TANDY LEATHER FACTORY INC

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer (who serves as our principal executive officer and principal financial officer), evaluated the design and operation of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon their evaluation of these disclosure controls and procedures, our management, with the participation of our Chief Executive Officer, has concluded that the disclosure controls and procedures were effective as of the date of such evaluation in ensuring that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Our internal control system was designed to provide reasonable assurance to our management and our board of directors regarding the reliability of the preparation and fair presentation of our published financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

A material weakness is defined as a deficiency, or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

We assessed the effectiveness of our internal controls over financial reporting as of December 31, 2023. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commissions (COSO) in Internal Control – Integrated Framework. Based on our assessment, and until March 8, 2024, we believed that as of December 31, 2023, our internal control over financial reporting was effective based on those criteria.

However, on March 8, 2024, Weaver and Tidwell, L.L.P., our registered public accounting firm, informed us that they believe the following deficiencies in the Company’s internal control to be material weaknesses:

“The Company lacks key controls preventing and detecting errors from occurring regarding the accuracy and valuation of customer discounts given and selling prices which impact revenues. Such key controls should validate and review any customer discounts given and product pricing changes to ensure accuracy and appropriateness. In addition, the accuracy and completeness of the system-generated data and reports used and relied upon was not validated.”

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report is not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report on Form 10-K.

Notwithstanding this identified material weakness, our registered public accounting firm has issued an unqualified opinion on our consolidated financial statements of and for the year ended December 31, 2023. And our management has been unable to measure any impact of this material weakness on the Company’s financial reporting.

We have subsequently put controls into place to address the issue described above, including a number of procedures designed as preventative controls to validate customers into various classes that are eligible to receive certain discounts, and contemporaneous confirmation and testing that pricing, discounts, customer-based price lists and negotiated prices in our ERP system are as intended by management. We also have implemented monthly and quarterly detective controls including testing representative samples of retail prices, promoted prices, discounts, customer-based price lists and negotiated prices that were actually paid by customers to confirm that they were as management intended. We have tested these controls for January, February, and March 2024 and based on the test sample, found no material errors related to our discounts or pricing.