The Tandy Leather Factory, Inc. 2023 Incentive Stock Plan (the “2023 Plan” and, together with the 2013 Plan, the “Plans”) was adopted by our Board of Directors in April 2023 and approved by our stockholders in June 2023. The 2023 Plan initially reserved up to 800,000 shares of our common stock for a variety of equity awards (including, but not limited to, RSUs, the only type of awards that have been granted to date) to our executive officers, non-employee directors and other key employees. In June 2026 and 2025, the Company granted 24,140 and 17,344 shares respectively to various members of the Board of Directors under the 2023 Plan.

The Board adopted a new compensation policy at its June 2026 meeting for its Directors. This policy consists of immediate vesting of annual RSU grants. Consequently, the 24,140 RSUs granted to board members on June 9, 2026 immediately vested. Further the Board determined, all RSUs previously granted with unvested units would accelerate and immediately vest on June 9, 2026 to align with this new compensation policy. The previous vesting period was four years. The Company recorded the expense in Q2 2026 according to the appropriate guidance.

In February 2025, in connection with hiring Johan Hedberg as the Company’s Chief Executive Officer, the Company granted Mr. Hedberg 100,000 RSU, which vested in February 2026, and 900,000 RSUs, which will vest upon the Company’s achievement of certain performance and market targets. In June 2025, the Company’s stockholders approved an increase to the plan reserve of an additional 900,000 shares of our common stock for the potential vesting those performance-based and market based RSU grants to Mr. Hedberg.

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 $0.1 million and $0.1 million for the three months ended June 30, 2026 and June 30, 2025, and $0.2 million and $0.2 million for the six months ended June 30, 2026 and 2025.

As of June 30, 2026, there was unrecognized compensation cost related to unvested, RSU awards of $0.1 million, which will be recognized in each of the following years (dollars in thousands):

We issue shares from authorized shares upon the lapsing of vesting restrictions on restricted stock and RSUs. For the three months ended June 30, 2026 and 2025, we issued 49,000 and 3,000 shares respectively net of shares withheld for tax obligations 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 may be satisfied by withholding shares with a fair value equal to the tax liability.