13. Stock-Based Compensation

2017 Stock Option and Grant Plan

Q32 Bio Operations Inc. (previously named Q32 Bio Inc. and referred to herein as Legacy Q32) adopted the 2017 Stock Option and Grant Plan and subsequent amendments (the “2017 Plan”) with 1,246,290 shares of common stock reserved for issuance to employees, directors, and consultants. The 2017 Plan allowed for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock unit awards and other stock awards. As of June 30, 2026, there were no additional shares available for future grant under the 2017 Plan.

2024 Stock Option and Incentive Plan

The Company’s 2024 Stock Option and Incentive Plan (the “2024 Plan”) became effective on March 25, 2024, and serves as successor to the 2017 Plan, as well as the Homology 2015 Stock Incentive Plan and the Homology 2018 Plan. The 2024 Plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock awards, restricted stock units, stock appreciation rights and other stock or cash-based awards to officers, employees, directors and consultants of the Company. The 2024 Plan provides that the number of shares reserved and available for issuance under the 2024 Plan will automatically increase each January 1 by 5% of the outstanding number of shares on the immediately preceding December 31, or such lesser amount as determined by the plan administrator. As of June 30, 2026, there were 2,087,241 shares available for future grant under the 2024 Plan.

2024 Employee Stock Purchase Plan

The Company’s 2024 Employee Stock Purchase Plan (the “2024 ESPP”) became effective on March 25, 2024. The 2024 ESPP provides that the number of shares reserved and available for issuance under the plan will automatically increase each January 1 by the lesser of 241,677 shares, a number of shares equal 1% of the outstanding number of shares on the immediately preceding December 31, or such lesser amount as determined by the plan administrator. As of June 30, 2026, there were 371,393 shares available for future grant under the 2024 ESPP.

There were no shares issued under the 2024 ESPP during the six months ended June 30, 2026 and 2025.

Stock Options

Stock options granted by the Company typically vest over a four-year period and have a ten-year contractual term. The following table summarizes the Company’s stock option activity during the six months ended June 30, 2026:

The per share weighted-average grant date fair value of options granted in the six months ended June 30, 2026 was $6.64. The total fair value of options vested during the six months ended June 30, 2026 was $1.3 million. As of June 30, 2026, total unrecognized compensation costs to the unvested stock options were approximately $6.3 million, which is expected to be recognized over a weighted-average period of 1.4 years. The per share weighted-average exercise price of options cancelled in the six months ended June 30, 2026 of $7.17 was impacted by the Option Repricing (defined below).

Stock Option Modifications

On February 23, 2025, the Company's board of directors approved a stock option repricing (the “Option Repricing”), which was effective on February 24, 2025 (the “Repricing Date”). The Option Repricing applied to outstanding options to purchase shares of common stock of the Company granted under the Company’s 2017 Plan and 2024 Plan (collectively, “the Plans”), which, as of the Repricing Date, were held by current employees and non-employee directors of the Company and had an exercise price in excess of the current trading price of the common stock (so-called “underwater options”) with grant dates prior to February 23, 2025 (the “Eligible Options”). As of the Repricing Date, the Eligible Options were repriced such that the exercise price per share for such Eligible Options was reduced to the closing price of the common stock on the Nasdaq Global Market on the Repricing Date (the “Repriced Exercise Price”). The total number of shares of common stock underlying all Eligible Options was 1,871,416.

The repricing of the Eligible Options was accounted for as a modification under FASB ASC Topic 718, Compensation—Stock Compensation (“ASC 718”). Accordingly, the Company calculated incremental compensation cost on the modification date in an amount equal to the difference between the fair value of the awards before and after modification, determined using a lattice model based on the Hull-White framework, and recognized $0.3 million in its statement of operations for the year ended December 31, 2025. An additional $0.2 million is being recognized over the remaining vesting terms of the modified awards.

Restricted Stock Units

The fair values of restricted stock units (“RSUs”) are based on the fair market value of the Company’s common stock on the date of grant. Each RSU represents a contingent right to receive one share of the Company’s common stock upon vesting. In general, RSUs vest annually in two or three equal installments. The following table summarizes the Company’s RSU activity during the six months ended June 30, 2026:

As of June 30, 2026, total unrecognized compensation costs to the unvested RSUs were approximately $1.9 million, which is expected to be recognized over a weighted-average period of 2.3 years. The total fair value of RSUs vested during the six months ended June 30, 2026 was $0.3 million.

Stock-Based Compensation Expense

Risk-Free Interest Rate – The risk-free rate assumption is based on the U.S. Treasury instruments, the terms of which were consistent with the expected term of the Company’s stock options.

Expected Dividend – The expected dividend assumption is based on the Company’s history and expectation of dividend payouts. The Company has not paid and does not intend to pay dividends.

Expected Term – The expected term of stock options represents the weighted average period the stock options are expected to be outstanding. The Company uses the simplified method for estimating the expected term, which calculates the expected term as the average time-to-vesting and the contractual life of the options for stock options issued to employees. The expected term for options granted to non-employees is based on the contractual life of the options.

Expected Volatility – Due to the Company’s limited operating history and lack of sufficient company-specific historical or implied volatility, the expected volatility assumption was determined by examining the historical volatilities of a group of industry peers whose share prices are publicly available. The Company expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price.

Fair Value of Common Stock – Prior to the Merger, as there had been no public market for the Company’s common stock, the estimated fair value of its common stock was determined by the Company using estimates and assumptions on the respective grant dates of the awards. These estimates and assumptions include a number of objective and subjective factors, including external market conditions, the prices at which the Company sold shares of preferred securities and the superior likelihood of achieving a liquidity event, such as an IPO or sale. Significant changes to the key assumptions used in the valuations could result in different fair values of common stock at each valuation date.

As discussed above, incremental stock-based compensation expense for the Option Repricing on February 24, 2025 was calculated using a lattice model based on the Hull-White framework. This approach incorporated key assumptions, including suboptimal exercise multiples for both staff and executives, derived from empirical data. The model also accounted for additional factors such as vesting periods, employee turnover based on the accounting of forfeitures, volatility, contractual expiry, and risk-free rates.