TANDY LEATHER FACTORY INC

Previous 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.

Current wording

Currently, the Company operates a total of 101 retail stores. There are 92 stores in the United States (“U.S,”), eight stores in Canada and one store in Spain. As of June 30, 2026, the Company had temporarily closed one of its Canadian stores for relocation and we anticipate to open this store in Q4 2026.

Previous 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.

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. The total net book value disposed was $8.7 million, resulting in a gain of $16.2 million as the result of the sale, and this is included in ‘Other income’ on the face of our consolidated statements of operations and comprehensive income. The Company has elected to include all one-time move expenses in ‘Other income’ as management deems these are not part of our normal operations.

Previous wording

Consolidated net sales for the quarter ended March 31, 2026 increased by $0.6 million or a 3.2% increase compared to the same period in the prior year period. We believe the increase was mainly due to our sales campaign and improved allocation of the correct product mix in our stores during those sales periods. We also saw improvement in our non-traditional sales such as classes and other community engagements.

Current wording

Consolidated net sales for the quarter ended June 30, 2026 increased by $0.3 million or a 1.5% increase compared to the same period in the prior year period. We believe the increase was mainly due to our sales campaign and improved allocation of the correct product mix in our stores during those sales periods. We also saw improvement in our non-traditional sales such as classes and other community engagements.

Previous 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.

Current wording

Gross profit for the quarter increased by $1.1 million, or 10.6%, compared to the same period in 2025. Gross margin percentage for the quarter ended June 30, 2026 was 530 basis points better than last year, primarily driven by pricing changes implemented; offset by marginal discounts offered for the period compared to prior year discount offering. 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 $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.

Current wording

Operating expenses for the quarter increased by $0.6 million or 6.1% compared to the corresponding prior year period, primarily as a result of an increase in retail bonus paid compared to prior year of $0.1 million, an increase in selling expenses of $0.2 million, an increase in software cost of $0.1 million, an increase of legal and audit fees of $0.1 million, an increase in depreciation expense of $0.1 million, an increase of $0.1 million in loss on disposed assets; offset by a reduction in utilities and repairs of $0.1 million.

Previous 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.

Current wording

Our effective income tax rate for the three months ended June 30, 2026 and June 30, 2025 was 34.2% and (10.8%), 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 March 31, 2026, totaled $10.1 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, 2026, totaled $6.4 million.

Previous 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.

Current wording

For the six months ended June 30, 2026, cash used in operations was $2.3 million, driven by net income from operations of $0.6 million, non-cash expense of $3.6 million, including depreciation, amortization, and stock-based compensation, an increase in inventory of $4.0 million, a decrease in accrued expenses of $1.0 million, a decrease in operating lease liabilities of $2.5 million; offset by an increase in account payable of $0.9 million and decrease in prepaid expenses of $0.1 million. Cash used in investing activities was $1.0 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 $9.7 million.

Previous 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.

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 decrease in trade accounts payables of $1.0 million, an decrease 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.