Filing Overview
The provided filing is Big Rock Partners Acquisition Corp.’s Form 10-K for the fiscal year ended December 31, 2018, not an NRX Pharmaceuticals, Inc. filing. Big Rock was a blank check company formed in September 2017 to pursue a business combination, initially focusing on U.S. senior housing and care businesses. The filing was signed March 15, 2019.
Business Context and Reporting Period
- The company had no substantive operating business and had not identified a target as of December 31, 2018.
- Its securities traded on Nasdaq under BRPAU, BRPA, BRPAW and BRPAR.
- The company had until May 22, 2019, after two three-month extensions, to complete a business combination.
- If no transaction were completed, the company expected to redeem the public shares and liquidate.
Financial Metrics
| Metric | 2018 | Prior comparable period |
|---|---|---|
| Revenue | No operating revenue | No operating revenue |
| Net income (loss) | $66,101 | $(105,033), from inception through December 31, 2017 |
| Interest income | $1,088,915 | $34,183 |
| Operating costs | $1,006,503 | $134,476 |
| Income tax provision | $16,311 | None reported |
| Cash used in operating activities | $(473,187) | $(135,807) |
| Trust account and marketable securities | $70,765,966 | $69,029,443 |
| Cash outside trust account | $11,079 | $449,374 |
| Total liabilities | $1,257,410 | $93,171 |
| Promissory note payable | $690,000 | None reported |
| Common stock subject to possible redemption | $64,538,743 | $64,472,647 |
The company reported no meaningful operating margin because it had no operating revenue. Its reported profit was primarily attributable to interest income earned on trust-account investments.
Material Changes and Unusual Items
- Interest income increased substantially as the trust account was invested for a full year.
- Operating costs increased to $1.0 million from $134,476 in the partial 2017 period, reflecting public-company compliance, diligence and transaction-search costs.
- Cash outside the trust account declined to $11,079, while the trust account increased to approximately $70.8 million, including interest.
- In November 2018, the sponsor transferred 1.5 million founder shares to BRAC Lending Group LLC for nominal cash consideration in connection with extension financing.
- The company issued a $690,000 unsecured, non-interest-bearing promissory note to fund the first three-month extension. A second $690,000 note was issued in February 2019 for the second extension.
- The sponsor agreed to fund certain non-business-combination expenses, while the investor agreed to fund business-combination expenses. Certain amounts would be forgiven if no transaction occurred.
- The sponsor stopped charging the $10,000 monthly administrative fee effective August 20, 2018.
Guidance, Outlook, Risks and Contingencies
- Management intended to pursue a single business combination, primarily in the U.S. senior housing and care industry, but retained broad flexibility to select a target in another sector or geography.
- The target was required to have a fair market value of at least 80% of the trust-account balance, subject to the filing’s stated conditions.
- Public stockholders could redeem shares for their pro rata share of the trust account in connection with a completed transaction or liquidation, subject to applicable limitations.
- If no business combination occurred by May 22, 2019, the company expected to redeem all public shares and liquidate. The per-share distribution could be less than $10 because of creditor claims, taxes, bankruptcy risks or other obligations.
- The company had a working-capital deficit of approximately $1.0 million, excluding stated franchise and income taxes payable, and depended on sponsor or investor funding to continue operations.
- Risks included the absence of an operating history or revenue, inability to identify or complete a transaction, intense acquisition competition, potential dilution from warrants, rights and new securities, conflicts of interest, creditor claims against the trust account, and possible Nasdaq delisting.
- Nasdaq notified the company in January 2019 that it was not compliant with the annual-meeting requirement and granted an extension to regain compliance by May 22, 2019.
- Management reported effective disclosure controls and effective internal control over financial reporting as of December 31, 2018. The independent auditor audited the financial statements but was not engaged to provide an opinion on internal control effectiveness.
Investor Verification Points
- Confirm issuer identity: the supplied document identifies Big Rock Partners Acquisition Corp. and ticker BRPA, not NRX Pharmaceuticals, Inc.
- Verify whether a business combination was completed by May 22, 2019 and whether the company subsequently liquidated or changed its corporate identity.
- Review the final trust-account balance, redemption price and treatment of the $690,000 extension notes and any additional business-combination expenses.
- Assess the ability and enforceability of the A/Z Property Partners indemnity intended to protect the trust account from certain creditor claims.
- Review Nasdaq listing status and the outcome of the annual-meeting compliance issue.
- Evaluate potential dilution from approximately 3.6 million warrants, rights convertible into approximately 717,250 shares, and the 600,000-unit underwriter purchase option.