Business Context and Reporting Period
The filing is a Form 10-Q for the quarter ended March 31, 2020, filed May 15, 2020. The source filing identifies the registrant as Big Rock Partners Acquisition Corp., not NRX Pharmaceuticals, Inc.; this entity mismatch should be verified.
The company was a Delaware blank-check company formed to identify and complete a business combination. It had no operating revenue and was focused on target searches, public-company compliance and related transaction activities.
Financial Performance and Position
| Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 |
|---|---|---|
| Operating expenses | $119,300 | $163,181 |
| Interest income | $113,077 | $382,862 |
| Debt forgiveness income | $352,071 | — |
| Net income | $273,220 | $187,965 |
| Basic and diluted earnings per share | $0.10 | $(0.03) |
| Net cash used in operating activities | $(76,434) | $(297,696) |
- No operating revenue was reported; conventional revenue and operating-margin analysis is not meaningful.
- Net income benefited materially from $352,071 of forgiven service-provider fees and $113,077 of Trust Account interest. Excluding the debt forgiveness, reported income would have been substantially lower.
- At March 31, 2020, cash outside the Trust Account was $80,774, while cash and marketable securities in the Trust Account totaled $6,192,007, including approximately $143,000 of accumulated interest available for taxes.
- Reported current liabilities were $316,381, including $3,145 of income taxes payable. The company also reported a $548,787 related-party promissory note and $1,631,869 of other promissory notes.
- The company reported a working-capital deficit of $209,062, excluding franchise and income taxes payable of $26,545.
- The filing’s balance-sheet text reports total assets of $6,192,007 but total liabilities and stockholders’ equity of $6,272,781. The source text does not provide a clear explanation for this apparent $80,774 discrepancy.
Material Changes Versus the Prior Comparable Period
- Net income increased to $273,220 from $187,965, primarily because of the $352,071 debt-forgiveness gain, partially offset by lower Trust Account interest income and lower operating expenses.
- Operating expenses declined by $43,881, or approximately 27%, from the prior-year quarter.
- Operating cash outflow improved by $221,262, to $76,434 from $297,696.
- Trust Account assets declined from $32,005,205 at December 31, 2019 to $6,192,007 at March 31, 2020, principally because $25,997,965 was withdrawn to redeem 2,433,721 public shares following the extension vote.
- Outstanding common shares, excluding redeemable shares, declined from 2,844,414 at December 31, 2019 to 2,716,028 at March 31, 2020. No shares remained classified as subject to possible redemption at March 31, 2020, compared with 2,305,335 at year-end.
- Promissory notes increased from $1,535,623 to $1,631,869, and the related-party note increased from $416,141 to $548,787.
Guidance, Outlook, Risks and Unusual Items
- Stockholders approved an extension of the business-combination deadline from March 23, 2020 to July 23, 2020. The company deposited $11,637 into the Trust Account for the first extension period through April 23, 2020; additional April loans funded the period through May 23, 2020.
- If a business combination is not completed by July 23, 2020, the company expects to cease operations, redeem all outstanding public shares using the Trust Account, and pursue liquidation. Public rights and warrants may expire worthless.
- Nasdaq granted continued listing after a March 2020 hearing, subject to conditions including completion of a business combination by August 10, 2020 and compliance by the combined company with initial-listing requirements. The company stated that it had not satisfied certain conditions and had submitted a modified extension request, with no response received as of the filing date.
- COVID-19 could adversely affect the search for and completion of a business combination. Management stated that there was no assurance the transaction could be completed before the applicable deadlines.
- Related parties and affiliates provided loans to fund extension payments and other expenses. These loans generally would be forgiven if no business combination occurs, subject to stated exceptions.
- The company stated that it did not expect to need additional operating funds, but financing was not guaranteed. Insufficient liquidity could require conservation measures or suspension of transaction efforts.
- The company had no long-term debt, capital leases or operating leases reported in contractual obligations. It had an agreement to pay the Sponsor $10,000 per month for administrative services, but the Sponsor stopped charging that fee effective August 20, 2018.
- Management concluded that disclosure controls and procedures were effective as of March 31, 2020, and reported no material change in internal control over financial reporting during the quarter.
Most Important Facts for Investors to Verify
- Confirm that this filing belongs to Big Rock Partners Acquisition Corp. and not NRX Pharmaceuticals, Inc.
- Reconcile the apparent $80,774 balance-sheet discrepancy between reported total assets and total liabilities plus equity.
- Verify the status of the July 23, 2020 business-combination deadline and the separate August 10, 2020 Nasdaq condition.
- Assess the probability and terms of any proposed business combination, including public-share redemption levels and required financing.
- Review the $352,071 debt-forgiveness gain and distinguish recurring operating performance from this unusual item.
- Review the repayment, forgiveness and related-party terms of the $1.63 million extension notes and $548,787 related-party promissory note.
- Confirm the amount ultimately available to public stockholders in a liquidation after taxes, creditor claims and other obligations.