10-Q Summary: Big Rock Partners Acquisition Corp.
Reporting period: Quarter and nine months ended September 30, 2020. The supplied filing is for Big Rock Partners Acquisition Corp., not NRX Pharmaceuticals, Inc. The company was a blank check company seeking an initial business combination and had no operating revenue.
Business Context and Financial Position
- The company’s activities consisted primarily of maintaining its public-company status, funding operating expenses, and searching for a target business.
- At September 30, 2020, total assets were $6.0 million, including $5.9 million in cash and marketable securities held in the Trust Account and $40,018 in operating cash.
- Adjusted working capital deficit was approximately $328,000, excluding $46,286 of prepaid income taxes paid from Trust Account funds.
- Total liabilities were $2.8 million, including $1.7 million of Extension Notes and $758,060 owed under a related-party promissory note.
- Stockholders’ equity was $3.2 million. No shares remained classified as subject to possible redemption at September 30, 2020.
Results and Key Metrics
| Metric | Three Months Ended September 30, 2020 | Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2020 | Nine Months Ended September 30, 2019 |
|---|---|---|---|---|
| Operating expenses | $169,028 | $183,305 | $469,587 | $522,228 |
| Interest income | $559 | $258,236 | $138,653 | $1,033,537 |
| Forgiveness of debt | — | — | $352,071 | — |
| Net income (loss) | $(125,779) | $59,195 | $(2,060) | $423,181 |
| Basic and diluted earnings per share | $(0.05) | $(0.04) | $(0.00) | $(0.09) |
- There was no revenue and therefore no meaningful revenue or operating margin.
- Net cash used in operating activities was $371,559 for the nine months ended September 30, 2020, compared with $530,657 in the prior-year period.
- Trust Account withdrawals to fund redemptions and franchise taxes totaled $26.5 million during the first nine months of 2020, substantially offset by the redemption of common stock.
- Ending operating cash increased from $6 at December 31, 2019 to $40,018 at September 30, 2020.
- The filing states that the company had no long-term debt, capital leases, operating leases, or other long-term liabilities; its outstanding promissory notes were short-term or transaction-related obligations.
Material Changes Versus Prior Comparable Period
- Third-quarter results shifted from $59,195 of net income in 2019 to a $125,779 net loss in 2020, primarily because Trust Account interest income declined from $258,236 to $559.
- Nine-month results declined from $423,181 of net income in 2019 to a $2,060 net loss in 2020. The 2020 result included a nonrecurring $352,071 forgiveness-of-debt gain, which largely offset operating expenses and lower interest income.
- Operating expenses decreased 10% for the nine-month period, from $522,228 to $469,587.
- Trust Account assets decreased from $32.0 million at December 31, 2019 to $5.9 million at September 30, 2020, primarily due to stockholder redemptions and tax withdrawals.
- On July 23, 2020, stockholders approved an extension of the business-combination deadline to December 23, 2020. The company redeemed 27,786 shares for approximately $299,253, or about $10.77 per share.
Guidance, Outlook, Risks, and Unusual Items
- The company had until November 23, 2020, as described in the liquidity discussion, to consummate a business combination, while the amended charter described December 23, 2020 as the extended date. The filing does not reconcile this apparent date discrepancy clearly.
- If no business combination were completed by the applicable deadline, the company would cease operations, redeem all public shares using the Trust Account, and pursue liquidation. Public warrants and rights could expire worthless.
- Management stated that it did not expect to need additional funds for ordinary operating expenditures, but additional financing was not guaranteed and could be required for a business combination or substantial redemptions.
- Loans from the Sponsor and Investor supported extension payments and operating expenses. Certain loans would be forgiven if a business combination was not completed, subject to specified exceptions.
- COVID-19 could negatively affect the company’s financial position, operations, and search for a target, but the specific impact was not determinable at the reporting date.
- The company disclosed a risk that negative interest rates could reduce the Trust Account’s value and result in public stockholders receiving less than $10 per share upon redemption.
- Nasdaq listing deficiencies related to the minimum public-holder requirement were reported as resolved on August 11, 2020, with the listing matter closed.
- Management concluded that disclosure controls and procedures were effective as of September 30, 2020, with no material change in internal control over financial reporting during the quarter.
Most Important Facts for Investors to Verify
- Confirm the registrant’s identity: the supplied Form 10-Q is for Big Rock Partners Acquisition Corp., not NRX Pharmaceuticals, Inc.
- Verify the applicable business-combination deadline, given the filing’s references to both November 23 and December 23, 2020.
- Review the status and terms of the $1.7 million Extension Notes and $758,060 related-party promissory note, including forgiveness and repayment conditions.
- Assess the remaining Trust Account balance after redemptions, taxes, and any subsequent withdrawals or deposits.
- Evaluate the likelihood of completing a business combination before the applicable deadline and the resulting treatment of public shares, rights, and warrants.
- Separate recurring operating performance from the $352,071 debt-forgiveness gain and the decline in Trust Account interest income.