Business Context and Reporting Period
The filing is a Form 10-Q for the quarter and nine months ended September 30, 2019, filed November 14, 2019. The registrant identified in the filing is Big Rock Partners Acquisition Corp., a Delaware blank-check company, not NRX Pharmaceuticals, Inc. The company had no operating business or revenue and was seeking a business combination without an industry or geographic limitation.
The company reported 6,068,840 common shares issued and outstanding as of November 8, 2019. Its securities traded on Nasdaq under BRPA, BRPAU, BRPAR and BRPAW.
Key Financial Metrics
| Metric | Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 | Comparable 2018 Period |
|---|---|---|---|
| Operating expenses | $183,305 | $522,228 | $220,243 and $684,427, respectively |
| Interest income | $258,236 | $1,033,537 | $283,390 and $769,441, respectively |
| Net income | $59,195 | $423,181 | $28,084 and $36,962, respectively |
| Adjusted loss attributable to non-redeemable common stock | $100,291 | $235,815 | $160,159 and $505,764, respectively |
| Basic and diluted loss per share | $(0.04) | $(0.09) | $(0.06) and $(0.19), respectively |
| Net cash used in operating activities | Not separately provided | $530,657 | $402,303 |
The company generated no operating revenue. Reported net income primarily reflected interest earned on trust-account investments, while operating activities remained loss-making before trust-account interest.
At September 30, 2019, cash outside the trust account was $194,280, cash and marketable securities in the trust account were $41,477,046, and total assets were $41,685,076. The company reported a working-capital deficit of $300,476, excluding $133,239 of franchise and income taxes payable.
Total liabilities were $2,433,757, including $1,464,814 of promissory notes payable, $327,198 owed under a related-party promissory note, and $641,745 of current liabilities. Stockholders’ equity was $5,000,006. The company stated that it had no long-term debt, capital lease obligations, operating lease obligations or other long-term liabilities.
Material Changes Versus the Prior Comparable Period
- Third-quarter net income increased to $59,195 from $28,084, while nine-month net income increased to $423,181 from $36,962.
- Third-quarter operating expenses declined to $183,305 from $220,243; nine-month operating expenses declined to $522,228 from $684,427.
- Nine-month interest income increased to $1,033,537 from $769,441, supporting the increase in reported net income.
- Nine-month operating cash use increased to $530,657 from $402,303 despite higher reported net income.
- The company redeemed 2,119,772 shares for $22.1 million in connection with the extension to August 22, 2019 and an additional 846,888 shares for $8.9 million in connection with the extension to November 22, 2019.
- Shares subject to possible redemption declined to 3,258,579 from 6,310,461 at December 31, 2018, while the related temporary-equity balance declined to $34.25 million from $64.54 million.
- Promissory notes payable increased to $1.46 million from $690,000 at year-end 2018, and a $327,198 related-party note was outstanding at September 30, 2019.
Outlook, Risks, Contingencies and Unusual Items
- The company’s deadline to complete a business combination was November 22, 2019. A special meeting was scheduled for November 21, 2019 to seek approval to extend the deadline to March 23, 2020.
- If the extension was approved, public stockholders could elect redemption, subject to the requirement that net tangible assets remain at least $5,000,001. If approval was not obtained, the company expected to wind up and liquidate.
- In October 2019, the company deposited an additional $78,667 into the trust account and issued $39,333 promissory notes to each of the Investor and Sponsor. These notes were non-interest-bearing and generally would be forgiven if no business combination occurred, subject to available funds outside the trust account.
- The Sponsor had agreed to fund certain non-business-combination expenses, while the Investor agreed to fund business-combination expenses. Neither party was generally obligated to provide additional financing beyond the specified arrangements.
- Nasdaq notified the company that it was not in compliance with the minimum 300-public-holder requirement. The company submitted a compliance plan and requested an extension; Nasdaq’s response remained pending as of the filing date. The notice was described as a deficiency notification, not an immediate delisting.
- The company previously received a Nasdaq deficiency notice for failing to hold an annual meeting within the required period, but regained compliance after holding the meeting on May 21, 2019.
- The trust account was invested in money market funds investing solely in U.S. Treasuries. Management did not expect material interest-rate risk.
- No legal proceedings, material changes to previously disclosed risk factors, or off-balance-sheet arrangements were reported. Management concluded that disclosure controls were effective as of September 30, 2019.
Investor Verification Priorities
- Verify the filing identity: the provided filing is for Big Rock Partners Acquisition Corp. and does not identify NRX Pharmaceuticals, Inc. as the registrant.
- Confirm whether the November 21, 2019 stockholder vote extended the business-combination deadline to March 23, 2020 or instead triggered liquidation.
- Review subsequent redemption activity and the final amount remaining in the trust account.
- Confirm Nasdaq’s decision regarding the minimum-public-holder deficiency and any resulting listing or delisting actions.
- Assess the ability to fund operations and transaction expenses given the $194,280 of unrestricted cash, working-capital deficit and dependence on Sponsor or Investor financing.
- Review the terms, repayment or forgiveness status of the $1.46 million of promissory notes and $327,198 related-party note.
- Distinguish reported net income from underlying operating performance, since the company had no operating revenue and earnings were primarily generated by trust-account interest.