NOTE 16. SHARE-BASED COMPENSATION

In 2015, the Company’s Board of Directors adopted, and stockholders approved, the Journey Medical Corporation 2015 Stock Plan (the “Plan”) authorizing the Company to grant up to 4,642,857 shares of Common Stock to eligible employees, directors, and consultants in the form of restricted stock, restricted stock units (“RSUs”), stock options and other types of grants. The amount, terms, and exercisability provisions of grants are determined by the Board of Directors. At the Company’s 2022 Annual Meeting, held on June 21, 2022, the Company’s stockholders approved, among other matters, an amendment to the Plan to increase the number of shares of Common Stock issuable under the Plan by 3,000,000 to 7,642,857. At December 31, 2022 there were 1,146,620 shares available for issuance under the Plan.

The Company grants stock options to employees, non-employees and Directors with exercise prices equal to the closing price of the underlying shares of the Company’s common stock on the Nasdaq Capital Market on the date that the options are granted. Options granted have a term of ten years from the grant date. Options granted generally vest over four-year period. Compensation cost for stock options is charged against operations on a straight-line basis over the vesting period. The Company estimates the fair value of stock options on the grant date by applying the Black-Scholes option pricing valuation model.

Total compensation cost charged against operations related to the above plan for the years ended December 31, 2022 and 2021 was $4.4 million and $2.5 million, respectively. The following table summarizes the components of share-based compensation expense in the consolidated statements of operations for the years ended December 31, 2022 and 2021:

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Stock Options

The weighted-average key assumptions used in determining the fair value of options granted for the year ended December 31, 2022 are as follows:

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The weighted average grant-date fair value of stock options issued during the year ended December 31, 2022 was $2.67 per share. The Company did not grant any stock options during the year ended December 31, 2021.

The following table summarizes the Company’s stock option activity for the year ended December 31, 2022:

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For the years ended December 31, 2022 and 2021, the Company issued 155,649 and 10,000 shares, respectively, of Common Stock upon the exercise of outstanding stock options and received proceeds of $142,330 and $6,800, respectively. For the years ended December 31, 2022 and 2021, approximately $0.8 million and $51,669, respectively, of stock option compensation cost was charged against operations. At December 31, 2022, the Company had unrecognized share-based compensation expense related to all unvested options of $2.0 million, which the Company expects to recognize over a weighted-average period of approximately 2.4 years.

Restricted Stock Units

The following table summarizes the Company’s RSU activity for the year ended December 31, 2022:

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For the years ended December 31, 2022 and 2021 the Company issued 293,707 and 136,500 shares of Common Stock, respectively, upon the vesting of RSU’s amounting to $0.9 million and $1.4 million, respectively, in total aggregate fair market value. For the years ended December 31, 2022 and 2021, approximately $3.6 million and $2.5 million, respectively, of RSU compensation cost was charged against operations. The $2.5 million of RSU compensation cost that was charged against operations for the year ended December 31, 2021 includes $2.4 million of RSU compensation cost related to RSU’s that fully vested upon the Company’s IPO on November 12, 2021. At December 31, 2022 approximately 2,261,048 of RSU’s remained unvested and there was approximately $4.8 million of unrecognized compensation cost related to RSUs, which the Company expects to recognize over a weighted-average period of approximately 1.9 years.