Tandy Brands Accessories (TBACQ) 10-K 2009 FY Annual report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the fiscal year ended June 30, 2009 Commission File Number 0-18927

TANDY BRANDS ACCESSORIES, INC.
(Exact name of registrant as specified in its charter)

Delaware	75-2349915
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)

690 East Lamar Boulevard, Suite 200, Arlington, TX 76011
(Address of principal executive offices and zip code)

817-548-0090
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Common Stock, Par Value $1.00 Per Share
(Title of class)

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

o Yes þ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

o Yes þ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

þ Yes o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

o Yes                    o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer o
Non-accelerated filer   o(Do not check if a smaller reporting company)	Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o  Yes þ No

The aggregate market value of the voting common equity held by non-affiliates based upon the closing price of the common stock on the NASDAQ Global Market System on December 31, 2008 was $7,497,157. Shares of common stock known to be held by executive officers, directors, and holders of more than 5% of the outstanding common stock have been excluded. This determination of affiliate status in not necessarily a conclusive determination for other purposes.

There were 7,058,371 shares of common stock, par value $1.00 per share, outstanding on August 26, 2009.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held on October 27, 2009 are incorporated by reference into Part III of this Form 10-K.

TABLE OF CONTENTS

PART I
Item 1	Business	3
Item 1A	Risk Factors	9
Item 1B	Unresolved Staff Comments	12
Item 2	Properties	12
Item 3	Legal Proceedings	13
Item 4	Submission Of Matters To A Vote Of Security Holders	13
PART II
Item 5	Market For Registrant’s Common Equity, Related Stockholder Matters
	And Issuer Purchases Of Equity Securities	13
Item 6	Selected Financial Data	15
Item 7	Management’s Discussion And Analysis Of Financial Condition And Results Of Operations	15
Item 7A	Quantitative And Qualitative Disclosures About Market Risk	20
Item 8	Financial Statements And Supplementary Data	21
Item 9	Changes In And Disagreements With Accountants On Accounting And Financial Disclosure	38
Item 9A(T)	Controls And Procedures	38
Item 9B	Other Information	39
PART III
Item 10	Directors, Executive Officers And Corporate Governance	40
Item 11	Executive Compensation	40
Item 12	Security Ownership Of Certain Beneficial Owners And Management
	And Related Stockholder Matters	40
Item 13	Certain Relationships And Related Transactions, And Director Independence	40
Item 14	Principal Accounting Fees And Services	40
PART IV
Item 15	Exhibits And Financial Statement Schedules	41
SIGNATURES		42
EX-10.47
EX-10.48
EX-10.49
EX-10.50
EX-21.1
EX-23.1
EX-31.1
EX-31.2
EX-32.1

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References in this Annual Report onForm 10-K to “we,” “our,” “us,” or the “Company” refer to Tandy Brands Accessories, Inc. and its subsidiaries unless the context requires otherwise.

FORWARD-LOOKING STATEMENTS

ThisForm 10-K contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933 and the Securities Exchange Act of 1934. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “continues,” “may,” variations of such words, and similar expressions are intended to identify forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our business, and other characterizations of future events or circumstances are forward-looking statements. We have based these forward looking statements on our current expectations about future events, estimates and projections about the industry in which we operate. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Our actual results may differ materially from those suggested by these forward-looking statements for various reasons, including those identified under “Risk Factors” on page 9. Given these risks and uncertainties, you are cautioned not to place undue reliance on forward-lookingstatements. The forward-looking statements included in this report are made only as of the date hereof. Except as required under federal securities laws and the rules and regulations of the United States Securities and Exchange Commission, we do not undertake, and specifically decline, any obligation to update any of these statements or to publicly announce the results of any revisions to any forward-looking statements after the distribution of this report, whether as a result of new information, future events, changes in assumptions, or otherwise.

PART I

ITEM 1 - BUSINESS

What do we do?

We are a leading designer and marketer of branded men’s, women’s and children’s accessories, including belts, gifts, small leather goods, eyewear, neckwear, and sporting goods. Our merchandise is marketed under a broad portfolio of nationally recognized licensed and proprietary brand names, including TOTES^®, WRANGLER^®, DOCKERS^®, DR. MARTENS^®, AMITY^®, ROLFS^®, CANTERBURY^®, PRINCE GARDNER^®, PRINCESS GARDNER^®, SURPLUS^®, as well as private brands for major retail customers. We sell our products through all major retail distribution channels throughout North America, including mass merchants, national chain stores, department stores, men’s and women’s specialty stores, catalog retailers, grocery stores, drug stores, golf pro shops, sporting goods stores, and the retail exchange operations of the United States military.

What significant business developments were there in fiscal 2009?

Significant business developments in fiscal 2009 include:

• October 2008 - Employment of a new chief executive officer to succeed the individual who guided the company since 1990;

• January 2009 - Announcement of an organizational restructuring plan with more than $3 million in anticipated annualized savings designed to build critical capabilities, focus product development efforts, increase flexibility to better serve our retail partners’ needs, and reduce operating expenses;

• March 2009 - Formation of a new Eyewear Division which expands our presence into the emerging reading glasses category - shipping commenced in July 2009; and

• April 2009 - Signing of an agreement to purchase certain strategic assets from Chambers Belt Company and assume its Wrangler licenses - closing occurred on July 9, 2009.

Based on the organizational restructuring plan of our new chief executive officer and the views of other recently-recruited senior members of management, we concluded our stockholders would be better served by allocating our resources to products with higher margins and larger shipping quantities. As a result of this focus, we implemented a new product life-cycle management program and have moved away from low margin products with either small shipping quantities or slow turn-over rates. Consequently, we recorded a $6.9 million noncash inventory write-down to liquidate certain inventories requiring excessive resources by reducing selling prices or scrapping items which might be difficult to sell under current market conditions.

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Information about the strategic assets purchased from Chambers is incorporated herein by reference to Note 3 of the notes to consolidated financial statements included in Item 8 of this Annual Report.

What are our product lines?

Our primary products, which we sell under proprietary, licensed, and private brand names, consist of belts, gifts, and small leather goods such as wallets. Our products and their percentages of fiscal 2009 total net sales were:

Belts	57.7	%
Gifts	17.9
Small leather goods	17.2
Other products	7.2

We are organized along men’s and women’s product lines with two reportable segments: (1) men’s accessories and (2) women’s accessories. Men’s and boys’ products represented 78.1% of our net sales in fiscal 2009 and women’s and girl’s products accounted for 21.9% of our net sales.

Belts
We, along with our predecessors, have manufactured and marketed belts for over 88 years, and belts remain our largest single product category. In fiscal 2009, belt sales of $74.4 million were 57.7% of our net sales. We compete in all four categories of the belt market: casual, work, dress, and fashion.

Gifts
We distribute a broad range of gifts, including products such as emergency kits, lights and radios, book lights, beverage mugs, and tie racks. Gift sales were $23.1 million, or 17.9% of our total net sales, in fiscal 2009.

Small Leather Goods
Our small leather goods consist primarily of men’s and women’s wallets. Sales of small leather goods were $22.2 million, or 17.2% of our net sales in fiscal 2009.

Other Products
Other products we market include eyewear, neckwear, and sporting goods accessories which complement our core belt, gift, and small leather goods products. Sales of other products were $9.3 million, or 7.2% of our net sales in fiscal 2009.

What brands do we sell?

Our net sales by brand type in fiscal 2009 were (in millions):

Type	Net Sales
Private brands	$	77.7	60.3	%
Licensed brands		26.0	20.1
Proprietary brands		25.3	19.6
	$	129.0

Private Brand Products
In fiscal 2009 private brand products accounted for $77.7 million, or 60.3% of our net sales. In a private brand program we are responsible for designing and delivering unique products for select customers according to the customer’s individual requirements. These programs offer our customers exclusivity and pricing control over their products, both of which are important factors in the retail marketplace. We believe our flexible sourcing capabilities, electronic inventory management and replenishment systems, and design, product development, and merchandising expertise provide retailers with a superior alternative to direct sourcing of their private brand products.

Our principal private brand programs include those for leading retailers such as Wal-Mart, Target, and JC Penney, as well as nationally recognized private brand names such as Faded Glory^®, Meeting Street^®, croft & barrow^®, Tony Hawk^®, Stafford^®, and Sonoma^®.

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License Agreements
We have exclusive license agreements for several well recognized brands, including Dockers^®, Dr. Martens^®, and totes^® gifts.

In fiscal 2010 we began delivering new leather belt and accessory products under the following brand names included in the Wrangler Mass and Western/Specialty licenses we assumed from Chambers in July 2009:

Wrangler Hero^®      Timber Creek^®   by Wrangler^®      Wrangler Jeans Co^®

Wrangler Outdoor Gear^®     Wrangler^®      Wrangler Rugged Wear^®

Generally our license agreements cover specific products and require us to pay royalties ranging from 3% to 10% of net sales based on minimum sales quotas. The terms of the agreements are typically three years, with options to extend the terms, provided certain sales or royalty minimums are achieved. For fiscal 2009, sales of licensed products accounted for $26.0 million, or 20.1% of our net sales. Sales of totes^® gifts were $19.9 million, or 15.5% of our net sales. No sales associated with any other individual license agreement accounted for more than 5% of our net sales in fiscal 2009. In order to allocate scarce resources to higher margin products with larger shipping quantities, some licenses have not been renewed and product development for certain others has been discontinued.

Proprietary Brands
In addition to our licensed and private brands, we market products under our own registered trademarks and trade names. We own leading and well recognized trademarks such as Amity^®, Rolfs^®, Canterbury^®, Prince Gardner^®, Princess Gardner^®, and Surplus^®. Net sales under our proprietary brands were $25.3 million, or 19.6% of our net sales in fiscal 2009.

Distribution Of Our Key Brands
We sell our products to a variety of retail outlets, including:
Department stores	Office supply stores
Specialty chains	E-commerce websites
Mass merchants	National chain stores
United States military retail exchange operations	Outlet stores
Golf pro shops	Sporting goods stores
Supermarkets	Individual specialty stores
Uniform stores	Catalog retailers
TV shopping networks	Shoe stores
Drug stores	Wholesale clubs

Our key brands and each brand’s targeted distribution channels and primary products are:

Brand	Distribution Channel	Products
totes®	Mass merchants	Gifts
	National chain stores
	Department stores
	Specialty stores
Wrangler®	Mass merchants	Belts
	Western markets	Small leather goods
	Sporting goods stores
Dockers®	National chain stores	Belts
Dr. Martens®	Specialty stores	Belts
		Wallets
		Bags
Amity®	Mass merchants	Small leather goods
	National chain stores

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Brand	Distribution Channel	Products
Rolfs®	National chain stores	Belts
	Department stores	Small leather goods
	Specialty stores
Canterbury®	Specialty stores	Belts
	Golf pro shops	Small leather goods
Prince Gardner®	National chain stores	Small leather goods
	Specialty stores
Princess Gardner®	National chain stores	Small leather goods
	Specialty stores
Surplus®	National chain stores	Belts
		Small leather goods

Two of our product lines also are sold through our e-commerce web sites: Rolfs^® at www.rolfs.net and Sport Beads at www.sport-beads.com.

Who are our customers?

We maintain strong relationships with various major retailers throughout North America, including:

Department Stores	National Chains	Mass Merchants
Kohl’s	JCPenney (U.S. and Mexico)	Wal-Mart (U.S. and Canada)
Belk	Casual Male	Target
Bon-Ton/Carson’s	AAFES	Fred Meyer
Macy’s	Academy Sports & Outdoors	Zellers (Canada)
Dillard’s	Tractor Supply	Ross Stores
The Bay (Canada)	Moore’s (Canada)	Shopko

Wal-Mart accounted for 43% and 41% of our net sales in fiscal 2009 and 2008, respectively, and Kohl’s accounted for 10% in fiscal 2009. No other customer accounted for 10% or more of our total net sales. In fiscal 2009 and 2008 our top ten customers accounted for 74% and 76%, respectively, of net sales.

How do we maintain strong customer relations?

We believe our success is due in large part to our design expertise, long-term customer relationships, strong sales and marketing organization, and superior customer service. Factors which help facilitate these characteristics include our quick response distribution, vendor inventory management services, electronic data interchange capabilities, and expertise in the communication of fashion and lifestyle concepts through product lines and innovative point-of-sale presentations. We develop and manage our accounts through the coordinated efforts of senior management, account executives, and an organization of salespeople and independent sales representatives.

We maintain customer service relationships with various specialty stores, national chain stores, and major department stores. We have a team of 91 sales associates in the United States and 7 sales associates in Canada. These sales associates are organized on a regional basis and supervised by our account executives. Sales associates are responsible for overseeing accounts within a defined geographic territory, developing and maintaining business relationships with their respective customers, preparing and conducting product line presentations, and assisting customers in the implementation of programs at the individual store level. In addition, sales associates may, depending on the needs of an individual customer, assist in the maintenance and presentation of merchandise on the selling floor.

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How do we merchandise and develop our products?

Our product development and merchandising professionals work closely with our licensors, suppliers, and customers to interpret market trends, develop new products, and create comprehensive merchandising programs consisting of packaging, point-of-sale, fixturing, and presentation materials. Our new product life-cycle management program leverages cross-functional business planning, merchandising, and design teams focusing product strategic planning and development on fashion trends and seasonal sales plans. Our senior managers maintain business relationships with customers’ buyers and merchandise managers enabling us to plan, develop, and implement specific merchandising programs for key accounts. We believe our internal design ability represents a significant competitive advantage because, in our opinion, retail customers have become increasingly reliant on the design and merchandising expertise of their suppliers for developing compelling assortments.

What is our competitive position?

Competition in the fashion accessories industry is intense. The accessories market is highly fragmented and we believe we are a major competitor in the accessories industry. In our opinion, the sectors of the accessories industry we serve has benefited from:

• trends toward more casual attire which has increased demand for accessories outside the traditional dress category;

• increased consumer awareness of branded accessories as a fashion and lifestyle statement; and

• a desire for newness and change in accessories styles.

As a result of consolidation in the retail industry, retailers have increasingly chosen to consolidate their suppliers to a core group of companies that have the resources and expertise to meet the retailers’ increasing demands. We believe we are well positioned to continue to capitalize on these market trends.

Our primary competitors are:

Product Category	Competitors
Men’s and boys’ belts	Swank, Randa/Humphreys, Cipriani, and Fossil
Men’s wallets	Buxton, Randa/Humphreys, Mundi, Fossil, Swank, and Cipriani
Men’s gifts	E&B, Merchsource, Excalibur, JLR, and Mundi
Women’s and girls’ belts	Cipriani, Circa, and Fossil
Women’s small leather goods	Buxton, Mundi, Fossil, Relic, and Nine West

We believe our ability to compete successfully is based on our long-term customer relationships, superior customer service, national distribution capabilities, proprietary inventory management systems, flexible sourcing, and product design, innovation, and quality.

How do we seek to grow our business?

We seek to increase our sales and earnings through a variety of means, including organic growth from increased sales by our current operating units, as well as growth through new products and license agreements and the acquisition of assets and similar businesses. Since our incorporation in 1990, we have acquired numerous businesses and licenses, including the assets, licenses, and manufacturing capabilities acquired from Chambers in July 2009 which we believe have the potential to increase our annual net sales by $15 to $20 million. In the future, we may make additional acquisitions that complement our business and are accretive to our earnings.

Where and how are our products produced?

We have strong relationships with a number of high-quality, low-cost foreign manufacturers who provide products manufactured to our specifications. Most of our products are manufactured by third-party suppliers in China, the Dominican Republic, India, Italy, Mexico, and Taiwan, with only a small percentage manufactured in Canada and the US. In fiscal 2009 and 2008, Superior Leather Limited and Best Development Company were our two largest suppliers. We do not believe we are exposed to any potentially significant disruption of product flow because a

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number of companies could manufacture our products and, in July 2009, we acquired manufacturing capabilities in Mexico from Chambers.

Is our business seasonal?

Our quarterly sales and operating results have a seasonal increase in the fall (our first and second fiscal quarters). Quarterly net sales and our pretax (loss) income, as percentages of the totals for fiscal 2009 and 2008, were:

	First			Second			Third			Fourth
	Quarter			Quarter			Quarter			Quarter
Net sales
Fiscal 2009		26.8	%		33.3	%		19.4	%		20.5	%
Fiscal 2008		26.4			33.2			20.2			20.2
Pretax (loss) income
Fiscal 2009		(6.7	)%		6.8	%		(81.6	)%		(18.5	)%
Fiscal 2008		(6.2	)		(81.5	)		(4.9	)		(7.4	)

      The fiscal 2009 third quarter includes noncash charges of $7.5 million, or 58.6% of the quarter’s pretax loss, and the fiscal 2008 second quarter includes noncash charges of $36.5 million, or 97.2% of the quarter’s pretax loss.

Are we subject to governmental regulations?

Most of our products are manufactured outside of the United States. Accordingly, foreign countries and the United States may from time to time modify existing quotas, duties, tariffs, or import restrictions, or otherwise regulate or restrict imports in a manner which could be material and adverse to us. In addition, economic and political disruptions in Asia and other parts of the world from which we import goods could have an adverse effect on our ability to maintain an uninterrupted flow of products to our customers. Laws and regulations such as the Consumer Product Safety Improvement Act of 2008 also may adversely affect our profitability when they require product modifications or increased product testing.

Due to the fact that we sell our products to the retail exchange operations of the United States military, and thus are a supplier to the federal government, we must comply with all applicable federal statutes. Historically we have not made any material modifications or accommodations as a result of government regulations.

How many employees do we have?

As of June 30, 2009, we employed 655 people, of which 527 were full time employees. We believe employee relations are generally good.

What role does intellectual property play in our business?

We believe our trademarks, licenses to use certain trademarks, and our other proprietary rights in and to intellectual property are important to our success and our competitive position. We seek to protect our designs and intellectual property rights against infringement and devote resources to the establishment and protection of our intellectual property on a nationwide basis and in selected foreign markets. Our trademarks remain valid and enforceable as long as the marks are used in connection with our products and services and the required registration renewals are filed.

What are our working capital practices?

We do not enter into long-term agreements with any of our suppliers or customers. Instead we enter into a number of purchase order commitments for each of our lines every season. Due to the time required by our foreign suppliers to produce and ship goods to our distribution centers, we attempt, based on internal estimates, to carry on-hand inventory levels necessary for the timely shipment of initial and replenishment orders. A decision by a customer’s buyer for a group of stores or any significant customer, whether motivated by competitive conditions, financial difficulties, or otherwise, to significantly change the amount of merchandise they purchase from us, or to change the manner of doing business with us, could have a significant effect on our financial condition and results of operations. We attempt to mitigate this exposure by selling our products to a variety of retail customers throughout North America.

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Where can investors access additional information about Tandy Brands?

Our website address is www.tandybrands.com. Information about our corporate governance, including our Code of Business Conduct and Ethics, is available on our website. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Forms 3, 4, and 5 filed by our officers, directors, and stockholders holding 10% or more of our common stock, and all amendments to those reports are available free of charge through our website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). You also may read and copy any reports, proxy statements, or other information that we file with the SEC at the SEC’s public reference room at 100 F Street N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information about the operation and location of the public reference room. Our SEC filings also are available to the public free of charge at the SEC’s website at www.sec.gov.

ITEM 1A - RISK FACTORS

In evaluating our business you should carefully consider the risk factors discussed below in addition to the other information in this Annual Report. Any of these factors could materially and adversely affect our business, results of operations, and financial condition. These factors are provided for investors as permitted by the Private Securities Litigation Reform Act of 1995. It is not possible to identify or predict all such factors and, therefore, you should not consider theses risks to be a complete statement of all the uncertainties we face.

Risks Relating To Our Business

A significant portion of our sales is attributable to a few major customers.

Ten customers accounted for 74% of our fiscal 2009 net sales, including Wal-Mart which accounted for 43% of our net sales. A decision by Wal-Mart or any other major customer, whether motivated by competitive conditions, financial difficulties or otherwise, to significantly change the amount of merchandise purchased from us, or to change the manner of doing business with us, could have a significant effect on our results of operations and financial position. We attempt to mitigate this exposure by selling our products to a variety of retail customers throughout North America.

We do not maintain long-term contracts with our customers and are unable to control their purchasing decisions.

Like most companies in our industry, we do not enter into long-term contracts with our customers. As a result, we have no contractual leverage over their purchasing decisions. A determination by a major customer to decrease the amount of products it purchases or to discontinue carrying our products could have a material adverse effect on our operations.

Direct sales to customers by suppliers could negatively impact our sales.

Certain third-party manufacturers have increasingly marketed and sold products to retailers directly, instead of through companies such as ours. We believe we provide significant value-added services through our design programs and our ability to tailor products for specific customers and demographic groups; however, if our customers decide to increase their level of purchases directly from third-party manufacturers, our sales could be negatively impacted.

We extend unsecured credit to our customers and are subject to potential financial difficulties they may face.

We extend credit to our department and retail store customers based on an evaluation of their financial condition and generally do not require collateral from our customers. If a customer experiences financial difficulties, we may need to curtail our sales to that customer or be subject to increased risk of nonpayment. This risk increases if distressed customers are forced to file for bankruptcy. If we are unable to collect our accounts receivable from a distressed customer, our operating results would be negatively impacted.

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The loss of certain of our license agreements could result in the loss of significant sales.

Our fiscal 2009 net sales included $26.0 million of licensed brand name sales, including $19.9 million of totes^® gifts. If we fail to comply with the terms of our license agreements, or to protect against infringement, such failure could have a material adverse effect on our business. In addition, certain of our license agreements require minimum royalty payments, regardless of the level of sales of the licensed products. In the event royalty commitments under these agreements exceed the revenues generated by sales of the licensed products, our operating results would be negatively impacted. The Wrangler^® licenses assumed from Chambers in July 2009 expire in 2010 and, if we are unable to enter into new agreements as we expect, our ability to achieve an annual $15 to $20 million net sales increase from Wrangler^® licensed products could be jeopardized and the carrying value of the assets acquired from Chambers might be impaired.

Distribution problems could delay product shipments.

Our inventory management and product distribution processes are highly dependent on the computer hardware and software which support these functions. Extended electric power, telecommunication, or internet outages, or a catastrophic loss of the hardware and software, could preclude timely delivery of products to our customers and result in a loss of sales.

The loss of, or problems with, third-party manufacturers could adversely impact our operations.

Most of our products are manufactured by independent, third-party suppliers in China, the Dominican Republic, India, Italy, Mexico, and Taiwan. We have no long-term contracts with these manufacturers and conduct business on a purchase-order basis. We compete with other companies for the production capacity and facilities of these manufacturers. Our future success depends on our ability to maintain relationships with our current suppliers and to identify other suppliers and develop relationships with those who can meet our quality standards. If our quality standards are compromised, our customer relationships could be negatively affected.

Our business is dependent on our ability to maintain proper inventory levels.

In order to meet the demands of our customers, we must maintain certain levels of inventory of our products. If our inventory levels exceed customer demand, we may be required to write-down unsold inventory or sell the excess at discounted or close-out prices. Such actions could significantly impact our operating results and financial condition, and could result in the diminution of the value of our brands. If we underestimate consumer demand for our products or if we are not able to obtain products in a timely manner, we may experience inventory shortages. If we are unable to fill customer orders, our relationships with our customers could be damaged and our business could be adversely affected. See “Our business is highly subject to consumer preferences and fashion trends” below.

Price increases by our suppliers could negatively affect our operating results.

Most of our products are purchased from third-party suppliers. If our suppliers increase their prices, and we are not able to increase our selling prices, our gross margin and operating results would be materially impacted.

Lack of credit availability could constrain our operations.

Our $27.5 million credit facility expires in February 2010. We are negotiating with lenders to replace the facility before it expires, but an inability to do so on favorable terms could have a material negative impact on our results of operations and financial position.

Risks Relating To Our Industry

Our business is highly subject to consumer preferences and fashion trends.

Our industry is driven largely by fashion trends and consumer preferences and our success is dependent on our ability to anticipate and respond to these factors. While we devote considerable time and resources to gauging consumer, lifestyle, and fashion trends which affect the accessories market, any failure on our part to identify and respond to relevant trends could adversely affect acceptance of our products and brands and adversely impact our

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sales. If we fail to properly gauge fashion and consumer trends, we could be faced with a significant amount of inventory which might only be sold at distressed prices. See “Our business is dependent on our ability to maintain proper inventory levels” above.

Our industry is highly competitive and subject to pricing pressures that could adversely affect our financial position.

The accessories industry is highly fragmented and highly competitive. We compete with numerous manufacturers, importers, and distributors who may have greater resources and our results of operations and market position may be adversely affected by our competitors and their competitive pressures. In addition, from time to time, we must adjust our prices to respond to industry-wide pricing pressures. Our financial performance could be negatively impacted by these pricing pressures if we are forced to reduce prices and cannot also reduce procurement costs, or if our procurement costs increase and we cannot increase our prices.

Our industry is highly subject to economic cycles and retail industry conditions.

Our business is highly subject to general economic cycles and retail industry conditions. When general economic conditions are lower, consumers are often hesitant to use discretionary income to purchase fashion accessories. Any significant declines in general economic conditions or uncertainties regarding future economic prospects that may affect consumer spending habits could adversely affect our business.

The volatility and disruption in the capital and credit markets over the last year have had a significant adverse impact on global economic conditions resulting in significant recessionary pressures and declines in consumer confidence and economic growth. The economic crisis has had and may continue to have a negative impact on our business which could result in:

• reduced consumer spending and demand for our products;

• increased consolidation in the retail industry;

• increased price competition for our products;

• increased risk of unsaleable inventories; and

• increased risk in the collectibility of accounts receivable from our customers.

These potential effects are difficult to forecast and mitigate. As a consequence, our operating results for a particular period are difficult to predict and, therefore, prior results are not necessarily indicative of results to be expected in future periods. Any of the foregoing effects could have a material adverse effect on our business, results of operations, and financial condition and could adversely affect the market price of our common stock.

Consolidation in the retail industry may negatively impact our operations.

There has been a significant amount of consolidation in the retail industry in recent years which has been accelerated by recent economic trends. This consolidation may result in factors which could negatively impact our business, such as:

Ÿ	store closures;
Ÿ	increased customer leverage over suppliers, resulting in lower product prices or lower margins;
Ÿ	tighter inventory management on the part of the customer, resulting in lower inventory levels and decreased orders; and
Ÿ	a greater exposure to customer credit risk.

Risks Relating To International Operations

We source most of our products from foreign countries.

Our transactions with our foreign manufacturers and suppliers are subject to the risks of doing business abroad, including potential political and economic disruptions. Imports into the United States could be affected by, among other things, the cost of transportation and the possible imposition of import duties and restrictions. The United States, Canada, China, and other countries in which our products are manufactured could impose new quotas, tariffs, or other restrictions, or adjust presently prevailing quotas, duty, or tariff levels, which could affect our operations and our ability to import products at current or increased levels.

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Fluctuations in foreign currencies could adversely impact our financial condition.

We generally purchase our products in transactions utilizing U.S. dollars. Because we acquire most of our products from foreign countries, the cost of those products may be impacted by changes in the value of the currency of the source country. Changes in the value of the Chinese Yuan, in particular, may have a material impact on our costs due to our reliance on Chinese manufacturing operations. Changes in the currency exchange rates may also affect the relative prices at which we and our foreign competitors sell products in the same market.

Risks Relating To Our Company

Our business depends on a limited number of key personnel with whom we do not have employment agreements. The loss of any one of these individuals could disrupt our business.

Our continued success is highly dependent upon the personal efforts and abilities of our senior executives. Except for our employment agreement with our chief executive officer, we do not have employment contracts with, or maintain key-person insurance on the lives of, any of these officers, and the loss of any one of them could disrupt our business.

We are dependent on the creative talent of our designers and the effectiveness of our sales personnel.

Sales of our products are highly dependent on their marketplace acceptance, which is driven by current styles and fashion trends, and our marketing abilities. If we were unable to hire and retain employees having exceptional creative talent and marketing skills, our sales would be adversely affected.

ITEM 1B - UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2 - PROPERTIES

We own and lease facilities in the United States and lease facilities in Canada and Hong Kong. We believe our properties are adequate and suitable for the particular uses involved. The following table summarizes our properties:

		Form of
Facility Location	Use	Ownership
Yoakum, Texas - 4 facilities(1)	Office and distribution center	Own
West Bend, Wisconsin	Warehouse held for sale and leased to third parties	Own
Scarborough, Ontario, Canada	Manufacturing and distribution center	Lease
Dallas, Texas	Distribution center	Lease
Arlington, Texas	Corporate offices	Lease
New York, New York	Office and showroom	Lease
Kowloon, Hong Kong	Office	Lease

⁽¹⁾ One of the Yoakum, Texas facilities is vacant and held for sale.

The total space we owned, leased, and occupied as of June 30, 2009 was as follows:

	Square Feet
	Owned		Leased		Total
Warehouse and office		559,000		219,000		778,000
Factory		-		27,000		27,000
Total		559,000		246,000		805,000

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ITEM 3 - LEGAL PROCEEDINGS

We are not involved in any material pending legal proceedings, other than ordinary routine litigation incidental to our business.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2009.

PART II

ITEM 5 - MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

What is the principal market for our common stock?

The principal market for our common stock is The NASDAQ Global Market where it is listed under the symbol “TBAC.” The high and low sales prices for our common stock for each quarterly period within the two most recent fiscal years as reported on NASDAQ were:

	Fiscal 2009				Fiscal 2008
Quarter Ended	High		Low		High		Low
September 30	$	6.34	$	2.38	$	13.15	$	10.12
December 31	$	5.00	$	1.25	$	11.86	$	7.91
March 31	$	2.50	$	1.35	$	9.66	$	4.50
June 30	$	3.18	$	1.49	$	6.99	$	3.82

How many common stockholders do we have?

As of August 26, 2009, we had approximately 580 stockholders of record.

Did we declare any cash dividends in fiscal 2009 or the prior fiscal year?

We declared and paid the following dividends:

Fiscal 2009
Declaration Date	Record Date	Payable Date	Per Share
August 19, 2008	September 30, 2008	October 17, 2008	$	0.04

Fiscal 2008
Declaration Date	Record Date	Payable Date	Per Share
August 13, 2007	September 28, 2007	October 19, 2007	$	0.04
October 29, 2007	December 31, 2007	January 18, 2008	$	0.04
February 4, 2008	March 31, 2008	April 18, 2008	$	0.04
April 21, 2008	June 30, 2008	July 18, 2008	$	0.04

No dividends have been paid since October 2008 in order to preserve capital and enhance financial flexibility. The payment of dividends in the future will be at the discretion of our board of directors and will depend on our profitability, financial condition, capital needs, future prospects, contractual restrictions, and other factors deemed relevant by our board of directors. In addition, payment of any future dividends requires the approval of our lender, in its sole discretion, pursuant to the terms of our credit facility.

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How many shares of common stock are authorized for issuance under our equity compensation plans?

The following table provides information regarding the number of shares of our common stock that may be issued on exercise of outstanding stock options or purchased by employees under our existing equity compensation plans as of June 30, 2009. These plans are:

• 1997 Employee Stock Option Plan;

• Nonqualified Formula Stock Option Plan for Non-Employee Directors;

• 2002 Omnibus Plan;

• 1995 Stock Deferral Plan for Non-Employee Directors;

• Stock Purchase Program; and

• Nonqualified stock option agreements with certain nonemployee directors.

	(A)			(B)			(C)
	Number of Securities						Number Of Securities Remaining
	To Be Issued upon			Weighted-Average			Available For Future Issuance
	Exercise Of			Exercise Price Of			Under Equity Compensation
	Outstanding Options,			Outstanding Options,			Plans (Excluding Securities
Plan Category	Warrants And Rights			Warrants And Rights			Reflected In Column (A))
Equity Compensation Plans Approved by Stockholders		735,712	(1)	$	10.75	(2)		546,334	(3)
Equity Compensation Plans Not Approved by Stockholders		15,000	(4)	$	6.09			-
Total		750,712		$	10.60	(2)		546,334

(1)	Includes options to purchase common stock under the following plans:
	•   1997 Employee Stock Option Plan - 180,500 shares;
	•   Nonqualified Formula Stock Option Plan for Non-Employee Directors - 34,275 shares; and
	•   2002 Omnibus Plan - 227,550 shares.
	Also includes up to 293,387 shares under the 2002 Omnibus Plan for performance units payable in shares of our common stock following the end of the July 1, 2008 to June 30, 2011 performance cycle if we achieve the maximum performance goal.
(2)	Calculation of weighted-average exercise price does not include performance unit shares under the 2002 Omnibus Plan because they have no exercise price.
(3)	Includes 28,375 shares of common stock issuable under the 1995 Stock Deferral Plan for Non-Employee Directors and 269,046 shares of common stock issuable under the 2002 Omnibus Plan after reserving 293,387 shares which would be issuable following the end of the July 1, 2008 to June 30, 2011 performance cycle if we achieve the maximum performance goal. Upon adoption of the 2002 Omnibus Plan, the number of shares authorized and reserved for issuance under our previously existing stock option plans were transferred to the 2002 Omnibus Plan and are presently authorized and reserved for issuance under that plan. All shares of common stock authorized and reserved for issuance on the exercise of outstanding stock options under our previous stock option plans and the 2002 Omnibus Plan will, on the cancellation or expiration of any such stock options, automatically be authorized and reserved for issuance under the 2002 Omnibus Plan.
	Also includes 248,913 shares of common stock issuable under the Stock Purchase Program which was suspended in September 2008. The Stock Purchase Program was open to all full-time employees who had been employed at least six months, but less than one year, or who had been employed one year or more and are contributing to the Tandy Brands Accessories, Inc. Employees Investment Plan. Under the Stock Purchase Program participants could contribute 5% or 10% of their earnings and we matched 25% or 50% of each participant’s contribution depending on their length of employment and other considerations. The Stock

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	Purchase Program purchased treasury stock, if available, or unissued common stock directly from our Company at monthly average market prices. The shares were fully vested upon purchase and the participant could withdraw from the Stock Purchase Program at any time. The shares purchased under the Stock Purchase Program were distributed to participants annually.
(4)	Stock options to purchase an aggregate of 15,000 shares of common stock under nonqualified stock option agreements for nonemployee directors dated October 16, 2001 with Dr. James F. Gaertner (4,250), Gene Stallings (4,250), Roger R. Hemminghaus (2,500), and Colombe M. Nicholas (4,000). These options became fully vested six months after the grant date and expire on October 16, 2011.

Did we repurchase any shares of common stock during the fourth quarter of fiscal 2009?

We did not repurchase any shares of our common stock during the fourth quarter of fiscal 2009.

ITEM 6 - SELECTED FINANCIAL DATA

Not applicable.

ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Item 7 should be read in the context of the information included elsewhere in this Annual Report including our consolidated financial statements and accompanying notes in Item 8 of this Annual Report.

OVERVIEW

We are organized along men’s and women’s product lines and have two reportable segments: (1) men’s accessories, consisting of belts, gifts, wallets and other small leather goods, suspenders, and sporting goods; and (2) women’s accessories, consisting of belts, small leather goods, and gifts.

The overall negative retail environment and general economic conditions which the global economy began to experience over a year ago are showing signs of modest improvement, but there seems to be little consensus on when a complete economic recovery may occur. Like most companies in the retail industry, our net sales, and resulting profitability, have been severely impacted beginning in fiscal 2008. Our customers generally have indicated they are taking a very conservative approach toward replenishing inventory in this environment. As a result, we have made the necessary adjustments internally to respond to these indications, and we continue to work closely with our retail partners to develop products and programs to fit their needs and the current environment.

Our operating results for fiscal 2009 were not only affected by lower net sales, but also the need to recognize that $1.1 million of accounts receivable may not be collectible due to several of our customers’ deteriorating financial condition and bankruptcy filings. These customers accounted for approximately 8.7% and 11.4% of our net sales in the first half of fiscal 2009 and fiscal 2008, respectively. Fiscal 2009 was also negatively impacted by a $6.9 million inventory write-down described in Note 3 of the notes to consolidated financial statements in Item 8 of this Annual Report and incorporated herein by reference.

In connection with an organizational restructuring plan announced in January 2009, we recorded charges for termination payments relating to an approximately 17% salaried employee headcount reduction ($558,000) and other costs ($216,000).

For the year, we had a net loss of $15.1 million, or $2.18 per share. In fiscal 2008, we had a net loss of $49.3 million, or $7.18 per share.

The following presents sales and gross margin data for our reportable segments (in thousands of dollars). Other financial information about our segments is incorporated herein by reference to Note 5 of the notes to consolidated financial statements included in Item 8 of this Annual Report.

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			Increase
	2009		(Decrease)			2008
Net sales:
Men’s accessories	$	100,759		(15.3	)%	$	118,949
Women’s accessories		28,258		(6.8	)		30,308
	$	129,017		(13.6	)	$	149,257
Gross margin:
Men’s accessories	$	32,327		6.5	%	$	30,364
Women’s accessories		7,344		219.9			2,296
	$	39,671		21.5		$	32,660
Gross margin percent of sales:
Men’s accessories		32.1%					25.5%
Women’s accessories		26.0					7.6
Total		30.7					21.9

Our sales are generally affected by changes in demand for our product categories (volume) as well as customer allowances and returns. Sales volume also can impact our gross margins in terms of product mix between mass merchant retailers, which typically sell product at lower price points than department stores, and specialty retailers. The components of our cost of goods sold and selling, general and administrative expenses (“SG&A”) are described in Note 2 of the notes to consolidated financial statements included in Item 8 of this Annual Report and incorporated herein by reference. We include the costs related to our distribution network in SG&A while others may include all or a portion of such costs in their cost of goods sold. Consequently, our gross margins may not be comparable to others.

The following presents product line net sales by each of our segments (in thousands of dollars).

2009	Men’s				Women’s				Total
Belts	$	62,462	62.0	%	$	11,944	42.3	%	$	74,407	57.7	%
Gifts		22,066	21.9			1,078	3.8			23,145	17.9
Small leather goods		7,742	7.7			14,479	51.2			22,220	17.2
Other products		8,489	8.4			757	2.7			9,245	7.2
	$	100,759			$	28,258			$	129,017
2008
Belts	$	76,265	64.1	%	$	11,557	38.1	%	$	87,822	58.8	%
Gifts		19,821	16.7			1,089	3.6			20,910	14.0
Small leather goods		12,790	10.7			15,964	52.7			28,754	19.3
Other products		10,073	8.5			1,698	5.6			11,771	7.9
	$	118,949			$	30,308			$	149,257

The following presents our SG&A and depreciation and amortization expenses by segment, and our interest expense (in thousands of dollars).

	2009		Decrease			2008
Selling, general and administrative expense:
Men’s accessories	$	41,440		(1.4	)%	$	42,008
Women’s accessories		11,591		(20.6	)		14,596
	$	53,031		(6.3	)	$	56,604
Depreciation and amortization:
Men’s accessories	$	1,210		(45.8	)%	$	2,234
Women’s accessories		702		(27.5	)		968
	$	1,912		(40.3	)	$	3,202
Interest expense	$	636		(54.4	)%	$	1,394

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Operationally, the most significant challenges in fiscal 2009 were:

• Maintaining gross margins and controlling SG&A expenses as net sales for fiscal 2009 declined 13.6 % from the fiscal 2008 level which was 23.8% lower than the prior year; and

• Transitioning management to a new senior executive team and implementing restructuring plans as long-time executives retired.

We implemented an aggressive product life-cycle management program and have moved away from low margin products with either small shipping quantities or slow turnover rates. To facilitate implementation of the product life-cycle management program, we decided to liquidate inventories requiring excessive resources by reducing selling prices or scrapping items which might be difficult to sell under current market conditions. Consequently, we recorded a $6.9 million noncash inventory write-down reflecting our best estimate of the market values we anticipate realizing based on our experiences selling through inventory liquidation channels. Actual amounts realized from the marked-down inventory may differ from our estimates and such differences could have a material impact on our future results of operations, cash flows, and financial position.

2009 COMPARED TO 2008

Net Sales And Gross Margins
Our $129.0 million fiscal 2009 net sales were 13.6% lower than the prior year with an improved gross margin of 30.7% which includes a 5.4 percentage point effect of the inventory write-down. The 21.9% gross margin in fiscal 2008 on net sales of $149.3 million included an inventory write-down effect of 12.5 percentage points.

Men’s accessories segment net sales of $100.7 million in fiscal 2009 were 15.3% below the $118.9 million in fiscal 2008 as the continuing decline in economic conditions further slowed retailers’ sales of belts and small leather goods. Fewer belt sales to our largest customer accounted for almost half of the lower men’s accessories sales and a $5.0 million decline in small leather goods sales was partly offset by a $2.2 million improvement in sales of gifts. The men’s accessories fiscal 2009 sales decline was offset by lower discounts and allowances for returns approximating $7.8 million primarily for our gift products. Women’s accessories segment net sales of $28.3 million in fiscal 2009 were 6.8% below the $30.3 million in fiscal 2008 as economic conditions affected its sales of small leather goods.

Gross margin dollars in fiscal 2009 generally were lower as the result of lower sales and a $6.9 million inventory write-down which negatively impacted the margin percentage by 5.4 percentage points. The fiscal 2008 gross margin percentage was negatively impacted by 12.5 percentage points due to an $18.7 million inventory write-down that year. The margin percentage of net sales for our men’s accessories segment in fiscal 2009 improved by 6.6 percentage points over fiscal 2008 and both years were affected by inventory write-downs (fiscal 2009 - $4.8 million, or 4.8 margin percentage points; fiscal 2008 - $9.6 million, or 8.1 margin percentage points). The women’s accessories segment included inventory write-downs of $2.1 million in fiscal 2009 (7.4 percentage point margin effect) and $9.1 million in fiscal 2008 (30.0 percentage point margin effect).

Our gross margin percentages also are affected by direct shipments to our customers which are not handled in our distribution centers because higher gross margins are not required to cover distribution costs which would be included in SG&A expenses. Any material changes in sales mix, such as higher mass merchant accessory sales or direct shipments, could lower our gross margin percentages during a particular season.

Operating Expenses
Total SG&A expenses have been reduced $8.2 million over the last two years with a 6.3%, or $3.6 million, reduction in fiscal 2009 reflecting distribution cost savings of $2.5 million and other cost saving initiatives. Fiscal 2009 includes a $1.1 million provision for doubtful accounts receivable and restructuring costs of $774,000 ($558,000 associated with headcount reductions). Fiscal 2008 includes $1.1 million in restructuring costs (closing West Bend, Wisconsin distribution facility - $756,000; terminating staff at other locations - $128,000; remaining rent under a lease for a vacated office - $184,000; other initiatives - $21,000).

Fiscal 2008 operating expenses include charges of $17.8 million for the impairment of our men’s accessories segment goodwill ($16.5 million) and customer lists ($1.3 million) as we significantly revised projections of our future operating results in light of changing business conditions and lower fiscal 2008 sales.

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Interest And Taxes
Interest expense for fiscal 2009 includes a $33,000 write-off of previously capitalized costs due to amending our current credit facility, but was lower than fiscal 2008 as both our borrowings and, for most of the year, interest rates were lower. Fiscal 2008 interest expense includes $196,000 of costs related to a debt covenant waiver we received for the first quarter and $176,000 related to costs previously capitalized for the credit facility with our previous lenders.

Because we incurred a net loss in fiscal 2009, we do not owe any federal income taxes and, together with the loss in fiscal 2008, we have a federal income tax net loss carryover of $32.8 million expiring in 2028 and 2029. Part of the fiscal 2008 loss was carried back and we received a $1.2 million tax refund this year.

Our effective income tax rates were a negative 3.6% in fiscal 2009 and 7% in fiscal 2008. In both years the benefits of the 34% federal statutory rate applied to our pretax losses were offset by deferred tax valuation allowances (fiscal 2009 - 39.2%; fiscal 2008 - 31.2%) and, in fiscal 2008, by an additional 8.7% for goodwill impairment which was not tax deductible. The valuation allowances are recorded as our operating results over the past three years and revised projections of future operating results do not currently indicate it is more likely than not the deferred tax assets of our US operations will ultimately be realized.

LIQUIDITY AND CAPITAL RESOURCES

Our operating activities provided cash of $3.7 million in fiscal 2009 compared to $5.6 million in fiscal 2008. This difference is primarily due to lower sales and accounts receivable and inventory reductions which provided cash of $6.7 million in fiscal 2009 and $19.8 million in fiscal 2008. In fiscal 2008, the sales level allowed us to reduce accounts payable and accrued expenses by $6.8 million. To bridge the timing gap between inventory purchases and collection of accounts receivable, our credit facility provides us with funds on a revolving basis. In fiscal 2009, periodic borrowings totaled $52.4 million and repayments totaled $52.7 million. In fiscal 2008 periodic borrowings totaled $41.9 million and repayments totaled $47.6 million. The larger amounts this year were due to an increase in the frequency of borrowing and repayment.

Capital expenditures for property and equipment of $0.5 million were primarily in support of inventory management and other computer related applications. Other investing activity was the $1.1 million funding of the supplemental executive retirement plan.

Financing activities in fiscal 2009 included credit facility short-term borrowings and repayments resulting in a $0.3 million net debt reduction for the year, and dividend payments of $0.6 million. In order to preserve capital and enhance financial flexibility, dividend payments were suspended after the first quarter of fiscal 2009.

Our primary sources of liquidity are cash flows from operating activities and our credit facility which we believe can provide adequate financial resources for our future working capital needs even though the facility was amended effective March 31, 2009 to reduce the credit limit from $35 million to $27.5 million and adjust the tangible net worth financial ratio because we did not meet the pre-amendment ratio at that date. We expect to replace our current credit facility before it expires in February 2010, but an inability to do so on favorable terms could have a material negative impact on our results of operations and financial position.

Information about our credit facility is incorporated herein by reference to Note 4 of the notes to consolidated financial statements included in Item 8 of this Annual Report. At June 30, 2009, we had $18.7 million borrowing availability and no outstanding borrowings.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements.

CRITICAL ACCOUNTING POLICIES

We use estimates throughout our consolidated financial statements. We consider an accounting estimate to be critical if: (1) the estimate requires us to make assumptions about matters that are highly uncertain at the time the estimate is made or (2) changes in the estimate are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our

18

financial condition or results of operations. We have discussed the development and selection of these critical accounting estimates with the Audit Committee of our board of directors. In addition there are other items within our financial statements that require estimation, but are not deemed critical as defined above. Changes in estimates could have a material impact on our operations and financial position.

The accounting policies and estimates we consider most critical are presented below.

Revenues And Accounts Receivable Allowances
Sales are recognized when merchandise is shipped and title to the goods has passed to the customer. We record allowances, including cash discounts, in-store customer allowances, cooperative advertising allowances, and customer returns, as a reduction of sales based upon historical experience, current trends in the retail industry, and individual customer and product experience. Actual returns and allowances may differ from our estimates and differences would affect the operating results of subsequent periods.

Sensitivity Analysis The following table presents the estimated effect of the indicated increase (decrease) in our sales, based on fiscal 2009 net sales of $129.0 million, on our allowance for doubtful accounts (in thousands except per share amounts). Changes in general economic conditions, trends and developments within our industry, or situations unique to specific customers could result in significant fluctuations in the actual effects of these estimates.

	Sales		Allowances		Earnings
	Change		Reserves	Expense	Per Share
Change in customer allowances and returns	+/-	0.5%	$645/$(645)	$645/$(645)	$(0.06)/$0.06
Change in allowance for doubtful accounts	+/-	0.125	161/  (161)	161/  (161)	(0.02)/  0.02

Inventories
Inventories are stated at the lower of cost (principally standard cost which approximates actual cost on a first-in, first-out basis) or market. Cost includes the direct cost of purchased products and, for manufactured products, materials, direct and indirect labor, and factory overhead. Market, with respect to raw materials, is replacement cost and, with respect to work-in-process and finished goods, is net realizable value. In our assessment of the value of inventory, we monitor retailer sell-through rates, fashion trends, and the accumulation of excess inventory. Our assessment is both a quantitative measurement (e.g., the use of metrics such as the number of months supply on hand) and qualitative measurement (e.g., the ability to utilize certain styles in current and future programs). In general we have relationships with off-price store customers that will purchase excess inventory at discounted prices and we have been able to realize values at or above the lower of cost or market values at which we carry our inventories. If circumstances arise in which the market value of items in inventory declines below cost, an inventory markdown is estimated and charged to expense in the period identified. If we incorrectly anticipate these trends or unexpected events occur, our results of operations could be materially affected.

Sensitivity Analysis The effect of a 1% write down in the value of our June 30, 2009 inventory would be (in thousands except per share amounts):

	Percentage								Earnings
	Of Inventory			Inventory			Expense		Per Share
Change in inventory markdown		-1	%	$	(230	)	$	230	$	(0.02	)

Uncertain Tax Positions
Tax liabilities, together with interest and applicable penalties, are recognized for the benefits of uncertain tax positions in the financial statements which more likely than not may not be realized. We review the appropriateness of items of revenue or expense excluded or included in our tax returns and the requirements for filing returns with jurisdictions which may have laws requiring us to file tax returns. Failure to recognize a tax liability for the benefits of an uncertain tax position which ultimately is not realized could materially affect our financial position and results of operations.

Share-Based Compensation
The fair values of restricted stock and performance unit grants payable in stock are estimated to be the market price of our common stock on the grant dates and, for performance units, reduced by the present value of estimated future dividends. The assumptions we use to estimate the fair value of our stock options are based on historical information and current economic conditions. Estimated fair values increase if the expected dividend yield decreases and the other assumptions increase. Neither the grant-date market values of our stock nor the resulting

19

output of the Black-Scholes option-pricing model using our assumptions may be the value ultimately realized by our directors and employees or accurately measure the tax benefits we may realize.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

The information in Note 2 of the notes to consolidated financial statements included in Item 8 of this Annual Report is incorporated herein by reference.

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

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ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Tandy Brands Accessories, Inc.

We have audited the accompanying consolidated balance sheets of Tandy Brands Accessories, Inc. and subsidiaries as of June 30, 2009 and 2008, and the related consolidated statements of operations, cash flows, and stockholders’ equity for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Tandy Brands Accessories, Inc. and subsidiaries at June 30, 2009 and 2008, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP 

Dallas, Texas
August 27, 2009

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Tandy Brands Accessories, Inc. And Subsidiaries
Consolidated Balance Sheets
(in thousands)

	June 30
	2009			2008
Assets
Current assets:
Cash and cash equivalents	$	3,670		$	2,855
Accounts receivable		19,566			21,496
Inventories		23,022			35,535
Other current assets		8,282			8,783
Total current assets		54,540			68,669
Property and equipment		3,776			5,382
Other assets:
Intangibles		2,742			3,069
Other assets		908			1,617
Total other assets		3,650			4,686
	$	61,966		$	78,737
Liabilities And Stockholders’ Equity
Current liabilities:
Accounts payable	$	9,369		$	10,312
Accrued compensation		5,932			1,985
Accrued expenses		2,124			2,725
Note payable		-			363
Total current liabilities		17,425			15,385
Other liabilities:
Supplemental executive retirement obligation		-			1,893
Other liabilities		2,825			3,581
Total other liabilities		2,825			5,474
Commitments
Stockholders’ equity:
Preferred stock, $1.00 par value, 1,000 shares authorized, none issued		-			-
Common stock, $1.00 par value, 10,000 shares authorized, 7,037 shares and 7,049 shares issued and outstanding		7,037			7,049
Additional paid-in capital		34,867			34,840
Retained earnings (deficit)		(56	)		15,337
Other comprehensive income		984			1,666
Shares held by Benefit Restoration Plan Trust		(1,116	)		(1,014	)
Total stockholders’ equity		41,716			57,878
	$	61,966		$	78,737

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

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Tandy Brands Accessories, Inc. And Subsidiaries
Consolidated Statements Of Operations
(in thousands except per share amounts)

	Year Ended June 30
	2009			2008
Net sales	$	129,017		$	149,257
Cost of goods sold		82,417			97,872
Inventory write-down		6,929			18,725
		89,346			116,597
Gross margin		39,671			32,660
Selling, general and administrative expenses		53,031			56,604
Depreciation and amortization		1,912			3,202
Goodwill and other intangibles impairment		-			17,774
Total operating expenses		54,943			77,580
Operating loss		(15,272	)		(44,920	)
Interest expense		(636	)		(1,394	)
Other income		228			237
Loss before income taxes		(15,680	)		(46,077	)
Income taxes (benefit)		(569	)		3,211
Net loss	$	(15,111	)	$	(49,288	)
Loss per common share	$	(2.18	)	$	(7.18	)
Loss per common share assuming dilution	$	(2.18	)	$	(7.18	)
Cash dividends declared per common share	$	0.04		$	0.16
Common shares outstanding		6,937			6,863
Common shares outstanding assuming dilution		6,937			6,863

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

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Tandy Brands Accessories, Inc. And Subsidiaries
Consolidated Statements Of Cash Flows
(in thousands)

	Year Ended June 30
	2009			2008
Cash flows provided by operating activities:
Net loss	$	(15,111	)	$	(49,288	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Inventory write-down		6,929			18,725
Goodwill and other intangibles impairment		-			17,774
Doubtful accounts receivable provision		1,091			130
Depreciation and amortization		1,944			3,237
Stock compensation expense		195			249
Amortization of debt costs		233			315
Deferred income taxes		(405	)		3,074
Other		(629	)		729
Change in assets and liabilities:
Accounts receivable		839			9,731
Inventories		5,830			10,112
Other assets		2,406			(2,328	)
Accounts payable		(736	)		(6,233	)
Accrued expenses		1,133			(585	)
Net cash provided by operating activities		3,719			5,642
Cash flows used for investing activities:
Purchases of property and equipment		(542	)		(594	)
Funding supplemental executive retirement plan		(1,060	)		-
Net cash used for investing activities		(1,602	)		(594	)
Cash flows used by financing activities:
Stock purchase program (withdrawals)		(145	)		840
Stock options exercised		-			67
Dividends paid		(564	)		(1,112	)
Change in cash overdrafts		(230	)		(358	)
Proceeds from borrowings		52,370			41,911
Borrowing repayments		(52,733	)		(47,617	)
Net cash used by financing activities		(1,302	)		(6,269	)
Net increase (decrease) in cash and cash equivalents		815			(1,221	)
Cash and cash equivalents beginning of year		2,855			4,076
Cash and cash equivalents end of year	$	3,670		$	2,855
Supplemental cash flow information:
Interest paid	$	460		$	859
Income taxes paid	$	502		$	545

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

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Tandy Brands Accessories, Inc. And Subsidiaries
Consolidated Statements Of Stockholders’ Equity
(in thousands except per share amounts)

																Shares Held
							Additional			Retained			Other			By Benefit			Total
	Common Stock						Paid-In			Earnings			Comprehensive			Restoration			Stockholders’
	Shares			Amount			Capital			(Deficit)			Income			Plan Trust			Equity
Balance June 30, 2007		6,912		$	6,912		$	33,616		$	66,967		$	1,326		$	(914	)	$	107,907
Uncertainty in income taxes accounting change		-			-			-			(1,225	)		-			-			(1,225	)
Comprehensive (loss):
Net (loss)		-			-			-			(49,288	)		-			-			(49,288	)
Currency translation adjustments		-			-			-			-			340			-			340
																				(48,948	)
Cash dividends declared - $0.16 per share		-			-			-			(1,120	)		-			-			(1,120	)
Stock sold to Stock Purchase Program		113			113			727			-			-			-			840
Stock options exercised		8			8			59			-			-			-			67
Share-based compensation		16			16			438			3			-			-			457
Benefit Restoration Plan Trust shares purchased		-			-			-			-			-			(100	)		(100	)
Balance June 30, 2008		7,049			7,049			34,840			15,337			1,666			(1,014	)		57,878
Comprehensive (loss):
Net (loss)		-			-			-			(15,111	)		-			-			(15,111	)
Currency translation adjustments		-			-			-			-			(682	)		-			(682	)
																				(15,793	)
Cash dividends declared - $0.04 per share		-			-			-			(282	)		-			-			(282	)
Stock Purchase Program withdrawals		(25	)		(25	)		(120	)		-			-			-			(145	)
Share-based compensation		13			13			147			-			-			-			160
Benefit Restoration Plan Trust shares purchased		-			-			-			-			-			(102	)		(102	)
Balance June 30, 2009		7,037		$	7,037		$	34,867		$	(56	)	$	984		$	(1,116	)	$	41,716

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - - Overview

The Company
We are a leading designer and marketer of branded men’s, women’s and children’s accessories, including belts, gifts, small leather goods, eyewear, neckwear, and sporting goods. Our merchandise is marketed under a broad portfolio of nationally recognized licensed and proprietary brand names, as well as private brands for major retail customers. We sell our products through all major retail distribution channels throughout North America, including mass merchants, national chain stores, department stores, men’s and women’s specialty stores, catalog retailers, grocery stores, drug stores, golf pro shops, sporting goods stores, and the retail exchange operations of the United States military.

Basis Of Presentation
U.S. generally accepted accounting principles (“US GAAP”) promulgated by the Financial Accounting Standards Board (“FASB”), its predecessors, and others as of June 30, 2009, as well as future authoritative accounting principles, are set forth in theFASB Accounting Standards Codification™ (“ASC”). Future references to US GAAP will be to the ASC number, rather than to literature numbers and titles such as FASB Statements of Financial Accounting Standards numbers and titles. A basic view of the codification is available on the Internet without charge at www.fasb.org where the codification is explained at ASC 105-10,Generally Accepted Accounting Principles.

The preparation of our consolidated financial statements in accordance with US 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 we believe to be reasonable under the circumstances, the results of which form the basis for our conclusions. We continually evaluate the information used to make these estimates as the business and economic environments change, including evaluation of events subsequent to our fiscal year end through August 27, 2009, the financial statements issuance date. Actual results may differ from these estimates under different assumptions or conditions. Such differences could have a material impact on our future financial position, results of operations, and cash flows.

The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. Intercompany accounts and transactions have been eliminated in consolidation. Certain amounts have been reclassified in the fiscal 2008 financial statements to conform to the fiscal 2009 presentation.

Foreign Currency Translation
The functional currency for our foreign subsidiary is the Canadian dollar. Its assets and liabilities are translated into U.S. dollars at the exchange rates in effect at each balance sheet date, and resulting translation gains or losses are accumulated in other comprehensive income as a separate component of stockholders’ equity. Revenue and expenses are translated at monthly average exchange rates.

Note 2 - Summary Of Significant Accounting Policies

Fair Values
We measure fair values using unadjusted quoted prices in active markets (Level 1 inputs), quoted prices for similar instruments in active or inactive markets, or other directly-observable factors (Level 2 inputs), or our assumptions about the assumptions market participants would use (Level 3 inputs). Our financial instruments consist primarily of cash, trade receivables and payables, and our credit facility. The carrying values of cash and trade receivables and payables are considered to be representative of their respective fair values. Our credit facility bears interest at floating market interest rates; therefore, the fair value of amounts borrowed approximate their carrying values.

Cash And Cash Equivalents
We consider cash on hand, deposits in banks, and short-term investments with original maturities of less than three months as cash and cash equivalents.

Accounts Receivable And Allowances
We perform periodic credit evaluations of our customers’ financial conditions and reserve against accounts deemed uncollectible based upon historical losses and customer specific events. After all collection efforts are exhausted

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and an account is deemed uncollectible, it is written off against the allowance for doubtful accounts. Credit losses have historically been within our expectations and we generally do not require collateral.

Allowance account transactions, including deductions for returns and uncollectible accounts written off net of recoveries, were (in thousands):

	Beginning		Charged To				Ending
Fiscal Year	Balance		Expense		Deductions		Balance
2009	$	1,171	$	6,298	$	5,452	$	2,017
2008		943		9,540		9,312		1,171

Inventories
Inventories are stated at the lower of cost (principally standard cost which approximates actual cost on a first-in, first-out basis) or market. Cost includes the direct cost of purchased products and, for manufactured products, materials, direct and indirect labor, and factory overhead. Market, with respect to raw materials, is replacement cost and, with respect to work-in-process and finished goods, is net realizable value. Inventories consist of (in thousands):

	2009		2008
Raw materials	$	1,489	$	2,545
Work-in-process		68		148
Finished goods		21,465		32,842
	$	23,022	$	35,535

Advance payments for inventory of $1.7 million and $1.2 million are included in other current assets at June 30, 2009 and 2008, respectively.

Property And Equipment
Property and equipment are carried at cost less accumulated depreciation calculated using the straight-line method (in thousands):

	2009			2008			Depreciation Rates
Buildings	$	3,667		$	4,171		3%
Leasehold improvements		3,096			3,232		Lesser of lease term or asset life
Machinery and equipment		23,668			24,996		10% to 50%
		30,431			32,399
Accumulated depreciation		(26,655	)		(27,017	)
	$	3,776		$	5,382

Depreciation expense: 2009 - $1,617 ; 2008 - $2,723

The net book value of property and equipment of our men’s accessories segment no longer used in our operations is included in other current assets (2009 - $3.2 million; 2008 - $3.1 million) and is held for sale without expectation of incurring a loss; however, amounts actually realized from their sale may differ from our estimates.

Maintenance and repairs are charged to expense as incurred. Renewals and betterments which materially prolong the useful lives of the assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the accounts and gains or losses are recognized in operations.

Intangibles And Impairment Of Long-Lived Assets
Finite-lived intangibles are amortized using the straight-line method over their estimated useful lives.

We review long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate the carrying amount of an asset might be impaired. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to undiscounted future net cash flows they are expected to generate. If the undiscounted cash flows are less than the carrying amount, the impairment recognized is measured by the amount the carrying value of the assets exceeds their fair value.

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Derivative Instruments
We did not have any significant derivative activities as of June 30, 2009 or 2008 and we do not enter into derivative investments for the purpose of speculative investment. Our overall risk management philosophy is re-evaluated as business conditions change.

Sales
Sales are recognized when merchandise is shipped and title to the goods has passed to the customer. We record allowances, including cash discounts, in-store customer allowances, cooperative advertising allowances, and customer returns, as a reduction of sales based upon historical experience, current trends in the retail industry, and individual customer and product experience. Actual returns and allowances may differ from our estimates and differences would affect the operating results of subsequent periods.

Costs And Expenses
Cost of goods sold includes our costs associated with the procurement and manufacture of inventory, such as the cost of inventory and raw materials purchased from overseas, costs of shipping from our suppliers, ticketing and labeling of product and, where applicable, labor and overhead related to our product manufacturing facilities. Selling, general and administrative expenses (“SG&A”) include our costs related to activities incurred in the normal course of business which are not associated with the procurement or production of inventory. They also include costs associated with our distribution centers (2009 - $12.1 million; 2008 - $14.6 million). Those amounts include $2.7 million of shipping and handling expenses in both years.

Advertising Costs
Advertising costs, consisting primarily of shows and conventions as well as display and print advertising, are expensed as they are incurred (2009 - $1.3 million; 2008 - $1.9 million).

Share-Based Compensation
Compensation expense for all share-based payments expected to vest is recognized on the straight-line basis over the requisite service period based on grant-date fair values.

Income Taxes
Deferred income taxes are recognized for the future income tax effects of differences in the carrying amounts of assets and liabilities for financial reporting and income tax return purposes using enacted tax laws and rates. A valuation allowance is recognized if it is more likely than not that some or all of a deferred tax asset may not be realized. Tax liabilities, together with interest and applicable penalties included in the income tax provision, are recognized for the benefits of uncertain tax positions in the financial statements which more likely than not may not be realized.

A $1.2 million liability was recognized as of July 1, 2007, with a corresponding reduction in retained earnings, resulting from the adoption of Financial Accounting Standards Board (“FASB”) Interpretation No. 48,Accounting for Uncertainty in Income Taxes, (“FIN No. 48”), a clarification of the accounting in accordance with FASB Statement of Financial Accounting Standards (“SFAS”) No. 109,Accounting for Income Taxes(ASC 740-10,Income Taxes).

Recent Accounting Pronouncements
Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 159,The Fair Value Option for Financial Assets and Financial Liabilities, (“SFAS 159”) (ASC 825-10,Financial Instruments) permits choosing to measure certain financial assets and liabilities at fair value. We have not elected to measure any assets or liabilities at fair value which were not being so measured prior to our adopting SFAS 159 on July 1, 2008.

Effective July 1, 2008, we adopted the disclosure requirements of SFAS No. 157,Fair Value Measurements and Disclosures, (“SFAS 157”) (ASC 820-10,Fair Value Measurements and Disclosures) issued by the FASB in September 2006, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements required under other accounting pronouncements, but does not change existing guidance for carrying instruments at fair value. FASB Staff Position No. 157-2 (ASC 820-10-65) issued in February 2008 allows us to delay application of SFAS 157 for nonfinancial assets and liabilities until the first quarter of fiscal 2010.

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We have adopted SFAS No. 165,Subsequent Events, (ASC 855,Subsequent Events) issued by the FASB in May 2009 which requires us to evaluate post-balance sheet date events and transactions for potential recognition or disclosure in the financial statements.

Effective July 1, 2009, we will adopt the accounting and reporting requirements of SFAS No. 141 (revised 2007),Business Combinations, (ASC 805-10,Business Combinations) issued by the FASB in December 2007 together with the guidance in FASB Staff Position No. 142-3,Determination of the Useful Life of Intangible Assets, (ASC 350-30-55) issued in April 2008. Together they require recognition of assets acquired and liabilities assumed at their fair values at the acquisition date using the acquisition method, including goodwill recognition as a residual or a gain from a bargain purchase. The new accounting will have no effect on previously acquired assets, liabilities, or goodwill.

Note 3 - Significant Events

Fiscal 2010 Acquisition Subsequent Event
On July 9, 2009, we purchased from Chambers Belt Company (“Chambers”), a wholly-owned subsidiary of Phoenix Footwear Group, Inc., its intellectual property, customer relationships, manufacturing equipment, and substantially all of its inventory. We also assumed its licenses with Wrangler Apparel, Inc. (“Wrangler”) to sell men’s and boy’s belts and accessories in the mass merchants and western markets (“Wrangler Mass” and “Western/Specialty”, respectively) and a manufacturing contract between Chambers and Maquiliadora Chambers de Mexico, S.A. de C.V. (“MCM”). We have employed certain of Chambers employees and leased its former facilities in Commerce, California.

We paid $3.6 million to Chambers and certain of its vendors, subject to audit of inventory quantities, and a $0.4 million advance on the earn-out provisions of the purchase agreement. The earn-out requires payment of 21.5% of our net sales (potentially $15 to $20 million annually) through July 9, 2010 of private label and Wrangler Mass products formerly sold by Chambers, with a $2.0 million minimum guarantee. The Wrangler Mass and Western/Specialty licenses expire in June 2010 and December 2010, respectively, with the expectation we will enter into new agreements before those dates. Both licenses provide for 5% of net sales royalty payments through December 2009 and the Wrangler Mass license provides for a 4% royalty thereafter. The licenses have minimum royalty guarantees of $497,000 through December 2009 and the Western/Specialty license has a $210,000 annual guarantee thereafter. The Wrangler Mass royalties are payable by Chambers from the earn-out, but are guaranteed by us.

Under the MCM contract, MCM will manufacture products for us under the direction and supervision of our employees utilizing machinery we purchased from Chambers and raw materials which we will supply. There is a minimum wage guarantee for any week we do not require MCM to manufacture products for us and the contract may be terminated on sixty days notice. Commerce, California minimum rental payments through December 2009 are $32,000 per month.

We expect to allocate the purchase price to the assets acquired and liabilities assumed by the end of the fiscal 2010 first quarter.

Fiscal 2009 Inventory Write-Down And Restructuring Charges
Based on the organizational restructuring plan of our chief executive officer who joined the Company in October 2008 and the views of other recently-recruited senior members of management, we concluded our stockholders would be better served by allocating our resources to products with higher margins and larger shipping quantities. As a result of this focus, we implemented an aggressive product life-cycle management program and have moved away from low margin products with either small shipping quantities or slow turnover rates. To facilitate implementation of the product life-cycle management program, we decided to liquidate certain inventories requiring excessive resources by reducing selling prices or scrapping items which might be difficult to sell under current market conditions. Consequently, we recorded an $6.9 million noncash inventory write-down reflecting our best estimate of the market values we anticipate realizing based on our experiences selling through inventory liquidation channels. Actual amounts realized from the marked-down inventory may differ from our estimates and such differences could have a material impact on our future results of operations, cash flows, and financial position. In connection with the organizational restructuring plan, we also recorded charges included in SG&A for termination payments ($558,000) and other costs ($216,000).

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Fiscal 2008 Inventory Write-Down, Intangibles Impairment, And Restructuring Charges

Due to the overall negative retail environment and general economic conditions, we concluded there was a need to reduce the amount of inventory warehoused and to focus on reducing total inventory levels within a shorter time frame than had been our prior practice. We adopted an accelerated inventory flow program designed to improve turns and reduce out-of-program and slow-moving inventory. In order to accelerate liquidation of this inventory and significantly reduce total inventory levels, we recorded an $18.7 million noncash inventory write-down.

Out-of-program and slow-moving inventory was marked down to our best estimate of the market value we anticipated realizing based on our experiences selling through inventory liquidation channels. We expected that reducing the prices for these items would enable us to liquidate much more inventory than we would have under our previous pricing. Although we believe the out-of-program and slow-moving inventory would continue to be saleable over the long term at previously marked down prices, the new philosophy and valuation methodology was driven by decisions to reduce overall inventory levels and sell large quantities of out-of-program and slow-moving inventory as quickly as possible. In fiscal 2008 and 2009 we had higher than expected margins on initial sales of the marked-down inventory; however, we estimate the marked-down amounts are in line with our expectations for selling the remaining out-of-program and slow moving inventory. Actual amounts realized from this marked-down inventory may differ from our estimates and such differences could have a material impact on our future results of operations, cash flows, and financial position.

Noncash charges also were recorded by our men’s accessories segment for the impairment of goodwill ($16.5 million) and write off of intangible customer lists ($1.3 million) as the result of assessing the segment’s fair value, which was determined to be less than its carrying value using a discounted cash flow analysis, and comparing the carrying amount of the customer lists to undiscounted future net cash flows they were expected to generate. The assessments were triggered by changing business conditions and reduced sales, including curtailed replenishment orders for belts from one of our largest customers, resulting in significantly revised projections of future operating results.

Restructuring charges, included in SG&A, were incurred relating to closing our distribution center in West Bend, Wisconsin ($756,000), terminating staff in other locations ($128,000), paying the remaining rent obligation under a lease for a vacated office ($184,000), and other restructuring initiatives ($21,000).

Note 4 - Credit Arrangements

We have a $27.5 million credit facility for borrowings and letters of credit which was amended effective March 31, 2009 to reduce the credit limit from $35 million and adjust the tangible net worth financial ratio. At June 30, 2009, we had $18.7 million borrowing availability based on our accounts receivable and inventory levels, outstanding letters of credit totaling $512,000, and no outstanding borrowings under the facility. Outstanding borrowings under the facility at June 30, 2008 were $363,000 bearing interest at a rate of 5.25%. Borrowings, which are due on the facility’s expiration in February 2010, bear interest at the daily adjusting one-month LIBOR rate plus 4.5% (6.5% at June 30, 2009) or, if such rate is not available under the terms of the credit facility note, the lender’s prime rate plus 4.5%. We expect to replace our current credit facility before it expires.

The credit facility is guaranteed by substantially all of our subsidiaries and is secured by substantially all of our assets and those of our subsidiaries. It requires the maintenance of a $33.5 million tangible net worth financial ratio, as adjusted quarterly for future earnings and issuance of equity ownership interests, as of the end of each fiscal quarter which, if not met, could adversely impact our liquidity. The facility contains customary representations and warranties and we have agreed to certain affirmative covenants, including reporting requirements. The facility also limits our ability to engage in certain actions without the lender’s consent, including, repurchasing our common stock, entering into certain mergers or consolidations, guaranteeing or incurring certain debt, engaging in certain stock or asset acquisitions, paying dividends, making certain investments in other entities, prepaying debt, and making certain property transfers.

Our Canadian subsidiary has a CAD $1.4 million credit facility (direct advances limited to US $1.1 million) secured by its cash, credit balances, and deposit instruments with interest at the lender’s prime or US base rates. There have been no borrowings under this line of credit.

30

Interest expense includes amortization of costs incurred in connection with our credit facilities over the periods of the facilities (2009 - $233,000; 2008 - $139,000) and costs in fiscal 2008 related to the credit facility with our previous lenders (debt covenant waiver - $196,000; write-off of previously capitalized costs - $176,000). At June 30, 2009 the remaining debt costs to be amortized were $182,000, including the balance of a $100,000 fee in connection with amending our credit facility effective March 31, 2009 because we did not meet the pre-amendment tangible net worth financial ratio at that date.

Note 5 - Disclosures About Segments Of Our Business And Related Information

We are organized along men’s and women’s product lines and have two reportable segments: (1) men’s accessories, consisting of belts, gifts, wallets and other small leather goods, eyewear, neckwear, and sporting goods; and (2) women’s accessories, consisting of belts, small leather goods, and gifts. General corporate expenses and depreciation and amortization related to assets recorded in our corporate accounting records are allocated to each segment based on the respective segment’s asset base. Management measures each segment based upon income or loss before income taxes utilizing accounting policies consistent in all material respects with those described in Note 2. No inter-segment revenue is recorded.

The following presents operating and asset information by reportable segment (in thousands).

	2009			2008
Net sales:
Men’s accessories	$	100,759		$	118,949
Women’s accessories		28,258			30,308
	$	129,017		$	149,257
Operating loss:(1)
Men’s accessories(2)	$	(10,323	)	$	(31,652	)
Women’s accessories(3)		(4,949	)		(13,268	)
		(15,272	)		(44,920	)
Interest expense(4)		(636	)		(1,394	)
Other income(5)		228			237
Loss before income taxes	$	(15,680	)	$	(46,077	)
Depreciation and amortization:
Men’s accessories	$	1,210		$	2,234
Women’s accessories		702			968
	$	1,912		$	3,202
Capital expenditures:
Men’s accessories	$	110		$	101
Corporate		432			493
	$	542		$	594
Total assets:
Men’s accessories	$	44,085		$	53,079
Women’s accessories		9,459			15,792
Corporate		8,422			9,866
	$	61,966		$	78,737

(1)	Operating loss consists of net sales less cost of goods sold and specifically identifiable and allocated SG&A expenses.
(2)	Men’s accessories’ fiscal 2009 operating loss includes an inventory write-down ($4.8 million) and restructuring costs ($0.6 million). The fiscal 2008 loss includes charges of $28.4 million: goodwill impairment ($16.5 million); write-down of out-of-program and slow-moving inventory ($9.6 million); intangibles impairment ($1.3 million); and restructuring ($1 million).
(3)	Women’s accessories’ fiscal 2009 operating loss includes an inventory write-down ($2.1 million) and restructuring costs ($0.2 million). The fiscal 2008 loss includes charges of $9.2 million: write-down of out-of-program and slow-moving inventory ($9.1 million); and restructuring ($0.1 million).

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(4)	Interest expense for fiscal 2008 includes $196,000 of costs related to a debt covenant waiver we received for the first quarter and $176,000 related to costs previously capitalized for the credit facility with our previous lenders.
(5)	Other income includes interest, royalty income from corporate trade names, and other income not specifically identifiable with a segment.

The only customers accounting for 10% or more of our total net sales were Wal-Mart Stores, Inc. (2009 - 43%; 2008 - 41%) and Kohl’s Department Stores, Inc. (2009 - 10%). Our annual purchases from one supplier were $20.1 million in fiscal 2009 and $27.7 million in fiscal 2008.

Our net sales, loss before income taxes, property and equipment, and total assets by geographic location were (in thousands):

	2009			2008
Net sales:
United States	$	118,568		$	137,753
Canada		10,449			11,504
	$	129,017		$	149,257
(Loss) income before income taxes:
United States	$	(16,294	)	$	(45,403	)
Canada		614			(674	)
	$	(15,680	)	$	(46,077	)
Property and equipment:
United States	$	29,715		$	31,620
Canada		716			779
	$	30,431		$	32,399
Total assets:
United States	$	56,180		$	72,349
Canada		5,786			6,388
	$	61,966		$	78,737

Our Canadian subsidiary is part of our men’s accessories segment. Its sales and income are converted to U.S. dollars at monthly average exchange rates. Property and equipment and total assets are converted at each fiscal year end exchange rate.

Note 6 - Leases And Royalties

We lease office, warehouse, and manufacturing facilities under noncancelable operating leases expiring through the year 2013 with varying renewal and escalation clauses. Our rental expense in fiscal 2009 and 2008 totaled $2.0 million and $2.4 million, respectively.

We have licensing agreements with other companies to use their trademarks on our products. Royalty expense in fiscal 2009 and 2008 related to these agreements totaled $2.1 million and $2.7 million, respectively.

As of June 30, 2009, future payments under our leases, including additional rents under escalation clauses, and minimum royalty commitments were (in thousands):

Fiscal Year	Rent		Royalty
2010	$	1,371	$	1,141
2011		584		988
2012		458		725
2013		251		123
	$	2,664	$	2,977

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Note 7 - Income Taxes

Significant components of our net deferred tax assets were (in thousands):

	2009			2008
Inventory valuation	$	5,279		$	7,942
Net operating loss carryover		12,199			3,533
Compensation plans		1,401			1,768
Uncertain tax positions		918			844
Depreciation		885			816
Accounts receivable valuation		624			202
Other net		186			74
		21,492			15,179
Valuation allowance		(21,087	)		(15,179	)
Net	$	405		$	-

Significant components of our income tax provisions were (in thousands):

	2009			2008
Current:
Federal (benefit)	$	-		$	(1,412	)
State		89			235
Foreign		155			300
		244			(877	)
Deferred:
Federal		(5,479	)		(11,263	)
State		(575	)		82
Foreign		(415	)		-
Uncertain tax positions		(252	)		90
Valuation allowance		5,908			15,179
		(813	)		4,088
	$	(569	)	$	3,211

The federal statutory income tax rate reconciles to our effective income tax rate as follows:

	2009			2008
Statutory rate		(34.0	)%		(34.0	)%
Deferred tax valuation allowance		39.2			31.2
Goodwill impairment		-			8.7
State and foreign taxes net of federal tax benefit		(5.1	)		1.1
Uncertain tax positions		(1.7	)		0.2
Other net		(2.0	)		(0.2	)
		(3.6	)%		7.0	%

Our $32.8 million federal income tax net operating loss carryover expires in 2028 and 2029. While it is reasonably possible a current examination of state income tax returns for the fiscal years 1999 through 2003 involving uncertain tax positions could be resolved within the next twelve months through settlement or administrative proceedings, the potential impact cannot be estimated at this time. Otherwise, the majority of our state income tax returns are no longer subject to examination for years before 2004. US federal income tax returns are no longer subject to examination for years before fiscal 2005 and Canadian income tax returns are no longer subject to examination for years before 2000.

33

The following presents information about our unrecognized tax benefits of uncertain tax positions (in thousands).

	2009			2008
Unrecognized tax benefits:
Beginning of year	$	1,870		$	1,946
Increases (decreases) in prior years’ tax positions		119			(48	)
Statutes of limitations lapses		(468	)		(26	)
Settlements		-			(2	)
End of year		1,521			1,870
Accrued interest and penalties		1,171			1,074
Uncertain tax positions liability	$	2,692		$	2,944
Unrecognized tax benefits affecting tax rate if recognized	$	1,003		$	1,393
Interest and penalty expense	$	97		$	221

Note 8 - Intangibles And Goodwill

The following tables present information about the cost we have allocated to finite-lived intangible assets we acquired as part of business acquisitions (in thousands).

	2009			2008
Gross carrying amount	$	6,655		$	6,730
Accumulated amortization		(3,913	)		(3,661	)
	$	2,742		$	3,069

	2009				Weighted-Average Life
	Balance		Expense			Total	Remaining
Trade names		$2,734		$316		20.7		8.7
Other		8		11		20.0		4.0
		$2,742		$327		20.7		8.6

Amortization expense: 2009 - $327; 2008 - $514
Estimated annual amortization expense: 2010 and 2011 - $318; following three years - $300

Changes in the carrying amount of goodwill were (in thousands):

June 30, 2007 - Accumulated amortization - $6,670	$	16,361
Currency translation adjustment		114
Impairment		(16,475	)
June 30, 2008	$	-

Goodwill and customer lists of our men’s accessories segment were written-off in fiscal 2008 as the result of assessments of their future cash flows in light of changing business conditions which resulted in significantly revised projections of future operating results.

Note 9 - Share-Based Compensation

Omnibus Plan

The Tandy Brands Accessories, Inc. 2002 Omnibus Plan (“Omnibus Plan”), approved by our stockholders in 2002, is designed to attract and retain the services of key management employees and members of our board of directors through the granting of incentive stock options (other than to directors), nonqualified stock options, performance units, stock appreciation rights, or restricted stock. Restricted stock and stock option awards under the Omnibus Plan and prior stock option plans have a maximum contractual life of ten years and specific vesting terms and performance goals are addressed in each equity award grant. All shares available for grant under our prior plans have been transferred to the Omnibus Plan and are authorized and reserved for issuance under the Omnibus Plan. All shares of common stock presently authorized and reserved for issuance on the exercise of stock options or vesting of restricted stock will automatically be authorized and reserved for issuance under the Omnibus Plan on their cancellation, forfeiture, or expiration. At June 30, 2009, there were 269,046 shares of common stock available for future grants and 293,387 shares reserved for issuance pursuant to performance unit awards following the end of the July 1, 2008 to June 30, 2011 performance cycle if we achieve the maximum performance goal.

34

The Omnibus Plan provides that, when a nonemployee director is first elected or appointed to our board of directors, the director will be awarded 4,060 shares of restricted stock. The Omnibus Plan also provides that on or about the beginning of each fiscal year, each continuing nonemployee director will be awarded shares of restricted stock (Chairman of the Board - 4,200 shares; each other director - 3,000 shares). If the board so elects, an alternative form of award with a substantially equivalent value, other than an incentive stock option, may be granted in lieu of restricted stock.

A committee of nonemployee members of our board of directors may grant awards to directors and employees. Shares issued to satisfy awards may be from authorized but unissued common stock, treasury stock, or shares purchased on the open market. Currently we issue new shares.

Awards Granted
Restricted Stock Restricted stock awards are not transferable, but bear rights of ownership including voting and dividend rights. Awards to our nonemployee directors vest annually at a rate of one-third per year, beginning one year after the grant date. However, upon the death, disability, resignation, or termination of a nonemployee director, that director’s shares become fully vested. Consequently, there is no requisite service period and the fair value of the awards is expensed on the award date. Restricted stock awarded to employees either cliff vests on the three-year anniversary of the award or vests at a rate of one-third per year. The requisite service periods are either the vesting period or the total period over which multiple-tranche awards vest. Although there are no performance requirements related to the vesting of restricted stock awarded to employees, they must be continually employed through the vesting period. We estimate the fair value of restricted stock awards to be the market price of our common stock on the award date.

				Weighted-Average
	Number			Grant-Date
	Of Shares			Fair Value
Nonvested June 30, 2008		59,810		$	11.18
Granted		21,000			4.93
Vested		(40,969	)		10.91
Nonvested June 30, 2009		39,841			8.16

Restricted stock fair values on the vesting dates in fiscal 2009 and 2008 were $189,000 and $237,000, respectively.

Stock Options Stock options granted to our nonemployee directors are nonqualified and become fully vested six months after the grant date, the requisite service period. Nonqualified options granted to employees vest annually at a rate of one-third per year, beginning one year after the grant date, and have a three-year requisite service period.

The exercise prices of our stock options are the grant-date market values of our common stock. Their fair value is estimated using the Black-Scholes valuation model. That model is used to estimate the fair value of traded options that have no vesting restrictions and are fully transferable. Option valuation models require the input of highly subjective assumptions. Because our stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect fair value estimates, in our opinion, the existing models do not necessarily provide a reliable single measure of the fair value of our stock options.

				Weighted-Average
						Remaining	Aggregate
	Number			Exercise		Contractual	Intrinsic
	Of Shares			Price		Term	Value
Outstanding June 30, 2008		532,732		$	11.49
Granted		30,000			5.31
Forfeited and cancelled		(105,407	)		13.62
Outstanding June 30, 2009		457,325			10.60
Vested and expected to vest		457,325			10.60	3.4 Years		-
Exercisable		427,325			10.97	3.0 Years		-

35

The $1.66 weighted-average grant-date fair value of options granted in fiscal 2009 was estimated using a risk-free interest rate of 3.29%, no dividend yield, 0.355% stock price volatility, and a 7 year holding period. In fiscal 2008, we received $57,000 from the exercise of options having a $25,000 intrinsic value and realized $9,000 in tax benefits.

Performance Units Performance units payable 50% in cash and 50% in shares of our common stock following the end of the performance cycle were awarded in fiscal 2009. The units earned during the performance cycle vary from 0% to 200% of the units awarded based on our basic earnings per share for each of the three fiscal years ending June 30, 2011, excluding the effects of accounting principles changes, extraordinary items, recognized capital gains and losses and, as determined by our board of directors, one-time, non-operating items. Employees vest in 200% of the units awarded if there is a change in control or in the portion of units earned equal to the years employed during the cycle upon death, disability, or normal (age 65) or early (age 55 and 15 years service) retirement; otherwise, units cliff vest at the end of the cycle.

The performance units have a $1.00 assigned value. The weighted-average fair value of performance unit shares was based on the grant-date market price of our common stock assuming no dividend payments during the performance cycle.

				Shares
							Weighted-Average
	Performance						Grant-Date
	Units(1)			Number(1)			Fair Value
Granted		1,260,000			328,108		$	1.92
Forfeited		(133,334	)		(34,721	)		1.92
Outstanding June 30, 2009		1,126,666			293,387			1.92
Vested and expected to vest		1,126,666			293,387			1.92

     ⁽¹⁾ Assuming maximum payout.

The performance units awarded to employees in fiscal 2007 expired unvested on June 30, 2009 as the minimum return on noncash assets criterion was not achieved.

Expense Share-based compensation expense of $276,000 and $463,000 was recognized in fiscal 2009 and 2008, respectively, together with income tax benefits of $102,000 and $171,000, respectively. Estimated unrecognized expense of $720,000 remained at June 30, 2009 to be recognized over a weighted-average period of 2 years. The number of stock options and performance units expected to vest in determining compensation expense to be recognized were estimated based on employment termination, option forfeiture patterns, and actual and estimated earnings per share.

Note 10 - Employee Benefit Plans And Consulting Agreement

Our total contributions to our 401(k) Plan, Stock Purchase Program, and Benefit Restoration Plan were $655,000 and $952,000 in fiscal 2009 and 2008, respectively.

401(k) Plan Our Employees Investment Plan is open to substantially all of our full-time employees. Eligible employees may contribute up to 25% of their annual compensation to the 401(k) Plan on a pretax basis. We, at our discretion, match 100% of employee contributions up to 5% of compensation. The 401(k) Plan allows participants to direct the investment of both employee and matching employer contributions from a variety of investment alternatives, one of which is our common stock.

Stock Purchase Program Until its suspension in September 2008, our Stock Purchase Program (“Program”) was open to all full-time employees who had been employed at least six months, but less than one year, or who had been employed one year or more and were contributing to the 401(k) Plan. Under the Program participants could contribute either 5% or 10% of their earnings and we matched 25% or 50% of each participant’s contribution depending on their length of employment and other considerations. Excluding the right to assign, alienate, pledge, or otherwise encumber their accounts, participants immediately vested in all contributions to their accounts which

36

were invested in our common stock. The Program purchased treasury stock, if available, or unissued common stock directly from us at monthly average market prices. The shares purchased under the Program were distributed to participants annually.

Benefit Restoration Plan Our Benefit Restoration Plan (“BRP”) is a nonqualified deferred compensation plan to restore retirement benefits for a select group of our management and highly compensated employees who are eligible to make contributions to the 401(k) Plan, but whose contributions to the 401(k) Plan are reduced due to limitations imposed by the Internal Revenue Code of 1986, as amended. For any plan year, participants may elect to defer, on a pretax basis, between 1% and 10% of their annual compensation, reduced by their total contributions to the 401(k) Plan during the year. Participants may direct the investment of their contributions in various investment alternatives, including our common stock. We make quarterly matching cash contributions to the BRP on the participant’s behalf equal to 150% of the amount the participant deferred during the quarter, up to a maximum of 5% of the participant’s annual compensation. Our matching contributions are required to be invested in our common stock, or as we otherwise determine. All benefit payments from the BRP are made in cash either in a lump sum or monthly installments over a period not exceeding ten years. Our liability associated with the BRP is included in accrued compensation in 2009 ($281,000) and other liabilities in 2008 ($505,000) and is expected to be paid in January 2010 to the only current participants who have retired.

Acknowledgment and Release Agreement Our former chief executive officer who retired as an employee as of June 30, 2009, and was the only actively employed participant in the Company’s Supplemental Executive Retirement Plan (“SERP”) when it was terminated in September 2005, entered into an Acknowledgment and Release Agreement (“Agreement”), a defined contribution agreement. The Agreement entitles the officer to (1) the funds in the rabbi trust (“Trust”) we established to set aside amounts to assist in satisfying our obligations under the SERP and (2) an additional $331,000 for each of the fiscal years 2006, 2007, and 2008. The additional amounts, together with interest at a rate per year equal to our cost of borrowing, were contributed to the Trust in July 2008. Our liability under the Agreement at June 30, 2009 and 2008 was $1.7 million and $1.9 million, respectively. The Trust’s assets are invested in Level 1 securities and are included in other current assets in 2009 ($1.7 million) and other assets in 2008 ($0.8 million). These funds will continue to be invested under the terms of the Trust and are expected to be paid in January 2010.

Consulting Agreement We entered into a Consulting Agreement with our former chief executive officer for consulting services to be provided to the Company for which he will receive $400,000 each fiscal year through June 2012. Our former chief executive officer agreed that, during the term of the agreement, he will not compete, carry on or engage in a business similar to our business, solicit or accept business from any of our customers, and/or solicit or encourage any of our employees to leave the employ of our Company. He also agreed to a complete waiver and release of any and all claims that he may have against us. The agreement includes other standard terms, including, without limitation, confidentiality, non-disparagement and indemnification provisions.

Note 11 - Director Stock Deferral Plan

The 1995 Stock Deferral Plan for Non-Employee Directors (“Deferral Plan”) provides nonemployee directors with an opportunity to defer receipt of their fees until a future date determined by each director. We record compensation expense for the amount of the deferred fees which are credited, together with dividend equivalents, to an account we maintain in phantom stock units equivalent in value to our common stock. The payment of deferred fees will be settled in shares of our common stock, or at our option, in cash based on the then current market price of our stock. No director is currently deferring fees and changes in the market value of our common stock reduced the value of previously deferred amounts by $82,000 and $213,000 in fiscal 2009 and 2008, respectively. At June 30, 2009, there were 28,375 shares of common stock available for settlement of future deferrals.

Note 12 - Preferred Stock

Without any further action by the holders of our common stock, our board of directors is authorized to approve and determine the issuance of preferred stock, as well as the dividend rights, dividend rate, conversion or exchange rights, voting rights, rights and terms of redemption, liquidation preferences and sinking fund terms of any series of preferred stock, the number of shares constituting any series of preferred stock and the designation thereof. No shares of preferred stock have been issued. Should preferred stock be issued, the rights, preferences, and privileges of holders of our common stock would be made subject to the rights, preferences, and privileges of the preferred stock.

37

Note 13 - Loss Per Share

Our basic and diluted losses per common share are computed as follows (in thousands except per share amounts):

	2009			2008
Numerator for basic and diluted earnings per share:
Net loss	$	(15,111	)	$	(49,288	)
Denominator:
Weighted-average shares outstanding		6,936			6,860
Contingently issuable shares		1			3
Denominator for earnings per share		6,937			6,863
Basic and diluted loss per common share	$	(2.18	)	$	(7.18	)

Potentially dilutive securities which could have had an antidilutive effect on our losses per share were (in thousands except per share amounts):

	2009		2008
Stock options (exercise prices per share: 2009 - $5.31 to $16.81; 2008 - $5.63 to $17.56)		457		533
Benefit Restoration Trust shares		122		90
Performance units		46		-
Nonvested restricted stock not contingently issuable		3		33

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A(T) - CONTROLS AND PROCEDURES

Disclosure Controls And Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of June 30, 2009 in alerting them in a timely manner to material information required to be disclosed by us in the reports we file with or submit to the Securities and Exchange Commission under the Exchange Act.

Management’s Report On Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for our Company. Our internal control over financial reporting is a process designed to provide reasonable assurance as to the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Our control environment is the foundation for our system of internal control over financial reporting and is an integral part of our Code of Business Conduct and Ethics which sets the tone for our directors, officers, and employees. Our internal control over financial reporting includes policies and procedures: (1) pertaining to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets; (2) providing reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with U.S. generally accepted accounting principles and that our receipts and expenditures are being made only in accordance with authorizations of our directors and management; and (3) providing reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements.

In order to assess the effectiveness of our internal control over financial reporting as of June 30, 2009 as required by Section 404 of the Sarbanes-Oxley Act of 2002, we conducted an evaluation of the effectiveness of our internal control over financial reporting under the supervision and with the participation of our management, including our

38

Chief Executive Officer and Chief Financial Officer, which included testing based on the criteria set forth in “Internal Control - Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO Framework”). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk controls may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate. Based on that assessment, we determined that our internal control over financial reporting was effective as of June 30, 2009.

This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report.

Changes In Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during the fourth quarter of fiscal 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B - OTHER INFORMATION

None.

39

PART III

The information required by Items 10 through 14 of this Annual Report on Form 10-K is included in our definitive Proxy Statement relating to our 2009 Annual Meeting of Stockholders and is incorporated herein by reference. Such information and its location in the Proxy Statement are as follows:

Item

Caption In The
Tandy Brands Accessories, Inc.
2009 Proxy Statement

ITEM 10 - - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

“Proposal One: Election of Directors
– Biographical and Other Information Regarding Our
   Nominees for Re-Election to Our Board of Directors”

“Proposal One: Election of Directors
– Biographical and Other Information Regarding Our
   Continuing Directors”

“Executive Officers”

“Proposal One: Election of Directors
– Corporate Governance Information
– Code of Ethics”

“Proposal One: Election of Directors
– Corporate Governance Information
– Audit Committee”

“Section 16(a) Beneficial Ownership Reporting
Compliance”

ITEM 11 - - EXECUTIVE COMPENSATION

“Executive Compensation”

“Proposal One: Election of Directors
– Director Compensation”

ITEM 12 - - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

“Security Ownership of Certain Beneficial Owners”

ITEM 13 - - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

“Proposal One: Election of Directors
– Corporate Governance Information
– Review, Approval or Ratification of Transactions
   with Related Persons”

“Proposal One: Election of Directors
– Corporate Governance Information
– Director Independence”

ITEM 14 - - PRINCIPAL ACCOUNTING FEES AND SERVICES

“Proposal Two: Ratification of Independent Auditor -
Background”

40

PART IV

ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Financial Statements
The following financial statements are included in Item 8 of this Annual Report:

• Consolidated Balance Sheets as of June 30, 2009 and 2008

• Consolidated Statements of Operations for the years ended June 30, 2009 and 2008

• Consolidated Statements of Cash Flows for the years ended June 30, 2009 and 2008

• Consolidated Statements of Stockholders’ Equity for the years ended June 30, 2009 and 2008

Financial Statement Schedules
Financial statement schedules have been omitted because they either are not applicable or the required information is included in the consolidated financial statements or notes thereto.

Exhibits
The Exhibit Index immediately preceding the exhibits required to be filed with this report is incorporated herein by reference.

41

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

TANDY BRANDS ACCESSORIES, INC.
(Registrant)
 

/s/ N. Roderick McGeachy, III  

N. Roderick McGeachy, III 

President and Chief Executive Officer 

Date: August 27, 2009

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Position	Date
/s/ N. Roderick McGeachy	Director, Chairman of the Board,	August 27, 2009
N. Roderick McGeachy	President and Chief Executive Officer (principal executive officer)
/s/ W. Grady Rosier	Lead Independent Director	August 27, 2009
W. Grady Rosier
/s/ Dr. James F. Gaertner	Director	August 27, 2009
Dr. James F. Gaertner
/s/ Roger R. Hemminghaus	Director	August 27, 2009
Roger R. Hemminghaus
/s/ George C. Lake	Director	August 27, 2009
George C. Lake
/s/ Colombe M. Nicholas	Director	August 27, 2009
Colombe M. Nicholas
/s/ Gene Stallings	Director	August 27, 2009
Gene Stallings
/s/ William D. Summitt	Director	August 27, 2009
William D. Summitt
/s/ M.C. Mackey	Chief Financial Officer	August 27, 2009
M.C. Mackey	(principal financial officer and
	principal accounting officer)

42

TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX

			Incorporated by Reference
			(if applicable)
Exhibit Number and Description			Form	Date	File No.	Exhibit
(3)     Articles of Incorporation and Bylaws
	3.1	Certificate of Incorporation of Tandy Brands Accessories, Inc.	S-1	11/02/90	33-37588	3.1
	3.2	Certificate of Amendment of the Certificate of Incorporation of Tandy Brands Accessories, Inc.	8-K	11/02/07	0-18927	3.1
	3.3	Amended and Restated Bylaws of Tandy Brands Accessories, Inc., effective July 2007	8-K	7/13/07	0-18927	3.01
	3.4	Amendment No. 1 to Amended and Restated Bylaws of Tandy Brands Accessories, Inc.	8-K	11/02/07	0-18927	3.2
(4)      Instruments Defining the Rights of Security Holders, Including Indentures
	4.1	Form of Common Stock Certificate of Tandy Brands Accessories, Inc.	S-1	12/17/90	33-37588	4.2
	4.2	Certificate of Elimination of Series A Junior Participating Cumulative Preferred Stock of Tandy Brands Accessories, Inc.	8-K	10/24/07	01-18927	3.1
	4.3	Credit Agreement by and between Tandy Brands Accessories, Inc. and Comerica Bank dated as of February 12, 2008	10-Q	2/14/08	0-18927	4.3
	4.4	Amendment No. 1 to Credit Agreement dated as of February 12, 2008 by and between Tandy Brands Accessories, Inc. and Comerica Bank effective as of March 31, 2009	10-Q	5/14/09	0-18927	4.4
(10)      Material Contracts
	10.1	Tandy Brands Accessories, Inc. Benefit Restoration Plan and related Trust Agreement and Amendments Nos. 1 and 2 thereto*	10-K	9/25/97	0-18927	10.14
	10.2	Amendment No. 3 to the Tandy Brands Accessories, Inc. Benefit Restoration Plan, effective as of July 1, 2003*	10-K	9/23/03	0-18927	10.32
	10.3	Form of Indemnification Agreement between Tandy Brands Accessories, Inc. and each of its Directors	S-1	12/17/90	33-37588	10.16
	10.4	Form of Indemnification Agreement between Tandy Brands Accessories, Inc. and each of its Officers	S-1	12/17/90	33-37588	10.17

1

TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX

			Incorporated by Reference
			(if applicable)
Exhibit Number and Description			Form	Date	File No.	Exhibit
	10.5	Tandy Brands Accessories, Inc. Non-Qualified Formula Stock Option Plan for Non-Employee Directors*	S-8	2/10/94	33-75114	28.1
	10.6	Amendment No. 4 to the Tandy Brands Accessories, Inc. Nonqualified Formula Stock Option Plan For Non-Employee Directors*	10-Q	5/10/02	0-18927	10.39
	10.7	Tandy Brands Accessories, Inc. Non-Qualified Stock Option Plan for Non-Employee Directors*	S-8	2/10/94	33-75114	28.3
	10.8	Tandy Brands Accessories, Inc. 1995 Stock Deferral Plan for Non-Employee Directors*	S-8	6/03/96	33-08579	99.1
	10.9	Tandy Brands Accessories, Inc. 1997 Employee Stock Option Plan*	S-8	12/12/97	333-42211	99.1
	10.10	Amendment No. 2 to the Tandy Brands Accessories, Inc. 1997 Employee Stock Option Plan*	10-Q	5/10/02	0-18927	10.38
	10.11	Tandy Brands Accessories, Inc. Employees Investment Plan, as Amended and Restated effective July 1, 2000*	10-K	9/26/00	0-18927	10.39
	10.12	Mid-Market Trust Agreement, dated August 19, 2001, between Tandy Brands Accessories, Inc. and State Street Bank and Trust Company, relating to the Tandy Brands Accessories, Inc. Employees Investment Plan*	10-K	9/23/03	0-18927	10.28
	10.13	Amendments Nos. 1-3 to the Tandy Brands Accessories, Inc. Employees Investment Plan, as Amended and Restated effective July 1, 2000*	10-K	9/23/03	0-18927	10.31
	10.14	Succession Agreement, dated June 20, 2002, between Tandy Brands Accessories, Inc. and Comerica Bank - Texas, (the Trustee), relating to the Tandy Brands Accessories, Inc. Employees Investment Plan*	10-K	9/23/03	0-18927	10.35
	10.15	Amendment No. 4 to the Tandy Brands Accessories, Inc. Employees Investment Plan, dated December 22, 2003*	10-Q	2/12/04	0-18927	10.38
	10.16	Nonqualified Stock Option Agreement for Non-Employee Directors, dated October 16, 2001, by and between Tandy Brands Accessories, Inc. and Dr. James F. Gaertner*	S-8	5/15/02	33-88276	10.2

2

TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX

			Incorporated by Reference
			(if applicable)
Exhibit Number and Description			Form	Date	File No.	Exhibit
	10.17	Nonqualified Stock Option Agreement for Non-Employee Directors, dated October 16, 2001, by and between Tandy Brands Accessories, Inc. and Gene Stallings*	S-8	5/15/02	33-88276	10.4
	10.18	Nonqualified Stock Option Agreement for Non-Employee Directors, dated October 16, 2001, by and between Tandy Brands Accessories, Inc. and Roger R. Hemminghaus*	S-8	5/15/02	33-88276	10.5
	10.19	Nonqualified Stock Option Agreement for Non-Employee Directors, dated October 16, 2001, by and between Tandy Brands Accessories, Inc. and Colombe M. Nicholas*	S-8	5/15/02	33-88276	10.6
	10.20	Tandy Brands Accessories, Inc. 2002 Omnibus Plan*	10-Q	11/12/02	0-18927	10.24
	10.21	Form of Non-Employee Director Nonqualified Stock Option Agreement pursuant to the Tandy Brands Accessories, Inc. 2002 Omnibus Plan*	10-K	9/23/04	0-18927	10.39
	10.22	Form of Employee Nonqualified Stock Option Agreement pursuant to the Tandy Brands Accessories, Inc. 2002 Omnibus Plan*	10-K	9/23/04	0-18927	10.40
	10.23	Form of Non-Employee Director Restricted Stock Award Agreement pursuant to the Tandy Brands Accessories, Inc. 2002 Omnibus Plan*	10-K	9/23/04	0-18927	10.41
	10.24	Form of Employee Restricted Stock Award Agreement pursuant to the Tandy Brands Accessories, Inc. 2002 Omnibus Plan*	10-K	9/23/04	0-18927	10.42
	10.25	Form of Severance Agreement between Tandy Brands Accessories, Inc. and certain Executive Officers*	10-K	9/23/03	0-18927	10.33
	10.26	Office Lease Agreement, dated January 31, 2004, between Koll Bren Fund VI, LP and Tandy Brands Accessories, Inc. relating to the corporate office	10-Q	2/12/04	0-18927	10.36
	10.27	Acknowledgement and Release Agreement between Tandy Brands Accessories, Inc. and J.S.B. Jenkins relating to the termination of the Supplemental Executive Retirement Plan*	8-K	8/22/05	0-18927	10.45
	10.28	Amendments Nos. 5-6 to the Tandy Brands Accessories, Inc. Employees Investment Plan, as Amended and Restated effective July 1, 2000*	10-Q	5/11/06	0-18927	10.44

3

TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX

			Incorporated by Reference
			(if applicable)
Exhibit Number and Description			Form	Date	File No.	Exhibit
	10.29	Amendment No. 2 to the Tandy Brands Accessories, Inc. 1995 Stock Deferral Plan for Non-Employee Directors*	10-K	9/22/06	0-18927	10.35
	10.30	Credit Agreement by and between Tandy Brands Accessories, Inc. and Comerica Bank dated as of February 12, 2008	10-Q	2/14/08	0-18927	10.31
	10.31	Amendment No. 4 to the Tandy Brands Accessories, Inc. Benefit Restoration Plan, dated July 1, 2001*	10-Q	11/14/06	0-18927	10.37
	10.32	Amendment No. 7 to the Tandy Brands Accessories, Inc. Employees Investment Plan, effective as of January 1, 2006*	10-Q	2/14/07	0-18927	10.38
	10.33	Amendment No. 1 to the Tandy Brands Accessories, Inc. 2002 Omnibus Plan*	10-K	9/21/07	0-18927	10.38
	10.34	Tandy Brands Accessories, Inc. Stock Purchase Program (As Amended And Restated Effective December 1, 2005)*	10-Q	11/19/07	0-18927	10.40
	10.35	Employment Agreement by and between Tandy Brands Accessories, Inc. and N. Roderick McGeachy, III effective October 1, 2008*	10-Q	11/10/08	0-18927	10.1
	10.36	Nonqualified Stock Option Agreement pursuant to the Tandy Brands Accessories, Inc. 2002 Omnibus Plan with N. Roderick McGeachy, III dated October 1, 2008*	10-Q	11/10/08	0-18927	10.2
	10.37	Amendment No. 5 to the Tandy Brands Accessories, Inc. Benefit Restoration Plan dated December 31, 2008*	10-Q	2/4/09	0-18927	10.1
	10.38	Amendment No. 2 to the Tandy Brands Accessories, Inc. Stock Deferral Plan for Non-Employee Directors dated December 31, 2008*	10-Q	2/4/09	0-18927	10.2
	10.39	Amendment No. 8 to the Tandy Brands Accessories, Inc. Employees Investment Plan dated December 31, 2008*	10-Q	2/4/09	0-18927	10.3
	10.40	Summary of 2009 Long-Term Incentive Program for Tandy Brands Accessories, Inc.*	10-Q	2/4/09	0-18927	10.5
	10.41	Form of Tandy Brands Accessories, Inc. 2009 Performance Unit Award Agreement*	10-Q	2/4/09	0-18927	10.6

4

TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX

			Incorporated by Reference
			(if applicable)
Exhibit Number and Description			Form	Date	File No.	Exhibit
	10.42	First Amendment to Lease dated January 22, 2009 by and between Enterprise Centre Operating Associates, LP and Tandy Brands Accessories, Inc. relating to the corporate office	10-Q	2/4/09	0-18927	10.7
	10.43	Amendment No. 1 to Credit Agreement dated as of February 12, 2008 by and between Tandy Brands Accessories, Inc. and Comerica Bank effective as of March 31, 2009	10-Q	5/14/09	0-18927	10.7
	10.44	Consulting Agreement by and between Tandy Brands Accessories, Inc. and J.S.B. Jenkins effective as of May 8, 2009*	10-Q	5/14/09	0-18927	10.8
	10.45	Summary of Fiscal 2010 Management Incentive Plan for Tandy Brands Accessories, Inc.*	8-K	7/7/09	0-18927	10.1
	10.46	Summary of 2010 Long-Term Incentive Program for Tandy Brands Accessories, Inc.*	8-K	7/7/09	0-18927	10.2
	10.47	Consent, Resignation & Appointment agreement among Tandy Brands Accessories, Inc., Comerica Bank, and Wells Fargo Bank, N.A. relating to the Tandy Brands Accessories, Inc. Employees Investment Plan* **	N/A	N/A	N/A	N/A
	10.48	Consent, Resignation & Appointment agreement among Tandy Brands Accessories, Inc., Comerica Bank, and Wells Fargo Bank, N.A. relating to the Tandy Brands Accessories, Inc. Benefit Restoration Plan* **	N/A	N/A	N/A	N/A
	10.49	Form of Tandy Brands Accessories, Inc. 2010 Performance Unit Award Agreement* **	N/A	N/A	N/A	N/A
	10.50	Fiscal 2010 Compensation Summaries* **	N/A	N/A	N/A	N/A
(21)     Subsidiaries of the Registrant
	21.1	List of Subsidiaries**	N/A	N/A	N/A	N/A
(23)      Consents of Experts and Counsel
	23.1	Consent of Ernst & Young LLP**	N/A	N/A	N/A	N/A
(31)      Rule 13a-14(a)/15d-14(a) Certifications
	31.1	Certification Pursuant to Rule 13a-14(a)/15d-14(a) (Chief Executive Officer)**	N/A	N/A	N/A	N/A
	31.2	Certification Pursuant to Rule 13a-14(a)/15d-14(a) (Chief Financial Officer)**	N/A	N/A	N/A	N/A

5

TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX

			Incorporated by Reference
			(if applicable)
Exhibit Number and Description			Form	Date	File No.	Exhibit
(32)       Section 1350 Certifications
	32.1	Section 1350 Certifications (Chief Executive Officer and Chief Financial Officer)**	N/A	N/A	N/A	N/A

*	Management contract or compensatory plan
**	Filed herewith

6