Surrozen, Inc./DE Fair Value Disclosure

Note 3. Fair Value Measurement

The Company records its financial assets and liabilities at fair value. The carrying amount of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, restricted cash, accounts payable, and accrued and other liabilities, approximate their fair value due to their short-term maturities. The accounting guidance for fair value establishes a framework for measuring fair value and a fair value hierarchy that prioritizes the inputs used in valuation techniques. The fair value hierarchy is based on three levels of inputs that may be used to measure fair value as follows:

Level 1—Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2—Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

There were no changes to the valuation methods utilized on existing financial instruments, and there were no transfers of financial instruments between Level 1, Level 2, and Level 3 for the years ended December 31, 2025 and 2024.

The 2021 Public Warrants (as defined in Note 10 below) are classified as Level 1 due to the use of an observable market quote in an active market. The 2021 PIPE Warrants (as defined in Note 10 below) are classified as Level 2 due to the use of observable market data for identical or similar liabilities. The fair value of each 2021 PIPE Warrant is determined to be consistent with that of a 2021 Public Warrant because the 2021 PIPE Warrants are also subject to the make-whole redemption feature, which allows the Company to redeem both types of warrants on similar terms.

The 2024 Pre-Funded Warrants and 2025 Pre-Funded Warrants (as defined in Note 10 below) are classified as Level 2 due to the use of observable market data for similar instruments. The fair value of all pre-funded warrants is determined to be consistent with the fair value of the Company’s common stock due to the nominal exercise price.

The tranche liability (see Note 8), 2024 PIPE Warrants and 2025 PIPE Warrants (as defined in Note 10 below) are classified as Level 3 because the fair value was measured based on significant inputs that are unobservable in the market. The fair value of the tranche liability was determined using both the forward contract model and the contingent option model. The fair value of 2024 PIPE Warrants and 2025 PIPE Warrants were determined using the Black-Scholes option-pricing model. These Level 3 liabilities were initially recorded at fair value and subsequently remeasured at each reporting period with the following assumptions: expected term, expected volatility, risk-free interest rate and dividend yield. The significant unobservable inputs used in the fair value measurement of the tranche liability at inception and December 31, 2025 and the fair value measurement of the 2024 PIPE Warrants at December 31, 2024 also included the probabilities of achieving the milestones. The probabilities were determined based on the stage of development of the underlying program at the measurement date. The expected volatility was based on historical volatility of the Company’s stock price with a risk adjustment. The expected term was estimated based on expiration date or the timing of when the milestone is expected to be achieved. The risk-free interest rate was based on the implied yield available on U.S. Treasury Securities with a maturity equivalent to the expected term. The dividend rate is based on the historical rate, which the Company anticipated remaining at zero.

On December 8, 2025, in an optional closing, the Company issued and sold 0.3 million shares of common stock and Series E common stock warrants to purchase up to 0.2 million shares of common stock. The associated tranche liability was remeasured under both the forward contract model and the contingent option model using the following assumptions: (a) expected volatility of 55%, (b) risk-free interest rates between 3.6% and 3.8%, (c) expected terms between 0.9 and 5.9 years and (d) dividend yield of zero. The fair value of the issued Series E common stock warrants were initially measured using the Black-Scholes option-pricing model based on the following assumptions: (a) expected volatility of 55%, (b) risk-free interest rate of 3.7%, (c) expected term of 5 years and (d) dividend yield of zero.

The fair value of the Level 3 liabilities may change significantly as additional data is obtained. In evaluating this information, considerable judgment is required to interpret the data used to develop the assumptions and estimates. Accordingly, the use of different market assumptions and/or different valuation techniques may have a material effect on the estimated fair value amounts, and such changes could materially impact the Company’s results of operations in future periods.

Warrant Amendment and Cancellation

As described in Note 10, the 2024 PIPE Warrants included Series A, Series B, Series C and Series D common stock warrants. Due to the discontinuation of clinical development of SZN-043 in the first quarter of 2025, the fair value of the Series C and Series D common stock warrant liabilities became zero as they would not be exercisable. Additionally, in connection with the 2025 PIPE completed in March 2025 as described in Note 8, both the exercise prices of the Company’s outstanding Series A and Series B common stock warrants were reduced to $11.54 per share, except that the exercise prices per warrant for such warrants held by members of management were reduced to $12.45 per share, and the Company’s outstanding Series C and Series D common stock warrants were cancelled. The 2024 PIPE Warrants were revalued using the Black-Scholes option-pricing model immediately before and after the modification and cancellation using the following assumptions: (a) fair value of common stock of $12.00 per share, (b) expected volatility of 55%, (c) dividend yield of zero, (d) risk-free interest rate of 4.01%, and (e) expected term of 4.0 years. The increase in the fair value of the 2024 PIPE Warrants resulted from the amendment and cancellation of warrants was recorded as a loss of $2.1 million in the consolidated statements of operations.

Assets that are Measured at Fair Value on a Nonrecurring Basis

Equity investment

The Company received a warrant pursuant to a strategic research collaboration as discussed in Note 9. To determine the value of the warrant at contract inception, the Company utilized the Option Pricing Method, or OPM, based analysis, primarily the OPM backsolve methodology. Within the OPM framework, the backsolve method, for inferring the total equity value implied by a recent financing transaction, involves the construction of an allocation model that takes into account the entity’s capital structure and the rights, preferences and privileges of each class of stock, then assumes reasonable inputs for the other OPM variables. The fair value of the warrant at contract inception was determined to be $2.6 million on October 31, 2024. The key assumptions used in the OPM included a probability of contract in effect, an expected holding period of five years, an estimated volatility of 102%, a risk free interest rate of 4.11% and zero dividend yield. These represent a Level 3 nonrecurring fair value measurement.

As the warrant asset does not have a readily determinable fair value, the Company elected to use a measurement alternative for all subsequent measurements. Under such measurement alternative, the warrant is remeasured at fair value when observable transactions involving the underlying security or impairment of the warrant asset occurred. Due to termination of the collaboration and dissolution of TCGFB, Inc. in the fourth quarter of 2025, the Company wrote off $0.9 million of the recognized warrant asset and recorded an impairment charge as other expense for the year ended December 31, 2025.