What changed in TANDY LEATHER FACTORY INC's 2023 10-K compared to 2022?

Across the narrative sections we track, TANDY LEATHER FACTORY INC (TLF) added 126 paragraphs, removed 154, and edited 94 between the 2022 and 2023 10-K filings. The biggest movers are Item 7. Management's Discussion & Analysis (+46/−61), Item 1. Business (+43/−43), Item 1A. Risk Factors (+27/−36).

Did TANDY LEATHER FACTORY INC add new Risk Factors in the 2023 10-K?

Yes — Item 1A Risk Factors shows 27 new/edited paragraphs and 36 removed paragraphs versus the 2022 10-K.

What changed in TANDY LEATHER FACTORY INC's MD&A (Item 7) in 2023?

Item 7 Management's Discussion & Analysis shows 46 new/edited paragraphs and 61 removed paragraphs year-over-year. Read the side-by-side diff to see exactly which revenue, margin, and outlook commentary was rewritten.

Did TANDY LEATHER FACTORY INC's Legal Proceedings (Item 3) change in 2023?

Item 3 shows 2 added/edited paragraphs and 5 removed paragraphs — usually indicating new litigation disclosed or settled cases removed.

Where does this TLF 10-K diff come from?

The source filings are TANDY LEATHER FACTORY INC's official 2022 and 2023 Form 10-K annual reports from SEC EDGAR. 10q10k.net parses each filing, aligns paragraphs by section (Item 1, 1A, 1C, 2, 3, 7, 7A), and highlights every added, removed and edited sentence side-by-side.

What changed in TANDY LEATHER FACTORY INC's 10-K — 2022 vs 2023

Paragraph-level year-over-year comparison of TANDY LEATHER FACTORY INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+126 added−154 removedSource: 10-K (2024-03-22) vs 10-K (2023-03-31)

Top changes in TANDY LEATHER FACTORY INC's 2023 10-K

126 paragraphs added · 154 removed · 94 edited across 6 sections

Item 7. Management's Discussion & Analysis+46 / −61 · 38 edited
Item 1. Business+43 / −43 · 29 edited
Item 1A. Risk Factors+27 / −36 · 19 edited
Item 2. Properties+5 / −6 · 4 edited
Item 3. Legal Proceedings+2 / −5 · 1 edited

Item 1. Business

Business — how the company describes what it does

29 edited+14 added−14 removed19 unchanged

2022 filing

2023 filing

Biggest changeWe carry about 6,500 stock-keeping units (SKUs) in our current product line and continue to refine both the line, the lead times and safety stock levels required to meet customer demand, online vs. in-store assortment, and overall total inventory levels needed to grow sales and market share. 5 Table of Contents Competition Our competitors include smaller, independently-owned brick-and-mortar retailers, internet-based retailers including those selling on platforms like Amazon and eBay, national craft chains like Michaels Stores, Inc. and Hobby Lobby Stores, Inc., some wholesale-focused distributors, and two mid-sized competitors – Weaver Leather and Springfield Leather – who have one store and an online business.

And we have also been executing a number of strategic initiatives to test smaller quantities of new items online, buying into them only when we are certain of their success, to tailor product assortments to the needs of local customers in each store, and to ship directly from vendors to customers.

We have been executing a number of strategic initiatives to test smaller quantities of new items online, buying into them only when we are certain of their success, to tailor product assortments to the needs of local customers in each store, and to ship directly from vendors to customers.

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 1900 Southeast Loop 820, Fort Worth, Texas 76140.

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.

All Tandy locations, other than our corporate headquarters (which includes our flagship store, corporate offices, distribution center, and manufacturing facility) are leased. Business Strategy Tandy Leather has been introducing people to leatherworking for over 100 years.

All Tandy locations, other than our corporate headquarters (which includes our flagship store, corporate offices, distribution center, and production facility) are leased. Business Strategy Tandy Leather has been introducing people to leatherworking for over 100 years.

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.

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, volume-based competitive pricing, customized product development, assembly and pre-assembly services, we are building long-term, strategic relationships with our largest customers.

Prior to her current role, Ms. Carr served as the Senior Vice-President of Global Business Development for Caleres Inc. (formerly Brown Shoe Company Inc.) from 2016 to 2017. While there, she was responsible for international wholesale and retail for all of their brands. Prior to Caleres, Ms.

Carr served as the Senior Vice-President of Global Business Development for Caleres Inc. (formerly Brown Shoe Company Inc.) from 2016 to 2017. While there, she was responsible for international wholesale and retail for all of their brands. Prior to Caleres, Ms.

We also offer open workbenches where customers can work on projects, take classes, commune with the leathercrafting community, and test new tools and techniques. Most of our stores range in size from 1,300 square feet to 9,000 square feet, with the average at approximately 3,500 square feet. Our Fort Worth flagship store is approximately 22,000 square feet.

We also offer open workbenches where customers can work on projects together with the leathercrafting community, and test new tools and techniques. Most of our stores range in size from 1,300 square feet to 9,000 square feet, with the average at approximately 3,500 square feet. Our Fort Worth flagship store is approximately 22,000 square feet.

The Company’s common shares currently trade on the Nasdaq Capital Market under the symbol “TLF.” 3 Table of Contents Retail Fleet The Company currently operates a total of 103 retail stores. There are 92 stores in the United States (“U.S.”), ten stores in Canada and one store in Spain.

The Company’s common shares currently trade on the Nasdaq Capital Market Group under the symbol “TLF.” 3 Table of Contents Retail Fleet The Company currently operates a total of 102 retail stores. There are 91 stores in the United States (“U.S.”), 10 stores in Canada and one store in Spain.

Our supply chain and vendor relationships remain strong. We are focused on continuing to align our product and sourcing strategies to elevate the overall quality, consistency, and agility to meet the diverse needs of our existing consumers and attract new ones to the brand.

We are focused on continuing to align our product and sourcing strategies to elevate the overall quality, consistency, and agility to meet the diverse needs of our existing consumers and attract new ones to the brand.

(formerly Coach, Inc.), Gap Inc. and Safeway. 8 Table of Contents

(formerly Coach, Inc.), Gap Inc. and Safeway. 7 Table of Contents

We have a global customer service team that handles web order inquiries and phone orders. Our goal is to optimize the tradeoff between the sales and market share we realize from having a broad product line against the safety stock required to support those items. We generally maintain higher inventories of imported or long-lead-time items to ensure a continuous supply.

Our goal is to optimize the tradeoff between the sales and market share we realize from having a broad product line against the safety stock required to support those items. We generally maintain higher inventories of imported or long-lead-time items to ensure a continuous supply.

To be served through our commercial division, customers generally need to spend more than $20,000 per year and receive pricing based on their purchasing levels. Merchandise We carry a wide assortment of products organized into a number of categories including leather, hand tools, hardware, kits, liquids, machines, and other supplies.

To be served through our commercial division, customers generally need to spend more than $20,000. 4 Table of Contents Merchandise We carry a wide assortment of products organized into a number of categories including leather, hand tools, hardware, kits, liquids, machines, and other supplies.

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, and a hub for the local leathercrafting community, and our 100-year heritage.

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, and a hub for the local leathercrafting community, and our 100-year plus heritage.

Information about our Executive Officers The following table sets forth information concerning our executive officers as of December 31, 2022: Name Age Executive Since Position Janet Carr 61 2018 Chief Executive Officer 7 Table of Contents Janet Carr has served as our Chief Executive Officer and as a member of our Board of Directors since October 2018.

Information about our Executive Officers The following table sets forth information concerning our executive officers as of December 31, 2023: Name Age Executive Since Position Janet Carr 62 2018 Chief Executive Officer Janet Carr has served as our Chief Executive Officer and as a member of our Board of Directors since October 2018. Prior to her current role, Ms.

In general, our 10 largest vendors account for approximately 30% of our inventory purchases. Because leather is sold internationally, market conditions abroad are likely to affect the price of leather in the U.S. Aside from increasing purchases when we anticipate price increases (or possibly delaying purchases if we foresee price declines), we do not attempt to hedge our inventory costs.

Because leather is sold internationally, market conditions abroad are likely to affect the price of leather in the U.S. Aside from increasing purchases when we anticipate price increases (or possibly delaying purchases if we foresee price declines), we do not attempt to hedge our inventory costs. Our supply chain and vendor relationships remain strong.

Intellectual Property The Company owns all of the material trademark rights used in connection with the production, marketing, distribution and sale of all Tandy-branded products. In addition, we license a limited number of our trademarks and copyrights used in connection with the production, marketing and distribution of certain categories of goods and limited edition co-branded projects.

In addition, we license a limited number of our trademarks and copyrights used in connection with the production, marketing and distribution of certain categories of goods and limited edition co-branded projects.

Retail Customers range from hobbyists to institutions (schools, camps, and other groups) to small businesses. Affinity groups like Military and First Responders and smaller and larger businesses who purchase in our retail stores receive special pricing or general discounts.

Affinity groups like Military and First Responders and smaller and larger businesses who purchase in our retail stores receive special pricing or general discounts.

The most acute supply chain shocks resulting from the pandemic have mostly moderated, with increases in lead times, product costs and ocean freight costs flattening and even declining in some areas.

The most acute supply chain shocks resulting from the pandemic have mostly moderated, with increases in lead times, product costs and ocean freight costs flattening and even declining in some areas. However, trucking costs and reliability remain volatile and tight labor markets and rising wages continue to pressure costs across all areas.

We operate a manufacturing facility in Fort Worth, Texas, where we manufacture kits, thread lace, belt strips and straps, and Craftaid®s, and provide some custom manufacturing processes for commercial and business customers. The factory produces approximately 10% of our products. We distribute product under the Tandy LeatherTM, Eco-FloTM, CraftoolTM, CraftoolProTM and Dr.

We operate a production facility in Fort Worth, Texas, where we produce kits, thread lace, belt strips and straps, and Craftaid® tooling templates, and provide some custom production services for commercial and business customers. The factory produces approximately 10% of our products.

In addition, we have been focused on broadening our assortment through strategic partnerships with key brands to drive category growth and better meet the needs of our customers.

We develop and invest in new products through the ideas and referrals of customers and store personnel as well as the analysis of trends in the market and sales performance at retail. In addition, we have been focused on broadening our assortment through strategic partnerships with key brands to drive category growth and better meet the needs of our customers.

Available Information We file reports with the SEC. These reports include our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to these filings. These reports are available on the Securities and Exchange Commission’s website at www.sec.gov. Our corporate website is located at www.tandyleather.com.

These reports are available on the Securities and Exchange Commission’s website at www.sec.gov. Our corporate website is located at www.tandyleather.com.

Foreign Sales Information regarding our sales from the United States and abroad and our long-lived assets is found in Note 2, Significant Accounting Policies: Revenue Recognition and Note 3, Balance Sheet Components , of the Notes to the Consolidated Financial Statements. For a description of some of the risks attendant to our foreign operations, see Item 1A, Risk Factors .

The Company expects that its material trademarks will remain in full force and effect for as long as we continue to use and renew them. 6 Table of Contents Foreign Sales Information regarding our sales from the United States and abroad and our long-lived assets is found in Note 2, Significant Accounting Policies: Revenue Recognition and Note 3, Balance Sheet Components , of the Notes to the Consolidated Financial Statements.

COVID-19 and Economic Conditions At the time of filing this Form 10-K, the American and world economies continue to be acutely affected by a combination of factors arising from both the COVID-19 pandemic and the war resulting from the invasion of Ukraine by Russian military forces.

COVID-19 and Economic Conditions At the time of filing this Form 10-K, the American and world economies have largely recovered from effects of the COVID-19 pandemic but continue to be affected by a combination of factors arising from the continuing war in Ukraine, the more recent and worsening crisis in the Israel and the Middle East, and continued tensions between the U.S. and China.

Historically, we generate slightly more sales in the fourth quarter of each year due to the holiday shopping season (approximately 28-30% of annual sales), while the other three quarters average approximately 22-24% of annual sales each quarter. 5 Table of Contents Distribution Our stores receive the majority of their inventory from our central distribution center located in Fort Worth, Texas, in weekly or, increasingly, bi-monthly shipments, using third-party transportation providers.

Occasionally, merchandise is shipped to stores directly from the vendor. We now fulfill all of our U.S. and many of our international web orders from our Fort Worth distribution center. Canada web orders are fulfilled out of our 10 Canada stores, and European web orders are fulfilled out of our Spain store.

Distribution Our stores receive the majority of their inventory from our central distribution center located in Fort Worth, Texas, in weekly or, increasingly, bi-monthly shipments, using third-party transportation providers. Occasionally, merchandise is shipped to stores directly from the vendor. We now fulfill all of our U.S. and many of our international web orders from our Fort Worth distribution center.

However, trucking costs and reliability remain volatile and tight labor markets continue to pressure costs across all areas. 6 Table of Contents Compliance with Environmental Laws Our compliance with federal, state and local environmental protection laws has not had, and is not expected to have, a material effect on our capital expenditures, earnings, or competitive position.

Compliance with Environmental Laws Our compliance with federal, state and local environmental protection laws has not had, and is not expected to have, a material effect on our capital expenditures, earnings, or competitive position. Employees As of December 31, 2023, we employed 515 people, 389 of whom were employed on a full-time basis.

We are competitive on convenience, price, availability of merchandise, customer service, depth of our product line, and delivery time. Tandy Leather is the only multi-store chain specializing in leathercraft, which we believe provides a competitive advantage over internet-based retailers and the large general craft retailers.

Tandy Leather is the only multi-store chain specializing in leathercraft, which we believe provides a competitive advantage over internet-based retailers, the large general craft retailers, and the mid-sized competitors. We also believe that our large size relative to most competitors gives us an advantage in sourcing as well as deep product and leathercrafting expertise among our employees.

The future remains uncertain, and continued increased labor, freight, product, and other costs as well as weakening customer demand could have a negative impact on the Company’s future financial performance. 4 Table of Contents Customers Our customers fall into 2 broad categories: those who shop in retail stores and on our website (“Retail Customers”) and those whom we serve through our commercial division (“Commercial Customers”).

Customers Our customers fall into two broad categories: those who shop in retail stores and on our website (“Retail Customers”) and those whom we serve through our commercial division (“Commercial Customers”). Retail Customers range from hobbyists to institutions (schools, camps, and other groups) to small businesses.

Tandy polices its trademarks and trade dress and where appropriate pursues infringers. The Company expects that its material trademarks will remain in full force and effect for as long as we continue to use and renew them.

Tandy polices its trademarks and trade dress and where appropriate pursues infringers.

Removed

In 2019, with the arrival of a new management team, we began the process of assessing and reinvigorating the business.

Added

Today, our mission remains to build on our legacy of inspiring the timeless art and trade of leatherworking.

Removed

We focused in three broad strategic initiative areas: 1) improving our brand proposition, 2) rebuilding our foundation: the talent, processes, tools and systems needed to modernize and efficiently operate the business, and 3) creating a vision and road map for long-term growth.

Added

With COVID-19 and restatement related impacts behind us, and with initiatives to improve our brand proposition and to build the foundation for a modern and efficient retail business taking hold, we believe we have made significant progress toward building a durable, profitable business model.

Removed

We had significant achievements in all of these areas including significantly improving the product quality, breadth of assortment and value, dramatically improving the website and web operations, rebuilding the team, people policies and culture, and replacing all of the key systems, among many other accomplishments.

Added

Our cost of sales and operating expenses have stabilized, and we believe we have the structure, and the operating nimbleness, that can deliver operating profit and free cash flow even in the face of economic headwinds.

Removed

We made this steady progress to transform and reinvigorate our business even in the face of two very significant obstacles. In 2019, as part of the assessment of the business, we discovered errors in accounting that required a restatement of our financials.

Added

Going forward, our strategy is to continue to manage our cost base and use of cash and focus on strengthening our sales by leveraging our competitive advantage of our retail stores. Improving our employee product knowledge, customer service level and community engagement as well as expanding workshop space in stores with machines are the highest priorities.

Removed

This work was costly and time-consuming, but we successfully completed the restatement in 2021 along with implementation of new accounting systems, redesign of processes and controls, and a significant upgrade in the team.

Added

We need to continue to give customers good reasons to visit stores, and an excellent return on their time investment when they do.

Removed

In 2020, while making progress against our transformation and still working through our restatement, we temporarily closed all of our retail stores as a result of the COVID-19 pandemic. With COVID-19-related impacts and the restatement behind us and with many of our initiatives taking hold, we are now focused on improving our financial sustainability and profitability.

Added

While inflation appears to be cooling, food, housing and transportation prices remain significantly higher than prior to the pandemic – that is not likely to change in the near term and could be further impacted by the global environment.

Removed

In the short term, we are managing operating expenses and gross margin to deliver cash from operations and operating income even in the face of possible continued economic headwinds. We will also continue to selectively invest in profitable sales growth where it makes sense, but rebuilding a durable, profitable business model is the highest priority.

Added

The weakening labor market may relieve pressure on our ability to hire qualified employees, but recent wage gains are not likely to be reversed. Higher unemployment together with continued high interest rates may further dampen consumer demand and affect the Company’s future financial performance.

Removed

The current impacts of these events include (but are not limited to) levels of inflation that are the highest in the U.S. in more than 40 years, highly volatile fuel prices, an extremely tight labor market with rising wages and competition to attract qualified workers, supply chain disruption, rising rent and other occupancy costs and increases in interest rates.

Added

We distribute product under the Tandy Leather TM , Eco-Flo TM , Craftool TM , CraftoolPro TM and Dr. Jackson’s TM brands, along with our premium TandyPro® line of products.

Removed

Purchases of non-essential, discretionary products tend to decline in periods of uncertainty regarding future economic prospects, such as the current one, as disposable income declines. The Company believes that these events have continued to dampen its sales through December 2022.

Added

Canada web orders are fulfilled out of our 10 Canada stores, and European web orders are fulfilled out of our Spain store. We have a global customer service team that handles web order inquiries and phone orders.

Removed

Jackson’sTM brands, along with our premium TandyPro® line of products. We develop and invest in new products through the ideas and referrals of customers and store personnel as well as the analysis of trends in the market and sales performance at retail.

Added

Increased product assortment and some supply chain disruptions over the past several years have put upward pressure on inventory, offset by better sell-throughs, test-and-learn buying, and strategic partnerships with vendors.

Removed

Our inventory levels have grown as we have increased our product assortment to improve conversion and retention of customers and to mitigate out-of-stocks, especially during the supply chain disruptions over the last 2 years. In the face of overall supply chain challenges, we have opportunistically taken advantage of some vendor offers on key items, accounting for some increase in inventory.

Added

Virtually all of these competitors carry a more limited line of leathercraft products compared to Tandy. We are competitive on convenience, price, availability of merchandise, customer service, depth of our product line, and delivery time.

Removed

Competition Our competitors are typically smaller, independently-owned brick-and-mortar retailers, internet-based retailers including those selling on platforms like Amazon and eBay, national craft chains like Michaels Stores, Inc. and Hobby Lobby Stores, Inc., and some wholesale-focused distributors. Virtually all of these competitors carry a more limited line of leathercraft products compared to Tandy.

Added

Suppliers We purchase merchandise and raw materials from nearly 150 suppliers from the United States and approximately 20 foreign countries. In general, our 10 largest suppliers account for approximately 55% of our inventory purchases, and we had one supplier in 2023 who represented more than 10% of our purchases.

Removed

We also believe that our large size relative to most competitors gives us an advantage in sourcing as well as deep product and leathercrafting expertise among our employees. Suppliers We purchase merchandise and raw materials from over 130 vendors from the United States and approximately 20 foreign countries.

Added

We are not a party to any collective bargaining agreements. Overall, we believe that relations with employees are good. Intellectual Property The Company owns all the material trademark rights used in connection with the production, marketing, distribution and sale of all Tandy-branded products.

Removed

Employees As of December 31, 2022, we employed 605 people, 494 of whom were employed on a full-time basis. We are not a party to any collective bargaining agreements. Overall, we believe that relations with employees are good.

Added

For a description of some of the risks related to our foreign operations, see Item 1A, Risk Factors . Available Information We file reports with the SEC. These reports include our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to these filings.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

19 edited+8 added−17 removed57 unchanged

2022 filing

2023 filing

Biggest changeRisks Related to Legal, Regulatory and Compliance If the United States maintains current tariffs on products manufactured in China, or if additional tariffs or trade restrictions are implemented by other countries or by the U.S., the cost of our products manufactured in China or other countries and imported into the U.S. or other countries could increase.

Biggest changeWhile we are better prepared to handle a future pandemic, it could impact our ability to keep our stores open, to obtain merchandise or payment terms from our vendors, to transport merchandise to and from our warehouse, to operate our warehouse, factory and other facilities that require on-site activities, and thus materially adversely affect our revenues, earnings, liquidity and cash flows. 13 Table of Contents Risks Related to Legal, Regulatory and Compliance If the United States maintains current tariffs on products manufactured in China, or if additional tariffs or trade restrictions are implemented by other countries or by the U.S., the cost of our products manufactured in China or other countries and imported into the U.S. or other countries could increase.

As a Company engaged in sourcing on a global scale, we are subject to the risks inherent in such activities, including, but not limited to: • unavailability of, or significant fluctuations in the cost of, raw materials; • disruptions or delays in shipments; • loss or impairment of key manufacturing or distribution sites, which also could result in a former manufacturer beginning to produce similar products that compete with ours; • inability to engage new independent manufacturers that meet the Company’s cost-effective sourcing model; • product quality issues; • compliance by us and our independent manufacturers and suppliers with labor laws and other foreign governmental regulations; • imposition of additional duties, taxes, and other charges on imports or exports; • embargoes against products originating in countries from which we source; • increases in the cost of labor, fuel (including volatility in the price of oil), travel and transportation; • compliance by our independent manufacturers and suppliers with our Code of Business Conduct and Ethics and our Animal Welfare Policy; • political unrest; • unforeseen public health crises, such as pandemic (e.g., the COVID-19 pandemic) and epidemic diseases; • natural disasters or other extreme weather events, whether as a result of climate change or otherwise; and • acts of war or terrorism and other external factors over which we have no control.

As a Company engaged in sourcing on a global scale, we are subject to the risks inherent in such activities, including, but not limited to: • unavailability of, or significant fluctuations in the cost of, raw materials; • disruptions or delays in shipments; • loss or impairment of key assembly or distribution sites, which also could result in a former manufacturer beginning to produce similar products that compete with ours; • inability to engage new independent manufacturers that meet the Company’s cost-effective sourcing model; • product quality issues; • compliance by us and our independent manufacturers and suppliers with labor laws and other foreign governmental regulations; • imposition of additional duties, taxes, and other charges on imports or exports; • embargoes against products originating in countries from which we source; • increases in the cost of labor, fuel (including volatility in the price of oil), travel and transportation; • compliance by our independent manufacturers and suppliers with our Code of Business Conduct and Ethics and our Animal Welfare Policy; • political unrest; • unforeseen public health crises, such as pandemic (e.g., the COVID-19 pandemic) and epidemic diseases; • natural disasters or other extreme weather events, whether as a result of climate change or otherwise; and • acts of war or terrorism and other external factors over which we have no control.

We receive and maintain certain personal, financial, and other information about our customers, employees, and vendors. In addition, our vendors receive and maintain certain personal, financial, and other information about our employees and customers. The use and transmission of this information is regulated by evolving and increasingly demanding laws and regulations across various jurisdictions.

In addition, our vendors receive and maintain certain personal, financial, and other information about our employees and customers. The use and transmission of this information is regulated by evolving and increasingly demanding laws and regulations across various jurisdictions.

The growth of internet retailers has also significantly reduced traffic to many shopping centers and physical stores, which, if not countered by an increase in our own online retailing, could have a material adverse effect on our in-store or overall sales. 10 Table of Contents Declines in foot traffic in our retail store locations could negatively impact our sales and profits.

The growth of internet retailers has also significantly reduced traffic to many shopping centers and physical stores, which, if not countered by an increase in our own online retailing, could have a material adverse effect on our in-store or overall sales. 9 Table of Contents Declines in foot traffic in our retail store locations could negatively impact our sales and profits.

While we have business continuity and contingency plans for our sourcing and distribution center sites, significant disruption of manufacturing or distribution for any of the above reasons could interrupt product supply, result in a substantial loss of inventory, increase our costs, disrupt deliveries to our customers and our retail stores, and, if not remedied in a timely manner, could have a material adverse impact on our business.

While we have business continuity and contingency plans for our sourcing and distribution center sites, significant disruption of assembly or distribution for any of the above reasons could interrupt product supply, result in a substantial loss of inventory, increase our costs, disrupt deliveries to our customers and our retail stores, and, if not remedied in a timely manner, could have a material adverse impact on our business.

Accordingly, such increases in costs could adversely affect our business and our results of operations. 9 Table of Contents Further, involvement by the United States in war and other military operations abroad could disrupt international trade and affect our inventory sources. Finally, livestock diseases, such as mad cow, could reduce the availability of hides and leathers or increase their cost.

Accordingly, such increases in costs could adversely affect our business and our results of operations. 8 Table of Contents Further, involvement by the United States in war and other military operations abroad could disrupt international trade and affect our inventory sources. Finally, livestock diseases, such as mad cow, could reduce the availability of hides and leathers or increase their cost.

The ability to successfully execute against our goals is heavily dependent on attracting, developing and retaining qualified employees, including our senior management team.

The ability to successfully execute our goals is heavily dependent on attracting, developing and retaining qualified employees, including our senior management team.

If our digital commerce platforms do not meet customers’ expectations in terms of security, speed, attractiveness or ease of use, customers may be less inclined to return to such digital commerce platforms, which could negatively impact our business. Risks Related to the Macroeconomic Environment Our business may be negatively impacted by general economic conditions in the United States and abroad.

If our digital commerce platforms do not meet customers’ expectations in terms of security, speed, attractiveness or ease of use, customers may be less inclined to return to such digital commerce platforms, which could negatively impact our business. 12 Table of Contents Risks Related to the Macroeconomic Environment Our business may be negatively impacted by general economic conditions in the United States and abroad.

Further, we could incur substantial costs in legal actions relating to our use of intellectual property or the use of our intellectual property by others. Even if we are successful in these actions, the costs we incur could have a material adverse effect on us. 15 Table of Contents

Our sales and profits may continue to be negatively affected in the future. We anticipate that our financial performance will depend on a number of factors, including consumer preferences, the strength and protection of our brand, the introduction of new products, and the success of our new business strategy. Competition, including internet-based competition, could negatively impact our business.

We anticipate that our financial performance will depend on a number of factors, including consumer preferences, the strength and protection of our brand, the introduction of new products, and the success of our business strategy. Competition, including internet-based competition, could negatively impact our business.

In addition, the State of California enacted the California Consumer Privacy Act (the “CCPA”), which became effective January 2020 and requires companies that process information on California residents to, among other things, provide new disclosures and options to consumers about data collection, use and sharing practices.

If any of these centers were to shut down or otherwise become inoperable or inaccessible for any reason, we could suffer a substantial loss of inventory and/or disruptions of deliveries to our retail and wholesale customers.

Our ability to meet the needs of our customers and our retail stores and e-commerce sites depends on the proper operation of these centers. If any of these centers were to shut down or otherwise become inoperable or inaccessible for any reason, we could suffer a substantial loss of inventory and/or disruptions of deliveries to our retail and wholesale customers.

The unexpected loss of one or more of our key personnel or any negative public perception with respect to these individuals could have a material adverse effect on our business, results of operations and financial condition. We do not maintain key-person or similar life insurance policies on any of senior management team or other key personnel.

If our information technology systems are damaged or fail to function properly, we may incur substantial costs to repair or replace them and may experience loss of critical data and interruptions or delays in our ability to manage inventories or process transactions, which could result in lost sales, customer or employee dissatisfaction, or negative publicity that could negatively impact our reputation, results of operations and financial condition. 13 Table of Contents Moreover, our failure to adequately invest in new technology or adapt to technological developments and industry trends, particularly with respect to digital commerce capabilities, could result in a loss of customers and related market share.

The inherent uncertainty related to predicting economic conditions makes it difficult for us to accurately forecast future demand trends, which could cause us to purchase excess inventories, resulting in increases in our inventory carrying cost, or limit our ability to satisfy customer demand and potentially lose market share. 14 Table of Contents The COVID-19 pandemic has had, and likely may continue to have, a material adverse effect on our business and liquidity.

We do not maintain key-person or similar life insurance policies on any of senior management team or other key personnel. 11 Table of Contents Disruptions in the operation of our Fort Worth distribution center or manufacturing facility due to disease, including COVID-19, natural disaster, fire, or other crises, could have an adverse effect on our ability to supply our retail stores, fulfill web orders and/or manufacture product, resulting in possible decreases in sales and margin.

Disruptions in the operation of our Fort Worth distribution center or assembly facility due to disease, including COVID-19, natural disaster, fire, or other crises, could have an adverse effect on our ability to supply our retail stores, fulfill web orders and/or manufacture product, resulting in possible decreases in sales and margin. 10 Table of Contents We are dependent on a limited number of distribution and sourcing centers, primarily the center located at our Fort Worth, Texas headquarters.

We cannot guarantee that we will be able to secure all of the additional cash or working capital we might require to continue our operations. 12 Table of Contents Risks Related to Technology, Data Security and Privacy Failure to protect the integrity and security of personal information of our customers and employees could result in substantial costs, expose us to litigation and damage our reputation.

Risks Related to Technology, Data Security and Privacy Failure to protect the integrity and security of personal information of our customers and employees could result in substantial costs, expose us to litigation and damage our reputation. We receive and maintain certain personal, financial, and other information about our customers, employees, and vendors.

In 2020, we experienced declines in sales and operating income primarily resulting from the COVID-19 pandemic. In 2022, we also experienced declines primarily resulting the longer-term economic effects of COVID-19 and the added economic impact of the war in Ukraine. Many other specialty retailers have experienced declining sales and losses due to the overall challenging retail environment.

In 2020, we experienced declines in sales and operating income primarily resulting from the COVID-19 pandemic. In 2023, we also experienced declines primarily resulting the longer-term economic effects of COVID-19 (higher food, housing and transportation costs, higher interest rates, lower government subsidies) and the added economic impact of the war in Ukraine and now the Middle East.

We may also seek capital through the private issuance of debt or equity securities.

We may also seek capital through the private issuance of debt or equity securities. We cannot guarantee that we will be able to secure all of the additional cash or working capital we might require to continue our operations.

Removed

We are dependent on a limited number of distribution and sourcing centers, primarily the center located at our Fort Worth, Texas headquarters. Our ability to meet the needs of our customers and our retail stores and e-commerce sites depends on the proper operation of these centers.

Added

Many other specialty retailers have experienced declining sales and losses due to the overall challenging retail environment. Our sales and profits may continue to be negatively affected in the future.

Removed

Risks Related to Owning our Common Stock Material weaknesses in our system of internal controls were identified during our investigation and financial restatement. These material weaknesses are still in the process of remediation. If not remediated, these material weaknesses could result in additional material misstatements in our Consolidated Financial Statements.

Added

A cybersecurity incident and other technology disruptions could negatively affect our business and our relationships with customers. We use technology in substantially all aspects of our business operations. The widespread use of technology, including mobile devices, cloud computing, and the internet, gives rise to cybersecurity risks, including security breaches, espionage, system disruption, theft and inadvertent release of information.

Removed

We may be unable to develop, implement and maintain appropriate controls in future periods. Section 404 of the Sarbanes-Oxley Act of 2002 requires that public companies evaluate and report on their systems of internal control over financial reporting.

Added

Our business involves the storage and transmission of numerous classes of sensitive and/or confidential information and intellectual property, including information relating to customers and suppliers, private information about employees, and financial and strategic information about us and our business partners. The Company has implemented measures to prevent cybersecurity breaches and incidents, as described in Item 1C below.

Removed

As disclosed in Part II, Item 9A, Controls and Procedures of this Form 10-K, our management, including our Chief Executive Officer, has determined that we continue to have material weaknesses in the Company’s internal control over financial reporting as of December 31, 2022.

Added

However, we cannot guarantee that these preventative measures and incident response efforts will be entirely effective. If we fail to effectively assess and identify cybersecurity risks associated with the use of technology in our business operations, we may become increasingly vulnerable to such risks.

Removed

As a result of the material weaknesses, the Company’s management, under the supervision of the Audit Committee and with participation of the Company’s Chief Executive Officer and Chief Financial Officer, concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2022.

Added

The theft, destruction, loss, misappropriation, or release of sensitive and/or confidential information or intellectual property, or interference with our information technology systems or the technology systems of third parties on which we rely, could result in business disruption, negative publicity, brand damage, violation of privacy laws, loss of customers, potential liability and competitive disadvantage.

Removed

Although we are working to remedy the ineffectiveness of the Company’s internal control over financial reporting and disclosure controls and procedures, there can be no assurance as to when the remediation plan will be fully implemented. Until our remediation plan is fully implemented, our management will continue to devote significant time, attention and financial resources to these efforts.

Added

Moreover, our failure to adequately invest in new technology or adapt to technological developments and industry trends, particularly with respect to digital commerce capabilities, could result in a loss of customers and related market share.

Removed

If we do not complete our remediation in a timely fashion, or at all, or if our remediation plan is inadequate, there will continue to be an increased risk that our future Consolidated Financial Statements could contain undetected errors.

Added

While the impact of the COVID-19 pandemic has mostly receded, there are residual effects such as higher consumer prices and interest rates. Furthermore, another serious outbreak of coronavirus or other deadly disease could also have a material adverse effect on our business and liquidity.

Removed

Further and continued determinations that there are one or more material weaknesses in the effectiveness of the Company’s internal control over financial reporting could adversely affect our business, reputation, revenues, results of operations, financial condition and stock price and limit our ability to access the capital markets through equity or debt issuances.

Added

The COVID-19 pandemic had an unprecedented and lasting impact on the U.S. economy, some of which continues to today. The possibility of another outbreak of a coronavirus variant or other deadly disease that would have material adverse effect on the economy, our supply chain partners, our employees and our customers is now all too real.

Removed

For more information relating to the Company’s internal control over financial reporting, the material weaknesses that existed as of December 31, 2022 and the remediation activities undertaken by us, see Part II, Item 9A, Controls and Procedures of this Form 10-K.

Removed

Moreover, each of the GDPR and the CCPA confer a private right-of-action on certain individuals and associations.

Removed

The COVID-19 pandemic had an unprecedented impact on the U.S. economy as federal, state and local governments react to this public health crisis, which has created significant uncertainties.

Removed

These uncertainties include, but are not limited to, the material adverse effect of the pandemic on the economy, our supply chain partners, our employees and customers, customer sentiment in general, and our stores.

Removed

Since 2020, we have continued to manage through the pandemic as we continue to see varying levels of infection rates in various locations and have at times been forced periodically to temporarily close or limit operations in certain stores.

Removed

We are unable to ensure that our sales will meet or exceed current levels or if additional periods of store closures will be needed or mandated.

Removed

In addition, our merchandise vendors may have been negatively impacted by the pandemic and the financial difficulties of other retailers, thereby creating concerns about our vendors’ ability to provide us with payment terms or merchandise that is suitable to our brand. The effects of the pandemic have materially adversely impacted our revenues, earnings, liquidity and cash flows.

Removed

The continuing impact of the pandemic on our business and financial results will depend largely on future developments, including the duration of the spread of the outbreak (including new variants) and availability and acceptance rates of vaccines within the U.S. and Canada and our key sourcing markets.

Removed

The pandemic has had, and may continue to have, a material adverse impact on our financial position, cash flows, liquidity and results of operations. This situation continues to change, and additional impacts may arise that we are not aware of currently.

Item 2. Properties

Properties — owned and leased real estate

4 edited+1 added−2 removed2 unchanged

2022 filing

2023 filing

Biggest changeLocations Alabama 1 Missouri 3 Alaska 1 Montana 1 Arizona 3 Nebraska 1 Arkansas 1 Nevada 2 California 8 New Mexico 2 Colorado 4 New York 1 Connecticut 1 New Jersey 1 Florida 4 North Carolina 3 Georgia 2 Ohio 3 Idaho 1 Oklahoma 2 Illinois 1 Oregon 2 Indiana 1 Pennsylvania 3 Iowa 1 South Dakota 1 Kansas 1 Tennessee 3 Kentucky 1 Texas 16 Louisiana 2 Utah 4 Maryland 1 Washington 3 Massachusetts 1 Wisconsin 1 Michigan 2 Wyoming 1 Minnesota 2 Canadian locations: Alberta 3 Ontario 3 British Columbia 1 Saskatchewan 1 Manitoba 1 Nova Scotia 1 International locations: Spain 1 16 Table of Contents In 2021, we experienced sporadic and limited temporary store closures as a result of COVID-19 staff illnesses.

Biggest changeLocations: Alabama 1 Missouri 3 Alaska 1 Montana 1 Arizona 3 Nebraska 1 Arkansas 1 Nevada 2 California 7 New Jersey 1 Colorado 4 New Mexico 2 Connecticut 1 New York 2 Florida 4 North Carolina 2 Georgia 2 Ohio 3 Idaho 1 Oklahoma 2 Illinois 1 Oregon 2 Indiana 1 Pennsylvania 3 Iowa 1 South Dakota 1 Kansas 1 Tennessee 3 Kentucky 1 Texas 16 Louisiana 2 Utah 4 Maryland 1 Washington 3 Massachusetts 1 Wisconsin 1 Michigan 2 Wyoming 1 Minnesota 2 Canadian Locations: Alberta 3 Ontario 3 British Columbia 1 Saskatchewan 1 Manitoba 1 Nova Scotia 1 International Locations: Spain 1 The broader economic impact of the pandemic and the war in Ukraine and the Middle East have put pressure on store profitability with dampened demand, higher wages and staffing challenges, rising retail rents, and increases in other retail store operating costs.

In 2022, we closed four store locations that met a number of the criteria for closure, three of which were at the end of the lease, and one of which we paid a negotiated early lease termination.

In 2022, we closed four store locations that met a number of the criteria for closure, three of which were at the end of the lease, and one of which we paid a negotiated early lease termination. We also opened one new location at Fort Liberty, NC.

We own the 22,000 square foot building that houses our flagship store. Further, we own our corporate headquarters, which includes our central distribution center and manufacturing facility, sales, marketing, administrative, and executive offices. The facility consists of 191,000 square feet located on approximately 30 acres.

We own the 22,000 square foot building that houses our flagship store. Further, we own our corporate headquarters, which includes our central distribution center and production facility, sales, marketing, administrative, and executive offices.

The following table summarizes the locations of our leased premises as of the date of this filing: U.S.

The facility consists of 191,000 square feet located on approximately 30 acres. 15 Table of Contents The following table summarizes the locations of our leased premises as of the date of this filing: U. S.

Removed

In 2022, temporary store closures as a direct result of COVID-19 illnesses were even more limited. However, the broader economic impact of the pandemic and the war in Ukraine has put pressure on store profitability with higher wages and staffing challenges, rising retail rents, and increases in other retail store operating costs.

Added

In 2023, we closed two locations that met a number of the criteria for closure including the Fort Liberty location, which was not meeting its sales targets, and we opened one new location in Queens NY. 16 Table of Contents

Removed

We renewed leases for 23 existing locations and opened one new location on the Fort Bragg military base, a new format that we are testing.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+1 added−4 removed0 unchanged

2022 filing

2023 filing

Biggest changeThere are no such matters pending that we expect to have a material impact on our financial position or operating results. See discussion of Legal Proceedings in Note 8, Commitments and Contingencies of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K.

Biggest changeSee discussion of Legal Proceedings in Note 8, Commitments and Contingencies of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K.

Removed

ITEM 3. LEGAL PROCEEDINGS In 2019, the Company self-reported to the SEC information concerning the internal investigation of certain accounting matters resulting in the restatement for the full year 2017 and full year 2018, including interim quarters in 2018, and the first quarter of 2019.

Added

ITEM 3. 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.

Removed

In response, the Division of Enforcement of the SEC initiated an investigation into the Company’s historical accounting practices. In July 2021, the Company entered into a settlement agreement with the SEC to conclude this investigation.

Removed

Under the terms of the settlement, in addition to other non-monetary settlement terms, (1) the Company paid a civil monetary penalty of $200,000, and (2) the Company’s former Chief Financial Officer and Chief Executive Officer, agreed to pay a civil monetary penalty of $25,000.

Removed

In accepting the Company’s settlement offer, the SEC took into account remedial actions the Company took promptly after learning of the issues detailed in the SEC’s order. We are periodically involved in various litigation that arises in the ordinary course of business and operations.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

3 edited+0 added−0 removed1 unchanged

2022 filing

2023 filing

Biggest changeWe did not sell any shares of our equity securities during our fiscal year ended December 31, 2022 that were not registered under the Securities Act. Our Board of Directors did not authorize any dividends during the fiscal years ended December 31, 2022 or 2021.

Biggest changeWe did not sell any shares of our equity securities during our fiscal year ended December 31, 2023 that were not registered under the Securities Act. Our Board of Directors did not authorize any dividends during the fiscal years ended December 31, 2023 or 2022.

We did not repurchase any shares of our common stocks during the fourth quarter of fiscal year 2022.

We did not repurchase any shares of our common stocks during the fourth quarter of fiscal year 2023.

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock trades on the Nasdaq Capital Market under the symbol “TLF.” There were approximately 283 stockholders of record on February 28, 2023.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

38 edited+8 added−23 removed44 unchanged

2022 filing

2023 filing

Biggest changeFor 2021, we generated $3.7 million of cash from operations driven by net income of $1.4 million, non-cash expenses of $5.2 million, including depreciation, amortization, and stock-based compensation, a reduction to income tax receivable of $1.8 million due to a federal income tax refund of $1.0 million related to the 2019 tax year and $0.8 million in income tax expense from expected taxable income generation in 2021, and $1.6 million of other changes in operating assets and liabilities mostly attributable to an increase in accounts payable and accrued liabilities of $1.9 million, and partially offset by the net buildup of inventory of $2.8 million and a reduction in lease liabilities of $3.4 million.

Biggest changeCash Flows (amounts in thousands) 2023 2022 Net cash provided by operating activities $ 4,537 $ 1,154 Net cash used in investing activities (576 ) (625 ) Net cash used in financing activities (26 ) (2,171 ) Effect of exchange rate changes on cash and cash equivalents 249 (538 ) Net increase (decrease) in cash and cash equivalents $ 4,184 $ (2,180 ) 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.

In addition, we anticipate that this cash flow and our current cash reserves will enable us to meet our contractual obligations and commercial commitments throughout 2023. There can be no assurance, however, that the current global economic conditions would not result in further restrictions on our business operations in a manner that would more materially impact our cash flow.

In addition, we anticipate that this cash flow and our current cash reserves will enable us to meet our contractual obligations and commercial commitments throughout 2024. There can be no assurance, however, that the current global economic conditions would not result in further restrictions on our business operations in a manner that would more materially impact our cash flow.

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, 2022 totaled $8.0 million. On January 3, 2023, the Company entered into a credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A.

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, 2023 totaled $12.2 million. On January 3, 2023, the Company entered into a credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A.

Off-Balance Sheet Arrangements We did not have any off-balance sheet arrangements during 2022 or 2021, and we do not currently have any such arrangements.

Off-Balance Sheet Arrangements We did not have any off-balance sheet arrangements during 2023 or 2022, and we do not currently have any such arrangements.

Currently, the Company operates a total of 103 retail stores. There are 92 stores in the United States (“U.S,”), ten stores in Canada and one store in Spain. Tandy Leather has been introducing people to leatherworking for over 100 years.

Currently, the Company operates a total of 102 retail stores. There are 91 stores in the United States (“U.S,”), 10 stores in Canada and one store in Spain. Tandy Leather has been introducing people to leatherworking for over 100 years.

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. 24 Table of Contents 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 FIFO cost or net realizable value.

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 FIFO cost or net realizable value.

As of December 31, 2022, $5.0 million remained available for repurchase under this new program. On April 11, 2022, we entered into an agreement with two institutional shareholders of the Company, to repurchase 359,500 shares of our common stock, par value $0.0024 in a private transaction. The purchase price was $5.00 per share for a total of $1.8 million.

On April 11, 2022, we entered into an agreement with two institutional shareholders of the Company, to repurchase 359,500 shares of our common stock, par value $0.0024 in a private transaction. The purchase price was $5.00 per share for a total of $1.8 million.

The direct share repurchases described above were separately authorized by our Board of Directors and did not reduce the remaining amount authorized to be repurchased under the open-market plan described in the first paragraph of this subsection. In July 2022, the Company repurchased 600 shares of stock under the open market plan.

The direct share repurchases described above were separately authorized by our Board of Directors and did not reduce the remaining amount authorized to be repurchased under the open-market plan that was approved by the Board of Directors at the time. In July 2022, the Company repurchased 600 shares of stock under the open market plan.

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.

Spain Loan During the second quarter of 2020, the Company borrowed $0.4 million from Banco Santander S.A. under the Institute of Official Credit Guarantee for Small and Medium-sized Enterprises in order to facilitate the continuation of employment and to attenuate the economic effects of the COVID-19 virus.

As of the date of this filing, no funds had been borrowed under this facility. 21 Table of Contents Spain Loan During the second quarter of 2020, the Company borrowed $0.4 million from Banco Santander S.A. under the Institute of Official Credit Guarantee for Small and Medium-sized Enterprises in order to facilitate the continuation of employment and to attenuate the economic effects of the COVID-19 virus.

As of December 31, 2021, the full $5.0 million of our common stock remained available for repurchase under this program. On August 8, 2022, the Board of Directors approved a new program to repurchase up to $5.0 million of the Company’s common stock on the open market between that date and August 31, 2024.

Share Repurchase Program On August 8, 2022, the Board of Directors approved a new program to repurchase up to $5.0 million of the Company’s common stock on the open market on or prior to August 31, 2024. As of December 31, 2022 and December 31, 2023, $5.0 million remained available for repurchase under this new program.

On September 8, 2022, we entered into a concession agreement for our store on the Fort Bragg military base in which the concession payment is based on a sliding scale percentage of sales. 25 Table of Contents Impairment of Long-Lived Assets .

On September 8, 2022, we entered into a concession agreement for our store on the Fort Liberty (formerly Fort Bragg) military base in which the concession payment is based on a sliding scale percentage of sales. At the end of November, 2023, we closed that store. Impairment of Long-Lived Assets .

Cash Flows (amounts in thousands) 2022 2021 Net cash from operating activities $ 1,154 $ 3,716 Net cash used in investing activities (625 ) (1,001 ) Net cash used in financing activities (2,171 ) (2,777 ) Effect of exchange rate changes on cash and cash equivalents (538 ) (112 ) Net decrease in cash and cash equivalents $ (2,180 ) $ (174 ) For 2022, we generated $1.1 million of cash from operations driven by net income of $1.2 million, the add-back of non-cash expenses of $5.5 million, including depreciation, amortization, and stock-based compensation, a $0.9 million decrease in income taxes, net due to collecting $1.4 million of refunds from NOL carryback claims that partially offset current year installment payments and recording the current year income tax provision, and a decrease in accounts receivable of $0.2 million among other changes, offset by the increase of inventory of $0.3 million (including currency effects), a decrease in accounts payable and accrued expenses of $3.3 million and a decrease in operating lease liabilities of $3.4 million.

The activities above, in addition to the effect of exchange rate changes, resulted in a net increase in cash of $4.2 million. 22 Table of Contents For 2022, we generated $1.1 million of cash from operations driven by net income of $1.2 million, the add-back of non-cash expenses of $5.5 million, including depreciation, amortization, and stock-based compensation, a decrease in income taxes, net of $0.9 million due to collecting $1.4 million of refunds from NOL carryback claims that partially offset current year installment payments and recording the current year income tax provision, and a decrease in accounts receivable of $0.2 million among other changes, offset by the increase of inventory of $0.3 million (including currency effects), a decrease in accounts payable and accrued expenses of $3.3 million and a decrease in operating lease liabilities of $3.4 million.

We use similar factors to determine whether to open new stores. Gross Profit Gross profit decreased by $0.5 million, or 1.1%, from 2021 to 2022.

We use similar factors to determine whether to open new stores. Gross Profit Gross profit decreased by $1.3 million, or 2.9%, from 2022 to 2023.

At the store counter, 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.

We recognize revenue when we satisfy the performance obligation of transferring control of product merchandise over to a customer. At the store counter, our performance obligation is met, and revenue is recognized when a sales transaction occurs with a customer.

We elected not to record leases with an initial term of 12 months or less on the balance sheet for all our asset classes.

We elected not to record leases with an initial term of 12 months or less on the balance sheet for all our asset classes. The depreciable life of related leasehold improvements is based on the shorter of the useful life or the lease term.

The closing of the repurchase of these shares took place on February 1, 2021, and these shares were subsequently cancelled. Prior to the repurchase, the shares represented approximately 5.5% of our outstanding common stock.

The closing of the repurchases took place on April 22, 2022, and these shares were subsequently cancelled. Prior to the repurchase, the shares represented approximately 4.2% of our outstanding common stock.

Revenue Recognition . Our revenue is earned from sales of merchandise and generally occurs via three methods: (1) at the store counter, (2) shipment of product generally 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 over to a customer.

None of our lease agreements contain material residual value guarantees or material restrictive covenants. As of December 31, 2022, we have no sublease agreements and no lease agreements in which we are named as a lessor. We do not have any contingent rental payment agreements.

As of December 31, 2023, we have no sublease agreements and no lease agreements in which we are named as a lessor. We do not have any contingent rental payment agreements.

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.

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.

We adjust the lease liability to reflect lease payments made during the period and interest incurred on the lease liability using the effective interest method. The incurred interest expense is recorded in interest expense on the consolidated statements of comprehensive income (loss).

We adjust the lease liability to reflect lease payments made during the period and interest incurred on the lease liability using the effective interest method.

Results of Operations The following table presents selected financial data: (in thousands) 2022 2021 $ Change % Change Sales $ 80,335 $ 82,661 $ (2,326 ) (2.8 )% Gross profit 46,497 46,999 (502 ) (1.1 )% Gross margin percentage 57.9 % 56.9 % 1.0 % Operating expenses 45,109 44,699 410 0.9 % Income (loss) from operations $ 1,388 $ 2,300 $ (912 ) 39.7 % 20 Table of Contents Net Sales Consolidated net sales decreased by $2.3 million, or 2.8%, from 2021 to 2022.

Results of Operations The following table presents selected financial data: (in thousands) 2023 2022 $ Change % Change Sales $ 76,229 $ 80,335 $ (4,106 ) (5.1 )% Gross profit 45,163 46,497 (1,334 ) (2.9 )% Gross margin percentage 59.2 % 57.9 % - 1.3 % Operating expenses 40,753 45,109 (4,356 ) (9.7 )% Income from operations $ 4,410 $ 1,388 $ 3,022 217.7 % Net Sales Consolidated net sales decreased by $4.1 million, or 5.1%, from 2022 to 2023.

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.

We do not use cash to settle equity instruments issued under stock-based compensation awards. 25 Table of Contents 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.

Under our sales returns policy, merchandise may be returned, under most circumstances, up to 60 days after date of purchase. As merchandise is returned, the company records the sales return against the sales return allowance. We record a gift card liability for the unfulfilled performance obligation on the date we issue a gift card to a customer.

As merchandise is returned, the company records the sales return against the sales return allowance. 23 Table of Contents 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.

Our effective tax rate differs from the federal statutory rate primarily due to U.S. state income tax expense, foreign income/loss positions, expenses that are nondeductible for tax purposes, the change in our valuation allowance associated with our deferred tax assets, and differences in tax rates.

Provision for Income Taxes Our effective tax rate was 17.1% and 12.9% for the years ended December 31, 2023 and 2022, 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.

We believe the decrease in sales was due to continued weaker consumer demand as a result of inflation and ongoing uncertainty related to global political, economic and public health concerns. Our store footprint consisted of 103 stores at December 31, 2022 and 106 stores at December 31, 2021.

About $1.3 million of the decline came from stores that were open in 2022 but closed in 2023. We believe the rest of the decrease in sales was due to continued weaker consumer demand as a result of inflation and ongoing uncertainty related to global political, economic and public health concerns.

We recognize rent expense related to our operating leases on a straight-line basis over the lease term. Rent expense is recorded in operating expenses. The net adjustment between rent expense and the actual cash paid during the fiscal year has been recorded as accrued expenses and other liabilities in the accompanying consolidated balance sheets.

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

The activities above, in addition to the effect of exchange rate changes, resulted in a net decrease in cash of $0.2 million. 23 Table of Contents We believe that cash flow from operations and our existing cash reserves will be adequate to fund our operations through 2023, taking into account the current effects of the inflationary pressure on our business and cash flow and our current business performance.

We believe that cash flow from operations and our existing cash reserves will be adequate to fund our operations through 2024, considering the current effects of the inflationary pressure on our business and cash flow and our current business performance.

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.

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.

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. Inventory.

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. 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.

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. 19 Table of Contents In 2019, with the arrival of a new management team, we began the process of assessing and reinvigorating the business.

With dedicated direct account representatives, a direct-from-our-warehouse shipping model, volume-based competitive pricing, customized product development, and production and pre-production services, we are building long-term, strategic relationships with our largest customers. 19 Table of Contents With COVID-19 and restatement related impacts behind us, and with initiatives to improve our brand proposition and to build the foundation for a modern and efficient retail business taking hold, we believe we have made significant progress toward building a durable, profitable business model.

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 is based each year on historical customer return behavior and other known factors and reduces net sales and cost of sales, accordingly. Under our sales returns policy, merchandise may be returned, under most circumstances, up to 60 days after date of purchase.

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 is excluded from net sales, while shipping charged to our customers is included in net sales.

For (2) and (3) above, our performance obligation is met when merchandise is shipped to a customer, 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.

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 FIFO basis using full absorption accounting which includes material, labor, and other applicable manufacturing overhead.

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.

Our gross margin percentage for the year ended December 31, 2022 increased to 57.9% versus 56.9% in the same period in 2021, due to relatively stronger full-priced selling throughout the year, product and customer mix shifts, and some impact from price increases.

Our gross margin percentage for the year ended December 31, 2023 increased to 59.2% versus 57.9% in the same period in 2022, due to reduction in freight and warehouse overhead, relatively stronger full-priced selling throughout the year and product and customer mix shifts. 20 Table of Contents Operating Expenses (in thousands) 2023 2022 Operating expenses $ 40,753 $ 45,109 Non-routine items related to restatement - (246 ) Adjusted operating expenses $ 40,753 $ 44,863 Operating expenses % of sales 53.5 % 56.2 % Adjusted operating expenses % of sales 53.5 % 55.8 % Operating expenses declined by $4.3 million in 2023 as compared to the prior year.

During the year ended December 31, 2021, we recognized other expense of $0.1 million. Provision for Income Taxes Our effective tax rate was 12.9% and 38.3% for the years ended December 31, 2022 and 2021, respectively.

For the year ended December 31, 2023, we recognized other income of $0.1 million. During the year ended December 31, 2022, we recognized other income of less than $0.1 million related to interest earned on our short term investment.

We invested $1.0 million in capital expenditures for the purchase of store fixtures and systems implementations. We used cash in financing activities to repurchase 712,690 shares of Tandy common stock in two private purchases totaling $2.7 million at an average price of $3.84 per share.

We invested $0.6 million in capital expenditures for the purchase of store fixtures and systems implementations.

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We need to continue to give customers good reasons to visit stores, and an excellent return on their time investment when they do.

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Our store footprint consisted of 102 stores at December 31, 2023 and 103 stores at December 31, 2022. Since January 1, 2023, we closed two stores and opened one store.

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In 2020, while making progress against our transformation and still working through our restatement, we temporarily closed all of our retail stores as a result of the COVID-19 pandemic. With COVID-19 and the restatement behind us and with many of our initiatives taking hold, we are now focused on improving our financial sustainability and profitability.

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The primary drivers of the decrease were reduced contract labor of approximately $1.2 million, primarily in accounting and warehouse, as we hired permanent, full-time staff and retail employment costs of $1.5 million resulting from retail labor initiatives.

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In the short-term, we are managing operating expenses and gross margin to deliver free operating cash and operating income even in the face of possible continued economic headwinds. We will also continue to selectively invest in profitable sales growth where it makes sense, but rebuilding a durable, profitable business model is the highest priority.

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Other savings initiatives included reduced insurance and other taxes of $0.6 million, reduced outside services of $0.4 million, and lower occupancy, supplies and other expenses combined for another $1.0 million in savings, partially offset by increased bonus compensation of $0.5 million. Other Income Other income consists primarily of interest income and foreign currency gain.

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COVID-19 At the time of filing this Form 10-K, the American and world economies have been acutely affected by a combination of factors arising from both the COVID-19 pandemic and the war resulting from the invasion of Ukraine by Russian military forces.

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Sales tax and comparable foreign tax is 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.

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The remaining asset balance in our finance lease is only residual value and only an insignificant interest expense of less than $100 dollars was incurred and is recorded on the consolidated statements of operations and comprehensive income. 24 Table of Contents None of our lease agreements contain material residual value guarantees or material restrictive covenants.

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The future remains uncertain, and continued increased labor, freight, product and other costs as well as weakening customer demand could have a negative impact on the Company’s future financial performance.

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Since January 1, 2022, we closed one store in San Bruno, CA in March 2022, one store in Oxnard, CA in July 2022, one store in Miami, FL in October 2022 and one store in Cayce, SC in December 2022. In November 2022, we opened one store on the Fort Bragg military base in North Carolina.

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Operating Expenses (in thousands) 2022 2021 Operating expenses $ 45,109 $ 44,699 Non-routine items related to restatement (246 ) (1,252 ) Adjusted operating expenses $ 44,863 $ 43,447 Operating expenses % of sales 56.2 % 54.1 % Adjusted operating expenses % of sales 55.8 % 52.6 % Operating expenses increased by $0.4 million in 2022 as compared to the prior year.

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This was in part as a result of the write off of $0.4 million of costs associated with the unsuccessful attempt to build a new web platform. That vendor, DynamicWeb, has been unable to deliver a working product, and while we seek to recover these costs, that recovery is uncertain.

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In addition, increases in operating expenses in the areas of wages, primarily of hourly employees in retail stores, and corporate marketing and merchandising, equity compensation associated with executive bonus, our store manager conference and other expenses were offset by decreases in cash bonus and credit card fees related to lower sales, contract labor and rent.

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Adjusted operating expenses, which exclude the non-routine items related to the restatement and CFO turnover, increased $1.4 million for the reasons noted above. Adjusted operating expenses excluding non-routine items as shown above is a non-GAAP measure, included here to provide additional information regarding the Company’s financial performance on a recurring basis.

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Non-routine items are primarily legal and accounting fees associated with the restatement. 21 Table of Contents Other (Income) Expense Other (income) expense consists primarily of interest expense, interest income and foreign currency (gain) loss. For the year ended December 31, 2022, we recognized other income of $0.1 million.

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As of the date of this filing, no funds had been borrowed under this facility.

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Share Repurchase Program On August 9, 2020, the Board of Directors approved a program to repurchase up to $5.0 million of the Company’s common stock on the open market between August 9, 2020 and July 31, 2022. This program expired in July 2022.

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The closing of the repurchases took place on April 22, 2022, and these shares were subsequently cancelled.

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Prior to the repurchase, the shares represented approximately 4.2% of our outstanding common stock. 22 Table of Contents On December 8, 2021, we entered into an agreement with an institutional shareholder of the Company to repurchase 212,690 shares of our common stock, par value $0.0024 in a private transaction.

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The purchase price was $5.00 per share for a total of $1.1 million. The closing of the repurchase took place on December 16, 2021, and these shares were subsequently cancelled. Prior to the repurchase, the shares represented approximately 2.4% of our outstanding common stock.

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On January 28, 2021, we entered into an agreement with an institutional shareholder of the Company to repurchase 500,000 shares of our common stock, par value $0.0024 in a private transaction. The purchase price was $3.35 per share for a total of $1.7 million.

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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 operating lease assets for impairment when evidence exists that the carrying value of an asset group, including a lease asset, may not be recoverable.

Top changes in TANDY LEATHER FACTORY INC's 2023 10-K

Item 1. Business

Item 1A. Risk Factors

Item 2. Properties

Item 3. Legal Proceedings

Item 5. Market for Registrant's Common Equity

Item 7. Management's Discussion & Analysis

Other TLF 10-K year-over-year comparisons