![]() |
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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Title of each class
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Trading Symbol
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Name of each exchange on which registered
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Large accelerated filer ☐
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Accelerated filer ☐
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Smaller reporting company
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Emerging growth company
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2
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2
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6
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17 | |
25 | |
30 |
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30 | |
30 | |
30 | |
31 | |
33 |
Item 1. |
Condensed Consolidated Financial Statements.
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September 30, | December 31, | |||||||
2022
|
2021
|
|||||||
(Unaudited) | ||||||||
ASSETS
|
||||||||
CURRENT ASSETS:
|
||||||||
Cash and cash equivalents
|
$
|
|
$
|
|
||||
Accounts receivable-trade, net of allowance for doubtful accounts of $
|
|
|
||||||
Inventory
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|
|
||||||
Income tax receivable
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|
||||||
Prepaid expenses
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||||||
Other current assets
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||||||
Total current assets
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||||||
Property and equipment, at cost
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|
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||||||
Less accumulated depreciation
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(
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)
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(
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)
|
||||
Property and equipment, net
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|
|
||||||
Operating lease assets
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|
|
||||||
Financing lease assets
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|
||||||
Other intangibles, net of accumulated amortization of $
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|
||||||
Other assets
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|
|
||||||
TOTAL ASSETS
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$
|
|
$
|
|
||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
CURRENT LIABILITIES:
|
||||||||
Accounts payable-trade
|
$
|
|
$
|
|
||||
Accrued expenses and other liabilities
|
|
|
||||||
Current portion of operating lease liabilities
|
|
|
||||||
Current portion of finance lease liabilities
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|
||||||
Current maturities of long-term debt | ||||||||
Total current liabilities
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||||||
Uncertain tax positions
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|
||||||
Other non-current liabilities
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||||||
Operating lease liabilities, non-current
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|
||||||
Finance lease liabilities, non-current
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|
||||||
Long-term debt, net of current maturities
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|
||||||
COMMITMENTS AND CONTINGENCIES (Note 6)
|
||||||||
STOCKHOLDERS’ EQUITY:
|
||||||||
Preferred stock, $
|
|
|
||||||
Common stock, $
|
|
|
||||||
Paid-in capital
|
|
|
||||||
Retained earnings
|
|
|
||||||
Treasury stock at cost (
|
(
|
)
|
(
|
)
|
||||
Accumulated other comprehensive loss, net of tax
|
(
|
)
|
(
|
)
|
||||
Total stockholders’ equity
|
|
|
||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$
|
|
$
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30, | |||||||||||||||
2022
|
2021
|
2022 |
2021 |
|||||||||||||
Net sales
|
$
|
|
$
|
|
$ | $ | ||||||||||
Cost of sales
|
|
|
||||||||||||||
Gross profit
|
|
|
||||||||||||||
Operating expenses
|
|
|
||||||||||||||
Income from operations
|
|
|
||||||||||||||
Other (income) expense:
|
||||||||||||||||
Interest (income) expense
|
|
|
||||||||||||||
Other, net
|
(
|
)
|
|
|||||||||||||
Total other (income) expense
|
(
|
)
|
|
|||||||||||||
Income (loss) before income taxes
|
|
(
|
)
|
|||||||||||||
Provision (benefit) for income taxes
|
|
|
||||||||||||||
Net income (loss)
|
$
|
|
$
|
(
|
)
|
$ | $ | |||||||||
Foreign currency translation adjustments, net of tax
|
(
|
)
|
(
|
)
|
( |
) | ( |
) | ||||||||
Comprehensive income (loss)
|
$
|
|
$
|
(
|
)
|
$ | $ | |||||||||
Net income (loss) per common share:
|
||||||||||||||||
Basic
|
$
|
|
$
|
|
$ | $ | ||||||||||
Diluted
|
$
|
|
$
|
|
$ | $ | ||||||||||
Weighted average number of shares outstanding:
|
||||||||||||||||
Basic
|
|
|
||||||||||||||
Diluted
|
|
|
For the Nine Months Ended September 30,
|
||||||||
2022
|
2021
|
|||||||
Cash flows from operating activities:
|
||||||||
Net income
|
$
|
|
$
|
|
||||
Adjustments to reconcile net income to net cash used in operating activities:
|
||||||||
Depreciation and amortization
|
|
|
||||||
Operating lease asset amortization
|
|
|
||||||
Loss (gain) on disposal of assets |
( |
) | ||||||
Stock-based compensation
|
|
|
||||||
Deferred income taxes
|
(
|
)
|
|
|||||
Exchange (gain) loss
|
||||||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable-trade
|
|
(
|
)
|
|||||
Inventory
|
(
|
)
|
(
|
)
|
||||
Prepaid expenses
|
(
|
)
|
(
|
)
|
||||
Other current assets
|
(
|
)
|
|
|||||
Accounts payable-trade
|
(
|
)
|
|
|||||
Accrued expenses and other liabilities
|
(
|
)
|
|
|||||
Income taxes, net
|
|
|
||||||
Other assets
|
(
|
)
|
(
|
)
|
||||
Operating lease liabilities
|
(
|
)
|
(
|
)
|
||||
Total adjustments
|
(
|
)
|
(
|
)
|
||||
Net cash used in operating activities
|
(
|
)
|
(
|
)
|
||||
Cash flows from investing activities:
|
||||||||
Purchase of property and equipment
|
(
|
)
|
(
|
)
|
||||
Proceeds from sales of assets
|
||||||||
Net cash used in investing activities
|
(
|
)
|
(
|
)
|
||||
Cash flows from financing activities:
|
||||||||
Payments on long-term debt |
( |
) | ||||||
Payment of finance lease obligations
|
(
|
)
|
(
|
)
|
||||
Repurchase of common stock
|
(
|
)
|
(
|
)
|
||||
Purchase of vested stock for employee payroll tax |
( |
) | ||||||
Net cash used in financing activities
|
(
|
)
|
(
|
)
|
||||
Effect of exchange rate changes on cash and cash equivalents
|
(
|
)
|
(
|
)
|
||||
Net decrease in cash and cash equivalents
|
(
|
)
|
(
|
)
|
||||
Cash and cash equivalents, beginning of period
|
|
|
||||||
Cash and cash equivalents, end of period
|
$
|
|
$
|
|
Number of
Shares Common
Stock
Outstanding
|
Par
Value
|
Paid-in
Capital
|
Treasury Stock
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
Income (Loss)
|
Total
|
||||||||||||||||||||||
Balance, December 31, 2021
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||||||
Stock-based compensation expense
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
Vesting of restricted stock units
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Net income
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
Foreign currency translation
adjustments, net of tax
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
Balance, March 31, 2022
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||||||
Stock-based compensation expense
|
- | |||||||||||||||||||||||||||
Vesting of restricted stock units
|
||||||||||||||||||||||||||||
Repurchase of common stock
|
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||
Net loss
|
- | ( |
) | ( |
) | |||||||||||||||||||||||
Foreign currency translation
adjustments, net of tax
|
- | ( |
) | ( |
) | |||||||||||||||||||||||
Balance, June 30, 2022
|
$ | $ | $ | ( |
) | $ | $ | ( |
) | $ | ||||||||||||||||||
Stock-based compensation expense
|
- | |||||||||||||||||||||||||||
Repurchase of common stock
|
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
Net income
|
- | |||||||||||||||||||||||||||
Foreign currency translation
adjustments, net of tax
|
- | ( |
) | ( |
) | |||||||||||||||||||||||
Balance, September 30, 2022
|
$ | $ |
$ |
( |
) | $ |
$ |
( |
) | $ |
||||||||||||||||||
Balance, December 31, 2020
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||||||
Stock-based compensation expense
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
Vesting of restricted stock units
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Repurchase of common stock
|
(
|
)
|
(
|
)
|
(
|
)
|
|
|
|
(
|
)
|
|||||||||||||||||
Net income
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
Foreign currency translation
adjustments, net of tax
|
-
|
|
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||||||||
Balance, March 31, 2021
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||||||
Stock-based compensation expense
|
- | |||||||||||||||||||||||||||
Purchase of vested stock for
employee payroll tax
withholding
|
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
Net income
|
- | |||||||||||||||||||||||||||
Foreign currency translation
adjustments, net of tax
|
- | |||||||||||||||||||||||||||
Balance, June 30, 2021
|
$ | $ | $ | ( |
) | $ | $ | ( |
) | $ | ||||||||||||||||||
Stock-based compensation expense
|
- | |||||||||||||||||||||||||||
Net loss
|
- | ( |
) | ( |
) | |||||||||||||||||||||||
Foreign currency translation adjustments, net of tax
|
- | ( |
) | ( |
) | |||||||||||||||||||||||
Balance, September 30, 2021
|
$ |
$ |
$ |
( |
) | $ |
$ |
( |
) | $ |
|
Three Months Ended September 30,
|
Nine Months Ended September 30, | ||||||||||||||
(in thousands) |
2022
|
2021
|
2022 |
2021 |
||||||||||||
United States
|
$
|
|
$
|
|
$ | $ | ||||||||||
Canada
|
|
|
||||||||||||||
Spain
|
|
|
||||||||||||||
Net sales
|
$
|
|
$
|
|
$ | $ |
(in thousands)
|
September 30, 2022
|
December 31, 2021
|
||||||
On hand:
|
||||||||
Finished goods held for sale
|
$
|
|
$
|
|
||||
Raw materials and work in process
|
|
|
||||||
Inventory in transit
|
|
|
||||||
TOTAL
|
$
|
|
$
|
|
•
|
Level 1 – observable inputs that reflect quoted prices in active markets for identical assets or liabilities.
|
•
|
Level 2 – significant observable inputs other than quoted prices in active markets for similar assets and liabilities, such as quoted prices for identical or similar assets or liabilities in markets that
are not active; or other inputs that are observable or can be corroborated by observable market data.
|
•
|
Level 3 – significant unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants.
|
Shares
(in thousands) |
Weighted Average
Share Price |
|||||||
Balance, January 1, 2022
|
|
$
|
|
|||||
Granted
|
|
|
||||||
Vested
|
(
|
)
|
|
|||||
Balance, September 30, 2022
|
|
$
|
|
Unrecognized Expense
(in thousands)
|
||||
2022
|
$
|
|
||
2023
|
|
|||
2024
|
|
|||
2025
|
|
|||
2026
|
|
|||
|
$
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30, |
|||||||||||||||
(in thousands, except share data)
|
2022
|
2021
|
2022
|
2021
|
||||||||||||
Numerator: | ||||||||||||||||
Net income (loss)
|
$
|
|
$
|
(
|
)
|
$ | $ | |||||||||
Denominator:
|
||||||||||||||||
Basic weighted-average common shares ouststanding
|
|
|
||||||||||||||
Dilutive effect of service-based restricted stock awards granted to Board of Directors under the Plan
|
||||||||||||||||
Dilutive effect of service-based restricted stock awards granted to employees under the Plan
|
||||||||||||||||
Diluted weighted-average common shares outstanding
|
|
|
||||||||||||||
Net income (loss) per common share: |
||||||||||||||||
Basic
|
$ | $ | $ | $ | ||||||||||||
Diluted
|
$ | $ | $ | $ |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
1. |
Improving our brand proposition, with both retail and commercial customers
|
2. |
Rebuilding our foundation – the talent, processes, tools and systems needed to serve these customers
|
3. |
Position us for long-term growth – creating the vision and roadmap for the future
|
Three Months Ended September 30, | ||||||||||||||||
(in thousands)
|
2022
|
2021
|
$ Change
|
% Change
|
||||||||||||
Net sales
|
$
|
19,057
|
$
|
19,281
|
$
|
(224
|
)
|
(1.2
|
)%
|
|||||||
Gross profit
|
11,596
|
11,089
|
507
|
4.6
|
%
|
|||||||||||
Gross margin percentage
|
60.8
|
%
|
57.5
|
%
|
3.3
|
%
|
||||||||||
Operating expenses
|
10,620
|
11,078
|
(458
|
)
|
(4.1
|
)%
|
||||||||||
Income from operations
|
$
|
976
|
$
|
11
|
$
|
965
|
8,772.7
|
%
|
Three Months Ended September 30,
|
||||||||||||||||
(in thousands)
|
2022
|
2021
|
$ Change
|
% Change
|
||||||||||||
Operating expenses
|
$
|
10,620
|
$
|
11,078
|
$
|
(458
|
)
|
(4.1
|
)%
|
|||||||
Non-routine items related to restatement
|
-
|
(124
|
)
|
124
|
(100.0
|
)%
|
||||||||||
Adjusted operating expenses
|
$
|
10,620
|
$
|
10,954
|
$
|
(334
|
)
|
(3.0
|
)%
|
|||||||
Operating expenses % of sales
|
55.7
|
%
|
57.5
|
%
|
||||||||||||
Adjusted operating expenses % of sales
|
55.7
|
%
|
56.8
|
%
|
Nine Months Ended September 30,
|
||||||||||||||||
(in thousands)
|
2022
|
2021
|
$ Change
|
% Change
|
||||||||||||
Net sales
|
$
|
57,967
|
$
|
59,241
|
$
|
(1,274
|
)
|
(2.2
|
)%
|
|||||||
Gross profit
|
34,028
|
34,556
|
(528
|
)
|
(1.5
|
)%
|
||||||||||
Gross margin percentage
|
58.7
|
%
|
58.3
|
%
|
0.4
|
%
|
||||||||||
Operating expenses
|
32,959
|
32,856
|
103
|
0.3
|
%
|
|||||||||||
Income from operations
|
$
|
1,069
|
$
|
1,700
|
$
|
(631
|
)
|
(37.1
|
)%
|
Nine Months Ended September 30,
|
||||||||||||||||
(in thousands)
|
2022
|
2021
|
$ Change
|
% Change
|
||||||||||||
Operating expenses
|
$
|
32,959
|
$
|
32,856
|
$
|
103
|
0.3
|
%
|
||||||||
Non-routine items related to restatement
|
(246
|
)
|
(1,157
|
)
|
911
|
(78.7
|
)%
|
|||||||||
Adjusted operating expenses
|
$
|
32,713
|
$
|
31,699
|
$
|
1,014
|
3.2
|
%
|
||||||||
Operating expenses % of sales
|
56.9
|
%
|
55.5
|
%
|
||||||||||||
Adjusted operating expenses % of sales
|
56.4
|
%
|
53.5
|
%
|
For the Nine Months Ended September 30,
|
||||||||
(amounts in thousands)
|
2022
|
2021
|
||||||
Net cash used in operating activities
|
$
|
(3,957
|
)
|
$
|
(2,028
|
)
|
||
Net cash used in investing activities
|
(825
|
)
|
(512
|
)
|
||||
Net cash used in financing activities
|
(2,198
|
)
|
(1,700
|
)
|
||||
Effect of exchange rate changes on cash and cash equivalents
|
(125
|
)
|
(3
|
)
|
||||
Net decrease in cash and cash equivalents
|
$
|
(7,105
|
)
|
$
|
(4,243
|
)
|
Item 4. |
Controls and Procedures.
|
i. |
Replaced critical roles within our accounting team with contract accounting resources and continue to search for full-time employees with expertise in GAAP accounting, SEC reporting and disclosure, internal audit and internal controls;
|
ii. |
Replaced our legacy accounting systems with an integrated enterprise resource planning (“ERP”) solution which includes general ledger, warehouse management and factory production modules designed to calculate inventory on a FIFO basis;
|
iii. |
Implemented a new point-of-sale system for 93 U.S. stores that is fully integrated with our new ERP system (the remaining 12 stores will be converted during the remainder of 2022);
|
iv. |
Created a risk controls matrix which includes, among other things, a comprehensive list of key and mitigating controls, a description of the risk the control is designed to mitigate, the frequency in which the control is performed, and
a mapping of each control to the five COSO Framework components (control environment, risk assessment, control activities, information and communication, or monitoring activities) ;
|
v. |
Established a greater sense of accountability by requiring sub-certifications below the CEO and CFO level for certain key accounting, finance and operations personnel.
|
i. |
Ongoing recruitment and hiring of permanent, qualified public-company accounting personnel;
|
ii. |
Completing the accountability portion of our risk controls matrix once the permanent accounting team is in place in order to identify the individual responsible for each control;
|
iii. |
Converting the remaining 12 stores onto our new point-of-sale system;
|
iv. |
Redesigning our accounting procedures and activities to align with our new ERP system that will include built-in controls to improve upon the reliability of financial reporting and the preparation of financial statements in accordance
with GAAP;
|
v. |
Continuing to improve the accounting close process, including periodic review and update of our accounting close checklists for completeness of duties, accuracy of owners and deadlines to maintain accountability, timely review of
account reconciliations and calculations involving judgement, and timely reporting of financial results;
|
vi. |
Updating process narrative documentation in the following areas: (i) financial reporting, (ii) inventory, (iii) purchasing and accounts payable, (iv) revenue, (v) fixed assets and lease accounting, (vi) general accounting, treasury and
financial planning & analysis, (vii) tax, (viii) information technology (IT) governance, and (ix) HR and payroll;
|
vii. |
Periodically reviewing of our risk controls matrix and process narrative documentation to ensure changes such as personnel, information sources, processes, systems, and frequency in performing the
control are properly reflected in a timely manner;
|
viii. |
Reporting the progress and results of our remediation plan to the Audit Committee on a recurring basis, including the identification, status, and resolution of internal control deficiencies; and
|
ix. |
Creating a comprehensive approach to regularly evaluate the operating effectiveness of our disclosure controls and procedures and our internal control over financial reporting using the COSO Framework as a guide.
|
■ |
Recurring meetings with leadership, finance and accounting and other key functional areas to train staff on processes for oversight and emphasize each individual’s accountability for internal control
compliance, and to create a pattern of regular discussion of such controls.
|
■ |
Periodic communications from the CEO, CFO and other key senior leaders on the Company’s mission, core values, Code of Business Conduct and Ethics, whistleblower policies, and each employee’s individual responsibility for internal
control compliance.
|
■ |
Reorganization of the finance and accounting team to address segregation of duties issues, oversight and review of work, and recruiting and hiring qualified, competent employees with relevant experience for the roles.
|
■ |
Regular performance evaluations to include position-specific criteria for functional competence, including performance of internal control responsibilities.
|
■ |
Completing the implementation of our new point-of-sale system, which is fully integrated with our ERP system, for our remaining 12 stores during the remainder of 2022.
|
■ |
Continuing to implement functionality in our ERP system to improve on our internal controls over financial reporting, such as implementing the ERP’s bank reconciliation module.
|
■ |
Creating and implementing newly-designed processes, structures, delegation of authority and controls, in accordance with the COSO Framework, including:
|
o |
Quarterly updates for the CFO regarding upcoming accounting pronouncement and proposed changes to GAAP accounting standards, tax regulations, and other requirements that may impact the Company’s financial reporting;
|
o |
Timely reviews each quarter of the most significant accounting estimates and judgements;
|
o |
Validation of results through detailed variance analyses and reconciliation of account balances performed on a timely basis;
|
o |
Monthly business review of actual financial performance compared to forecasts with participation from leadership across the organization; and
|
o |
Establishing a disclosure committee comprised of key management throughout the different areas of the organization to evaluate the appropriateness of disclosures in the Company’s periodic filings on Forms 10-K and 10-Q and to support
the CEO and CFO with the certification process.
|
PART II. |
OTHER INFORMATION
|
Item 1. |
Legal Proceedings.
|
Item 1A. |
Risk Factors.
|
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds.
|
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 value
of shares that may
yet be purchased
under the plans or
programs (1) (2)
|
||||||||||||
July 1 – July 31, 2022
|
600
|
$
|
4.70
|
600
|
$
|
4,997,180
|
||||||||||
August 1 – August 31, 2022
|
—
|
—
|
—
|
$
|
5,000,000
|
|||||||||||
September 1 – September 30, 2022
|
—
|
—
|
—
|
$
|
5,000,000
|
|||||||||||
Total
|
600
|
$
|
4.70
|
600
|
(1) |
Represents shares which may be purchased through our previous stock repurchase program, adopted by the Company’s Board of Directors on August 9, 2020, which allowed the Company to repurchase up to $5 million value of shares of our
common stock on or prior to July 31, 2022. This program expired on July 31, 2022.
|
(2) |
On August 8, 2022, the Board of Directors approved a new program to repurchase up to $5.0 million of the Company’s common stock between that date and August 31, 2024. As of September 30, 2022, $5.0 million remained available for
repurchase under this new program.
|
Item 6. |
Exhibits.
|
Exhibit
Number
|
Description
|
3.1
|
|
3.2
|
|
3.3
|
|
4.1
|
|
10.1
|
|
10.2
|
|
10.3
|
|
10.4
|
|
10.5
|
|
10.6
|
|
10.7
|
10.8
|
|
10.9
|
Form of Stock Purchase Agreement dated December 8, 2021 between the Company and Right Lane I, LP,
filed as Exhibit 10.9 to Tandy Leather Factory, Inc.’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 16, 2022 and incorporated by reference herein.
|
14.1
|
|
21.1
|
|
13a-14(a) or 15d-14(a) Certification by Janet Carr, Chief Executive Officer.
|
|
13a-14(a) or 15d-14(a) Certification by Cindy McSpadden, interim Chief Financial Officer.
|
|
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.
|
TANDY LEATHER FACTORY, INC.
|
|
(Registrant)
|
|
Date: November 14, 2022
|
By: /s/ Janet Carr
|
Janet Carr
|
|
Chief Executive Officer
|
|
Date: November 14, 2022
|
By: /s/ Cindy McSpadden
|
Cindy McSpadden
|
|
Interim Chief Financial Officer
|