12. Stock-Based Compensation

On October 24, 2018, the Board of Directors adopted the Merlin Labs 2018 Equity Incentive Plan (“the Plan”). Under the terms of the Plan, incentive stock options (“ISOs”) may be granted to employees of the Company and nonqualified stock options or restricted stock awards may be granted to directors, consultants, employees and officers of the Company.

Stock Options

The exercise price of ISOs cannot be less than the fair value of the Company’s common stock on the date of grant or less than 110% of the fair value in the case of employees holding 10% or more of the voting stock of the Company. The options vest over a period determined by the Board of Directors, generally four years, and expire not more than 10 years from the date of grant.

As of March 31, 2026, the Company’s authorized common stock includes 10,386,879 shares of common stock reserved for the issuance of options under the Plan, of which 1,677,207 shares are available for future grants.

Stock option activity under the Plan during the three months ended March 31, 2026 was as follows:

The weighted-average grant-date fair value of options granted during the three months ended March 31, 2026 and 2025 amounted to $11.73 and $3.69, respectively.

During the three months ended March 31, 2026 and 2025, option holders of the Company exercised 406,385 and 38,617 common stock options, respectively, in exchange for cash proceeds of $226 and $10, respectively.

The total intrinsic value of options exercised during the three months ended March 31, 2026 and 2025 amounted to $3,058 and $85, respectively.

During the three months ended March 31, 2026 and 2025, stock-based compensation expense amounted to $1,295 and $513, respectively, which is included in the condensed consolidated statements of operations.

As of March 31, 2026, there is $7,024 of unrecognized compensation expense related to unvested stock-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted average period of 1.33 years.

The Company uses the Black-Scholes option-pricing model to value option grants on the date of grant and to determine the related compensation expense. The assumptions used in calculating the fair value of stock-based payment awards represent management’s best estimations. Prior to the Merger, the Company based its expected volatility on the volatilities of certain publicly-traded peer companies as it was a privately-held company and therefore lacked company-specific historical and implied volatility information. After the Merger, the Company intends to continue to consistently use the same group of publicly traded peer companies to determine volatility in the future until such time that sufficient information regarding the volatility of the Company’s share price becomes available or that the selected companies are no longer suitable for this purpose. The risk-free interest rate used for each grant is equal to the U.S. Treasury yield curve in effect at the time of grant for instruments with a similar expected life.

The expected term of options granted is determined based on the average of the vesting term and the contractual lives of all options awarded. The expected dividend yield assumption is based on the Company’s history and expectation of dividend payouts.

In determining the exercise prices for options granted, the Company has considered the fair value of the common stock as of the measurement date. Prior to the Merger, the fair value of the common stock has been determined by management with consideration to a third-party valuation, which contemplates a broad range of factors, including the illiquid nature of the investment in the Company’s common stock, the Company’s historical financial performance and financial position, the Company’s future prospects and opportunity for liquidity events and recent sale and offer prices of common and redeemable convertible preferred stock, if any, in private transactions negotiated at arm’s length.

The following table provides the assumptions used in determining the fair value of the stock-based awards:

Total stock-based compensation expense as presented within the consolidated statements of operations was as follows:

During the three months ended March 31, 2026, the Company granted 100,000 shares of common stock to non-employees, which were valued on the grant date based on the opening price of MRLN. As of March 31, 2026, the shares of common stock have not yet been issued to the non-employees.