Surrozen, Inc. quarterly report, Q3 FY2020

Full document

Business Context and Reporting Period

The filing is for Consonance-HFW Acquisition Corp., not Surrozen, Inc.; investors should verify the issuer identity. This unaudited Form 10-Q covers the period from August 21, 2020 (inception) through September 30, 2020. The Cayman Islands blank-check company was formed to pursue a merger, share exchange, asset acquisition, share purchase, reorganization, or similar business combination and had not commenced operations as of September 30, 2020.

Key Financial Metrics

  • Revenue: None. The company did not expect operating revenue until after completing a business combination.
  • Net loss: $4,961, consisting of formation costs.
  • Net loss per share: $0.00 basic and diluted, based on 2,300,000 weighted-average Class B ordinary shares.
  • Total assets: $50,689, consisting entirely of deferred offering costs.
  • Current liabilities: $30,650, including $30,000 of accrued offering costs and a $650 related-party promissory note.
  • Shareholders’ equity: $20,039, including $24,770 of additional paid-in capital and an accumulated deficit of $4,961.
  • Cash flow: Net cash used in operating and financing activities was zero. The company had no cash at September 30, 2020.
  • Debt and liquidity: No long-term debt or working-capital loans were outstanding. The company relied on sponsor equity and related-party funding before its IPO.

Material Changes and Subsequent Events

  • On November 23, 2020, the company completed an IPO of 8,000,000 units at $10.00 per unit, generating $80.0 million of gross proceeds.
  • Concurrent with the IPO, the sponsor purchased 410,000 private placement units for $4.1 million.
  • On December 1, 2020, underwriters fully exercised the over-allotment option, resulting in 1,200,000 additional public units and 24,000 additional private placement units. Total additional proceeds were $12.24 million.
  • Total funds placed in the trust account reached $92.0 million. Cash held outside the trust account was $1.508 million as of November 30, 2020.
  • Total IPO-related transaction costs were reported as $5.659 million, including $1.840 million of underwriting fees, $3.220 million of deferred underwriting fees, and $598,864 of other costs.
  • Following the full exercise of the over-allotment option, 300,000 founder shares were no longer subject to forfeiture.
  • The sponsor promissory note balance was $147,753 at the IPO closing and was repaid on November 23, 2020.

Outlook, Risks, and Unusual Items

  • Management intended to use substantially all trust-account funds to complete a business combination and acknowledged that there was no assurance a transaction would be completed.
  • The target business or businesses generally must have an aggregate fair market value of at least 80% of the net assets held in the trust account, subject to the filing’s stated exclusions.
  • Public shareholders would receive redemption rights in connection with a business combination; if no qualifying transaction is completed within the applicable combination period, the company may liquidate and public warrants may expire worthless.
  • The sponsor was entitled to receive up to $55,000 per month for office space and administrative support beginning November 18, 2020 until the earlier of a business combination or liquidation.
  • Deferred underwriting fees are payable from the trust account only if a business combination is completed.
  • COVID-19 could negatively affect the company’s financial position or target search, but the specific impact was not determinable at the reporting date.
  • Management reported effective disclosure controls and no material changes in internal control over financial reporting.
  • The company identified the possibility that negative interest rates on trust-account investments could reduce the per-share redemption amount below $10.00.

Important Facts for Investors to Verify

  1. Confirm that the filing belongs to Consonance-HFW Acquisition Corp. rather than Surrozen, Inc.
  2. Review the IPO prospectus and subsequent Form 8-K filings for the final trust-account terms, combination deadline, redemption provisions, and sponsor arrangements.
  3. Verify the status and terms of any proposed business combination, including potential shareholder redemptions and financing needs.
  4. Assess dilution from founder shares, private placement units, public warrants, and any potential working-capital loans convertible into units.
  5. Confirm the amount of deferred underwriting fees and other obligations payable upon completion of a business combination.
  6. Review whether COVID-19, market conditions, or negative interest rates could affect the target search, trust-account value, or liquidation proceeds.