[Explanatory Note](index=5&type=section&id=Explanatory%20Note) Tandy Leather Factory, Inc. files this Form 10-Q to update SEC filings, presenting restated financials due to material misstatements and ongoing internal control remediation efforts - This Form 10-Q updates SEC reporting, including restated financial statements for multiple prior periods and the audited balance sheet for December 31, 2018[11](index=11&type=chunk) - Previously issued financial statements for 2016-2018 and interim periods in 2017-2019 were deemed unreliable due to material misstatements[12](index=12&type=chunk) - The restatement corrects errors in inventory valuation (FIFO), cost capitalization, expense classification, inventory reserves, sales returns, gift cards, lease accounting (Topic 842), and income taxes[13](index=13&type=chunk) - The company is actively remediating internal control failures that led to financial misstatements[14](index=14&type=chunk) [PART I. FINANCIAL INFORMATION](index=7&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Financial Statements](index=7&type=section&id=Item%201.%20Financial%20Statements.) Unaudited Q3 2019 financials show total assets increased to **$80.4 million** from **$76.8 million** (restated 2018), a net loss of **$1.7 million** for the quarter, and **$7.9 million** positive operating cash flow for the nine months Consolidated Balance Sheet Highlights (Unaudited) | Account | Sep 30, 2019 ($) | Dec 31, 2018 (Restated) ($) | | :--- | :--- | :--- | | **Total Current Assets** | $49,474,266 | $59,816,578 | | Inventory | $23,761,063 | $33,302,549 | | Cash | $13,345,643 | $24,070,351 | | Operating lease assets | $14,769,812 | - | | **Total Assets** | **$80,354,743** | **$76,781,327** | | **Total Current Liabilities** | $10,093,802 | $8,075,418 | | Operating lease liabilities | $15,317,421 | - | | Long-term debt | - | $8,448,502 | | **Total Stockholders' Equity** | **$56,889,821** | **$58,286,396** | Consolidated Statements of Comprehensive Income (Loss) (Unaudited) | Metric | Q3 2019 ($) | Q3 2018 (Restated) ($) | Nine Months 2019 ($) | Nine Months 2018 (Restated) ($) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $16,310,887 | $18,878,263 | $54,449,024 | $58,566,063 | | Gross Profit | $8,848,648 | $11,895,883 | $30,463,764 | $36,818,435 | | Income (Loss) from Operations | ($2,404,433) | $899,894 | ($1,438,794) | $4,536,137 | | **Net Income (Loss)** | **($1,718,452)** | **$608,701** | **($1,074,308)** | **$3,283,100** | | Basic EPS | ($0.19) | $0.07 | ($0.12) | $0.36 | Consolidated Statements of Cash Flows (Unaudited, Nine Months Ended Sep 30) | Cash Flow Activity | 2019 ($) | 2018 (Restated) ($) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $7,919,733 | ($4,650) | | Net cash used in investing activities | ($9,076,327) | ($869,961) | | Net cash used in financing activities | ($9,703,217) | ($12,299) | | **Net decrease in cash** | **($10,724,708)** | **($1,267,885)** | [Notes to Consolidated Financial Statements](index=13&type=section&id=NOTES%20TO%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) These notes detail the company's accounting policies, extensive financial restatement, and operational updates, covering debt, taxes, stock compensation, legal matters, leases, and subsequent events [Note 1: Basis of Presentation and Significant Accounting Policies](index=13&type=section&id=1.%20BASIS%20OF%20PRESENTATION%20AND%20CERTAIN%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines Tandy Leather's retail business, Nasdaq delisting, and key accounting policies including revenue recognition, FIFO inventory valuation, and Topic 842 lease accounting adoption - The company operates **116 retail stores** (104 in the U.S., 11 in Canada, 1 in Spain) and four websites as of September 30, 2019[29](index=29&type=chunk)[30](index=30&type=chunk) - The company's stock was delisted from Nasdaq on February 9, 2021, due to delinquent SEC filings and now trades on the OTC market under 'TLFA'[31](index=31&type=chunk) - Effective January 1, 2019, the company adopted Topic 842, recognizing **$17.6 million** in operating lease assets and **$18.1 million** in lease liabilities[81](index=81&type=chunk)[83](index=83&type=chunk) Disaggregated Revenue by Geography (Nine Months Ended Sep 30) | Region | 2019 ($) | 2018 (Restated) ($) | | :--- | :--- | :--- | | United States | $47,746,719 | $50,925,942 | | Canada | $4,573,173 | $4,926,527 | | All other countries | $2,129,132 | $2,713,594 | | **Total Net Sales** | **$54,449,024** | **$58,566,063** | [Note 2: Restatement of Previously Issued Consolidated Financial Statements](index=22&type=section&id=2.%20RESTATEMENT%20OF%20PREVIOUSLY%20ISSUED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) This note details the comprehensive restatement of financial statements from 2017 through Q1 2019, correcting material misstatements in inventory, cost capitalization, sales returns, lease accounting, and income taxes - The company restated financial statements for years 2017-2018 and interim periods in 2018-2019 due to material misstatements identified during an investigation[88](index=88&type=chunk)[89](index=89&type=chunk) - Major misstatement areas included non-FIFO inventory valuation, incorrect freight and handling cost capitalization, insufficient inventory reserves, improper sales returns and gift card accounting, lease accounting errors, and income tax errors[91](index=91&type=chunk) Impact of Restatement on Q3 2018 Net Income | Item | As Reported ($) | Adjustments ($) | As Restated ($) | | :--- | :--- | :--- | :--- | | Net Sales | $18,887,099 | ($8,836) | $18,878,263 | | Gross Profit | $11,846,833 | $49,050 | $11,895,883 | | Income from Operations | $315,444 | $584,450 | $899,894 | | **Net Income (Loss)** | **($121,534)** | **$730,235** | **$608,701** | Impact of Restatement on Balance Sheet as of Dec 31, 2018 | Account | As Reported ($) | Adjustments ($) | As Restated ($) | | :--- | :--- | :--- | :--- | | Inventory | $33,867,276 | ($564,727) | $33,302,549 | | Total Assets | $76,140,134 | $641,193 | $76,781,327 | | Retained Earnings | $65,716,761 | ($1,240,383) | $64,476,378 | | Total Stockholders' Equity | $59,460,304 | ($1,173,908) | $58,286,396 | [Note 3: Notes Payable and Long-Term Debt](index=31&type=section&id=3.%20NOTES%20PAYABLE%20AND%20LONG-TERM%20DEBT) This note details the cancellation of the company's credit facilities by BOKF in April 2020 due to delinquent SEC filings, the payoff of **$9.0 million** in debt in Q1 2019, and the absence of outstanding long-term debt - On April 2, 2020, BOKF cancelled the company's credit facilities due to delinquent SEC filings[115](index=115&type=chunk) - A **$9.0 million** outstanding balance on a share repurchase line of credit as of December 31, 2018, was fully paid off in Q1 2019[117](index=117&type=chunk) - As of September 30, 2019, the company had no outstanding long-term debt[120](index=120&type=chunk) [Note 4: Income Tax](index=32&type=section&id=4.%20INCOME%20TAX) The company's effective tax rate was **26.6%** for the three and nine months ended September 30, 2019, with an anticipated cash tax benefit from the CARES Act's NOL carryback provisions - The effective tax rate was **26.6%** for the three and nine months ended September 30, 2019, compared to a restated **29.2%** for the same periods in 2018[121](index=121&type=chunk) - The company anticipates a cash tax benefit from the NOL carryback provisions of the CARES Act[122](index=122&type=chunk) [Note 5: Stock-Based Compensation](index=33&type=section&id=5.%20STOCK-BASED%20COMPENSATION) The company issues RSUs under its 2013 plan, with **$0.6 million** in stock-based compensation expense for the nine months ended September 30, 2019, and **$3.0 million** in unrecognized cost for service-based awards - Stock-based compensation expense was **$0.6 million** for the nine months ended September 30, 2019, compared to **$0.1 million** for the same period in 2018[126](index=126&type=chunk) - As of September 30, 2019, **$3.0 million** in unrecognized compensation cost for non-vested service-based awards is expected to be recognized through 2023[129](index=129&type=chunk) - The company has not recorded compensation expense for performance-based RSUs, as achieving performance conditions is not probable[127](index=127&type=chunk) [Note 6: Earnings Per Share](index=34&type=section&id=6.%20EARNINGS%20PER%20SHARE) This note details EPS calculations, showing a net loss for Q3 and nine months ended September 30, 2019, resulting in diluted EPS of **($0.19)** and **($0.12)** respectively, a decline from 2018 Earnings Per Share (EPS) Calculation | Period | Net Income (Loss) ($) | Diluted Shares | Diluted EPS ($) | | :--- | :--- | :--- | :--- | | **Q3 2019** | ($1,718,452) | 8,932,246 | **($0.19)** | | **Q3 2018 (Restated)** | $608,701 | 9,160,022 | **$0.07** | | **Nine Months 2019** | ($1,074,308) | 8,957,578 | **($0.12)** | | **Nine Months 2018 (Restated)** | $3,283,100 | 9,201,577 | **$0.36** | [Note 7: Commitments and Contingencies](index=34&type=section&id=7.%20COMMITMENTS%20AND%20CONTINGENCIES) The company faces contingencies including a withdrawn class-action lawsuit, Nasdaq delisting, and an ongoing SEC investigation into historical accounting practices, with a **$0.2 million** penalty accrued - A stockholder class action lawsuit related to the restatement was withdrawn in April 2020[134](index=134&type=chunk) - The company's common stock was delisted from Nasdaq on February 9, 2021, due to non-compliance with filing requirements, with intent to reapply after becoming current[135](index=135&type=chunk) - The SEC is investigating the company's historical accounting, with a **$0.2 million** penalty accrued based on an agreement in principle[136](index=136&type=chunk) [Note 8: Leases](index=35&type=section&id=8.%20LEASES) Following Topic 842 adoption, the company recognized **$15.3 million** in total lease liabilities and **$14.8 million** in operating lease assets as of September 30, 2019, with total lease cost of **$3.8 million** for the nine months Lease Balances as of September 30, 2019 | Account | Classification | Amount ($) | | :--- | :--- | :--- | | Operating lease assets | Non-current | $14,769,812 | | Operating lease liabilities | Current | $3,918,757 | | Operating lease liabilities | Non-current | $11,398,664 | | **Total lease liabilities** | | **$15,317,421** | Lease Costs (Nine Months Ended September 30, 2019) | Cost Type | Amount ($) | | :--- | :--- | | Operating lease cost | $3,120,156 | | Variable lease cost | $685,527 | | **Total lease cost** | **$3,805,683** | - As of September 30, 2019, the weighted average remaining lease term was **6.1 years**, and the weighted average discount rate was **4.1%**[143](index=143&type=chunk) [Note 9: Subsequent Events](index=37&type=section&id=9.%20SUBSEQUENT%20EVENTS) This note details significant subsequent events, primarily the COVID-19 pandemic's impact, including store closures, furloughs, an expected **$1.1 million** asset impairment charge, and a new **$5 million** share repurchase program - In response to COVID-19, the company temporarily closed all stores by April 2, 2020, furloughed **406 employees**, and cut corporate salaries[145](index=145&type=chunk)[146](index=146&type=chunk)[147](index=147&type=chunk) - The company permanently closed **eight stores** in Q2 2020 and centralized e-commerce fulfillment to its Fort Worth distribution center[149](index=149&type=chunk)[151](index=151&type=chunk) - A new **$5 million** share repurchase program was approved in August 2020, with **500,000 shares** repurchased for **$1.7 million** in January 2021[153](index=153&type=chunk)[154](index=154&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=39&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Management discusses the business, the impact of financial restatement and COVID-19, strategic initiatives, and the significant decline in sales and profitability for Q3 and nine months ended September 30, 2019, while highlighting liquidity management [Results of Operations](index=44&type=section&id=Results%20of%20Operations) The company experienced a significant downturn, with Q3 2019 net sales falling **13.6%** to **$16.3 million** and gross margin dropping to **54.2%**, resulting in an operating loss of **$2.4 million**, attributed to store closures, pricing, and inventory issues Financial Performance: Three Months Ended September 30 | Metric | 2019 ($) | 2018 (Restated) ($) | % Change (%) | | :--- | :--- | :--- | :--- | | Sales | $16,310,887 | $18,878,263 | (13.6%) | | Gross Profit | $8,848,648 | $11,895,883 | (25.6%) | | Gross Margin % | 54.2% | 63.0% | (8.8 pts) | | Income from Operations | ($2,404,433) | $899,894 | (367.2%) | Financial Performance: Nine Months Ended September 30 | Metric | 2019 ($) | 2018 (Restated) ($) | % Change (%) | | :--- | :--- | :--- | :--- | | Sales | $54,449,024 | $58,566,063 | (7.0%) | | Gross Profit | $30,463,764 | $36,818,435 | (17.3%) | | Gross Margin % | 55.9% | 62.9% | (7.0 pts) | | Income from Operations | ($1,438,794) | $4,536,137 | (131.7%) | - The decrease in sales and gross profit was driven by store closures, a new pricing strategy, higher freight costs, increased inventory reserves, and promotions to clear old stock[188](index=188&type=chunk)[190](index=190&type=chunk)[200](index=200&type=chunk) [Capital Resources, Liquidity and Financial Condition](index=48&type=section&id=Capital%20Resources,%20Liquidity%20and%20Financial%20Condition) The company's liquidity is primarily from operations, with **$13.3 million** cash as of September 30, 2019, despite credit facility cancellation in April 2020, generating **$7.9 million** cash from operations for the nine months, largely from inventory reduction - The company's cash balance was **$13.3 million** as of September 30, 2019; its credit lines were cancelled in April 2020, leaving no outstanding lines of credit[206](index=206&type=chunk)[207](index=207&type=chunk) - For the nine months ended Sep 30, 2019, cash from operations was **$7.9 million**, driven by a **$9.6 million** inventory reduction, used to extinguish **$9.0 million** debt and repurchase **$0.7 million** stock[218](index=218&type=chunk) - The share repurchase program was renewed in August 2020, authorizing up to **$5.0 million** in repurchases through July 2022[216](index=216&type=chunk) [Controls and Procedures](index=51&type=section&id=Item%204.%20Controls%20and%20Procedures.) Management concluded that disclosure controls and procedures were ineffective as of September 30, 2019, due to material weaknesses in internal control over financial reporting, prompting a comprehensive ongoing remediation plan - The CEO and CFO concluded that disclosure controls and procedures were not effective as of September 30, 2019, due to identified material weaknesses[221](index=221&type=chunk) - Material weaknesses were identified across all five COSO framework components: control environment, risk oversight, control activities, information processing/communication, and monitoring[224](index=224&type=chunk)[225](index=225&type=chunk)[226](index=226&type=chunk) - Remediation efforts include hiring new accounting staff, implementing a new ERP system, improving the accounting close process, and documenting processes and risk control matrices[233](index=233&type=chunk) - The new ERP system, live September 1, 2020, represents a significant internal control change, aiming to automate processes and improve data accuracy[239](index=239&type=chunk) [PART II. OTHER INFORMATION](index=56&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=56&type=section&id=Item%201.%20Legal%20Proceedings.) This section incorporates by reference legal proceedings information from Note 7, including a withdrawn class action lawsuit and an ongoing SEC investigation - Information regarding legal proceedings is incorporated by reference from Note 7, Commitments and Contingencies[241](index=241&type=chunk) [Risk Factors](index=56&type=section&id=Item%201A.%20Risk%20Factors.) The company's risk factors are incorporated by reference from its Comprehensive Annual Report on Form 10-K for the fiscal year ended December 31, 2019 - Risk factors are incorporated by reference from the Form 10-K for the year ended December 31, 2019[242](index=242&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=56&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds.) During Q3 2019, the company repurchased **2,037 shares** at **$5.45** per share, suspending the program in July due to lack of public financial information, with **996,163 shares** remaining available Issuer Purchases of Equity Securities (Q3 2019) | Period | Total Shares Purchased | Average Price Paid per Share ($) | | :--- | :--- | :--- | | July 1 – July 31, 2019 | 2,037 | $5.45 | | August 1 – Aug 31, 2019 | — | — | | Sept 1 – Sept 30, 2019 | — | — | - The company suspended its share repurchase program in July 2019 due to the lack of public financial information during the restatement period[245](index=245&type=chunk) [Exhibits](index=57&type=section&id=Item%206.%20Exhibits.) This section lists exhibits filed with the Form 10-Q, including corporate governance documents, debt agreements, stock plans, employment agreements, and CEO/CFO certifications - The report includes numerous exhibits, such as the Certificate of Incorporation, bylaws, debt agreements, restricted stock plans, and CEO/CFO certifications (31.1, 31.2, 32.1)[247](index=247&type=chunk)[248](index=248&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2019 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) (State or other ...

Financial Data and Key Metrics Changes - The company reported a 2.4% sales growth in Q1 2019 compared to the same period last year, primarily driven by the launch of a new sewing machine and higher clearance activities [5][7] - Gross profits declined by $400,000, with half attributed to promotional activities and the other half due to customer and product mix and higher freight costs [8] - Operating earnings decreased nearly 34%, down to $1,169,000 from $1,769,000 in 2018, reflecting a 33.9% decline [11] - Cash from operations was $3 million for the quarter, supported by a $3.3 million reduction in inventory [13][15] Business Line Data and Key Metrics Changes - The company closed three underperforming stores, which contributed to a reduction in operating expenses by $300,000, despite incurring one-time costs related to store closures and severance [9][10] - The launch of the commercial division aims to better serve larger business customers, who have historically been underserved [32][34] Market Data and Key Metrics Changes - The company noted that its larger business customers have declined over the years due to challenges in meeting their needs for tailored products and competitive pricing [20] - The pricing initiative, "Everyday Honest Prices," was launched globally to simplify pricing and make it more competitive [23][25] Company Strategy and Development Direction - The overarching strategy focuses on reestablishing brand credentials, enhancing the retail experience, and attracting business customers back to the brand [22] - The company is investing in foundational business processes and infrastructure to support long-term growth, with 2019 identified as a year of significant investment [46] Management's Comments on Operating Environment and Future Outlook - Management expressed uncertainty regarding the impact of ongoing investments on future results, emphasizing that Q1 results do not fully reflect the initiatives that began in April [51][54] - The company is committed to evolving its pricing and commercial strategies to drive long-term sales and profit growth, despite short-term variability [31][28] Other Important Information - The company fully repaid its outstanding debt, reducing interest expenses by $33,000 compared to the previous quarter [12] - The effective income tax rate slightly decreased to 26% from 27% due to a mix of domestic and foreign taxable income [12] Q&A Session Summary Question: Clarification on operating profit decline - Management confirmed that excluding one-time costs, operating income only declined by $100,000 year-over-year [50] Question: Future investment expectations - Management indicated that Q1 results do not reflect the full impact of ongoing investments, which will continue throughout the year [51][54] Question: Decision to keep the Spain store open - The store remains open due to favorable economics and significant positive cash flow, despite management time constraints [56] Question: Wage pressure in retail markets - Management acknowledged wage pressure in certain markets but noted efforts to mitigate it through improved employee benefits [57][58] Question: Inventory management and turnover - Management expressed confidence in returning to historical inventory turnover rates but acknowledged the need for foundational analytics [65]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2018 OR EXCHANGE ACT OF 1934 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES For the transition period ________ to ________ Commission File Number 1-12368 Tandy Leather Factory, Inc. (Exact name of registrant as specified in its charter) Delaware 75-2543540 (State or ...

Tandy Leather Factory, Inc. (NASDAQ:TLF) Q4 2018 Earnings Conference Call March 7, 2019 10:00 AM ET Company Participants Tina Castillo – Chief Financial Officer Janet Carr – Chief Executive Officer Conference Call Participants Kelly Cardwell – Central Square Management Operator Good day, ladies and gentlemen, and welcome to the Q4 2018 Tandy Leather Factory, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instr ...