STOCK-BASED COMPENSATION

9 Months Ended

Sep. 30, 2022

4. STOCK-BASED COMPENSATION

The Tandy Leather Factory, Inc. 2013 Restricted Stock Plan (the “2013 Plan”) was adopted by our Board of Directors in January 2013 and approved by our stockholders in June 2013. The 2013 Plan initially reserved up to 300,000 shares for restricted stock and 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 to June 2023. As of September 30, 2022, there were 433,151 shares available for future awards. 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.

In January 2022, we granted a total of 27,249 RSUs to the Company’s Chief Executive Officer (“CEO”), which vested immediately. These shares were granted in lieu of $0.1 million in salary that the CEO declined in 2020 during the period of COVID-related store closures and business uncertainty. The timing of the grant was conditioned on the Company becoming fully current in its periodic SEC filings, which occurred in December 2021.

In April 2022, we granted a total of 120,231 RSUs to certain key employees which will vest over a three-year service period. And in June 2022, we granted a total of 14,000 RSUs to the Company’s Board of Directors which will vest over a four-year service period.

In addition to grants under the Company’s 2013 Restricted Stock Plan, in October 2018, we granted a total of 644,000 RSUs to the Company’s CEO, of which (i) 460,000 are service-based RSUs that vest ratably over a period of five years from the grant date based on our CEO’s continued employment in her role, (ii) 92,000 are performance-based RSUs that will vest if the Company’s operating income exceeds $12 million dollars two fiscal years in a row, and (iii) 92,000 are performance-based RSUs that will vest if the Company’s operating income exceeds $14 million dollars in one fiscal year.

A summary of the activity for non-vested restricted stock and RSU awards as of September 30, 2022 is presented below:

	Shares (in thousands)			Weighted Average Share Price

Balance, January 1, 2022		419		$	7.05
Granted		161			5.01
Vested		(48	)		4.99
Balance, September 30, 2022		532		$	6.62

The Company’s stock-based compensation relates primarily to RSU awards. For these service-based awards, our stock-based compensation expense, included in operating expenses, was $0.2 million and $0.2 million for the three months and $0.8 million and $0.6 million for the nine months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022, the Company has concluded it is not probable that the performance conditions related to performance-based RSUs granted to our CEO will be achieved, and as a result no compensation expense related to performance-based RSUs has been recorded.

As of September 30, 2022, there was unrecognized compensation cost related to non-vested, service-based RSU awards of $1.3 million, which will be recognized in each of the following years (dollars in thousands):

Unrecognized Expense (in thousands)
2022	$	248
2023		752
2024		239
2025		89
2026		7
	$	1,335

We issue shares from authorized shares upon the lapsing of vesting restrictions on restricted stock and RSUs. For the nine months ended September 30, 2022 and 2021, we issued 48,277 and 16,080 shares, respectively, resulting from the vesting of RSUs. We do not use cash to settle equity instruments issued under stock-based compensation awards. The payment of the employees’ tax liability for a portion of the vested shares are satisfied by withholding shares with a fair value equal to the tax liability.