 30, 2018 increased $36,070, or 0.1%, compared to the same period in 2017.  International reported a sales increase of 5.7%. while North America reported a sales decline of 0.2%.  Income from operations on a consolidated basis for the six months ended June 30, 2018 increased 11%, or $357,514, from the first half of 2017 primarily due to an improvement in gross margins, offset by an increase in operating expenses, primarily related to three new stores opened since the beginning of 2017, 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 2018 and 2017:

	2018		2017		% change
Net income	$	2,713,711	$	2,258,997		20.1	%

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

	# Stores		Six Months Ended 06/30/18		# Stores		Six Months Ended 06/30/17		$ Change			% Change
Same stores		112	$	36,965,669		112	$	37,523,842	$	(558,173	)		(1.5	%)
New stores		3		628,476		3		135,297		493,179			364.5	%
Total net sales		115	$	37,594,145		115	$	37,659,139	$	(64,994	)		(0.2	%)

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

Customer Group	2018			2017
RETAIL (end users, consumers, individuals)		60	%		58	%
NON-RETAIL (hospitals, organizations, resellers, manufacturers, businesses)		40	%		42	%
		100	%		100	%

Net sales decreased 0.2%, or $65,000, for the first half of 2018 compared to the first half of 2017, primarily due to increased competition to our non-retail customers, offset by fluctuations in the Canadian dollar exchange rate.

Income from operations for North America for the six months ended June 30, 2018 increased $190,399 from the comparative 2017 period.  An increase in gross profit of $542,932, partially offset by an increase in operating expenses of $352,533 contributed to the improvement in income from operations.  Gross profit as a percentage of sales increased from 64.3% in the first half of 2017 to 65.8% in the first half of 2018, due to an increase in sales of higher margin products, specifically less sales of leather to our non-retail customers. compared to last year's first half and customer mix.  Operating expenses increased 1.7% compared to last year's comparable period.  The most significant expense increases occurred in personnel, occupancy and selling costs related to three new stores opened, as well as increases in our store associate wages and higher common area maintenance costs.

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International

International's sales totaled approximately $1,873,000 for the first half of 2018, compared to approximately $1,771,000 in the first half of 2017, an increase of $102,000 or 5.7%, primarily due to favorable foreign currency exchange rates and recent price increases.

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

Customer Group	2018			2017
RETAIL (end users, consumers, individuals)		48	%		44	%
NON-RETAIL (hospitals, organizations, resellers, manufacturers, businesses)		52	%		56	%
		100	%		100	%

Gross profit margin increased from 55.3% in 2017 to 65.0% in 2018, primarily due to the recent price changes and the shift in customers from non-retail to retail.  International's operating expenses increased by $70,000 due to foreign currency exchange rates, offset by cost controls in personnel and advertising expenses.  Operating expenses totaled approximately $1,283,000 in the first half of 2018, up from approximately $1,213,000 in the first half of 2017.

Other Expenses

We paid approximately $143,000 in interest on our bank debt in the first six months of 2018, compared to approximately $90,000 in the first six months of 2017 due to slightly higher interest rates and higher weighted average outstanding balances in 2018 compared to 2017.  We recorded income of $86,000 in the first half of 2018 primarily for interest income, currency fluctuations, vendor rebates and discounts earned, compared to $20,000 in the first half of 2017.

Income Taxes

The decrease in the effective tax rate of 26.5% in the first half of 2018 compared to 32% in the first half of 2018 is primarily due to the new lower federal rate of 21%, offset by the addition of the new global foreign income provision, the loss of the domestic production deduction, and a lower deferred tax benefit, primarily related to fixed assets.

Capital Resources, Liquidity and Financial Condition

We require cash principally for day-to-day operations, to purchase inventory, to finance capital investments, and to service our outstanding debt.  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.  Our cash balances at June 30, 2018 totaled $19.0 million.  In addition, we have available a $6 million line of credit, more fully described below.

In August 2015, our Board authorized a share repurchase program where we may repurchase up to 1.2 million shares of our common stock at prevailing market rates through August 2016.  Subsequently, the program was amended to increase the number of shares available for repurchase to 2.2 million and to extend the program through August 2019.  For the six months ended June 30, 2018, 133,295 shares were repurchased, while no shares were repurchased during the first six months of 2017.   At June 30, 2018, there are 1,017,498 shares available for repurchase under the plan.

On September 18, 2015, we executed a Promissory Note and Business Loan Agreement with BOKF, NA d/b/a Bank of Texas ("BOKF") which provided us with a line of credit facility of up to $10,000,000 for the purpose of repurchasing shares of our common stock pursuant to our stock repurchase program.  Subsequently, this line of credit was amended to increase the availability from $10,000,000 to $15,000,000 for the repurchase of shares of our common stock through the earlier of August 25, 2018 or the date on which the entire amount is drawn.  We are currently working to amend this facility to extend the drawdown period and conversion date to August 25, 2019.   During this draw down period, we are required to make monthly interest-only payments. At the end of this draw down period, we expect that the principal balance will be rolled into a 4-year term note. This Promissory Note is secured by a Deed of Trust on the real estate located at 1900 SE Loop 820, Fort Worth, Texas.   During the six months ended June 30, 2018, we drew approximately $983,000 on this line which was used to purchase shares of our common stock.  There were no amounts drawn on this line during the six months ended June 30, 2017.  At June 30, 2018, the unused portion of the line of credit was approximately $6.6 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 10, 2017, this line of credit was amended to extend the maturity to September 18, 2019.  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 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 months ended June 30, 2018 and 2017, there were no amounts drawn on this line.

Amounts drawn under either Promissory Note accrue interest at the London interbank Eurodollar market rate for U.S. dollars (commonly known as "LIBOR") plus 1.85% (3.934% and 3.351% at June 30, 2018 and December 31, 2017, respectively).

The terms of our lines of credit contain various covenants with which we were in compliance as of June 30, 2018 and December 31, 2017.

On our consolidated balance sheet, total assets increased from $74.9 million at year-end 2017 to $75.8 million at June 30, 2018.  Total stockholders' equity increased from $59.5 million at December 31, 2017 to $60.9 million at June 30, 2018, primarily due to net income earned in the first six months of 2018, offset by treasury stock purchases.  Our current ratio increased from 8.3 at December 31, 2017 to 8.7 at June 30, 2018 due primarily to the increase in cash and decrease in accrued expenses and other liabilities.

14

As of June 30, 2018, our investment in inventory increased by $0.7 million from year-end 2017, as we stocked up following the holiday sales and invested in new products.  We expect that our inventory levels will continue to increase as we introduce new products and invest in new stores.  At June 30, 2018, average inventory per store was $184,000 compared to $176,000 at December 31, 2017.

Accounts payable decreased slightly from $1.4 million at year end 2017 to $1.2 million at June 30, 2018 due to timing of payments.  Accrued expenses decreased from $5.0 million at December 31, 2017 to $3.9 million at June 30, 2018.  The payment of the 2017 manager bonuses in March 2018 primarily accounted for the reduction.

During the first six months of 2018, cash flow provided by operating activities was $1.0 million, composed of net income of $2.7 million, plus $0.9 million of depreciation and amortization, offset by changes in working capital including an increase in inventory levels and payments of 2017 bonuses.

By comparison, during the first six months of 2017, cash flow used in operating activities was approximately $1.2 million, composed of net income of $2.3 million, plus $0.9 million of depreciation and amortization, offset by an increase in inventory of $4.1 million and payments of 2016 bonuses.

Cash flow used in investing activities totaled approximately $0.4 million and $1.0 million in the first six months of 2018 and 2017, 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.

During the first half of 2018, we funded approximately $1.0 million of treasury share purchases with proceeds from our line of credit.  In the comparable period in 2017, there were no financing activities.

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, 2017.  We believe that our exposure to market risks has not changed significantly since December 31, 2017.  We expect that our exposure to foreign currency exchange risk may increase as our international presence increases.

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, 2018. 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, 2018, 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, 2018 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

The following table provides information about purchases we have made of our common stock during the quarter ended June 30, 2018:

ISSUER PURCHASES OF EQUITY SECURITIES
Period	(a) Total Number of Shares Purchased		(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		(d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
April 1- April 30		33,300	$	7.45		33,300		1,045,093
May 1 – May 31		7,266	$	7.39		7,266		1,037,827
June 1 – June 30		20,329	$	7.50		20,329		1,017,498
Total		60,895	$	7.46		60,895		1,017,498

(1) Represents shares which may be purchased through our stock repurchase program, announced on August 10, 2015, permitting us to repurchase up to 1.2 million shares of our common stock at prevailing market prices.  This program has been amended to increase the number of available shares from 1.2 million to 2.2 million and to extend the termination date to August 9, 2019.  Purchases under the program commenced on August 24, 2015 and will terminate on August 9, 2019.

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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.
10.1	$6,000,000 Promissory Note, dated August 10, 2017, by and between Tandy Leather Factory, Inc. and BOKF, NA dba Bank of Texas, filed as Exhibit 10.1 to Tandy Leather Factory's Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2017 and incorporated by reference herein.
10.2	$15,000,000 Promissory Note, dated August 10, 2017, by and between Tandy Leather Factory, Inc. and BOKF, NA dba Bank of Texas, filed as Exhibit 10.2 to Tandy Leather Factory's Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2017 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.

16

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, 2018	By:  /s/ Shannon L. Greene
	Shannon L. Greene
	Chief Executive Officer
Date:  August 3, 2018	By:  /s/ Tina L. Castillo
	Tina L. Castillo
	Chief Financial Officer

17

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.
	10.1	$6,000,000 Promissory Note, dated August 10, 2017, by and between Tandy Leather Factory, Inc. and BOKF, NA dba Bank of Texas, filed as Exhibit 10.1 to Tandy Leather Factory's Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2017 and incorporated by reference herein.
	10.2	$15,000,000 Promissory Note, dated August 10, 2017, by and between Tandy Leather Factory, Inc. and BOKF, NA dba Bank of Texas, filed as Exhibit 10.2 to Tandy Leather Factory's Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2017 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

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, 2018
	/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, 2018
	/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, 2018 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, 2018	By: /s/ Shannon L. Greene
	Shannon L. Greene
	Chief Executive Officer

By: /s/ Tina L. Castillo

Tina L. Castillo

Chief Financial Officer and Treasurer

XML

Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2018	Aug. 01, 2018
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)		9,154,208
Document Type	10-Q
Document Period End Date	Jun. 30, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q2
Amendment Flag	false

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
CURRENT ASSETS:
Cash	$ 18,955,328	$ 18,337,258
Accounts receivable-trade, net of allowance for doubtful accounts of $9,911 and $22,642 in 2018 and 2017, respectively	496,255	461,212
Inventory	38,020,269	37,311,197
Prepaid income taxes	233,002	41,307
Prepaid expenses	1,374,944	1,473,147
Other current assets	75,459	189,029
Total current assets	59,155,257	57,813,150
PROPERTY AND EQUIPMENT, at cost	27,551,811	27,218,481
Less accumulated depreciation and amortization	(12,552,648)	(11,750,639)
Property and equipment, net	14,999,163	15,467,842
DEFERRED INCOME TAXES	269,512	271,738
GOODWILL	958,464	962,949
OTHER INTANGIBLES, net of accumulated amortization of approximately $712,000 and $710,000 in 2018 and 2017, respectively	18,083	19,222
OTHER ASSETS	384,744	379,695
TOTAL ASSETS	75,785,223	74,914,596
CURRENT LIABILITIES:
Accounts payable-trade	1,223,522	1,413,450
Accrued expenses and other liabilities	3,863,282	4,953,477
Current maturities of long-term debt	1,740,556	614,311
Total current liabilities	6,827,360	6,981,238
DEFERRED INCOME TAXES	1,474,675	1,636,958
LONG-TERM DEBT, net of current maturities	6,614,112	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; 11,330,340 and 11,313,692 shares issued at 2018 and 2017, respectively; 9,154,215 and 9,270,862 shares outstanding at 2018 and 2017, respectively	27,193	27,153
Paid-in capital	6,883,919	6,831,271
Retained earnings	66,466,644	63,921,244
Treasury stock at cost (2,176,125 and 2,042,830 shares at 2018 and 2017, respectively)	(11,273,770)	(10,278,584)
Accumulated other comprehensive income (loss)	(1,234,910)	(962,103)
Total stockholders’ equity	60,869,076	59,538,981
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$ 75,785,223	$ 74,914,596

XML

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Accounts receivable-trade, allowance for doubtful accounts	$ 9,911	$ 22,642
Other intangibles, accumulated amortization	$ 711,602	$ 710,463
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)	11,330,340	11,313,692
Common stock, shares outstanding (in shares)	9,154,215	9,270,862
Treasury stock, shares (in shares)	2,176,125	2,042,830

XML

Consolidated Statements of Comprehensive Income (Unaudited) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
NET SALES	$ 19,177,767	$ 19,280,770	$ 39,466,685	$ 39,430,615
COST OF SALES	6,059,325	6,385,236	13,505,281	14,249,036
Gross profit	13,118,442	12,895,534	25,961,404	25,181,579
OPERATING EXPENSES	11,136,961	11,240,097	22,210,962	21,788,651
INCOME FROM OPERATIONS	1,981,481	1,655,437	3,750,442	3,392,928
OTHER INCOME (EXPENSE):
Interest expense	(78,182)	(53,680)	(142,824)	(90,024)
Other, net	46,741	17,012	85,613	19,663
Total other income (expense)	(31,441)	(36,668)	(57,211)	(70,361)
INCOME BEFORE INCOME TAXES	1,950,040	1,618,769	3,693,231	3,322,567
PROVISION FOR INCOME TAXES	509,948	591,037	979,520	1,063,570
NET INCOME	1,440,092	1,027,732	2,713,711	2,258,997
Foreign currency translation adjustments	(294,598)	302,019	(272,807)	658,359
COMPREHENSIVE INCOME	$ 1,145,494	$ 1,329,751	$ 2,440,904	$ 2,917,356
NET INCOME PER COMMON SHARE:
Basic (in dollars per share)	$ 0.15	$ 0.11	$ 0.29	$ 0.24
Diluted (in dollars per share)	$ 0.15	$ 0.11	$ 0.29	$ 0.24
Weighted Average Number of Shares Outstanding:
Basic (in shares)	9,180,076	9,225,960	9,222,028	9,212,846
Diluted (in shares)	9,180,727	9,229,129	9,222,533	9,225,474

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($)	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 2,713,711	$ 2,258,997
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	878,955	929,408
Loss on disposal or abandonment of assets	4,556	515
Non-cash stock-based compensation	52,688	171,160
Deferred income taxes	(96,057)	(147,345)
Foreign currency translation	(268,321)	627,609
Net changes in assets and liabilities:
Accounts receivable-trade	(35,043)	63,667
Inventory	(709,072)	(4,149,949)
Prepaid expenses	98,203	130,098
Other current assets	113,570	(256)
Accounts payable-trade	(189,928)	(137,841)
Accrued expenses and other liabilities	(1,258,506)	(1,465,374)
Income taxes payable	(255,695)	508,900
Total adjustments	(1,664,650)	(3,469,408)
Net cash provided by (used in) operating activities	1,049,061	(1,210,411)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(421,861)	(1,004,906)
Proceeds from sale of assets	7,028	100
Increase in other assets	(3,910)	(29,121)
Net cash used in investing activities	(418,743)	(1,033,927)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and long term debt	982,938
Repurchase of common stock (treasury stock)	(995,186)
Proceeds from exercise of stock options		223,404
Net cash (used in) provided by financing activities	(12,248)	223,404
NET INCREASE (DECREASE) IN CASH	618,070	(2,020,934)
CASH, beginning of period	18,337,258	16,862,304
CASH, end of period	18,955,328	14,841,370
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the period	142,824	90,024
Income tax paid during the period, net of refunds	$ 1,331,272	$ 554,670

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 (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
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
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, 2017	9,270,862
Balance at Dec. 31, 2017	$ 27,153	6,831,271	(10,278,584)	63,921,244	(962,103)	59,538,981
Stock-based compensation (in shares)	16,648
Stock-based compensation	$ 40	52,648				52,688
Net income				2,713,711		2,713,711
Translation adjustment					(272,807)	(272,807)
Balance (in shares) at Jun. 30, 2018	9,154,215
Balance at Jun. 30, 2018	$ 27,193	$ 6,883,919	(11,273,770)	66,466,644	$ (1,234,910)	60,869,076
Cumulative effect of accounting change (see Note 1) at Dec. 31, 2017				$ (168,311)		(168,311)
Purchase of treasury stock (in shares)	(133,295)
Purchase of treasury stock			$ (995,186)			$ (995,186)

XML

Note 1 - Basis of Presentation and Certain Significant Accounting Policies

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Basis of Presentation and Significant Accounting Policies [Text Block]

1. BASIS OF PRESENTATION AND CERTAIN SIGNIFICANT ACCOUNTING POLICIES

Tandy Leather Factory, Inc. is a specialty retailer of leather and leathercraft related items, offering a broad range of leather, quality tools, hardware, accessories, liquids, lace, kits and teaching materials. We sell our products through company-owned stores and through orders generated from our website, www.tandyleather.com. We also manufacture the leather lace and some of our do-it-yourself kits that are sold in our stores and website.

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, 2018

and

December 31, 2017,

and its results of operations and cash flows for the

three

and

six

-month periods ended

June 30, 2018

and

2017.

Operating results for the

three

and

six

-month periods ended

June 30, 2018

are

not

necessarily indicative of the results that

may

be expected for the year ending

December 31, 2018.

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, 2017.

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.

Inventory

.

Inventory is valued at the lower of cost or net realizable value. 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, 201 8		December 31, 201 7
Inventory on hand:
Finished goods held for sale	$	35,033,257	$	34,824,728
Raw materials and work in process		1,094,756		1,138,316
Inventory in transit		1,892,256		1,348,153
Total	$	38,020,269	$	37,311,197

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. During the

first

six

months of

2018,

no

indicators of impairment were identified. Further, the only change in our goodwill for the

six

-month periods ended

June 30, 2018

and

2017

resulted from foreign currency translation of

$4,485

and

$3,596,

respectively.

Other intangibles consist of the following:

	June 30, 201 8						December 31, 201 7
	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Trademarks, Copyrights	$	554,369	$	546,369	$	8,000	$	554,369	$	545,897	$	8,472
Non-Compete Agreements		175,316		165,233		10,083		175,316		164,566		10,750
	$	729,685	$	711,602	$	18,083	$	729,685	$	710,463	$	19,222

We recorded amortization expense of approximately

$1,100

during the

six

months ended

June 30, 2018

compared to approximately

$900

during the

first

half of

2017.

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 estimated to be less than

$2,500

per year.

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 are 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.  

Historically, the sale of gift cards has

not

been material to our financial condition, results of operations or cash flows. As such, prior to

January 1, 2018,

gift cards were recognized as sales in the period the gift card was sold. Effective

January 1, 2018,

in conjunction with the adoption of Accounting Standards Codification

606,

"Revenue from Contracts with Customers" ("ASC

606"

), we began recording a gift card liability on the date we issue a gift card to a customer. We record revenue and reduce the gift card liability as the customer redeems the gift card. In addition, for gift card breakage, we recognize a proportionate amount for the expected unredeemed gift cards over the expected customer redemption period which is

one

year. At

June 30, 2018,

our gift card liability, included in accrued expenses and other liabilities, totaled approximately

$152,543,

of which

$168,311

was recognized on

January 1, 2018

as the cumulative effect of an accounting change.

Disaggregated Revenue

.

In the following table, revenue is disaggregated by our major customer groups for the

three

and

six

-months ended

June 30:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
RETAIL (end users, consumers, individuals)		58	%		56	%		60	%		58	%
NON-RETAIL (hospitals, organizations, distributors, businesses)		42	%		44	%		40	%		42	%
		100	%		100	%		100	%		100	%

North America represents approximately

95%

of total sales, while International represents approximately

5%

of total sales.  As such, revenue by customer group more closely aligns with North America than International.  Note

7

also contains additional disaggregated revenue information by segment and geographic area.

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.

 ASC

606

requires revenue to be recognized based on the amount an entity is expected to be entitled to for promised goods or services provided to customers. ASC

606

also requires expanded disclosures regarding contracts with customers. We adopted this standard effective

January 1, 2018

using the modified retrospective basis which allows an adjustment to equity as of

January 1, 2018

for all existing contracts and intend to apply the new standard to all new contracts that begin in

2018.

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, there were

no

significant changes to the amount and timing of revenue recognition, except for our accounting for gift cards which has been discussed above. 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 represent less than

0.5%

of our net sales). In conjunction with our adoption of ASC

606

on

January 1, 2018,

as it relates to our gift card liability, we recorded a net decrease to opening retained earnings of

$168,311

for gift cards where satisfaction of our performance obligation had

not

yet been completed.

In

February 2016,

the Financial Accounting Standards Board (“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, 2018

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

$6,000,000

and is secured by our inventory. On

August 10, 2017,

this line of credit was amended to extend the maturity to

September 18, 2019.

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

no

greater than

1.5

to

1

and a “Fixed Charge Coverage Ratio” greater than or equal to

1.2

to

1.

Both ratios are calculated quarterly and are based on a trailing

four

quarter basis. For the

six

-month periods ended

June 30, 2018

and

2017,

there were

no

amounts drawn on this line.

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

$10,000,000

for the purpose of repurchasing 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 2019. 

Subsequently, this line of credit has been amended to increase the availability from

$10,000,000

to

$15,000,000

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

August 25, 2018

or the date on which the entire amount is drawn. We are currently working to amend this facility to extend the drawdown period and conversion date to

August 25, 2019.  

During the draw down period, we are required to make monthly interest-only payments. At the end of this draw down period, we expect that the principal balance will be rolled into a

4

-year term note. This Promissory Note is secured by a Deed of Trust on the real estate located at

1900

SE Loop

820,

Fort Worth, Texas.   For the

six

months ended

June 30, 2018,

we drew approximately

$983,000

on this line which was used to purchase

133,295

shares of our common stock.  There were

no

amounts drawn on this line during the

six

month ended

June 30, 2017. 

At

June 30, 2018,

the unused portion of the line of credit was approximately

$6.6

million.

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

1.85%

(

3.934%

and

3.351%

at

June 30, 2018

and

December 31, 2017,

respectively).

Amount outstanding under the above agreements consisted of the following:

	Jun 30, 201 8		Dec 31, 201 7
Business Loan Agreement with BOKF – collateralized by real estate; payable as follows:
Line of Credit Note, as amended, in the maximum principal amount of $15,000,000, interest due monthly at LIBOR plus 1.85%; matures September 18, 2022	$	8,354,668	$	7,371,730
Line of Credit Note, as amended, in the maximum principal amount of $6,000,000, interest due monthly at LIBOR plus 1.85%; matures September 18, 2019		-		-
	$	8,354,668	$	7,371,730
Less current maturities		1,740,556		614,311
	$	6,614,112	$	6,757,419

The terms of our lines of credit contain various covenants with which we were in compliance as of

June 30, 2018

and

December 31, 2017.

XML

Note 3 - Income Tax

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Income Tax Disclosure [Text Block]

3.

INCOME TAX

Our effective tax rate for the

three

and

six

-months ended

June 30

is presented below:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Effective tax rate		26.2	%		36.5	%		26.5	%		32.0	%

Our effective tax rate differs from the federal statutory rate primarily due to state income tax expense and timing of our deferred tax position, particularly in fixed assets. In addition, to a lesser extent, our effective tax rate is impacted by the new global intangible low-taxed income tax (“GILTI”) for our estimated foreign earnings. GILTI was established as part of the Tax Cuts and Jobs Act (the “Tax Act”), which was enacted on

December 22, 2017.

The Tax Act also reduced the federal statutory rate from

35%

in

2017

to

21%

in

2018.

We have

not

fully completed our accounting for the income tax effects of the Tax Act. As discussed in the SEC Staff Accounting Bulletin

No.

118,

the accounting for the Tax Act should be completed within

one

year from the Tax Act enactment. During the

three

and

six

months ended

June 30, 2018,

we have made

no

adjustments to the provisional amounts recorded at

December 31, 2017.

Any adjustments to the provisional amounts recorded at

December 31, 2017

will be reflected upon the completion of our accounting for the Tax Act.

For the

six

months ended

June 30, 2018,

we also recorded an estimate of

$19,794

for GILTI related to our estimated foreign earnings. This tax has been included as part of our current provision as a period cost, and we have

not

recognized any deferred GILTI provision as we do

not

expect that basis differences would be significant. This GILTI tax was created as part of the Tax Act. Accordingly, there was

no

such provision during the same period in

2017.

XML

Note 4 - Stock-based Compensation

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

4.

STOCK-BASED COMPENSATI

ON

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.

The fair value of 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.

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

June 30, 2018

and

2017

is presented below:

	Shares			Award Fair Value
Balance, January 1, 2018		36,801		$	8.03
Granted		-			-
Forfeited		-			-
Vested		(16,648	)		8.22
Unvested Balance, June 30, 2018		20,153		$	7.69
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

As of

June 30, 2018,

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

$121,625

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

2018	$	47,438
2019		58,125
2020		14,853
2021		1,209

XML

Note 5 - Earnings Per Share

6 Months Ended

Jun. 30, 2018

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,
	2018		2017		2018		2017
Net income	$	1,440,092	$	1,027,732	$	2,713,711	$	2,258,997
Numerator for basic and diluted earnings per share		1,440,092		1,027,732		2,713,711		2,258,997
Denominator for basic EPS: weighted-average shares		9,180,076		9,225,960		9,222,028		9,212,846
Effect of dilutive securities:
Stock options		-		-		-		9,810
Restricted stock		651		3,169		505		2,818
Dilutive potential common shares		651		3,169		505		12,628
Denominator for diluted EPS-weighted-average shares		9,180,727		9,229,129		9,222,533		9,225,474
Basic earnings per share	$	0.15	$	0.11	$	0.29	$	0.24
Diluted earnings per share	$	0.15	$	0.11	$	0.29	$	0.24

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

20,153

and

36,801

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

June 30, 2018

and

2017,

respectively.

XML

Note 6 - Commitments and Contingencies

6 Months Ended

Jun. 30, 2018

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, 2018

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

7.

SEGMENT INFORMATION

We operate in

two

segments: North America and International. 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.

	North America			International			Total
For the quarter ended June 30 , 20 1 8
Net sales	$	18,276,885		$	900,882		$	19,177,767
Gross profit		12,519,089			599,353			13,118,442
Operating income (loss)		1,986,190			(4,709	)		1,981,481
Interest (expense)		(78,182	)		-			(78,182	)
Other income (expense), net		38,343			8,398			46,741
Income (loss) before income taxes		1,946,351			3,689			1,950,040
Depreciation and amortization		387,700			25,733			413,433
Fixed asset additions		105,422			76,419			181,841
Total assets	$	71,184,080		$	4,601,143		$	75,785,223
For the quarter ended June 30 , 20 1 7
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

	North America			International			Total
For the six months ended June 30 , 20 1 8
Net sales	$	37,594,145		$	1,872,540		$	39,466,685
Gross profit		24,745,091			1,216,313			25,961,404
Operating income (loss)		3,816,849			(66,407	)		3,750,442
Interest (expense)		(142,824	)		-			(142,824	)
Other income (expense), net		73,527			12,086			85,613
Income (loss) before income taxes		3,747,552			(54,321	)		3,693,231
Depreciation and amortization		829,252			49,703			878,955
Fixed asset additions		343,080			78,781			421,861
Total assets	$	71,184,080		$	4,601,143		$	75,785,223
For the six months ended June 30 , 20 1 7
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

Net sales for geographic areas were as follows:

Three months ended June 30,	20 18		20 17
United States	$	16,361,760	$	16,546,075
Canada		1,619,430		1,646,224
All other countries		1,196,577		1,088,471
	$	19,177,767	$	19,280,770

Six months ended June 30,	201 8		2017
United States	$	33,709,933	$	33,828,738
Canada		3,362,604		3,419,734
All other countries		2,394,148		2,182,143
	$	39,466,685	$	39,430,615

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, 2018

and

2017.

We do

not

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

XML

Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2018

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

Tandy Leather Factory, Inc. is a specialty retailer of leather and leathercraft related items, offering a broad range of leather, quality tools, hardware, accessories, liquids, lace, kits and teaching materials. We sell our products through company-owned stores and through orders generated from our website, www.tandyleather.com. We also manufacture the leather lace and some of our do-it-yourself kits that are sold in our stores and website.

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, 2018

and

December 31, 2017,

and its results of operations and cash flows for the

three

and

six

-month periods ended

June 30, 2018

and

2017.

Operating results for the

three

and

six

-month periods ended

June 30, 2018

are

not

necessarily indicative of the results that

may

be expected for the year ending

December 31, 2018.

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, 2017.

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.

Inventory, Policy [Policy Text Block]

Inventory

.

Inventory is valued at the lower of cost or net realizable value. 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, 201 8		December 31, 201 7
Inventory on hand:
Finished goods held for sale	$	35,033,257	$	34,824,728
Raw materials and work in process		1,094,756		1,138,316
Inventory in transit		1,892,256		1,348,153
Total	$	38,020,269	$	37,311,197

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. During the

first

six

months of

2018,

no

indicators of impairment were identified. Further, the only change in our goodwill for the

six

-month periods ended

June 30, 2018

and

2017

resulted from foreign currency translation of

$4,485

and

$3,596,

respectively.

Other intangibles consist of the following:

	June 30, 201 8						December 31, 201 7
	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Trademarks, Copyrights	$	554,369	$	546,369	$	8,000	$	554,369	$	545,897	$	8,472
Non-Compete Agreements		175,316		165,233		10,083		175,316		164,566		10,750
	$	729,685	$	711,602	$	18,083	$	729,685	$	710,463	$	19,222

We recorded amortization expense of approximately

$1,100

during the

six

months ended

June 30, 2018

compared to approximately

$900

during the

first

half of

2017.

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 estimated to be less than

$2,500

per year.

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 are 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.  

Historically, the sale of gift cards has

not

been material to our financial condition, results of operations or cash flows. As such, prior to

January 1, 2018,

gift cards were recognized as sales in the period the gift card was sold. Effective

January 1, 2018,

in conjunction with the adoption of Accounting Standards Codification

606,

"Revenue from Contracts with Customers" ("ASC

606"

), we began recording a gift card liability on the date we issue a gift card to a customer. We record revenue and reduce the gift card liability as the customer redeems the gift card. In addition, for gift card breakage, we recognize a proportionate amount for the expected unredeemed gift cards over the expected customer redemption period which is

one

year. At

June 30, 2018,

our gift card liability, included in accrued expenses and other liabilities, totaled approximately

$152,543,

of which

$168,311

was recognized on

January 1, 2018

as the cumulative effect of an accounting change.

Disaggregated Revenue

.

In the following table, revenue is disaggregated by our major customer groups for the

three

and

six

-months ended

June 30:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
RETAIL (end users, consumers, individuals)		58	%		56	%		60	%		58	%
NON-RETAIL (hospitals, organizations, distributors, businesses)		42	%		44	%		40	%		42	%
		100	%		100	%		100	%		100	%

North America represents approximately

95%

of total sales, while International represents approximately

5%

of total sales.  As such, revenue by customer group more closely aligns with North America than International.  Note

7

also contains additional disaggregated revenue information by segment and geographic area.

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.

 ASC

606

requires revenue to be recognized based on the amount an entity is expected to be entitled to for promised goods or services provided to customers. ASC

606

also requires expanded disclosures regarding contracts with customers. We adopted this standard effective

January 1, 2018

using the modified retrospective basis which allows an adjustment to equity as of

January 1, 2018

for all existing contracts and intend to apply the new standard to all new contracts that begin in

2018.

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, there were

no

significant changes to the amount and timing of revenue recognition, except for our accounting for gift cards which has been discussed above. 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 represent less than

0.5%

of our net sales). In conjunction with our adoption of ASC

606

on

January 1, 2018,

as it relates to our gift card liability, we recorded a net decrease to opening retained earnings of

$168,311

for gift cards where satisfaction of our performance obligation had

not

yet been completed.

In

February 2016,

the Financial Accounting Standards Board (“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, 2018

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	June 30, 201 8		December 31, 201 7
Inventory on hand:
Finished goods held for sale	$	35,033,257	$	34,824,728
Raw materials and work in process		1,094,756		1,138,316
Inventory in transit		1,892,256		1,348,153
Total	$	38,020,269	$	37,311,197

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

	June 30, 201 8						December 31, 201 7
	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Trademarks, Copyrights	$	554,369	$	546,369	$	8,000	$	554,369	$	545,897	$	8,472
Non-Compete Agreements		175,316		165,233		10,083		175,316		164,566		10,750
	$	729,685	$	711,602	$	18,083	$	729,685	$	710,463	$	19,222

Disaggregation of Revenue [Table Text Block]

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
RETAIL (end users, consumers, individuals)		58	%		56	%		60	%		58	%
NON-RETAIL (hospitals, organizations, distributors, businesses)		42	%		44	%		40	%		42	%
		100	%		100	%		100	%		100	%

XML

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

6 Months Ended

Jun. 30, 2018

Notes Tables

Schedule of Debt [Table Text Block]

	Jun 30, 201 8		Dec 31, 201 7
Business Loan Agreement with BOKF – collateralized by real estate; payable as follows:
Line of Credit Note, as amended, in the maximum principal amount of $15,000,000, interest due monthly at LIBOR plus 1.85%; matures September 18, 2022	$	8,354,668	$	7,371,730
Line of Credit Note, as amended, in the maximum principal amount of $6,000,000, interest due monthly at LIBOR plus 1.85%; matures September 18, 2019		-		-
	$	8,354,668	$	7,371,730
Less current maturities		1,740,556		614,311
	$	6,614,112	$	6,757,419

XML

Note 3 - Income Tax (Tables)

6 Months Ended

Jun. 30, 2018

Notes Tables

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Effective tax rate		26.2	%		36.5	%		26.5	%		32.0	%

XML

Note 4 - Stock-based Compensation (Tables)

6 Months Ended

Jun. 30, 2018

Notes Tables

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

	Shares			Award Fair Value
Balance, January 1, 2018		36,801		$	8.03
Granted		-			-
Forfeited		-			-
Vested		(16,648	)		8.22
Unvested Balance, June 30, 2018		20,153		$	7.69
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

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

2018	$	47,438
2019		58,125
2020		14,853
2021		1,209

XML

Note 5 - Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 2018

Notes Tables

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Net income	$	1,440,092	$	1,027,732	$	2,713,711	$	2,258,997
Numerator for basic and diluted earnings per share		1,440,092		1,027,732		2,713,711		2,258,997
Denominator for basic EPS: weighted-average shares		9,180,076		9,225,960		9,222,028		9,212,846
Effect of dilutive securities:
Stock options		-		-		-		9,810
Restricted stock		651		3,169		505		2,818
Dilutive potential common shares		651		3,169		505		12,628
Denominator for diluted EPS-weighted-average shares		9,180,727		9,229,129		9,222,533		9,225,474
Basic earnings per share	$	0.15	$	0.11	$	0.29	$	0.24
Diluted earnings per share	$	0.15	$	0.11	$	0.29	$	0.24

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Note 7 - Segment Information (Tables)

6 Months Ended

Jun. 30, 2018

Notes Tables

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

	North America			International			Total
For the quarter ended June 30 , 20 1 8
Net sales	$	18,276,885		$	900,882		$	19,177,767
Gross profit		12,519,089			599,353			13,118,442
Operating income (loss)		1,986,190			(4,709	)		1,981,481
Interest (expense)		(78,182	)		-			(78,182	)
Other income (expense), net		38,343			8,398			46,741
Income (loss) before income taxes		1,946,351			3,689			1,950,040
Depreciation and amortization		387,700			25,733			413,433
Fixed asset additions		105,422			76,419			181,841
Total assets	$	71,184,080		$	4,601,143		$	75,785,223
For the quarter ended June 30 , 20 1 7
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

	North America			International			Total
For the six months ended June 30 , 20 1 8
Net sales	$	37,594,145		$	1,872,540		$	39,466,685
Gross profit		24,745,091			1,216,313			25,961,404
Operating income (loss)		3,816,849			(66,407	)		3,750,442
Interest (expense)		(142,824	)		-			(142,824	)
Other income (expense), net		73,527			12,086			85,613
Income (loss) before income taxes		3,747,552			(54,321	)		3,693,231
Depreciation and amortization		829,252			49,703			878,955
Fixed asset additions		343,080			78,781			421,861
Total assets	$	71,184,080		$	4,601,143		$	75,785,223
For the six months ended June 30 , 20 1 7
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

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

Three months ended June 30,	20 18		20 17
United States	$	16,361,760	$	16,546,075
Canada		1,619,430		1,646,224
All other countries		1,196,577		1,088,471
	$	19,177,767	$	19,280,770

Six months ended June 30,	201 8		2017
United States	$	33,709,933	$	33,828,738
Canada		3,362,604		3,419,734
All other countries		2,394,148		2,182,143
	$	39,466,685	$	39,430,615

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Note 1 - Basis of Presentation and Certain Significant Accounting Policies (Details Textual) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Jan. 01, 2018	Dec. 31, 2017
Goodwill, Impairment Loss			$ 0
Goodwill, Foreign Currency Translation Gain (Loss)			4,485	$ 3,596
Amortization of Intangible Assets, Total			$ 1,100	$ 900
Cumulative Effect of New Accounting Principle in Period of Adoption						$ (168,311)
Revenue from Contract with Customer, Including Assessed Tax, Percent	100.00%	100.00%	100.00%	100.00%
Maximum [Member]
Sales Revenue, Annual Gross Product Returns			0.50%
North America Segment [Member]
Revenue from Contract with Customer, Including Assessed Tax, Percent			95.00%
International [Member]
Revenue from Contract with Customer, Including Assessed Tax, Percent			5.00%
Retained Earnings [Member]
Cumulative Effect of New Accounting Principle in Period of Adoption						$ (168,311)
Retained Earnings [Member] | Accounting Standards Update 2014-09 [Member]
Cumulative Effect of New Accounting Principle in Period of Adoption					$ (168,311)
Accounts Payable and Accrued Liabilities [Member]
Gift Card Liability, Current	$ 152,543		$ 152,543

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Note 1 - Basis of Presentation and Certain Significant Accounting Policies - Components of Inventory (Details) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Inventory on hand:
Finished goods held for sale	$ 35,033,257	$ 34,824,728
Raw materials and work in process	1,094,756	1,138,316
Inventory in transit	1,892,256	1,348,153
Total	$ 38,020,269	$ 37,311,197

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Note 1 - Basis of Presentation and Certain Significant Accounting Policies - Intangible Assets (Details) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Other intangibles, gross	$ 729,685	$ 729,685
Accumulated Amortization	711,602	710,463
Other intangibles, net	18,083	19,222
Trademarks and Copyrights [Member]
Other intangibles, gross	554,369	554,369
Accumulated Amortization	546,369	545,897
Other intangibles, net	8,000	8,472
Noncompete Agreements [Member]
Other intangibles, gross	175,316	175,316
Accumulated Amortization	165,233	164,566
Other intangibles, net	$ 10,083	$ 10,750

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Note 1 - Basis of Presentation and Certain Significant Accounting Policies - Disaggregated Revenue (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Revenue, Percent	100.00%	100.00%	100.00%	100.00%
Retail [Member]
Revenue, Percent	58.00%	56.00%	60.00%	58.00%
Non-Retail [Member]
Revenue, Percent	42.00%	44.00%	40.00%	42.00%

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Note 2 - Notes Payable and Long-term Debt (Details Textual)		6 Months Ended
	Sep. 18, 2015 USD ($) shares	Jun. 30, 2018 USD ($) shares	Jun. 30, 2017 USD ($)	Dec. 31, 2017	Aug. 25, 2016 USD ($)	Aug. 24, 2016 USD ($)
Proceeds from Issuance of Long-term Debt, Total		$ 982,938
Stock Repurchase Program, Number of Shares Authorized to be Repurchased | shares	2,200,000
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, Total		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
Promissory Note with BOKF [Member]
Line of Credit Facility, Maximum Borrowing Capacity	$ 10,000,000				$ 15,000,000	$ 10,000,000
Proceeds from Issuance of Long-term Debt, Total		$ 983,000	$ 0
Line of Credit Facility, Term of the Term Note into which the Principal Balance Will Be Rolled		4 years
Treasury Stock, Shares, Acquired | shares		133,295
Line of Credit Facility, Remaining Borrowing Capacity		$ 6,600,000
Two Promissory Notes with BOKF [Member]
Debt Instrument, Interest Rate, Effective Percentage		3.934%		3.351%
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, 2018	Dec. 31, 2017
Long-term debt	$ 8,354,668	$ 7,371,730
Long-term debt	8,354,668	7,371,730
Less current maturities	1,740,556	614,311
LONG-TERM DEBT, net of current maturities	6,614,112	6,757,419
Promissory Note with BOKF [Member]
Long-term debt	8,354,668	7,371,730
Long-term debt	8,354,668	7,371,730
Promissory Note and Business Loan Agreement with BOKF [Member]
Long-term debt
Long-term debt

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Note 2 - Notes Payable and Long-term Debt - Summary of Credit Agreement and Line of Credit Note (Details) (Parentheticals) - USD ($)	6 Months Ended	12 Months Ended
	Jun. 30, 2018	Dec. 31, 2017
Promissory Note with BOKF [Member]
Line of credit note, principal amount	$ 15,000,000	$ 15,000,000
Promissory Note with BOKF [Member] | London Interbank Offered Rate (LIBOR) [Member]
Line of credit note, interest rate	1.85%	1.85%
Promissory Note and Business Loan Agreement with BOKF [Member]
Line of credit note, principal amount	$ 6,000,000	$ 6,000,000
Promissory Note and Business Loan Agreement with BOKF [Member] | London Interbank Offered Rate (LIBOR) [Member]
Line of credit note, interest rate	1.85%	1.85%

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Note 3 - Income Tax (Details Textual) - USD ($)	6 Months Ended		12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2018	Dec. 31, 2017
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent				35.00%
Tax Adjustments, Settlements, and Unusual Provisions	$ 19,794	$ 0
Scenario, Forecast [Member]
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent			21.00%

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Note 3 - Income Tax - Effective Tax Rate (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Effective tax rate	26.20%	36.50%	26.50%	32.00%

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Note 4 - Stock-based Compensation (Details Textual) - Restricted Stock Plan [Member] - Restricted Stock [Member] - USD ($)	6 Months Ended
	Jun. 30, 2018	Jan. 31, 2013
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Share-based Awards Other than Options	$ 121,625
Executive Officers, Non-employee Directors and Other Key Employees [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized		300,000
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

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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, 2018	Jun. 30, 2017
Balance, shares (in shares)	36,801	62,046
Balance, grant fair value (in dollars per share)	$ 8.03	$ 8.24
Granted, shares (in shares)		9,005
Granted, grant fair value (in dollars per share)		$ 8.05
Forfeited, shares (in shares)		(5,403)
Forfeited, grant fair value (in dollars per share)		$ 8.05
Vested, shares (in shares)	(16,648)	(28,847)
Vested, grant fair value (in dollars per share)	$ 8.22	$ 7.84
Balance, shares (in shares)	20,153	36,801
Balance, grant fair value (in dollars per share)	$ 7.69	$ 7.93

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Note 4 - Stock-based Compensation - Unrecognized Compensation Expense for Nonvested Restricted Stock Awards (Details)	Jun. 30, 2018 USD ($)
2018	$ 47,438
2019	58,125
2020	14,853
2021	$ 1,209

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Note 5 - Earnings Per Share (Details Textual) - shares	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Weighted Average Number Diluted Shares Outstanding Adjustment, Total	20,153	36,801

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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, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Net income	$ 1,440,092	$ 1,027,732	$ 2,713,711	$ 2,258,997
Numerator for basic and diluted earnings per share	$ 1,440,092	$ 1,027,732	$ 2,713,711	$ 2,258,997
Denominator for basic EPS: weighted-average shares (in shares)	9,180,076	9,225,960	9,222,028	9,212,846
Effect of dilutive securities (in shares)	651	3,169	505	12,628
Denominator for diluted EPS-weighted-average shares (in shares)	9,180,727	9,229,129	9,222,533	9,225,474
Basic earnings per share (in dollars per share)	$ 0.15	$ 0.11	$ 0.29	$ 0.24
Diluted earnings per share (in dollars per share)	$ 0.15	$ 0.11	$ 0.29	$ 0.24
Employee Stock Option [Member]
Effect of dilutive securities (in shares)				9,810
Restricted Stock [Member]
Effect of dilutive securities (in shares)	651	3,169	505	2,818

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Note 7 - Segment Information (Details Textual)	6 Months Ended
	Jun. 30, 2018
Number of Reportable Segments	2

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Note 7 - Segment Information - Summary of Reportable Operating Segments (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Net sales	$ 19,177,767	$ 19,280,770	$ 39,466,685	$ 39,430,615
Gross profit	13,118,442	12,895,534	25,961,404	25,181,579
Operating income (loss)	1,981,481	1,655,437	3,750,442	3,392,928
Interest (expense)	(78,182)	(53,680)	(142,824)	(90,024)
Other income (expense), net	46,741	17,012	85,613	19,663
Income (loss) before income taxes	1,950,040	1,618,769	3,693,231	3,322,567
Depreciation and amortization	413,433	471,290	878,955	929,408
Fixed asset additions	181,841	405,149	421,861	1,004,906
Total assets	75,785,223	72,243,459	75,785,223	72,243,459	$ 74,914,596
North America Segment [Member]
Net sales	18,276,885	18,427,425	37,594,145	37,659,139
Gross profit	12,519,089	12,449,202	24,745,091	24,202,159
Operating income (loss)	1,986,190	1,814,887	3,816,849	3,626,450
Interest (expense)	(78,182)	(53,680)	(142,824)	(90,024)
Other income (expense), net	38,343	15,195	73,527	32,849
Income (loss) before income taxes	1,946,351	1,776,402	3,747,552	3,569,275
Depreciation and amortization	387,700	448,788	829,252	885,069
Fixed asset additions	105,422	387,054	343,080	984,880
Total assets	71,184,080	67,412,189	71,184,080	67,412,189
International [Member]
Net sales	900,882	853,345	1,872,540	1,771,476
Gross profit	599,353	446,332	1,216,313	979,420
Operating income (loss)	(4,709)	(159,450)	(66,407)	(233,522)
Interest (expense)
Other income (expense), net	8,398	1,817	12,086	(13,186)
Income (loss) before income taxes	3,689	(157,633)	(54,321)	(246,708)
Depreciation and amortization	25,733	22,502	49,703	44,339
Fixed asset additions	76,419	18,095	78,781	20,026
Total assets	$ 4,601,143	$ 4,831,270	$ 4,601,143	$ 4,831,270

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Note 7 - Segment Information - Net Sales for Geographic Areas (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Net sales	$ 19,177,767	$ 19,280,770	$ 39,466,685	$ 39,430,615
UNITED STATES
Net sales	16,361,760	16,546,075	33,709,933	33,828,738
CANADA
Net sales	1,619,430	1,646,224	3,362,604	3,419,734
All Other Countries [Member]
Net sales	$ 1,196,577	$ 1,088,471	$ 2,394,148	$ 2,182,143