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 March 31, 2024, there were no additional shares available for future grant under the 2017 Plan.

On March 15, 2024, Homology’s board of directors adopted and subsequently, Homology’s stockholders approved the Q32 Inc. 2024 Stock Option and Incentive Plan (the “2024 Plan”), which became effective upon the closing of the Merger. The 2024 Plan replaced the 2017 Plan, as well as the Homology 2015 Stock Incentive Plan (the “Homology 2015 Plan”), and the Homology 2018 Plan (together with the Homology 2015 Plan, the “Homology Incentive Plans.”) Upon effectiveness of the 2024 Plan, the Company ceased granting new awards under the 2017 Plan and the Homology Incentive Plans.

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 number of shares of common stock initially available for issuance under the 2024 Plan was 2,839,888 shares of common stock. The 2024 Plan provides that the number of shares reserved and available for issuance under the 2024 Plan will automatically increase each January 1, beginning on January 1, 2025, 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 March 31, 2024, there were 811,068 shares available for future grant under the 2024 Plan.

In March 2024, the Company granted 902,331 stock options to the officers, directors and other key members of management pursuant to the 2024 Plan. Stock options were issued with an exercise price on the close of business on March 25, 2024. The stock option awards vest in accordance with the terms of the 2024 Plan.

On March 15, 2024, Homology’s board of directors adopted and subsequently, Homology’s stockholders approved the Q32 Inc. 2024 Employee Stock Purchase Plan (the “2024 ESPP”). The 2024 ESPP allows employees to buy Company stock through after-tax payroll deductions at a discount from market value. The 2024 ESPP is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code. The number of shares of common stock initially available for issuance under the 2024 ESPP was 120,836 shares of common stock. The 2024 ESPP provides that the number of shares reserved and available for issuance under the plan will automatically increase each January 1, beginning on January 1, 2025, 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.

Under the 2024 ESPP, employees may purchase common stock through after-tax payroll deductions at a price equal to 85% of the lower of the fair market value on the first trading day of an offering period or the last trading day of an offering period. The 2024 ESPP generally provides for offering periods of six months in duration that end on the final trading day of each February and August. In accordance with the Internal Revenue Code, no employee will be permitted to accrue the right to purchase stock under the 2024 ESPP at a rate in excess of $25,000 worth of shares during any calendar year during which such a purchase right is outstanding (based on the fair market value per share of the Company’s common stock as of the first day of the offering period).

There were no shares issued under the 2024 ESPP during the three months ended March 31, 2024.

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 three months ended March 31, 2024:


	Number of Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (In Years)		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2023		1,112,275	$	7.50		6.87	$	10,712
Assumed in reverse recapitalization		14,214	$	8.84
Granted		902,331	$	19.37
Exercised		—	$	—
Cancelled		—	$	—
Outstanding at March 31, 2024		2,028,820	$	12.50		8.00	$	10,620
Vested and expected to vest at March 31, 2024		2,028,820	$	12.50		8.00	$	10,620
Exercisable at March 31, 2024		670,992	$	7.08		5.35	$	6,707

The per share weighted-average grant date fair value per share of options granted in the three months ended March 31, 2024 was $12.83. The total fair value of options vested during the three months ended March 31, 2024 was $0.4 million. As of March 31, 2024, total unrecognized compensation costs to the unvested stock options were approximately $12.6 million, which is expected to be recognized over a weighted-average period of 3.3 years. There were no option exercises during the three months ended March 31, 2024.

For the purpose of calculating stock-based compensation, the Company estimates the fair value of stock options using the Black-Scholes option-pricing model. This model incorporates various assumptions, including the expected volatility, expected term, and interest rates.

The underlying assumptions used to value stock options granted using the Black-Scholes option-pricing model during the three months ended March 31, 2024 and 2023 were as follows:


	Three Months Ended March 31,
	2024	2023
Risk-free interest rate range	4.24%	3.61%
Expected dividend rate	— %	— %
Expected term (years) range	5.88 - 6.11	6.02
Expected stock price volatility range	92.0% – 92.2%	88.9%

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, 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.

The Company recorded stock-based compensation expense in the following expense categories of its statements of operations (in thousands):


	Three Months Ended March 31,
	2024		2023
Research and development	$	157	$	109
General and administrative		260		187
Total stock-based compensation expense	$	417	$	296