The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for annual audited financial statements.  In the opinion of management, the accompanying consolidated financial statementsConsolidated Financial Statements for Tandy Leather Factory, Inc. and its consolidated subsidiaries contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly itsour financial position as of SeptemberJune 30, 20172021 and December 31, 2016, and its2020, our results of operations for the three and six month periods ended June 30, 2021 and 2020, our cash flows for the three and nine-monthsix month periods ended SeptemberJune 30, 20172021 and 2016.  Operating2020, and our statements of stockholders’ equity as of June 30, 2021 and 2020.  The preparation of financial statements in accordance with GAAP requires the use of estimates that affect the reported value of assets, liabilities, revenues and expenses.  These estimates are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for the threeCompany’s conclusions.  The Company continually evaluates the information used to make these estimates as the business and nine-month periods ended September 30, 2017the economic environment changes.  Actual results may differ from these estimates, and estimates are not necessarily indicative ofsubject to change due to modifications in the results that may be expected for the year ending December 31, 2017.underlying conditions or assumptions.  These consolidated financial statementsConsolidated Financial Statements should be read in conjunction with the audited consolidated financial statementsConsolidated Financial Statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2016.2020.

In late 2019, COVID-19 was detected in Wuhan, China and has since spread to other parts of the world, including the U.S.  On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic.  Federal, state, and local governments implemented various restrictions, including travel restrictions, border closings, restrictions on public gatherings, quarantining of people who may have been exposed to the virus, shelter-in-place restrictions and limitations on business operations.  As previously announced and for the health and safety of employees and customers, on March 17, 2020, the Company made the decision to begin temporary store closures.  The preparationonset of financial statementsthe COVID-19 pandemic in accordance with accounting principles generally acceptedMarch 2020 temporarily shifted our strategic focus to company survival and cash preservation.  We began closing stores on March 18, 2020, and by April 2, 2020, we temporarily closed all stores to the public.  While we pivoted to serve customers only online, the Company experienced significant decreases in demand for its products in the United States requires managementsecond and third quarters of 2020, negatively impacting net sales.

Due to our size, we were not eligible for the Paycheck Protection Program administered through the Small Business Administration.  Also, due to our not being current on financial filings with the SEC, we were not able to obtain loans under the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act. During the second quarter of 2020, the Company borrowed $0.4 million through the Spanish government’s Institute of Official Credit Guarantee for Small and Medium-sized Enterprises, a COVID-19 relief program.  The term of the agreement is for five years and the interest rate is fixed at 1.5%.  Based on the terms of the loan agreement, we make estimatesinterest-only payments for the first two years and assumptionsmonthly principal and interest payments for the remainder of the term of the agreement.  In Canada, we participated in the Canada Emergency Commercial Rent Assistance (“CECRA”) program for rent relief.  This program provided for a 75% reduction in the store rent for included stores for the months of April, May and June 2020.  We received total rent abatements under the program of $0.05 million.

Foreign currency translation and transactions.  Foreign currency translation adjustments arise from activities of our foreign subsidiaries.  Results of operations are translated into U.S. dollars using the average exchange rates during the period, while assets and liabilities are translated using period-end exchange rates.  Foreign currency translation adjustments of assets and liabilities are recorded in stockholders’ equity and presented net of tax.  Gains and losses resulting from foreign currency transactions are reported in the financial statements of income under the caption “Other (income) expense, net” for all periods presented.

Revenue Recognition.  Our revenue is earned from sales of merchandise and accompanying notes.  Actual results could differgenerally occurs via three methods: (1) at the store counter, (2) shipment of product generally via web sales, and (3) sales of product directly to commercial customers.  We recognize revenue when we satisfy the performance obligation of transferring control of product merchandise over to a customer.  At the store counter, our performance obligation is met and revenue is recognized when a sales transaction occurs with a customer.  When merchandise is shipped to a customer, our performance obligation is met and revenue is recognized when control passes to the customer.  Shipping terms are normally free on board (“FOB”) shipping point and control passes when the merchandise is shipped to the customer.  Sales tax and comparable foreign tax is excluded from net sales, while shipping charged to our customers is included in net sales.  Net sales are based on the amount of consideration that we expect to receive, reduced by estimates for future merchandise returns.

Discounts.  We offer a single retail price level, plus 3 volume-based levels for commercial customers.  Discounts from those estimates.price levels are offered to business, military/first responder and employee customers.  Such discounts do not convey a material right to these customers since the discounted pricing they receive at the point of sale is not dependent upon any previous or subsequent purchases.  As a result, sales are reported after deduction of discounts at the point of sale.  We do not pay slotting fees or make other payments to resellers.

Operatingexpense.  Certain prior year amounts have been reclassifiedOperating expenses include all selling, general and administrative costs, including wages and benefits, rent and occupancy costs, depreciation, advertising, store operating expenses, outbound freight charges (to ship merchandise to conformcustomers), and corporate office costs.

Property and equipment, net of accumulated depreciation.  Property and equipment are stated at cost.  Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which are three to ten years for equipment and machinery, seven to fifteen years for furniture and fixtures, five years for vehicles, and forty years for buildings and related improvements.  Leasehold improvements are amortized over the current year presentation.lesser of the life of the lease or the useful life of the asset.  Repairs and maintenance costs are expensed as incurred.

GoodwillLeases.  We lease certain real estate for our retail store locations and Other Intangibles.  Goodwill represents the excess of the purchase price over the fair value of netwarehouse equipment for our Texas distribution center, both under long-term lease agreements.  We determine if an arrangement is a lease at inception and recognize right-of-use (“ROU”) assets acquired in a business combination. Goodwill is required to be evaluated for impairmentand lease liabilities at commencement date based 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.

Impairment of Long-Lived Assets.  We evaluate long-lived assets on a quarterly basis to identify events or changes in circumstances (“triggering events”) that indicate the carrying value of certain assets may not be recoverable.  Upon the occurrence of a triggering event, ROU lease assets, property and equipment and definite-lived intangible assets are reviewed for impairment and an impairment loss is recorded in the period in which it is determined that the carrying amount of the assets is not recoverable. The determination of recoverability is made based upon the estimated undiscounted future net cash flows of assets grouped at the lowest level for which there are identifiable cash flows independent of the cash flows of other groups of assets with such cash flows to be realized over the estimated remaining useful life of the primary asset within the asset group. The Company determined the lowest level of identifiable cash flows that are independent of other asset groups to be primarily at the individual store level. If the estimated undiscounted future net cash flows for a given store are less than the carrying amount of the related store assets, an impairment loss is determined by comparing the estimated fair value with the carrying value of the related assets. The impairment loss is then allocated across the asset group's major classifications which in this case are operating lease assets and property and equipment. Triggering events at the store level could include material declines in operational and financial performance or planned changes in the use of assets, such as store relocation or store closure. This evaluation requires management to make judgements relating to future cash flows, growth rates and economic and market conditions. The fair value of an asset group is estimated using a discounted cash flow valuation method.

Our principal financial instruments held consist of short-term investments, accounts receivable, accounts payable, and long-term debt.  As of June 30, 2021 and December 31, 2020, the carrying values of our financial instruments, included in our Consolidated Balance Sheets, approximated or equaled their respective goodwill balances.  No indicatorsfair values.  There were 0 transfers into or out of impairment were identifiedLevels 1, 2 and 3 during the first ninethree and six months ended June 30, 2021 and 2020.

Short-Term Investments.  We determine the appropriate classification of 2017.investments at the time of purchase, and we re-evaluate that determination at each balance sheet date.  Investments are recorded as either short-term or long-term on the Consolidated Balance Sheet, based on contractual maturity date.

Deferred tax assets and liabilities are measured using the enacted tax rates in effect in the years when those temporary differences are expected to reverse.  The onlyeffect on deferred taxes from a change in our goodwill fortax rate is recognized through continuing operations in the nine-month periods ended September 30, 2017 and 2016 resulted from foreign currency translation of $7,651 and $5,274, respectively.

We recorded amortizationrecognize tax liabilities for uncertain tax positions and adjust these liabilities when our judgement changes as a result of the evaluation of new information not previously available.  Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate of the tax liabilities.  These differences will be reflected as increases or decreases to income tax expense and the effective tax rate in the period in which new information becomes available.  We recognize interest and/or penalties related to all tax positions in income tax expense. To the extent that accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction of $1,331 during the nine months ended September 30, 2017 comparedoverall income tax provision in the period that such determination is made.

We may be subject to $5,998 duringperiodic audits by the first nine months of 2016.  AllInternal Revenue Service and other taxing authorities.  These audits may challenge certain of our tax positions, such as the timing and amount of deductions and allocation of taxable income to the various jurisdictions.

In May 2014,December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, which amends ASC Topic 606, “Revenue from Contracts with Customers”. The amendments in this ASU are intended to provide a more robust framework for addressing revenue issues, improve comparability of revenue recognition practices and improve disclosure requirements. The amendments in this accounting standard update are effective for interim and annual reporting periods beginning after December 15, 2016. In April 2015, FASB issued ASU No. 2015-24, Revenue from Contracts with Customers: Deferral2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of the Effective Date which proposed a deferraland simplify GAAP for other areas of the effective dateTopic 740 by one year,clarifying and amending existing guidance. We adopted this ASU on July 7, 2015, FASB decided to delay the effective date by one year. The deferral results in the new revenue standard being effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. We are therefore required to apply the new revenue guidance beginning in our 2018 interim and annual financial statements. This ASU can be adopted either retrospectively or as a cumulative-effect adjustment as of the date of adoption. Entities reporting under U.S. GAAP are not permitted to adopt this standard earlier than the original effective date for public entities (that is, no earlier than 2017 for calendar year-end entities.) We are currently evaluating what impact, if any,January 1, 2021; the adoption of this guidance will have on our financial condition, results of operations, cash flows and financial disclosures.  Based on our procedures to date, we believe that the adoption willASU did not have a material impact to oureffect on the Company’s financial condition, results of operations or cash flows although our disclosures will be expanded.  We expect to adopt ASU No. 2014-09flows.

The following table sets forth the computation of basic and diluted earnings per share (“EPS”)EPS for the three and ninesix months ended September 30:June 30, 2021 and 2020:

We are periodically involved in various 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.

As previously disclosed, the Company was unable to timely file the delinquent filings due to the process of restating its financial statements as described above.  As a result, on February 18, 2020, the Company received a notice from the Nasdaq Stock Market LLC (“Nasdaq”) indicating that, unless the Company timely requested a hearing before a Nasdaq Hearings Panel (the “Panel”), the Company’s common stock would be subject to suspension and delisting from Nasdaq due to non-compliance with Nasdaq Listing Rule 5250(c)(1).  On May 1, 2017, we updated2020, the Panel granted the Company’s request to remain listed on Nasdaq, subject to the Company filing all current and overdue quarterly and annual reports with the Securities and Exchange Commission on or before August 10, 2020.  Because the restatement process was not complete by such date, Nasdaq suspended trading in our reporting segmentsshares as of August 13, 2020. Our stock has since traded on the OTC Link (previously “Pink Sheets”) operated by OTC Markets Group under the symbol “TLFA”.  Nasdaq denied our appeal of this decision, resulting in our stock being formally delisted on February 9, 2021.  We intend to better reflect how management analyzesreapply for Nasdaq listing once the business and allocates resources, as follows:Company has made the required Exchange Act filings.

In 2019, the Company self-reported to the current segment structure.