FREQUENCY THERAP(FREQ) - 2023 Q3 - Quarterly Report

FORM 10-Q FORWARD-LOOKING STATEMENTS This section cautions that the report contains forward-looking statements, subject to risks and uncertainties, especially regarding the proposed merger with Korro Bio, Inc - Forward-looking statements are covered by safe harbor provisions of the Securities Act of 1933 and Securities Exchange Act of 1934[8] - Key forward-looking topics include the merger with Korro Bio, future funding needs, expenses, and business strategy[8] - Actual results may differ materially due to known and unknown risks and uncertainties, including those detailed in 'Risk Factors' and 'Management's Discussion and Analysis of Financial Condition and Results of Operations'[9] PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements (Unaudited) Presents unaudited consolidated financial statements for September 30, 2023, including balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, with explanatory notes Consolidated Balance Sheets Consolidated Balance Sheets (September 30, 2023 vs. December 31, 2022) | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :----------------------------- | :-------------------------- | :-------------------------- | | Cash and cash equivalents | $41,723 | $51,954 | | Short-term marketable securities | $— | $31,143 | | Prepaid expenses and other current assets | $423 | $4,396 | | Assets held for sale | $354 | $— | | Total current assets | $42,500 | $87,493 | | Property and equipment, net | $543 | $2,739 | | Right of use assets | $1,339 | $28,980 | | Restricted cash | $1,967 | $1,699 | | Other long-term assets | $— | $327 | | Total assets | $46,349 | $121,238 | | Accounts payable | $338 | $3,114 | | Accrued expenses | $7,847 | $5,891 | | Lease liabilities, current portion | $1,427 | $2,021 | | Term loan, current portion | $— | $10,000 | | Total current liabilities | $9,612 | $21,026 | | Lease liabilities, net of current portion | $— | $26,761 | | Term loan, net of current portion | $— | $4,167 | | Other long-term liabilities | $— | $89 | | Total liabilities | $9,612 | $52,043 | | Common stock | $37 | $35 | | Additional paid-in capital | $340,308 | $331,023 | | Accumulated other comprehensive gain (loss) | $10 | $(198) | | Accumulated deficit | $(303,618) | $(261,665) | | Total stockholders' equity | $36,737 | $69,195 | | Total liabilities and stockholders' equity | $46,349 | $121,238 | Consolidated Statements of Operations Consolidated Statements of Operations (Three Months Ended September 30, 2023 vs. 2022) | Metric | Sep 30, 2023 (in thousands) | Sep 30, 2022 (in thousands) | | :------------------------- | :-------------------------- | :-------------------------- | | Research and development | $2,560 | $11,715 | | General and administrative | $10,105 | $8,560 | | Total operating expenses | $12,665 | $20,275 | | Loss from operations | $(12,665) | $(20,275) | | Interest income | $448 | $351 | | Interest expense | $— | $(263) | | Other income, net | $596 | $617 | | Loss before income taxes | $(11,621) | $(19,570) | | Income tax | $7 | $23 | | Net loss | $(11,614) | $(19,547) | | Net loss per share attributable to common stockholders-basic and diluted | $(0.31) | $(0.55) | | Weighted-average shares of common stock outstanding-basic and diluted | 36,922,236 | 35,247,680 | Consolidated Statements of Operations (Nine Months Ended September 30, 2023 vs. 2022) | Metric | Sep 30, 2023 (in thousands) | Sep 30, 2022 (in thousands) | | :------------------------- | :-------------------------- | :-------------------------- | | Research and development | $18,509 | $38,769 | | General and administrative | $26,498 | $26,037 | | Total operating expenses | $45,007 | $64,806 | | Loss from operations | $(45,007) | $(64,806) | | Interest income | $1,317 | $871 | | Interest expense | $(284) | $(649) | | Other income, net | $2,043 | $357 | | Loss before income taxes | $(41,931) | $(64,227) | | Income tax | $(22) | $9 | | Net loss | $(41,953) | $(64,218) | | Net loss per share attributable to common stockholders-basic and diluted | $(1.17) | $(1.83) | | Weighted-average shares of common stock outstanding-basic and diluted | 36,005,269 | 35,013,189 | Consolidated Statements of Comprehensive Loss Consolidated Statements of Comprehensive Loss (Three and Nine Months Ended September 30, 2023 vs. 2022) | Metric | Three Months Ended Sep 30, 2023 (in thousands) | Three Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | | :------------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net loss | $(11,614) | $(19,547) | $(41,953) | $(64,218) | | Unrealized gain (loss) on marketable securities and money market funds | $16 | $16 | $208 | $(314) | | Total other comprehensive gain (loss) | $16 | $16 | $208 | $(314) | | Comprehensive loss | $(11,598) | $(19,531) | $(41,745) | $(64,532) | Consolidated Statements of Stockholders' Equity - Total stockholders' equity decreased from $69,195 thousand at December 31, 2022, to $36,737 thousand at September 30, 2023, primarily due to net losses[15][23] - Common shares issued and outstanding increased from 35,262,083 at December 31, 2022, to 36,926,285 at September 30, 2023[15][23] - Accumulated deficit increased from $(261,665) thousand at December 31, 2022, to $(303,618) thousand at September 30, 2023[15][23] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows (Nine Months Ended September 30, 2023 vs. 2022) | Metric | Sep 30, 2023 (in thousands) | Sep 30, 2022 (in thousands) | | :------------------------------------------------- | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(27,358) | $(42,618) | | Net cash provided by investing activities | $31,528 | $6,573 | | Net cash (used in) provided by financing activities | $(14,133) | $256 | | Net decrease in cash, cash equivalents and restricted cash | $(9,963) | $(35,789) | | Cash, cash equivalents, and restricted cash at end of period | $43,690 | $45,545 | Notes to Unaudited Consolidated Financial Statements 1. Organization and basis of presentation Frequency Therapeutics, a preclinical-stage regenerative medicine company, restructured in 2023, discontinued hearing programs, downsized, and entered a merger agreement with Korro Bio, Inc - Company is a preclinical-stage regenerative medicine company focused on activating innate regenerative potential[28] - Restructuring in February 2023 included discontinuing the hearing program and a 55% reduction in personnel, followed by an additional 55% reduction in May 2023[28] - Entered into a Merger Agreement with Korro Bio, Inc. on July 14, 2023[28] - Accumulated deficit of $303,618 thousand as of September 30, 2023, with expected continued operating losses, and future viability dependent on raising additional capital[29] 2. Recently adopted and issued accounting standards As an 'emerging growth company,' the company adopted ASU No. 2016-13 on January 1, 2023, with no material impact, utilizing an extended transition period - Company is an 'emerging growth company' and elected the extended transition period for complying with new or revised accounting standards[34] - Adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), on January 1, 2023, with no material impact on consolidated financial statements[35] 3. Fair value measurements Financial assets at fair value primarily include Level 1 money market funds, with no Level 2 marketable securities held as of September 30, 2023, following SVB's closure Fair Value Measurements (September 30, 2023 vs. December 31, 2022) | Asset Category | Fair Value Hierarchy | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :------------------------- | :------------------- | :-------------------------- | :-------------------------- | | Cash equivalents: Money market funds | Level 1 | $35,299 | $30,649 | | Investments: Short-term marketable securities | Level 2 | $— | $31,143 | | Total | | $35,299 | $61,792 | - Silicon Valley Bank (SVB) was closed on March 10, 2023, and the company's sweep and deposit accounts are now held by Silicon Valley Bridge Bank, N.A. (SVBB)[37] 4. Investments The company held no investments as of September 30, 2023, after previously holding available-for-sale marketable securities affected by SVB's closure - Company held no investments at September 30, 2023[38] Investments at December 31, 2022 (Available-for-Sale) | Category | Amortization Cost (in thousands) | Unrealized Loss (in thousands) | Fair Market Value (in thousands) | | :------------------------- | :------------------------------- | :----------------------------- | :------------------------------- | | Short-term marketable securities | $31,280 | $(317) | $31,143 | - Unrealized losses at December 31, 2022, were attributable to changes in interest rates and did not represent credit losses[39] 5. Property and equipment Net property and equipment significantly decreased due to reclassification of lab equipment as 'assets held for sale' related to the merger agreement Property and Equipment, Net (September 30, 2023 vs. December 31, 2022) | Category | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Lab equipment | $101 | $5,706 | | Furniture and office equipment | $3,238 | $3,238 | | Software | $291 | $291 | | Total | $3,630 | $9,235 | | Accumulated depreciation | $(3,087) | $(6,496) | | Property and equipment, net | $543 | $2,739 | - Certain lab equipment with a carrying value of $354 thousand was classified as 'assets held for sale' as of September 30, 2023, in connection with the Agreement and Plan of Merger with Korro Bio, Inc[43] 6. Accrued expenses Accrued expenses increased to $7,847 thousand by September 30, 2023, driven by higher professional fees and legal settlements Accrued Expenses (September 30, 2023 vs. December 31, 2022) | Category | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :--------------------------------- | :-------------------------- | :-------------------------- | | Payroll and employee related expenses | $1,868 | $4,216 | | Professional fees | $3,895 | $377 | | Third-party research and development expenses | $29 | $773 | | Legal settlements | $1,675 | $— | | Other | $380 | $525 | | Total | $7,847 | $5,891 | 7. Debt The company fully prepaid its $11,667 thousand term loan on April 3, 2023, eliminating interest expense for Q3 2023 - Prepaid the remaining $11,667 thousand due under the Loan Agreement on April 3, 2023[45] - No interest expense was incurred for the three months ended September 30, 2023, compared to $263 thousand in the prior year[45] - Interest expense for the nine months ended September 30, 2023, was $284 thousand, down from $649 thousand in the prior year[45] 8. Net loss per share Basic and diluted net loss per share improved for both three and nine months ended September 30, 2023, due to decreased net loss Net Loss Per Share (Three Months Ended September 30, 2023 vs. 2022) | Metric | Sep 30, 2023 | Sep 30, 2022 | | :------------------------------------------------- | :----------- | :----------- | | Net Loss | $(11,614) | $(19,547) | | Weighted-average shares of common stock outstanding | 36,922,236 | 35,247,680 | | Net loss per share attributable to common stockholders basic and diluted | $(0.31) | $(0.55) | Net Loss Per Share (Nine Months Ended September 30, 2023 vs. 2022) | Metric | Sep 30, 2023 | Sep 30, 2022 | | :------------------------------------------------- | :----------- | :----------- | | Net Loss | $(41,953) | $(64,218) | | Weighted-average shares of common stock outstanding | 36,005,269 | 35,013,189 | | Net loss per share attributable to common stockholders basic and diluted | $(1.17) | $(1.83) | - Potential shares of common stock (unvested restricted stock units and outstanding stock options) were excluded from diluted net loss per share computation as they were anti-dilutive[49] 9. Stockholders' equity Stockholders' equity decreased to $36,737 thousand by September 30, 2023, due to net loss, and the ATM equity offering program was terminated - Common stock shares issued and outstanding increased from 35,262,083 at December 31, 2022, to 36,926,285 at September 30, 2023[51] - The 'at the market' (ATM) equity offering program was terminated on September 26, 2023, with no shares sold during the three or nine months ended September 30, 2023[54] Shares Reserved for Future Issuance (September 30, 2023 vs. December 31, 2022) | Category | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------------- | :----------- | :----------- | | Stock options outstanding | 4,662,721 | 5,742,053 | | Shares available for future grant under incentive plans | 3,016,412 | 988,216 | | Total | 7,679,133 | 6,730,269 | 10. Stock-based compensation Stock-based compensation expense decreased due to workforce reductions and lower grant date fair value, despite incremental expense from 2022 option repricing Stock-based Compensation Expense (Three and Nine Months Ended September 30, 2023 vs. 2022) | Category | Three Months Ended Sep 30, 2023 (in thousands) | Three Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | | :------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Research and development | $750 | $2,095 | $1,760 | $5,994 | | General and administrative | $2,175 | $3,500 | $7,493 | $9,431 | | Total | $2,925 | $5,595 | $9,253 | $15,425 | - The weighted-average grant date fair value of options granted was $0 for the three months ended September 30, 2023 (vs. $1.40 in 2022) and $3.58 for the nine months ended September 30, 2023 (vs. $1.60 in 2022)[57] - Repricing of 'Underwater Options' on August 17, 2022, resulted in incremental stock-based compensation of $2,505 thousand, with $179 thousand and $518 thousand recorded as expense in the three and nine months ended September 30, 2023, respectively[60] 11. Employee stock purchase plan The ESPP allows participants to purchase common stock via payroll deductions, with 1,547,065 shares remaining available for issuance - The ESPP permits participants to purchase common stock through payroll deductions of up to 15% of their eligible compensation[63] - 6,329 shares were purchased in July 2023 related to the first offering period of 2023[64] - As of September 30, 2023, a total of 1,547,065 shares remain available for future issuance under the ESPP[64] 12. Income taxes Due to cumulative losses, the company recorded a full valuation allowance against deferred tax assets, with income tax expense representing state taxes on subsidiary interest income - The company has recorded a full valuation allowance against its deferred tax assets due to its cumulative loss position, making it unlikely to realize the benefits of federal and state deferred tax assets[66] - Income tax expense for the three and nine months ended September 30, 2023 and 2022, represents state taxes on interest income earned by its subsidiary, Frequency Therapeutics Securities Corporation[65] - Since inception, the company has generated cumulative federal and state net operating loss and research and development credit carryforwards for which no net tax benefit has been recorded[67] 13. Collaboration agreement The Astellas License and Collaboration Agreement for FX-322 was terminated on April 14, 2023, incurring no payments or costs for the company - The License and Collaboration Agreement with Astellas Pharma Inc. for FX-322 outside the United States was terminated on April 14, 2023[70] - The company was not subject to any payments or costs as a result of this termination[70] - Astellas had paid an upfront payment of $80,000 thousand in July 2019 and agreed to potential development and commercialization milestone payments up to $545,000 thousand[69] 14. License agreements Frequency Therapeutics terminated key license agreements with MIT, CALIBR, and MEE in early 2023, incurring no payments or costs - The exclusive patent license agreement with Massachusetts Institute of Technology (MIT) for hearing loss treatment was terminated on July 6, 2023[74] - The license agreement with The Scripps Research Institute (CALIBR) for MS treatment was terminated on April 28, 2023[76] - The Non-Exclusive Patent License Agreement with Massachusetts Eye and Ear (MEE) for hearing loss treatment was terminated on April 4, 2023[78] - The company was not subject to any payments or costs as a result of these terminations[74][76][78] 15. Commitments and contingencies The company faces contractual commitments and legal proceedings, including a class action lawsuit under appeal and a $1,675 thousand settlement, and terminated its office lease - The company indemnifies its officers and directors, with directors' and officers' insurance coverage to limit exposure[81] - The operating lease for office space in Lexington, Massachusetts, was terminated, effective January 31, 2024[83] - A class action lawsuit (Quinones et al. v. Frequency Therapeutics, Inc. et al.) alleging securities fraud was dismissed on March 29, 2023, but the plaintiff filed a notice of appeal on April 27, 2023[87] - The company reached an agreement to resolve a lawsuit (The Gregory J. Parseghian Revocable Trust, et al. v. Frequency Therapeutics, Inc., et al.) for $1,675 thousand, which is accrued as of September 30, 2023[88] 16. Sublease The Lexington, MA office sublease was terminated effective January 31, 2024, with $580 thousand and $1,766 thousand in sublease income recognized for the three and nine months ended September 30, 2023 - The Sublease Agreement for approximately 30,040 rentable square feet of office space in Lexington, MA, was terminated, effective January 31, 2024[90] - Sublease income recognized was $580 thousand for the three months ended September 30, 2023, and $1,766 thousand for the nine months ended September 30, 2023[91] Expected Future Sublease Income (as of September 30, 2023) | Years Ending December 31, | Sublease Income (in thousands) | | :------------------------ | :----------------------------- | | 2023 | $574 | | 2024 | $191 | | Total future sublease income | $765 | 17. Restructuring Following FX-322 study failure, the company discontinued hearing programs, initiated a 55% workforce reduction, incurring $4,329 thousand in restructuring expenses - Discontinued the FX-322 and FX-345 hearing development programs in February 2023 after the FX-322 Phase 2b study failed to achieve its primary efficacy endpoint[93] - The restructuring resulted in a 55% reduction in the company's workforce[93] Restructuring-Related Expenses (Nine Months Ended September 30, 2023) | Category | Amount (in thousands) | | :-------------------------------- | :-------------------- | | Severance and other benefit related costs | $3,840 | | Accelerated depreciation expense | $360 | | Accelerated hearing program charges | $129 | | Total | $4,329 | - A liability for restructuring of $922 thousand is classified as current and included in accrued expenses as of September 30, 2023[96] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition, operations, strategic shift to MS, pending Korro Bio merger, operating expenses, and liquidity for the periods ended September 30, 2023 Overview Following FX-322 study failure, the company pivoted from SNHL to exploring MS program alternatives, involving workforce reductions, lease termination, and a merger with Korro Bio, Inc - Discontinued FX-322 and FX-345 hearing development programs in February 2023 after the FX-322-208 study failed to achieve its primary endpoint[99] - Shifted focus to developing a product candidate for multiple sclerosis (MS Program) and exploring strategic alternatives, including its sale[99] - Entered into a Merger Agreement with Korro Bio, Inc. on July 14, 2023; following the Merger, Korro Bio's business will be the business of the combined company[99][104] - Implemented workforce reductions of approximately 30% in April 2022, 55% in February 2023, and an additional 55% in May 2023[100] - Terminated the lease and sublease for its Lexington, MA office, effective January 31, 2024[101] - Incurred significant operating losses since inception, with an accumulated deficit of $303.6 million as of September 30, 2023[103] License and collaboration agreements The company terminated all major license and collaboration agreements in early 2023, including Astellas, MIT, MEE, and CALIBR, incurring no costs - The Astellas Agreement for FX-322 outside the U.S. was terminated on April 14, 2023, with no payments or costs incurred[106] - The Exclusive Patent License Agreement with MIT for hearing loss treatment was terminated on July 6, 2023, with no payments or costs incurred[107] - The Non-Exclusive Patent License Agreement with MEE for hearing loss treatment was terminated on April 4, 2023, with no payments or costs incurred[108] - The license agreement with CALIBR for MS treatment was terminated on April 28, 2023, with no payments or costs incurred[109] Components of our results of operations Details operating expense components (R&D, G&A), interest income/expense, other income, and income taxes, with R&D shifting to MS strategic alternatives post-merger - Research and development expenses primarily include salaries, third-party agreements (CROs), manufacturing costs, consultant fees, laboratory supplies, and license payments[110] - Following the Merger, R&D expenses for the remainder of 2023 are expected to relate to strategic initiatives for the MS Program[112] - General and administrative expenses cover executive, finance, business development, and administrative functions, including legal, accounting, and facility-related costs[113] - Income tax provision is based on the United States statutory rate, increased by state taxes, and reduced by a full valuation allowance on deferred tax assets due to cumulative losses[117][118][119] Results of operations Comparison of three months ended September 30, 2023 and 2022 Net loss decreased to $11.6 million for Q3 2023, driven by reduced R&D expenses from discontinued hearing programs, despite increased G&A costs Summary of Operations (Three Months Ended September 30, 2023 vs. 2022) | Metric | Sep 30, 2023 (in thousands) | Sep 30, 2022 (in thousands) | | :------------------------- | :-------------------------- | :-------------------------- | | Research and development | $2,560 | $11,715 | | General and administrative | $10,105 | $8,560 | | Total operating expenses | $12,665 | $20,275 | | Loss from operations | $(12,665) | $(20,275) | | Net loss | $(11,614) | $(19,547) | - Research and development expenses decreased by $9.2 million, primarily due to the discontinuation of FX-322 and FX-345 programs (zero costs in Q3 2023) and a $2.8 million decrease in employee-related costs[121][122][123][125] - General and administrative expenses increased by $1.5 million, mainly due to higher professional service fees, particularly legal fees[126] - No interest expense was incurred in Q3 2023 due to the term loan prepayment in April 2023[128] Comparison of nine months ended September 30, 2023 and 2022 Net loss decreased to $42.0 million for 9M 2023, primarily due to reduced R&D expenses from discontinued hearing programs and workforce reductions Summary of Operations (Nine Months Ended September 30, 2023 vs. 2022) | Metric | Sep 30, 2023 (in thousands) | Sep 30, 2022 (in thousands) | | :------------------------- | :-------------------------- | :-------------------------- | | Research and development | $18,509 | $38,769 | | General and administrative | $26,498 | $26,037 | | Total operating expenses | $45,007 | $64,806 | | Loss from operations | $(45,007) | $(64,806) | | Net loss | $(41,953) | $(64,218) | - Research and development expenses decreased by $20.3 million, driven by a $7.5 million decrease in FX-322 costs, a $2.8 million decrease in FX-345 costs (due to program discontinuation), and a $6.6 million decrease in employee-related costs[132][133][134][136] - General and administrative expenses increased by $0.5 million, primarily due to higher legal fees, partially offset by decreases in employee-related costs[137] - Interest income increased by $0.4 million due to changes in investment balances, and other income, net, increased by $1.7 million, primarily from sublease income[138][140] - Interest expense decreased by $0.3 million due to the term loan prepayment in April 2023[139] Liquidity and capital resources The company, with $303.6 million accumulated deficit, held $41.7 million in cash and equivalents, prepaid its term loan, terminated its ATM program, and anticipates future funding needs impacted by the Korro Bio merger Cash flows Net cash used in operating activities decreased to $27.4 million, investing activities provided $31.5 million, and financing activities used $14.1 million for 9M 2023 Cash Flow Summary (Nine Months Ended September 30, 2023 vs. 2022) | Metric | Sep 30, 2023 (in thousands) | Sep 30, 2022 (in thousands) | | :------------------------------------------------- | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(27,358) | $(42,618) | | Net cash provided by investing activities | $31,528 | $6,573 | | Net cash (used in) provided by financing activities | $(14,133) | $256 | | Decrease in cash and cash equivalents | $(9,963) | $(35,789) | - Net cash used in operating activities decreased by $15.3 million, primarily due to a $22.3 million decrease in net loss[151][152][153] - Net cash provided by investing activities increased by $24.9 million, mainly attributable to $33.5 million in redemptions of marketable securities, partially offset by $2.0 million in purchases[154][155] - Net cash used in financing activities was $14.1 million, primarily due to term loan repayments, representing an increase in cash used compared to the prior year[156] Funding requirements Post-merger, the combined company's funding will be driven by Korro Bio's programs, as Frequency Therapeutics will not further develop its own product candidates - Following the Merger, the business of Korro Bio will be the business of the combined company[160] - Frequency Therapeutics does not expect any further development of its product candidates or programs that would require additional funding[160] - The funding requirements of the combined company will reflect the funding requirements for the development of Korro Bio's product candidates and programs[160] Critical accounting policies and use of estimates Financial statements adhere to GAAP, requiring management estimates, with no material changes to critical accounting policies during 9M 2023 - The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses, and the disclosure of contingent assets and liabilities[162] - There were no material changes to critical accounting policies during the nine months ended September 30, 2023, from those described in the Annual Report on Form 10-K filed on March 10, 2023[163] Recent accounting pronouncements Refer to Note 2 of the unaudited consolidated financial statements for details on recent accounting pronouncements - A description of recent accounting pronouncements that may potentially impact the company's financial position, results of operations, or cash flows is disclosed in Note 2 to the unaudited consolidated financial statements[164] Emerging growth company status As an 'emerging growth company,' the company utilizes an extended transition period for new or revised accounting standards compliance - The company is an 'emerging growth company' as defined in the Jumpstart Our Business Startups Act of 2012[165] - The company has elected to take advantage of an extended transition period for complying with new or revised accounting standards[165] Item 3. Quantitative and Qualitative Disclosures About Market Risk This item is not required as the company is classified as a smaller reporting company - This item is not required as the company is currently considered a smaller reporting company[166] Item 4. Controls and Procedures Management assessed disclosure controls and procedures as effective as of September 30, 2023, with no material changes to internal control over financial reporting - Disclosure controls and procedures were evaluated as effective at the reasonable assurance level as of September 30, 2023[168] - No material change in internal control over financial reporting occurred during the period covered by this Quarterly Report on Form 10-Q[169] PART II. OTHER INFORMATION Item 1. Legal Proceedings Refer to Note 15, 'Commitments and contingencies – Legal Contingencies,' for detailed information on legal proceedings - Refer to Note 15, 'Commitments and contingencies – Legal Contingencies', for more information on legal proceedings[171] Item 1A. Risk Factors Incorporates risk factors from a prior prospectus, emphasizing financial position risks, accumulated losses, capital needs, and profitability uncertainty in biopharmaceutical development - Risk factors from the prospectus filed on September 29, 2023, are incorporated by reference[172] - Frequency has incurred significant losses since inception, with net losses of $11.6 million (Q3 2023) and $42.0 million (9M 2023), and an accumulated deficit of $303.6 million as of September 30, 2023[173] - Investment in biopharmaceutical product development is highly speculative, entailing substantial upfront capital expenditures and significant risk of product candidate failure[173] - The company expects to continue incurring significant operating losses and cannot accurately predict when or if it will achieve or maintain profitability[174] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities The company completed its IPO in October 2019, raising $79.7 million in net proceeds, with no unregistered sales or material changes in proceeds use - Completed IPO in October 2019, issuing 6,325,000 shares and receiving approximately $79.7 million in net proceeds[177] - There has been no material change in the expected use of the net proceeds from the IPO[178] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - No defaults upon senior securities[179] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[179] Item 5. Other Information As a smaller reporting company, the company is not required to provide information under Item 408(a) of Regulation S-K - The company is a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and is not required to provide the information otherwise required under Item 408(a) of Regulation S-K[180] Item 6. Exhibits This section lists exhibits filed with Form 10-Q, including the Merger Agreement, organizational documents, and various related agreements and certifications - Exhibit 2.1: Agreement and Plan of Merger, dated July 14, 2023, by and among Frequency Therapeutics, Inc., Frequency Merger Sub, Inc., and Korro Bio, Inc[181] - Includes various support agreements (10.1, 10.2) and lock-up agreements (10.3, 10.4) related to the merger[181] - Includes Rule 13a-14(a) / 15d-14(a) Certifications (31.1, 31.2) and Section 1350 Certifications (32.1, 32.2)[181] SIGNATURES