424B3

 

PROSPECTUS SUPPLEMENT NO.1

Filed Pursuant to Rule 424(b)(3)

(To the Prospectus dated April 5, 2022)

Registration No. 333-263923

https://cdn.kscope.io/7bb6529e4da2571ba78b54fb3e001653-img177704280_0.jpg 

 

Up to 7,003,383 Shares of Common Stock

 

 

 

This prospectus supplement updates and supplements the prospectus dated April 5, 2022 (as amended, the "Prospectus"), which forms a part of our Registration Statement on Form S-1 (No. 333-263923). This prospectus supplement is being filed to update and supplement the information in the Prospectus with the information contained in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, filed with the Securities and Exchange Commission on May 11, 2022 (the "Report"). Accordingly, we have attached the Report to this prospectus supplement.

 

The Prospectus and this prospectus supplement relate to the issuance by us of an aggregate of up to 7,003,383 shares of our common stock, $0.0001 par value per share (the “Common Stock”), by Lincoln Park Capital Fund, LLC (the “Selling Securityholder”). The shares included in this prospectus consist of shares of Common Stock that we have issued or that we may, in our discretion, elect to issue and sell to the Selling Securityholder, from time to time after the date of this prospectus, pursuant to a common stock purchase agreement we entered into with the Selling Securityholder on February 18, 2022 (the “Purchase Agreement”), in which the Selling Securityholder has committed to purchase from us, at our direction, up to $50,000,000 of our Common Stock, subject to terms and conditions specified in the Purchase Agreement. Concurrently with our execution of the Purchase Agreement on February 18, 2022, we issued 100,000 shares of Common Stock to the Selling Securityholder as consideration for its irrevocable commitment to purchase shares of our Common Stock at our election in our sole discretion, from time to time after the date of this prospectus, upon the terms and subject to the satisfaction of the conditions set forth in the Purchase Agreement. See the section titled “Committed Equity Financing” for a description of the Purchase Agreement and the section titled “Selling Securityholder” for additional information regarding the Selling Securityholder.
 


 

 

The Common Stock is listed on The Nasdaq Capital Market (“Nasdaq”) under the symbol “SRZN”. On May 10, 2022, the last reported sales price of the Common Stock as reported on Nasdaq was $2.46 per share.

 

This prospectus supplement should be read in conjunction with the Prospectus, including any amendments or supplements thereto, which is to be delivered with this prospectus supplement. This prospectus supplement is qualified by reference to the Prospectus, including any amendments or supplements thereto, except to the extent that the information in this prospectus supplement updates and supersedes the information contained therein.

 

This prospectus supplement is not complete without, and may not be delivered or utilized except in connection with, the Prospectus, including any amendments or supplements thereto.
 

 

We are an “emerging growth company” as defined under U.S. federal securities laws and, as such, have elected to comply with reduced public company reporting requirements. This prospectus supplement complies with the requirements that apply to an issuer that is an emerging growth company. We are incorporated in Delaware.

 

 

 

Investing in our securities involves a high degree of risk. You should review carefully the risks and uncertainties described in the section titled “Risk Factors” beginning on page 9 of the Prospectus, and under similar headings in any amendments or supplements to the Prospectus.

 

 

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities, or passed upon the accuracy or adequacy of this prospectus supplement or the Prospectus. Any representation to the contrary is a criminal offense.

 

 


Prospectus dated May 11, 2022

 


 

 

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, 2022

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: 001-39635

 

Surrozen, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

98-1556622

( State or other jurisdiction of

incorporation or organization)

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

171 Oyster Point Blvd, Suite 400, South San Francisco, California

94080

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (650) 489-9000

 

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, $0.0001 par value per share

 

SRZN

 

The Nasdaq Capital Market

Redeemable warrants, each whole warrant exercisable for one share of Common Stock

 

SRZNW

 

The Nasdaq Capital 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 9, 2022, there were 35,125,886 shares of common stock, par value $0.0001 per share, issued and outstanding.

 

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements

1

 

Unaudited Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021

1

 

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2022 and 2021

2

 

Unaudited Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity for the three months ended March 31, 2022 and 2021

3

 

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021

4

 

Notes to Unaudited Condensed Consolidated Financial Statements

5

Item 2.

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

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

22

Item 4.

Controls and Procedures

22

 

 

 

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

24

Item 1A.

Risk Factors

24

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

24

Item 3.

Defaults Upon Senior Securities

24

Item 4.

Mine Safety Disclosures

24

Item 5.

Other Information

24

Item 6.

Exhibits

25

Signatures

26

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

SURROZEN, INC.

Condensed Consolidated Balance Sheets

(In thousands, except per share amounts)

 

 

 

March 31,
2022

 

 

December 31, 2021

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

14,305

 

 

$

33,091

 

Short-term marketable securities

 

 

78,209

 

 

 

68,760

 

Prepaid expenses and other current assets

 

 

3,165

 

 

 

3,338

 

Total current assets

 

 

95,679

 

 

 

105,189

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

4,672

 

 

 

4,794

 

Operating lease right-of-use assets

 

 

4,215

 

 

 

4,582

 

Long-term marketable securities

 

 

11,780

 

 

 

21,655

 

Restricted cash

 

 

405

 

 

 

405

 

Other assets

 

 

904

 

 

 

549

 

Total assets

 

$

117,655

 

 

$

137,174

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

1,045

 

 

$

2,718

 

Accrued and other liabilities

 

 

4,927

 

 

 

8,662

 

Lease liabilities, current portion

 

 

2,143

 

 

 

2,193

 

Total current liabilities

 

 

8,115

 

 

 

13,573

 

 

 

 

 

 

 

 

Lease liabilities, noncurrent portion

 

 

5,074

 

 

 

5,600

 

Warrant liabilities

 

 

1,804

 

 

 

8,301

 

Total liabilities

 

 

14,993

 

 

 

27,474

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.0001 par value, 10,000 shares authorized; no shares
   issued and outstanding as of March 31, 2022 and December 31, 2021

 

 

 

 

 

 

Common stock, $0.0001 par value, 500,000 shares authorized as of
   March 31, 2022 and December 31, 2021; 35,126 and 35,034
   shares issued and outstanding as of March 31, 2022 and
   December 31, 2021, respectively

 

 

4

 

 

 

4

 

Additional paid-in capital

 

 

253,683

 

 

 

252,464

 

Accumulated other comprehensive loss

 

 

(429

)

 

 

(119

)

Accumulated deficit

 

 

(150,596

)

 

 

(142,649

)

Total stockholders’ equity

 

 

102,662

 

 

 

109,700

 

Total liabilities and stockholders’ equity

 

$

117,655

 

 

$

137,174

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

1


 

SURROZEN, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(In thousands, except per share amounts)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

$

9,371

 

 

$

8,601

 

General and administrative

 

 

5,122

 

 

 

4,430

 

Total operating expenses

 

 

14,493

 

 

 

13,031

 

Loss from operations

 

 

(14,493

)

 

 

(13,031

)

Interest income

 

 

49

 

 

 

9

 

Other income

 

 

6,497

 

 

 

 

Net loss

 

 

(7,947

)

 

 

(13,022

)

Unrealized loss on marketable securities, net of tax

 

 

(310

)

 

 

 

Comprehensive loss

 

$

(8,257

)

 

$

(13,022

)

 

 

 

 

 

 

 

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

 

$

(0.23

)

 

$

(0.72

)

 

 

 

 

 

 

 

Weighted-average shares used in computing net
   loss per share attributable to common
   stockholders, basic and diluted

 

 

34,863

 

 

 

18,154

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

2


 

SURROZEN, INC.

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated
other

 

 

 

 

 

Total

 

 

 

Common stock

 

 

paid-in

 

 

comprehensive

 

 

Accumulated

 

 

stockholders’

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

loss

 

 

deficit

 

 

equity

 

Balance at December 31, 2021

 

 

35,034

 

 

$

4

 

 

$

252,464

 

 

$

(119

)

 

$

(142,649

)

 

$

109,700

 

Issuance of common stock under Equity Purchase Agreement

 

 

100

 

 

 

 

 

 

273

 

 

 

 

 

 

 

 

 

273

 

Repurchase of early exercised stock options

 

 

(8

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vesting of early exercised stock options

 

 

 

 

 

 

 

 

30

 

 

 

 

 

 

 

 

 

30

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

916

 

 

 

 

 

 

 

 

 

916

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(310

)

 

 

 

 

 

(310

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,947

)

 

 

(7,947

)

Balance at March 31, 2022

 

 

35,126

 

 

$

4

 

 

$

253,683

 

 

$

(429

)

 

$

(150,596

)

 

$

102,662

 

 

 

 

Redeemable convertible

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated
other

 

 

 

 

 

Total

 

 

 

preferred stock

 

 

Common stock

 

 

paid-in

 

 

comprehensive

 

 

Accumulated

 

 

stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

capital

 

 

loss

 

 

deficit

 

 

equity

 

Balance at December 31, 2020, as previously reported

 

 

95,290

 

 

$

133,097

 

 

 

8,649

 

 

$

1

 

 

$

2,196

 

 

$

 

 

$

(88,001

)

 

$

(85,804

)

Retroactive application of recapitalization

 

 

(95,290

)

 

 

(133,097

)

 

 

9,608

 

 

 

1

 

 

 

133,096

 

 

 

 

 

 

 

 

 

133,097

 

Balance at December 31, 2020, after effect of Business
   Combination

 

 

 

 

 

 

 

 

18,257

 

 

 

2

 

 

 

135,292

 

 

 

 

 

 

(88,001

)

 

 

47,293

 

Exercises of stock options

 

 

 

 

 

 

 

 

76

 

 

 

 

 

 

196

 

 

 

 

 

 

 

 

 

196

 

Restricted stock granted

 

 

 

 

 

 

 

 

123

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification to liability for early exercised stock
   options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(120

)

 

 

 

 

 

 

 

 

(120

)

Vesting of early exercised stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30

 

 

 

 

 

 

 

 

 

30

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

475

 

 

 

 

 

 

 

 

 

475

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,022

)

 

 

(13,022

)

Balance at March 31, 2021, after effect of Business
   Combination

 

 

 

 

$

 

 

 

18,456

 

 

$

2

 

 

$

135,873

 

 

$

 

 

$

(101,023

)

 

$

34,852

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

3


 

SURROZEN, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

Three Months Ended March 31,

 

 

2022

 

 

2021

 

Operating activities:

 

 

 

 

 

Net loss

$

(7,947

)

 

$

(13,022

)

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

 

 

 

 

 

Depreciation

 

534

 

 

 

511

 

Stock-based compensation

 

916

 

 

 

475

 

Non-cash operating lease expense

 

367

 

 

 

309

 

Amortization of premium on marketable securities, net

 

116

 

 

 

 

Change in fair value of warrant liabilities

 

(6,497

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

Prepaid expenses and other current assets

 

274

 

 

 

(328

)

Other assets

 

(24

)

 

 

(1

)

Accounts payable

 

(1,755

)

 

 

431

 

Accrued and other liabilities

 

(3,782

)

 

 

1,800

 

Operating lease liabilities

 

(576

)

 

 

(507

)

Net cash used in operating activities

 

(18,374

)

 

 

(10,332

)

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

Purchases of property and equipment

 

(412

)

 

 

(343

)

Purchases of marketable securities

 

 

 

 

(1,099

)

Net cash used in investing activities

 

(412

)

 

 

(1,442

)

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

Proceeds from exercise of stock options

 

 

 

 

196

 

Net cash provided by financing activities

 

 

 

 

196

 

 

 

 

 

 

 

Net decrease in cash, cash equivalents and restricted cash

 

(18,786

)

 

 

(11,578

)

Cash, cash equivalents and restricted cash at beginning of period

 

33,496

 

 

 

35,387

 

Cash, cash equivalents and restricted cash at end of period

$

14,710

 

 

$

23,809

 

 

 

 

 

 

 

Supplemental disclosure of noncash investing and financing activities:

 

 

 

 

 

Deferred costs related to Equity Purchase Agreement included in accounts
    payable, accrued liabilities and additional paid-in capital

$

432

 

 

$

 

Transaction costs in Business Combination included in accrued liabilities

$

 

 

$

267

 

Purchases of property and equipment included in accounts payable

$

 

 

$

37

 

Vesting of early exercises of stock options

$

30

 

 

$

30

 

Reclassification of early exercised stock options to liability

$

 

 

$

120

 

 

The following table presents a reconciliation of the Company’s cash, cash equivalents and restricted cash in the Company’s unaudited condensed consolidated balance sheets:

 

 

March 31,

 

 

2022

 

 

2021

 

Cash and cash equivalents

$

14,305

 

 

$

23,404

 

Restricted cash

 

405

 

 

 

405

 

Cash, cash equivalents and restricted cash

$

14,710

 

 

$

23,809

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

4


 

SURROZEN, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

Note 1. Organization and Business

 

Organization

Surrozen, Inc., or the Company, formerly known as Consonance-HFW Acquisition Corp., or Consonance, is a preclinical stage biotechnology company committed to discovering and developing drug candidates to selectively modulate the Wnt pathway, a critical mediator of tissue repair, in a broad range of organs and tissues, for human diseases. The Company, a Delaware corporation, is located in South San Francisco, California.

 

Business Combination and Private Investment in Public Entity Financing

Consonance was a blank check company incorporated as a Cayman Islands exempted company on August 21, 2020. It was formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses.

 

On August 11, 2021, Consonance consummated a business combination, or the Business Combination, among Consonance, Perseverance Merger Sub Inc., a subsidiary of Consonance, and Surrozen, Inc., or Legacy Surrozen, a Delaware company incorporated on August 12, 2015. Upon closing of the Business Combination, Consonance became a Delaware corporation and was renamed to Surrozen, Inc., Legacy Surrozen, was renamed to Surrozen Operating, Inc., and Legacy Surrozen continued as a wholly-owned subsidiary of the Company. See Note 3, "Recapitalization" for additional details.

 

Liquidity

The Company has incurred net operating losses each period since inception. During the three months ended March 31, 2022 and 2021, the Company incurred a net loss of $7.9 million and $13.0 million, respectively. During the three months ended March 31, 2022 and 2021, the Company used $18.4 million and $10.3 million of cash in operations. As of March 31, 2022, the Company had an accumulated deficit of approximately $150.6 million. The Company expects operating losses to continue in the foreseeable future because of additional costs and expenses related to the research and development activities. As of March 31, 2022, the Company had cash, cash equivalents and marketable securities of $104.3 million.

 

In February 2022, the Company entered into a purchase agreement, or the Equity Purchase Agreement, and a registration rights agreement with Lincoln Park Capital Fund, LLC, or Lincoln Park, pursuant to which Lincoln Park is obligated to purchase up to $50.0 million of the Company’s common stock from time to time at the Company’s sole discretion over a 36-month period commencing on April 27, 2022 (see Note 8).

 

Management believes that the existing cash, cash equivalents, and marketable securities are sufficient for the Company to continue operating activities for at least the next 12 months from the date of issuance of its unaudited condensed consolidated financial statements. However, if the Company’s anticipated cash burn is greater than anticipated, the Company could use its capital resources sooner than expected which may result in the need to reduce future planned expenditures and/or raise additional capital to continue to fund the operations.

 

 

Note 2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The Company’s unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with generally accepted accounting principles in the United States of America, or GAAP, and pursuant to the regulations of the U.S. Securities and Exchange Commission, or SEC. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP have been condensed or omitted, and accordingly the condensed consolidated balance sheet as of December 31, 2021 has been derived from the Company’s audited consolidated financial statements at that date but does not include all of the information required by GAAP for complete consolidated financial statements. These unaudited condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements and, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) that are necessary for a fair presentation of the Company’s consolidated financial statements. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ended December 31, 2022 or for any other interim period or for any other future year.

5


 

 

The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiary. All intercompany transactions and balances have been eliminated.

 

The Business Combination discussed in Note 1 was accounted for as a reverse recapitalization with Legacy Surrozen as the accounting acquirer and Consonance as the acquired company for accounting purposes. Accordingly, all historical financial information presented in the unaudited condensed consolidated financial statements represents the accounts of Legacy Surrozen at their historical cost as if Legacy Surrozen is the predecessor to the Company. The unaudited condensed consolidated financial statements following the closing of the Business Combination reflect the results of the combined entity’s operations. All issued and outstanding common stock, redeemable convertible preferred stock and stock awards of Legacy Surrozen and per share amounts contained in the unaudited condensed consolidated financial statements for the periods presented prior to the closing of the Business Combination have been retroactively restated to reflect the exchange ratio established in the Business Combination. See Note 3, “Recapitalization” for additional details.

 

The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 28, 2022.

 

Use of Estimates

 

The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements and the reported amounts of expenses during the reporting period. Significant estimates and assumptions made in the accompanying unaudited condensed consolidated financial statements include, but are not limited to, certain accruals for research and development activities, the fair value of common stock prior to the Business Combination, stock-based compensation expense and income taxes. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could materially differ from those estimates.

 

Concentration of Credit Risk

 

Financial instruments, which potentially subject the Company to significant concentration of credit risk, consist of cash, cash equivalents and marketable securities. The Company's cash is held by one financial institution that management believes is creditworthy. Such deposits held with the financial institution may at times exceed federally insured limits, however, its exposure to credit risk in the event of default by the financial institution is limited to the extent of amounts recorded on the unaudited condensed consolidated balance sheets. The Company performs evaluations of the relative credit standing of these financial institutions to limit the amount of credit exposure. The Company's policy is to invest cash in institutional money market funds and marketable securities with high credit quality to limit the amount of credit exposure. The Company currently maintains a portfolio of cash equivalents and marketable securities in a variety of securities, including money market funds, U.S. government bonds, foreign bonds, commercial paper and corporate debt securities. The Company has not experienced any losses on its cash equivalents and marketable securities.

 

Marketable Securities

 

The Company invests its excess cash in marketable U.S. government bonds, foreign bonds, commercial paper and corporate debt securities. All marketable securities have been classified as available-for-sale and are carried at estimated fair value as determined based upon quoted market prices or pricing models for similar securities. The Company does not buy or hold securities principally for the purpose of selling them in the near future. The Company’s policy is focused on the preservation of capital, liquidity, and return. From time to time, the Company may sell certain securities, but the objectives are generally not to generate profits on short-term differences in price.

 

Short-term marketable securities have maturities less than or equal to one year as of the balance sheet date. Long-term marketable securities have maturities greater than one year as of the balance sheet date. These marketable securities are carried at estimated fair value with unrealized holding gains and losses included in accumulated other comprehensive loss in stockholders’ equity until realized. Gains and losses on marketable security transactions are reported on the specific-identification method. Interest income is recognized in the unaudited condensed consolidated statements of operations and comprehensive loss when earned.

 

The Company periodically evaluates its available-for-sale marketable securities for impairment. When the fair value of a marketable security is below its amortized cost, the amortized cost is reduced to its fair value if it is more likely than not that the Company is

6


 

required to sell the impaired security before recovery of its amortized cost basis, or the Company has the intention to sell the security. If neither of these conditions are met, the Company determines whether the impairment is due to credit losses by comparing the present value of the expected cash flows of the security with its amortized cost basis. The amount of impairment recognized is limited to the excess of the amortized cost over the fair value of the security. An allowance for credit losses for the excess of amortized cost over the expected cash flows is recorded in other income on the unaudited condensed consolidated statements of operations. Impairment losses that are not credit-related are included in accumulated other comprehensive loss in stockholders’ equity.

 

Warrant Liabilities

The Company's Public Warrants, Private Placement Warrants and PIPE Warrants were classified as liabilities (see Note 8). At the end of each reporting period, any changes in fair value during the period are recognized in other income within the unaudited condensed consolidated statements of operations and comprehensive loss. The Company will continue to adjust the warrant liabilities for changes in the fair value until the earlier of a) the exercise or expiration of the warrants or b) the redemption of the warrants, at which time such warrants will be reclassified to additional paid-in capital.

 

Net Loss Per Share

 

Basic net loss per share is calculated by dividing the net loss attributable to common stock by the weighted-average number of shares of common stock outstanding for the period, without consideration for potential dilutive securities. Since the Company was in a loss position for the periods presented, basic net loss per share is the same as diluted net loss per share as the effects of potentially dilutive securities are antidilutive. The following table presents the potential common stock outstanding that were excluded from the computation of diluted net loss per share of common stock as of the periods presented because including them would have been antidilutive (in thousands):

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

Options outstanding

 

 

3,336

 

 

 

1,537

 

Unvested restricted stock

 

 

143

 

 

 

119

 

Unvested common stock subject to repurchase

 

 

53

 

 

 

115

 

Warrants to purchase common stock

 

 

1,804

 

 

 

 

Total

 

 

5,336

 

 

 

1,771

 

 

 

Note 3. Recapitalization

 

On August 11, 2021, Consonance consummated the Business Combination (see Note 1). Immediately after the consummation of the Business Combination, certain investors subscribed for and purchased an aggregate of 12.0 million units, each consisting of one share of the Company’s common stock and one-third of one redeemable warrant, for a purchase price of $10.00 per unit through a private investment in public entity financing, or PIPE Financing. In connection with the Business Combination and PIPE Financing, Legacy Surrozen received the aggregate cash consideration of $128.8 million, after deducting the transaction fees incurred by Consonance. The cash consideration was comprised of $8.6 million in proceeds from issuance of common stock upon the closing of the Business Combination and $120.2 million in proceeds from the PIPE Financing. The Company incurred transaction costs of $6.3 million, consisting of legal, accounting and other professional services directly related to the Business Combination, $0.4 million of which were allocated to the warrant liabilities assumed and recognized as other expenses when incurred. The remaining $5.9 million were recorded as a reduction of additional paid-in capital in the unaudited condensed consolidated balance sheet. Legacy Surrozen was deemed the accounting acquirer in the Business Combination and the Business Combination was accounted for as a reverse recapitalization based on the following predominant factors:

 

Legacy Surrozen’s stockholders have the greatest voting interest in the Company;
The Company’s board and senior management are primarily composed of individuals associated with Legacy Surrozen; and
Legacy Surrozen is the larger entity based on historical operating activity and has the larger employee base at the time of the Business Combination.

 

Accordingly, for accounting purposes, the reverse recapitalization was treated as the equivalent of Legacy Surrozen issuing stock for the net assets of Consonance, accompanied by a recapitalization. The net assets of Consonance are stated at historical cost, with no goodwill or other intangible assets recorded.

 

7


 

Pursuant to the Business Combination Agreement, upon the closing of the Business Combination, (i) each share of redeemable convertible preferred stock of Legacy Surrozen (on an as converted to common stock basis) and each share of common stock of Legacy Surrozen, whether vested or unvested, was converted into 0.175648535 shares of the Company’s common stock and (ii) each outstanding option to purchase common stock of Legacy Surrozen was converted into an option to purchase shares of the Company’s common stock based on an exchange ratio of 0.175648535, or the Exchange Ratio, with corresponding adjustments to the exercise price. All issued and outstanding common stock, preferred stock and stock awards of Legacy Surrozen and corresponding capital amounts contained in the unaudited condensed consolidated financial statements for the periods presented prior to the closing of the Business Combination have been retroactively restated to reflect the conversion.

 

 

Note 4. Fair Value Measurement

 

The following tables summarize the Company’s financial assets and liabilities that are measured at fair value on a recurring basis (in thousands):

 

 

 

March 31, 2022

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds(1)

 

$

11,565

 

 

$

 

 

$

 

 

$

11,565

 

Commercial paper

 

 

 

 

 

49,161

 

 

 

 

 

 

49,161

 

Corporate bonds

 

 

 

 

 

19,309

 

 

 

 

 

 

19,309

 

Government bonds

 

 

 

 

 

17,833

 

 

 

 

 

 

17,833

 

Foreign bonds

 

 

 

 

 

3,686

 

 

 

 

 

 

3,686

 

Total financial assets measured at fair value

 

$

11,565

 

 

$

89,989

 

 

$

 

 

$

101,554

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities(2):

 

 

 

 

 

 

 

 

 

 

 

 

Public Warrants

 

$

767

 

 

$

 

 

$

 

 

$

767

 

Private Placement Warrants

 

 

 

 

 

36

 

 

 

 

 

 

36

 

PIPE Warrants

 

 

 

 

 

1,001

 

 

 

 

 

 

1,001

 

Total financial liabilities measured at fair value

 

$

767

 

 

$

1,037

 

 

$

 

 

$

1,804

 

 

 

 

 

December 31, 2021

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds(1)

 

$

32,310

 

 

$

 

 

$

 

 

$

32,310

 

Commercial paper

 

 

 

 

 

49,136

 

 

 

 

 

 

49,136

 

Corporate bonds

 

 

 

 

 

19,480

 

 

 

 

 

 

19,480

 

Government bonds

 

 

 

 

 

18,082

 

 

 

 

 

 

18,082

 

Foreign bonds

 

 

 

 

 

3,717

 

 

 

 

 

 

3,717

 

Total financial assets measured at fair value

 

$

32,310

 

 

$

90,415

 

 

$

 

 

$

122,725

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities(2):

 

 

 

 

 

 

 

 

 

 

 

 

Public Warrants

 

$

3,527

 

 

$

 

 

$

 

 

$

3,527

 

Private Placement Warrants

 

 

 

 

 

166

 

 

 

 

 

 

166

 

PIPE Warrants

 

 

 

 

 

4,608

 

 

 

 

 

 

4,608

 

Total financial liabilities measured at fair value

 

$

3,527

 

 

$

4,774

 

 

$

 

 

$

8,301

 

 

 

(1)
Money market funds are included in cash and cash equivalents on the unaudited condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021.
(2)
See the definition and discussion of Public Warrants, Private Placement Warrants and PIPE Warrants in Note 9.

There were no changes to the valuation methods utilized and there were no transfers of financial instruments between Level 1, Level 2, and Level 3 during the three months ended March 31, 2022.

 

Corporate bonds, commercial paper, foreign bonds and government bonds are classified as Level 2 as they were valued based upon quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets.

8


 

 

The Public Warrants are classified as Level 1 due to the use of an observable market quote in an active market. The Private Placement Warrants and PIPE Warrants are classified as Level 2 due to the use of observable market data for identical or similar liabilities. The fair value of each Private Placement Warrant and PIPE Warrant was determined to be consistent with that of a Public Warrant because the Private Placement Warrants and PIPE Warrants are also subject to the make-whole redemption feature, which allows the Company to redeem both types of warrants on similar terms when the stock price is in the range of $10 to $18 per share.

 

The following tables provide the Company’s marketable securities by security type (in thousands):

 

 

 

March 31, 2022

 

 

 

Amortized Cost

 

 

Gross Unrealized Gains

 

 

Gross Unrealized Losses

 

 

Fair Value

 

Commercial paper

 

$

49,161

 

 

$

 

 

$

 

 

$

49,161

 

Corporate bonds

 

 

19,422

 

 

 

 

 

 

(113

)

 

 

19,309

 

Government bonds

 

 

6,135

 

 

 

 

 

 

(82

)

 

 

6,053

 

Foreign bonds

 

 

3,705

 

 

 

 

 

 

(19

)

 

 

3,686

 

Total short-term marketable securities

 

$

78,423

 

 

$

 

 

$

(214

)

 

$

78,209

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government bonds

 

$

11,995

 

 

$

 

 

$

(215

)

 

$

11,780

 

Total long-term marketable securities

 

$

11,995

 

 

$

 

 

$

(215

)

 

$

11,780

 

 

 

 

December 31, 2021

 

 

 

Amortized Cost

 

 

Gross Unrealized Gains

 

 

Gross Unrealized Losses

 

 

Fair Value

 

Commercial paper

 

$