TANDY LEATHER FACTORY INC

Previous wording

We sell our products primarily through company-owned stores and through orders generated from our global websites, and through direct account representatives in our commercial division. We also manufacture leather lace, cut leather pieces and most of the do-it-yourself kits that are sold in our stores and on our websites. We also offer production services to our business customers such as cutting (“clicking”), splitting, and some assembly. We maintain our principal offices at 1900 Southeast Loop 820, Fort Worth, Texas 76140.

Current wording

We sell our products primarily through company-owned stores and through orders generated from our global websites, and through direct account representatives in our commercial division. We also manufacture leather lace, cut leather pieces and most of the do-it-yourself kits that are sold in our stores and on our websites. We also offer production services to our business customers such as cutting (“clicking”), splitting, and some assembly. We maintain our principal offices at 7602 S.W. Loop 820, Benbrook, Texas 76126.

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. 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.

Current wording

On January 22, 2025, the Company finalized the sale of its corporate headquarters and distribution facilities in Fort Worth, Texas for net proceeds of $24.9 million after 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 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

Gross profit for the quarter increased by $0.6 million, or 5.5%, compared to the same period in 2024. Gross margin percentage for the quarter ended June 30, 2025 was 150 basis points better than last year primarily driven by inventoriable costs adjustments and pricing changes implemented to balance tariffs.

Current wording

Gross profit for the quarter increased by $0.2 million, or 1.5%, compared to the same period in 2024. Gross margin percentage for the quarter ended September 30, 2025 was 110 basis points better than last year, primarily driven by inventoriable costs adjustments and pricing changes; offset by tariff increases for the period compared to prior year.

Previous 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.

Current wording

Operating expenses for the quarter increased by $0.6 million or 5.4% compared to the corresponding prior year period, primarily as a result of an increase in total occupancy of $0.7 million mainly to cover rent expense for our corporate offices that were previously owned; partially offset by a decrease in digital marketing of $0.1 million.

Previous 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.

Current wording

Our effective income tax rate for the three months ended September 30, 2025 and September 30, 2024 was 26.2% and 27.9%, 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 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.

Current wording

Consolidated net sales for the nine months ended September 30, 2025 increased $0.2 million, or 0.3%, compared to the corresponding prior year period. We believe the slight increase in sales was due to the increased sale campaigns and a marginal increase in prices that were ramped up in the second quarter, partially offset in the third quarter by the sales disruption caused by the relocation of our corporate headquarters and warehouse.

Previous wording

Our store footprint consisted of 101 and 103 stores at June 30, 2025 and June 30, 2024, respectively.

Current wording

Our store footprint consisted of 101 and 100 stores at September 30, 2025 and September 30, 2024, respectively.

Previous wording

Gross profit increased by $0.4 million, or 1.7%, compared to the same period in 2024, and our gross margin percentage for the six months ended June 30, 2025, increased year over year by 50 basis points.

Current wording

Gross profit increased by $0.5 million, or 1.6%, compared to the same period in 2024, and our gross margin percentage for the nine months ended September 30, 2025, increased year over year by 80 basis points. The gross profit increase was mainly driven by better sales for the last 3 quarters compared to prior year despite the partial closure of our sale operations for about 6 weeks in the third quarter. Gross margin was supported by price adjustments that were partially offset by increased tariffs.

Previous wording

Operating expenses increased $0.7 million or 3.6% compared to the corresponding prior year period, primarily as a result of an increase in occupancy costs by $0.5 million excluding adjustments for accrued property taxes, an increase in salaries of $0.4 million; partially offset by a decrease in depreciation of $0.2 million due to the sales of our corporate offices.

Current wording

Operating expenses increased $1.3 million or 4.2% compared to the corresponding prior year period, primarily as a result of an increase in occupancy costs by $1.1 million mainly driven by the rental of our new corporate offices, and increase in compensation and benefits of $0.5 million due to merit, medical benefits and retail bonus; partially offset by a decrease in depreciation of $0.3 million due to the sales of our corporate offices.

Previous wording

Our effective income tax rate for the six months ended June 30, 2025 and June 30, 2024 was 25.2% and 27.0% 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 nondeductible for tax purposes, and the change in our valuation allowance associated with our deferred tax assets.

Current wording

Our effective income tax rate for the nine months ended September 30, 2025 and September 30, 2024 was 25.1% and 26.4% 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 nondeductible for tax purposes, and the change in our valuation allowance associated with our deferred tax assets.

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 June 30, 2025 totaled $16.4 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 September 30, 2025, totaled $12.0 million.

Previous wording

On October 30, 2024, the Company renewed the promissory note under its credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. through October 31, 2025. Under the Credit Agreement, the bank will provide the Company a credit facility of up to $5,000,000 on standard terms and conditions, including affirmative and negative covenants set forth in the Credit Agreement. As security for the credit facility, the Company has pledged as collateral certain of its assets, including the Company’s cash in deposit accounts, inventory and equipment. The interest rate is based on CME term SOFR + 210 basis points and the maturity is 1 year. As of the date of this filing, no funds had been borrowed under this facility.

Current wording

On October 30, 2024, the Company renewed the promissory note under its credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. through October 31, 2025. Under the Credit Agreement, the bank will provide the Company a credit facility of up to $5,000,000 on standard terms and conditions, including affirmative and negative covenants set forth in the Credit Agreement. As security for the credit facility, the Company has pledged as collateral certain of its assets, including the Company’s cash in deposit accounts, inventory and equipment. The interest rate is based on CME term SOFR + 210 basis points and the maturity is one year. As of the date of this filing, no funds had been borrowed under this facility.

Previous 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.

Current wording

For the nine months ended September 30, 2025, cash used in operations was $5.5 million, driven by a net loss from operations of $0.4 million, non-cash expense of $0.9 million, including depreciation, amortization, and stock-based compensation, an increase in inventory of $0.2 million, an increase in prepaid expenses of $0.2 million, a decrease in accounts payable of $0.8 million, a reduction in accrued expense and other liabilities of $0.9 million, an increase in other assets of $0.2 million, and a decrease in operating lease liabilities of $3.7 million. Cash provided by investing activities was $18.3 million, which included net proceeds from the sale of our corporate headquarters of $24.9 million, partially offset by purchases of property and equipment of $6.6 million. Cash used in financing activities was $14.2 million, primarily for dividend payments. These activities, together with the effect of exchange rate changes of $0.2 million, resulted in a net decrease in cash of $1.3 million.

Previous 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.

Current wording

For the nine months ended September 30, 2024, cash from operations generated $0.1 million driven by a net income of $0.5 million, non-cash expense of $4.1 million, including depreciation, amortization, and stock-based compensation, a decrease in deferred income taxes of $0.2 million, partially offset by a reduction in lease liability payments of $2.7 million, an increase in income tax payments of $1.0 million, decrease in accrued expense and other liabilities of $0.6 million, an increase in prepaid expense of $0.3 million, and an increase in inventory of $0.1 million. We invested $2.3 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 $2.1 million.