10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2023

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

Commission File Number: 001-39062

 

FREQUENCY THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

47-2324450

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

75 Hayden Avenue, Suite 300

Lexington, MA

02421

(Address of principal executive offices)

(Zip Code)

 

(781) 315-4600

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.001 par value per share

 

FREQ

 

The Nasdaq Stock Market LLC (The Nasdaq Global Select Market)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

As of May 1, 2023, the registrant had 35,751,956 shares of common stock, $0.001 par value per share, outstanding.

 

 


 

Table of Contents

 

Page

 

 

 

 

Forward-Looking Statements

2

 

Risk Factors Summary

4

PART I.

FINANCIAL INFORMATION

5

Item 1.

Consolidated Financial Statements (Unaudited)

5

Consolidated Balance Sheets

5

Consolidated Statements of Operations

6

 

Consolidated Statements of Comprehensive Loss

7

Consolidated Statements of Stockholders’ Equity

8

Consolidated Statements of Cash Flows

9

Notes to Unaudited Consolidated Financial Statements

10

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

Item 4.

Controls and Procedures

33

PART II.

OTHER INFORMATION

34

Item 1.

Legal Proceedings

34

Item 1A.

Risk Factors

34

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

75

Item 3.

Defaults Upon Senior Securities

75

Item 4.

Mine Safety Disclosures

75

Item 5.

Other Information

75

Item 6.

Exhibits

76

Signatures

77

 

 

 

 


 

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or Quarterly Report, contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our future results of operations and financial position, business strategy, product candidates, clinical development plans and expectations, including, without limitation, planned commencements of clinical studies, patient enrollment expectations, expected release of clinical trial results and data, and expected completion dates, potential regulatory submissions, prospective products, product approvals, research and development costs, timing and likelihood of success, and plans and objectives of management for future operations and results, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the risks, uncertainties and assumptions described under the sections in this Quarterly Report titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These forward-looking statements are subject to numerous risks, including, without limitation, the following:

the initiation, timing, progress and results of our preclinical and clinical trials and research and development of programs, including our planned Phase 1 study in our remyelination in multiple sclerosis program, and any other future clinical trials for any product candidates;
our ability to continue to develop our progenitor cell activation, or PCA, approach and identify additional product candidates;
our ability to successfully complete clinical trials of any product candidate and obtain regulatory approval for it;
the timing or likelihood of regulatory filings and approvals;
the commercialization, marketing and manufacture of any product candidate, if approved;
the pricing and reimbursement of any product candidate, if approved;
the rate and degree of market acceptance and clinical utility of any products for which we receive regulatory approval;
the implementation of our strategic plans for our business, product candidates, and technology, including our reduction in force and changes to senior management;
the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates, PCA approach, and technology;
estimates of our expenses, future revenues, capital requirements, and our need for additional financing;
our ability to establish collaborations;
the impact and any future impact of public health emergencies on our ongoing and planned clinical trials, our research and development activities and our business and financial markets;
our ability to protect our network from cybersecurity threats;
our financial performance and the sufficiency of our financial resources; and
developments relating to our competitors and our industry, including the impact of government regulation.

2


 

Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur, and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances, or otherwise.

You should read this Quarterly Report and the documents that we reference in this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

3


 

RISK FACTORS SUMMARY

 

Our business is subject to numerous risks and uncertainties, including those described in Part II Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. You should carefully consider these risks and uncertainties when investing in our common stock. The principal risks and uncertainties affecting our business include the following:

 

We are heavily dependent on the success of our remyelination in multiple sclerosis program, or MS development program, which is still under development. If our MS development program does not receive regulatory approval or is not successfully commercialized, our business will be materially adversely harmed;
We utilize our PCA approach to develop product candidates that are designed to activate progenitor cells, which is a new approach to therapeutic intervention and, as a result, successful development, approval, and commercialization of any product candidates, including from our MS development program, is uncertain;
Clinical trials are expensive, time consuming, and difficult to design and implement, and involve an uncertain outcome. The results of preclinical studies and early clinical trials are not always predictive of future results. Any product candidate that we advance into clinical trials may not achieve favorable results in later clinical trials, if any, or receive marketing approval;
We may be impacted by general economic, political, and geopolitical conditions such as recessions, interest rates, inflation rates, labor shortages, supply chain difficulties, fuel prices, sanctions, acts of war or terrorism, and international geopolitical conflict. For example, the recent sanctions imposed by the United States on Russia may impede our ability to pay fees related to Russian patents making the future of such patents uncertain;
The regulatory approval processes of the FDA and comparable foreign regulatory authorities are lengthy, time consuming, and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our MS development program or any other product candidates, our business will be substantially harmed;
We may not be successful in our efforts to identify additional product candidates. Due to our limited resources and access to capital, we must prioritize development of certain product candidates, the choice of which may prove to be wrong and adversely affect our business;
We will require additional capital to fund our operations, and if we fail to obtain necessary financing, we may not be able to complete the development and commercialization of our MS development program and additional product candidates;
We face significant competition from biotechnology and pharmaceutical companies and our operating results will suffer if we fail to compete effectively;
If we are unable to establish sales and marketing capabilities either on our own or in collaboration with third parties, we may not be successful in commercializing any product candidate we develop, if approved;
Public health emergencies have caused and could continue to cause disruptions to our business, including our preclinical studies, clinical trials and operations and could adversely impact our financial condition and results of operations;
We are currently subject to shareholder litigation and could be subject to similar or other litigation in the future;
Our organizational changes undertaken to better align our workforce with the needs of our business and focus more of our capital resources on our research and development programs may not achieve our intended outcome; and
If we are unable to regain compliance with Nasdaq’s minimum bid price requirement, we may be delisted from Nasdaq which could materially and adversely affect the liquidity of our common stock.

4


 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Frequency Therapeutics, Inc.

 

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

 

March 31, 2023

 

 

December 31, 2022

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

40,853

 

 

$

51,954

 

Short-term marketable securities

 

 

25,797

 

 

 

31,143

 

Prepaid expenses and other current assets

 

 

2,643

 

 

 

4,396

 

Total current assets

 

 

69,293

 

 

 

87,493

 

Property and equipment, net

 

 

1,832

 

 

 

2,739

 

Right of use assets

 

 

28,350

 

 

 

28,980

 

Restricted cash

 

 

1,699

 

 

 

1,699

 

Other long-term assets

 

 

327

 

 

 

327

 

Total assets

 

$

101,501

 

 

$

121,238

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

2,715

 

 

$

3,114

 

Accrued expenses

 

 

5,567

 

 

 

5,891

 

Lease liabilities, current portion

 

 

2,088

 

 

 

2,021

 

Term loan, current portion

 

 

11,667

 

 

 

10,000

 

Total current liabilities

 

 

22,037

 

 

 

21,026

 

Lease liabilities, net of current portion

 

 

26,215

 

 

 

26,761

 

Term loan, net of current portion

 

 

 

 

 

4,167

 

Other long-term liabilities

 

 

 

 

 

89

 

Total liabilities

 

 

48,252

 

 

 

52,043

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized, no shares issued or outstanding at March 31, 2023 and December 31, 2022

 

 

 

 

 

 

Common stock, $0.001 par value; 200,000,000 shares authorized,
   
35,751,956 and 35,262,083 shares issued and outstanding at March 31, 2023
   and December 31, 2022, respectively

 

 

36

 

 

 

35

 

Additional paid-in capital

 

 

334,485

 

 

 

331,023

 

Accumulated other comprehensive income

 

 

(64

)

 

 

(198

)

Accumulated deficit

 

 

(281,208

)

 

 

(261,665

)

Total stockholders’ equity

 

 

53,249

 

 

 

69,195

 

Total liabilities and stockholders’ equity

 

$

101,501

 

 

$

121,238

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

5


 

Frequency Therapeutics, Inc.

 

Consolidated Statements of Operations

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

Three Months Ended
March 31,

 

 

 

2023

 

 

2022

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

 

11,355

 

 

 

13,781

 

General and administrative

 

 

9,156

 

 

 

9,477

 

Total operating expenses

 

 

20,511

 

 

 

23,258

 

Loss from operations

 

 

(20,511

)

 

 

(23,258

)

Interest income

 

 

523

 

 

 

95

 

Interest expense

 

 

(284

)

 

 

(178

)

Other income (expense), net

 

 

753

 

 

 

(33

)

Loss before income taxes

 

 

(19,519

)

 

 

(23,374

)

Income tax

 

 

(24

)

 

 

(12

)

Net loss

 

$

(19,543

)

 

$

(23,386

)

Net loss per share attributable to common stockholders-basic and diluted

 

$

(0.55

)

 

$

(0.67

)

Weighted-average shares of common stock outstanding-basic and diluted

 

 

35,324,053

 

 

 

34,810,676

 

 

See accompanying notes.

6


 

Frequency Therapeutics, Inc.

 

Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)

 

 

 

Three Months Ended
March 31,

 

 

 

2023

 

 

2022

 

Net loss

 

$

(19,543

)

 

$

(23,386

)

Other comprehensive gain (loss):

 

 

 

 

 

 

Unrealized gain (loss) on marketable securities and money market funds

 

 

134

 

 

 

(234

)

Total other comprehensive gain (loss)

 

 

134

 

 

 

(234

)

Comprehensive loss

 

$

(19,409

)

 

$

(23,620

)

 

See accompanying notes.

7


 

Frequency Therapeutics, Inc.

 

Consolidated Statements Stockholders’ Equity

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

 

Common
shares issued

 

 

Common
par value

 

 

Additional
paid-in capital

 

 

Accumulated other
comprehensive income

 

 

Accumulated
deficit

 

 

Total stockholders’
equity (deficit)

 

Balance, December 31, 2021

 

 

34,611,213

 

 

$

35

 

 

$

310,936

 

 

$

(62

)

 

$

(180,085

)

 

$

130,824

 

Stock-based compensation expense

 

-

 

 

 

-

 

 

 

5,266

 

 

 

-

 

 

 

-

 

 

 

5,266

 

Purchase of common stock under Employee Stock Purchase Plan

 

 

31,832

 

 

 

-

 

 

 

139

 

 

 

-

 

 

 

-

 

 

 

139

 

Issuance of common stock, net

 

 

22,764

 

 

 

-

 

 

 

61

 

 

 

-

 

 

 

-

 

 

 

61

 

Issuance of common stock pursuant to restricted stock units

 

 

310,600

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Other comprehensive loss

 

-

 

 

 

-

 

 

 

-

 

 

 

(234

)

 

 

-

 

 

 

(234

)

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(23,386

)

 

 

(23,386

)

Balance, March 31, 2022

 

 

34,976,409

 

 

$

35

 

 

$

316,402

 

 

$

(296

)

 

$

(203,471

)

 

$

112,670

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2022

 

 

35,262,083

 

 

$

35

 

 

$

331,023

 

 

$

(198

)

 

$

(261,665

)

 

$

69,195

 

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

3,431

 

 

 

-

 

 

 

-

 

 

 

3,431

 

Purchase of common stock under Employee Stock Purchase Plan

 

 

24,754

 

 

 

-

 

 

 

31

 

 

 

-

 

 

 

-

 

 

 

31

 

Issuance of common stock, net

 

 

2,969

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of common stock pursuant to restricted stock units

 

 

462,150

 

 

 

1

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1

 

Other comprehensive gain

 

 

-

 

 

 

-

 

 

 

-

 

 

 

134

 

 

 

-

 

 

 

134

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(19,543

)

 

 

(19,543

)

Balance, March 31, 2023

 

 

35,751,956

 

 

$

36

 

 

$

334,485

 

 

$

(64

)

 

$

(281,208

)

 

$

53,249

 

 

See accompanying notes.

8


 

Frequency Therapeutics, Inc.

 

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Three Months Ended
March 31,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(19,543

)

 

$

(23,386

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Stock-based compensation

 

 

3,431

 

 

 

5,266

 

Depreciation expense

 

 

1,000

 

 

 

726

 

Non-cash lease expense

 

 

630

 

 

 

593

 

Non-cash interest (income) expense

 

 

(112

)

 

 

266

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

2,051

 

 

 

1,385

 

Accounts payable

 

 

(697

)

 

 

(429

)

Lease liabilities

 

 

(479

)

 

 

(412

)

Accrued expenses

 

 

(413

)

 

 

(1,352

)

Net cash used in operating activities

 

 

(14,132

)

 

 

(17,343

)

Cash flows from investing activities:

 

 

 

 

 

 

Sale of property and equipment

 

 

7

 

 

 

 

Purchase of property and equipment

 

 

(100

)

 

 

(12

)

Purchase of marketable securities

 

 

(1,978

)

 

 

(20,786

)

Redemption of marketable securities

 

 

7,570

 

 

 

8,136

 

Net cash provided by (used in) investing activities

 

 

5,499

 

 

 

(12,662

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from issuance of common stock, net

 

 

1

 

 

 

61

 

Proceeds from Employee Stock Purchase Plan

 

 

31

 

 

 

139

 

Repayment of Term Loan

 

 

(2,500

)

 

 

 

Net cash (used in) provided by financing activities

 

 

(2,468

)

 

 

200

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(11,101

)

 

 

(29,805

)

Cash, cash equivalents, and restricted cash at beginning of period

 

 

53,653

 

 

 

81,334

 

Cash, cash equivalents, and restricted cash at end of period

 

$

42,552

 

 

$

51,529

 

 

See accompanying notes

 

 

9


 

 

Frequency Therapeutics, Inc.

Notes to Unaudited Consolidated Financial Statements

(Amounts in thousands, except share and per share amounts)

 

1. Organization and basis of presentation

 

Organization

Frequency Therapeutics, Inc., together with its wholly owned subsidiaries, Frequency Therapeutics, PTY, LTD, and Frequency Therapeutics Securities Corporation (the Company) headquartered in Lexington, Massachusetts, was incorporated in November 2014 as a Delaware corporation. The Company is a preclinical-stage regenerative medicine company focused on developing therapeutics to activate a person’s innate regenerative potential to restore function. On February 13, 2023, the Company announced a restructuring of the business which included the discontinuation of its hearing program and a downsizing of personnel by approximately 55%.

Liquidity and capital resources

The Company has funded its operations primarily with proceeds from private and public securities financings, a term loan, and amounts received under a collaboration agreement. The Company has incurred recurring losses since its inception. In addition, as of March 31, 2023, the Company had an accumulated deficit of $281,208. The Company expects to continue to generate operating losses for the foreseeable future. The future viability of the Company is dependent on its ability to raise additional capital to finance its operations. The Company’s inability to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies. There can be no assurances that additional funding will be available on terms acceptable to the Company, or at all. The Company believes that existing resources and the cost savings generated from the restructuring announced in February 2023 will be sufficient to fund planned operations for at least twelve months from the date the financial statements were available to be issued.

Basis of presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting standards set by the Financial Accounting Standards Board (FASB). The FASB sets generally accepted accounting principles (GAAP) that the Company follows to ensure its financial condition, results of operations, and cash flows are consistently reported. References to GAAP issued by the FASB in these notes to the consolidated financial statements are to the FASB Accounting Standards Codification (ASC).

Principles of consolidation

The consolidated financial statements include the accounts of Frequency Therapeutics, Inc. and its wholly owned subsidiaries Frequency Therapeutics Securities Corporation and Frequency Therapeutics PTY, LTD. All intercompany transactions and balances have been eliminated. The significant accounting policies used in preparation of these interim financial statements are consistent with those discussed in Note 2, “Summary of significant accounting policies,” in the Company’s Annual Report on Form 10-K (the Company's Form 10-K).

Unaudited interim financial information

The accompanying consolidated balance sheet as of March 31, 2023 and the consolidated statements of operations, the consolidated statements of comprehensive loss, the consolidated statements of stockholders’ equity and the consolidated statements of cash flows for the three months ended March 31, 2023 and 2022 are unaudited. The unaudited interim consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of March 31, 2023, the results of its operations for the three months ended March 31, 2023 and 2022, and cash flows for the three months ended March 31, 2023 and 2022. The financial data and other information disclosed in these notes related to the three months ended March 31, 2023 and 2022 are also unaudited. The results for the three months ended March 31, 2023 are not necessarily indicative of results to be expected for the year ending December 31, 2023, any other interim periods, or any future year or period. The consolidated balance sheet as of December 31, 2022 included herein was derived from the audited consolidated financial statements as of that date.

10


 

 

These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2022 included in the Company’s Form 10-K.

2. Recently adopted and issued accounting standards

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date. The Company is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, as amended (the JOBS Act). The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company elected to avail itself of this extended transition period and, as a result, the Company will not be required to adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The FASB has subsequently issued amendments to ASU 2016-13, which have the same effective date and transition date. These standards require that credit losses be reported using an expected losses model rather than the incurred losses model that was previously used, and establishes additional disclosures related to credit risks. For available-for-sale debt securities with unrealized losses, this standard now requires allowances to be recorded instead of reducing the amortized cost of the investment. These standards limit the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and requires the reversal of previously recognized credit losses if fair value increases. The Company adopted the standard on January 1, 2023 and it did not have a material impact on the consolidated financial statements.

3. Fair value measurements

The Company’s financial assets are measured at fair value on a recurring basis by level within the fair value hierarchy at March 31, 2023 and December 31, 2022 are summarized as follows:

 

 

March 31, 2023

 

 

 

Fair Value

 

Fair Market

 

 

 

Hierarchy

 

Value

 

Cash equivalents:

 

 

 

 

 

        Money market funds

 

Level 1

 

 

37,844

 

Investments:

 

 

 

 

 

        Short-term marketable securities

 

Level 2

 

 

25,797

 

 

 

 

$

63,641

 

 

 

 

 

 

 

 

 

 

December 31, 2022

 

 

 

Fair Value

 

Fair Market

 

 

 

Hierarchy

 

Value

 

Cash equivalents:

 

 

 

 

 

        Money market funds

 

Level 1

 

 

30,649

 

Investments:

 

 

 

 

 

        Short-term marketable securities

 

Level 2

 

 

31,143

 

 

 

$

61,792

 

 

The carrying amounts reflected in the consolidated balance sheet for prepaid expenses and other current assets, accounts payable, accrued expenses, other liabilities, and term loan are shown at their historical values which approximate their fair values.

 

Silicon Valley Bank (SVB) was closed on March 10, 2023 by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. The FDIC then reopened SVB as Silicon Valley Bridge Bank, N.A. (SVBB). At March 31, 2023, SVBB continues to hold the Company’s term loan, deposit and sweep accounts, and security deposit for the Company's office space under the existing terms and covenants which were in place at SVB prior to the receivership. The Company is actively working to move these accounts to another financial institution.

11


 

 

 

4. Investments

 

The following tables summarize the Company's investments, all of which are classified as available-for-sale and recorded at fair value:

 

 

 

March 31, 2023

 

 

 

Amortization

 

 

Unrealized

 

 

Fair Market

 

 

 

Cost

 

 

Loss

 

 

Value

 

Short-term marketable securities

 

 

25,799

 

 

 

(2

)

 

 

25,797

 

 

 

$

25,799

 

 

$

(2

)

 

$

25,797

 

 

 

 

 

December 31, 2022

 

 

 

Amortization

 

 

Unrealized

 

 

Fair Market

 

 

 

Cost

 

 

Loss

 

 

Value

 

Short-term marketable securities

 

 

31,280

 

 

 

(317

)

 

 

31,143

 

 

 

$

31,280

 

 

$

(317

)

 

$

31,143

 

 

The Company's short-term marketable securities were held in investment advisory accounts with SVB Asset Management (SAM). On March 27, 2023, following the closure of SVB, SAM's former parent company, and the creation of SVBB, the FDIC entered into a purchase and assumption agreement for certain assets of SVBB with First-Citizens Bank & Trust Company (FCB). As a result of this transaction, SAM became a wholly owned subsidiary of FCB. Although the accounts are held under the terms in place prior to the transaction, the Company is actively working to move these accounts to another financial institution.

 

The Company determines the appropriate classification of investments at the time of purchase and reviews any investment when its fair value is less than its amortized cost and when evidence indicates that the investment’s carrying amount is not recoverable within a reasonable period of time. The Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss may exist, the present value of cash flows expected to be collected from the investment is compared to its amortized cost basis. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded on the consolidated balance sheet, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that is not related to a credit loss is recognized in other comprehensive (loss) income. The unrealized losses at March 31, 2023 and December 31, 2022 were attributable to changes in interest rates and do not represent credit losses.

 

At March 31, 2023 and December 31, 2022 the Company held 9 and 14 debt securities, respectively, that were in an unrealized loss position. The Company does not intend to sell the investments before recovery of their amortized cost bases, which may be at maturity. All investments mature within twelve months from March 31, 2023. The following tables summarize the Company's debt securities in an unrealized loss position, aggregated by length of time in a continuous unrealized loss position.

 

 

 

March 31, 2023

 

 

 

Less than 12 Months

 

 

More than 12 Months

 

 

Total

 

 

 

Fair Market Value

 

 

Unrealized Loss

 

 

Fair Market Value

 

 

Unrealized Loss

 

 

Fair Market Value

 

 

Unrealized Loss

 

Short-term marketable securities in unrealized loss position

 

$

8,407

 

 

$

(21

)

 

$

9,943

 

 

$

(54

)

 

$

18,350

 

 

$

(75

)

 

 

$

8,407

 

 

$

(21

)

 

$

9,943

 

 

$

(54

)

 

$

18,350

 

 

$

(75

)

 

12


 

 

 

 

December 31, 2022

 

 

 

Less than 12 Months

 

 

More than 12 Months

 

 

Total

 

 

 

Fair Market Value

 

 

Unrealized Loss

 

 

Fair Market Value

 

 

Unrealized Loss

 

 

Fair Market Value

 

 

Unrealized Loss

 

Short-term marketable securities in unrealized loss position

 

$

17,303

 

 

$

(78

)

 

$

9,927

 

 

$

(135

)

 

$

27,230

 

 

$

(213

)

 

$

17,303

 

 

$

(78

)

 

$

9,927

 

 

$