Tectonic Therapeutic, Inc.

NATURE OF BUSINESS

Description of the Business

Tectonic Therapeutic, Inc. (formerly AVROBIO, Inc.) (the “Company” or “Tectonic”) is a clinical-stage biotechnology company focused on the discovery and development of therapeutic proteins and antibodies that modulate the activity of G-protein coupled receptors (“GPCRs”). The Company focuses on areas of significant unmet medical need, often where therapeutic options are poor or nonexistent, as these are areas where new medicines have the potential to improve patient quality of life.

Merger and Pre-Merger Financing Transaction not

On June 20, 2024, the Company completed its previously announced merger transaction in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of January 30, 2024 (the “Merger Agreement”) with AVROBIO, Inc. (“AVROBIO”), pursuant to which Alpine Merger Subsidiary, Inc., a wholly owned subsidiary of AVROBIO, merged with and into the entity formerly known as Tectonic Therapeutic, Inc., now known as Tectonic Operating Company, Inc. (“Legacy Tectonic”), with Legacy Tectonic continuing as a wholly owned subsidiary of the surviving corporation of AVROBIO (the “Merger”). The Merger was accounted for as a reverse recapitalization in accordance with generally accepted accounting principles in the United States of America (“GAAP”), with AVROBIO treated as the acquired company for financial reporting purposes, and Legacy Tectonic treated as the accounting acquirer.

Upon the closing of the Merger, each outstanding share of Legacy Tectonic’s common stock, including outstanding and unvested restricted stock, was converted into the right to receive a number of shares of AVROBIO’s common stock based on an exchange ratio of 0.53 (the “Exchange Ratio”), as defined in the Merger Agreement, after giving effect to the 1-for-12 reverse stock split of AVROBIO common stock that was effected on June 20, 2024. The exchange ratio was retroactively applied to all outstanding common shares, convertible preferred shares, stock options and restricted stock.

Each outstanding and unexercised option to purchase shares of Legacy Tectonic’s common stock immediately prior to closing was assumed by AVROBIO and was converted into an option to purchase shares of AVROBIO common stock, with necessary adjustments to the number of shares and exercise price to reflect the Exchange Ratio. Legacy Tectonic’s restricted common stock, outstanding and unvested immediately prior to the closing, was assumed by AVROBIO in the Merger.

Legacy Tectonic stockholders received 10,956,614 shares of AVROBIO common stock in connection with the Merger, including 11,447 shares of AVROBIO restricted common stock subject to vesting terms, based on the number of shares of Legacy Tectonic common stock outstanding immediately prior to the Merger, including restricted stock, the number of shares of common stock issued to investors participating in the Subscription Agreements (as defined below) and Simple Agreements for Future Equity (“SAFEs”), and Legacy Tectonic convertible preferred stock outstanding immediately prior to the Merger, which was converted into shares of Legacy Tectonic common stock on a one-for-one basis immediately prior to the closing of the Merger.

Concurrently with the closing of the Merger, certain investors of Legacy Tectonic completed the purchase of 7,790,889 shares of Legacy Tectonic common stock pursuant to the Subscription Agreement dated January 30, 2024 (the “Subscription Agreement”) at a purchase price of $12.40 per share for an aggregate purchase price of $96.6 million. Shares of Legacy Tectonic common stock issued pursuant to the Subscription Agreements were converted into 4,163,606 shares of AVROBIO common stock at the closing of the Merger based on the Exchange Ratio, pursuant to the Merger Agreement.

Risks and Uncertainties

The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the need to obtain additional financing. Product candidates currently under development will require significant additional research and development efforts, including extensive pre-clinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure, and extensive compliance reporting capabilities.

The Company’s proprietary GEODe™ platform is currently in development. There can be no assurance that current and future research and development activities will be successfully completed, that adequate protection for owned intellectual property will be obtained, that any products developed will obtain necessary government regulatory approval or that any approved products will be commercially viable. Even if product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies.

Liquidity and Capital Resources

Since inception, the Company has incurred recurring losses and negative cash flows from operations and expects such losses to continue in the future as it conducts research and development activities and continues to develop its product candidates. The Company generated net losses of$58.0 million and$42.8 million for the years ended December 31, 2024 and 2023, respectively and had an accumulated deficit of $148.6 million as of December 31, 2024. The Company has financed its operations primarily through the sale and issuance of common stock, convertible preferred stock, convertible promissory notes, SAFEs and the Merger. In February 2025, the Company sold shares of its common stock under a securities purchase agreement in exchange for gross proceeds of $185 million, as described in Note 16, Subsequent Events. The Company has devoted substantially all of its financial resources and efforts to business planning, conducting research and development, recruiting management and technical staff, and raising capital.

As the Company continues to develop its proprietary platform and potential product candidates, it will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. It may never achieve profitability, and unless and until it does, it will continue to need to raise additional capital to fund its operations. The Company had cash and cash equivalents of$141.2 million as of December 31, 2024. Management believes that the Company’s current cash and cash equivalents will be sufficient to fund its planned operations for at least 12 months from the issuance date of these consolidated financial statements.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with GAAP. Any reference in these notes to applicable guidance is meant to refer to GAAP, as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Reverse Stock Split and Exchange Ratio

Upon the closing of the Merger, each outstanding share of Legacy Tectonic’s common stock, including outstanding and unvested restricted stock, was converted into the right to receive a number of shares of AVROBIO’s common stock based on the Exchange Ratio of 0.53, after giving effect to the 1-for-12 reverse stock split of AVROBIO common stock that was effected on June 20, 2024. The exchange ratio was retroactively applied to all outstanding common shares, convertible preferred shares, stock options and restricted stock.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of expenses during the reporting periods. Significant items subject to such estimates and assumptions include those related to the valuation of stock-based awards, income taxes, the fair value determination of the SAFEs and certain research and development accruals. Management’s estimates are based on historical experience and various other assumptions that it believes are reasonable under the circumstances. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.

Foreign Currency

The operations of each of the Company’s entities are measured using the currency of the primary economic environment in which the subsidiary operates (“functional currency”). Assets and liabilities of foreign subsidiaries whose functional currency is the local currency are translated into U.S. dollars using period-end exchange rates. Expenses are translated at the average exchange rate in effect during each fiscal month during the year. The effects of foreign currency translation adjustments are included as a component of Accumulated other comprehensive income (loss) in the Consolidated Balance Sheets.

Segment Information

Operating segments are identified as components of an enterprise about which separate discrete financial information is made available for evaluation by the chief operating decision maker (“CODM”) in making decisions regarding resource allocation and assessing performance. The Company’s CODM is its chief executive officer, who reviews financial information on a consolidated basis for the purpose of making operating decisions, assessing financial performance and allocating resources. The Company has one reportable segment and manages its operations on a consolidated basis for the purposes of assessing performance and making operating decisions. See Note 16, Segment Information for additional information regarding the Company’s segment information.

Cash, Cash Equivalents, and Restricted Cash

The Company considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents. As of December 31, 2024 and 2023, cash equivalents consisted of cash on deposit with banks denominated in U.S. dollars and investment in money market funds.

The Company classifies all cash whose use is limited by contractual provisions as restricted cash. Restricted cash arises from the requirement for the Company to maintain cash of $0.6 million as collateral in connection with a letter of credit issued with the corporate headquarters and lab space lease agreement entered into on November 19, 2020. The Company may not access these funds until after the expiration of the lease term on January 31, 2026. The Company has classified the certificate of deposits collateralizing the letter of credits issued as a security deposit as restricted cash in the noncurrent asset section of the Consolidated Balance Sheets.

Concentrations of Credit Risk and Off-Balance Sheet Risk

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents. Periodically, the Company maintains deposits in accredited financial institutions in excess of governmental insured limits. The Company deposits its cash and cash equivalents in financial institutions that it believes have a high credit quality and have not experienced any losses on such accounts and does not believe it is exposed to any unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful life of each asset, generally three tofive years. Leasehold improvements are amortized over the shorter of the assets’ expected useful life or theremaining lease term. Construction-in-progress reflects amounts incurred for property and equipment for use in the research and development process and have not yet been placed in service and are not depreciated or amortized. Expenditures for major renewals and improvements that extend the useful life of the asset are capitalized as part of the asset. Expenditures for repairs and maintenance are expensed as incurred.

Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized.

Impairment of Long-Lived Assets

The Company evaluates its long-lived assets, which consist primarily of property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the carrying amount of the asset is not recoverable, an impairment will be recognized and measured as the amount by which the carrying amount of the asset exceeds its fair value. No impairment was identified during the years ended December 31, 2024 and 2023.

Fair Value Measurements

The Company assesses the fair value of financial instruments as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows:

Level 1—Unadjusted quoted prices in active markets for identical, unrestricted assets or liabilities that are accessible at the measurement date;

Level 2—Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar asset or liabilities in markets that are not active or valuations with significant inputs other than quoted prices that are observable, either directly or indirectly; and,

Level 3—Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

Financial instruments are categorized in their entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire fair value measurement.

Research and development costs are expensed as incurred. Research and development expenses consist primarily of costs incurred for research activities, including discovery efforts and the development of the Company’s programs and platform and include (1) expenses incurred in connection with research and the preclinical and clinical development of the Company’s programs and product candidates, including agreements with third parties and contract research organizations (“CROs”), (2) costs related to manufacturing material for preclinical studies and clinical trials, including fees paid to contract development and manufacturing organizations (“CDMOs”), (3) employee-related expenses, including salaries and bonuses, related benefits and stock-based compensation expense, for employees engaged in research and development functions (4) facilities, depreciation and other expenses related to research and development activities, which include direct or allocated expenses for rent, maintenance of facilities and utilities, (5) licensing and license maintenance fees incurred under license agreements where no alternative future use exists, and (6) costs related to compliance with regulatory requirements.

The Company’s accruals for research and development activities performed by third parties are estimated based on the level of services performed, progress of the studies, including the phase or completion of events, and contracted costs. The estimated costs of research and development provided, but not yet invoiced, are included in accrued expenses and other current liabilities on the Consolidated Balance Sheets. If the actual timing of the performance of services or the level of effort varies from the original estimates, the Company will adjust the accruals accordingly. These vendors generally bill monthly for services performed, or bill based upon milestone achievement. The Company accrues expenses based upon estimates of percentage of work completed and the contract milestones remaining. Payments made to third parties under these arrangements in advance of the performance of the related services by the third parties are recorded as prepaid expenses until the services are rendered. The Company estimates the period over which such services will be performed based on the terms of the agreements as well as the level of effort to be expended in each period.

Leases

The Company accounts for leases in accordance with ASC Topic 842, Leases("ASC 842"). The Company determines if an arrangement is or contains a lease and the classification of that lease at inception of the contract. The Company’s operating and finance lease assets are included in right-of-use assets, net, and the current and non-current portions of the finance and operating lease liabilities are included in lease liabilities, and lease liabilities, non-current, respectively, on the balance sheets. Right-of-use assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the lease commencement date. Right-of-use assets are based on the corresponding lease liability adjusted for (i) payments made at or before the commencement date, (ii) initial direct costs incurred, and (iii) tenant incentives under the lease. The Company does not account for renewals or early terminations unless it is reasonably certain to exercise these options at commencement. Operating lease expense is recognized on a straight-line basis over the lease term. For finance leases, right of use assets are amortized on a straight-line basis over the shorter of the lease term or the estimated useful life of the leased assets. The Company accounts for lease and non-lease components as a single lease component for operating leases. The discount rate used to calculate the present value of the Company's lease liabilities is based on either an explicit rate stipulated in the contract for finance leases or the incremental borrowing rate based on the information available at the lease commencement date. The Company’s incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, in an economic environment where the leased asset is located. The Company determines the incremental borrowing rate by considering various factors, such as its credit rating, interest rates of similar debt instruments of entities with comparable credit ratings, the lease term and the currency in which the lease was denominated. The Company has elected the practical expedient to not recognize leases with a lease term of twelve months or less on the balance sheet (“short-term leases”) and will recognize lease payments for such short-term leases as an expense on a straight-line basis.

Simple Agreements for Future Equity

SAFE instruments do not represent legal form debt (i.e., no creditor rights), but allow for redemption based upon certain triggering events that are outside of the control of the Company. The Company accounts for the SAFE instruments as a liability at fair value on a recurring basis. Triggering events include an equity financing, public listing transaction, change of control or dissolution. Changes in the liability’s fair value are recognized in the Company’s statements of operations and comprehensive loss. The SAFE liabilities were adjusted to fair value upon the closing of the Merger and all SAFE instruments were converted to common stock of AVROBIO pursuant to the Merger Agreement. The SAFEs were redeemed for common stock shares upon closing of the Merger.

Convertible Preferred Stock

The Company recorded all shares of convertible preferred stock at their respective fair values on the dates of issuance, net of issuance costs. Convertible preferred stock was recorded outside of permanent equity because while it was not mandatorily redeemable, in certain events considered not solely within the Company’s control, such as a merger, acquisition, or sale of all or substantially all of the Company’s assets (each, a “deemed liquidation event”), the convertible preferred stock became redeemable at the option of the holders of at least a majority of the then outstanding preferred shares. The Company did not adjust the carrying value of the convertible preferred stock to its liquidation preference because a deemed liquidation event obligating the Company topay the liquidation preference to holders of shares of convertible preferred stock was not probable of occurring. All outstanding shares of convertible preferred stock were converted to common stock shares upon the closing of the Merger.

Stock-Based Compensation

Prior to being publicly traded, the fair value of the Company’s common stock underlying the stock options was determined by the Board of Directors with assistance from management and, in part, on input from an independent third-party valuation firm. The Board of Directors determined the fair value of common stock by considering a number of objective and subjective factors, including valuations of comparable companies, sales of convertible preferred stock, operating and financial performance, the lack of liquidity of the Company’s common stock and the general and industry-specific economic outlook. Subsequent to the Merger, the fair value of the Company’s common stock is based on the closing quoted market price of its common stock as reported by the NASDAQ Select Market on the date of grant.

The Company utilizes the Black-Scholes-Merton (“BSM”) option pricing model to determine the estimated fair value of options granted to employees and non-employees, including directors. In addition to the fair value of the Company’s common stock, the BSM mode requires the input of several assumptions. These assumptions include:

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Expected Term—The expected life represents the period of time that the stock options are expected to be outstanding. Because the Company does not have substantial historical exercise behavior, it determines the expected term in accordance with the simplified method, which is an average of the contractual term of the stock option and its vesting period.

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Expected Volatility— The estimated volatility is determined by evaluating the average historical volatility of a peer group of companies for the period preceding the stock option grant for a term that is approximately equal to the stock options’ expected term.

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Risk-Free Interest Rate—The risk-free interest rate is based on the implied yield currently available on U.S. Treasury issues with a term that is equal to the stock options’ expected term at the grant date.

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Expected Dividend—The expected dividend yield is assumed to be zero as the Company has not declared or paid dividends to date and does not anticipate declaring dividends for the foreseeable future.

Restricted stock units (RSUs) are measured and recognized over the vesting period and are based on the quoted market price of the Company's stock on the grant date.

All stock-based compensation expense is recorded in research and development expense or general and administrative expense in the Consolidated Statements of Operations and Comprehensive Loss, on the basis of the respective employee and nonemployee’s role within the Company.

Income Taxes

The Company accounts for income taxes under the asset and liability method in accordance with ASC Topic 740, Income Taxes(“ASC 740”), which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, the Company determined deferred tax assets and liabilities on the basis of the differences between the consolidated financial statements and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, it would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

Net Loss per Share

Basic and diluted net loss per common share is presented in conformity with ASC 260, Earning Per Share, for all periods presented. In accordance with this guidance, basic and diluted net loss per common share is determined by dividing the net loss by the weighted-average number of common shares outstanding during the period. Basic net loss and diluted net loss per share are calculated without consideration of potentially dilutive securities.

Related Party Transactions

The Company applies ASC 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions.

Comprehensive Loss

Comprehensive loss includes net loss as well as other changes in stockholders’ equity (deficit) that result from transactions and economic events other than those with stockholders. The comprehensive loss for the Company equals its net loss plus changes in foreign currency translation for all periods presented.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB under its ASCs or other standard setting bodies and adopted by the Company as of the specified effective date, unless otherwise discussed below.

Recently Issued Accounting Pronouncements Not Yet Adopted

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740) (“ASU 2023-09”), which enhances the income tax disclosure requirements for public entities on an annual basis. Under ASU 2023-09, public entities will be required to disclose in their rate reconciliation, on an annual basis, both percentages and amounts in their reporting currency for certain categories in a tabular format, with accompanying qualitative disclosures. The amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2024, and early adoption is permitted. The Company is currently evaluating the impact of ASU 2023-09 on its consolidated financial statements.

In November 2024, the FASB issued ASU No. 2024-03 Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40) (“ASU 2024-03”), which requires disaggregated disclosure of certain income statement captions within the footnotes to the financial statements. The amendments in ASU 2024-03 are effective for fiscal years beginning after December 15, 2026, and early adoption is permitted. The Company is currently evaluating the impact of ASU 2023-09 on its consolidated financial statements.

Merger

As described in Note 1, Nature of the Business, the Company completed its Merger with AVROBIO on June 20, 2024. The Merger was accounted for as a reverse recapitalization in accordance with GAAP with Legacy Tectonic as the accounting acquirer of AVROBIO. At the effective time of the Merger, substantially all the assets of AVROBIO consisted of cash and cash equivalents, as well as other nominal assets. Under such reverse recapitalization accounting, the assets and liabilities of AVROBIO were recorded at their fair value at the effective time of the Merger, which approximated book value due to the short-term nature. No goodwill or intangible assets were recognized. Consequently, the consolidated financial statements of the Company reflect the historical operations of Legacy Tectonic for accounting purposes together with the issuance of shares to the former shareholders of AVROBIO, the legal acquirer, and a recapitalization of the equity of Legacy Tectonic, the accounting acquirer. The exchange ratio was retroactively applied to all outstanding common shares, convertible preferred shares, stock options and restricted stock of Legacy Tectonic.

As part of the recapitalization, Legacy Tectonic recognized the assets and liabilities listed below:

The Company incurred transaction costs of $9.3 million whichwas recorded as a reduction to additional paid-in capital in the Consolidated Balance Sheet.

FAIR VALUE MEASUREMENTS

The following tables present information about financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values (in thousands):

Money market funds are included in cash and cash equivalents on the Company’s Consolidated Balance Sheets and are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices.

There wereno transfers between the Level 1, Level 2 or Level 3 categories during the years ended December 31, 2024 and 2023.

SAFE Liabilities

From October through December 2023, Legacy Tectonic entered into multiple SAFE agreements with certain existing investors and received proceeds of $34.1 million. Prior to redemption, the SAFE liabilities were valued using a probability weighted scenario analysis and discount rates derived by application of the build-up method to reflect the cost of equity. The valuation model required a variety of inputs, including the probability of occurrence of events that would trigger conversion or redemption of the SAFEs, the expected timing of such events, and a discount rate.

Upon the closing of the Merger, the principal balance of the SAFE instruments was automatically redeemed for 2,752,216 shares of Legacy Tectonic common stock at the conversion price of $12.40 per share immediately prior to the Merger closing. As such the valuation inputs utilized to adjust the SAFE liability to fair value upon the closing of the Merger was $12.40. At closing, shares of Legacy Tectonic common stock issued pursuant to the redemption of Legacy Tectonic SAFEs were converted into 1,470,839 shares of AVROBIO common stock based on the Exchange Ratio, pursuant to the Merger Agreement.

The following table presents activity for the SAFE liabilities that were measured at fair value using significant unobservable Level 3 inputs during the years ended December 31, 2024 and 2023 (in thousands):

5. PROPERTY and EQUIPMENT, NET

Property and equipment, net is comprised of the following (in thousands):

Depreciation expense was $1.2 million and $1.0 million for the years ended December 31, 2024 and 2023, respectively, and is primarily attributable to research and development activities.

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities is comprised of the following (in thousands):

STOCKHOLDERS’ EQUITY

Common Stock

As of December 31, 2023, the Company’s amended and restated certificate of incorporation authorized the Company to issue up to 11,947,558 shares of $0.0001 par value common stock, of which,2,634,246 shares were issued and outstanding. Voting, dividend and liquidation rights of the holders of common stock were subject to and qualified by the rights, powers and preferences of the holders of the Preferred Stock. Holders of common stock were entitled to one vote for each share of common stock; however, the holders of the common stock were not entitled to vote on any amendment to theamended and restated certificate of incorporation that related solely to the terms of one or more outstanding series of preferred stock. The Company had included in issued and outstanding common stock shares of restricted common stock granted by the Company. As of December 31, 2023, there were 2,634,246 common shares issued and outstanding, of which 2,598,752 relate to shares of unrestricted common stock.

The Company amended and restated its certificate of incorporation, effective June 20, 2024, in connection with the Merger. The Company is authorized to issue 150,000,000 shares of common stock at a par value of $0.0001. Holders of voting common stock are entitled to one vote per share. In addition, holders of voting common stock are entitled to receive dividends, if and when declared by the Company’s Board of Directors. As of December 31, 2024, no dividends had been declared.

The Company reserved common stock for future issuance as follows:

Convertible Preferred Stock

Prior to the conversion upon the closing of the Merger, Legacy Tectonic issued Series A-1, A-2, A-3 and A-4 convertible preferred stock (the “Convertible Preferred Stock”). Upon the closing of the Merger, all outstanding shares of the Convertible Preferred Stock were converted into 3,647,675 shares of common stock. No shares of Convertible Preferred Stock are authorized for issuance as of December 31, 2024.

Preferred Stock

Subsequent to the Merger, the Company authorized the issuance of 10,000,000 shares of undesignated preferred stock, howeverno such shares were issued or outstanding as of December 31, 2024.

Changes in Capital Structure

Upon the closing of the Merger, all outstanding shares of convertible preferred stock were converted into an aggregate of 3,647,675 shares of the Company’s common stock and $80.6 million of mezzanine equity was reclassified to common stock and additional paid-in capital. As of December 31, 2024, there wereno shares of convertible preferred stock issued or outstanding.

Upon the closing of the Merger, the principal balance of the SAFE instruments was automatically redeemed for 2,752,216 shares of Legacy Tectonic common stock at the conversion price of $12.40 per share immediately prior to the Merger closing. At closing, shares of Legacy Tectonic common stock issued pursuant to the redemption of Legacy Tectonic SAFEs were converted into 1,470,839 shares of common stock based on the Exchange Ratio, pursuant to the Merger Agreement.

Concurrently with the closing of the Merger, on June 20, 2024, certain investors completed the purchase of shares of Legacy Tectonic common stock pursuant to the Subscription Agreement at a price of $12.40 per share for an aggregate purchase price of $96.6 million. The shares of Legacy Tectonic common stock that were issued pursuant to the Subscription Agreement were converted into 4,163,606 shares of common stock upon the closing of the Merger based on the exchange ratio, pursuant to the Merger Agreement.

EQUITY INCENTIVE PLANS

2019 Equity Incentive Plan

The Legacy Tectonic 2019 Equity Incentive Plan (the “2019 Plan”) provides employees, consultants and advisors and non-employee members of the Board of Directors with the opportunity to receive grants of stock options, stock awards and equity awards. Following the effectiveness of the 2024 Equity Incentive Plan (the “2024 Plan”) as described below, no further grants will be made under the 2019 Plan; however, any outstanding equity awards granted under the 2019 Plan will continue to be governed by the terms of the 2019 Plan.

2024 Equity Incentive Plan

On June 20, 2024, the Company adopted the 2024 Equity Incentive Plan (the “2024 Plan”) which became effective upon completion of the Merger. The 2024 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards and other forms of awards to employees, consultants, and non-employee directors of the Company.

The 2024 Plan initially provided for the issuance of up to 1,938,799 shares of common stock (the “Initial Share Reserve”). Subject to any other adjustments as defined in the 2024 Plan, such aggregate number of shares of common stock will automatically increase on January 1st of each year for a period of ten years commencing on January 1, 2025 and ending on (and including) January 1, 2034, in an amount equal to 5% of the total number of shares of common stock issued and outstanding determined as of the day prior to such increase; provided, however that the Board of Directors may act prior to January 1st of a given year to provide that the increase for such year will be a lesser number of shares of common stock. The maximum number of shares of common stock that may be issued under the 2024 Plan pursuant to the exercise of incentive stock options shall not exceed three times the Initial Share Reserve.

2024 Employee Stock Purchase Plan

On June 20, 2024, the Company adopted the 2024 Employee Stock Purchase Plan (the “2024 ESPP”), which became effective upon completion of the Merger. The maximum number of shares of common stock that may be issued under the 2024 ESPP will not exceed 147,343 shares (the “Initial ESPP Share Reserve”), plus the number of shares of common stock that are automatically added on January 1st of each year for a period of up to ten years commencing on January 1, 2025 and ending on (and including) January 1, 2034, in an amount equal to the lesser of (x) 1% of the total number of shares of common stock issued and outstanding determined as of the day prior to such increase and (y) a number of shares equal to three times the Initial ESPP Share Reserve. Notwithstanding the foregoing, the Board of Directors may act prior to the first day of any calendar year to provide that there will be no January 1st increase in the share reserve for such calendar year or that the increase in the share reserve for such calendar year will be a lesser number of shares of common stock than would otherwise occur pursuant to the preceding sentence. No offering periods under the 2024 ESPP had been initiated as of December 31, 2024.

The equity activity below reflects the reverse stock split and retroactive application of the exchange ratio as discussed in Note 1, Nature of Business.

Stock Options

The following table summarizes the stock option activity under the 2019 Plan and 2024 Plan during the year ended December 31, 2024 (in thousands except share, contractual term and per share amounts):

The following table summarizes the stock option activity for the options that were assumed from AVROBIO upon the Merger closing during the year ended December 31, 2024 (in thousands except share, contractual term and per share amounts):

During the years ended December 31, 2024 and 2023, the Company granted options with a weighted-average grant-date fair value of$14.90 and$4.04 per share, respectively. The fair value of options that vested during the years ended December 31, 2024 and 2023 was$1.6 million and$1.1 million, respectively. As of December 31, 2024, the total unrecognized stock-based compensation expense for stock options was$13.3 million, which is expected to be recognized over a weighted-average period of 3.3 years.

The table below discloses assumptions for the fair value of options granted:

Restricted Stock Units

Restricted stock units (RSUs) are granted to certain employees. The value of an RSU award is based on the Company's stock price on the date of the grant. The shares underlying the RSUs are not issued until the RSUs vest. Activity with respect to the Company's restricted stock units during the year ended December 31, 2024 was as follows (in thousands, except share, contractual term, and per share data):

As of December 31, 2024, the total unrecognized stock-based compensation expense for RSUs was $1.1 million, which is expected to be recognized over a weighted average period of 3.2 years.

Restricted Common Stock

Legacy Tectonic granted restricted common stock to founders, employees and consultants. The purchase price of the restricted common stock is the estimated fair value on the grant date and the restricted stock is subject to various vesting schedules. Unvested restricted common stock is subject to repurchase rights held by the Company at the original issuance price in the event the restricted common stockholders’ service to the Company is terminated either voluntarily or involuntarily.

The following table summarizes restricted common stock activity during the year ended December 31, 2024:

The weighted-average grant date fair value and the weighted average value of the vested restricted common stock for the years ended December 31, 2024 and 2023 were immaterial.

Stock-Based Compensation Expense

The following table is a summary of stock-based compensation expense by function recognized (in thousands):

Modification of Certain Stock Options

In July 2024, the Company entered into a separation agreement with the Company’s Chief Operating Officer (the “Former Executive”). As part of the termination of employment, the Former Executive will serve as an advisor to the Company through March 31, 2025 (“Consulting Period”) on an as needed basis. Pursuant to the separation agreement, certain modifications to the Former Executive’s vested and non-vested stock option awards were executed including continued vesting of options during the Consulting Period and the extension of the post-termination exercise period of certain stock option awards. The services performed during the Consulting Period do not qualify as substantive services under ASC 718, Compensation—Stock Compensation; therefore, the continued vesting of these awards represents a modification to the original award. During the year ended December 31, 2024, the Company recorded stock compensation expense of $0.4 million for the modification of the stock options of the Former Executive. This amount is included in general and administrative expenses on the consolidated statement of operations and comprehensive loss.

Net loss per share

The following table sets forth the computation of basic and diluted net loss per share (in thousands, except share and per share data):

The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share for the periods presented because including them would have been antidilutive:

Leases

In November 2020, Legacy Tectonic executed a facilities lease agreement to occupy 18,768 square feet of office and laboratory space, that was subsequently amended on April 21, 2022. The lease requires the Company to pay fixed base rent, which is included in the measurement of the lease, as well as its proportionate share of the facilities operating expenses which are treated as variable lease costs based on the Company’s election to combine lease and associated non-lease components and are excluded from the measurement of the lease. The lease expires on January 31, 2026, and contains afive-year renewal option exercisable by the Company which is not included in the measurement of the lease.

Legacy Tectonic has also entered into various financing leases for laboratory equipment used in research and development activities.

The components of lease expense and other information are as follows (dollars in thousands):

Future commitments due under these lease agreements as of December 31, 2024 are as follows (in thousands):

License agreements

Harvard Agreement

In July 2020, Legacy Tectonic entered into an agreement with the President and Fellows of Harvard College (“Harvard”), for an option fee in the low five digits, whereby Harvard granted Legacy Tectonic an exclusive option to negotiate a worldwide, exclusive, royalty-bearing license under Harvard’s interest in the patent rights covering certain technology that was developed by Harvard. In October 2021, Legacy Tectonic exercised the option and on February 10, 2022, entered into a license agreement (“License Agreement”) with Harvard to conduct research and development activities using certain materials, technology and patent rights owned by Harvard, with the intent to develop, obtain regulatory approval for, and commercialize products. The License Agreement will remain in effect until the expiration of the last valid claim within the patent rights covering a product developed under the License Agreement or the termination of the License Agreement. As consideration for the License Agreement, the Company paid Harvard a one-time license fee of $170,000 and issued 227,486 shares of common stock with a fair market value of $0.4 million.

The Company is responsible for payment of(1) annual maintenance fees ranging from the low five digits to the low six digits during the term of the License Agreement (through the first commercial sale of a royalty-bearing product); (2) royalty payments as a percentage in the low single digits of the annual net sales that the Company generates from products that utilize the license technology (“Licensed Products”) and royalty payments as a percentage in the low single digits of the annual net sales that the Company generates from know-how enabled product licenses (“Know-How Enabled Products”) and (3) a percentage between 10-20% of all non-royalty income received by the Company under sublicenses, strategic partnerships and know-how enabled product licenses that utilize the license technology. Subsequent to the first commercial sale of a royalty-bearing product, annual maintenance fees will increase to a low six digits for the remainder of the term of the License Agreement. The royalty term from sales of Licensed Products will terminate on a country-by-country and product-by-product basis on the earlier of (i) the expiration of the patent rights covering the product, expected to be no earlier than May 2041, and (ii) the termination of the License Agreement. The royalty term from sales of Know-How Enabled Products will terminate on the earlier of (i) ten years after the first commercial sale of the first Know-How Enabled Product and (ii) twelve years after the first commercial sale of the first Licensed Product. The Company incurred expense of $0.4 million and $0.2 million related to the License Agreement during the years ended December 31, 2024 and 2023, respectively. No amounts were due to Harvard related to the License Agreement as of December 31, 2024 and 2023, respectively.

COMMITMENTS AND CONTINGENCIES

Commitments

The Company enters into contractual agreements with various suppliers in the normal course of its business. All contracts are terminable, with varying provisions regarding termination. If a contract with a specific vendor were to be terminated, the Company would only be obligated for the products or services that the Company had received through the time of termination.

The Company is also party to commitments, which are described elsewhere in these consolidated financial statements: Lease commitments, as described in Note 10, Leases, and royalty and maintenance based commitments, as described in Note 11, License Agreements.

Contingencies

Inconnection with the Merger, the Company and its designated rights agent entered into a contingent value rights agreement (the “CVR Agreement”). Pursuant to the CVR Agreement, each holder of AVROBIO common stock immediately prior to the closing received a contractual contingent value right (“CVR”) subject to and in accordance with the terms and conditions of the CVR Agreement, representing the contractual right to receive a pro rata portion of any net proceeds, if any, resulting from a disposition ofcertain AVROBIO intellectual property (including a license of AVROBIO’s pre-closing assets as defined in the CVR Agreement) after the closing and prior to the 18-month anniversary of the closing, received within a 10-year period following the closing; provided thatno contingent payment will be payable to any holder of the CVRs until such time as the then-outstanding and undistributed proceeds exceeds $0.4 million in the aggregate. The Company believes that any receipt of payments resulting from the disposition of AVROBIO’s pre-closing assets described in the CVR Agreement are highly susceptible to factors outside the Company’s influence that are not expected to be resolved within the timeline outlined in the CVR Agreement, if at all. In particular, these amounts are primarily influenced by the actions and judgments of third parties and the buyers of such assets and are based on the buyers of such assets progressing the specific platform and intellectual property and early stage of research and development programs. If the Company were to record a receivable for such contingent payments, it would also record a corresponding liability. As of December 31, 2024, no receivables or liabilities were recorded on the Consolidated Balance Sheet relating to such contingent payments.

From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made and that such expenditures can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. There are no matters pending that the Company currently believes are reasonably possible or probable of having a material impact to the Company's financial position, results of operations, or statements of cash flows.

In the normal course of operations, the Company may become involved in various legal proceedings. As of December 31, 2024 and 2023, the Company has not recorded accruals for probable losses related to any existing or pending litigation as the Company’s management has determined that there are no matters where a potential loss is probable and reasonably estimable. The Company does not believe that any existing or pending claims would have a material impact on the Company’s consolidated financial statements.

INCOME TAXES

The Company didnot record a federal or state income tax provision or benefit for the years ended December 31, 2024 and 2023, as it has been incurring net losses since inception. In addition, the net deferred tax assets generated from net operating losses are fully offset by a valuation allowance as the Company believes it is not more likely than not that the benefit will be realized.

Income tax expense consists of the following (in thousands):

The Company had an effective tax rate of 0% for the years ended December 31, 2024 and 2023. The provision for income taxes differs from the amount expected by applying the federal statutory rate to the loss before taxes as follows:

The components of the Company’s net deferred tax assets and liabilities as of December 31, 2024 and 2023, were as follows (in thousands):

Deferred Tax Assets and Valuation Allowance

Future realization of the tax benefits of existing temporary differences and net operating loss carryforwards ultimately depends on the existence of sufficient taxable income within the carryforward period. As of December 31, 2024 and 2023, the Company performed an evaluation to determine whether a valuation allowance was needed. The Company considered all available evidence, both positive and negative, which included the results of operations for the current and preceding years. The Company determined that it was not possible to reasonably quantify future taxable income and determined that it is more likely than not that all of the deferred tax assets will not be realized. Accordingly, the Company maintained a full valuation allowance as of December 31, 2024 and 2023. The Company’s valuation allowance increased during the year by $140.0 million for the year ended December 31, 2024 due primarily to the generation of net operating losses.

NOL Carryforwards

Net operating loss carryforwards are subject to review and possible adjustment by the Internal Revenue Service and may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50% as defined under Sections 382 and 383 in the Code, which could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on AVROBIO’s value immediately prior to the ownership change multiplied by the long-term tax exempt rate which is published monthly. Subsequent ownership changes may further affect the limitation in future years. The Company has not yet conducted a Section 382 study to assess whether the Reverse Merger resulted in an ownership change under Section 382 that could limit the ability to use the net operating loss carryforwards of AVROBIO and Tectonic. Nor has the Company completed a Section 382 study to assess whether an ownership change or changes has/have occurred related to Tectonic Therapeutic’s pre-merger activity. However, the Reverse Merger is expected to result in an ownership change for AVROBIO. Therefore, the Company does not expect to be able to utilize a material portion, if any, of the historic net operating losses and tax credit carryforwards from AVROBIO. The impact of this would not materially impact the financial statements, given the full valuation allowance.

As of December 31, 2024, the Company has net operating loss carryforwards for federal and state tax reporting purposes of $399.3 million and $71.9 million, respectively. Net operating loss carryforwards generated after December 31, 2017 for federal tax reporting purposes of $399.3 million have an indefinite life. Net operating loss carryforwards for state purposes of $71.9 million, which begin to expire in 2040. As of December 31, 2024, the Company also has federal and state research and development tax credits of $10.5 million and $4.4 million, which being to expire in 2040 and 2035, respectively.

The Tax Cuts and Jobs Act (TCJA) resulted in significant changes to the treatment of research and development expenditures under Section 174. For tax years beginning after December 31, 2021, taxpayers are required to capitalize and amortize all research and development expenditures that are paid or incurred in connection with their trade or business. Specifically, costs for U.S.-based R&D activities must be amortized over five yearsand costs for foreign research and development activities must be amortized over 15 years—both using a midyear convention. During the year ended December 31, 2024, the Company capitalized $40.3 million of research and development expenses.

Uncertain Tax Position

The Company evaluates its uncertain tax positions under ASC 740 which requires that realization of an uncertain income tax position be recognized. The benefit to be recorded is the amount most likely to be realized assuming a review by tax authorities having all relevant information and applying current conventions. The Company concluded that there are no uncertain tax positions in any of the periods presented.

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. The earliest tax years that remain subject to examination by jurisdiction is 2020 for both federal and state. However, to the extent the Company utilizes net operating losses from years prior to 2020, the statute remains open to the extent of the net operating losses or other credits are utilized.

RELATED PARTY TRANSACTIONS

Scientific Advisory Board Member

One of the Company’s co-founders and former director is a member of the Company’s Scientific Advisory Board (“SAB”) and meets the criteria of a related party. For each of the years ended December 31, 2024 and 2023, the Company incurred expense of $0.1 million for advisory services provided. There wereno amounts due to this related party as of December 31, 2024 or 2023.

License Agreement

Harvard meets the criteria of a related party resulting from the Company’s co-founders’ employment as professors in the Harvard Department of Molecular Pharmacology. Core intellectual property utilized by the Company is licensed from Harvard under the License Agreement described in Note 11, License Agreements.

The Company incurred expense of $0.4 million and $0.2 million related to the License Agreement during the years ended December 31, 2024 and 2023, respectively. No amounts were due to Harvard related to the License Agreement as of December 31, 2024 and 2023.

Adimab Agreement

One member of the Company’s Board of Directors also services on the board of Adimab, LLC (“Adimab”), an antibody discovery company. In May 2023, Legacy Tectonic entered into a discovery agreement with Adimab whereby Legacy Tectonic and Adimab collaborated on human antibody discovery in accordance with an agreed upon research program. The Company incurred expense of $0.2 million during each of the years ended December 31, 2024 and 2023. The Company terminated the agreement with Adimab in July 2024.

SAFE Agreements

From October through December 2023, Legacy Tectonic entered into multiple SAFE agreements with certain existing investors and received proceeds of $34.1 million. All investors were considered related parties of the Company. The SAFE agreements had no maturity date, bore no interest, and were redeemable by Legacy Tectonic upon the occurrence of a triggering event, including the Merger which qualified as a public listing transaction under the SAFE agreements. The SAFEs were redeemed for shares of Legacy Tectonic common stock in connection with the closing of the Merger.

EMPLOYEE BENEFIT PLAN

The Company has a 401(k) retirement plan (the “Plan”) that covers eligible U.S. employees. Eligible employees may elect to contribute up to the maximum limits, as set by the Internal Revenue Service, of their eligible compensation. The Company’s funding policy is to contribute 3% (“Nonelective Contribution”) of employees’ eligible pay to the Plan. As defined by the Plan, highly compensated employees are not eligible to receive the Nonelective Contribution. The Company contributed $0.2 million to the Plan in each of the years ended December 31, 2024 and 2023.

SEGMENT INFORMATION

We operate inone operating segment, and thereforeone reportable segment, focused on the discovery and development of therapeutic proteins and antibodies that modulate the activity of GPCRs. The accounting policies of the segment are the same as those described in the summary of significant accounting policies.

The determination of a single segment is consistent with the consolidated financial information regularly reviewed by the Chief Executive Officer as chief operating decision maker (“CODM”) in evaluating financial performance and deciding how to allocate resources on a consolidated basis. The significant expense categories outlined below align with the segment-level information that is regularly provided to the CODM. When evaluating the Company’s financial performance, the CODM reviews one measure of profitability, net loss, and makes decisions using this information.

No segment asset information is provided below as the CODM is focused on how expenses impact ending cash by period and overall cash runway. Any review of segment assets, which would focus on cash and cash equivalents, would be at the same level as the consolidated balance sheet.

The following table presents the segment net loss and significant segment expenses for the years ended December 31, 2024, and 2023 (in thousands):

1 Other segment expenses include stock-based compensation, depreciation and amortization, changes in the fair value of the SAFE liabilities, loss on the issuance of SAFEs, interest income, and interest expense.

SUBSEQUENT EVENTS

In February 2025, the Company entered into a securities purchase agreement pursuant to which the Company issued an aggregate of 3,689,465 shares of common stock, at a price of $50.00 per share to fund investors and $54.14 per share to individual investors that are either an officer or director of the Company, in exchange for aggregate consideration of approximately $185.0 million.