TANDY LEATHER FACTORY INC

Previous 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.

Current wording

Currently, the Company operates a total of 100 retail stores. There are 91 stores in the United States (“U.S,”), eight stores in Canada and one store in Spain. As of March 31, 2026, the Company had temporarily closed one of its Canadian stores for relocation.

Previous wording

Tandy Leather has been introducing people to leatherworking for over 100 years. Our stores have been and continue to be our competitive advantage: where our customers learn the craft in classes, open table, and from the expertise of our store staff, where they can touch, feel and test the product, and where they can connect and commune with others passionate about leather. Our websites provide inspiration, detailed product descriptions and specifications, educational information and videos, and a convenient place to also purchase products – especially for those who are far from our retail stores, including a growing international customer base. For many of our retail and web customers, leatherworking evolves from a passion to a trade. Our Commercial Division is tailored to the needs of those customers who build businesses around leather. With dedicated direct account representatives, a direct-from-our-warehouse shipping model, bulk and volume-based competitive pricing, customized product development, and production and pre-production services, we are building long-term, strategic relationships with our largest customers.

Current wording

Tandy Leather has been introducing people to leatherworking for over 100 years. Our stores have been and continue to be our competitive advantage: where our customers learn the craft in classes, open table, and from the expertise of our store staff, where they can touch, feel and test the product, and where they can connect and commune with others passionate about leather. Our websites provide inspiration, detailed product descriptions and specifications, educational information and videos, and a convenient place to also purchase products – especially for those who are far from our retail stores, including a growing international customer base. For many of our retail and web customers, leatherworking evolves from a passion to a trade. Our Commercial Division is tailored to the needs of those customers who build businesses around leather. With dedicated direct account representatives, a direct-from-our-warehouse shipping model, bulk and volume-based competitive pricing, customized product development, and production and pre-production services, we are providing choices for long-term, strategic relationships with our largest customers.

Previous 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.

Current wording

Gross profit for the quarter increased by $1.3 million, or 11.9%, compared to the same period in 2025. Gross margin percentage for the quarter ended March 31, 2026 was 470 basis points better than last year, primarily driven by pricing changes; offset by marginal discounts for the period compared to prior year. The Company’s estimates of overhead allocation and the timing of inventory receipts may also have a temporary impact on gross margin percentage fluctuations from quarter to quarter.

Previous 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.

Current wording

Operating expenses for the quarter increased by $1.1 million or 11.2% compared to the corresponding prior year period, primarily as a result of an increase in compensation cost of $0.6 million, an increase in total occupancy of $0.4 million, an increase in property tax expense of $0.2 million compared to prior year, an increase in healthcare cost of $0.1 million; offset by a reduction in freight out to our customers of $0.2 million.

Previous 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.

Current wording

Our effective income tax rate for the three months ended March 31, 2026 and March 31, 2025 was 39.5% and 26.5%, 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 any change in estimates 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 September 30, 2025, totaled $12.0 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 March 31, 2026, totaled $10.1 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 one year. As of the date of this filing, no funds had been borrowed under this facility.

Current wording

In the fourth quarter of 2025, the Company renewed the promissory note under its Credit Agreement with JPMorgan Chase Bank, N.A. through October 31, 2026. Under the Credit Agreement, the bank provides the Company a credit facility of up to $4,000,000 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 credit facility renews annually. 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 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.

Current wording

For the three months ended March 31, 2026, cash provided by operations was $0.9 million, driven by net income from operations of $0.2 million, non-cash expense of $1.8 million, including depreciation, amortization, and stock-based compensation, an increase in accounts payables of $1.1 million, an decrease in accounts receivables of $0.1 million, decrease in prepaid expense of $0.1 million; offset by a decrease in operating lease liabilities of $1.3 million, a reduction in accrued expense and other liabilities of $0.7 million, an increase in inventory of $0.6 million, and an increase in income tax payable of $0.2 million. Cash used in investing activities was $0.6 million mainly for new store operations which includes purchases of property and equipment Cash used in financing activities was $6.2 million, primarily for dividend payments and withheld shares used as taxes at vesting for the employees. These activities, together with the effect of exchange rate changes of $0.1 million, resulted in a net decrease in cash of $6.0 million.

Previous 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.

Current wording

For the three months ended March 31, 2025, cash used in operations was $0.5 million driven by net income from operations of $0.3 million , non-cash expense of $1.4 million, including depreciation, amortization, and stock-based compensation, , an increase in inventory of $1.2 million; partially offset by a reduction in lease liability payments of $1.4 million, a decrease in accrued expenses of $0.8 million and an increase in other assets of $0.1 million. Our net reduction in property, plant and equipment was $7.0 million, mainly due to the disposal of our corporate headquarters facilities including land, and 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.