UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2025

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to ______________

Commission File Number 1-12368

TANDY LEATHER FACTORY, INC.

(Exact name of registrant as specified in its charter)

Delaware		75-2543540
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

7602 Southwest Loop 820, Benbrook, Texas 76126

(Address of principal executive offices) (Zip code)

(817) 872-3200

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.0024	TLF	The Nasdaq Capital Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Non-accelerated filer ☒ Accelerated filer ☐ Smaller reporting company ☒ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 7, 2025, the registrant had 8,067,502 shares of Common Stock, par value $0.0024 per share, outstanding.

TANDY LEATHER FACTORY, INC.

FORM 10-Q

FOR THE QUARTER ENDED September 30, 2025

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION		4

	Item 1. Consolidated Financial Statements (Unaudited)	4

	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	8

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

	Item 4. Controls and Procedures	23

PART II. OTHER INFORMATION		24

	Item 1. Legal Proceedings	24

	Item 1A. Risk Factors	24

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	24

	Item 6. Exhibits	25

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Cautionary Statement Regarding Forward-Looking Statements and Information

The following discussion, as well as other portions of this Form 10-Q, contains forward-looking statements that reflect our plans, estimates and beliefs. Any such forward-looking statements (including, but not limited to, statements to the effect that Tandy Leather Factory, Inc. (“TLF”) or its management “anticipates,” “plans,” “estimates,” “expects,” “believes,” “intends,” and other similar expressions) that are not statements of historical fact should be considered forward-looking statements and should be read in conjunction with our Consolidated Financial Statements and related notes contained elsewhere in this report. These forward-looking statements are made based upon management’s current plans, expectations, estimates, assumptions and beliefs concerning future events impacting us and should be read carefully because they involve risks and uncertainties. We assume no obligation to update or otherwise revise these forward-looking statements, except as required by law. Specific examples of forward-looking statements include, but are not limited to, statements regarding our forecasts of financial performance, share repurchases, store openings or store closings, capital expenditures and working capital requirements. Our actual results could materially differ from those discussed in such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and particularly in “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. Unless the context otherwise indicates, references in this Form 10-Q to “TLF,” “we,” “our,” “us,” “the Company,” “Tandy,” or “Tandy Leather” mean Tandy Leather Factory, Inc., together with its subsidiaries.

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PART I. FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements

Tandy Leather Factory, Inc.

Condensed Consolidated Balance Sheets

(amounts in thousands, except share data and per share data)

	September 30,			December 31,
	2025			2024
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	12,018		$	13,271
Accounts receivable-trade, net of allowance for credit losses of $18 at September 30, 2025 and $49 at December 31, 2024		304			331
Inventory		35,947			35,556
Income tax receivable		225			384
Prepaid expenses		1,086			898
Other current assets		83			96
Total current assets		49,663			50,536

Property and equipment, at cost		25,356			31,655
Less accumulated depreciation		(15,704	)		(19,320	)
Property and equipment, net		9,652			12,335

Operating lease assets		24,348			10,323
Deferred income taxes		170			1,213
Other assets		709			517
TOTAL ASSETS	$	84,542		$	74,924

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable-trade	$	2,632		$	3,110
Accrued expenses and other liabilities		2,681			3,571
Income taxes payable		658			-
Current portion of operating lease liabilities		3,536			3,205
Total current liabilities		9,507			9,886

Uncertain tax positions		138			248
Other non-current liabilities		76			76
Operating lease liabilities, non-current		21,443			7,561

COMMITMENTS AND CONTINGENCIES (Note 6)

STOCKHOLDERS’ EQUITY:
Common stock, $0.0024 par value; 15,000,000 shares authorized; 9,491,878 and 9,920,957 shares issued at September 30, 2025 and December 31, 2024, respectively; 8,067,502 and 8,496,581 shares outstanding at September 30, 2025 and December 31, 2024, respectively		22			23
Paid-in capital		3,398			4,529
Retained earnings		61,773			64,486
Treasury stock at cost (1,424,376 shares at September 30, 2025 and December 31, 2024)		(9,773	)		(9,773	)
Accumulated other comprehensive loss, net of tax		(2,042	)		(2,112	)
Total stockholders’ equity		53,378			57,153
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	84,542		$	74,924

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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Tandy Leather Factory, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(amounts in thousands, except share and per share data)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2025			2024			2025			2024

Net sales	$	17,264		$	17,351		$	54,072		$	53,913
Cost of sales		7,094			7,329			22,612			22,953
Gross profit		10,170			10,022			31,460			30,960

Operating expenses		10,848			10,289			31,811			30,515

(Loss) Income from operations		(678	)		(267	)		(351	)		445

Other income (expense):
Interest income		98			85			461			266
Gain on disposal of headquarters (see footnote 8)		-			-			16,225			-
Other, net		(1,253	)		(1	)		(2,946	)		(38	)
Total other (expense) income		(1,155	)		84			13,740			228

(Loss) income before income taxes		(1,833	)		(183	)		13,389			673

Income tax (benefit) provision		(481	)		(51	)		3,357			178

Net (loss) income	$	(1,352	)	$	(132	)	$	10,032		$	495

Foreign currency translation adjustments, net of tax		(235	)		34			70			244

Comprehensive (loss) income	$	(1,587	)	$	(98	)	$	10,102		$	739

Net (loss) income per common share:
Basic	$	(0.17	)	$	(0.02	)	$	1.20		$	0.06
Diluted	$	(0.17	)	$	(0.02	)	$	1.18		$	0.06

Weighted average number of shares outstanding:
Basic		8,142,441			8,422,514			8,378,083			8,412,923
Diluted		8,142,441			8,422,514			8,502,787			8,511,899

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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Tandy Leather Factory, Inc.

Condensed Consolidated Statements of Cash Flows

(amounts in thousands)

(Unaudited)

	For the Nine Months Ended September 30,
	2025			2024
Cash flows from operating activities:
Net income	$	10,032		$	495
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		609			927
Operating lease asset amortization		3,915			2,669
Gain on disposal of assets		(16,225	)		-
Stock-based compensation		338			534
Deferred income taxes		1,043			221
Changes in operating assets and liabilities:
Accounts receivable-trade		30			(88	)
Inventory		(191	)		(91	)
Prepaid expenses		(186	)		(340	)
Other current assets		12			33
Accounts payable-trade		(815	)		(13	)
Accrued expenses and other liabilities		(897	)		(629	)
Income taxes, net		716			(981	)
Other assets		(190	)		(50	)
Operating lease liabilities		(3,727	)		(2,650	)
Total adjustments		(15,568	)		(458	)
Net cash (used in) provided by operating activities		(5,536	)		37

Cash flows from investing activities:
Purchase of property and equipment		(6,590	)		(2,315	)
Proceeds from sales of Headquarters assets, net		24,897			-
Net cash provided by (used in) investing activities		18,307			(2,315	)

Cash flows from financing activities:
Payment of finance lease obligations		-			(1	)
Dividend Paid		(12,745	)		-
Repurchase of common stock		(1,470	)		-
Net cash used in financing activities		(14,215	)		(1	)

Effect of exchange rate changes on cash and cash equivalents		191			175

Net decrease in cash and cash equivalents		(1,253	)		(2,104	)

Cash and cash equivalents, beginning of period		13,271			12,159
Cash and cash equivalents, end of period	$	12,018		$	10,055

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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Tandy Leather Factory, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(amounts in thousands, except share data)

(Unaudited)

	Number of Shares Common Stock Outstanding			Par Value			Paid-in Capital			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance, December 31, 2024		8,496,581		$	23		$	4,529		$	(9,773	)	$	64,486		$	(2,112	)	$	57,153
Stock-based compensation expense		-			-			93			-			-			-			93
Vesting of restricted stock units		15,973			-			-			-			-			-			-
Repurchase of common stock		-			-			-			-			-			-			-
Net income		-			-			-			-			11,583			-			11,583
Dividend Paid		-			-			-			-			(12,745	)		-			(12,745	)
Foreign currency translation adjustments, net of tax		-			-			-			-			-			(288	)		(288	)
Balance, March 31, 2025		8,512,554		$	23		$	4,622		$	(9,773	)	$	63,324		$	(2,400	)	$	55,796
Stock-based compensation expense		-			-			118			-			-			-			118
Vesting of restricted stock units		3,078			-			-			-			-			-			-
Repurchase of common stock		(17,233	)		-			(176	)		-			-			-			(176	)
Net loss		-			-			-			-			(199	)		-			(199	)
Dividend Paid		-			-			-			-			-			-			-
Foreign currency translation adjustments, net of tax		-			-			-			-			-			593			593
Balance, June 30, 2025		8,498,399			23			4,564			(9,773	)		63,125			(1,807	)		56,132
Stock-based compensation expense		-			-			127			-			-			-			127
Vesting of restricted stock units					-			-			-			-			-			-
Repurchase of common stock		(430,897	)		(1	)		(1,293	)		-			-			-			(1,294	)
Net loss		-			-			-			-			(1,352	)		-			(1,352	)
Dividend Paid		-			-			-			-			-			-			-
Foreign currency translation adjustments, net of tax		-			-			-			-			-			(235	)		(235	)
Balance, September 30, 2025		8,067,502			22			3,398			(9,773	)		61,773			(2,042	)		53,378

Balance, December 31, 2023		8,399,245		$	23		$	3,981		$	(9,773	)	$	63,659		$	(1,544	)		56,346
Stock-based compensation expense		-			-			197			-			-			-			197
Vesting of restricted stock units		2,727			-			-			-			-			-			-
Net income		-			-			-			-			525			-			525
Foreign currency translation adjustments, net of tax		-			-			-			-			-			170			170
Balance, March 31, 2024		8,401,972		$	23		$	4,178		$	(9,773	)	$	64,184		$	(1,374	)	$	57,238
Stock-based compensation expense		-			-			157			-			-			-			157
Vesting of restricted stock units		20,574			-			-			-			-			-			-
Shares withheld for taxes and cancelled		-			-			-			-			-			-			-
Purchase of treasury stock		-			-			-			-			-			-			-
Net income		-			-			-			-			101			-			101
Foreign currency translation adjustments, net of tax		-			-			-			-			-			40			40
Balance, June 30, 2024		8,422,546			23			4,335			(9,773	)		64,285			(1,334	)		57,536
Stock-based compensation expense		-			-			180			-			-			-			180
Vesting of restricted stock units		-			-			-			-			-			-			-
Repurchase of common stock		(32	)		-			-			-			-			-			-
Net loss		-			-			-			-			(132	)		-			(132	)
Foreign currency translation adjustments, net of tax		-			-			-			-			-			34			34
Balance, September 30, 2024		8,422,514			23			4,515			(9,773	)		64,153			(1,300	)		57,618

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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TANDY LEATHER FACTORY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION AND CERTAIN SIGNIFICANT ACCOUNTING POLICIES

Tandy Leather Factory, Inc. (“TLF,” “we,” “our,” “us,” “the Company,” “Tandy,” or “Tandy Leather” mean Tandy Leather Factory, Inc., together with its subsidiaries) is one of the world’s largest specialty retailers of leather and leathercraft-related items. Founded in 1919 in Fort Worth, Texas, the Company introduced leathercrafting to millions of American and later Canadian and other international customers and has built a track record as the trusted source of quality leather, tools, hardware, supplies, kits and teaching materials for leatherworkers everywhere. Today, our mission remains to build on our legacy of inspiring the timeless art and trade of leatherworking.

What differentiates Tandy from the competition is our high brand awareness and strong brand equity and loyalty, our network of retail stores that provides convenience, a high-touch customer service experience, a hub for the local leathercrafting community, and our 100+ year heritage. We believe that this combination of qualities is unique to Tandy and gives the brand competitive advantages that are difficult for others to replicate.

We sell our products primarily through company-owned stores, 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 Southwest Loop 820, Benbrook, Texas 76126.

The Company currently operates a total of 101 retail stores as of September 30, 2025. There are 91 stores in the United States (“U.S.”), nine stores in Canada and 1 store in Spain.

The Company’s common shares currently trade on the Nasdaq Capital Market under the symbol “TLF.”

We operate as a single segment and report on a consolidated basis. The Chief Operating Decision Maker (CODM), which is our CEO, uses both the net sales, cost of goods sold and net operating income to assess the Company’s performance and allocation of resources. All three measures are currently included on the face of our income statement.

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for annual audited financial statements. In the opinion of management, the accompanying unaudited Consolidated Financial Statements for Tandy Leather Factory, Inc. and its consolidated subsidiaries contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly our financial position as of September 30, 2025 and December 31, 2024, our results of operations and our cash flows for the three months ended September 30, 2025 and 2024, and our statements of stockholders’ equity as of and for the three and nine months ended September 30, 2025 and 2024. The preparation of financial statements in accordance with US GAAP requires the use of estimates that affect the reported value of assets, liabilities, revenues and expenses. These estimates are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for the Company’s conclusions. The Company continually evaluates the information used to make these estimates as the business and the economic environment changes. Actual results may differ from these estimates, and estimates are subject to change due to modifications in the underlying conditions or assumptions. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and accompanying notes included in our Form 10-K for the year ended December 31, 2024.

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Significant Accounting Policies

Cash and cash equivalents. The Company considers investments with a maturity, at time of purchase, of three months or less to be cash equivalents. All credit card, debit card and electronic transfer transactions pending settlement in less than seven days are classified as cash and cash equivalents.

Foreign currency translation and transactions. Foreign currency translation adjustments arise from activities of our foreign subsidiaries. Results of operations are translated into U.S. dollars using the average exchange rates during the period, while assets and liabilities are translated using period-end exchange rates. Foreign currency translation adjustments of assets and liabilities are recorded in stockholders’ equity and presented net of tax. Gains and losses resulting from foreign currency translations are reported in the Consolidated Statements of Operations and Comprehensive Income under the caption “Foreign currency translation adjustments, net of tax” for all periods presented.

Revenue Recognition. Our revenue is earned from sales of merchandise and generally occurs via three methods: (1) at the store, (2) via web sales, and (3) sales of product directly to commercial customers. We recognize revenue when we satisfy the performance obligation of transferring control of product merchandise to a customer. At the store, our performance obligation is met and revenue is recognized when a sales transaction occurs with a customer. When merchandise is shipped to a customer, our performance obligation is met, and revenue is recognized when control passes to the customer. Shipping terms are normally free on board (“FOB”) shipping point, and control passes when the merchandise is shipped to the customer. Sales tax and comparable foreign tax are excluded from net sales, while shipping charged to our customers is included in net sales. Net sales are based on the amount of consideration that we expect to receive, reduced by estimates for future merchandise returns.

The sales return allowance is based each year on historical customer return behavior and other known factors and reduces net sales and cost of sales, accordingly. The sales return allowance included in accrued expense and other liabilities was $0.1 million as of September 30, 2025, and $0.2 million as of December 31, 2024, and $0.5 million as of January 1, 2024. The estimated value of merchandise expected to be returned included in other current assets was less than $0.1 million as of September 30, 2025, December 31, 2024, and January 1, 2024, respectively.

We record a gift card liability for the unfulfilled performance obligation on the date we issue a gift card to a customer. We record revenue and reduce the gift card liability as the customer redeems the gift card. In addition, for gift card breakage, we recognize a proportionate amount for the expected unredeemed gift cards over the expected customer redemption period, which is one year. As of September 30, 2025, December 31, 2024, and January 1, 2024, our gift card liability, included in accrued expenses and other liabilities, was $0.3 million, respectively. We recognized gift card revenue of $0.1 million for the 3 months ended September 30, 2025 and 2024, respectively. For the three months ended September 30, 2025 and 2024, we recognized $0.1 and $0.2 million respectively in net sales associated with gift cards.

We recognized gift card revenue of $0.3 million for the nine months ended September 30, 2025 and 2024, respectively. For the nine months ended September 30, 2025 and 2024, we recognized $0.2 and $0.3 million respectively in net sales associated with gift cards.

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Disaggregated Revenue. In the following table, revenue for the three and nine months ended September 30, 2025 and 2024 is disaggregated by geographic areas as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2025		2024		2025		2024
United States	$	15,280	$	15,468	$	48,056	$	47,854
Canada		1,742		1,659		5,310		5,293
Spain		242		224		706		766
Net sales	$	17,264	$	17,351	$	54,072	$	53,913

Geographic sales information is based on the location of the customer. As a percentage of our consolidated net sales, excluding Canada, our other international net sales were less than 2.0% for the three and nine months ended September 30, 2025, and 2024, respectively.

Discounts. We offer six classes of customer discounts: 1) Retail, 2) Military/First Responder, 3) Business, 4) Commercial, 5) Commercial Pro, and 6) Employees. There are no other class of discounts, and any discounts given will fall into one of these six categories. Such discounts are not deemed to be variable consideration nor convey a material right to these customers since the discounted pricing they receive in a discount class is not incremental to others within the same class and there is no retrospective impact of such discounts. As a result, sales are reported after deduction of discounts at the point of sale. We do not pay slotting fees or make other payments to resellers.

Operating expenses. Operating expenses include all selling, general and administrative costs, including wages and benefits, rent and occupancy costs, depreciation, advertising, store operating expenses, outbound freight charges (to ship merchandise to customers), and corporate office costs.

Property and equipment, net of accumulated depreciation. Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which are three to ten years for equipment and machinery, seven to fifteen years for furniture and fixtures, five years for vehicles, and forty years for buildings and related improvements. Leasehold improvements are amortized over the lesser of the life of the lease or the useful life of the asset. Repairs and maintenance costs are expensed as incurred but are capitalized if the related cost extends the life of the assets.

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. Manufacturing inventory including raw materials and work-in-process is valued on a first in, first out basis using full absorption accounting which includes material, labor, and other applicable manufacturing 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.

We regularly review all inventory items to determine if there are (i) damaged goods (e.g., for leather, excessive scars or damage from ultra-violet (“UV”) light), (ii) items that need to be removed from our product line (e.g., slow-moving items, inability of a supplier to provide items of acceptable quality or quantity, and to maintain freshness in the product line) and (iii) pricing actions that need to be taken to adequately value our inventory at the lower of cost or net realizable value.

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Since the determination of net realizable value of inventory involves both estimation and judgment with regard to market values and reasonable costs to sell, differences in these estimates could result in ultimate valuations that differ from the recorded asset.

The majority of inventory purchases and commitments are paid for in U.S. dollars in order to limit the Company’s exposure to foreign currency fluctuations. Goods shipped to us are recorded as inventory owned by us when the risk of loss shifts to us from the supplier.

Inventory is physically counted partially during each quarter and fully at year-end in the Texas distribution center. At the store level, inventory is partially counted each quarter for high value items and fully at year-end. Inventory is then adjusted in our accounting system to reflect actual count results.

(in thousands)	September 30, 2025		December 31, 2024
On hand:
Finished goods held for sale	$	32,376	$	31,022
Raw materials and work in process		1,186		1,819
Inventory in transit		2,385		2,715
TOTAL	$	35,947	$	35,556

Leases. We lease real estate for our principal offices (including distribution center), retail store locations and may lease warehouse equipment for our Texas distribution center under long-term lease agreements. We determine if an arrangement is a lease at inception and recognize right-of-use (“ROU”) assets and lease liabilities at commencement date based on the present value of the lease payments over the lease term. We elected not to record leases with an initial term of 12 months or less on the balance sheet for all our asset classes.

For operating leases, the present value of our lease liabilities may include: (1) rental payments adjusted for inflation or market rates, and (2) lease terms with options to renew the lease or options to purchase leased equipment, when it is reasonably certain we will exercise such an option. The exercise of lease renewal or purchase option is generally at our discretion. Payments based on a change in an index or market rate are not considered in the determination of lease payments for purposes of measuring the related lease liability. We discount lease payments using our incremental borrowing rate based on information available as of the measurement date.

We recognize rent expense related to our operating leases assets on a straight-line basis over the lease term. Rent expense is recorded in operating expenses.

The depreciable life of related leasehold improvements is based on the shorter of the useful life or the lease term. We also perform interim reviews of our lease assets for impairment when evidence exists that the carrying value of an asset group, including a lease asset, may not be recoverable. None of our lease agreements contain contingent rental payments, material residual value guarantees or material restrictive covenants. We have no sublease agreements and no lease agreements in which we are named as a lessor.

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Impairment of Long-Lived Assets. We evaluate long-lived assets on a quarterly basis to identify events or changes in circumstances (“triggering events”) that indicate the carrying value of certain assets may not be recoverable. Upon the occurrence of a triggering event, ROU lease assets, property and equipment and definite-lived intangible assets are reviewed for impairment and an impairment loss is recorded in the period in which it is determined that the carrying amount of the assets is not recoverable. The determination of recoverability is made based upon the estimated undiscounted future net cash flows of assets grouped at the lowest level for which there are identifiable cash flows independent of the cash flows of other groups of assets with such cash flows to be realized over the estimated remaining useful life of the primary asset within the asset group. The Company determined the lowest level of identifiable cash flows that are independent of other asset groups to be primarily at the individual store level. If the estimated undiscounted future net cash flows for a given store are less than the carrying amount of the related store assets, an impairment loss is determined by comparing the estimated fair value with the carrying value of the related assets. The impairment loss is then allocated across the asset group’s major classifications which in this case are operating lease assets and property and equipment. Triggering events at the store level could include material declines in operational and financial performance or planned changes in the use of assets, such as store relocation or store closure. This evaluation requires management to make judgements relating to future cash flows, growth rates and economic and market conditions. The fair value of an asset group is estimated using a discounted cash flow valuation method.

Fair Value of Financial Instruments. We measure fair value as an exit price, which is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering such assumptions, accounting standards establish a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

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Level 1 – observable inputs that reflect quoted prices in active markets for identical assets or liabilities.

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Level 2 – significant observable inputs other than quoted prices in active markets for similar assets and liabilities, such as quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

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Level 3 – significant unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants.

Classification of the financial asset or liability within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

Our principal financial instruments held consist of T-Bills as of September 30, 2025, are cash equivalent, which fall under level 1 of the fair value hierarchy and accounts receivable - trade, accounts payable - trade, which fall under Level 3 of the fair value hierarchy. As of September 30, 2025 and December 31, 2024, the carrying values of our financial instruments included in our Consolidated Balance Sheets approximated their fair values. There were no transfers into or out of Levels 1, 2 and 3 during the three and nine months ended September 30, 2025 and 2024.

Income Taxes. Income taxes are estimated for each jurisdiction in which we operate. This involves assessing current tax exposure together with temporary differences resulting from differing treatment of items for tax and financial statement accounting purposes. Any resulting deferred tax assets are evaluated for recoverability based on estimated future taxable income. To the extent it is more –likely –than not that all or a portion of a deferred tax asset will not be realized, a valuation allowance is recorded. Our evaluation regarding whether a valuation allowance is required or should be adjusted also considers, among other things, the nature, frequency, and severity of recent losses, forecasts of future profitability and the duration of statutory carryforward periods.

Deferred tax assets and liabilities are measured using the enacted tax rates in effect in the years when those temporary differences are expected to reverse. The effect on deferred taxes from a change in tax rate is recognized through continuing operations in the period that includes the enactment date of the change. Changes in tax laws and rates could affect recorded deferred tax assets and liabilities in the future.

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A tax benefit from an uncertain tax position may be recognized when it is more-likely-than-not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more-likely-than-not recognition threshold to be recognized.

We recognize tax liabilities for uncertain tax positions and adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense and the effective tax rate in the period in which new information becomes available. We recognize interest and/or penalties related to all tax positions in income tax expense. To the extent that accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision in the period that such determination is made.

We may be subject to periodic audits by the Internal Revenue Service and other taxing authorities. These audits may challenge certain of our tax positions, such as the timing and amount of deductions and allocation of taxable income to the various jurisdictions.

H.R.1 One Big Beautiful Bill Act was enacted into law on July 4, 2025. The Company is analyzing the income tax and other provisions of this law to determine its impact, if any, on the Company’s financial statements.

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. Compensation expense is reduced by actual forfeitures as they occur over the requisite service period of the awards.

Performance-based and market-based RSUs vest, if at all, upon the Company satisfying certain performance and market 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 and market-based amounts are valued at the grant date and recognized ratably over the service period. 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. The payments of the employees’ tax liability for a portion of the vested shares are generally satisfied by withholding shares with a fair value equal to the tax liability.

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Accounts Receivable - Trade and Expected Credit Losses. Our receivables primarily arise from the sale of merchandise to customers that have applied for and been granted credit. Accounts receivable is stated at amounts due, net of an allowance. Accounts receivable is generally due within 30 days of invoicing. We estimate expected credit losses based on factors such as the composition of accounts receivable, the age of the accounts, historical bad debt experience, and our evaluation of the financial condition and past collection history of each customer. Management believes that the historical loss information it has compiled is a reasonable base on which to determine expected credit losses for trade receivables held at September 30, 2025, because the composition of the trade receivables at that date is consistent with that used in developing the historical credit-loss percentages (i.e., the similar risk characteristics of its customers and its credit practices have not changed significantly over time). Accordingly, the allowance for expected credit losses at September 30, 2025, December 31, 2024, and January 1, 2024, each totaled less than $0.1 million.

Other Intangible Assets. Our intangible assets and related accumulated amortization relate to trademarks and copyrights that are definite-lived intangibles and are subject to amortization. The weighted average amortization period is 15 years for trademarks and copyrights. Amortization expense related to other intangible assets was less than $0.01 million during each of the 3 months ended September 30, 2025 and 2024. Based on the current amount of intangible assets subject to amortization, we estimate amortization expense to be less than $0.01 million annually over the next five years.

Comprehensive Income. Comprehensive income includes net income or loss and certain other items that are recorded directly to stockholders’ equity. The Company’s only source of other comprehensive income is foreign currency translation adjustments, and those adjustments are presented net of tax.

2. NOTES PAYABLE AND LONG-TERM DEBT

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 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.

In the fourth quarter of 2024, the Company renewed the promissory note under its Credit Agreement with JPMorgan Chase Bank, N.A. through October 31, 2025 under the same terms as above. The renewal of the credit facility is discussed in the subsequent event below in Note 9.

3. INCOME TAX

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

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4. STOCK-BASED COMPENSATION

The Tandy Leather Factory, Inc. 2013 Restricted Stock Plan (the “2013 Plan”) was adopted by our Board of Directors in January 2013 and approved by our stockholders in June 2013. The 2013 Plan initially reserved up to

SEC Form 10-Q filed by Tandy Leather Factory Inc.