Business Context and Reporting Period
This unaudited Form 10-Q covers the three months ended March 31, 2021. The filing registrant is Big Rock Partners Acquisition Corp., a Delaware blank-check company, rather than NRX Pharmaceuticals, Inc. The company had no operating business or revenue and was pursuing a proposed merger with NeuroRx, Inc.
The proposed merger would have resulted in NeuroRx becoming a wholly owned subsidiary. The transaction contemplated 50,000,000 shares of closing consideration, potential earnout consideration of up to 25,000,000 shares and $100 million in cash, and a concurrent $10 million PIPE financing.
Financial Metrics
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $235,580 | $119,300 |
| Net income (loss) | $(893,718) | $273,220 |
| Basic and diluted income (loss) per share | $(0.33) | $0.10 |
| Net cash used in operating activities | $178,896 | $76,434 |
- Cash outside the Trust Account was $232 at March 31, 2021, compared with $466 at December 31, 2020.
- Cash and marketable securities held in the Trust Account were $5,968,035, including approximately $120,000 of interest income.
- Total liabilities were $4,807,716, including $1,965,095 of promissory notes, $885,604 of related-party debt, and a $1,313,324 warrant liability.
- Stockholders’ equity was $1,220,043, down from $2,113,761 at December 31, 2020.
- The company reported an adjusted working-capital deficit of $643,461, excluding prepaid income taxes.
- The company had no long-term debt, capital leases, operating leases, or off-balance-sheet arrangements.
Material Changes Versus the Prior Comparable Period
- Net results declined from income of $273,220 to a loss of $893,718, primarily because the prior-year period included $352,071 of forgiven debt and $113,077 of Trust Account interest income, while Q1 2021 included a $658,226 non-cash loss from the change in fair value of the warrant liability.
- Operating expenses increased 97.5% to $235,580 from $119,300.
- Cash used in operating activities increased to $178,896 from $76,434.
- The warrant liability increased from $655,098 at December 31, 2020 to $1,313,324 at March 31, 2021, reflecting changes in valuation assumptions and the company’s share price.
- Promissory notes increased during the quarter, with $155,206 borrowed from BRAC and $23,456 borrowed from AZ Property Partners for working capital and non-business-combination expenses.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- On March 19, 2021, the merger agreement’s outside date was extended to May 24, 2021. Stockholders approved the extension on April 21, 2021, after the reporting period. The company stated that failure to complete a business combination by the deadline would require it to cease operations, redeem public shares, and liquidate, subject to creditor claims and applicable law.
- On March 12, 2021, the company entered into contingent PIPE agreements for $10 million. The financing was conditioned on the substantially concurrent closing of the merger, Nasdaq listing approval, and other conditions.
- Nasdaq continued the company’s listing through May 24, 2021, subject to completing the NeuroRx transaction and satisfying initial-listing requirements. Failure to satisfy these conditions could result in delisting.
- A purported stockholder lawsuit and threatened lawsuits alleged fiduciary-duty and Exchange Act disclosure violations relating to the proposed merger. The company had not recorded a loss contingency because the matters were at an early stage and potential losses could not be estimated.
- Management identified a material weakness in internal control over financial reporting related to accounting for private warrants. Disclosure controls were concluded to be ineffective as of March 31, 2021, following a restatement of 2020 financial statements to classify private warrants as derivative liabilities.
- The COVID-19 pandemic could adversely affect the company’s financial position, operations, or ability to complete a business combination, although the specific impact was not determinable.
- Management stated that it expected existing resources and committed funding arrangements to cover operating needs, but additional financing was not guaranteed.
- The company adopted ASU 2020-06 on January 1, 2021; adoption did not affect the financial statements.
Important Facts for Investors to Verify
- Confirm the registrant identity and subsequent corporate actions, because this filing is for Big Rock Partners Acquisition Corp. and predates the proposed NRX Pharmaceuticals transaction.
- Verify whether the NeuroRx merger and the $10 million PIPE financing closed by the May 24, 2021 deadline and review the resulting capitalization and dilution.
- Review the Trust Account balance, redemption activity, liquidation terms, and the ability of creditors to assert claims against assets outside the Trust Account.
- Assess the effect of the private-warrant accounting restatement and whether the identified material weakness was remediated.
- Review the status and potential financial impact of the stockholder litigation and any Nasdaq listing consequences.
- Evaluate the contingent earnout obligations tied to FDA milestones for the proposed COVID-19 drug and antidepressant regimen.