Full Press Release Details
SURROZEN OPERATING, INC.
INDEX TO UNAUDITED CONDENSED
INTERIM FINANCIAL STATEMENTS
| Page | ||||
| Unaudited Condensed Interim Financial Statements for the Three and Six Months Ended June 30, 2021 and 2020 | ||||
| Condensed Balance Sheets | 1 | |||
| Condensed Statements of Operations and Comprehensive Loss | 2 | |||
| Condensed Statements of Redeemable Convertible Preferred Stock and Stockholders Deficit | 3 | |||
| Condensed Statements of Cash Flows | 4 | |||
| Notes to the Unaudited Condensed Interim Financial Statements | 5 |
SURROZEN OPERATING, INC.
Condensed Balance Sheets
(In thousands, except share and per share amounts)
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 18,850 | $ | 34,982 | ||||
| Prepaid expenses and other current assets | 1,789 | 1,042 | ||||||
| Short-term investments | 6,598 | 14,200 | ||||||
| Total current assets | 27,237 | 50,224 | ||||||
| Property and equipment, net | 5,393 | 5,836 | ||||||
| Operating lease right-of-use assets | 4,928 | 5,556 | ||||||
| Other assets | 1,384 | 39 | ||||||
| Restricted cash | 405 | 405 | ||||||
| Total assets | $ | 39,347 | $ | 62,060 | ||||
| Liabilities, redeemable convertible preferred stock and stockholders deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 1,405 | $ | 1,776 | ||||
| Accrued liabilities | 6,558 | 3,394 | ||||||
| Lease liabilities, current portion | 2,009 | 2,108 | ||||||
| Total current liabilities | 9,972 | 7,278 | ||||||
| Lease liabilities, noncurrent portion | 6,553 | 7,489 | ||||||
| Total liabilities | 16,525 | 14,767 | ||||||
| Commitments and contingencies (Note 5 and Note 10) | ||||||||
| Redeemable convertible preferred stock, $0.0001 par value; 95,289,938 shares authorized as of June 30, 2021 and December 31, 2020; 95,289,932 shares issued and outstanding as of June 30, 2021 and December 31, 2020; liquidation preference of $133,300 as of June 30, 2021 and December 31, 2020 | 133,097 | 133,097 | ||||||
| Stockholders deficit: | ||||||||
| Common stock, $0.0001 par value, 120,000,000 shares authorized as of June 30, 2021 and December 31, 2020; 10,368,999 and 8,648,718 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively | 1 | 1 | ||||||
| Additional paid-in-capital | 3,400 | 2,196 | ||||||
| Accumulated deficit | (113,676 | ) | (88,001 | ) | ||||
| Total stockholders deficit | (110,275 | ) | (85,804 | ) | ||||
| Total liabilities, redeemable convertible preferred stock and stockholders deficit | $ | 39,347 | $ | 62,060 |
See accompanying notes to the unaudited condensed interim financial statements
SURROZEN OPERATING, INC.
Condensed Statements of Operations and Comprehensive Loss
thousands, except share and per share amounts)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | $ | 10,265 | $ | 5,424 | $ | 18,866 | $ | 10,076 | ||||||||
| General and administrative | 2,395 | 1,545 | 6,825 | 3,254 | ||||||||||||
| Total operating expenses | 12,660 | 6,969 | 25,691 | 13,330 | ||||||||||||
| Loss from operations | (12,660 | ) | (6,969 | ) | (25,691 | ) | (13,330 | ) | ||||||||
| Other income | 7 | 2 | 16 | 76 | ||||||||||||
| Net loss and comprehensive loss | $ | (12,653 | ) | $ | (6,967 | ) | $ | (25,675 | ) | $ | (13,254 | ) | ||||
| Net loss per share attributable to common stockholders, basic and diluted | $ | (1.50 | ) | $ | (0.95 | ) | $ | (3.11 | ) | $ | (1.85 | ) | ||||
| Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted | 8,424,379 | 7,318,370 | 8,244,336 | 7,180,539 |
See accompanying notes to the unaudited condensed interim financial statements
SURROZEN OPERATING, INC.
Condensed Statements of Redeemable Convertible Preferred Stock and Stockholders Deficit
thousands, except share amounts)
| Redeemable convertible | Additional | Total | ||||||||||||||||||||||||||
| preferred stock | Common stock | paid-in | Accumulated | stockholders | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | capital | deficit | deficit | ||||||||||||||||||||||
| Balance at December 31, 2020 | 95,289,932 | $ | 133,097 | 8,648,718 | $ | 1 | $ | 2,196 | $ | (88,001 | ) | $ | (85,804 | ) | ||||||||||||||
| Exercises of stock options | 434,811 | 196 | 196 | |||||||||||||||||||||||||
| Restricted stock granted | 500,000 | |||||||||||||||||||||||||||
| 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 | 95,289,932 | 133,097 | 9,583,529 | 1 | 2,777 | (101,023 | ) | (98,245 | ) | |||||||||||||||||||
| Exercises of stock options | 285,720 | 109 | 109 | |||||||||||||||||||||||||
| Restricted stock granted | 400,000 | |||||||||||||||||||||||||||
| Restricted stock forfeited | (93,750 | ) | ||||||||||||||||||||||||||
| Reclassification to liability for early exercised stock options | (65 | ) | (65 | ) | ||||||||||||||||||||||||
| Vesting of early exercised stock options | 47 | 47 | ||||||||||||||||||||||||||
| Repurchase of early exercised stock options | (6,500 | ) | ||||||||||||||||||||||||||
| Stock-based compensation expense | 532 | 532 | ||||||||||||||||||||||||||
| Net loss | (12,653 | ) | (12,653 | ) | ||||||||||||||||||||||||
| Balance at June 30, 2021 | 95,289,932 | $ | 133,097 | 10,168,999 | $ | 1 | $ | 3,400 | $ | (113,676 | ) | $ | (110,275 | ) |
| Redeemable convertible | Additional | Total | ||||||||||||||||||||||||||
| preferred stock | Common stock | paid-in | Accumulated | stockholders | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | capital | deficit | deficit | ||||||||||||||||||||||
| Balance at December 31, 2019 | 66,718,509 | $ | 83,211 | 8,178,290 | $ | 1 | $ | 1,459 | $ | (55,285 | ) | $ | (53,825 | ) | ||||||||||||||
| Issuance costs of Series C redeemable convertible preferred stock | (7 | ) | ||||||||||||||||||||||||||
| Exercises of stock options | 224,583 | 84 | 84 | |||||||||||||||||||||||||
| Reclassification to liability for early exercised stock options | (75 | ) | (75 | ) | ||||||||||||||||||||||||
| Vesting of early exercised stock options | 22 | 22 | ||||||||||||||||||||||||||
| Restricted stock forfeited | (29,167 | ) | ||||||||||||||||||||||||||
| Stock-based compensation expense | 180 | 180 | ||||||||||||||||||||||||||
| Net loss | (6,287 | ) | (6,287 | ) | ||||||||||||||||||||||||
| Balance at March 31, 2020 | 66,718,509 | 83,204 | 8,373,706 | 1 | 1,670 | (61,572 | ) | (59,901 | ) | |||||||||||||||||||
| Issuance of Series C redeemable convertible preferred stock, net of issuance costs of $106 | 28,571,423 | 49,893 | ||||||||||||||||||||||||||
| Exercises of stock options | 37,000 | 8 | 8 | |||||||||||||||||||||||||
| Reclassification to liability for early exercised stock options | (3 | ) | (3 | ) | ||||||||||||||||||||||||
| Vesting of early exercised stock options | 20 | 20 | ||||||||||||||||||||||||||
| Stock-based compensation expense | 128 | 128 | ||||||||||||||||||||||||||
| Net loss | (6,967 | ) | (6,967 | ) | ||||||||||||||||||||||||
| Balance at June 30, 2020 | 95,289,932 | $ | 133,097 | 8,410,706 | $ | 1 | $ | 1,823 | $ | (68,539 | ) | $ | (66,715 | ) |
See accompanying notes to the unaudited condensed interim financial statements
SURROZEN OPERATING, INC.
Condensed Statements of Cash Flows
| Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Operating activities: | ||||||||
| Net loss | $ | (25,675 | ) | $ | (13,254 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 1,003 | 1,017 | ||||||
| Stock-based compensation | 1,007 | 308 | ||||||
| Non-cash lease expense | 628 | 403 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | (747 | ) | (438 | ) | ||||
| Other assets | (1 | ) | 10 | |||||
| Accounts payable | (637 | ) | (228 | ) | ||||
| Accrued liabilities | 2,245 | 676 | ||||||
| Lease liabilities | (1,035 | ) | (719 | ) | ||||
| Net cash used in operating activities | (23,212 | ) | (12,225 | ) | ||||
| Investing activities: | ||||||||
| Purchases of property and equipment | (404 | ) | (167 | ) | ||||
| Purchases of marketable securities | (1,098 | ) | ||||||
| Maturities of marketable securities | 8,700 | |||||||
| Net cash provided by (used in) investing activities | 7,198 | (167 | ) | |||||
| Financing activities: | ||||||||
| Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs | 49,887 | |||||||
| Payments of deferred transaction costs | (422 | ) | ||||||
| Proceeds from exercise of stock options | 305 | 92 | ||||||
| Repurchase of early exercised stock options | (1 | ) | ||||||
| Net cash (used in) provided by financing activities | (118 | ) | 49,979 | |||||
| Net (decrease) increase in cash, cash equivalents and restricted cash | (16,132 | ) | 37,587 | |||||
| Cash, cash equivalents and restricted cash at beginning of period | 35,387 | 29,509 | ||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 19,255 | $ | 67,096 | ||||
| Supplemental disclosure of noncash investing and financing activities: | ||||||||
| Capital expenditures in accounts payable | $ | 156 | $ | |||||
| Vesting of early exercises of stock options | $ | 77 | $ | 42 | ||||
| Reclassification to liability for early exercised stock options | $ | 185 | $ | 78 | ||||
| Right-of-use asset obtained in exchange for lease liabilities | $ | $ | 563 | |||||
| Deferred transaction costs included in accounts payable and accrued liabilities | $ | 922 | $ |
The following table presents a reconciliation of the Company s cash, cash equivalents and restricted cash
in the Company s condensed balance sheets:
| June 30, | June 30, | |||||||
| 2021 | 2020 | |||||||
| Cash and cash equivalents | $ | 18,850 | $ | 66,691 | ||||
| Restricted cash | 405 | 405 | ||||||
| Cash, cash equivalents and restricted cash | $ | 19,255 | $ | 67,096 |
See accompanying notes to the unaudited condensed interim financial statements
SURROZEN OPERATING, INC.
Notes to the Unaudited Condensed Interim Financial Statements
Note 1. Organization
Description of Business
Surrozen Operating, Inc. (the Company also referred to as Legacy Surrozen ) 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. The Company is located in South San Francisco, California and was incorporated in the
state of Delaware on August 12, 2015.
Business Combination and Private Investment in Public Entity Financing
On April 15, 2021, the Company entered into a business combination agreement with Consonance-HFW Acquisition Corp, a Cayman Islands exempted company
( CHFW ) and Perseverance Merger Sub Inc., a subsidiary of CHFW ( Merger Sub ). Upon closing of the business combination, CHFW will become a Delaware corporation and will be renamed to Surrozen, Inc. ( New Surrozen ),
and Merger Sub will merge with and into the Company, with the Company as the surviving company and, after giving effect to such merger, continuing as a wholly-owned subsidiary of New Surrozen. Pursuant to the
business combination agreement, the Company s outstanding equity shares and equity awards (whether vested or unvested) as of closing will be exchanged for shares of New Surrozen s common stock or comparable equity awards that are settled
or are exercisable for shares of New Surrozen s common stock. Additionally, immediately after the consummation of the business combination, certain investors, including certain of the Company s existing stockholders, committed to subscribe
for and purchase an aggregate of 12,020,000 units for a purchase price of $10.00 per unit through a private investment in public entity financing ( PIPE Financing ). Each unit consists of one share of New Surrozen s common stock and one-third of one redeemable warrant for one share of New Surrozen s common stock.
On August 11, 2021, the
Company received gross proceeds of $144.7 million in connection with the consummation of the business combination with CHFW and PIPE Financing (see Note 11).
Liquidity, Capital Resources and Going Concern
Company has incurred net operating losses each period since inception. During the three and six months ended June 30, 2021, the Company incurred a net loss of $12.7 million and $25.7 million, respectively. During the six months ended
June 30, 2021, the Company used $23.2 million of cash in operations. As of June 30, 2021, the Company had an accumulated deficit of approximately $113.7 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. To date, the Company has been able to fund its operations through private placements of redeemable convertible preferred stock. As of June 30,
2021, the Company had cash and cash equivalents of $18.9 million and short-term investments of $6.6 million.
Management believes that the
existing cash, cash equivalents, and short-term investments, together with net proceeds from the business combination and PIPE Financing are sufficient for the Company to continue operating activities for at least the next 12 months from the date of
issuance of its condensed interim financial statements.
The Company plans to continue to fund its operations through public or private equity financings,
debt financings or other capital sources, including government grants, potential collaborations with other companies or other strategic transactions. The Company s ultimate success depends on the outcome of its research and development
activities. Failure to generate sufficient cash flows from operations, raise additional capital and reduce discretionary spending could have a material adverse effect on the Company s ability to achieve its intended business objectives. These
factors would have a material adverse effect on the Company s future financial results, financial position and cash flows.
business has been and could continue to be adversely affected by the evolving Coronavirus Disease 2019 (COVID-19) pandemic. For example, the COVID-19 pandemic has
resulted in and could result in delays to the Company s preclinical studies of its product pipeline. At this time, the extent to which the COVID-19 pandemic impacts the Company s business will depend
on future developments, which are highly uncertain and cannot be predicted.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The Company s condensed
interim financial statements and accompanying notes have been prepared in accordance with generally accepted accounting principles in the United States of America ( U.S. GAAP ) as determined by the Financial Accounting Standards Board
( FASB ) Accounting Standards Codification ( ASC ) and pursuant to the regulations of the U.S. Securities and Exchange Commission ( SEC ). The Company has no subsidiaries.
Notes to the Unaudited Condensed Interim Financial Statements
The preparation of condensed interim financial statements in conformity with U.S. 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 condensed interim financial statements and the reported amounts of expenses during the reporting period. Significant
estimates and assumptions made in the accompanying condensed interim financial statements include, but are not limited to, certain accruals for research and development activities, the fair value of common stock, stock-based compensation expense,
uncertain tax positions and lease liabilities. 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.
Unaudited Condensed Interim Financial Statements
accompanying condensed balance sheet as of June 30, 2021, the condensed statements of redeemable convertible preferred stock and stockholders deficit and the condensed statements of operations and comprehensive loss for the three and six
months ended June 30, 2021 and 2020, and the condensed statements of cash flows for the six months ended June 30, 2021 and 2020 are unaudited. The unaudited condensed interim financial statements have been prepared on the same basis as the
audited annual financial statements and, in management s opinion, include all adjustments consisting of only normal recurring adjustments necessary for the fair statement of the Company s financial position as of June 30, 2021, its
results of operations for the three and six months ended June 30, 2021 and 2020, and its cash flows for the six months ended June 30, 2021 and 2020. The financial data and the other financial information disclosed in the notes to these
condensed interim financial statements related to the six-month periods are also unaudited. The condensed balance sheet as of December 31, 2020 was derived from the audited financial statements as of that
date. The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results to be expected for the full fiscal year or any other period.
These condensed interim financial statements should be read in conjunction with the Company s audited financial statements for the years ended December
Deferred Transaction Costs
Company capitalizes transaction costs consisting of direct, incremental legal, accounting and other fees in connection with the anticipated business combination with CHFW (see Note 1). The deferred transaction costs will be offset against the
proceeds from the transaction upon the consummation of the business combination. Should the business combination be abandoned, the deferred transaction costs will be expensed immediately as a charge to operating expenses in the condensed statements
of operations and comprehensive loss. As of June 30, 2021, the Company incurred $1.3 million of deferred transaction costs, which were included in other assets on the condensed balance sheet. As of December 31, 2020, the Company had not
incurred any such costs.
Notes to the Unaudited Condensed Interim Financial Statements
As of both June 30, 2021 and December 31, 2020, the Company had $0.4 million of restricted cash in the form of a letter of credit for the
Company s facility lease. The restricted cash is classified as noncurrent asset as the Company is required to maintain the letter of credit for the benefit of landlord until the end of the lease term in April 2025.
Concentration of Credit Risk
Financial instruments,
which potentially subject the Company to significant concentration of credit risk, consist of cash, cash equivalents, short-term investments and restricted cash. The Company is exposed to credit risk in the event of default to the extent recorded in
the condensed balance sheets. The Company has not experienced any losses in such accounts. Management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institution in which its bank
deposits are held. To manage credit risks related to short-term investments, the Company invests in various highly rated corporate bonds and commercial paper securities.
Research and Development Expenses
development costs are expensed as incurred. Research and development costs consist of external and internal expenses directly attributable to the conduct of research and development programs. The external expenses include the cost of services
provided by outside contractors, clinical research organizations and contract manufacturing organizations. The internal expenses include the cost of salaries, payroll taxes, stock-based compensation, employee benefits, materials, supplies,
depreciation on and maintenance of research equipment, and the facility costs for laboratory space used for research and development activities, such as rent, utilities, insurance, repairs and maintenance, and general support services.
The Company has entered into and may continue to enter into licensing or subscription arrangements to access and utilize certain technology. In each case, the
Company evaluates if the license agreement results in the acquisition of an asset or a business. To date, none of the Company s license agreements have been considered an acquisition of a business. For asset acquisitions, the upfront payments
to acquire such licenses, as well as any future milestone payments made before product approval that do not meet the definition of a derivative, are immediately recognized as research and development expense when they are paid or become payable,
provided there is no alternative future use of the rights in other research and development projects.
Notes to the Unaudited Condensed Interim Financial Statements
Basic net loss per share is calculated by dividing the net loss attributable to common shares by the weighted-average number of shares of common stock