TANDY LEATHER FACTORY INC

Previous wording

We have made steady progress to transform and reinvigorate our business even in the face of two very significant obstacles and have been focused on improving our financial sustainability and profitability. In the short-term, we are managing operating expenses and gross margin to deliver free operating cash and operating income even in the face of possible continued economic headwinds. We will also continue to selectively invest in profitable sales growth where it makes sense, but rebuilding a durable, profitable business model is the highest priority.

Current wording

We continue to focus on improving our financial sustainability and profitability. In the short-term, we are managing operating expenses and gross margin to deliver free operating cash and operating income even in the face of possible continued economic headwinds. We will also continue to selectively invest in profitable sales growth where it makes sense, but rebuilding a durable, profitable business model is the highest priority.

Previous wording

On January 22, 2025, the Company finalized the sale of its corporate headquarters and distribution facilities in Fort Worth, Texas for a gross sale of $26.5 million before deduction of commission and relevant closing fees as referenced in the Company’s 8-K filed on January 22, 2025. On January 28, 2025, the Company also signed a 10-year lease for new corporate headquarters and distribution facilities in Benbrook, Texas and the Company has the ability to renew the lease for an additional 10 years at market rate.

Current wording

On January 22, 2025, the Company finalized the sale of its corporate headquarters and distribution facilities in Fort Worth, Texas for a gross sale of $26.5 million before deduction of commission and relevant closing fees as referenced in the Company’s 8-K filed on January 22, 2025. The net proceeds of the sale is recorded in ‘Other, net’ in our consolidated statements of operations and comprehensive income On January 28, 2025, the Company also signed a 10-year lease for new corporate headquarters and distribution facilities in Benbrook, Texas and the Company has the ability to renew the lease for an additional 10 years at market rate.

Previous wording

Operating expenses for the quarter increased by $0.2 million or 1.8% compared to the corresponding prior year period, primarily as a result of an increase in employment costs of $0.3 million due to the combination of higher insurance costs, merit increases, and some key personnel hired in the second half of 2024, an increase in occupancy of $0.1 million mainly attributed to rental of our corporate headquarters; partially offset by a decrease in professional services of $0.1 million and a decrease in depreciation expense of $0.1 million due to the disposal of our owned corporate headquarters.

Current wording

Operating expenses for the quarter increased by $0.6 million or 5.5% compared to the corresponding prior year period, primarily as a result of an increase in total occupancy of $0.4 million mainly to cover rent expense for our corporate offices that were previously owned, increase in salary of $0.3 million driven by hiring to filled some of key management vacancies including VP of Stores, and additional related costs due to relocation of our corporate offices.; partially offset by a decrease in contract labor of $0.1 million.

Previous wording

Our effective tax rate for the three months ended March 31, 2025 and March 31, 2024 was 24.8% and 25.7% respectively. Our effective tax rate differs from the federal statutory rate primarily due to U.S. state income tax expense, expenses that are non-deductible for tax purposes, and the estimates in our valuation allowance associated with our deferred tax assets.

Current wording

Our effective income tax rate for the three months ended June 30, 2025 and June 30, 2024 was (10.8%) and 32.7% respectively and are primarily due to the recognition of tax benefits on the sales of our corporate property, partially offset by forecasted income taxes loss projected due to our 2025 operation and certain foreign and state jurisdictions obligation in which we operate. Our effective tax rate differs from the federal statutory rate primarily due to U.S. state income tax expense, expenses that are non-deductible for tax purposes, and the estimates in our valuation allowance associated with our deferred tax assets.

Previous wording

Consolidated net sales for the quarter ended March 31, 2025 decreased $0.2 million, or 1.2%, compared to the corresponding prior year period. We believe the decrease in sales was due in small part to temporary store closures related to store relocation and ongoing weak consumer demand compared to a year ago resulting from uncertainty related to global political, economic and other uncontrollable factors.

Current wording

Consolidated net sales for the six months ended June 30, 2025 increased $0.2 million, or 0.7%, compared to the corresponding prior year period. We believe the increase in sales was due to the increased sale campaigns that were ramped up in the second quarter offset by some uncertainty related to global political, economic and other uncontrollable factors.

Previous wording

We require cash principally for day-to-day operations, to purchase inventory and to finance capital investments. We expect to fund our operating and liquidity needs primarily from a combination of current cash balances and cash generated from operating activities. Any excess cash will be invested as determined by our Board of Directors in accordance with its approved investment policy. Our cash balances as of March 31, 2025 totaled $23.6 million.

Current wording

We require cash principally for day-to-day operations, to purchase inventory and to finance capital investments. We expect to fund our operating and liquidity needs primarily from a combination of current cash balances and cash generated from operating activities. Any excess cash will be invested as determined by our Board of Directors in accordance with its approved investment policy. Our cash balances as of June 30, 2025 totaled $16.4 million.

Previous wording

For the three months ended March 31, 2025, cash used in operations generated $0.5 million driven by a net income from operations of $0.3 million , non-cash expense of $1.4 million, including depreciation, amortization, and stock-based compensation, a decrease in inventory of $1.2 million, a decrease in prepaid expenses of $0.2 million; partially offset by a reduction in lease liability payments of $1.4 million, a decrease in accrued expenses of $0.9 million, an increase in other assets of $0.2 million, and a decrease in accounts payable of $0.1 million. Cash provided from our investing activities was $23.3 million, which included net proceeds from sale of our corporate headquarters of $24.9 million and purchase of assets for our new corporate facility of $1.3 million. We paid dividends in the amount of $12.7 million. The above activities, in addition to the effect of exchange rate changes, resulted in a net increase in cash of $10.3 million.

Current wording

For the six months ended June 30, 2025, cash used in operations was $4.5 million driven by a net income from operations of $0.3 million , offset by a reduction in lease liability payment of $2.4 million, an increase in trade accounts payables of $1.0 million, an increase in accrued liabilities of $0.9 million, an increase in inventory of $0.3 million, and an increase in other assets of $0.2 million. Cash provided by investing activities was $20.2 million, which included net proceeds from sale of our corporate headquarters of $24.9 million offset by the purchase of assets for our new corporate facility of $4.7 million. We paid dividends in the amount of $12.8 million. The above activities, in addition to the effect of exchange rate changes, resulted in a net increase in cash of $3.1 million.

Previous wording

For the three months ended March 31, 2024, cash from operations generated $1.1 million driven by a net income of $0.5 million, non-cash expense of $1.4 million, including depreciation, amortization, and stock-based compensation, a net reduction in inventory of $1.2 million and a decrease in prepaid expense of $0.1 million, partially offset by a reduction to working capital including a net $1.1 million decrease in accrued expense and other liabilities, a reduction in lease liability payments of $0.9 million, and a decrease in accounts payable trade of $0.1 million. We invested $1.2 million in capital expenditure primarily related to replacing a new roof at our corporate headquarters and other new capital investments due to new store openings and store relocations. The activities above, in addition to the effect of exchange rate changes, resulted in a net increase in cash of $0.2 million

Current wording

For the six months ended June 30, 2024, cash from operations generated $0.6 million driven by a net income of $0.6 million, non-cash expense of $2.8 million, including depreciation, amortization, and stock-based compensation, a net reduction in inventory of $0.8 million partially offset by a reduction in lease liability payments of $1.8 million, decrease in accrued expense and other liabilities of $0.7 million, an increase in prepaid expense of $0.4 million, and an increase in accounts receivable of $0.1 million. We invested $1.4 million in capital expenditure primarily related to replacing a new roof at our corporate headquarters and other new capital investments due to new store openings and store relocations. The activities above, in addition to the effect of exchange rate changes, resulted in a net decrease in cash of $0.6 million.