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 March 31,June 30, 2014 and December 31, 2013, and its results of operations and cash flows for the three-monththree and six-month periods ended March 31,June 30, 2014 and 2013.  Operating results for the three-month periodthree and six-month periods ended March 31,June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.  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, 2013.

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.

A two-step process is used to test for goodwill impairment.  The first phase screens for impairment, while the second phase (if necessary) measures the impairment.  We have elected to perform the annual analysis during the fourth calendar quarter of each year.  As of December 31, 2013, management determined that the present value of the discounted estimated future cash flows of the stores associated with the goodwill is sufficient to support their respective goodwill balances.  No indicators of impairment were identified during the first quartersix months of 2014.

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.

On July 31, 2007, we entered into a Credit Agreement and Line of Credit Note with JPMorgan Chase Bank, N.A., pursuant to which the bank agreed to provide us with a credit facility of up to $5,500,000 to facilitate our purchase of real estate consisting of a 191,000 square foot building situated on 30 acres of land located at 1900 SE Loop 820 in Fort Worth, Texas.  Under the terms of the Line of Credit Note, we could borrow from time to time until April 30, 2008, up to the lesser of $5,500,000 or 90% of the cost of the property and make monthly interest payments. Proceeds in the amount of $4,050,000 were used to fund the purchase of the property from Standard Motor Products, Inc. under an Agreement of Purchase and Sale, dated June 25, 2007, which closed on July 31, 2007.  No further borrowings were drawn.  On April 30, 2008, the principal balance was rolled into a 10-year term note with an interest rate of 7.10% per annum.

On July 12, 2012, we executed a Line of Credit Note with JPMorgan Chase Bank, N.A., pursuant to which the bank agreed to provide us with a revolving credit facility of up to $4 million. The revolver bears interest at LIBOR plus 2% (2.15%(2.16% at March 31,June 30, 2014) and was to mature on June 30, 2013.2014.  On June 25, 2013,23, 2014, we executed a Note Modification Agreement which increased the maximum amount available from $4 million to $6 million and extended the maturity date of the Line of Credit Notefrom June 30, 2014 to June 30, 2014.2015.  All other terms remain unchanged.  Interest is paid monthly. The note was obtained for working capital purposes and is secured by the real estate and improvements located at 1900 Southeast Loop 820, Fort Worth Texas.  No amounts were

At June 30, 2014 and December 31, 2013, the amount outstanding under this Linethe above agreements consisted of Credit Note as of March 31, 2014.the following:

We have one stock option plan which provides for annual stock option grants to non-employee directors with an exercise price equal to the fair market value of the shares at the date of grant.  Under this plan, 12,000 options were awarded to directors during the quartersix months ended March 31, 2013.  TheseJune 30, 2013, while no options were awarded during the six months ended June 30, 2014.  The options vest and become exercisable six months from the option grant date.  Options outstanding and exercisable were granted at a stock option price which was not less than the fair market value of our common stock on the date the option was granted and no option has a term in excess of ten years.  No options were granted during the quarter ended March 31, 2014.  We recognized share based compensation expense of $0$5,843 and $5,843$11,686 for the quartersquarter and six months ended March 31, 2014 andJune 30, 2013, respectively, as a component of operating expenses.  No share based compensation expense pertaining to stock options grants was recognized in 2014.

During the threesix months ended March 31,June 30, 2014 and 2013, the stock option activity under our stock option plans was as follows:

Other information pertaining to option activity during the three-monthsix-month periods ended March 31,June 30, 2014 and 2013 are as follows:

The fair value of options at the date of grant was estimated using the Black-Scholes option pricing model with the following weighted-average assumptions:

As of March 31, 2014 and 2013, thereThere was no unrecognized compensation cost relatedpertaining to non-vested stock optionsoption grants as of $0June 30, 2014 and $5,843, respectively.2013.

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.

A summary of the activity for nonvested restricted common stock awards as of March 31,June 30, 2014 is presented below:

Total unrecognized compensation expense for the nonvestedPertaining to restricted stock awards, we recognized share based compensation expense of $29,065 during the three and six months ended June 30, 2014 as a component of March 31,operating expenses.  As of June 30, 2014, totals $310,025 and is expectedthere was unrecognized compensation cost related to non-vested restricted stock awards of $280,960 to be recognized in equal annual amounts over a period of four years.

The following table sets forth the computation of basic and diluted earnings per share (“EPS”) for the three and six months ended March 31,June 30, 2014 and 2013:

The net effect of converting stock options and restricted stockwarrants to purchase 119,201 and 121,600133,600 shares of common stock at exercise prices less than the average market prices has been included in the computations of diluted EPSearnings per share for the quarters ended March 31,June 30, 2014 and 2013, respectively.

The Settlement Agreement preliminarily approved by the Court required us to establish a fund designated as a Qualified Settlement Fund (Escrow Account) in the amount of $993,386 to fund (1) settlement payments to the plaintiffs, (2) settlement payments to the other members of the settlement class who joined the case, (3) plaintiffs’ attorneys’ fees and expenses, and (4) and the claim administrator (Escrow Agent’s) fees and expenses.   The foregoing description is not complete and is qualified in its entirety by reference to the full text of the Settlement Agreement which was attached as Exhibit 10.1 to a Current Report on Form 8-K, as filed with the Securities and Exchange Commission on October 1, 2012.

The deadline established by the Court for any persons employed by us as store managers between November 23, 2008 and September 24, 2012 to join the lawsuit as class members expired on May 24, 2013.  On June 28, 2013, the Court issued two orders: (1) an Order Approving Class and Collective Action Settlement and Dismissing Case with Prejudice, and (2) a Final Judgment, Approving Class and Collective Action Settlement and Dismissing Case with Prejudice.  Pursuant to the Court’s June 28, 2013 orders, the claims administrator (Escrow Agent) was required to make payments to the plaintiffs and those existing and former store managers who joined the lawsuit by signing and returning Consent to Join Forms, which contained a release of us from the claims asserted in plaintiffs’ lawsuit.

The settlement payments to the class members and the plaintiffs were made from the Escrow Account pursuant to the formula set forth in the Settlement Agreement by the claims administrator, as well as the payment of the plaintiffs’ attorney’s fees and the fees and expenses of the claims administrator (Escrow Agent).  The total payment from the Escrow Account, including our required FICA payments based on the settlement payments, was $744,273 from the total Escrow Account of $993,386.  All payments were made by the claims administrator and the balance of the Escrow Account (approximately $249,000) was returned to us in the first quarter of 2014.

In connection with the settlement, we recorded a charge to operations of $993,386 during the quarter ended September 30, 2012 as this amount, as ordered by the Court, covered the full settlement of all claims of the plaintiffs and the class members, plaintiffs’ attorneys’ fees, and the fees and expenses of the claims administrator (Escrow Agent) in accordance with the terms of the Settlement Agreement. In the quarter ended June 30, 2013, we recorded a benefit of approximately $312,000, which was the expected remaining balance in the Escrow Account after all payments have been made.  Payroll taxes associated with the payments to claimants of approximately $63,000 was recorded in the fourth quarter of 2013.

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

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-monththree and six-month periods ended March 31,June 30, 2014 and 2013.  We do not have any significant long-lived assets outside of the United States.

Our Wholesale Leathercraft segment operates 29 company-owned wholesale stores in 19 states and three Canadian provinces.  These stores are engaged in the wholesale distribution of leather and related items, including leatherworking tools, buckles and belt adornments, leather dyes and finishes, saddle and tack hardware, and do-it-yourself kits, to retailers, manufacturers, and end users.  Our Wholesale Leathercraft segment also includes our National Account sales group, whose only customers are national craft chains.

Our Retail Leathercraft segment operates company-owned Tandy Leather Company retail stores in 37 states and six Canadian provinces.  Tandy Leather Company, one of the best-known suppliers of leather and related supplies used in the leathercraft industry, has been a primary leathercraft resource for decades.  Tandy Leather Company’s products include quality tools, leather, accessories, kits and teaching materials.  In 2002, we began expanding Tandy Leather Company’s industry presence by opening retail stores.  As of May 1, 2014, we were operating 80 Tandy Leather Company retail stores located throughout the United States and Canada.

Our International Leathercraft segment operates 3 company-owned stores, all located outside of North America.  These stores operate as combination retail / wholesale stores and consist of one store in Northampton, United Kingdom, one store in Sydney, Australia, and one store in Jerez, Spain.  We expect to continue opening international stores in the future, but do not intend to open any new international stores in 2014.

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, 2013.

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, 2013 for additional information concerning these and other uncertainties that could negatively impact the Company.

Our performance is subject to worldwide economic conditions and their impact on levels of consumer spending that affect not only the ultimate consumer, but also small businesses and other retailers.  Specialty retail, and retail in general, is heavily influenced by general economic cycles.  Purchases of non-essential products tend to decline in periods of recession or uncertainty regarding future economic prospects, as disposable income declines.  During periods of economic uncertainty, we may not be able to maintain or increase our sales to existing customers, make sales to new customers, open and operate new stores, maintain sales levels at our existing stores, maintain or increase our international operations on a profitable basis, or maintain our earnings from operations as a percentage of net sales.  The United States and global economies have suffered from economic uncertainty for the past several years.  Consumer spending in the United States appears to have stabilized recently, but could deteriorate in the future.  As a result, our operating results may be adversely and materially affected by downward trends or uncertainty in the United States or global economies.

Our industry is subject to significant pricing pressure caused by many factors, including fluctuations in the cost of the leather and metal products that we purchase and changes in consumer spending patterns and acceptance of our products.  Changes in consumers’ product preferences or lack of acceptance of our products with respect to which costs have increased may prohibit us from passing cost increases on to customers which could cause our gross margin to decline.  If our product costs increase and our sale prices do not, our future operating results could be adversely affected unless we are able to offset such gross margin declines with comparable reductions in operating costs.

We plan to grow our net sales and net earnings from our International Leathercraft segment by opening storestores in various international markets.  As we expand outside of North America, we may incur significant costs relating to starting up, maintaining and expanding foreign operations.  Such costs may include, but are not limited to, obtaining locations for stores, hiring personnel, and travel expenses.  We may be unable to open and operate new stores successfully and as a results,result, our growth may be limited, unless we are able to identify desirable sites for store locations, negotiate acceptable lease terms, hire, train and retain competent store personnel; manage inventory effectively to meet the needs and demands of customers on a timely basis, manage foreign currency risk effectively, and achieve acceptable operating margins from the new stores.  We cannot be sure that we can successfully open new stores or that those new stores will be profitable. If we are unable to successfully open new stores or our new stores are not profitable, our business and our results of operations could be adversely affected.

As we continue to increase our international operations, we face the possibility of greater losses from a number of risks inherent in doing business in international markets and from a number of factors which are beyond our control, such as political instability or acts of terrorism, which disrupt trade with the countries in which our suppliers or customers are located; local business practices that do not conform to legal or ethical guidelines; restrictions or regulations relating to imports or exports; additional or increased customs duties, tariffs, taxes and other charges on imports; significant fluctuations in the value of the dollar against foreign currencies; social, legal or economic instability in the foreign markets in which we do business, which could influence our ability to sell our products in these markets; and restrictions on the transfer of funds between the United States and foreign jurisdictions.  The occurrence of any of these events could adversely affect our business and our results of operations.

The following tables present selected financial data of each of our three segments for the quarters ended March 31,June 30, 2014 and 2013.

Consolidated net sales for the quarter ended March 31,June 30, 2014 increased $600,000,approximately $730,000, or 3.1%3.9%, compared to the same period in 2013.  InternationalRetail Leathercraft reported the largest percentage sales gain of 11.6%8.5%, followed by RetailInternational Leathercraft, reporting a sales gain of 3.4%4.2%.  Wholesale Leathercraft reported a sales increasedecrease of 1.4%4%.  Income from operations on a consolidated basis for the quarter ended March 31,June 30, 2014 increased 13.2%, or $346,000,approximately $310,000, from the firstsecond quarter of 2013 due to the improvement in gross profit margin.

The following table shows in comparative form our consolidated net income for the firstsecond quarters of 2014 and 2013:

All segments contributed to our consolidated net income.  Additional information appears below for each segment.

Our Wholesale Leathercraft operation consists of 29 wholesale stores and our National Account sales group.  The National Account sales group’s customers consist of national craft chains only.  The following table presents the combined sales mix by customer categories for the quarters ended March 31,June 30, 2014 and 2013:

Net sales increased 1.4%decreased 4.0%, or $94,000,approximately $271,000, for the firstsecond quarter of 2014 compared to the firstsecond quarter of 2013 as follows:

Sales to our retail and manufacturing customers increased in the firstsecond quarter of 2014 compared to the firstsecond quarter of 2013, while sales to our wholesale and institution group customers were down slightly.  Sales to our national account customers while declining over time dueended in April – the result of a decision we made to the elimination ofeliminate certain products from our product line that these customers were buying (as thesebuying.  These products have not historically provided an acceptablewere eliminated due to unacceptable gross profit margin), increased this quarter due to one-time sales of certain close-out items.margins.  Income from operations for Wholesale Leathercraft during the current quarter increased by $360,000$223,000 from the comparative 2013 quarter, an increase of 35%25%.

An increase in gross profit of $365,000approximately $126,000, along with a reduction in operating expenses of approximately $97,000, contributed to the improvement in income from operations while operating expenses held steady againstcompared to last year’s first quarter expenses.second quarter.  Gross profit as a percentage of sales increased from 61.9%69.1% in the firstsecond quarter of 2013 to 66.4%73.9% in the firstsecond quarter of 2014, due to an increase in sales to our retail customers, which generally brings higher gross profit margins as compared to other customer groups, and more sales of non-leather products, which also brings higher gross profit margins than that of leather sales.  Operating expenses increased slightly as a percentage of sales increasing only $5,000due to the decrease in sales this quarter compared to last year’s comparable period.quarter, but decreased in dollars. Expense increasesdecreases occurred in legal and professional fees, supplies, repairs/maintenance, and depreciation.supplies.  This was partially offset by a decreasean increase in advertising and marketing expenses.employee compensation.

Our Retail Leathercraft operation consists of 80 Tandy Leather Company retail stores at March 31,June 30, 2014 compared to 78 stores at March 31,June 30, 2013.  Net sales increased 3.4%8.5% for the firstsecond quarter of 2014 over the same quarter last year.  A store is categorized as “new” until it is operating for the full comparable period in the prior year.

The following table presents sales mix by customer categories for the quarters ended March 31,June 30, 2014 and 2013 for our Retail Leathercraft operation:

Sales to retail wholesale, and manufacturerwholesale customer groups increased over the firstsecond quarter of 2013, while sales to our institution and manufacturers customer groupgroups declined slightly over the same period.

Income from operations decreased $42,000,increased approximately $51,000, in the quarter ended June 30, 2014, or 2.8%3.7%, from the comparative 2013 quarter due to an increase in operating expensesgross profit offset partially by an increase in gross profit.operating expenses.  Our gross profit increased by $337,000approximately $638,000 from the prior periodcomparable 2013 quarter primarily due to higher sales.  Operating expenses as a percentage of sales rose from 48.8%47.1% in the firstsecond quarter of 2013 to 50.4%59.9% in the firstsecond quarter of 2014.  The increase in operating expenses of $379,000approximately $587,000 in the second quarter of 2014 compared to the firstsecond quarter of 2013 was caused by increases in employee compensation and benefits ($163,000)(approximately $208,000), rent and utilities expense ($95,000), depreciation ($47,000)(approximately $137,000), and traveldepreciation (approximately $49,000), and advertising expenses ($40,000)(approximately $125,000).  A portion of these expense increases were attributable to the four new stores opened since November 2013.

International Leathercraft consists of all stores located outside of North America.  As of March 31,June 30, 2014 and 2013, the segment contained three stores, with one each located in United Kingdom, Australia, and Spain. This segment’s sales totaled $1,058,000approximately $1,044,000 for the firstsecond quarter of 2014, compared to $948,000approximately $1,002,000 in the firstsecond quarter of 2013, an improvement of 11.6%4.2%.  Operating expenses totaled $566,000approximately $576,000 in the firstsecond quarter of 2014, up from $511,000approximately $516,000 in the first quarter of 2013.last year’s second quarter.  Employee compensation is this segment’s largest expense, followed by advertising and marketing expenses, rent, travel, and shipping costs to customers.

We paid $46,000approximately $45,000 in interest on our bank debt in the firstsecond quarter of 2014, compared to $56,000approximately $51,000 in the firstsecond quarter of 2013.  We recorded an expense of $8,000approximately $10,000 for currency fluctuations in the firstsecond quarter of 2014.  Comparatively, in the firstsecond quarter of 2013, we recorded income of $13,000approximately $38,000 for currency fluctuations.

On our consolidated balance sheet, total assets increased from approximately $56.4 million at year-end 2013 to $58.6approximately $62.7 million at March 31,June 30, 2014.  Total stockholders’ equity increased from approximately $44.6 million at December 31, 2013 to $46.3approximately $45.8 million at March 31,June 30, 2014, the increase being attributable to our net income earned in the first quarterhalf of 2014.2014, partially offset by the special, one-time dividend of approximately $2.5 million that was approved by our Board of Directors in June.  Our current ratio decreased slightly from 5.0 at December 31, 2013 to 4.93.4 at March 31,June 30, 2014 due primarily to the increaseapproximately $2.2 million borrowings on our line of credit in accounts payable during the firstsecond quarter of 2014.2014 and the accrued dividend that will be paid in August.

As of March 31,June 30, 2014, our investment in inventory increased by $4.2approximately $9.7 million from year-end 2013.  The majority of the increase was caused by the arrival in the second quarter of a large portion of the new products that we will introduce in our annual catalog later this year.  Historically, the majority of that product arrives in the third quarter.  Inventory turnover reached an annualized rate of 2.82.5 times during the first quarterhalf of 2014, decreasing from 3.02.9 times for the first quarterhalf of 2013.  Inventory turnover was 3.0 times for all of 2013.  We compute our inventory turns as sales divided by average inventory.  

Trade accounts receivable was approximately $887,000$796,000 at March 31,June 30, 2014, up $124,000approximately $34,000 from approximately $762,000 at year-end 2013.  The average days to collect accounts decreased to 36for the first half of 2014 were 38 days, improving from 45 days for the first quarterhalf of 2014, an improvement from the average days to collect accounts in the first quarter of 2013 of 40 days.2013.  We are constantly monitoringmonitor our customer accounts very closely in orderan effort to minimize the risk of uncollectible accounts in the current economic environment.  Our allowance for doubtful accounts decreased from year-end 2013 to March 31,June 30, 2014 as a result of our collecting a number of various older accounts, which also contributed to the reduction in the days outstanding.

Accounts payable increased approximately $843,000$171,000 to $2.7approximately $2.1 million at March 31,June 30, 2014 compared to $1.9 million at year-end 2013 due to the increase in inventory during the quarter.  Accrued expenses decreasedincreased from approximately $5.8 million at December 31, 2013 to $5.2approximately $6.7 million at MarchJune 30, 2014.  The increase in the inventory in transit at June 30, 2014 compared to that at December 31, 2014.  The2013, offset by the payment of the 2013 manager bonuses during the first quarter ofin March 2014 accounted for the reduction.increase.

During the first quarterhalf of 2014, cash flow used by operating activities was $1.4approximately $4.6 million.  The increase in inventory of $4.2approximately $9.7 million, offset by net income of $1.9approximately $3.6 million and the increase in accounts payable and accrued expenses of approximately $843,000$1.1 million accounted for the use of operating cash during the first quarterhalf of 2014.

By comparison, during the first quartersix months of 2013, cash flow provided by operating activities was approximately $495,000.$2.2 million. Net income of $1.6approximately $3.2 million and the reductionincrease in accounts payable of approximately $1.3 million, offset by the increase in inventory of approximately $504,000, offset by the reduction in accrued expenses of $1.4$1.6 million accounted for the majority of the operating cash provided in the first quartersix months of 2013.

Cash flow used by investing activities totaled approximately $632,000$925,000 in the first quartersix months of 2014, consisting primarily of the purchase of store fixtures, factory equipment, and computer equipment.  In the first quartersix months of 2013, cash flow used byin investing activities totaled approximately $986,000,$2.0 million, consisting primarily of the building construction in progress ofconstructed to house our flagship store, which opened in June 2013, and purchases of store fixture purchases.fixtures and computer equipment.

Cash flow usedprovided by financing activities totaled $51,000approximately $1.9 million in both the first quartershalf of 2014, andconsisting of borrowing against our line of credit totaling approximately $2.2 million, partially offset by debt repayments of approximately $354,000.  Cash flows used by financial activities totaled approximately $405,000 in the first half of 2013, consisting entirely of debt repayments.

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.funds, and occasional borrowings on our line of credit with JPMorgan Chase Bank.

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, 2013.  We believe that our exposure to market risks has not changed significantly since December 31, 2013.  We expect that our exposure to foreign currency exchange risk will increase as our international presence increases.

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, March 31,June 30, 2014. 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 March 31,June 30, 2014, our disclosure controls and procedures were effective at a reasonable assurance level.

There have been no changes in our internal control over financial reporting during the fiscal quarter ended March 31,June 30, 2014 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The information contained in Note 56 to the consolidated financial statements included in Item 1 of this Report is hereby incorporated into this Item 1 by reference.

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.