Financial Analysis

8. COMMITMENTS AND CONTINGENCIES Legal Proceedings We are periodically involved in various litigation that arises in the ordinary course of business and operations. There are no such matters pending that we expect to have a material impact on our financial position or operating results. Legal costs associated with the resolution of claims, lawsuits, and other contingencies are expensed as incurred.

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5. 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 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 Companys 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. 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 Companys 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 compli …

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In the following table, revenue for the years ended December 31, 2025 and 2024 is disaggregated by geographic areas as follows: For the Years Ended December 31, (in thousands) 2025 2024 United States $ 67,905 $ 66,045 Canada 7,459 7,313 Other 960 1,033 Net sales $ 76,324 $ 74,391

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7. INCOME TAXES The provision for income taxes consists of the following: (in thousands) Year Ended December 31, Income Tax Provision (Benefits) 2025 2024 Current provision (benefit): Federal $ 2,014 $ 261 State 564 71 Foreign 29 (68 ) Related to UTP (4 ) (31 ) 2,603 233 Deferred provision (benefit): Federal 461 32 State 138 8 Foreign (4 ) (9 ) 595 31 Total tax provision $ 3,198 $ 264 Earnings occurring outside the U.S. are deemed to be indefinitely reinvested outside of the U.S. to support the Companys foreign operations. As a result, if the Company accumulates earnings overseas, they will be used for investment in the Companys businesses outside the U.S. The Company will use cash generated from U.S. operations and short- and long-term borrowings to meet the Companys U.S. cash needs. Income before income taxes was earned in the following tax jurisdictions: (in thousands) Year Ended December 31, Income (Loss) Before Income Taxes 2025 2024 United States $ 12,285 $ 1,382 Canada 38 (32 ) Spain (23 ) (259 ) TOTAL $ 12,300 $ 1,091 The income tax effects of temporary differences that give rise to significant portions of deferred income tax assets and liabilities are as follows: Deferred income tax assets: 2025 2024 (in thousands) Inventory $ 387 $ 391 Stock-based compensation 106 39 Accounts receivable 13 12 Sales returns 78 78 Foreign currency translation gain/loss in OCI 674 726 Goodwill and other intangible assets amortization - 1 Net operating loss (income) 192 184 Accrued expe …

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4. LEASES The Company leases certain real estate and periodically leases warehouse equipment under long-term lease agreements. The Company performs interim reviews of its operating and finance lease assets for impairment when evidence exists that the carrying value of an asset group, including a lease asset, may not be recoverable. The Company did not recognize any impairment expense related to its operating lease assets during the year ended December 31, 2025 and recognized $0.02 million in impairment expense related to its operating lease assets during the year ended December 31, 2024 . Additional information regarding the Companys operating and finance leases is as follows (in thousands, except for lease term and discount rate information): Leases Balance Sheet Classification December 31, 2025 December 31, 2024 (in thousands) Assets: Operating Operating lease assets $ 24,736 $ 10,323 Total assets $ 24,736 $ 10,323 Liabilities: Current Operating Current portion of operating lease liabilities $ 3,512 $ 3,205 Non-current Operating Operating lease liabilities, non-current 23,868 7,561 Total lease liabilities $ 27,380 $ 10,766 Lease Cost Income Statement Classification December 31, 2025 December 31, 2024 (in thousands) Operating lease cost Operating expenses $ 3,101 $ 4,029 Operating lease cost Impairment expense - (18 ) Short-term lease cost Operating expenses 58 - Variable lease cost (1) Operating expenses 1,178 914 Total lease cost $ 4,337 $ 4,925 (1) Variable lease cost inc …

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Recently Adopted Accounting Pronouncements The Financial Accounting Standard Board (FASB) issued an Accounting Standard Update ASU 2023-09 Income Taxes (Topic 740) - improvement to income tax disclosure. This guidance requires enhanced annual disclosure of income tax rate reconciliation categories and quantitative thresholds for reconciling items and is effective for fiscal years beginning after December 15, 2024. The new guidance did not have any significant impact on our financial presentation but the Company has adopted as applicable. TheFASB also issued an Accounting Standard Update ASC 220-40 Income Statement - Reporting Comprehensive Income - Expense Disaggregation disclosures. This guidance requires public business entities (PBEs) to disaggregate specific expense captions (e.g., COGS, SG&A) into five natural categoriespurchases of inventory, employee compensation, depreciation, amortization, and depletionin annual and interim financial statement notes. It is effective for fiscal years after December 15, 2026 and the Company is evaluating the impact and applicability to our financial reporting. …

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6. EMPLOYEE BENEFIT AND SAVINGS PLANS We have a 401(k) plan to provide retirement benefits for our employees. As allowed under Section 401(k) of the Internal Revenue Code, the plan provides tax-deferred salary contributions for eligible employees and allows employees to contribute a percentage of their annual compensation to the plan on a pretax basis. Employee contributions are limited to a maximum annual amount as set periodically by the Internal Revenue Code. In 2025 and 2024, we matched 100% of the pretax employee contributions on the first 3% of eligible earnings and 50% of the pretax employee contributions on the next 2% of eligible earnings that are contributed by employees. For the years ended December 31, 2025, and 2024, we recorded employer match expense of $0.3 million and $0.3 million, respectively. The plan allows employees who meet the age requirements and reach the plan contribution limits to make a catch-up contribution. The catch-up contributions are not eligible for matching contributions. In addition, the plan provides for discretionary matching contributions as determined by the Board of Directors. There were no discretionary matching contributions made in 2025 or 2024. We offer no post-retirement or postemployment benefits to our employees.

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2. SIGNIFICANT ACCOUNTING POLICIES Management estimates and reporting The preparation of the Companys consolidated financial statements in accordance with accounting principles generally accepted in the United States (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 these circumstances, the results of which form the basis for the Companys 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. The policies discussed below require estimates that contain a significant degree of judgement. The use of estimates is pervasive throughout the Consolidated Financial Statements, but the accounting policies and estimates considered most significant are as follows. Principles of consolidation Our consolidated financial statements include the accounts of Tandy Leather Factory, Inc. and its active wholly-owned subsidiaries, The Leather Factory, L.P. (a Texas limited partnership), Tandy Leather Company, L.P. (a Texas limited partnership), The Leather Factory of Canada, Ltd. (a Canadian corporation), and Tandy Leather Factory Espana, S.L. (a Spanish corporation). All intercomp …

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10. STOCKHOLDERS EQUITY Equity Compensation Plans 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 300,000 shares of our common stock for restricted stock unit (RSU) awards to our executive officers, non-employee directors and other key employees. In June 2020, our stockholders approved an increase to the plan reserve to 800,000 shares of our common stock and extended the 2013 Plan through June 2023. Awards granted under the 2013 Plan may be service-based awards or performance-based awards and may be subject to a graded vesting schedule with a minimum vesting period of four years, unless otherwise determined by the Compensation Committee of the Board of Directors that administers the plan. The Tandy Leather Factory, Inc. 2023 Incentive Stock Plan (the 2023 Plan) was adopted by our Board of Directors in April 2023 and approved by our stockholders in June 2023. The 2023 Plan initially reserved up to 1,000,000 shares of our common stock for a variety of equity awards (including, but not limited to, RSUs, the only type of awards that have been granted to date) to our executive officers, non-employee directors and other key employees. In June 2025, as part of their annual director compensation, certain of our non-employee directors were granted a total of 17,344 service-based RSUs under the 2023 Plan, which will vest …

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12. SUBSEQUENT EVENTS On February 2, 2026, our Board of Directors authorized a $0.75 per share special one-time cash dividend that was paid to our stockholders of record at the close of business on February 9, 2026. The dividend, totaling $6.1 million, was paid to our stockholders on February 24, 2026.

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