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 produce 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”) and 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 produce 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”) and splitting and some assembly. We maintain our principal offices at 7602 Southwest Loop 820, Suite 101, Benbrook, TX 76126.

Previous wording

Currently, the Company operates a total of 101 retail stores. There are 91 stores in the United States (“U.S,”), 9 stores in Canada and one store in Spain.

Current wording

Currently, the Company operates a total of 101 retail stores. There are 91 stores in the United States (“U.S,”), nine stores in Canada and one store in Spain.

Previous wording

Our store footprint consisted of 101 stores at December 31, 2024 and 102 stores at December 31, 2023.

Current wording

Our store footprint consisted of 101 stores at December 31, 2025 and 101 stores at December 31, 2024.

Previous wording

Since January 1, 2024, we closed two stores and opened one store. We evaluate a number of factors when determining whether to close existing stores, including the 4-wall cash flow trend and longer-term projections for the store, the long-term sales trend, ongoing cost of store operations, date of lease expiration, quality of the store and location, and the size and potential of the trade area including proximity to other existing stores, among other variables. We use similar factors to determine whether to open new stores.

Current wording

We evaluate a number of factors when determining whether to close existing stores, including the 4-wall cash flow trend and longer-term projections for the store, the long-term sales trend, ongoing cost of store operations, date of lease expiration, quality of the store and location, and the size and potential of the trade area including proximity to other existing stores, among other variables. We use similar factors to determine whether to open new stores.

Previous wording

Operating expenses increased by $0.4 million in 2024 as compared to the prior year. The primary drivers of the increase were higher employment costs of approximately $1.4 million for full time employees across the Company, and an increase in occupancy and utilities of $0.4 million due to the renewal of our store leases; offset by reduction in accrued bonus of $0.9 million, the expiration and forfeiture of RSUs of $0.2 million, a reduction in credit card fees of $0.2 million, a reduction in office supplies of $0.1 million, and a reduction in repair and maintenance of $0.1 million.

Current wording

Operating expenses increased by $3.3 million in 2025 as compared to the prior year. The primary drivers of the increase were increased rent driven by total lease cost of our corporate facilities of approximately $1.4 million that was previously owned in 2025, increased retail rent of $0.2 million, bonus expense of $1.0 million for overall achieving acceptable targets in the midst of disruptions and closures of our operations, higher employment costs of approximately $1.0 million for increased healthcare premiums and employee merit increase; offset by a reduction in accrued property tax of $0.2 million, and the reduction in utilities of $0.1 million.

Previous wording

Other income consists primarily of interest income and foreign currency gain. For the year ended December 31, 2024 and 2023, we recognized other income of $0.5 million of which $0.3 million was related to interest earned on our short term investment and $0.3 million in foreign currency exchange gain offset by $0.1 million in foreign tax penalties.

Current wording

Other income consists primarily of interest income and foreign currency gain. For the year ended December 31, 2025 , we recognized other income of $13.3 million of which $24.9 million was generated from the sales of our corporate headquarters, $0.6 million was related to interest earned on our short term investment; offset by $8.7 in disposal of our building and land and $3.5 million dollar in relocation expenses and other foreign exchange impact.

Previous wording

Our effective tax rate was 24.2% and 17.1% for the years ended December 31, 2024 and 2023, respectively. 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 release of valuation allowance associated with our deferred tax assets in 2023.

Current wording

Our effective tax rate was 26.0% and 24.2% for the years ended December 31, 2025 and 2024, respectively. 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 release of valuation allowance associated with our deferred tax assets in 2024.

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 balance as of December 31, 2024 totaled $13.3 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 balance as of December 31, 2025 totaled $16.1 million.

Previous wording

On January 3, 2023, the Company entered into a credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. 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, and we are in compliance with all covenants.

Current wording

On January 3, 2023, the Company entered into a credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. Under the Credit Agreement, the bank provides 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, and we are in compliance with all covenants.

Previous wording

For 2023, we generated $4.5 million of cash from operations driven by net income of $3.8 million, the add-back of non-cash expenses of $4.5 million, including depreciation, amortization, loss on disposal of fixed assets, stock based compensation, and deferred taxes, an increase in accrued expenses and other liabilities of $0.5 million, a decrease in inventory of $0.2 million and a decrease in accounts receivable of $0.1 million; offset by a decrease in operating lease liabilities payments of $3.6 million, a decrease in accounts payable of $0.8 million, and an increase in prepaid expenses of $0.2 million. We invested $0.6 million in capital expenditures for the purchase of store fixtures and systems implementations. The activities above, in addition to the effect of exchange rate changes, resulted in a net increase in cash of $4.2 million.

Current wording

For 2025, we used $0.6 million of cash in operations driven by net loss from operation of $0.9 million which excluded the sale of the building, the add-back of non-cash expenses of $1.3 million, including depreciation, amortization, and stock based compensation, a decrease in inventory of $2.6 million, offset by a decrease in operating lease liabilities payments of $3.1 million and a decrease in account payable of $1.3 million; adjusted by an decrease in deferred tax asset of $0.8 million. Cash provided by investing activities was $17.4 million which included the net proceeds from the sale of our corporate headquarters of $24.9 million, partially offset by the purchase of property and equipment of $7.5 million. Cash used in financing activities was $14.1 million, primarily for dividend payments. These activities, together with the effect of exchange rate changes of $0.2 million, resulted in a net increase in cash of $2.8 million.

Previous wording

Inventory. Inventory is stated at the lower of first-in, first-out (“FIFO”) cost or net realizable value, and FIFO layers are maintained at the location level. Finished goods held for sale includes the cost of merchandise purchases, the costs to bring the merchandise to our Texas distribution center, warehousing and handling expenditures, and distributing and delivering merchandise to our stores. These costs include depreciation of long-lived assets utilized in acquiring, warehousing and distributing inventory. Assembled inventory including raw materials and work-in-process is valued on a FIFO basis using full absorption accounting which includes material, labor, and other applicable assembly overhead. Carrying values of inventory are analyzed and, to the extent that the cost of inventory exceeds the net realizable value, provisions are made to reduce the carrying amount of the inventory.

Current wording

Inventory. Inventory is stated at the lower of first-in, first-out (“FIFO”) cost or net realizable value, and FIFO layers are maintained at the location level. Finished goods held for sale include the cost of merchandise purchases, the costs to bring the merchandise to our Texas distribution center, warehousing and handling expenditures, and distributing and delivering merchandise to our stores. These costs include depreciation of long-lived assets utilized in acquiring, warehousing and distributing inventory. Assembled inventory including raw materials and work-in-process is valued on a FIFO basis using full absorption accounting which includes material, labor, and other applicable assembly overhead. Carrying values of inventory are analyzed and, to the extent that the cost of inventory exceeds the net realizable value, provisions are made to reduce the carrying amount of the inventory.

Previous wording

Stock-based Compensation. The Company’s stock-based compensation relates primarily to restricted stock unit (“RSU”) awards. Accounting guidance requires measurement and recognition of compensation expense at an amount equal to the grant date fair value. Compensation expense is recognized for service-based stock awards on a straight-line basis or ratably over the requisite service period, based on the closing price of the Company’s stock on the date of grant. The service-based awards typically vest ratably over the requisite service period, provided that the participant is employed on the vesting date. The total compensation expense is reduced by actual forfeitures as they occur over the requisite service period of the awards. Performance-based RSUs vest, if at all, upon the Company satisfying certain performance targets. The Company records compensation expense for awards with a performance condition when it is probable that the condition will be achieved. If the Company determines it is not probable a performance condition will be achieved, no compensation expense is recognized. If the Company changes its assessment in a subsequent period and concludes it is probable a performance condition will be achieved, the Company will recognize compensation expense ratably between the period of the change in assessment through the expected date of satisfying the performance condition for vesting. If the Company subsequently assesses that it is no longer probable that a performance condition will be achieved, the accumulated expense that has been previously recognized will be reversed. The compensation expense ultimately recognized, if any, related to performance-based awards will equal the grant date fair value based on the number of shares for which the performance condition has been satisfied. We issue shares from authorized shares upon the lapsing of vesting restrictions on RSUs. We do not use cash to settle equity instruments issued under stock-based compensation awards.

Current wording

Stock-based Compensation. The Company’s stock-based compensation relates primarily to restricted stock unit (“RSU”) awards. Accounting guidance requires measurement and recognition of compensation expense at an amount equal to the grant date fair value. Compensation expense is recognized for service-based stock awards on a straight-line basis or ratably over the requisite service period, based on the closing price of the Company’s stock on the date of grant. The service-based awards typically vest ratably over the requisite service period, provided that the participant is employed on the vesting date. The total compensation expense is reduced by actual forfeitures as they occur over the requisite service period of the awards. Performance-based RSUs vest, if at all, upon the Company satisfying certain performance targets. The Company records compensation expense for awards with a performance condition when it is probable that the condition will be achieved. If the Company determines it is not probable a performance condition will be achieved, no compensation expense is recognized. If the Company changes its assessment in a subsequent period and concludes it is probable a performance condition will be achieved, the Company will recognize compensation expense ratably between the period of the change in assessment through the expected date of satisfying the performance condition for vesting. If the Company subsequently assesses that it is no longer probable that a performance condition will be achieved, the accumulated expense that has been previously recognized will be reversed. The compensation expense ultimately recognized, if any, related to performance-based awards will equal the grant date fair value based on the number of shares for which the performance condition has been satisfied. We issue shares from authorized shares upon the lapsing of vesting restrictions on RSUs. We do not use cash to settle equity instruments issued under stock-based compensation awards. In February 2025, in connection with hiring Johan Hedberg as the Company’s Chief Executive Officer, the Company granted Mr. Hedberg 100,000 RSU, which will vest in February 2026, and 900,000 RSUs, which will vest upon the Company’s achievement of certain performance and market targets. In June 2025, the Company’s stockholders approved an increase to the plan reserve of an additional 900,000 shares of our common stock for the potential vesting those performance-based and market based RSU grants to Mr. Hedberg.