Business Context and Reporting Period
This filing is a Form 10-K for the fiscal year ended December 31, 2020, filed April 1, 2021. The registrant named in the filing is Big Rock Partners Acquisition Corp., a Delaware special purpose acquisition company, rather than NRX Pharmaceuticals, Inc. The company had no substantive operating business or revenue and was pursuing a merger with NeuroRx, Inc., after which it expected to change its name to NRX Pharmaceuticals, Inc.
The proposed transaction would make NeuroRx a wholly owned subsidiary. NeuroRx is described as a clinical-stage pharmaceutical company developing treatments for central nervous system disorders and pulmonary diseases, including the ZYESAMI COVID-19 drug candidate and the NRX-100/101 bipolar-depression regimen.
Financial Metrics
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $0; the company had not begun operations | $0; the company had not begun operations |
| Operating costs | $907,406 | $713,187 |
| Interest income | $138,764 | $1,205,820 |
| Debt forgiveness income | $352,071 | None reported |
| Net income (loss) | $(434,412) | $408,427 |
| Cash used in operating activities | $(598,617) | $(792,731) |
| Trust account | $5,967,947 | $32,005,205 |
| Operating cash | $466 | $6 |
| Total liabilities | $3,281,546 | $2,574,205 |
| Stockholders’ equity | $2,768,859 | $5,000,001 |
Margins are not meaningful because the company generated no revenue. The balance sheet included approximately $862,148 of related-party promissory notes and $1,809,889 of other promissory notes. The filing states that the company had no long-term debt, capital leases, operating leases, or off-balance-sheet arrangements. The trust account was intended primarily for a business combination or shareholder redemptions and was not generally available for ordinary operations.
Material Changes Versus the Prior Comparable Period
- The company moved from net income of $408,427 in 2019 to a net loss of $434,412 in 2020, principally because trust-account interest declined substantially and operating expenses increased.
- Operating costs increased approximately 27% from $713,187 to $907,406.
- Trust-account assets declined approximately $26.0 million, from $32.0 million to $6.0 million, primarily because of shareholder redemptions and tax withdrawals.
- Operating cash use improved from $792,731 to $598,617, although available operating cash remained only $466 at year-end.
- Total liabilities increased from $2.6 million to $3.3 million, while stockholders’ equity declined from $5.0 million to $2.8 million.
- Debt forgiveness of $352,071 was recorded in 2020. The audited statements report a net loss of $434,412, while one MD&A passage refers to a net loss of $439,412; this appears to be an internal filing inconsistency.
Merger, Outlook, Risks, and Unusual Items
- The December 2020 merger agreement provided for 50 million shares of closing consideration to NeuroRx securityholders, plus up to 25 million contingent earnout shares and $100 million of contingent earnout cash tied to specified FDA milestones before December 31, 2022.
- In March 2021, the company entered into agreements for a contingent $10 million PIPE financing consisting of 1 million shares at $10 per share. The PIPE closing depended on completion of the merger and other conditions.
- Immediately after the proposed closing, the filing projected approximately 93% ownership by NeuroRx stockholders, 5% by existing company stockholders, and 2% by PIPE investors, assuming no public-share redemptions and no immediate earnout-share issuance.
- Nasdaq granted continued listing through May 24, 2021, conditioned on completing the NeuroRx merger by that date and satisfying initial-listing requirements. Failure to complete the transaction could result in delisting and liquidation.
- The company’s charter required completion of a business combination by April 23, 2021, subject to a proposed extension. If no transaction occurred by the applicable deadline, public shares were to be redeemed for their pro rata share of the trust account, subject to creditor claims and other legal limitations.
- If the merger closed, outstanding loans not repaid could be converted into NRX Pharmaceuticals convertible notes with aggregate principal of up to approximately $2.7 million, 3% annual interest, a $10 conversion price, and a 24-month maturity.
- Subsequent to year-end, purported shareholders filed or threatened litigation alleging fiduciary-duty and disclosure violations related to the merger. The company stated that the matters were at an early stage and that no loss contingency had been recorded.
- Key risks included failure to complete the merger, regulatory nonapproval of NeuroRx products, financing and redemption uncertainty, dilution from rights and warrants, Nasdaq delisting, limited operating liquidity, COVID-19 disruption, related-party conflicts, and potential claims against the trust account.
- Management reported effective disclosure controls and effective internal control over financial reporting. The independent auditor issued an unqualified opinion on the financial statements but did not opine on internal control effectiveness because such an attestation was not required for the emerging growth company.
Investor Verification Checklist
- Confirm whether the intended filing should be the Big Rock Partners Acquisition Corp. 2020 Form 10-K or a later filing for NRX Pharmaceuticals, Inc.
- Reconcile the $434,412 audited net loss with the $439,412 amount stated in one MD&A passage.
- Verify completion, termination, or subsequent amendment of the NeuroRx merger, the May 24, 2021 Nasdaq deadline, and any resulting name or ticker change.
- Confirm the final trust-account balance, public-share redemptions, PIPE proceeds, and post-transaction capitalization.
- Review FDA status and clinical, regulatory, and commercial evidence supporting the ZYESAMI and NRX-100/101 milestones.
- Assess the treatment and repayment or conversion of related-party loans and any dilution from rights, warrants, earnout shares, and convertible notes.
- Check the resolution and estimated exposure of the shareholder litigation and any other claims that could reduce trust-account distributions.