NOTE 14. SHARE-BASED COMPENSATION

In 2015, the Company’s Board of Directors adopted, and stockholders approved, the Journey Medical 2015 Stock Plan (the “Plan”) authorizing the Company to grant 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 2024 Annual Meeting of Stockholders, held on June 25, 2024, 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 10,642,857. As of September 30, 2024, 2,796,065 shares were available for issuance under the Plan.

The Company, from time to time, 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 a 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.

In 2023, the Company’s Board of Directors adopted, and stockholders approved, the Journey Medical Corporation 2023 Employee Stock Purchase Plan (the “2023 ESPP”). The Company initially reserved 300,000 shares of common stock for future issuance under the 2023 ESPP. As of September 30, 2024, 215,536 shares were available for issuance under the 2023 ESPP.

The following table summarizes the components of share-based compensation expense in the consolidated statements of operations for the three and nine-month periods ended September 30, 2024 and 2023:

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Stock Options

The following table summarizes the Company’s stock option activities:

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For the three-month periods ended September 30, 2024 and 2023, approximately $0.1 million and $0.1 million, respectively, of stock option compensation expense was charged against operations. For the nine-month periods ended September 30, 2024 and 2023, approximately $0.2 million and $0.4 million, respectively, of stock option compensation expense was charged against operations. For the nine-month period ended September 30, 2024, the Company issued 101,568 shares of common stock upon the exercise of outstanding stock options and received proceeds of approximately $162,000. At September 30, 2024, the Company had unrecognized stock-based compensation expense related to all unvested options of $0.5 million, which the Company expects to recognize over a weighted-average period of approximately 1.6 years.

The aggregate intrinsic value in the previous table reflects the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the period and the exercise price of the options, multiplied by the number of in-the-money stock options) that would have been received by the option holders had all option holders exercised their options on September 30, 2024. The intrinsic value of the Company’s stock options changes based on the closing price of the Company’s common stock.

Restricted Stock Units

The following table summarizes the activity related to the Company’s RSUs for the nine-month period ended September 30, 2024:

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For the three-month periods ended September 30, 2024 and 2023, approximately $1.5 million and $0.5 million, respectively, of stock compensation expense related to RSUs was charged against operations. For the nine-month periods ended September 30, 2024 and 2023,

approximately $4.3 million and $1.6 million, respectively, of stock compensation expense related to RSUs was charged against operations. For the nine-month periods ended September 30, 2024 and 2023, the Company issued 893,901 and 708,082 shares of common stock, respectively, upon vesting of RSU’s amounting to $3.6 million and $2.8 million, respectively, in total aggregate fair market value. At September 30, 2024, 2,484,434 RSUs remained unvested and there was approximately $6.8 million of unrecognized compensation cost related to restricted stock which the Company expects to recognize over a weighted-average period of approximately 1.8 years.

Employee Stock Purchase Plan

The 2023 ESPP provides that eligible employees may contribute up to 10% of their eligible earnings toward a semi-annual purchase of the Company’s common stock. The 2023 ESPP is qualified under Section 423 of the Internal Revenue Code. The employee’s purchase price is derived from a formula based on the closing price of the common stock on the first day of the offering period versus the closing price on the last date of purchase (or, if not a trading day, on the immediately preceding trading day). The offering period under the 2023 ESPP has a duration of six months, and the purchase price with respect to each offering period beginning on or after such date is, until otherwise amended, equal to 85% of the lesser of (i) the fair market value of the Company’s common stock at the commencement of the applicable six-month offering period or (ii) the fair market value of the Company’s common stock on the purchase date. The Company estimates the fair value of the common stock under the 2023 ESPP using a Black-Scholes valuation model. The fair value was estimated on the date of grant for the offering period beginning February 1, 2024 using the Black-Scholes option valuation model and the straight-line attribution approach with the following assumptions: risk-free interest rate (5.1%); expected term (0.5 years); expected volatility (96%); and an expected dividend yield (0%). The Company recorded $0.2 million of stock-based compensation under the 2023 ESPP for the nine-month period ended September 30, 2024. As of September 30, 2024, there was unrecognized stock-based compensation expense of approximately $34,000 related to the current ESPP offering period, which ends January 31, 2025.