Business context and reporting period
This is Consonance-HFW Acquisition Corp.’s unaudited Form 10-Q for the quarter ended June 30, 2021, not an operating-company 10-Q filed by Surrozen, Inc. Consonance-HFW was a shell SPAC formed to pursue a business combination and reported no operations or operating revenue. It had signed an agreement to combine with Surrozen.
Financial results and position
- Revenue: None. The company expected no operating revenue before a business combination.
- Net loss: $3.58 million for the second quarter and $3.82 million for the six months ended June 30, 2021. The six-month loss included $2.11 million of operating and formation costs and a $1.73 million noncash loss from changes in warrant fair value. Second-quarter warrant fair-value loss was $2.54 million.
- Cash flow: $596,514 used in operating activities during the six-month period. Cash outside the trust account was $390,673 at June 30.
- Liquidity and assets: Trust-account cash and marketable securities were $92.03 million; total assets were $92.95 million. Most trust funds were restricted for a business combination or shareholder redemption and were not ordinary operating cash.
- Liabilities and equity: Total liabilities were $9.90 million, including $5.14 million of warrant liabilities and a $3.22 million deferred underwriting fee payable only if a business combination closes. Shareholders’ equity was $5.00 million. The filing reported no long-term debt or outstanding working-capital loans.
- Margins: Not meaningful because the company had no revenue.
Changes versus prior periods
The filing presents no comparable 2020 income-statement or cash-flow figures. Compared with December 31, 2020, cash outside the trust fell from $987,187 to $390,673, accrued expenses rose from $290,148 to $1.54 million, warrant liabilities increased from $3.40 million to $5.14 million, and trust assets increased from $92.00 million to $92.03 million. The six-month statements report operating and formation costs of $2,114,548, while MD&A reports $2,114,458; the filing text does not resolve this discrepancy.
Business combination, outlook, and risks
- On April 15, 2021, Consonance-HFW agreed to combine with Surrozen at an implied Surrozen equity value of $200 million. The transaction contemplated Surrozen becoming a wholly owned subsidiary and the SPAC redomiciling as a Delaware corporation. Shareholder approval and other closing conditions remained pending in this filing.
- The company also had agreements for a $120.2 million PIPE financing, consisting of 12.02 million units at $10 each. Completion of the transaction and financing was not assured.
- Management expected continued expenses for the search and transaction process. It believed available funds outside the trust would cover anticipated needs, but warned that cost overruns or financing needs—including redemptions—could require additional financing or securities issuance.
- COVID-19 could adversely affect the company or its ability to complete a business combination; management said the effect was not readily determinable. The filing also warns that negative interest rates could reduce trust value and shareholder redemption proceeds.
- Disclosure controls were reported ineffective at a reasonable-assurance level because of a material weakness in the initial accounting classification of warrants, which led to a restatement of the 2020 Form 10-K. Management reported no material change in internal control during the quarter.
Important facts for investors to verify
- Confirm the correct issuer and filing: this report is for Consonance-HFW Acquisition Corp.; it is not Surrozen’s operating financial report.
- Check the subsequent transaction outcome, shareholder redemptions, closing conditions, and whether the $120.2 million PIPE financing was completed.
- Review Surrozen’s separate financial statements and transaction disclosures for its operating results, cash needs, and business risks.
- Verify the reported six-month operating-cost figure, which differs between the financial statements and MD&A.
- Assess the warrant-related restatement and remediation of the disclosed material weakness in disclosure controls.