On May 6, 2021, the audit committeeFlamel. From 2000 to 2014, Mr. Willard was also a member of the board of directors
for E*TRADE Financial, a subsidiary of Morgan Stanley, which offers an electronic trading platform to trade financial assets. Mr. Willard has more than 20 years of experience as the CEO of pharma and biotech companies. He also has additional experience covering all aspects of building and running public and private companies, including acquisition and divestment, development, staffing, manufacturing, licensing and supply. Since 2018, Mr. Willard has served as a member of the National Science Board, which governs the National Science Foundation. Mr. Willard received a B.A. from Williams College in 1982 and a J.D. from Yale Law School in 1985. | 1 | Robert Besthof has resigned from the company and his last day with the Company is May 1, 2023. |
Robert Besthof MIM. Mr. Besthof has been our Head of Operations and Chief Commercial Officer since May 2021, except from March 2022 to July 2022 where he served as our Interim Chief Executive Officer. Mr. Besthof also served as the Chief Commercial Officer of NeuroRx, Inc., the predecessor to our company, from March 2016 to May 2021. Mr. Besthof is a seasoned professional with more than 25 years of experience in biopharma marketing and operations, including at Pfizer, Wyeth, and Eli Lilly. Mr. Besthof has held various positions at Pfizer since 2004, including his most recent role as Vice President of Global Commercial Development for Neuroscience and Pain products at Pfizer. He has a track record of leadership in positions of increasing responsibility, including: profit and loss for marketing and sales and has enabled the rapid growth of pharmaceutical pipelines and led product launches across multiple therapeutic areas. Prior to joining the pharmaceutical industry, Mr. Besthof worked for Deutsche Bank and in consulting. He holds a B.A. in Economics from Case Western Reserve University, and a Masters of International Management from The Thunderbird School of Global Management
Riccardo Panicucci. Mr. Panicucci has served as our CMC and Technical Operations Advisor since January 2021. Rick is currently the SVP of CMC at BridgeBio Pharma and has served in this role since March 2018. Prior to joining BridgeBio, Mr. Panicucci served as VP of Pharmaceutical Development Services at WuXi STA from February 2015 to March 2018, where he provided scientific leadership in formulation development and GMP manufacturing. From 2004 to 2015, Mr. Panicucci served as Global Head of Chemical and Pharmaceutical Profiling (CPP) at Novartis. Mr. Panicucci has also led R&D groups at Vertex Pharmaceuticals, Symbollon Pharmaceuticals, Biogen, and Bausch & Lomb. Mr. Panicucci earned a Ph.D. in Chemistry from the University of Toronto and did a Post-Doctoral Fellowship at the University of California, Santa Barbara.
Seth Van Voorhees, Ph.D. Dr. Van Voorhees has served as our Chief Financial Officer since June 2022. Dr. Van Voorhees most recently served as CFO of PDS Biotechnology Corporation (“Audit Committee”PDS Biotechnology”) during which he completed several financing transactions in 2021. Prior to joining PDS Biotechnology, he spent 10 years as the CFO and Vice President of Business Development for Research Frontiers Inc. from January 2010 to December 2020. Prior to this role, Dr. Van Voorhees served as CFO for American Pacific Corp. Earlier in his career, Dr. Van Voorhees was an investment banking officer responsible for chemical and pharmaceutical clients at Merrill Lynch, UBS Warburg, and Wasserstein Perella. Dr. Van Voorhees received a Ph.D. in chemistry from the University of Pennsylvania and an MBA from Columbia University.
Patrick J. Flynn. Mr. Flynn has served as a member of our Board since May 2021. Mr. Flynn is an entrepreneur with more than 35 years of senior executive experience. He has provided leadership to numerous successful organizations including start-ups and growth-stage companies and has served in a variety of roles, including Executive Chairman, board member, CEO, COO, CFO and advisor. Mr. Flynn served as a member of the NeuroRx, Inc., the predecessor of the Company, board of directors from 2017. Since 2012, Mr. Flynn has been serving as a member of the board of directors for Common Sensing Inc., a data-driven hardware and software solutions company. Additionally, Mr. Flynn currently serves as the COO of Good Measures where he is responsible for the day-to-day operations of the company’s innovative approach to healthcare and nutrition services. Prior to joining Good Measures, Mr. Flynn was the co-founder of Predilytics, Inc. and served as Executive Chairman. Before joining Predilytics, Mr. Flynn contributed his expertise as COO and then as CEO to Health Dialog, where he helped build the business from an early-stage healthcare services organization to one of the world’s leading providers of healthcare analytics, healthcare services and decision support. Prior to this role, Flynn was a co-founder of Symmetrix, a management consulting firm specializing in healthcare and financial services. Mr. Flynn began his career with Bank of America where he held several positions over the course of 15 years, including Vice President of World Banking and Vice President of Risk Management. Mr. Flynn earned his B.S. in Finance from the Wharton School at the University of Pennsylvania.
Sharon A. Glied, Ph.D. Dr. Glied has served as a member of our Board since May 2021. Dr. Glied served as a member of NeuroRx, Inc., the predecessor to our company’s board of directors from December 2015. Dr. Glied has served as the Dean of New York University’s Robert F. Wagner Graduate School of Public Service since August 2013. From 1989 to August 2013, Dr. Glied was the Professor of Health Policy and Management at Columbia University’s Mailman School of Public Health, where she served as the Chair of the Department of Health Policy and Management from 1998 to 2009. In June 2010, Dr. Glied was confirmed by the U.S. Senate as Assistant Secretary for Planning and Evaluation at the Department of Health and Human Services, serving in that capacity from July 2010 through August 2012. She has previously also served as Assistant Secretary of Health under President Obama and as a member of the President’s Council of Economic Advisors under President Bush. She is one of the world’s leading experts on mental health policy. She has been elected to the Institute of Medicine of the National Academy of Sciences, the National Academy of Social Insurance, and the Board of Academy Health, and has been a member of the Congressional Budget Office’s Panel of Health Advisers and a research associate of the National Bureau of Economic Research. She is co-editor, with Peter C. Smith, of The Oxford Handbook of Health Economics, which was published by the Oxford University Press in 2011. Dr. Glied holds a B.A. in Economics from Yale University, a Master’s degree in Economics from the University of Toronto and a Ph.D. in Economics from Harvard University.
Aaron Gorovitz. Mr. Gorovitz has served as a member of our Board since May 2021. Mr. Gorovitz served as a member of the NeuroRx, Inc., the predecessor to our company, board of directors from 2016. He is a partner of the AHG Group. In addition to his 25 years of legal experience in complex commercial transactions, he has considerable involvement in early-stage biotechnology and health information technology companies. Mr. Gorovitz holds a B.A. from Muhlenberg College and a J.D. from George Washington University Law School.
Chaim Hurvitz. Mr. Hurvitz has served as a member of our Board since May 2021. He served as a member of the NeuroRx, Inc., the predecessor to our company, board of directors from May 2015. Mr. Hurvitz has served as the Chief Executive Officer of CH Health, a private venture capital firm, since May 2011. Mr. Hurvitz previously served as a member of the board of directors of Teva Pharmaceuticals Industries Ltd. from October 2010 to July 2014. Previously, he was a member of the senior management of Teva Pharmaceuticals Industries Ltd., serving as the President of Teva International Group from 2002 until 2010, as President and Chief Executive Officer of Teva Pharmaceuticals Europe from 1992 to 1999 and as Vice President - Israeli Pharmaceutical Sales from 1999 until 2002. Mr. Hurvitz is a founding investor and a director of Galmed Pharmaceuticals Ltd. Mr. Hurvitz presently serves as a member of the management of the Manufacturers Association of Israel and head of its pharmaceutical branch. Mr. Hurvitz holds a B.A. from Tel Aviv University.
Jonathan Javitt, M.D., M.P.H. Dr. Javitt served as our Chief Executive Officer and Chairman of our Board from May 2021 until March 2022, and since March 2022, has served as Chief Scientist and as a member of our Board. He served as Chairman of the Board and the Chief Executive Officer of NeuroRx, Inc., the predecessor to our company, from its founding in 2015. Prior to starting NeuroRx, Inc., he participated in leading drug and medical device development and commercialization projects for Allergan, Alcon, Eyetech, Merck, Novartis, Pfizer, and Pharmacia. He has played leadership roles in seven successful healthcare IT and biopharma start-up companies. He was appointed to healthcare leadership roles under President Ronald Reagan, George H.W. Bush, Clinton and George W. Bush. During the Reagan and Bush ‘41 administrations, he was designated as an Expert Consultant to the Department of Health and Human Services. President Clinton designated him as a Special Government Employee of the White House Executive Office of the President to serve on the 1993 Health Reform Task Force. Under President George W. Bush, he was commissioned to lead the Healthcare Committee of the President’s Information Technology Advisory Committee and to serve as a Special Employee of the Undersecretary of Defense. Dr. Javitt has published more than 200 scientific works in the areas of health outcomes and pharmacoeconomics that have been cited more than 31,000 times. Dr. Javitt holds an A.B. with Honors from Princeton University, an M.D. from Cornell University and a Masters of Public Health from the Harvard Chan School of Public Health. In 2015, he was designated an Alumnus of Merit, the highest honor bestowed by Harvard University to graduates of the School of Public Health. He continues to serve as an adjunct Professor of Ophthalmology at Johns Hopkins School of Medicine and as a Senior Fellow of the Potomac Institute for Policy Studies.
Board Composition and Election of Directors
Director Independence
Our Board has determined after consultationthat Sharon A. Glied, Patrick J. Flynn, Aaron Gorovitz, and Chaim Hurvitz are “independent directors” as defined in the Nasdaq listing standards and applicable SEC rules.
Classified Board of Directors
In accordance with Marcum LLP,our Charter, our Board is divided into three classes with staggered, three year terms. At each annual meeting of stockholders, the successors to directors whose terms then expire are elected to serve from the time of election and qualification until the third annual meeting following election. Our directors are divided among the three classes as follows:
| · | the Class I director is Chaim Hurvitz, and his term expires at our 2025 annual meeting of stockholders; |
| · | the Class II directors are Sharon Glied and Aaron Gorovitz, and their terms will expire at our 2023 annual meeting of stockholders; and |
| · | the Class III directors are Stephen Willard, Patrick Flynn and Jonathan Javitt, and their terms will expire at the 2024 annual meeting of stockholders. |
Our Charter provides that the authorized number of directors may be changed only by resolution of the Board. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. The division of our Board into three classes with staggered three-year terms may delay or prevent a change of our management or a change in control of our company. Subject to the special rights of the holders of one or more outstanding series of preferred stock to elect directors, our directors may be removed only for cause by the affirmative vote of the holders of at least 75% of our outstanding voting stock entitled to vote in the election of directors. The Board currently has one vacancy that we are currently looking to fill.
Board Committees
Our Board directs the management of our business and affairs, as provided by Delaware law, and conducts its business through meetings of the Board and standing committees. We have a standing audit committee, nominating and corporate governance committee and compensation committee. In addition, from time to time, special committees may be established under the direction of the Board when necessary to address specific issues.
Audit Committee
Our audit committee is responsible for, among other things:
| · | appointing, compensating, retaining, evaluating, terminating and overseeing our independent registered public accounting firm; |
| · | discussing with our independent registered public accounting firm their independence from management; |
| · | reviewing, with our independent registered public accounting firm, the scope and results of their audit; |
| · | approving all audit and permissible non-audit services to be performed by our independent registered public accounting firm; |
| · | overseeing the financial reporting process and discussing with management and our independent registered public accounting firm the quarterly and annual financial statements that we file with the SEC; |
| · | overseeing our financial and accounting controls and compliance with legal and regulatory requirements; |
| · | reviewing our policies on risk assessment and risk management; |
| · | reviewing related person transactions; and |
| · | establishing procedures for the confidential anonymous submission of concerns regarding questionable accounting, internal controls or auditing matters. |
Our audit committee consists of Messrs. Flynn, Mr. Gorovitz and Mr. Hurvitz, with Mr. Flynn serving as chair. Rule 10A-3 of the Exchange Act and the Nasdaq rules require that our audit committee be composed entirely of independent members. Our Board has affirmatively determined that Messrs. Flynn, Mr. Gorovitz, and Mr. Hurvitz each meet the definition of “independent director” for purposes of serving on the audit committee under Rule 10A-3 of the Exchange Act and the Nasdaq rules. Each member of our audit committee also meets the financial literacy requirements of Nasdaq listing standards. In addition, our Board has determined that Messrs. Flynn and Gorovitz each qualify as an “audit committee financial expert,” as such term is defined in Item 407(d)(5) of Regulation S-K. Our Board has adopted a written charter for the audit committee.
Compensation Committee
Our compensation committee is responsible for, among other things:
| · | reviewing and approving the corporate goals and objectives, evaluating the performance of and reviewing and approving, (either alone or, if directed by our Board, in conjunction with a majority of the independent members of the Board) the compensation of our Chief Executive Officer; |
| · | overseeing an evaluation of the performance of and reviewing and setting or making recommendations to our Board regarding the compensation of our other executive officers; |
| · | reviewing and approving or making recommendations to our Board regarding our incentive compensation and equity-based plans, policies and programs; |
| · | reviewing and approving all employment agreement and severance arrangements for our executive officers; |
| · | making recommendations to our Board regarding the compensation of our directors; and |
| · | retaining and overseeing any compensation consultants. |
Our compensation committee consists of Messrs. Flynn, Mr. Gorovitz, and Mr. Hurvitz with Mr. Flynn serving as chair. Mr. Hurvitz was appointed to the compensation committee on March 30, 2023 and Mr. Troy served on this committee until July 18, 2022 when his term on the board of directors terminated. Our Board has affirmatively determined that Messrs. Flynn and Gorovitz each meet the definition of “independent director” for purposes of serving on the compensation committee under the Nasdaq rules, including the heightened independence standards for members of a compensation committee, and are “non-employee directors” as defined in Rule 16b-3 of the Exchange Act. Our Board has adopted a written charter for the compensation committee.
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee is responsible for, among other things:
| · | identifying individuals qualified to become members of our Board, consistent with criteria approved by our Board; |
| · | overseeing succession planning for our Chief Executive Officer and other executive officers; |
| · | periodically reviewing our Board’s leadership structure and recommending any proposed changes to our Board; |
| · | overseeing an annual evaluation of the effectiveness of our Board and its committees; and |
| · | developing and recommending to our Board a set of corporate governance guidelines. |
Our nominating and corporate governance committee consists of Dr. Glied, Mr. Hurvitz, and Dr. Javitt, with Dr. Glied serving as chair. Mr. Hurvitz was appointed to the compensation committee on March 30, 2023 and Mr. Troy served on this committee until July 18, 2022 when his term on the board of directors terminated. Our Board has affirmatively determined that Dr. Glied and Mr. Hurvitz each meet the definition of “independent director” under the Nasdaq rules. The Board has determined that the appointment of Dr. Javitt, the founder of the Company, to the Nominating and Corporate Governance Committee is required by the best interests of the Company and its shareholders. The Board believes Dr. Javitt’s unique experience, qualifications and contributions to the Company create an exceptional and limited set of circumstances that will be useful in the identification and nomination of potential new Board members. Dr. Javitt’s term on the Nominating and Corporate Governance Committee will expire on May 24, 2023.
Risk Oversight
Our Board is responsible for overseeing our risk management process. Our Board focuses on our general risk management strategy, the most significant risks facing us, and oversees the implementation of risk mitigation strategies by management. Our audit committee is also responsible for discussing our policies with respect to risk assessment and risk management. Our Board believes its administration of its risk oversight function has not negatively affected our Board’s leadership structure.
Compensation Committee Interlocks and Insider Participation
None of our executive officers serves as a member of the Board or compensation committee (or other committee performing equivalent functions) of any entity that has one or more executive officers serving on our Board or compensation committee.
Code of Business Conduct and Ethics
We adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of the code is posted on our corporate website at www.nrxpharma.com. In addition, we intend to post on our website all disclosures that are required by law or the Nasdaq listing standards concerning any amendments to, or waivers from, any provision of the code. The information contained in, or accessible through, our website does not constitute a part of this Form 10-K/A. We have included our website address in this Form 10-K/A solely as an inactive textual reference.
Item 11. Executive Compensation
EXECUTIVE COMPENSATION
Our “Named Executive Officers” for the year ended December 31, 2022 include (i) Stephen Willard, our Chief Executive Officer, (ii) Jonathan Javitt, our Chief Scientist and former Chief Executive Officer, (iii) Robert Besthof, our former Chief Commercial Officer and former Interim Chief Executive Officer, (iv) Seth Van Voorhees, our Chief Financial Officer and Treasurer, (v) Rick Panicucci, our Chief Technology Officer, (vi) Ira Strassberg, our former Chief Financial Officer, and (vii) Alessandra Daigneault, former Chief Corporate Officer, General Counsel and Secretary.
2022 Summary Compensation Table
The following table presents information regarding the total compensation of our Named Executive Officers for the years ended December 31, 2022 and December 31, 2021.
| Name and Principal Position | | Year | | Salary ($) | | | Bonus
($)(1) | | | Stock
Awards
($)(2) | | | Option
Awards
($)(3) | | | All Other
Compensation
($)(4) | | | Total ($) | |
Stephen Willard(5)
Chief Executive Officer | | 2022 | | | 233,871 | | | | — | | | | 566,000 | | | | — | | | | — | | | | 799,871 | |
Jonathan Javitt(6)
Chief Scientist and former Chief Executive Officer | | 2022 | | | 919,758 | | | | — | | | | — | | | | — | | | $ | 6,250 | | | | 926,008 | |
| | | 2021 | | | 275,000 | | | | — | | | | — | | | | — | | | | 102,287 | | | | 377,287 | |
Robert Besthof(7)
Former Chief Commercial and former Interim Chief Executive Officer | | 2022 | | | 436,559 | | | | — | | | | — | | | | 195,000 | | | | — | | | | 631,559 | |
| | | 2021 | | | 264,000 | | | | — | | | | — | | | | — | | | | — | | | | 264,000 | |
Seth Van Voorhees(8)
Chief Financial Officer and Treasurer | | 2022 | | | 220,000 | | | | — | | | | — | | | | 134,875 | | | | — | | | | 354,875 | |
Rick Panicucci
Chief Technology Officer | | 2022 | | | 220,000 | | | | — | | | | — | | | | — | | | | — | | | | 220,000 | |
Ira Strassberg(9)
Former Chief Financial Officer and Treasurer | | 2022 | | | 216,375 | | | | — | | | | — | | | | 1,000,875 | (11) | | | — | | | | 1,217,250 | |
Alessandra Daigneault(10)
Former Chief Corporate Officer, General Counsel and Secretary | | 2022 | | | 162,844 | | | | 290,000 | | | | — | | | | — | | | | 132,000 | | | | 584,844 | |
| | | 2021 | | | 228,000 | | | | 290,000 | | | | — | | | | 1,754,611 | | | | 2,961 | | | | 2,275,572 | |
| (1) | Amount reported for Ms. Daigneault in 2022 reflects (i) $60,000 awarded as a discretionary bonus; (ii) $100,000 awarded as a transaction bonus; and (iii) $130,000 in reimbursement for Ms. Daigneault’s exercise of stock options. |
| (2) | Amount reflects the grant date fair value of restricted stock granted as an employment inducement award during fiscal year 2022 as calculated in accordance with ASC Topic 718, excluding the effect of estimated forfeitures. See Note 10 to the consolidated financial statements contained in the Form 10-K for information regarding the assumptions used in calculating this amount. |
| (3) | Amount reflects the grant date fair value of stock options granted during fiscal year 2022 or fiscal year 2021 as calculated in accordance with ASC Topic 718, excluding the effect of estimated forfeitures. See Note 10 to the consolidated financial statements contained in the Form 10-K for information regarding the assumptions used in calculating these amounts. |
| (4) | For 2022, the All Other Compensation column reflects: (i) for Mr. Javitt, $6,250 for his service as chairman of the Board during the first quarter of 2022; and (ii) for Ms. Daigneault, $132,000 in severance payments. |
| (5) | Mr. Willard was appointed Chief Executive Officer on July 12, 2022. |
| (6) | Mr. Javitt retired from his role as Chief Executive Officer on March 8, 2022. As of March 8, 2022, Mr. Javitt assumed the role of Chief Scientist and remained on the Company’s board of directors. |
| (7) | Mr. Besthof was appointed Interim Chief Executive Officer on March 8, 2022. Prior to such date, Mr. Besthof served as Chief Commercial Officer. Following Mr. Willard’s appointment as Chief Executive Officer on July 12, 2022, Mr. Besthof resumed his role as Chief Commercial Officer. Mr. Besthof’s employment terminated on April 30, 2023. |
| (8) | Dr. Van Voorhees was appointed Chief Financial Officer and Treasurer on June 6, 2022, effective June 13, 2022. |
| (9) | Mr. Strassberg’s employment terminated on July 7, 2022. |
| (10 | Ms. Daigneault’s employment terminated on July 22, 2022. |
| (11) | Mr. Strassberg’s option grant was forfeited in its entirety in connection with his termination. |
| (8) | Dr. Van Voorhees was appointed Chief Financial Officer and Treasurer on June 6, 2022, effective June 13, 2022. |
| (9) | Mr. Strassberg’s employment terminated on July 7, 2022. |
| (10 | Ms. Daigneault’s employment terminated on July 22, 2022. |
| (11) | Mr. Strassberg’s option grant was forfeited in its entirety in connection with his termination. |
Narrative to Summary Compensation Table
Base Salaries and Compensation
NRx’s Named Executive Officers receive an annual base salary or annual rate of compensation to compensate them for services rendered to NRx. The base salary or annual rate of compensation payable to each Named Executive Officer is intended to provide a fixed component of compensation reflecting the executive’s skill set, experience, role and responsibilities. For 2022, (i) Mr. Willard’s annual base salary was set at $500,000; (ii) Dr. Javitt’s annual base salary was set at $275,000 until March 8, 2022; following March 8, 2022, Dr. Javitt’s annual consulting fee was set at $1,000,000; (iii) Mr. Besthof’s annual consulting fee was set at $264,000 until March 8, 2022; following March 8, 2022, Mr. Besthof’s annual consulting fee was approximately $500,000; (iv) Dr. Van Voorhees’s annual base salary was set at $400,000; (v) Mr. Panicucci’s annual base salary was set at $220,000; (vi) Mr. Strassberg’s annual base salary was set at $400,000; and (vii) Ms. Daigneault’s annual base salary was set at $264,000.
Cash Bonus Compensation
Pursuant to their employment agreements, Mr. Willard, Dr. Van Voorhees, and Mr. Strassberg are eligible to receive a discretionary annual performance-based cash bonus with a target equal to 50% of base salary. Pursuant to his employment agreement, Dr. Javitt was eligible to receive a discretionary annual performance-based cash bonus with a target equal to $275,000. Pursuant to her employment agreement, Ms. Daigneault was eligible to receive a discretionary annual performance-based cash bonus with a target equal to 20% of base salary plus an additional $100,000 for each successful financing transaction. Pursuant to his consulting agreement, Mr. Panicucci is eligible to receive a discretionary annual cash bonus of $50,000 upon achievement of certain performance objectives. Pursuant to Mr. Besthof’s letter agreement, he was eligible to receive a special payment for calendar year 2022 equal to $250,000 at target based on achievement of performance metrics determined by the Board.
Equity Compensation
We typically grant stock options pursuant to the NRX Pharmaceuticals, Inc. 2021 Omnibus Incentive Plan (the “Omnibus Plan”) as the long-term incentive component of our compensation program. Stock options allow employees, including our Named Executive Officers, to purchase shares of our Common Stock at a price equal to the fair market value of our Common Stock on the date of grant. Our stock options have vesting schedules that are designed to encourage continued employment and typically vest in substantially equal installments on each of the first three anniversaries of the applicable vesting commencement date, subject to the recipient’s continued service through each applicable vesting date. From time to time, our Board may also construct alternate vesting schedules as it determines appropriate to motivate particular employees, as further described below.
Option Awards
Dr. Van Voorhees, Mr. Besthof, and Mr. Strassberg were granted options to purchase 325,000, 100,000 and 425,000 shares of Common Stock in 2022, respectively. Mr. Strassberg’s options were forfeited for no consideration in connection with his termination.
Mr. Besthof received a grant of 100,000 options in March 2022 (the “Besthof 2022 Options”) that vested on the one year anniversary of the grant date. The Besthof 2022 Options are described below under “Potential Payments upon Termination or Change in Control – Besthof Agreement”.
Refer to the “Outstanding Equity Awards at 2022 Fiscal Year End” table below for additional information regarding these options.
Willard Restricted Stock Award
As an inducement to join the Company, Mr. Willard received a grant of 1,000,000 shares of restricted stock. Such grant of restricted stock was designed to comply with the NASDAQ inducement exemption and was granted outside of the Company’s independent registered public accounting firm,existing equity compensation plans. However, the restricted stock award is governed in all respects as if issued under the Omnibus Plan. The shares of restricted stock will vest in substantially equal installments on each of the first three anniversaries of the date of grant, subject to Mr. Willard’s continued employment with, appointment as a director of, or engagement to provide services to, the Company through the applicable vesting date.
Mr. Willard’s shares of restricted stock are subject to clawback if Mr. Willard engages in conduct that the Company’s financial statements which were includedis in the Original 10-K should no longer be relied upon due to an error in such financial statements relatingconflict with or adverse to the Company’s classificationinterests while employed by the Company, including violating non-competition, non-solicitation, and non-disparagement covenants.
Refer to the “Outstanding Equity Awards at 2022 Fiscal Year End” table below for additional information regarding these shares of restricted stock.
Executive Employment Arrangements
Willard Employment Agreement
In connection with his commencement of employment with us in July 2022, we entered into an aggregateemployment agreement with Mr. Willard (the “Willard Employment Agreement”) pursuant to which he serves as our Chief Executive Officer and on our Board. The Willard Employment Agreement provides for an initial two-year term and extends automatically for additional one-year periods unless either party provides notice of 136,250 warrantstermination. The Willard Employment Agreement provides for an annual base salary of $500,000, a performance-based bonus with a minimum target of 50% of base salary (with such bonus for 2022 pro-rated based on the number of days employed), and an inducement grant of 1,000,000 shares of restricted stock that were issuedvests over a three-year period.
The Willard Employment Agreement includes (i) a confidentiality covenant that applies during the term of employment and for three years following termination, (ii) assignment of intellectual property, (iii) a non-competition covenant that applies during the term of employment and for 12 months following termination, and (iv) non-solicitation of employees and customers covenants that apply during the term of employment and for 12 months following termination.
Javitt Employment Agreement and Javitt Consulting Agreement
In connection with his commencement of employment with us in May 2015, we entered into an employment agreement with Dr. Javitt (the “Javitt Employment Agreement”) pursuant to which he served as our Chief Executive Officer and President. The Javitt Employment Agreement provided for an initial five-year term and extended automatically for additional one-year periods unless either party provided notice of termination. The Javitt Employment Agreement provided for a base salary of $275,000, subject to periodic increase by the Board. The Javitt Employment Agreement was terminated on March 8, 2022 when Dr. Javitt retired and became a consultant to the Company. Upon entering into the Javitt Consulting Agreement (as defined below), Dr. Javitt waived his rights to the bonus, severance and certain other provisions under the Javitt Employment Agreement.
Pursuant to a consulting agreement between the Company and Dr. Javitt, dated as of March 8, 2022 (the “Javitt Consulting Agreement”), Dr. Javitt will provide consulting services to the Company for a one-year period, including reviewing and providing scientific and strategic advice to the Company’s sponsorexecutive officers. The Javitt Consulting Agreement provided for an annual consulting fee of $1,000,000, with $250,000 paid within 10 days of the Javitt Consulting Agreement’s effective date and the remaining $750,000 payable in monthly installments of $75,000, subject to continued service.
The Javitt Consulting Agreement provides that the confidentiality, non-competition and non-solicitation covenants from the Javitt Employment Agreement continue to apply during the term of Dr. Javitt’s service and during the three-year period (with respect to the confidentiality covenant) or 12-month period (with respect to the non-competition and non-solicitation covenants) thereafter.
The Company may terminate the Javitt Consulting Agreement without prior notice immediately upon a private placementtermination for Cause. Dr. Javitt may terminate the Javitt Consulting Agreement upon 30 days’ notice at any time and for any reason. Upon termination of Javitt Consulting Agreement, the Company will pay Dr. Javitt any consulting fees and expenses that closed concurrentlyhave been accrued but not yet paid. “Cause” is defined in the Javitt Consulting Agreement as: (i) Dr. Javitt’s gross negligence or willful misconduct, or willful and continued failure to substantially perform his duties (other than due to physical or mental illness or incapacity), which, in either case, causes material injury to the reputation or business of the Company; (ii) Dr. Javitt’s conviction of, or plea of guilty or nolo contendere to, a felony or other crime; (iii) Dr. Javitt’s fraud or embezzlement or other material misuse of funds or property belonging to the Company; or (iv) any material breach by Dr. Javitt under the Javitt Consulting Agreement subject to a 10 day notice and cure period (if reasonably capable of cure).
The Javitt Consulting Agreement was amended on March 29, 2023 (the “Javitt Consulting Agreement Amendment”). The Javitt Consulting Agreement Amendment provides for an initial period ending on March 8, 2024, subject to successive one-year terms unless either party provides notice of termination. The Javitt Consulting Agreement Amendment provides for: (i) an annual consulting fee of $575,000, payable in monthly installments; (ii) eligibility for an annual performance-based bonus with a minimum target of $250,000 (with the annual bonus, if any, for 2023 pro-rated based on the number of days during the 2023 calendar year following March 8, 2023 that Dr. Javitt is engaged by the Company); and (iii) subject to Board approval, a grant of 500,000 shares of restricted stock that will vest (x) 50% on the date upon which the Food and Drug Administration files the Company’s new drug application for the Antidepressant Drug Regimen (as defined therein) and (y) 50% on the date upon which the Food and Drug Administration has both approved the Company’s Antidepressant Drug Regimen and listed the Company’s Antidepressant Drug Regiment in the Food and Drug Administration’s “Orange Book.”
Besthof Agreement
Mr. Besthof was engaged by NeuroRx as Chief Commercial and Patient Officer and Head of Operations pursuant to the terms of a “Work For Hire” Agreement between NeuroRx and REBes Consulting LLC - Robert Besthof, dated as of March 1, 2016, which was amended as of October 23, 2020 (as amended, the “Besthof Agreement”).
The Besthof Agreement provides for an initial one-year term and extends automatically for additional one-month periods unless NeuroRx provides written notice of non-renewal at least 10 days prior to the expiration of the term, or unless Mr. Besthof’s services are terminated. The Besthof Agreement provides for a consulting fee, which was equal to $22,000 per month in 2022.
The Besthof Agreement includes an (i) assignment of intellectual property covenant, (ii) confidentiality covenant that applies for the greater of (x) a two-year period after the date of disclosure or (y) a two-year period from the end of the term of the Besthof Agreement, and (iii) non-contract covenant pursuant to which Mr. Besthof will not contract with any third party to manufacture or assist in the manufacture of an NMDA-based treatment for bipolar depression that applies for the term of the Besthof Agreement and for two years following the termination of the Besthof Agreement.
Effective March 8, 2022, Mr. Besthof, on behalf of his personal services corporation, entered into a letter agreement with the closingCompany (the “Besthof Letter Agreement”). The Besthof Letter Agreement supplements the Besthof Agreement. The Besthof Letter Agreement provides for an aggregate monthly payment of $41,667 (of which $19,667 was for services as the Interim Chief Executive Officer) to Mr. Besthof for total annual payments at an annual rate of approximately $500,000 and a special payment for 2022 of up to $250,000 based on achievement of certain performance metrics to be determined by the Board. The Besthof Letter Agreement also provided for the grant of the Company’sBesthof 2022 Options. Pursuant to the Besthof Letter Agreement, Mr. Besthof was entitled to the additional payment $19,667 per month as Interim Chief Executive Officer for at least six months, unless he resigned or was terminated for “cause” (as defined in the Besthof Letter Agreement). The Besthof Letter Agreement also provides Mr. Besthof with customary indemnification and directors and officers insurance coverage.
Van Voorhees Employment Agreement
In connection with his commencement of employment with us in June 2022, we entered into an employment agreement with Dr. Van Voorhees (the “Van Voorhees Employment Agreement”) pursuant to which he serves as our Chief Financial Officer and Treasurer. The Van Voorhees Employment Agreement provides for an initial public offering (“Private Warrants”two-year term and extends automatically for additional one-year periods unless either party provides notice of termination. The Van Voorhees Employment Agreement provides for an annual base salary of $400,000, a performance-based bonus with a target of 50% of base salary, and a grant of 325,000 stock options that vest over a two-year period, with 162,500 options vesting on June 5, 2023 and 162,500 options vesting on June 5, 2024.
The Van Voorhees Employment Agreement includes (i) a confidentiality covenant that applies during the term of employment and for three years following termination, (ii) assignment of intellectual property, (iii) a non-competition covenant that applies during the term of employment and for 12 months following termination, and (iv) non-solicitation of employees and customers covenants that apply during the term of employment and for 12 months following termination.
Panicucci Consulting Agreement
Mr. Panicucci and NeuroRx entered into a consulting agreement effective as of January 7, 2021 (the “Panicucci Consulting Agreement”). The Panicucci Consulting Agreement provides for: (i) a consulting fee of $20,000 per month for approximately 20 hours of service per week; (ii) a grant of 25,000 stock options that vest in substantially equal installments over a three-year period; and (iii) an annual bonus of $50,000 upon achievement of certain objectives. The Panicucci Consulting Agreement will continue in effect until terminated by either party.
The Panicucci Consulting Agreement includes a confidentiality covenant that applies for a period of two years after the date of disclosure or two years from the end of the consulting term, whichever is greater.
Strassberg Employment Agreement
In connection with his commencement of employment with us in March 2022, we entered into an employment agreement with Mr. Strassberg (the “Strassberg Employment Agreement”) pursuant to which he served as equity. Similarly,our Chief Financial Officer and Treasurer. The Strassberg Employment Agreement provided for an initial two-year term and extended automatically for additional one-year periods unless either party provided notice of termination. The Strassberg Employment Agreement provided for an annual base salary of $400,000, a performance-based bonus with a minimum target of 50% of base salary, and a grant of 425,000 stock options that vest over a two year period, with 212,500 options vesting on March 15, 2023 and 212,500 options vesting on March 15, 2024. In connection with his termination, Mr. Strassberg’s options were forfeited for no consideration.
The Strassberg Employment Agreement includes (i) a confidentiality covenant that applies during the Company’s management’s reports onterm of employment and for three years following termination, (ii) assignment of intellectual property, (iii) a non-competition covenant that applies during the effectivenessterm of internal control over financial reportingemployment and for such12 months following termination, and (iv) non-solicitation of employees and customers covenants that apply during the term of employment and for 12 months following termination.
Daigneault Employment Agreement
Effective September 1, 2021, we entered into an employment agreement with Ms. Daigneault (the “Daigneault Employment Agreement”) pursuant to which she served as Chief Corporate Officer, General Counsel, Corporate Secretary and, prior to March 8, 2022, Acting Treasurer. The Daigneault Employment Agreement provided for an initial one-year term and extended automatically for additional one-year periods should no longer be relied upon.
In connection with the restatement, the Company’s management reassessed the effectiveness of its disclosure controls and proceduresNamed Executive Officer as of December 31,
2020. As2022.| | | Option Awards | | Stock Awards | |
| Name | | Vesting
Commencement
Date | | Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable | | | Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable | | | Option
Exercise
Price
($) | | | Option
Expiration
Date | | Number
of
shares
or units
of stock
that
have
not
vested
(#) | | | Market
value of
shares
or units
of stock
that
have
not
vested
($)(1) | | | Equity
incentive
plan
awards:
number
of
unearned
shares,
units or
other
rights
that have
not
vested (#) | | | Equity
incentive
plan
awards:
market
or payout
value of
unearned
shares,
units or
other
rights
that have
not
vested ($) | |
| Stephen Willard | | 7/12/2022 | (2) | | — | | | | — | | | | — | | | — | | | 1,000,000 | | | | 1,110,000 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Jonathan Javitt | | — | | | — | | | | — | | | | — | | | — | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Robert Besthof | | 3/1/2016 | | | 247,200 | | | | — | | | | 0.20 | | | 2/28/2026 | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 5/24/2021 | (3) | | 138,880 | | | | 208,320 | | | | 3.08 | | | 10/23/2030 | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 3/8/2022 | (4) | | — | | | | 100,000 | | | 2.61 | | | 3/8/2032 | | | — | | | | — | | | | — | | | | — | |
| | | Option Awards | | Stock Awards | |
| Name | | Vesting
Commencement
Date | | Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable | | | Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable | | | Option
Exercise
Price
($) | | | Option
Expiration
Date | | Number
of
shares
or units
of stock
that
have
not
vested
(#) | | | Market
value of
shares
or units
of stock
that
have
not
vested
($)(1) | | | Equity
incentive
plan
awards:
number
of
unearned
shares,
units or
other
rights
that have
not
vested (#) | | | Equity
incentive
plan
awards:
market
or payout
value of
unearned
shares,
units or
other
rights
that have
not
vested ($) | |
| Seth Van Voorhees | | 6/13/2022 | (5) | | — | | | | 325,000 | | | | 0.51 | | | 6/12/2032 | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Rick Panicucci | | — | | | — | | | | — | | | — | | | — | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Ira Strassberg | | — | | | — | | | | — | | | — | | | — | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Alessandra Daigneault | | — | | | — | | | | — | | | — | | | — | | | — | | | | — | | | | — | | | | — | |
| (1) | Market value is based on the closing sale price of our common stock on December 31, 2022 of $1.11. |
| (2) | These shares of restricted stock vest in substantially equal installments on each of the first three anniversaries of the grant date, subject to continued service. |
| (3) | These stock options vest in substantially equal installments on October 23, 2023, October 23, 2024, and October 23, 2025. |
| (4) | These stock options vested on March 8, 2023. |
| | |
| (5) | These stock options vest over a two-year period, with 162,500 options vesting on June 13, 2023 and 162,500 options vesting on June 13, 2024, subject to continued service. |
Health, Welfare and Retirement Plans
We do not maintain a result of that reassessment and in light401(k) defined contribution plan or any other employee benefit plans or programs.
Clawback
The Board is reviewing the final rule issued by the SEC implementing the provisions of the SEC Statement,Dodd-Frank Wall Street Reform and Consumer Protection Act relating to recoupment of incentive-based compensation and will adopt a compliant clawback policy when the NASDAQ adopts listing standards in accordance with the final rules.
Potential Payments upon Termination or Change in Control
Willard Employment Agreement
In the event Mr. Willard’s employment is terminated due to his death or disability, by the Company for Cause, or by Mr. Willard without Good Reason, the Company will pay to Mr. Willard (or his beneficiary or estate, as applicable): (i) base salary earned but not paid through the date of termination, (ii) pay for any vacation time earned but not used through the date of termination, (iii) any annual bonus earned for the year preceding the year of termination but unpaid on the date of termination and (iv) any business expenses incurred but not reimbursed on the date of termination.
In the event Mr. Willard’s employment is terminated by the Company without Cause, upon a Change of Control (as defined in the Willard Employment Agreement) or upon Mr. Willard’s resignation for Good Reason, subject to Mr. Willard’s execution and non-revocation of a general release of claims, the Company will pay Mr. Willard: (i) continued base salary payments for the period beginning on the termination date and ending on the first anniversary of the termination date; and (ii) all accrued compensation and a prorated target bonus through the date of termination.
“Cause” is defined in the Willard Employment Agreement as: (i) Mr. Willard’s failure to perform (other than by reason of disability), or gross negligence in the performance of, his material duties and responsibilities to the Company (unauthorized absence for a period of five consecutive business days will be considered failure to perform); (ii) material breach of the confidentiality covenant or assignment of rights to intellectual property covenant or breach of any fiduciary duty owed to the Company; (iii) fraud or embezzlement or other dishonesty which is material (monetarily or otherwise) with respect to the Company; (iv) indictment, conviction or plea of nolo contendere to a felony or other crime involving moral turpitude that is material to the Company; (v) Mr. Willard’s material breach of the Willard Employment Agreement or of any Company policy; or (vi) disciplinary proceedings or other events that impair Mr. Willard’s ability to function as Chief Executive Officer of the Company.
“Good Reason” is defined in the Willard Employment Agreement as: (i) material diminution of Mr. Willard’s compensation or benefits; (ii) material diminution of Mr. Willard’s title, duties, authority or responsibilities; (iii) the Company’s management determined that its disclosure controls and procedures asmaterial breach of December 31, 2020 were not effective solely as a result of its classificationany term of the Private Warrants as components of equity instead of as derivative liabilities. For a discussion of management’s considerationWillard Employment Agreement; (iv) the failure of the Board to nominate Mr. Willard to fill one of the vacant seats on the Board; or (v) the required relocation of Mr. Willard’s place of employment to a location that is more than 25 miles from his home.
Javitt Consulting Agreement
The Company may terminate the Javitt Consulting Agreement without prior notice immediately upon a termination for Cause. Dr. Javitt may terminate the Javitt Consulting Agreement upon 30 days’ notice at any time and for any reason. Upon termination of Javitt Consulting Agreement, the Company will pay Dr. Javitt any consulting fees and expenses that have been accrued but not yet paid. “Cause” is defined in the Javitt Consulting Agreement as: (i) Dr. Javitt’s gross negligence or willful misconduct, or willful and continued failure to substantially perform his duties (other than due to physical or mental illness or incapacity), which, in either case, causes material weakness identified, see Item 9A. Controlsinjury to the reputation or business of the Company; (ii) Dr. Javitt’s conviction of, or plea of guilty or nolo contendere to, a felony or other crime; (iii) Dr. Javitt’s fraud or embezzlement or other material misuse of funds or property belonging to the Company; or (iv) any material breach by Dr. Javitt under the Javitt Consulting Agreement subject to a 10 day notice and Procedures includedcure period (if reasonably capable of cure).
Besthof Agreement
If, following a change in this Amendment.control, either (a) Mr. Besthof’s assigned and required place of work is more than 50 miles from his home or (b) there is a substantial and material diminution in his duties or title, Mr. Besthof will have the right to terminate for good reason and will be entitled to receive fee payment continuation at his current rate of $22,000 for a period of 12 months and (c) 12 months of health care coverage under an equivalent to the employer plan at “gold level” or a supplemental payment equivalent to the health insurance premium payment under any such plan.
If, following a change in control, Mr. Besthof is terminated without cause (which is not defined in the Besthof Agreement), Mr. Besthof is entitled to receive (i) fee payment continuation at his current rate of $22,000 for a period of 12 months and (ii) 12 months of health care coverage under an equivalent to the employer plan at “gold level” or a supplemental payment equivalent to the health insurance premium payment under any such plan.
Item 1A Risk Factors
OurBesthof Letter Agreement
Pursuant to the Besthof Letter Agreement, if Mr. Besthof was terminated by the Company without “cause” prior to the Company hiring a permanent chief executive officer or, under limited circumstances, he resigned, he may have received separation payments of up to six months of pay, the special payment, to the extent not yet paid, and vesting of the Besthof 2022 Options.
Van Voorhees Employment Agreement
In the event Mr. Van Voorhees’ employment is terminated due to his death or disability, by the Company for Cause, or by Mr. Van Voorhees without Good Reason, the Company will pay to Mr. Van Voorhees (or his beneficiary or estate, as applicable): (i) base salary earned but not paid through the date of termination, (ii) pay for any vacation time earned but not used through the date of termination, (iii) any annual bonus awarded for the year preceding the year of termination but unpaid on the date of termination and (iv) any business financial condition, operating results,expenses incurred but not reimbursed on the date of termination.
In the event Mr. Van Voorhees’s employment is terminated by the Company without Cause, upon a Change of Control (as defined in the Van Voorhees Employment Agreement) or upon Mr. Van Voorhees’ resignation for Good Reason, subject to Mr. Van Voorhees’ execution and cash flows maynon-revocation of a general release of claims, the Company will pay Mr. Van Voorhees: (i) continued base salary payments for the period beginning on the termination date and ending on the nine month anniversary of the termination date; (ii) all accrued compensation and a prorated target bonus through the date of termination; and (iii) all unvested equity compensation held by Mr. Van Voorhees will vest and become fully exercisable.
“Cause” is defined in the Van Voorhees Employment Agreement as: (i) Mr. Van Voorhees’ failure to perform (other than by reason of disability), or gross negligence in the performance of, his material duties and responsibilities to the Company (unauthorized absence for a period of five consecutive business days will be impacted by a numberconsidered failure to perform); (ii) material breach of factors, manythe confidentiality covenant or assignment of which are beyond our control, including those set forth below and elsewhere in this Amendment and the Original 10-K, the occurrencerights to intellectual property covenant or breach of any one of which could have a material adverse effect on our actual results. The risks set forth below do not include specific risks relating to our proposed business combination with NeuroRx, or the risks inherent in NeuroRx’s business, which are included in Amendment No. 1fiduciary duty owed to the Registration StatementCompany; (iii) fraud or embezzlement or other dishonesty which is material (monetarily or otherwise) with respect to the Company; (iv) indictment, conviction or plea of nolo contendere to a felony or other crime involving moral turpitude that is material to the Company; or (v) loss of CPA licensure, disciplinary proceedings or other events that impair Mr. Van Voorhees’ ability to function as Chief Financial Officer or Treasurer of the Company.
“Good Reason” is defined in the Van Voorhees Employment Agreement as: (i) material diminution of Mr. Van Voorhees’ compensation or benefits; (ii) material diminution of Mr. Van Voorhees’ title, duties, authority or responsibilities; (iii) the Company’s material breach of any term of the Van Voorhees Employment Agreement; or (iv) the relocation of Mr. Van Voorhees’ place of employment to a location that is more than 20 miles from his home.
Panicucci Consulting Agreement
Upon termination of the Panicucci Consulting Agreement, the Company will pay Mr. Panicucci (or his estate, if applicable) any earned but unpaid consulting fees and reimbursement of business expenses.
Strassberg Employment Agreement
In the event Mr. Strassberg’s employment is terminated due to his death or disability, by the Company for Cause, or by Mr. Strassberg without Good Reason, the Company will pay to Mr. Strassberg (or his beneficiary or estate, as applicable): (i) base salary earned but not paid through the date of termination, (ii) pay for any vacation time earned but not used through the date of termination, (iii) any annual bonus awarded for the year preceding the year of termination but unpaid on Form S-4/Athe date of termination and (iv) any business expenses incurred but not reimbursed on the date of termination.
In the event Mr. Strassberg’s employment is terminated by the Company without Cause, upon a Change of Control (as defined in the Strassberg Employment Agreement) or upon Mr. Strassberg’s resignation for Good Reason, subject to Mr. Strassberg’s execution and non-revocation of a general release of claims, the Company will pay Mr. Strassberg: (i) continued base salary payments for the period beginning on the termination date and ending on the one year anniversary of the termination date; (ii) all accrued compensation and a prorated target bonus through the date of termination; and (iii) all unvested equity compensation held by Mr. Strassberg will vest and become fully exercisable.
“Cause” is defined in the Strassberg Employment Agreement as: (i) Mr. Strassberg’s failure to perform (other than by reason of disability), or gross negligence in the performance of, his material duties and responsibilities to the Company (unauthorized absence for a period of five consecutive business days will be considered failure to perform); (ii) material breach of the confidentiality covenant or assignment of rights to intellectual property covenant or breach of any fiduciary duty owed to the Company; (iii) fraud or embezzlement or other dishonesty which we filedis material (monetarily or otherwise) with respect to the Company; (iv) indictment, conviction or plea of nolo contendere to a felony or other crime involving moral turpitude that is material to the Company; or (v) loss of CPA licensure, disciplinary proceedings or other events that impair Mr. Strassberg’s ability to function as Chief Financial Officer or Treasurer of the Company.
“Good Reason” is defined in the Strassberg Employment Agreement as: (i) material diminution of Mr. Strassberg compensation or benefits; (ii) material diminution of Mr. Strassberg’s title, duties, authority or responsibilities; (iii) the Company’s material breach of any term of the Strassberg Employment Agreement; or (iv) the relocation of Mr. Strassberg’s place of employment to a location that is more than 20 miles from his home.
Daigneault Employment Agreement
In the event Ms. Daigneault was terminated by us without Cause or upon a Change of Control, subject to her execution of a release of claims, in addition to the Final Compensation (as defined below), she would have been entitled to receive (i) severance pay equal to the base salary then in effect through the six month anniversary of the termination date (the “Daigneault Severance Pay”), (ii) accrued compensation not yet paid and (iii) a prorated bonus through the date of termination. In connection with Ms. Daigneault’s termination with the SECCompany on April 16, 2021,July 22, 2022, she received severance pay equal to six months of her base salary.
“Cause” is defined in the Daigneault Employment Agreement as may be further amended from timeMs. Daigneault’s (i) failure to time. The risks presented below assumes that we will not consummateperform (other than by reason of disability), or serious negligence in the proposed business combination with NeuroRx,performance of, her material duties and that we will secure a further extension to consummate an initial business combination and then seek to find an alternative target with which to consummate an initial business combination.
Risks Relatingresponsibilities to the Restatement
Our Private Warrants are accountedCompany (unauthorized absence of Ms. Daigneault for a period of five business days will be considered failure to perform); (ii) material breach of confidentiality or intellectual property provisions contained in the employment agreement or breach of any fiduciary duty owed to the Company; (iii) fraud or embezzlement or other dishonesty which is material (monetarily or otherwise) with respect to the Company; (iv) indictment, conviction or plea of nolo contendere to a felony or other crime involving moral turpitude that is material to the Company; or (v) loss of legal licensure, legal disciplinary proceedings, or other events that impair Ms. Daigneault’s ability to function as liabilities and the changes in value of our Private Warrants could have a material effect on our financial results.
On April 12, 2021, the Acting DirectorCorporate Secretary of the
Division of Corporation Finance and Acting Chief AccountantCompany.Pursuant to the terms of the SEC together issued a statement regardingDaigneault Employment Agreement, in the accountingevent Ms. Daigneault was terminated due to death or disability, the executive or her beneficiaries, as applicable, would have been entitled to (i) base salary earned but not paid through the date of termination, (ii) pay for any vacation time earned but not used through the date of termination, (iii) any annual bonus awarded for the year preceding that in which termination occurs but unpaid on the date of termination and reporting considerations for warrants issued by special purpose acquisition companies entitled “Staff Statement(iv) any business expenses incurred but not reimbursed on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”) (the “SEC Statement”). The SEC Statement advises, among other things, that certain adjustments generally present in SPAC warrants preclude such warrants from being accounted for as equity. As a resultthe date of termination (all of the SEC Statement, we reevaluatedforegoing, the accounting treatment“Final Compensation”).
Equity Incentive Awards
Pursuant to the Omnibus Plan, in the event of a Change in Control (as defined in the Omnibus Plan): (i) if the acquirer or successor company in such Change in Control has agreed to provide for the substitution, assumption, exchange or other continuation of the Private Warrants and determinedstock options, then, if the Named Executive Officer’s employment with or service to classify the Private Warrants as liabilities measured at fair value, with changes in fair value recognizedCompany is terminated by the Company without Cause (as defined in the statementOmnibus Plan) (and other than due to death or disability) on or within 24 months following a Change in Control, then all of operationsthe Named Executive Officer’s options will become immediately exercisable; (ii) if the acquirer or successor company in such Change in Control has not agreed to provide for the substitution, assumption, exchange or other continuation of the options, all options held by the Named Executive Officer will become immediately exercisable; and (iii) the Committee (as defined in the period of change.
As a result, included on our consolidated balance sheet as of December 31, 2020 is a derivative liability relatedOmnibus Plan) may cancel any outstanding options in exchange for cash, securities or other property equal to
embedded features contained within our Private Warrants. Accounting Standards Codification 815, Derivatives and Hedging (“ASC 815”), provides for the
remeasurement of the fair value of such
derivatives at each balance sheet date,canceled options.Willard Restricted Stock Award
If Mr. Willard’s employment with the Company is terminated without Cause (other than for death or disability) or Mr. Willard resigns for Good Reason (each as defined in Mr. Willard’s employment agreement, and such termination, a resulting non-cash gain“Qualifying Termination”), Mr. Willard will vest in a pro rata portion of the restricted stock. In the event of a Qualifying Termination on or loss related to the changewithin 12 months following a Change in Control (as defined in the fair value being recognized in earnings in the statement of operations. As a resultOmnibus Plan), all of the recurring fair value measurement,shares of restricted stock will vest. If Mr. Willard’s service terminates for any other reason, all unvested shares of restricted stock will be forfeited for no consideration.
COMPENSATION OF DIRECTORS
Pursuant to our consolidated financial statements and results of operations may fluctuate quarterly, based on factors, which are outside of our control. Due to the recurring fair value measurement, we expect that we will recognize non-cash gains or lossesDirector Compensation Program, each member serving on our Private Warrants each reporting period and that the amount of such gainsBoard during 2022 was eligible to compensation for his or losses could be material.
We have identified a material weakness in our internal control over financial reportingher service, as of December 31, 2020. If we are unable to develop and maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results in a timely manner, which may adversely affect investor confidence in us and materially and adversely affect our business and operating results.
Following this issuance of the SEC Statement, on May 6, 2021, after consultation with Marcum LLP, the Company’s independent registered public accounting firm, the Company’s management and the Audit Committee concluded that the Company’s financial statements which were included in the Original 10-K should no longer be relied upon due to errors in such consolidated financial statements relating to the Company’s classification the Private Warrants as equity rather than as liabilities. As a result, our management concluded that our internal control over financial reporting was not effective as of December 31, 2020 due to the existence of material weaknesses in such controls, and we have also concluded that our disclosure controls and procedures were not effective as of December 31, 2020 due to material weaknesses in our internal control over financial reporting, all as described in Part II, Item 9A, “Controls and Procedures” of this Amendment. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented, or detected and corrected on a timely basis. Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. We continue to evaluate steps to remediate the material weakness. These remediation measures may be time consuming and costly and there is no assurance that these initiatives will ultimately have the intended effects.
Moreover, because of the inherent limitations of any control system, material misstatements due to error or fraud may not be prevented or detected and corrected on a timely basis, or at all. If we are unable to provide reliable and timely financial reports in the future, our business and reputation may be further harmed. Restated financial statements and failures in internal control may also cause us to fail to meet reporting obligations, negatively affect investor confidence in our management and the accuracy of our financial statements and disclosures, or result in adverse publicity and concerns from investors, any of which could have a negative effect on the price of our securities, subject us to regulatory investigations and penalties or stockholder litigation, and have a material adverse impact on our financial condition.
We have restated our consolidated financial statements for the year as of and ended December 31, 2020, which may affect investor confidence, our stock price, our ability to raise capital in the future, our results of operations and financial condition, our ability to complete the proposed business combination with NeuroRx, and which may result in stockholder litigation.
This Amendment includes restated consolidated financial statements as of andfollows. | · | Board of Directors member: $60,000 annual retainer plus an annual equity grant |
| · | Chairman of the Board: $25,000 annual retainer |
| · | Board Committee Chair: $15,000 annual retainer |
| · | Board Committee Member: $10,000 annual retainer |
2022 Director Compensation
The following table shows for the fiscal year ended December 31, 2020. Such restatement may have2022 certain information with respect to the effectcompensation of eroding investor confidenceour non-employee directors. As Named Executive Officers, Mr. Willard’s and Dr. Javitt’s compensation is shown in the Company2022 Summary Compensation Table. Mr. Willard did not receive any additional compensation for his service on the Board.
| Name | | Fees Earned
or Paid in
Cash ($) | | | Option
Awards ($)(1) | | | Total ($) | |
| Patrick Flynn | | $ | 90,000 | | | $ | 90,000 | | | $ | 180,000 | |
| Sherry Glied | | $ | 70,000 | | | $ | 90,000 | | | $ | 160,000 | |
| Aaron Gorovitz | | $ | 80,000 | | | $ | 90,000 | | | $ | 170,000 | |
| Chaim Hurwitz | | $ | 70,000 | | | $ | 90,000 | | | $ | 160,000 | |
| Dan Troy | | $ | 85,000 | | | $ | — | | | $ | 85,000 | |
| (1) | Amounts reflect the full grant date fair value of stock options awarded under our Omnibus Plan during 2022, computed in accordance with the requirements of FASB ASC 718. The stock options vest on May 25, 2023. As of December 31, 2022, (i) Mr. Flynn held 166,505 outstanding options, (ii) Dr. Glied held 231,942 outstanding options, (iii) Mr. Gorovitz held 166,505 outstanding options, and (iv) Mr. Hurwitz held 166,505 outstanding options. |
EQUITY COMPENSATION PLAN INFORMATION
The following table provides certain aggregate information with respect to our equity compensation plans in effect as of December 31, 2022.
| Plan Type | | Number of securities
to be issued upon
exercise of outstanding options,
warrants and rights | | | Weighted-average
exercise price of
outstanding options,
warrants and rights | | | Number of shares of
common stock
remaining available for
future issuance under
equity compensation
plans | |
| Equity compensation plans approved by security holders(1) | | | 3,452,615 | (2)(3) | | $ | 1.12 | | | | 299,784 | |
| | | | | | | | | | | | | |
| Equity compensation plans not approved by security holders(4) | | | 1,000,000 | | | | — | | | | 0 | |
| (1) | Includes awards granted pursuant to the Omnibus Plan. |
| (2) | As of December 31, 2022, there were 299,784 shares of common stock authorized for issuance pursuant to awards under the Omnibus Plan. Pursuant to the terms of the Omnibus Plan, the number of shares available for issuance thereunder will automatically increase each fiscal year beginning with fiscal year 2022 and ending with fiscal year 2031 by the lesser of (a) 1% of the total number of shares outstanding on the last day of the immediately preceding fiscal year on a fully diluted basis assuming that all shares available for issuance under the Omnibus Plan are issued and outstanding or (b) such number of shares determined by the Board. |
| (3) | Excludes rights outstanding under the 2016 Omnibus Incentive Plan. As of December 31, 2022, there were 1,487,521 securities to be issued upon exercise of outstanding options, warrants and rights pursuant to our 2016 Omnibus Incentive Plan, with a weighted-average exercise price of $3.72, which were assumed by Big Rock Partners Acquisition Group and converted into an option to acquire an adjusted number of shares of common stock at an adjusted exercise price per share in connection with the May 2021 merger. No further grants or awards will be made under the 2016 Omnibus Incentive Plan. |
| (4) | Reflects the grant of an “employment inducement grant” under NASDAQ Listing Rule 5635(c)(4) comprised of restricted stock granted to Mr. Willard. |
Item 12. Security Ownership of Certain Beneficial Owners and our financial reportingManagement and accounting practices and processes, and may negatively impactRelated Stockholder Matters
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the trading pricebeneficial ownership of our securities, couldCommon Stock, as of April 27, 2023 by:
| · | each person who is the beneficial owner of more than 5% of the outstanding shares of our Common Stock; |
| · | each of our named executive officers and directors; and |
| · | all of our executive officers and directors as a group. |
Beneficial ownership for the purposes of the following table is determined in accordance with the rules and regulations of the SEC. A person is a “beneficial owner” of a security if that person has or shares “voting power”, which includes the power to vote or to direct the voting of the security, or “investment power”, which includes the power to dispose of or to direct the disposition of the security or has the right to acquire such powers within 60 days. Accordingly, we have included all shares of Common Stock issuable to such person upon the exercise of warrants or options currently exercisable or exercisable within 60 days of the date hereof. We did not deem such shares outstanding, however, for the purpose of computing the percentage ownership of any other person.
Unless otherwise noted in the footnotes to the following table, and subject to applicable community property laws, the persons and entities named in the table have sole voting and investment power with respect to their beneficially owned common stock and preferred stock.
Except as indicated in the footnotes to the table, each of the stockholders listed below has sole voting and investment power with respect to the shares of Common Stock owned by such stockholders. Unless otherwise noted, the address of each beneficial owner is c/o NRX Pharmaceuticals, Inc., 1201 Orange Street, Suite 600, Wilmington, DE 19801, Attention: Corporate Secretary.
The beneficial ownership of our Common Stock is based on 71,557,580 shares of Common Stock issued and outstanding as of April 27, 2023.
Beneficial Ownership Table
| Name and Address of Beneficial Owners | | Amount and
Nature of
Beneficial
Ownership | | | Percent of Class | |
| Officers and Directors | | | | | | | | |
| Stephen H. Willard (1) | | | 1,050,000 | | | | 1.47 | % |
| Robert Besthof(2) | | | 409,790 | | | | * | |
| Riccardo Panicucci(3) | | | 82,666 | | | | * | |
| Seth Van Voorhees(4) | | | 208,837 | | | | * | |
| Patrick J. Flynn(5) | | | 1,639,397 | | | | 2.29 | % |
| Sharon A. Glied, Ph.D.(6) | | | 245,110 | | | | * | |
| Aaron Gorovitz(7) | | | 208,191 | | | | * | |
| Chaim Hurvitz(8) | | | 2,311,298 | | | | 3.23 | % |
| Jonathan Javitt(9) | | | 14,468,329 | | | | 20.22 | % |
| | | | | | | | | |
| All Executive Officers and Directors as a Group (9 persons) | | | 20,623,618 | | | | 28.82 | % |
| All Greater than 5% Holders | | | | | | | | |
| Glytech, LLC(10) | | | 9,634,793 | | | | 13.46 | % |
| (1) | Consists of (i) 50,000 shares of Common Stock held by Stephen H. Willard individually and (ii) 1,000,000 shares of restricted Common Stock that can be voted but cannot be traded. 333,333 shares will be unrestricted on July 12, 2023, an additional 333,333 shares on July 12, 2024 and the remaining 333,334 shares on July 12, 2025. Mr. Willard’s address is 1201 Orange Street, Suite 600 Wilmington, DE 19801. |
| (2) | Consists of (i) 23,710 shares of Common Stock held by Robert Besthof individually and (ii) 245,963 shares of common stock subject to options held by Robert Besthof which are vested and exercisable within 60 days; does not include 307,520 shares subject to unvested options held by Robert Besthof which are not exercisable within 60 days. Mr. Besthof’s address is 1201 Orange Street, Suite 600 Wilmington, DE 19801. |
| (3) | Consists of 82,666 shares of Common Stock options held by Riccardo Panicucci that have vested; does not include 41,334 unvested options held by Mr. Panicucci that are not exercisable within 60 days. Mr. Panicucci’s address is 1201 Orange Street, Suite 600 Wilmington, DE 19801. |
| (4) | Consists of (i) 46,337 shares of Common Stock held by Seth Van Voorhees individually and (ii) 162,500 shares that are vesting and exercisable within 60 days; does not include 162,500 unvested options held by Mr. Voorhees that are not going to vest and be exercisable within 60 days. Mr. Voorhees’ address is 1201 Orange Street, Suite 600 Wilmington, DE 19801. |
| (5) | Consists of (i) 362,332 shares of Common Stock held by Nash-Flynn Investments, LLC, (ii) 226,254 shares of common stock held by the Whitney Pritchard Nash Flynn 2010 Trust and the Lindsay Pritchard Nash Flynn 2010 Trust, (iii) 882,556 shares of common stock issuable upon exercise of fully vested warrants held by the Whitney Pritchard Nash Flynn 2010 Trust and the Lindsay Pritchard Nash Flynn 2010 Trust, (iv) 1,750 shares of common stock held by Patrick Flynn and (v) 166,505 shares of Common Stock options, of which 3,845 shares are vested and exercisable and 162,660 shares are going to vest and be exercisable within 60 days. Patrick Flynn is the owner of Nash-Flynn Investments, LLC and trustee of the Whitney Pritchard Nash Flynn 2010 Trust and the Lindsay Pritchard Nash Flynn 2010 Trust. Mr. Flynn’s address is 1201 Orange Street, Suite 600 Wilmington, DE 1980. |
| (6) | Consists of (i) 13,168 shares of Common Stock held by Cottingham-Hillcrest, Inc. and (ii) 231,942 shares of Common Stock subject to options held by Sharon A. Glied, Ph.D. of which 69,282 are vested and exercisable and 162,660 are going to vest and be exercisable within 60 days. Dr. Glied’s address is 1201 Orange Street, Suite 600 Wilmington, DE 1980. |
| (7) | Consists of (i) 8,336 shares of Common Stock held by Samuel David Gorovitz 2017 Irrevocable Trust, (ii) 8,336 shares of Common Stock held by Jeremy Paul Gorovitz 2017 Irrevocable Trust, (iii) 8,336 shares of Common Stock held by Marisa Shey Gorovitz 2017 Irrevocable Trust, (iv) 16,678 shares of Common Stock held by Elizabeth Gorovitz (the holder’s spouse), and (v) 166,505 shares of Common Stock options, of which 3,845 are vested and exercisable and 162,660 are going to vest and be exercisable within 60 days. Aaron Gorovitz is the trustee of the Samuel David Gorovitz 2017 Irrevocable Trust, the Jeremy Paul Gorovitz 2017 Irrevocable Trust, and the Marisa Shey Gorovitz 2017 Irrevocable Trust. Elizabeth Gorovitz is the wife of Aaron Gorovitz; does not include 20,843 shares issuable upon achievement of earnouts. Mr. Gorovitz’s address is 1201 Orange Street, Suite 600 Wilmington, DE 1980. |
| (8) | Consists of (i) 1,436,350 shares of Common Stock held by Shirat HaChaim Ltd., (ii) 208,443 shares of Common Stock held by CH Health-Private Venture Capital Ltd, (iii) 500,000 shares of Common Stock held by Chaim Hurvitz individually, and (iv) 166,505 shares of Common Stock options, of which 3,845 have vested and exercisable and 162,660 which are going to vest and be exercisable within 60 days. Chaim Hurwitz is the owner of Shirat HaChaim Ltd. and CH Health-Private Venture Capital Ltd. Mr. Hurvitz's address is 1201 Orange Street, Suite 600 Wilmington, DE 1980. |
| (9) | Consists of (i) 12,599,997 shares of common stock held by the Jonathan Javitt Living Trust, (ii) 1,422,000 shares of common stock held by The Javitt 2012 Irrevocable Dynasty Trust, (iii) 146,332 shares of common stock held by Jonathan Javitt individually and (iv) 300,000 held by the Jonathan Javitt Donor Advised Fund. Jonathan Javitt is the trustee of the Jonathan Javitt Living Trust, the Grantor of The Javitt 2012 Irrevocable Dynasty Trust and the donor and primary advisor of the Jonathan Javitt Donor Advised Fund. Dr. Javitt’s address is 1201 Orange Street, Suite 600 Wilmington, DE 1980. |
| (10) | Consists of 9,643,234 shares of Common Stock held by Glytech, LLC. Glytech, LLC is owned by Daniel Javitt, who is the brother of Jonathan Javitt, a director and Chief Scientist of the Company. Glytech LLC’s address is 1201 N. Market Street, Suite 111, Wilmington, DE 19801. |
Item 13. Certain Relationships and Related Transactions, and Director Independence
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The following includes a summary of transactions since January 1, 2022 to which we have been a party in which the amount involved exceeded or will exceed $120,000, and in which any of our directors, executive officers or, to our knowledge, beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material adverse effect oninterest, other than transactions that are described under the “Executive and Director Compensation” section of this Form 10-K/A. We also describe below certain other transactions with our business, resultsdirectors, executive officers and stockholders.
Private Placement Lock-Up Agreement
On February 2, 2022, we consummated a private placement (the “Private Placement”) pursuant to the terms and conditions of operationsthat certain Securities Purchase Agreement, dated as of January 30, 2022 (the “Purchase Agreement”), with certain investors. In connection with the closing of the Private Placement, we entered into a lock-up agreement with Jonathan Javitt and financial condition,Daniel Javitt (collectively, the “Javitt Stockholders”), dated as of January 30, 2022 (the “Private Placement Lock-Up Agreement”), pursuant to which the Javitt Stockholders agreed not to transfer, directly or indirectly, any Common Stock owned by them for sixty (60) days following the Effective Date (as defined in the Purchase Agreement) (the “Restriction Period”). Subject to certain conditions, the Javitt Stockholders may make it more difficulttransfer shares of Common Stock provided that: (i) we receive a signed lock-up letter agreement for us to raise capital on acceptable terms, if at all, and may adversely impact our ability to complete our proposed business combination with NeuroRx. The restatement and related material weaknesses in our internal control over financial reporting may also result in stockholder litigation.
Risks Relating to Searching for and Consummating a Business Combination
We have no operating history and, accordingly, you will not have any basis on which to evaluate our ability to achieve our business objective.
We have no operating results to date. Therefore, our ability to commence operations is dependent upon obtaining financing through the public offeringbalance of our securities. Since we do not have an operating history, you will have no basis upon which to evaluate our ability to achieve our business objective, which is to consummate an initial business combination. We have not conducted any substantive discussions and we have no plans, arrangements or understandings with any prospective acquisition candidates. We will not generate any revenues until, at the earliest, after the consummation of a business combination.
If we are unable to consummate a business combination, our public stockholders may be forced to wait until May 24, 2021, or longer if additional extensions are approved, before receiving distributionsRestriction Period from the trust account.
We have until May 24, 2021, or such later date as may be approved by our stockholders, in which to complete a business combination. We have no obligation to return funds to investorseach transferee, prior to such
date unless (i) we consummatetransfer, (ii) the transfer does not involve a
business combination prior thereto or (ii) we seekdisposition for value, (iii) the transfer is not required to
amend ourbe reported with the SEC in accordance with the Exchange Act, as amended, and
restated certificateno report of
incorporation prior to consummation of a business combination,such transfer is made voluntarily, and
only then in cases where investors have sought to convert or sell their shares to us. Only after(iv) neither the
expiration of this full time period will public security holders be entitled to distributions fromJavitt Stockholders nor any transferee, as the
trust account if we are unable to complete a business combination. Accordingly, investors’ fundscase may be,
unavailableotherwise voluntarily effects any public filing or report regarding such transfer, with respect to
them until aftercertain specified transfers under the Private Placement Lock-Up Agreement. The Restriction Period has now expired.Procedures with Respect to Review and Approval of Related Person Transactions
Our Board recognizes the fact that transactions with related persons present a heightened risk of conflicts of interests (or the perception of such date and to liquidate your investment, public security holders may be forced to sell their public shares or warrants, potentially at a loss.
The requirement that we complete an initial business combination by May 24, 2021 (or such later date as may be approved by our stockholders) may give potential target businesses leverage over us in negotiating a business combination.
conflicts of interest). We have until May 24, 2021 (oradopted a written policy on transactions with related persons that is in conformity with the requirements for issuers having publicly held common stock that is listed on the Nasdaq. Under the policy, our legal department is primarily responsible for developing and implementing processes and procedures to obtain information regarding related persons with respect to potential related person transactions and then determining, based on the facts and circumstances, whether such later date as may be approved bypotential related person transactions do, in fact, constitute related person transactions requiring compliance with the policy. If the legal department determines that a transaction or relationship is a related person transaction requiring compliance with the policy, our stockholders) to complete an initial business combination. Any potential target business with which we enter into negotiations concerning a business combinationgeneral counsel will be aware of this requirement. Consequently, such target business may obtain leverage over us in negotiating a business combination, knowing that if we do not complete a business combination with that particular target business, we may be unablerequired to complete a business combination with any other target business. This risk will increase as we get closerpresent to the time limit referenced above.
Our public stockholders may notaudit committee all relevant facts and circumstances relating to the related person transaction. The audit committee will be affordedrequired to review the relevant facts and circumstances of each related person transaction, including if the transaction is on terms comparable to those that could be obtained in arm’s length dealings with an opportunity to vote on our proposed business combination.
We will either (1) seek stockholder approval of our initial business combination at a meeting called for such purpose at which public stockholders may seek to convert their shares, regardless of whether they vote for or againstunrelated third party and the
proposed business combination, into their pro rata shareextent of the
aggregate amount then on depositrelated person’s interest in the
trusttransaction, take into account
(netthe conflicts of
taxes payable), or (2) provide our public stockholders with theinterest and corporate opportunity
to sell their shares to us by means of a tender offer (and thereby avoid the need for a stockholder vote) for an amount equal to their pro rata shareprovisions of the
aggregate amount then on deposit inour code of business conduct and ethics, and either approve or disapprove the
trust account (net of taxes payable), in each case subject to the limitations described elsewhere in this Report. Accordingly, it is possible that we will consummate our initial business combination even if holders of a majority of our public shares do not approve of the business combination we consummate. The decision as to whether we will seek stockholderrelated person transaction. If advance audit committee approval of a
proposed business combination or will allow stockholders to sell their shares to us in a tender offer willrelated person transaction requiring the audit committee’s approval is not feasible, then the transaction may be
madepreliminarily entered into by
us, solely in our discretion, and will be based on a variety of factors such as the timingmanagement upon prior approval of the transaction
and whetherby the
termschair of the audit committee, subject to ratification of the transaction
would otherwise require usby the audit committee at the audit committee’s next regularly scheduled meeting; provided, that if ratification is not forthcoming, management will make all reasonable efforts to
seek stockholder approval. For instance, Nasdaq rules currently allow uscancel or annul the transaction. If a transaction was not initially recognized as a related person transaction, then, upon such recognition, the transaction will be presented to
engagethe audit committee for ratification at the audit committee’s next regularly scheduled meeting; provided, that if ratification is not forthcoming, management will make all reasonable efforts to cancel or annul the transaction. Our management will update the audit committee as to any material changes to any approved or ratified related person transaction and will provide a status report at least annually of all then-current related person transactions. No director will be permitted to participate in
a tender offer in lieuapproval of a
stockholder meeting but would still require usrelated person transaction for which he or she is a related person.Support Services
We license patents owned by Glytech LLC, which is solely owned by Daniel C. Javitt, the brother of Jonathan Javitt, a director and Chief Scientist of the Company. During 2022 and 2021, the Company in 2022 and NeuroRx, Inc., the predecessor to obtain stockholder approval if we were seeking to issue more than 20%our company, in 2021 paid Glytech LLC $250,000 and $250,000, respectively, for continuing research and development, technology support services and reimbursed expenses. These support services are ongoing. Glytech LLC’s support includes both non-clinical and clinical research in support of the expansion of our outstanding sharesintellectual property portfolio.
In addition, we pay Zachary Javitt, the son Jonathan Javitt, on an hourly basis for services related to a target business as consideration in any business combination. Therefore, if we were structuring a business combination that required us to issue more than 20%website, IT, and marketing support under the supervision of our outstanding shares, we would seek stockholder approvalChief Executive Officer, who is responsible for assuring that the services are provided on financial terms that are at market. We paid Zachary Javitt a total of such business combination instead$133,445 and $106,500 during the years ended December 31, 2022 and 2021, respectively.
The Company also seeks services for digital health product development from PillTracker to monitor the use of conductingAviptadil, a tender offer.
Our Sponsor, BRAC,drug, in clinical trials. Zachary Javitt is PillTracker’s Chief Executive Officer and designeesJonathan Javitt is the chairman of the underwriter of our IPO control a substantial interest in us and thus may influence certain actions requiring a stockholder vote.
As of the date of this Amendment, our Sponsor, BRAC, and EBC and its designees own approximately 76.9% of our issued and outstanding shares of common stock. Neither the Sponsor, BRAC, our directors or executive officers nor EBC or any of their respective affiliates beneficially owned any public shares as of the date of this Amendment. However, they may choose to buy public shares in the open market and/or through negotiated private purchases after the date of this proxy statement. In the event that purchases do occur, the purchasers may seek to purchase shares from stockholders who would otherwise have voted against our initial business combination and/or elected to convert their shares. In connection with any vote for a proposed business combination, our Sponsor and BRAC, as well as all of our officers and directors, have agreed to vote the shares of common stock owned by them immediately before the Initial Public Offering as well as any shares of common stock acquired in the Initial Public Offering or in the aftermarket in favor of such proposed business combination.
Our board of
directors is divided into two classes, each of which will generally servedirectors. The Company paid approximately $170,340.00 and $820,293.88 to PillTracker for
a term of two years with only one class of directors being electedits services in
each year. There may not be an annual meeting of stockholders to elect new directors prior to the consummation of a business combination, in which case all of the current directors will continue in office until at least2022 and 2021, respectively.Controlled Company Status
From the consummation of the business combination. If there is an annual meeting,combination that formed the Company in March 2021 and through October 2021, the Company qualified as a consequence of our “staggered” board of directors, only a minority of the board of directors will be considered for election and our Sponsor, because of its ownership position, will have considerable influence regarding the outcome. Accordingly, our Sponsor will continue to exert control at least until the consummation of a business combination.
The ability of our stockholders to exercise their conversion rights or sell their shares to us in a tender offer may not allow us to effectuate the most desirable business combination or optimize our capital structure.
If our business combination requires us to use substantially all of our cash to pay the purchase price, because we will not know how many stockholders may exercise conversion rights or seek to sell their shares to us in a tender offer, we may either need to reserve part of the trust account for possible payment upon such conversion, or we may need to arrange third party financing to help fund our business combination. In the event that the acquisition involves the issuance of our stock as consideration, we may be required to issue a higher percentage of our stock to make up for a shortfall in funds. Raising additional funds to cover any shortfall may involve dilutive equity financing or incurring indebtedness at higher than desirable levels. This may limit our ability to effectuate the most attractive business combination available to us.
In connection with any vote to approve a business combination, we will offer each public stockholder the option to vote in favor of a proposed business combination and still seek conversion of his, her or its shares.
In connection with any vote to approve a business combination, we will offer each public stockholder (but not our Sponsor, officers or directors) the right to have his, her or its shares of common stock converted to cash (subject“controlled company” pursuant to the limitations described elsewhere in this Amendment and the Original 10-K) regardlesslisting rules of whether such stockholder votes for or against such proposed business combination. This ability to seek conversion while voting in favor of our proposed business combination may make it more likely that we will consummate a business combination.
In connection with any stockholder meeting called to approve a proposed initial business combination, we may require stockholders who wish to convert their shares in connection with a proposed business combination to comply with specific requirements for conversion that may make it more difficult for them to exercise their conversion rights prior to the deadline for exercising their rights.
In connection with any stockholder meeting called to approve a proposed initial business combination, each public stockholder will have the right, regardless of whether he is voting for or against such proposed business combination, to demand that we convert his shares into a pro rata share of the trust account as of two business days prior to the consummation of the initial business combination. We may require public stockholders who wish to convert their shares in connection with a proposed business combination to either (i) physically tender their certificates to our transfer agent or (ii) deliver their shares to the transfer agent electronically using the Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System, at the holders’ option, in each case prior to a date set forth in the proxy materials sent in connection with the proposal to approve the business combination. In order to obtain a physical stock certificate, a stockholder’s broker and/or clearing broker, DTC and our transfer agent will need to act to facilitate this request. It is our understanding that stockholders should generally allot at least two weeks to obtain physical certificates from the transfer agent. However, because we do not have any control over this process or over the brokers or DTC, it may take significantly longer than two weeks to obtain a physical stock certificate. While we have been advised that it takes a short time to deliver shares through the DWAC System, we cannot assure you of this fact. Accordingly, if it takes longer than we anticipate for stockholders to deliver their shares, stockholders who wish to convert may be unable to meet the deadline for exercising their conversion rights and thus may be unable to convert their shares.
If, in connection with any stockholder meeting called to approve a proposed business combination, we require public stockholders who wish to convert their shares to comply with specific requirements for conversion, such converting stockholders may be unable to sell their securities when they wish to in the event that the proposed business combination is not approved.
If we require public stockholders who wish to convert their shares to either (i) physically tender their certificates to our transfer agent or (ii) deliver their shares to the transfer agent electronically using the Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System as described above and such proposed business combination is not consummated, we will promptly return such certificates to the tendering public stockholders. Accordingly, investors who attempted to convert their shares in such a circumstance will be unable to sell their securities after the failed acquisition until we have returned their securities to them. The market price for our shares of common stock may decline during this time and you may not be able to sell your securities when you wish to, even while other stockholders that did not seek conversion may be able to sell their securities.
Because of our structure, other companies may have a competitive advantage and we may not be able to consummate an attractive business combination.
We expect to encounter intense competition from entities other than blank check companies having a business objective similar to ours, including venture capital funds, leveraged buyout funds and operating businesses competing for acquisitions. Many of these entities are well established and have extensive experience in identifying and effecting business combinations directly or through affiliates. Many of these competitors possess greater technical, human and other resources than we do and our financial resources will be relatively limited when contrasted with those of many of these competitors. Our ability to compete in acquiring a target business will be limited by our available financial resources. This inherent competitive limitation gives others an advantage in pursuing the acquisition of certain target businesses. Furthermore, seeking stockholder approval or engaging in a tender offer in connection with any proposed business combination may delay the consummation of such a transaction. Additionally, our outstanding warrants, rights and the unit purchase option, and the future dilution they potentially represent, may not be viewed favorably by certain target businesses. Any of the foregoing may place us at a competitive disadvantage in successfully negotiating a business combination.
Because we must furnish our stockholders with target business financial statements prepared in accordance with U.S. generally accepted accounting principles or international financial reporting standards, we will not be able to complete a business combination with prospective target businesses unless their financial statements are prepared inNasdaq Stock Market (“Nasdaq”). In accordance with such standards.
The federal proxy rules,
requirea company that
has ceased to be a
proxy statement“controlled company” within the meaning of the Nasdaq listing rules shall be permitted to phase-in the requirement to have a majority independent board and independent nominations and compensation committees on the same schedule as companies listing with
respect to a vote on a business combination meeting certain financial significance tests include historical and/or pro forma financial statement disclosure in periodic reports. These financial statements may betheir initial public offering. Accordingly, the Company was required to be
prepared in accordancefully compliant with
or be reconciledthe requirement to
accounting principles generally acceptedhave a majority independent board, compensation committee and nominations committee by October 2022.Director Independence
Our Board has determined that Sharon A. Glied, Patrick J. Flynn, Aaron Gorovitz, and Chaim Hurvitz are “independent directors” as defined in the United StatesNasdaq listing standards and applicable SEC rules.
Item 14. Principal Accountant Fees and Services
KPMG LLP has served as our independent auditor since 2018. The Company incurred the following fees from KPMG LLP for the audit of America, or GAAP, or international financial reporting standards, or IFRS, depending on the circumstances, and the historicalconsolidated financial statements may be required to be audited in accordanceand for other services provided during the years ended December 31, 2022 and 2021.
| | | For the year ended December 31 | |
| | | 2022 | | | 2021 | |
| Audit fees (1) | | $ | 775,000 | | | $ | 798,600 | |
| Audit-related fees (2) | | $ | 0 | | | $ | 0 | |
| Tax fees (3) | | $ | 0 | | | $ | 0 | |
| All other fees (4) | | $ | 0 | | | $ | 0 | |
| Total fees | | $ | 775,000 | | | $ | 798,600 | |
| (1) | Audit fees consist of fees for professional services rendered in connection with the audit of our annual consolidated financial statements, the review of the interim consolidated financial statements included in quarterly reports, services rendered in connection with the May 2021 merger and follow-on public offering, and additional public offerings. |
| (2) | There were no audit-related fees billed in 2022 or 2021. |
| (3) | There were no tax-related fees billed in 2022 or 2021. |
| (4) | There were no other fees billed in 2022 or 2021. |
Audit Committee Pre-Approval Policy and Procedures
Consistent with requirements of the standards ofSEC and the Public Company Accounting Oversight Board (United States), or PCAOB. We will includeregarding auditor independence, our audit committee is responsible for the same financial statement disclosure in connection with any tender offer documents we use, whether or not they are required under the tender offer rules. Additionally, to the extent we furnish our stockholders with financial statements prepared in accordance with IFRS, such financial statements may need to be audited in accordance with U.S. GAAP at the timeappointment, compensation, and oversight of the consummationwork of the business combination. These financial statement requirements may limit the pool of potential target businesses we may acquire.
We may issue shares of our capital stock or debt securities to complete a business combination, which would reduce the equity interest of our stockholders and likely cause a change in control of our ownership.
Our amended and restated certificate of incorporation authorizes the issuance of up to 100,000,000 shares of common stock, par value $0.001 per share, and 1,000,000 shares of preferred stock, par value $0.001 per share. We may issue a substantial number of additional shares of common stock or shares of preferred stock, or a combination of common stock and preferred stock, to complete a business combination. The issuance of additional shares of common stock will not reduce the per-share conversion amount in the trust account. The issuance of additional shares of common stock or preferred stock:
●
may significantly reduce the equity interest of our existing common stockholders;
●
may subordinate the rights of holders of shares of common stock if we issue shares of preferred stock with rights senior to those afforded to our shares of common stock;
●
may cause a change in control if a substantial number of shares of common stock are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors; and
●
may adversely affect prevailing market prices for our shares of common stock.
Similarly, if we issue debt securities, it could result in:
●
default and foreclosure on our assets if our operating revenues after a business combination are insufficient to repay our debt obligations;
●
acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant;
●
our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand; and
●
our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the debt security is outstanding.
If we incur indebtedness, our lenders will not have a claim on the cash in the trust account and such indebtedness will not decrease the per-share conversion amount in the trust account.
We may be unable to obtain additional financing, if required, to complete a business combination or to fund the operations and growth of the target business, which could compel us to restructure or abandon a particular business combination.
As of December 31, 2020, we had approximately $466 in available funds held outside of our trust account and approximately $6.0 million in the trust account. If these amounts prove to be insufficient to consummate an initial business combination, we will be required to seek additional financing. Such financing may not be available on acceptable terms, if at all. To the extent that additional financing proves to be unavailable when needed to consummate the proposed business combination with NeuroRx or any other business combination, we would be compelled to either restructure the transaction or abandon that particular business combination and seek an alternative target business candidate. In addition, if we consummate a business combination, we may require additional financing to fund the operations or growth of the target business. The failure to secure additional financing could have a material adverse effect on the continued development or growth of the target business. None of our Sponsor, officers, directors or stockholders is required to provide any financing to us in connection with or after a business combination.
We may not obtain a fairness opinion with respect to the target business that we seek to acquire and therefore you may be relying solely on the judgment of our board of directors in approving a proposed business combination.
We will only be required to obtain a fairness opinion with respect to the target business that we seek to acquire if it is an entity that is affiliated with any of our officers, directors or Sponsor. In all other instances, we will have no obligation to obtain an opinion. Accordingly, investors will be relying solely on the judgment of our board of directors in approving a proposed business combination.
Resources could be spent researching acquisitions that are not consummated, which could materially adversely affect subsequent attempts to locate and acquire or merge with another business.
It is anticipated that the investigation of each specific target business and the negotiation, drafting, and execution of relevant agreements, disclosure documents, and other instruments will require substantial management time and attention and substantial costs for accountants, attorneys and others. If a decision is made not to complete a specific business combination, the costs incurred up to that point for the proposed transaction likely would not be recoverable. Furthermore, even if an agreement is reached relating to a specific target business, we may fail to consummate the business combination for any number of reasons including those beyond our control. Any such event will result in a loss to us of the related costs incurred which could materially adversely affect subsequent attempts to locate and acquire or merge with another business.
We may only be able to complete one business combination, which will cause us to be solely dependent on a single business which may have a limited number of products or services.
It is likely we will consummate a business combination with a single target business, although we have the ability to simultaneously acquire several target businesses. By consummating a business combination with only a single entity, our lack of diversification may subject us to numerous economic, competitive and regulatory developments. Further, we would not be able to diversify our operations or benefit from the possible spreading of risks or offsetting of losses, unlike other entities which may have the resources to complete several business combinations in different industries or different areas of a single industry. Accordingly, the prospects for our success may be:
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solely dependent upon the performance of a single business, or
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dependent upon the development or market acceptance of a single or limited number of products, processes or services.
This lack of diversification may subject us to numerous economic, competitive and regulatory developments, any or all of which may have a substantial adverse impact upon the particular industry in which we may operate subsequent to a business combination.
Alternatively, if we determine to simultaneously acquire several businesses, and such businesses are owned by different sellers, we will need for each of such sellers to agree that our purchase of its business is contingent on the simultaneous closings of the other business combinations, which may make it more difficult for us, and delay our ability, to complete the business combinations. With multiple business combinations, we could also face additional risks, including additional burdens and costs with respect to possible multiple negotiations and due diligence investigations (if there are multiple sellers) and the additional risks associated with the subsequent assimilation of the operations and services or products of the acquired companies into a single operating business. If we are unable to adequately address these risks, it could negatively impact our profitability and results of operations.
Our search for an initial business combination, and any target business with which we ultimately consummate an initial business combination, may be materially adversely affected by the recent coronavirus (COVID-19) outbreak and other events, and the status of debt and equity markets.
The COVID-19 pandemic has adversely affected, and other events (such as terrorist attacks, natural disasters or a significant outbreak of other infectious diseases) could adversely affect, the economies and financial markets worldwide, and the business of any potential target business with which we consummate an initial business combination could be materially and adversely affected. Furthermore, we may be unable to complete an initial business combination if concerns relating to COVID-19 continue to restrict travel, limit the ability to have meetings with potential investors or the target company’s personnel, vendors and services providers are unavailable to negotiate and consummate a transaction in a timely manner. The extent to which COVID-19 impacts our search for an initial business combination will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. If the disruptions posed by COVID-19 or other events (such as terrorist attacks, natural disasters or a significant outbreak of other infectious diseases) continue for an extensive period of time, our ability to consummate an initial business combination, or the operations of a target business with which we ultimately consummate an initial business combination, may be materially adversely affected.
In addition, our ability to consummate a transaction may be dependent on the ability to raise equity and debt financing which may be impacted by COVID-19 and other events (such as terrorist attacks, natural disasters or a significant outbreak of other infectious diseases), including as a result of increased market volatility, decreased market liquidity in third-party financing being unavailable on terms acceptable to us or at all.
As the number of special purpose acquisition companies evaluating targets increases, attractive targets may become scarcer and there may be more competition for attractive targets. This could increase the cost of our initial business combination and could even result in our inability to find a target or to consummate an initial business combination.
In recent years and especially since the fourth quarter of 2020, the number of special purpose acquisition companies that have been formed has increased substantially. Many potential targets for special purpose acquisition companies have already entered into an initial business combination, and there are still many special purpose acquisition companies seeking targets for their initial business combination, as well as many such companies currently in registration. As a result, at times, fewer attractive targets may be available, and it may require more time, more effort and more resources to identify a suitable target and to consummate an initial business combination.
In addition, because there are more special purpose acquisition companies seeking to enter into an initial business combination with available targets, the competition for available targets with attractive fundamentals or business models may increase, which could cause targets companies to demand improved financial terms. Attractive deals could also become scarcer for other reasons, such as economic or industry sector downturns, geopolitical tensions, or increases in the cost of additional capital needed to close business combinations or operate targets post-business combination. This could increase the cost of, delay or otherwise complicate or frustrate our ability to find and consummate an initial business combination, and may result in our inability to consummate an initial business combination on terms favorable to our investors altogether.
Changes in the market for directors and officers liability insurance could make it more difficult and more expensive for us to negotiate and complete an initial business combination.
In recent months, the market for directors and officers liability insurance for special purpose acquisition companies has changed. The premiums charged for such policies have generally increased and the terms of such policies have generally become less favorable. There can be no assurance that these trends will not continue.
The increased cost and decreased availability of directors and officers liability insurance could make it more difficult and more expensive for us to negotiate an initial business combination. In order to obtain directors and officers liability insurance or modify its coverage as a result of becoming a public company, the post-business combination entity might need to incur greater expense, accept less favorable terms or both. However, any failure to obtain adequate directors and officers liability insurance could have an adverse impact on the post-business combination’s ability to attract and retain qualified officers and directors.
In addition, even after we were to complete an initial business combination, our directors and officers could still be subject to potential liability from claims arising from conduct alleged to have occurred prior to the initial business combination. As a result, in order to protect our directors and officers, the post-business combination entity may need to purchase additional insurance with respect to any such claims (“run-off insurance”). The need for run-off insurance would be an added expense for the post-business combination entity, and could interfere with or frustrate our ability to consummate an initial business combination on terms favorable to our investors.
Risks Relating to the Post-Business Combination Company
Our ability to successfully effect a business combination and to be successful thereafter will be totally dependent upon the efforts of our key personnel, some of whom may join us following a business combination. While we intend to closely scrutinize any individuals we engage after a business combination, we cannot assure you that our assessment of these individuals will prove to be correct.
Our ability to successfully effect a business combination is dependent upon the efforts of our key personnel. We believe that our success depends on the continued service of our key personnel, at least until we have consummated our initial business combination. We cannot assure you that any of our key personnel will remain with us for the immediate or foreseeable future. In addition, none of our officers are required to commit any specified amount of time to our affairs and, accordingly, our officers may have conflicts of interest in allocating management time among various business activities, including identifying potential business combinations and monitoring the related due diligence. We do not have employment agreements with, or key-man insurance on the life of, any of our officers. The unexpected loss of the services of our key personnel could have a detrimental effect on us.
Additionally, the role of our key personnel after a business combination cannot presently be ascertained. Although some of our key personnel may continue to serve in senior management or advisory positions following a business combination, it is likely that most, if not all, of the management of the target business will remain in place. While we intend to closely scrutinize any individuals we engage after a business combination, we cannot assure you that our assessment of these individuals will prove to be correct. These individuals may be unfamiliar with the requirements of operating a public company which could cause us to have to expend time and resources helping them become familiar with such requirements. This could be expensive and time-consuming and could lead to various regulatory issues which may adversely affect our operations.
Our officers and directors may not have significant experience or knowledge regarding the jurisdiction or industry of the target business we may seek to acquire.
We are not limited to a particular industry and may consummate a business combination with a target business in any geographic location or industry we choose. We cannot assure you that our officers and directors will have enough experience or have sufficient knowledge relating to the jurisdiction of the target or its industry to make an informed decision regarding a business combination.
If we do not conduct an adequate due diligence investigation of a target business, we may subsequently be required to take write-downs or write-offs, restructuring, and impairment or other charges that could have a significant negative effect on our financial condition, results of operations and our stock price, which could cause you to lose some or all of your investment.
We must conduct a due diligence investigation of the target businesses we intend to acquire. Intensive due diligence is time consuming and expensive due to the operations, accounting, finance and legal professionals who must be involved in the due diligence process. Even if we conduct extensive due diligence on a target business, this diligence may not reveal all material issues that may affect a particular target business, and factors outside the control of the target business and outside of our control may later arise. If our diligence fails to identify issues specific to a target business, industry or the environment in which the target business operates, we may later be forced to write-down or write-off assets, restructure our operations, or incur impairment or other charges that could result in our reporting losses. Even though these charges may be non-cash items and not have an immediate impact on our liquidity, the fact that we report charges of this nature could contribute to negative market perceptions about us or our common stock. In addition, charges of this nature may cause us to violate net worth or other covenants to which we may be subject as a result of assuming pre-existing debt held by a target business or by virtue of our obtaining debt financing during or subsequent to the business combination.
If we effect a business combination with a company located outside of the United States, we would be subject to a variety of additional risks that may negatively impact our operations.
We may effect a business combination with a company located outside of the United States. If we did, we would be subject to any special considerations or risks associated with companies operating in the target business’s home jurisdiction, including any of the following:
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rules and regulations or currency conversion or corporate withholding taxes on individuals;
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tariffs and trade barriers;
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regulations related to customs and import/export matters;
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tax issues, such as tax law changes and variations in tax laws as compared to the United States;
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currency fluctuations and exchange controls;
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challenges in collecting accounts receivable;
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cultural and language differences;
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crime, strikes, riots, civil disturbances, terrorist attacks and wars; and
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deterioration of political relations with the United States.
We cannot assure you that we would be able to adequately address these additional risks. If we were unable to do so, our operations might suffer.
If we effect a business combination with a company located outside of the United States, the laws applicable to such company will likely govern all of our material agreements and we may not be able to enforce our legal rights.
If we effect a business combination with a company located outside of the United States, the laws of the country in which such company operates will govern almost all of the material agreements relating to its operations. We cannot assure you that the target business will be able to enforce any of its material agreements or that remedies will be available in this new jurisdiction. The system of laws and the enforcement of existing laws in such jurisdiction may not be as certain in implementation and interpretation as in the United States. The inability to enforce or obtain a remedy under any of our future agreements could result in a significant loss of business, business opportunities or capital. Additionally, if we acquire a company located outside of the United States, it is likely that substantially all of our assets would be located outside of the United States and some of our officers and directors might reside outside of the United States. As a result, it may not be possible for investors in the United States to enforce their legal rights, to effect service of process upon our directors or officers or to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties of our directors and officers under federal securities laws.
There may be tax consequences to our business combinations that may adversely affect us.
While we expect to undertake any merger or acquisition so as to minimize taxes both to the acquired business and/or asset and us, such business combination might not meet the statutory requirements of a tax-free reorganization, or the parties might not obtain the intended tax-free treatment upon a transfer of shares or assets. A non-qualifying reorganization could result in the imposition of substantial taxes.
Risks Relating to Potential Conflicts of Interest of our Management, Directors, and Others
Our officers and directors may allocate their time to other businesses thereby causing conflicts of interest in their determination as to how much time to devote to our affairs. This conflict of interest could have a negative impact on our ability to consummate a business combination.
Our officers and directors are not required to commit their full time to our affairs, which could create a conflict of interest when allocating their time between our operations and their other commitments. We presently expect each of our employees to devote such amount of time as they reasonably believe is necessary to our business. We do not intend to have any full time employees prior to the consummation of our initial business combination. All of our officers and directors are engaged in other business endeavors and are not obligated to devote any specific number of hours to our affairs. If our officers’ and directors’ other business affairs require them to devote more substantial amounts of time to such affairs, it could limit their ability to devote time to our affairs and could have a negative impact on our ability to consummate our initial business combination. We cannot assure you that these conflicts will be resolved in our favor.
Our officers and directors may have a conflict of interest in determining whether a particular target business is appropriate for a business combination.
Our Sponsor, which is affiliated with certain of our officers and directors, has agreed to waive its right to convert its founder’s shares and any other shares purchased in the Initial Public Offering or thereafter, or to receive distributions from the trust account with respect to their founder’s shares upon our liquidation if we are unable to consummate a business combination. Accordingly, the shares acquired prior to the Initial Public Offering will be worthless if we do not consummate a business combination. Additionally, the warrants, including the warrants contained in the private placement units held by our Sponsor, will expire worthless if we do not consummate a business combination. The personal and financial interests of our directors and officers, through their interests in our Sponsor, may influence their motivation in timely identifying and selecting a target business and completing a business combination. Consequently, our directors’ and officers’ discretion in identifying and selecting a suitable target business may result in a conflict of interest when determining whether the terms, conditions and timing of a particular business combination are appropriate and in our stockholders’ best interest.
Certain of our officers have, and any of our officers and directors or their affiliates may in the future have, outside fiduciary and contractual obligations and, accordingly, may have conflicts of interest in determining to which entity a particular business opportunity should be presented.
Certain of our directors have, and any of our officers and directors or their affiliates may in the future have, fiduciary and contractual obligations to other companies. Accordingly, they may participate in transactions and have obligations that may be in conflict or competition with the consummation of our initial business combination. As a result, a potential target business may be presented by our management team to another entity prior to its presentation to us and we may not be afforded the opportunity to engage in a transaction with such target business. For a more detailed description of the pre-existing fiduciary and contractual obligations of our management team, and the potential conflicts of interest that such obligations may present, see the section titled “Part III, Item 10. Directors, Executive Officers and Corporate Governance.”
Our key personnel may negotiate employment or consulting agreements with a target business in connection with a particular business combination. These agreements may provide for them to receive compensation following a business combination and as a result, may cause them to have conflicts of interest in determining whether a particular business combination is the most advantageous.
Our key personnel will be able to remain with the company after the consummation of a business combination only if they are able to negotiate employment or consulting agreements or other appropriate arrangements in connection with the business combination. Such negotiations would take place simultaneously with the negotiation of the business combination and could provide for such individuals to receive compensation in the form of cash payments and/or our securities for services they would render to the company after the consummation of the business combination. The personal and financial interests of such individuals may influence their motivation in identifying and selecting a target business.
Risks Relating to our Securities
If we do not file and maintain a current and effective prospectus relating to the common stock issuable upon exercise of the warrants, holders will only be able to exercise such warrants on a “cashless basis.”
If we do not file and maintain a current and effective prospectus relating to the common stock issuable upon exercise of the warrants at the time that holders wish to exercise such warrants, they will only be able to exercise them on a “cashless basis” provided that an exemption from registration is available. As a result, the number of shares of common stock that holders will receive upon exercise of the warrants will be fewer than it would have been had such holder exercised his warrant for cash. Further, if an exemption from registration is not available, holders would not be able to exercise on a cashless basis and would only be able to exercise their warrants for cash if a current and effective prospectus relating to the common stock issuable upon exercise of the warrants is available. Under the terms of the warrant agreement, we have agreed to use our best efforts to meet these conditions and to file and maintain a current and effective prospectus relating to the common stock issuable upon exercise of the warrants until the expiration of the warrants. However, we cannot assure you that we will be able to do so. If we are unable to do so, the potential “upside” of the holder’s investment in our company may be reduced or the warrants may expire worthless.
An investor will only be able to exercise a warrant if the issuance of shares of common stock upon such exercise has been registered or qualified or is deemed exempt under the securities laws of the state of residence of the holder of the warrants.
No warrants will be exercisable and we will not be obligated to issue shares of common stock unless the shares of common stock issuable upon such exercise has been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the warrants. If the shares of common stock issuable upon exercise of the warrants are not qualified or exempt from qualification in the jurisdictions in which the holders of the warrants reside, the warrants may be deprived of any value, the market for the warrants may be limited and they may expire worthless if they cannot be sold and may be subject to redemption.
We may amend the terms of the warrants in a manner that may be adverse to holders with the approval by the holders of at least 50% of the then outstanding warrants.
Our warrants were issued in registered form under the Warrant Agreement, dated November 20, 2017, between Continental Stock Transfer & Trust Company, as warrant agent, and us. The warrant agreement provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision. The warrant agreement requires the approval by the holders of at least 50% of the then outstanding warrants (including the warrants contained in the private placement units) in order to make any change that adversely affects the interests of the registered holders. Accordingly, we would need only 1,656,876, or 48.0%, of the public warrants to vote in favor of a proposed amendment for it to be approved (assuming the holders of the warrants contained in the private placement units all voted in favor of the amendment).
We may amend the terms of the rights in a manner that may be adverse to holders with the approval by the holders of at least 50% of the then outstanding rights.
Our rights were issued in registered form under a right agreement between Continental Stock Transfer & Trust Company, as rights agent, and us. The right agreement provides that the terms of the rights may be amended without the consent of any holder to cure any ambiguity or correct any defective provision. The right agreement requires the approval by the holders of at least 50% of the then outstanding rights in order to make any change that adversely affects the interests of the registered holders. Accordingly, we would need only 3,313,751, or 48.0%, of the public rights to vote in favor of a proposed amendment for it to be approved (assuming the holders of the private rights all voted in favor of the amendment).
If third parties bring claims against us, the proceeds held in trust could be reduced and the per-share redemption price received by stockholders may be less than $10.00.
Our placing of funds in trust may not protect those funds from third party claims against us. Although we will seek to have all vendors and service providers we engage and prospective target businesses we negotiate with execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the trust account for the benefit of our public stockholders, they may not execute such agreements. Furthermore, even if such entities execute such agreements with us, they may seek recourse against the trust account. A court may not uphold the validity of such agreements. Accordingly, the proceeds held in trust could be subject to claims which could take priority over those of our public stockholders. If we are unable to complete a business combination and distribute the proceeds held in trust to our public stockholders, A/Z Property has agreed (subject to certain exceptions described elsewhere in this Report) that it will be liable to ensure that the proceeds in the trust account are not reduced below $10.00 per share by the claims of target businesses or claims of vendors or other entities that are owed money by us for services rendered or contracted for or products sold to us. We believe A/Z Property has sufficient net worth to satisfy its indemnity obligation should it arise, however we cannot assure you that A/Z Property will have sufficient liquid assets to satisfy obligations if it is required to do so. Additionally, the agreement entered into by A/Z Property specifically provides for two exceptions to the indemnity it has given: it will have no liability (1) as to any claimed amounts owed to a target business or vendor or other entity who has executed an agreement with us waiving any right, title, interest or claim of any kind they may have in or to any monies held in the trust account, or (2) as to any claims for indemnification by the underwriters of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act. Therefore, the per-share distribution from the trust account may be less than $10.00, plus interest, due to such claims.
Additionally, if we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, the proceeds held in the trust account could be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our stockholders. To the extent any bankruptcy claims deplete the trust account, we may not be able to return to our public stockholders at least $10.00 per share. As a result, if any such claims were successfully made against the trust account, the funds available for our initial business combination and redemptions could be reduced to less than $10.00 per public share.
Our stockholders may be held liable for claims by third parties against us to the extent of distributions received by them.
Our amended and restated certificate of incorporation provides that we will continue in existence until May 24, 2021, or such later date as may be approved by our stockholders. If we have not completed a business combination by such date, we will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem 100% of the outstanding public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including any interest earned on the funds held in the trust account net of interest that may be used by us to pay our franchise and income taxes payable, divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate, subject (in the case of (ii) and (iii) above) to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. We cannot assure you that we will properly assess all claims that may be potentially brought against us. As such, our stockholders could potentially be liable for any claims to the extent of distributions received by them (but no more) and any liability of our stockholders may extend well beyond the third anniversary of the date of distribution. Accordingly, we cannot assure you that third parties will not seek to recover from our stockholders amounts owed to them by us.
If we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, any distributions received by stockholders could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover all amounts received by our stockholders. Furthermore, because we intend to distribute the proceeds held in the trust account to our public stockholders promptly after expiration of the time we have to complete an initial business combination, this may be viewed or interpreted as giving preference to our public stockholders over any potential creditors with respect to access to or distributions from our assets. Furthermore, our board may be viewed as having breached their fiduciary duties to our creditors and/or may have acted in bad faith, and thereby exposing itself and our company to claims of punitive damages, by paying public stockholders from the trust account prior to addressing the claims of creditors. We cannot assure you that claims will not be brought against us for these reasons.
Our directors may decide not to enforce A/Z Property's indemnification obligations, resulting in a reduction in the amount of funds in the trust account available for distribution to our public stockholders.
In the event that the proceeds in the trust account are reduced below $10.00 per public share and A/Z Property asserts that it is unable to satisfy its obligations or that it has no indemnification obligations related to a particular claim, our independent directors would determine whether to take legal action against A/Z Property to enforce such indemnification obligations. While we currently expect that our independent directors would take legal action on our behalf against A/Z Property to enforce such indemnification obligations to us, it is possible that our independent directors in exercising their business judgment may choose not to do so in any particular instance. If our independent directors choose not to enforce these indemnification obligations, the amount of funds in the trust account available for distribution to our public stockholders may be reduced below $10.00 per share.
Nasdaq may delist our securities from its exchange which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.
On November 23, 2020, the Company received a notice from the Listing Qualifications Department of The Nasdaq Stock Market LLC stating that, as of November 20, 2020, the Company was not in compliance with Listing Rule IM-5101-2, which requires that a special purpose acquisition company complete one or more business combinations within 36 months of the effectiveness of the registration statement filed in connection with its initial public offering. Since the Company’s registration statement became effective on November 20, 2017, it was required to complete an initial business combination by no later than November 20, 2020. The Rule also provides that failure to comply with this requirement will result in the Listing Qualifications Department issuing a Staff Delisting Determination under Rule 5810 to delist the Company’s securities. The Listing Qualifications Department had advised the Company that its securities would be subject to delisting unless it timely requested a hearing before an independent Hearings Panel. The Company appealed the ruling and Nasdaq scheduled the appeal for January 14, 2021 (the “Nasdaq Appeal”). On January 4, 2021, the Company received an additional notice from Nasdaq stating that the Company’s failure to hold an annual stockholder meeting for the fiscal year ended December 31, 2019 by December 31, 2020, as required by Nasdaq Listing Rule 5820, could serve as an additional basis for delisting the Company’s securities from Nasdaq, the Company requested that this issue be added to the Nasdaq Appeal.
On January 14, 2021, the Company attended a hearing before the Nasdaq Hearings Panel with respect to the November 23, 2020 and January 2, 2021 delisting notices. During the hearing, the Company requested an extension through May 24, 2021 to regain compliance with the Nasdaq listing rules. On January 15, 2021, the Company received notice from Nasdaq that Nasdaq had granted the Company’s request to continue its listing on Nasdaq through May 24, 2021 (“Extended Date”). Nasdaq’s decision is subject to certain conditions, including that the Company will have completed the Merger with NeuroRx on or before the Extended Date and that NRX Pharmaceuticals will have demonstrated compliance with all requirements for initial listing on Nasdaq. While the Company expects to complete the Merger by the Extended Date, there can be no assurance that it will be able to do so.
If Nasdaq delists the Company’s securities from trading on its exchange, the Company could face significant material adverse consequences, including:
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a limited availability of market quotations for our securities;
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reduced liquidity with respect to our securities;
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a determination that our shares of common stock are “penny stock” which will require brokers trading in our shares of common stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our shares of common stock;
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a limited amount of news and analyst coverage for our company; and
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a decreased ability to issue additional securities or obtain additional financing in the future.
The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because our units, common stock, rights and warrants are listed on Nasdaq, our units, common stock, rights and warrants are covered securities. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. While we are not aware of a state having used these powers to prohibit or restrict the sale of securities issued by blank check companies, certain state securities regulators view blank check companies unfavorably and might use these powers, or threaten to use these powers, to hinder the sale of securities of blank check companies in their states. Further, if we were no longer listed on Nasdaq, our securities would not be covered securities and we would be subject to regulation in each state in which we offer our securities.
Our outstanding rights, warrants and unit purchase options may have an adverse effect on the market price of our common stock and make it more difficult to effect a business combination.
We issued rights to receive 690,000 shares of common stock and warrants to purchase 3,450,000 shares of common stock as part of the units offered in connection with the Initial Public Offering and rights to receive 27,250 shares of common stock and warrants to purchase 136,250 shares of common stock in connection with the Private Placement. We also issued unit purchase options to purchase 600,000 units to EarlyBirdCapital, Inc. (and/or its designees) which, if exercised, will result in the issuance of 600,000 shares of common stock, rights to receive 60,000 shares of common stock and warrants to purchase an additional 300,000 shares of common stock. We may also issue additional private units, which will be identical to the private placement units, to our Sponsor, officers or directors in payment of working capital loans made to us as described in this Amendment and the Original 10-K. To the extent we issue shares of common stock to effect a business combination, the potential for the issuance of a substantial number of additional shares upon conversion or exercise of these rights, warrants and unit purchase options could make us a less attractive acquisition vehicle in the eyes of a target business. Such securities, when exercised, will increase the number of issued and outstanding shares of common stock and reduce the value of the shares issued to complete the business combination. Accordingly, our rights, warrants and unit purchase option may make it more difficult to effectuate a business combination or increase the cost of acquiring the target business. Additionally, the sale, or even the possibility of sale, of the shares underlying the warrants, rights, or unit purchase option could have an adverse effect on the market price for our securities or on our ability to obtain future financing. If and to the extent these rights are converted or warrants and options are exercised, you may experience dilution to your holdings.
We may redeem your unexpired warrants prior to their exercise at a time that is disadvantageous to you, thereby making your warrants worthless.
We have the ability to redeem outstanding warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant, provided that the last reported sales price of the common stock equals or exceeds $21.00 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations) for any 20 trading days within a 30 trading-day period ending on the third business day prior to proper notice of such redemption provided that on the date we give notice of redemption and during the entire period thereafter until the time we redeem the warrants, we have an effective registration statement under the Securities Act covering the shares of common stock issuable upon exercise of the warrants and a current prospectus relating to them is available. If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. Redemption of the outstanding warrants could force you (i) to exercise your warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so, (ii) to sell your warrants at the then-current market price when you might otherwise wish to hold your warrants or (iii) to accept the nominal redemption price which, at the time the outstanding warrants are called for redemption, is likely to be substantially less than the market value of your warrants. None of the warrants contained in the private placement units will be redeemable by us so long as they are held by the Sponsor or its permitted transferees.
Our management’s ability to require holders of our warrants to exercise such warrants on a cashless basis will cause holders to receive fewer shares of common stock upon their exercise of the warrants than they would have received had they been able to exercise their warrants for cash.
If we call our public warrants for redemption after the redemption criteria described elsewhere in this Amendment and the Original 10-K have been satisfied, our management will have the option to require any holder that wishes to exercise his warrant (including any warrants held by our Sponsor, officers or directors or their permitted transferees) to do so on a “cashless basis.” If our management chooses to require holders to exercise their warrants on a cashless basis, the number of shares of common stock received by a holder upon exercise will be fewer than it would have been had such holder exercised his warrant for cash. This will have the effect of reducing the potential “upside” of the holder’s investment in our company.
We have no obligation to net cash settle the rights or warrants.
In no event will we have any obligation to net cash settle the rights or warrants. Furthermore, there are no contractual penalties for failure to deliver securities to the holders of the rights or warrants upon consummation of an initial business combination or exercise of the warrants. Accordingly, you might not receive the shares of common stock underlying the rights and warrants.
If our security holders exercise their registration rights, it may have an adverse effect on the market price of our shares of common stock and the existence of these rights may make it more difficult to effect a business combination.
Our stockholders prior to the Initial Public Offering are entitled to demand that we register the resale of the founder’s shares at any time commencing three months prior to the date on which their shares may be released from escrow. Additionally, the holders of the private placement units and any private units our Sponsor, officers, directors, or their affiliates may be issued in payment of working capital loans made to us are entitled to demand that we register the resale of the private placement units and any other private units we issue to them (and the underlying securities) commencing at any time after we consummate an initial business combination. The presence of these additional shares of common stock trading in the public market may have an adverse effect on the market price of our securities. In addition, the existence of these rights may make it more difficult to effectuate a business combination or increase the cost of acquiring the target business, as the stockholders of the target business may be discouraged from entering into a business combination with us or will request a higher price for their securities because of the potential effect the exercise of such rights may have on the trading market for our shares of common stock.
Provisions in our amended and restated certificate of incorporation and bylaws and Delaware law may inhibit a takeover of us, which could limit the price investors might be willing to pay in the future for our common stock and could entrench management.
Our amended and restated certificate of incorporation and bylaws contain provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. Our board of directors is divided into two classes, each of which will generally serve for a term of two years with only one class of directors being elected in each year. As a result, at a given annual meeting only a minority of the board of directors may be considered for election. Since our “staggered board” may prevent our stockholders from replacing a majority of our board of directors at any given annual meeting, it may entrench management and discourage unsolicited stockholder proposals that may be in the best interests of stockholders. Also, our amended and restated certificate of incorporation provides our board of directors the ability to designate the terms of and issue new series of preferred stock, which may inhibit a takeover of us.
We are also subject to anti-takeover provisions under Delaware law, which could delay or prevent a change of control. Together these provisions may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities.
Our amended and restated certificate of incorporation provides, subject to limited exceptions, that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.
Our amended and restated certificate of incorporation requires, to the fullest extent permitted by law, that derivative actions brought in our name, actions against directors, officers and employees for breach of fiduciary duty and other similar actions may be brought only in the Court of Chancery in the State of Delaware and, if brought outside of Delaware, the stockholder bringing the suit will be deemed to have consented to service of process on such stockholder’s counsel. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provisions in our amended and restated certificate of incorporation.
This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition.
General Risks
We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our shares of common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act. We will remain an “emerging growth company” for up to five years. However, if our non-convertible debt issued within a three year period or revenues exceeds $1.07 billion, or the market value of our shares of common stock that are held by non-affiliates exceeds $700 million on the last day of the second fiscal quarter of any given fiscal year, we would cease to be an emerging growth company as of the following fiscal year. As an emerging growth company, we are not required to comply with the auditor attestation requirements of section 404 of the Sarbanes-Oxley Act, we have reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and we are exempt from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Additionally, as an emerging growth company, we have elected to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As such, our financial statements may not be comparable to companies that comply with public company effective dates. We cannot predict if investors will find our shares of common stock less attractive because we may rely on these provisions. If some investors find our shares of common stock less attractive as a result, there may be a less active trading market for our shares and our share price may be more volatile.
If we are deemed to be an investment company, we may be required to institute burdensome compliance requirements and our activities may be restricted, which may make it difficult for us to complete a business combination.
A company that, among other things, is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, owning, trading or holding certain types of securities would be deemed an investment company under the Investment Company Act, as amended, or the Investment Company Act. Since we will invest the proceeds held in the trust account, it is possible that we could be deemed an investment company. Notwithstanding the foregoing, we do not believe that our anticipated principal activities will subject us to the Investment Company Act. To this end, the proceeds held in trust may be invested by the trustee only in United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act having a maturity of 180 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act which invest only in direct U.S. government treasury obligations. By restricting the investment of the proceeds to these instruments, we intend to meet the requirements for the exemption provided in Rule 3a-1 promulgated under the Investment Company Act.
If we are nevertheless deemed to be an investment company under the Investment Company Act, we may be subject to certain restrictions that may make it more difficult for us to complete a business combination, including:
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restrictions on the nature of our investments; and
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restrictions on the issuance of securities.
In addition, we may have imposed upon us certain burdensome requirements, including:
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registration as an investment company;
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adoption of a specific form of corporate structure; and
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reporting, record keeping, voting, proxy, compliance policies and procedures and disclosure requirements and other rules and regulations.
Compliance with these additional regulatory burdens would require additional expense for which we have not allotted.
Compliance with the Sarbanes-Oxley Act of 2002 will require substantial financial and management resources and may increase the time and costs of completing an acquisition.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate and report on our system of internal controls. If we fail to maintain the adequacy of our internal controls, we could be subject to regulatory scrutiny, civil or criminal penalties and/or stockholder litigation. Any inability to provide reliable financial reports could harm our business. Section 404 of the Sarbanes-Oxley Act also requires that our independent registered public accounting firm report on management’s evaluation of our system of internal controls, which requirement we are exempt from so long as we qualify as an “emerging growth company,” as defined in Section 2(a) of the Securities Act. A target company may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding adequacy of their internal controls. The development of the internal controls of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such acquisition. Furthermore, any failure to implement required new or improved controls, or difficulties encountered in the implementation of adequate controls over our financial processes and reporting in the future, could harm our operating results or cause us to fail to meet our reporting obligations. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.
Changes in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect our business, investments and results of operations.
We are subject to laws and regulations enacted by national, regional and local governments.firm. In particular, we will be required to comply with certain SEC and other legal requirements. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly. Those laws and regulations and their interpretation and application may also change from time to time and those changes could have a material adverse effect on our business, investments and results of operations. In addition, a failure to comply with applicable laws or regulations, as interpreted and applied, could have a material adverse effect on our business and results of operations.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the notes related thereto which are included in “Item 8. Financial Statements and Supplementary Data”recognition of this Amendment. Certain information contained inresponsibility, our audit committee (or the discussionchair if such approval is needed on a time urgent basis) pre-approves audit and analysis set forth below includes forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under “Special Note Regarding Forward-Looking Statements,” “Item 1A. Risk Factors” and elsewhere in this Amendment and the Original 10-K.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations has been amended and restated to give effect to the restatement and revision of our financial statements as more fully described in the Explanatory Note and in “Note 2—Restatement of Previously Issued Financial Statements” to our accompanying financial statements. For further detail regarding the restatement adjustments, see Explanatory Note and Item 9A: Controls and Procedures, both contained herein.
Overview
We are a blank check company incorporated in Delaware on September 18, 2017 and formed for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more target businesses or entities (a “Business Combination”). Our efforts in identifying a prospective target business for our initial Business Combination are not limited to a particular industry or geographic region. We intend to effectuate our Business Combination using cash from the proceeds of our Initial Public Offering and the sale of Private Placement Units that occurred simultaneously with the completion of our Initial Public Offering, our securities, debt or a combination of cash, securities and debt.
Recent Developments
Proposed Business Combination
On December 13, 2020, the Company entered into the Merger Agreement with NeuroRx and Merger Sub. The Merger Agreement was subsequently amended on January 27, 2021 and March 19, 2021. Pursuant to the Merger Agreement, Merger Sub will merge with and into NeuroRx, with NeuroRx surviving the Merger. As a result of the Merger, NeuroRx will become a wholly-owned subsidiary of the Company, with the stockholders of NeuroRx becoming stockholders of the Company. Under the Merger Agreement, at the Effective Time, each outstanding share of NeuroRx common stock (including shares of NeuroRx common stock resulting from the conversion of NeuroRx preferred stock immediately prior to the Effective Time) will be converted into the right to receive a pro rata portion of the Closing Consideration and the contingent right to receive a pro rata portion of the Earnout Shares and Earnout Cash. Each option and warrant of NeuroRx that is outstanding and unexercised immediately prior to the Effective Time will be assumedpermissible non-audit services provided by the Company and will represent the right to acquire an adjusted number of shares of the Company’s Common Stock at an adjusted exercise price, in each case, pursuant to the terms of the Merger Agreement.
Pursuant to the Merger Agreement, the Company will enter into the Sponsor Agreement with the Sponsor and BRAC providing that (a) the Sponsor and BRAC will forfeit the Forfeited Shares and (b) the Sponsor Earnout Shares will be subject to escrow, and will either be released from escrow to the Sponsor upon the achievement of the Earnout Shares Milestone or terminated and canceled by the Company on December 31, 2022, in the event that the Earnout Shares Milestone is not achieved.
Pursuant to the Merger Agreement, the Company, Sponsor, BRAC, Graubard Miller, the Initial Stockholders and Continental will enter into the Stock Escrow Amendment providing: (a) for the forfeiture and cancellation of the Forfeited Shares, (b) that the Sponsor Earnout Shares will be subject to escrow pursuant to the Sponsor Agreement and in accordance with the terms of the Merger Agreement, (c) that the 40,000 shares of Common Stock held by Graubard Miller will be released from escrow and (d) that all remaining shares of Common Stock held in escrow thereunder will be released from escrow on the earlier of (i) the six-month anniversary of the closing, (ii) with respect to 50% of the shares of Common Stock, the date on which the closing price of the Common Stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing after the closing, and (iii) the date after the closing on which the Company consummates a liquidation, merger, stock exchange or other similar transaction which results in all of the Company’s stockholders having the right to exchange their Common Stock for cash, securities or other property.
Pursuant to the Merger Agreement, to the extent the sum of the amount remaining in the trust account after disbursements to the Company’s public stockholders who seek redemption of their public shares plus the amount raised in the PIPE (described below) and any other financing exceeds $5 million, the Company’s outstanding loans will be repaid at the closing of the Merger. Further, the Company, the Sponsor and the Company’s lenders will enter into an omnibus amendment to each outstanding promissory note or other borrowing with the Company as the maker providing that, to the extent not repaid in accordance with the Merger Agreement, the outstanding principal and accrued unpaid interest pursuant to such promissory notes, after any repayments permitted pursuant to the terms of the Merger Agreement, will be converted into convertible notes of NRX Pharmaceuticals with an aggregate principal amount of no more than approximately $2.7 million, which will bear interest at three percent (3%) per annum, and may be converted from time to time, at the holder’s option, into shares of Common Stock at a price of $10.00 per share, and which will mature on the date that is twenty-four (24) months after the date of the Merger closing. Any other borrowings not repaid or converted into convertible notes pursuant to the Merger Agreement will be forgiven or discharged prior to closing.
Immediately after the closing of the Merger, NeuroRx’s stockholders will hold approximately 93% of the issued and outstanding shares of the Company’s Common Stock, the current stockholders of the Company will hold approximately 5% of the issued and outstanding Common Stock, and the PIPE Investors will hold approximately 2% of the issued and outstanding Common Stock, which pro forma ownership (i) takes into effect the forfeiture, termination and cancellation of 875,000 shares of Common Stock by the Sponsor and BRAC pursuant to the Merger Agreement, and the issuance to EBC of 200,000 shares of Common Stock in lieu of the cash fee owed to EBC under the existing Business Combination Marketing Agreement, (ii) takes into effect the exchange of each outstanding Right for one-tenth of one share of Common Stock pursuant to the terms of the Rights, (iii) assumes no holder of Public Shares exercises its conversion rights, (iv) includes the effect of the PIPE but does not include the effect of any other financing of the Company and (v) assumes the Earnout Shares Milestone is not satisfied immediately after the Closing.
Private Placement
In connection with the Merger, on March 12, 2021, the Company entered into Subscription Agreements the PIPE Investors, pursuant to which the Company will, substantially concurrently with, and contingent upon, the consummation of the Merger, issue an aggregate of 1,000,000 shares of Common Stock to the PIPE Investors at a price of $10.00 per share, for aggregate gross proceeds to the Company of $10,000,000.
The closing of the PIPE is conditioned upon, among other things, (i) the substantially concurrent consummation of the Merger, (ii) the accuracy of all representations and warranties of the Company and the PIPE Investors in the Subscription Agreements, and the performance of all covenants of the Company and the PIPE Investors under the Subscription Agreements, (iii) the shares of Common Stock shall have been approved for listing on the Nasdaq, subject to official notice of issuance, and (iv) the Merger Agreement shall not have been terminated or rescinded, and no amendment, waiver or modification shall have occurred thereunder that would materially adversely affect the economic benefits that the PIPE Investor would reasonably expect to receive under the Subscription Agreement without having received the PIPE Investor’s prior written consent (not to be unreasonably withheld, conditioned, or delayed).
Extensions to Complete Business Combination
On July 23, 2020, our stockholders approved an amendment to the charter to extend the period of time for which we are required to consummate a Business Combination (the “Fifth Extension”) from July 23, 2020 to December 23, 2020. The number of shares of common stock presented for redemption in connection with the Fifth Extension was 27,786. We paid cash in amount of approximately $299,000, or approximately $10.77 per share, to redeeming stockholders. We agreed to deposit, or cause to be deposited on its behalf, into the Trust Account $0.02 for each public share outstanding for each 30-day extension period utilized through the Fifth Extension. In connection with this extension, we deposited an aggregate of $44,219 into the Trust Account to fund the extension through November 23, 2020.
On December 18, 2020, our stockholders approved an amendment to the charter to extend the date by which we must complete an initial business combination from December 23, 2020 to April 23, 2021 (the “Sixth Extension”). No stockholders exercised their right to convert their public shares into cash in connection with the Sixth Extension.
On April 21, 2020, our stockholders approved an amendment to the charter to extend the date by which we must complete a business combination from April 23, 2021 to May 24, 2021 (the “Seventh Extension”). Stockholders holding an aggregate of 330 public shares exercised their right to convert such shares of the Company’s common stock into cash in connection with the Seventh Extension
Nasdaq Compliance
On November 23, 2020, the Company received a notice from the Listing Qualifications Department of The Nasdaq Stock Market LLC stating that, as of November 20, 2020, the Company was not in compliance with Listing Rule IM-5101-2, which requires that a special purpose acquisition company complete one or more business combinations within 36 months of the effectiveness of the registration statement filed in connection with its initial public offering. Since the Company’s registration statement became effective on November 20, 2017, it was required to complete an initial business combination by no later than November 20, 2020. The Rule also provides that failure to comply with this requirement will result in the Listing Qualifications Department issuing a Staff Delisting Determination under Rule 5810 to delist the Company’s securities. The Listing Qualifications Department had advised the Company that its securities would be subject to delisting unless it timely requested a hearing before an independent Hearings Panel. The Company appealed the ruling and Nasdaq scheduled the appeal for January 14, 2021. On January 4, 2021, the Company received an additional notice from Nasdaq stating that the Company’s failure to hold an annual stockholder meeting for the fiscal year ended December 31, 2019 by December 31, 2020, as required by Nasdaq Listing Rule 5820, could serve as an additional basis for delisting the Company’s securities from Nasdaq, the Company requested that this issue be added to the Nasdaq Appeal.
On January 14, 2021, the Company attended a hearing before the Nasdaq Hearings Panel with respect to the November 23, 2020 and January 2, 2021 delisting notices. During the hearing, the Company requested an extension through May 24, 2021 to regain compliance with the Nasdaq listing rules. On January 15, 2021, the Company received notice from Nasdaq that Nasdaq had granted the Company’s request to continue its listing on Nasdaq through May 24, 2021. Nasdaq’s decision is subject to certain conditions, including that the Company will have completed the Merger with NeuroRx on or before the Extended Date and that NRX Pharmaceuticals will have demonstrated compliance with all requirements for initial listing on Nasdaq.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Since our Initial Public Offering, our activity has been limited to the search for a prospective initial Business Combination, and we will not be generating any operating revenues until the closing and completion of our initial Business Combination. We are incurring expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.
As a result of the restatement described in Note 2 of the notes to the financial statements included herein, we classify the Private Warrants as liabilities at their fair value and adjust the warrant instrument to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our statement of operations.
For the year ended December 31, 2020, we had a net loss of $1,089,510, which consists of operating expenses of $907,406, income tax provision of $17,841 and a change in the fair value of the warrant liability of $655,098, offset by interest income on securities held in the trust account established for the benefit of our public stockholders (the “Trust Account”) of $138,764 and the forgiveness of previously recorded professional fees of $352,071.
For the year ended December 31, 2019, we had a net income of $408,427, which consists of interest income on securities held in the Trust Account of $1,205,820, offset by operating costs of $713,187 and provision for income taxes of $84,206.
Liquidity and Capital Resources
As of December 31, 2020, we had cash and marketable securities held in the Trust Account of $5,967,947 (including approximately $138,764 of interest income) consisting of money market funds. Interest income earned on the balance in the Trust Account may be used by us to pay taxes. To date, we have withdrawn $716,788 of interest from the Trust Account in order to pay our income and franchise taxes, of which $161,430 was withdrawn during the year ended December 31, 2020.
For the year ended December 31, 2020, cash used in operating activities amounted to $598,617. Net loss of $1,089,510 was the result of the forgiveness of previously recorded professional fees in the amount of $352,071, a non-cash charge for the change in the fair value of warrant liability of $655,098 and interest earned on securities held in the Trust Account of $138,764 and changes in operating assets and liabilities, which provided $326,630 of cash for operating activities.
For the year ended December 31, 2019, cash used in operating activities amounted to $792,731. Net income of $408,427 was the result of interest earned on securities held in the Trust Account of $1,205,820, offset by changes in operating assets and liabilities, which provided $4,662 of cash for operating activities.
We intend to use substantially all of the funds held in the Trust Account to acquire a target business or businesses and to pay our expenses relating thereto. To the extent that our capital stock is used, in whole or in part, as consideration to complete our Business Combination, the remaining proceeds held in the Trust Account, as well as any other net proceeds not expended, will be used as working capital to finance the operations of the target business. Such working capital funds could be used in a variety of ways including, but not limited to, continuing or expanding the target business’ operations, for strategic acquisitions and for marketing, research and development of existing or new products. Such funds could also be used to repay any expenses or finders’ fees which we had incurred prior to the completion of our Business Combination if the funds available to us outside of the Trust Account were insufficient to cover such expenses.
As of December 31, 2020, A/Z Property has loaned us an aggregate of approximately $862,148 in order to pay our Non-Business Combination Related Expenses and extension payments. Upon consummation of a Business Combination, up to $200,000 of the Non-Business Combination Related Expenses may be repaid by us to the Sponsor provided that we have funds available to us sufficient to repay such expenses (the “Cap”) as well as to pay for all stockholder redemptions, all Business Combination Expenses, repayment of the Notes, and any funds necessary for our working capital requirements following closing of the Business Combination. Any remaining amounts in excess of the Cap will be forgiven. If we do not consummate a Business Combination, all outstanding loans made by the Sponsor to cover the Non-Business Combination Related Expenses will be forgiven. We repaid $35,000 of such loans during the year ended December 31, 2020.
As of December 31, 2020, BRAC has loaned us an aggregate of approximately $1,809,889 in order to fund extension payments and other expenses.
We do not believe we will need to raise additional funds in order to meet expenditures required for operating our business. However, if our estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating a Business Combination are less than the actual amounts necessary to do so, we may have insufficient funds available to operate our business prior to our Business Combination. In order to fund working capital deficiencies or finance transaction costs in connection with a Business Combination, our Sponsor, officers and directors or their respective affiliates may, but are not obligated to, except as described above, loan us funds as may be required. If we complete a Business Combination, we may repay such loaned amounts out of the proceeds of the Trust Account released to us. In the event that a Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into units, at a price of $10.00 per unit at the option of the lender. The units would be identical to the Private Placement Units.
Moreover, we may need to obtain additional financing either to complete our Business Combination or because we become obligated to redeem a significant number of our public shares upon completion of our Business Combination, in which case we may issue additional securities or incur debt in connection with such Business Combination. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the completion of our Business Combination. If we are unable to complete our Business Combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the Trust Account. In addition, following our Business Combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.
Off-balance sheet financing arrangements
We did not have any off-balance sheet arrangements as of December 31, 2020.
Contractual obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities.
We have engaged EarlyBirdCapital as an advisor in connection with a Business Combination to assist us in holding meetings with its stockholders to discuss a potential Business Combination and the target business’ attributes, introduce us to potential investors that are interested in purchasing securities, assist us in obtaining stockholder approval for the Business Combination and assist us with our press releases and public filings in connection with a Business Combination. The Business Combination Marketing Agreement between us and EarlyBirdCapital provides that we will pay EarlyBirdCapital a cash fee for such services upon the consummation of a Business Combination in an amount equal to 4.0% of the gross proceeds of the Initial Public Offering (exclusive of any applicable finders’ fees which might become payable). In connection with the proposed Merger with NeuroRx, EarlyBirdCapital agreed that, in lieu of such cash fee, it would be paid an aggregate of 200,000 shares of our common stock upon consummation of the Merger. If a Business Combination is not consummated for any reason, no fee will be due or payable.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies:
Warrant Liability
We account for warrants in accordance with the guidance contained in ASC 815-40-15-7D under which the warrants that do not meet the criteria for equity treatment and must be recorded as liabilities. As the Private Warrants meet the definition of a derivative as contemplated in ASC 815, we classify the Private Warrants as liabilities at their fair value and adjust the warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our statement of operations. The fair value of the Private Warrants was estimated using a Black-Scholes Model approach.
Common Stock Subject to Possible Redemption
We account for our common stock subject to possible conversion in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption is classified as a liability instrument and measured at fair value. Conditionally redeemable common stock (including common stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. Our common stock features certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, common stock subject to possible redemption is presented at redemption value as temporary equity, outside of the stockholders’ equity section of our consolidated balance sheets.
Net Income (Loss) per Common Share
We apply the two-class method in calculating earnings per share. Net income (loss) per common share, basic and diluted for common stock subject to possible redemption is calculated by dividing the interest income earned on the Trust Account, net of applicable taxes, if any, by the weighted average number of shares of common stock subject to possible redemption outstanding for the period. Net income (loss) per common share, basic and diluted for and non-redeemable common stock is calculated by dividing net loss less income attributable to common stock subject to possible redemption, by the weighted average number of shares of non-redeemable common stock outstanding for the period presented.
Recent Accounting Standards
Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
This information appears following Item 15 of this Amendment and is included herein by reference.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer (our “Certifying Officers”) carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2020. On April 1, 2021, we filed our Original 10-K. Based upon their evaluation at that time, our Certifying Officers had concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective. Subsequently, and in connection with this Amendment, our Certifying Officers re-evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2020, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation and in light of the SEC Statement, our Certifying Officers concluded that, solely due to the Company’s restatement of its financial statements to reclassify the Company’s Private Warrants as described in the Explanatory Note to this Amendment, our disclosure controls and procedures were not effective as of December 31, 2020.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Management’s Annual Report on Internal Controls Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in the Exchange Act Rule 13a-15(f). Our internal control over financial reporting is designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements. A control system, no matter how well designed and operated, can only provide reasonable, not absolute, assurance that the objectives of the control system are met. Because of these inherent limitations, management does not expect that our internal control over financial reporting will prevent all error and all fraud. Management conducted an evaluation of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission (the “2013 Framework”). Based on our evaluation under the 2013 Framework, management concluded that our internal control over financial reporting was not effective as of December 31, 2020.
In connection with the restatement of our financial statements included in this Amendment, our management, including our principal executive and financial officers, have evaluated the effectiveness of our internal control over financial reporting and concluded that we did not maintain effective internal control over financial reporting as of December 31, 2020 because of a material weakness in our internal control over financial reporting described below related to the accounting for a significant and unusual transaction related to the Private Warrants. Notwithstanding the material weakness described below, our management has concluded that our restated and revised audited financial statements included in this Amendment are fairly stated in all material respects in accordance with U.S. GAAP for each of the periods presented herein.
In connection with the restatement described in “Note 2— Restatement of Previously Issued Financial Statements” to the accompanying financial statements included in this Amendment, management identified a material weakness in our internal control over financial reporting related to the accounting for a significant and unusual transaction related to the Private Warrants. This material weakness resulted in a material misstatement of our warrant liability, change in fair value of warrant liability, additional paid-in capital and accumulated deficit as of and for the year ended December 31, 2020.
To respond to this material weakness, we have devoted, and plan to continue to devote, significant effort and resources to the remediation and improvement of our internal control over financial reporting. While we have processes to identify and appropriately apply applicable accounting requirements, we plan to enhance these processes to better evaluate our research and understanding of the nuances of the complex accounting standards that apply to our financial statements. Our plans at this time include providing enhanced access to accounting literature, research materials and documents and increased communication among our personnel and third-party professionals with whom we consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.
This Amendment does not include an attestation report of internal controls from our independent registered public accounting firm due to our status as an emerging growth company under the JOBS Act.
Restatementfirm. These services include audit services, audit-related services, tax services and other services.Part IV.
Item 15. Exhibits, Financial Statement Schedules
(a) List of Previously Issued Financial Statements
On April 28, 2021, we revised our prior position on accounting for warrants and concluded that our previously issuedDocuments filed. | 1. | The financial statements of NRx Pharmaceuticals, Inc. are filed as part of the original Form 10-K. |
| 2. | The schedules have been omitted from the Form 10-K because they are not required or because the information is provided elsewhere in the financial statements. The financial statements of unconsolidated subsidiaries are omitted because, considered in the aggregate, they would not constitute a significant subsidiary. |
(b) List of and for the year ended December 31, 2020 should not be relied on because of a misapplication in the guidance on warrant accounting. However, the non-cash adjustments to the financial statements do not impact the amounts previously reported for our cash and cash equivalents, total assets, revenue or cash flows.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.) In light of the restatement of our financial statements included in this Amendment, we plan to enhance our processes to identify and appropriately apply applicable accounting requirements to better evaluate and understand the nuances of the complex accounting standards that apply to our financial statements. Our plans at this time include providing enhanced access to accounting literature, research materials and documents and increased communication among our personnel and third-party professionals with whom we consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.
PART IV
ITEM 15Exhibits. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following documents areis a list of exhibits filed as part ofwith this Amendment:
(1) Financial Statements:
Form 10-K/A. | | | | Incorporated by Reference Exhibit |
Financial Statements:Exhibit
Number | | Description | | Form | | Exhibit | | Filing
Date | | File
Herewith |
| | Settlement Agreement by and between Relief Therapeutics Holding AG, Relief Therapeutics International SA, NeuroRx, Inc. and NRX Pharmaceuticals, Inc., dated November 12, 2022. | | | | | | | | X |
| 10.55 | | Asset Purchase Agreement by and between Relief Therapeutics Holding AG, Relief Therapeutics International SA, NeuroRx, Inc. and NRX Pharmaceuticals, Inc., dated November 12, 2022. | | | | | | | | X |
| 31.1 | | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | | | | | | X |
| 31.2 | | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | | | | | | X |
| 101 | | Interactive data files pursuant to Rule 405 of Regulation S-T formatted in Inline XBRL: (i) Consolidated Balance Sheets | |
| |
| |
| |
| |
(2) Financial Statement Schedules:
None.
(3) Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Amendment.
Exhibit No. | | Description |
| | Agreement and Plan of Merger, dated as of December 13, 2020, by and among Big Rock Partners Acquisition Corp., NeuroRx, Inc., and Big Rock Merger Corp. (incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K, filed on December 17, 2020). |
2.2 | | First Amendment to Agreement and Plan of Merger, dated as of January 27, 2021, by and among Big Rock Partners Acquisition Corp., NeuroRx, Inc., and Big Rock Merger Corp. (incorporated by reference to Exhibit 2.1 to the Company’s Form 10-K, filed on April 1, 2021). |
| | Second Amendment to Agreement and Plan of Merger, dated as of January 27, 2021, by and among Big Rock Partners Acquisition Corp., NeuroRx, Inc., and Big Rock Merger Corp. (incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K, filed on March 22, 2021). |
| 104 | | AmendedCover Page Interactive Data File (formatted in iXBRL and Restated Certificate of Incorporation (incorporated by reference tocontained in Exhibit 3.1 to the Company’s Form 8-K, filed on November 22, 2017). |
| 101) | | Amendment to Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K, filed on May 22, 2019). |
| | Amendment to Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K, filed on August 23, 2019). |
| | Amendment to Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K, filed on November 22, 2019). |
| | Amendment to Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K, filed on March 23, 2020). |
| | Amendment to Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K, filed on July 23, 2020). |
| | Amendment to Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K, filed on December 18, 2020). |
| | Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s Form 8-K, filed on November 22, 2017). |
| | Specimen Unit Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Form S-1/A, File No. 333 220947, filed on November 14, 2017). |
| | Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.2 to the Company’s Form S-1/A, File No. 333-220947, filed on November 14, 2017). |
| | Specimen Right Certificate (incorporated by reference to Exhibit 4.3 to the Company’s Form S-1/A, File No. 333 220947, filed on November 14, 2017). |
| | Specimen Warrant Certificate (incorporated by reference to Exhibit 4.4 to the Company’s Form S-1/A, File No. 333 220947, filed on November 14, 2017). |
| | Right Agreement, dated November 20, 2017, between the Company and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K, File No. 001-38302, filed on November 22, 2017). |
| | Warrant Agreement, dated November 20, 2017, between Continental Stock Transfer & Trust Company and the Company (incorporated by reference to Exhibit 4.2 to the Company’s Form 8-K, filed on November 22, 2017). |
| | Form of Unit Purchase Option, dated November 20, 2017, with EarlyBirdCapital, Inc. and its designees (incorporated by reference to Exhibit 4.3 to the Company’s Form 8-K, filed on November 22, 2017). |
4.8 | | Description of Registrant's Securities (incorporated by reference to Exhibit 4.8 to the Company’s Form 10-K filed on April 1, 2021). |
| | Letter Agreement, dated November 20, 2017, by and between the Company and Big Rock Partners Sponsor, LLC (incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K, filed on November 22, 2017). |
10.1(b) | | Form of Letter, dated November 20, 2017, Agreement by and between the Company and its officers and directors. (incorporated by reference to Exhibit 10.6 to the Company’s Form 8-K, filed on November 22, 2017). |
| | Letter Agreement, dated November 20, 2017, by and between the Company and A/Z Property Partners, LLC (incorporated by reference to Exhibit 10.5 to the Company’s Form 8-K, filed on November 22, 2017). |
| | Investment Management Trust Account Agreement, dated November 20, 2017, between Continental Stock Transfer & Trust Company and the Company (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K, filed on November 22, 2017). |
| | Stock Escrow Agreement, dated November 20, 2017, between the Company, Big Rock Partners Sponsor, LLC and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K, filed on November 22, 2017). |
| | Registration Rights Agreement among the Company and Big Rock Partners Sponsor, LLC (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K, filed on November 22, 2017). |
| | Administrative Services Agreement, dated November 20, 2017, between the Company and Big Rock Partners Sponsor, LLC (incorporated by reference to Exhibit 10.7 to the Company’s Form 8-K, filed on November 22, 2017). |
| | Securities Subscription Agreement, dated September 26, 2017, between the Registrant and Big Rock Partners Sponsor, LLC (incorporated by reference to Exhibit 10.6 to the Company’s Form S-1/A, File No. 333-220947, filed on November 14, 2017). |
| | Securities Subscription Agreement, dated November 20, 2017, between the Company and Big Rock Partners Sponsor, LLC (incorporated by reference to Exhibit 10.9 to the Company’s Form 8-K, filed on November 22, 2017). |
| | Promissory Note, dated as of September 26, 2017, in favor of Richard Ackerman (incorporated by reference to Exhibit 10.7 to the Company’s Form S-1/A, File No. 333-220947, filed on November 14, 2017). |
| | Promissory Note, dated as of September 26, 2017, in favor of Big Rock Partners Sponsor, LLC (incorporated by reference to Exhibit 10.8 to the Company’s Form S-1/A, File No. 333-220947, filed on November 14, 2017). |
| | Form of Indemnification Agreement, dated November 20, 2017, with the Company’s officers and directors (incorporated by reference to Exhibit 10.8 to the Company’s Form 8-K, filed on November 22, 2017). |
| | Agreement, dated November 17, 2018, among the Company, Big Rock Partners Sponsor, LLC and BRAC Lending Group LLC (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K, filed on November 20, 2018). |
| | Stock Escrow Agent Letter, dated November 17, 2018 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K, filed on November 20, 2018). |
| | Registration Rights Assignment Agreement, dated November 17, 2018 (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K, filed on November 20, 2018). |
| | Insider Letter, dated November 17, 2018 (incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K, filed on November 20, 2018). |
| | Promissory Note in favor of BRAC Lending Group LLC, dated November 20, 2018 (incorporated by reference to Exhibit 10.5 to the Company’s Form 8-K, filed on November 20, 2018). |
| | Promissory Note in favor of BRAC Lending Group LLC , dated February 21, 2019 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K, filed on February 22, 2019). |
10.16 | | Promissory Note in favor of A/Z Property Partners, LLC, dated December 31, 2019. |
| | Form of Subscription Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K, filed on March 12, 2021). |
| | Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a). |
| | Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a). |
| | Certification of the Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350. |
| | Certification of the Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350. |
101.INS | | XBRL Instance Document*. |
101.SCH | | XBRL Taxonomy Extension Schema Document*. |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document*. |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document*. |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document*. |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document*. |
* | | Filed herewith |
** | | Furnished herewith |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
authorized, on May 1, 2023.| | BIG ROCK PARTNERS ACQUISITION CORP.NRX PHARMACEUTICALS, INC. |
| | | |
May 13, 2021 | By: | /s/ Richard AckermanSeth Van Voorhees |
| | Richard Ackerman
Chairman, President and Seth Van Voorhees
|
| | Chief ExecutiveFinancial Officer (Principal Financial Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this reportAnnual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacitiescapacity and on the dates indicated.
SignatureName | | TitlePosition | | Date |
| | | | |
/s/ Richard Ackerman | | Chairman, President and Chief Executive Officer (Principal Executive Officer) | | May 13, 2021 |
Richard Ackerman | | | | |
| | | | |
/s/ Bennett Kim
Stephen H. Willard | | Chief Financial Officer, Chief InvestmentExecutive Officer and Director (Principal Financial and Accounting Officer) | | May 13, 2021 |
Bennett Kim | | | | |
| | | | |
/s/ Richard Birdoff | | Director | | May 13, 20211, 2023 |
Richard BirdoffStephen H. Willard | | | | |
| | | | |
/s/ Michael Fong | | Director | | May 13, 2021 |
Michael Fong | | (Principal Executive Officer) | | |
| | | | | |
/s/ Stuart F. KoenigSeth Van Voorhees | | DirectorChief Financial Officer | | May 13, 20211, 2023 |
Stuart F. KoenigSeth Van Voorhees | | (Principal Financial and Accounting Officer) | | |
| | | | | |
/s/ Albert G. RexPatrick J. Flynn | | | | |
| Patrick J. Flynn | | Director | | May 13, 2021 |
Albert G. Rex | | | | 1, 2023 |
| | | | | |
/s/ Troy Taylor | | Director | | May 13, 2021 |
Troy T. TaylorSharon A. Glied | | | | |
BIG ROCK PARTNERS ACQUISITION CORP.
INDEX TO FINANCIAL STATEMENTS
| Sharon A. Glied | | Director | | May 1, 2023 |
Financial Statements: | | | | |
| /s/ Aaron Gorovitz | | | | |
| Aaron Gorovitz | |
| |
| |
| |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Stockholders and Board of Directors of
Big Rock Partners Acquisition Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Big Rock Partners Acquisition Corp. (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the years ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Restatement of the 2020 Financial Statements
As discussed in Note 2 to the consolidated financial statements, the accompanying consolidated financial statements as of December 31, 2020 and for the year ended December 31, 2020, have been restated.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (the “PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Marcum LLP
Marcum LLP
We have served as the Company’s auditor since 2019.
New York, NY
April 1, 2021, except for the effects of the restatements discussed for warrants in Note 2, for which the date is May 11, 2021.
BIG ROCK PARTNERS ACQUISITION CORP.
CONSOLIDATED BALANCE SHEETS| | |
| | | |
| ASSETS | | |
| Current assets | | |
| Cash | $466 | $6 |
| Prepaid expenses | 30,350 | 69,483 |
| Prepaid income taxes | 51,642 | — |
| Total Current Assets | 82,458 | 69,489 |
| | | |
| Cash and marketable securities held in Trust Account | 5,967,947 | 32,005,205 |
| TOTAL ASSETS | $6,050,405 | $32,074,694 |
| | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | |
| Current liabilities - accounts payable and accrued expenses | $609,509 | $622,441 |
| Warrant liability | 655,098 | — |
| Promissory note – related party | 862,148 | 416,141 |
| Promissory notes payable | 1,809,889 | 1,535,623 |
| TOTAL LIABILITIES | 3,936,644 | 2,574,205 |
| | | |
| Commitments and Contingencies (Note 7) | | |
| | | |
| Common stock subject to possible redemption, -0- and 2,305,335 shares at redemption value at December 31, 2020 and 2019, respectively | — | 24,500,488 |
| | | |
| Stockholders’ Equity | | |
| Preferred stock, $0.001 par value; 1,000,000 shares authorized; none issued and outstanding | — | — |
| Common stock, $0.001 par value; 100,000,000 shares authorized; 2,688,242 and 2,844,414 shares issued and outstanding (excluding -0- and 2,305,335 shares subject to possible redemption) at December 31, 2020 and 2019, respectively | 2,688 | 2,844 |
| Additional paid-in capital | 2,831,088 | 4,627,662 |
| (Accumulated deficit)/retained earnings | (720,015) | 369,495 |
| Total Stockholders’ Equity | 2,113,761 | 5,000,001 |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $6,050,405 | $32,074,694 |
The accompanying notes are an integral part of the consolidated financial statements.
BIG ROCK PARTNERS ACQUISITION CORP.
| | |
| | | |
| | | |
| Operating and formation costs | $907,406 | $713,187 |
| Loss from operations | (907,406) | (713,187) |
| | | |
| Other income: | | |
| Forgiveness of debt | 352,071 | — |
| Interest earned on marketable securities held in Trust Account | 138,764 | 1,205,820 |
| Change in fair value of warrant liability | (655,098) | — |
| Other income, net | (164,263) | 1,205,820 |
| | | |
| (Loss) income before provision for income taxes | (1,071,669) | 492,633 |
| Provision for income taxes | (17,841) | (84,206) |
| Net (loss) income | $(1,089,510) | $408,427 |
| | | |
| Basic and diluted weighted average shares outstanding, Common stock subject to possible redemption | 546,586 | 4,555,229 |
| Basic and diluted net loss per share, Common stock subject to possible redemption | $— | $0.15 |
| | | |
| Basic and diluted weighted average shares outstanding, Non-redeemable common stock | 2,736,258 | 2,783,021 |
| | | |
| Basic and diluted net loss per share, Non-redeemable common stock | $(0.40) | $(0.11) |
The accompanying notes are an integral part of the consolidated financial statements.
BIG ROCK PARTNERS ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
| | | | Retained Earnings/ (Accumulated | |
| | | | | |
| Balance – January 1, 2019 | 2,725,039 | $2,725 | $5,036,213 | $(38,932) | $5,000,006 |
| | | | | | |
| Change in value of common stock subject to possible redemption | 119,375 | 119 | (688,551) | — | (688,432) |
| | | | | | |
| Capital contribution to Trust Account to extend the date by which the Company is required to consummate a Business Combination | — | — | 280,000 | — | 280,000 |
| | | | | | |
| Net income | — | — | — | 408,427 | 408,427 |
| | | | | | |
| Balance – December 31, 2019 | 2,844,414 | 2,844 | 4,627,662 | 369,495 | 5,000,001 |
| | | | | | |
| Change in value of common stock subject to possible redemption | (128,386) | (128) | (1,497,349) | — | (1,497,477) |
| | | | | | |
| Redemption of share related to extension proxy vote | (27,786) | (28) | (299,225) | — | (299,253) |
| | | | | | |
| Net loss | — | — | — | (1,089,510) | (1,089,510) |
| | | | | | |
Balance – December 31, 2020 (As Restated)
| 2,688,242 | $2,688 | $2,831,088 | $(720,015) | $2,113,761 |
The accompanying notes are an integral part of the consolidated financial statements.
BIG ROCK PARTNERS ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | |
| | | |
| Cash Flows from Operating Activities: | | |
| Net (loss) income | $(1,089,510) | $408,427 |
| Adjustments to reconcile net (loss) income to net cash used in operating activities: | | |
| Interest earned on marketable securities held in Trust Account | (138,764) | (1,205,820) |
| Change in fair value of warrant liability | 655,098 | — |
| Forgiveness of debt | (352,071) | — |
| Changes in operating assets and liabilities: | | |
| Prepaid expenses and other current assets | (30,350) | 19,114 |
| Prepaid incomes taxes | 17,841 | (69,483) |
| Accounts payable and accrued expenses | 339,139 | 71,342 |
| Income taxes payable | — | (16,311) |
| Net cash used in operating activities | (598,617) | (792,731) |
| | | |
| Cash Flows from Investing Activities: | | |
| Investment of cash in Trust Account | (282,626) | (993,099) |
| Cash withdrawn from Trust Account to pay redeeming stockholders | 26,297,218 | 40,726,687 |
| Cash withdrawn from Trust Account to pay franchise and income taxes | 161,430 | 512,993 |
| Net cash provided by investing activities | 26,176,022 | 40,246,581 |
| | | |
| Cash Flows from Financing Activities: | | |
| Proceeds from promissory notes | 274,266 | 845,623 |
| Proceeds from promissory note – related party | 481,007 | 481,141 |
| Repayment of promissory note – related party | (35,000) | (65,000) |
| Redemption of common stock | (26,297,218) | (40,726,687) |
| Net cash used in financing activities | (25,576,945) | (39,464,923) |
| | | |
| Net Change in Cash | 460 | (11,073) |
| Cash – Beginning of period | 6 | 11,079 |
| Cash – End of period | $466 | $6 |
| | | |
| Supplemental cash flow information: | | |
| Cash paid for income taxes | $— | $170,000 |
| | | |
| Non-Cash investing and financing activities: | | |
| Change in value of common stock subject to possible redemption | $1,497,477 | $688,432 |
| Capital contribution to Trust Account | $— | $280,000 |
The accompanying notes are an integral part of the consolidated financial statements.
1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONSBig Rock Partners Acquisition Corp. (the “Company”) is a blank check company incorporated in Delaware on September 18, 2017. The Company was formed for the purpose of acquiring, through a merger, share exchange, asset acquisition, stock purchase, reorganization, recapitalization, or other similar business transaction, one or more operating businesses or entities (a “Business Combination”). The Company is not limited to a particular industry or geographic region for purposes of consummating a Business Combination.
The Company has one subsidiary, Big Rock Merger Corp., a wholly-owned subsidiary of the Company incorporated in Delaware on January 22, 2019 (“Merger Sub”).
All activity through December 31, 2020 relates to the Company’s formation, its initial public offering (“Initial Public Offering”), which is described below, identifying a target company for a Business Combination, and activities in connection with the proposed acquisition of NeuroRx, Inc., a Delaware corporation (“NeuroRx”) (see Note 8).
The registration statement for the Company’s Initial Public Offering was declared effective on November 20, 2017. On November 22, 2017, the Company consummated the Initial Public Offering of 6,000,000 units (the “Units” and, with respect to the common stock included in the Units being offered, the “Public Shares”), generating gross proceeds of $60,000,000, which is described in Note 4. Each Unit consists of one share of common stock, one right (“Public Right”) and one-half of one warrant (“Public Warrant”). Each Public Right will convert into one-tenth (1/10) of one share of common stock upon consummation of a Business Combination. Each whole Public Warrant entitles the holder to purchase one share of common stock at an exercise price of $11.50 per whole share.
Simultaneously with the Initial Public Offering, the Company consummated the sale of 250,000 units (the “Private Placement Units”) at a price of $10.00 per Unit in a private placement to Big Rock Partners Sponsor, LLC (the “Sponsor”), generating gross proceeds of $2,500,000, which is described in Note 5.
Following the closing of the Initial Public Offering, $60,000,000 ($10.00 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the Private Placement Units was placed in a trust account (the “Trust Account”) which may be invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), with a maturity of 180 days or less or in any open-ended investment company that holds itself out as a money market fund selected by the Company meeting the conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company, until the earlier of: (i) the consummation of a Business Combination or (ii) the distribution of the Trust Account, as described below.
On November 29, 2017, in connection with the underwriters’ exercise of their over-allotment option in full, the Company consummated the sale of an additional 900,000 Units, and the sale of an additional 22,500 Private Placement Units at $10.00 per unit, generating total gross proceeds of $9,225,000. A total of $9,000,000 of the net proceeds were deposited in the Trust Account, bringing the aggregate proceeds held in the Trust Account to $69,000,000.
At the closing of the Initial Public Offering, the Company issued EarlyBirdCapital, Inc. ("EarlyBirdCapital") and its designees 120,000 shares of common stock (the “Representative Shares”). On November 29, 2017, the Company issued an additional 18,000 Representative Shares for no consideration (see Note 9).
Transaction costs amounted to $2,172,419, consisting of $1,725,000 of underwriting fees and $447,419 of Initial Public Offering costs.
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and Private Placement Units, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. The Company’s initial Business Combination must be with one or more target businesses that together have a fair market value equal to at least 80% of the balance in the Trust Account (excluding taxes payable on income earned on the Trust Account) at the time of the signing an agreement to enter into a Business Combination. The Company will only complete a Business Combination if the post-Business Combination company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act. There is no assurance that the Company will be able to successfully effect a Business Combination.
The Company will provide its stockholders with the opportunity to redeem all or a portion of their shares included in the Units sold in the Initial Public Offering (the “Public Shares”) upon the completion of a Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The stockholders will be entitled to redeem their shares for a pro rata portion of the amount then on deposit in the Trust Account ($10.00 per share, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay its franchise and income tax obligations). There will be no redemption rights upon the completion of a Business Combination with respect to the Company’s warrants.
The Company will proceed with a Business Combination if the Company has net tangible assets of at least $5,000,001 upon such consummation of a Business Combination and, if the Company seeks stockholder approval, a majority of the outstanding shares voted are voted in favor of the Business Combination. If a stockholder vote is not required by law and the Company does not decide to hold a stockholder vote for business or other legal reasons, the Company will, pursuant to its Amended and Restated Certificate of Incorporation, conduct the redemptions pursuant to the tender offer rules of the Securities and Exchange Commission (the “SEC”), and file tender offer documents with the SEC prior to completing a Business Combination. If, however, a stockholder approval of the transaction is required by law, or the Company decides to obtain stockholder approval for business or other legal reasons, the Company will offer to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. If the Company seeks stockholder approval in connection with a Business Combination, the Company’s Sponsor, officers and directors (the “Initial Stockholders”) have agreed (a) to vote their Founder’s Shares (as defined in Note 6), Placement Shares (as defined in Note 5) and any Public Shares held by them in favor of approving a Business Combination and (b) not to convert any Founder’s Shares, Placement Shares and any Public Shares held by them in connection with a stockholder vote to approve a Business Combination or sell any such shares to the Company in a tender offer in connection with a Business Combination. Additionally, each public stockholder may elect to redeem their Public Shares irrespective of whether they vote for or against the proposed transaction.
The Company initially had until November 22, 2018 to complete a Business Combination. However, if the Company anticipated that it would not be able to consummate a Business Combination by November 22, 2018, the Company could extend the period of time to consummate a Business Combination up to two times, each by an additional three months. Pursuant to the terms of the Company's Amended and Restated Certificate of Incorporation and the trust agreement entered into between the Company and Continental Stock Transfer & Trust Company on November 20, 2017, in order to extend the time available for the Company to consummate a Business Combination, the Sponsor or its affiliates or designees must deposit into the Trust Account $690,000 ($0.10 per share) for each three month extension, up to an aggregate of $1,380,000, or $0.20 per share, if the Company extends for the full six months, on or prior to the date of the applicable deadline.
On November 20, 2018, the period of time for the Company to consummate a Business Combination was extended for an additional three-month period ending on February 22, 2019, and, accordingly, $690,000 was deposited into the Trust Account. On February 21, 2019, the Company further extended the time required to consummate a Business Combination to May 22, 2019 and deposited an additional $690,000 into the Trust Account. The deposits were funded by non-interest bearing unsecured promissory notes from BRAC Lending Group LLC, an affiliate of the underwriter (“BRAC”) (see Note 7). The notes are repayable upon the consummation of a Business Combination (see Note 7).
On May 21, 2019, the Company’s stockholders approved an amendment to its Amended and Restated Certificate of Incorporation to extend the period of time for which the Company was required to consummate a Business Combination to August 22, 2019. The number of shares of common stock presented for redemption in connection with the extension was 2,119,772. The Company paid cash in the aggregate amount of $22,099,233, or approximately $10.43 per share, to redeeming stockholders. The Company agreed to deposit, or cause to be deposited on its behalf, into the Trust Account $0.02 for each public share outstanding for each 30-day extension period utilized through August 22, 2019. In connection with this extension, the Company deposited an aggregate of $286,814 into the Trust Account, of which $280,000 was contributed to the Trust Account by a third party and is not required to be repaid by the Company. Accordingly, the Company has recorded this amount as a credit to additional paid in capital in the accompanying statements of stockholders’ equity. In order to pay for part of the third extension payment, the Company issued an unsecured promissory note (the “Second Note”) in favor of BRAC, in the original principal amount of $6,814 (see Note 7).
On August 21, 2019, the Company stockholders approved an amendment to the Company’s Amended and Restated Certificate of Incorporation to extend the period of time for which the Company is required to consummate a Business Combination (the “Extension”) from August 22, 2019 to November 22, 2019. The number of shares of common stock presented for redemption in connection with the Extension was 846,888. The Company paid cash in the aggregate amount of $8,891,378, or approximately $10.50 per share, to redeeming stockholders. The Company agreed to deposit, or cause to be deposited on its behalf, into the Trust Account $0.02 for each public share outstanding for each 30-day extension period utilized through the Extension. In connection with this extension, the Company deposited an aggregate of $236,000 into the Trust Account to fund this extension payment, which amount was loaned to the Company by AZ Property Partners, LLC (“AZ Property Partners”), an entity majority owned and controlled by Richard Ackerman, the Company's Chairman, President and Chief Executive Officer, and BRAC (see Note 7).
On November 21, 2019, the Company's stockholders approved an amendment to the Company's Amended and Restated Certificate of Incorporation to extend the period of time for which the Company is required to consummate a Business Combination (the “Second Extension”) from November 22, 2019 to March 23, 2020. The number of shares of common stock presented for redemption in connection with the Second Extension was 919,091. The Company paid cash in the aggregate amount of $9,736,077, or approximately $10.59 per share, to redeeming stockholders. The Company agreed to deposit, or cause to be deposited on its behalf, into the Trust Account $0.02 for each public share outstanding for each 30-day extension period utilized through the Second Extension. In connection with this extension, the Company deposited an aggregate of $60,285 into the Trust Account to fund the first thirty-day extension through December 22, 2019, which amount was loaned to the Company by AZ Property Partners and BRAC (see Note 7). In January and February 2020, AZ Property Partners and BRAC loaned the Company an additional aggregate amount of $90,427 each to pay for the extension through March 23, 2020, which was deposited into the Trust Account.
On March 23, 2020, the Company's stockholders approved an amendment to the Amended and Restated Certificate of Incorporation to extend the period of time for which the Company is required to consummate a Business Combination (the “Third Extension”) from March 23, 2020 to July 23, 2020. The number of shares of common stock presented for redemption in connection with the Third Extension was 2,433,721. The Company paid cash in the aggregate amount of $25,997,965, or approximately $10.68 per share, to redeeming stockholders. The Company agreed to deposit, or cause to be deposited on its behalf, into the Trust Account $0.02 for each public share outstanding for each 30-day extension period utilized through the Third Extension. Notwithstanding the foregoing, if the volume weighted average price of the Company's common stock during the 10-day trading period ending on the 3rd day prior to the end of any applicable monthly period was equal to or greater than $11.00 and the trading volume during the 10-day trading period exceeded 100,000 shares, the obligation to make any particular deposit would terminate with respect to the immediately following monthly period (but not with respect to any other future monthly period). In connection with this extension, the Company deposited an aggregate of $34,858 into the Trust Account to fund the extension through July 23, 2020, of which $17,429 was loaned to the Company by each of AZ Property Partners and BRAC.
On July 23, 2020, the Company's stockholders approved an amendment to the Amended and Restated Certificate of Incorporation to extend the period of time for which the Company is required to consummate a Business Combination (the “Fourth Extension”) from July 23, 2020 to December 23, 2020. The number of shares of common stock presented for redemption in connection with the Fourth Extension was 27,786. The Company paid cash in amount of $299,253, or approximately $10.77 per share, to redeeming stockholders. The Company agreed to deposit, or cause to be deposited on its behalf, into the Trust Account $0.02 for each public share outstanding for each 30-day extension period utilized through the Fourth Extension. In connection with this extension, as of November 13, 2020, the Company deposited an aggregate of $44,219 into the Trust Account, of which $22,110 was deposited as of September 30, 2020, to fund the extension through November 23, 2020, which amounts were loaned to the Company by AZ Property Partners and BRAC. Notwithstanding the foregoing, if the volume weighted average price of the Company's common stock during the 10-day trading period ending on the 3rd day prior to the end of any applicable monthly period is equal to or greater than $11.00 and the trading volume during the 10-day trading period exceeds 100,000 shares, the obligation to make any particular deposit would terminate with respect to the immediately following monthly period (but not with respect to any other future monthly period).
On December 18, 2020, the Company held a special meeting pursuant to which the Company’s stockholders approved an amendment to the Amended and Restated Certificate of Incorporation to extend the period of time for which the Company is required to consummate a Business Combination (the “Fifth Extension”) from December 23, 2020 to April 23, 2021 (the “Extended Date”). In connection with this extension, no stockholders elected to redeem their shares of common stock.
If the Company is unable to complete a Business Combination by the Extended Date, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but no more than ten business days thereafter, redeem 100% of the outstanding Public Shares, at a per share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned (net of taxes payable), divided by the number of then outstanding Public Shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the remaining stockholders and the Company’s board of directors, proceed to commence a voluntary liquidation and thereby a formal dissolution of the Company, subject in each case to its obligations to provide for claims of creditors and the requirements of applicable law. In the event of such distribution, it is possible that the per share value of the assets remaining available for distribution (including Trust Account assets) will be less than the $10.00 per Unit in the Initial Public Offering.
The Initial Stockholders have agreed to (i) waive their redemption rights with respect to Founder Shares, Placement Shares and any Public Shares they may acquire during or after the Initial Public Offering in connection with the consummation of a Business Combination, (ii) to waive their rights to liquidating distributions from the Trust Account with respect to their Founder’s Shares and Placement Shares if the Company fails to consummate a Business Combination by the Extended Date and (iii) not to propose an amendment to the Company’s Amended and Restated Certificate of Incorporation that would affect the substance or timing of the Company’s obligation to redeem 100% of its Public Shares if the Company does not complete a Business Combination, unless the Company provides the public stockholders with the opportunity to redeem their Public Shares in conjunction with any such amendment. However, the Initial Stockholders will be entitled to liquidating distributions with respect to any Public Shares acquired if the Company fails to consummate a Business Combination or liquidates by Extended Date.
In order to protect the amounts held in the Trust Account, A/Z Property Partners, has agreed that it will be liable to ensure that the proceeds in the Trust Account are not reduced below $10.00 per share by the claims of target businesses or claims of vendors or other entities that are owed money by the Company for services rendered or contracted for or products sold to the Company. Additionally, the agreement entered into by AZ Property Partners specifically provides for two exceptions to the indemnity it has given: it will have no liability (1) as to any claimed amounts owed to a target business or vendor or other entity who has executed an agreement with the Company waiving any right, title, interest or claim of any kind they may have in or to any monies held in the Trust Account, or (2) as to any claims for indemnification by the underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). The Company will seek to reduce the possibility that AZ Property Partners will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers, prospective target businesses or other entities with which the Company does business, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.
NASDAQ Notifications
On January 7, 2019, the Company received a notice from the staff of the Listing Qualifications Department of Nasdaq (the “Staff”) stating that the Company was no longer in compliance with Nasdaq Listing Rule 5620(a) for continued listing due to its failure to hold an annual meeting of stockholders within twelve months of the end of the Company’s fiscal year ended December 31, 2017. The Company submitted a plan of compliance with Nasdaq and Nasdaq granted the Company an extension until May 22, 2019 to regain compliance with the rule by holding an annual meeting of stockholders. The Company held its annual meeting of stockholders on May 21, 2019 and, accordingly, the Staff determined that the Company was in compliance with Nasdaq Listing Rule 5620(a) for continued listing and the matter was closed.
On August 9, 2019, the Company received a notice from the Staff stating that the Company was no longer in compliance with Nasdaq Listing Rule 5550(a)(3) for continued listing due to its failure to maintain a minimum of 300 public holders (the “Rule”). The Company had until September 23, 2019 to provide Nasdaq with a specific plan to achieve and sustain compliance with the listing requirement. The notice is a notification of deficiency, not of imminent delisting, and had no current effect on the listing or trading of the Company's securities on Nasdaq.
On September 23, 2019 and October 28, 2019, the Company submitted a plan to regain compliance with Nasdaq and requested an extension through February 5, 2020. On October 28, 2019, Nasdaq requested additional information regarding the Company's compliance plan, to which the Company responded on November 8, 2019. On February 11, 2020, the Company received a notice from the Staff stating that, based upon the Company’s non-compliance with the Rule, the Staff had determined to delist the Company’s common stock from Nasdaq unless the Company timely requests a hearing before the Nasdaq Hearings Panel (the “Panel“). The Company was also notified that as a result of Nasdaq’s determination to delist the Company’s common stock, the Company’s warrants and rights no longer comply with Nasdaq Listing Rule 5560(a), which requires the underlying securities of such exercisable securities to remain listed on Nasdaq, and the Company’s Units no longer comply with Nasdaq Listing Rule 5225(b)(1)(A), which requires all component parts of units to meet the requirements for initial and continued listing, and the Company’s units, warrants and rights are now subject to delisting. The Company requested a hearing, which request automatically stayed any further action by the Staff pending the ultimate conclusion of the hearing process.
On March 25, 2020, the Company received formal notice from Nasdaq indicating that the Staff had granted the Company’s request for continued listing on Nasdaq. The decision followed the Company’s hearing before the Panel, which took place on March 19, 2020. The Company’s continued listing is subject to the Company’s satisfaction of a number of conditions, including, ultimately, completion of a Business Combination with an operating company by no later than August 10, 2020, and the combined entity’s compliance with all applicable criteria for initial listing on Nasdaq at the time of the merger. The Company failed to meet certain of the conditions contained in the extension grant and has submitted a modified extension request to the Staff.
On August 10, 2020, the Company submitted a letter to Nasdaq indicating that it was in compliance with the Rule as of July 31, 2020 and, as a result, satisfies the minimum 300 public holder requirement and all other applicable criteria for continued listing on Nasdaq. Accordingly, the Company requested that the Staff render a formal determination to continue the listing of the Company’s securities. On August 11, 2020, the Company received a formal notice from Nasdaq notifying the Company that it regained compliance with the minimum 300 public holder requirements under Nasdaq rules and that the Panel had determined to continue the listing of the Company's securities on Nasdaq and close the matter.
On November 23, 2020, the Company received a notice from Nasdaq stating that, as of November 20, 2020, the Company was not in compliance with Listing Rule IM-5101-2 (the “Rule”), which requires that a special purpose acquisition company complete one or more business combinations within 36 months of the effectiveness of the registration statement filed in connection with its initial public offering. Since the Company’s registration statement became effective on November 20, 2017, it was required to complete an initial business combination by no later than November 20, 2020. The Rule also provides that failure to comply with this requirement will result in the Listing Qualifications Department issuing a Staff Delisting Determination under Rule 5810 to delist the Company’s securities.
Liquidity
As of December 31, 2020, the Company had $466 in its operating bank account, $5,967,947 in cash and marketable securities held in the Trust Account to be used for a Business Combination or to repurchase or convert stock in connection therewith and an adjusted working capital deficit of $609,509, which excludes prepaid income taxes of $51,642 and prepaid franchise taxes of $30,350, which have been paid from amounts in the Trust Account. As of December 31, 2020, approximately $138,764 of the amount on deposit in the Trust Account represented interest income, which is available to pay the Company’s tax obligations. To date, the Company has withdrawn $716,788 of interest from the Trust Account in order to pay the Company’s franchise and income taxes, of which $161,430 was withdrawn during the year ended December 31, 2020.
On November 17, 2018, the Company entered into an agreement (the “Agreement”) with the Sponsor and BRAC, pursuant to which the Sponsor agreed to be responsible for all liabilities of the Company as of November 17, 2018 and to loan the Company the funds necessary to pay the expenses of the Company other than Business Combination expenses through the closing of a Business Combination when and as needed. If a Business Combination is not consummated, all outstanding loans made by the Sponsor will be forgiven (see Note 7). In addition, BRAC agreed to loan the Company all funds necessary to pay expenses incurred in connection with and in order to consummate a business combination (the “Business Combination Expenses”) and such loans will be added to the Initial Notes (as defined in Note 6). If the Company does not consummate a Business Combination, all outstanding loans under the Notes will be forgiven, except to the extent of any funds held outside of the Trust Account after paying all other fees and expenses of the Company incurred prior to the date of such failure to consummate a Business Combination (see Note 7).
The Company may raise additional capital through loans or additional investments from the Sponsor or its stockholders, officers, directors, or third parties. Other than as described above, the Company’s officers and directors and the Sponsor may, but are not obligated to, loan the Company funds, from time to time, in whatever amount they deem reasonable in their sole discretion, to meet the Company’s working capital needs.
The Company does not believe it will need to raise additional funds in order to meet expenditures required for operating its business. Neither the Sponsor, nor any of the stockholders, officers or directors, or third parties are under any obligation to advance funds to, or invest in, the Company, except as discussed above. Accordingly, the Company may not be able to obtain additional financing. If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to suspending the pursuit of a potential transaction. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. Even if the Company can obtain sufficient financing or raise additional capital, it only has until April 23, 2021 (or as may be extended) to consummate a Business Combination. There is no assurance that the Company will be able to do so prior to April 23, 2021, or as may be extended by shareholder vote.
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company's financial position, results of its operations and/or search for a target company, the specific impact is not readily determinable as of the date of these consolidated financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 2 — RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
The Company previously accounted for its outstanding Public Warrants and Private Placement Warrants issued in connection with its Initial Public Offering as components of equity instead of as derivative liabilities.
In connection with the audit of the Company’s financial statements for the period ended December 31, 2020, the Company’s management further evaluated the warrants under Accounting Standards Codification (“ASC”) Subtopic 815-40, Contracts in Entity’s Own Equity. ASC Section 815-40-15 addresses equity versus liability treatment and classification of equity-linked financial instruments, including warrants, and states that a warrant may be classified as a component of equity only if, among other things, the warrant is indexed to the issuer’s common stock. Under ASC Section 815-40-15, a warrant is not indexed to the issuer’s common stock if the terms of the warrant require an adjustment to the exercise price upon a specified event and that event is not an input to the fair value of the warrant. Based on management’s evaluation, the Company’s audit committee, in consultation with management and after discussion with the Company’s independent registered public accounting firm, concluded that the Company’s Private Placement Warrants are not indexed to the Company’s common shares in the manner contemplated by ASC Section 815-40-15 because the holder of the instrument is not an input into the pricing of a fixed-for-fixed option on equity shares.
As a result of the above, the Company should have classified the Private Placement Warrants as derivative liabilities in its previously issued financial statements. Under this accounting treatment, the Company is required to measure the fair value of the warrants at the end of each reporting period and recognize changes in the fair value from the prior period in the Company’s operating results for the current period (See Notes 3 and 10).
The Company’s accounting for the Private Placement Warrants as components of equity instead of as derivative liabilities did not have any effect on the Company’s previously reported operating expenses, cash flows or cash.
| | | | |
| Balance Sheet as of December 31, 2020 (audited) | | | |
| Warrant liability | $— | $655,098 | $655,098 |
| Total liabilities | 3,281,546 | 655,098 | 3,936,644 |
| (Accumulated deficit)/retained earnings | (64,917) | (655,098) | (720,015) |
| Total stockholders’ equity | 2,768,859 | (655,098) | 2,113,761 |
| Statement of Operations for the Year Ended December 31, 2020 (audited) | | | |
| Change in fair value of warrant liability | $— | $(655,098) | $(655,098) |
| Other income, net | 490,835 | (655,098) | (164,263) |
| (Loss) income before provision for income taxes | (416,571) | (655,098) | (1,071,669) |
| Net (loss) income | (434,412) | (655,098) | (1,089,510) |
| Basic and diluted net loss per common share, Non-redeemable common stock | (0.16) | (0. 24) | (0. 40) |
| Statement of Cash Flows for the Year Ended December 31, 2020 (audited) | | | |
| Cash flow from operating activities: | | | |
| Net loss | $(434,412) | $(655,098) | $(1,089,510) |
| Adjustments to reconcile net loss to net cash and used in operating activities: | | | |
| Change in fair value of warrant liability | — | 655,098 | 655,098 |
| Initial measurement of warrants issued in connection with the Initial Public Offering accounted for as liabilities | — | 655,098 | 655,098 |
NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the SEC.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its majority owned subsidiary where the Company has the ability to exercise control. All significant intercompany balances and transactions have been eliminated in consolidation. Activities in relation to the noncontrolling interest are not considered to be significant and are, therefore, not presented in the accompanying consolidated financial statements.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, will adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s consolidated financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from the Company’s estimates.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents as of December 31, 2020 and 2019.
Cash and Marketable Securities Held in Trust Account
At December 31, 2020 and 2019, the assets held in the Trust Account were held in money market funds, which are invested in U.S. Treasury securities. Through December 31, 2020, the Company has withdrawn $716,788 of interest from the Trust Account in order to pay its franchise and income taxes, of which $161,430 was withdrawn during the year ended December 31, 2020.
Warrant Liabilities
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations. The fair value of the Private Placement Warrants was estimated using a Black-Scholes valuation approach (see Note 12).
Fair Value of Financial Instruments
The Company applies ASC 820, Fair Value Measurement ("ASC 820"), which establishes framework for measuring fair value and clarifies the definition of fair value within that framework. ASC 820 defines fair value as an exit price, which is the price that would be received for an asset or paid to transfer a liability in the Company’s principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value hierarchy established in ASC 820 generally requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect the assumptions that market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the entity’s own assumptions based on market data and the entity’s judgments about the assumptions that market participants would use in pricing the asset or liability and are to be developed based on the best information available in the circumstances.
The valuation hierarchy is composed of three levels. The classification within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The levels within the valuation hierarchy are described below:
Level 1 - Assets and liabilities with unadjusted, quoted prices listed on active market exchanges. Inputs to the fair value measurement are observable inputs, such as quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs to the fair value measurement are determined using prices for recently traded assets and liabilities with similar underlying terms, as well as direct or indirect observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 - Inputs to the fair value measurement are unobservable inputs, such as estimates, assumptions, and valuation techniques when little or no market data exists for the assets or liabilities.
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,” approximates the carrying amounts represented in the accompanying consolidated balance sheets, primarily due to their short-term nature.
See Note 12 for additional information on assets and liabilities measured at fair value.
Common Stock Subject to Possible Redemption
The Company accounts for its common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. The Company’s common stock features certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, common stock subject to possible redemption is presented at redemption value as temporary equity, outside of the stockholders’ equity section of the Company’s balance sheets. At December 31, 2020, there are no shares of common stock subject to possible redemption.
Income Taxes
The Company complies with the accounting and reporting requirements of ASC Topic 740 “Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC Topic 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. As of December 31, 2020 and 2019, there were no unrecognized tax benefits and no amounts accrued for interest and penalties. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
The Company may be subject to potential examination by federal, state and city taxing authorities in the areas of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal, state and city tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
On March 27, 2020, the CARES Act was enacted in response to COVID-19 pandemic. Under ASC 740, the effects of changes in tax rates and laws are recognized in the period which the new legislation is enacted. The CARES Act made various tax law changes including among other things (i) increasing the limitation under Section 163(j) of the Internal Revenue Code of 1986, as amended (the “IRC”) for 2019 and 2020 to permit additional expensing of interest (ii) enacting a technical correction so that qualified improvement property can be immediately expensed under IRC Section 168(k), (iii) making modifications to the federal net operating loss rules including permitting federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding taxable years in order to generate a refund of previously paid income taxes and (iv) enhancing the recoverability of alternative minimum tax credits. Given the Company’s full valuation allowance position, the CARES Act did not have an impact on the financial statements.
Net Income (Loss) Per Common Share
Net income (loss) per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period, excluding shares of common stock subject to forfeiture. The Company has not considered the effect of (1) warrants sold in the Initial Public Offering and private placement to purchase 3,586,250 shares of common stock, (2) rights sold in the Initial Public Offering and private placement that convert into 717,250 shares of common stock and (3) 600,000 shares of common stock, warrants to purchase 300,000 shares of common stock and rights that convert into 60,000 shares of common stock in the unit purchase option sold to the underwriter, in the calculation of diluted (loss) income per share, since the exercise of the warrants are contingent upon the occurrence of future events and the inclusion of such warrants would be anti-dilutive.
The Company’s consolidated statements of operations include a presentation of income (loss) per share for common shares subject to possible redemption in a manner similar to the two-class method of income (loss) per share. Net income (loss) per common share, basic and diluted, for Common stock subject to possible redemption is calculated by dividing the proportionate share of income or loss on marketable securities held by the Trust Account, net of applicable franchise and income taxes, by the weighted average number of shares of Common stock subject to possible redemption outstanding since original issuance.
Net income (loss) per share, basic and diluted, for non-redeemable common stock is calculated by dividing the net income (loss), adjusted for income or loss on marketable securities attributable to Common stock subject to possible redemption, by the weighted average number of non-redeemable common stock outstanding for the period.
Non-redeemable common stock includes Founder Shares and non-redeemable shares of common stock as these shares do not have any redemption features. Non-redeemable common stock participates in the income or loss on marketable securities based on non-redeemable shares’ proportionate interest.
The following table reflects the calculation of basic and diluted net income (loss) per common share (in dollars, except per share amounts):
| | |
| | | |
| Common stock subject to possible redemption | | |
| Numerator: Earnings allocable to Common stock subject to possible redemption | | |
| Interest earned on marketable securities held in Trust Account | $— | $922,211 |
| Less: interest available to be withdrawn for payment of taxes | — | (218,317) |
| Net income attributable | $— | $703,894 |
| Denominator: Weighted Average Common stock subject to possible redemption | | |
| Basic and diluted weighted average shares outstanding, Common stock subject to possible redemption | 546,586 | 4,555,229 |
| Basic and diluted net income per share, Common stock subject to possible redemption | $0.00 | $0.15 |
| | | |
| Non-Redeemable Common Stock | | |
| Numerator: Net Loss minus Net Earnings | | |
| Net loss | $(1,089,510) | $(1,594) |
| Net income allocable to Common stock subject to possible redemption | — | — |
| Non-Redeemable Net Loss | $(1,089,510) | $(1,594) |
| Denominator: Weighted Average Non-redeemable common stock | | |
| Basic and diluted weighted average shares outstanding, Non-redeemable common stock | 2,736,258 | 2,783,021 |
| Basic and diluted net loss per share, Non-redeemable common stock | $(0.40) | $(0.11) |
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist of a cash account in a financial institution which, at times may exceed the Federal depository insurance coverage limit of $250,000. The Company has not experienced losses on this account and management believes the Company is not exposed to significant risks on such account.
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, “Derivatives and Hedging”. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.
Recently Issued Accounting Standards
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s consolidated financial statements.
4. INITIAL PUBLIC OFFERING
Pursuant to the Initial Public Offering, the Company sold 6,900,000 Units at a purchase price of $10.00 per Unit, which includes the full exercise by the underwriters of their over-allotment option of 900,000 Units at $10.00 per Unit. Each Unit consists of one share of common stock, one Public Right and one Public Warrant. Each Public Right will convert into one-tenth (1/10) of one share of common stock upon consummation of a Business Combination (see Note 9). Each whole Public Warrant entitles the holder to purchase one share of common stock at an exercise price of $11.50 per whole share (see Note 9).
5. PRIVATE PLACEMENT
Simultaneously with the Initial Public Offering, the Sponsor purchased 250,000 Private Placement Units, at $10.00 per Private Placement Unit, for an aggregate purchase price of $2,500,000. On November 29, 2017, the Company consummated the sale of an additional 22,500 Private Placement Units at a price of $10.00 per unit, which were purchased by the Sponsor, generating gross proceeds of $225,000. Each Private Placement Unit consists of one share of common stock (“Placement Share”), one right (“Placement Right”) and one-half of one warrant (each, a “Placement Warrant”), each whole Placement Warrant exercisable to purchase one share of common stock at an exercise price of $11.50. The proceeds from the Private Placement Units were added to the proceeds from the Initial Public Offering held in the Trust Account. If the Company does not complete a Business Combination within the Combination Period, the proceeds from the sale of the Private Placement Units will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law), and the Placement Rights and the Placement Warrants will expire worthless.
The Private Placement Units are identical to the Units sold in the Initial Public Offering except that the Placement Warrants (i) are not redeemable by the Company and (ii) may be exercised for cash or on a cashless basis, so long as they are held by the initial purchaser or any of its permitted transferees. In addition, the Private Placement Units and their component securities may not be transferable, assignable or salable until after the consummation of a Business Combination, subject to certain limited exceptions. If the Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
6. RELATED PARTY TRANSACTIONS
Founder Shares
In September 2017, the Company issued an aggregate of 1,437,500 shares of common stock to the Sponsor (the “Founder Shares”) for an aggregate purchase price of $25,000. On November 20, 2017, the Company effectuated a 1.2-for-1 stock dividend of its common stock resulting in an aggregate of 1,725,000 Founder Shares outstanding. The Founder Shares included an aggregate of up to 225,000 shares subject to forfeiture by the Sponsor to the extent that the underwriters’ over-allotment was not exercised in full or in part, so that the Initial Stockholders would own 20% of the Company’s issued and outstanding shares after the Initial Public Offering (excluding the Private Placement Units and the Representative Shares (as defined in Note 9)). As a result of the underwriters’ election to fully exercise their over-allotment option, 225,000 Founder Shares are no longer subject to forfeiture.
The Initial Stockholders have agreed not to transfer, assign or sell any of the Founder’s Shares until the earlier of (i) one year after the date of the consummation of a Business Combination, or (ii) with respect to 50% of the Founder Shares, the date on which the closing price of the Company’s common stock equals or exceeds $12.50 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period commencing after a Business Combination, or earlier, in each case, if subsequent to a Business Combination, the Company consummates a subsequent liquidation, merger, stock exchange, reorganization or other similar transaction which results in all of the Company’s stockholders having the right to exchange their common stock for cash, securities or other property.
Related Party Loans
In order to finance transaction costs in connection with a Business Combination, the Sponsor, an affiliate of the Sponsor, or the Company’s officers and directors may, but are not obligated to, loan the Company funds from time to time or at any time, as may be required (“Working Capital Loans”). Each Working Capital Loan would be evidenced by a promissory note. The Working Capital Loans would either be paid upon consummation of a Business Combination, without interest, or, at the holder’s discretion, up to $1,500,000 of the Working Capital Loans may be converted into units at a price of $10.00 per unit. The units would be identical to the Private Placement Units. In the event that a Business Combination does not close, the loans will be forgiven. There were no outstanding Working Capital Loans at December 31, 2020 and 2019.
7. EXTENSION FUNDING AGREEMENT AND PROMISSORY NOTES
On November 17, 2018, the Company entered into an Extension Funding Agreement with the Sponsor and BRAC. Pursuant to the Extension Funding Agreement, the Sponsor transferred an aggregate of 1,500,000 Founders Shares to BRAC in exchange for the agreements set forth below and aggregate cash consideration of $1.00.
Pursuant to the Extension Funding Agreement, the Sponsor agreed to extend the period of time the Company has to consummate a Business Combination up to two times for an aggregate of up to six months and BRAC agreed to loan the Company the funds necessary to obtain the extensions (the “Extensions”). On November 20, 2018 and February 21, 2019, the Company issued unsecured promissory notes (the “Initial Notes”) in favor of BRAC, in the original principal amount of $690,000 each (or an aggregate of $1,380,000), to provide the Company the funds necessary to obtain an aggregate of six-months of Extensions. Pursuant to the Extension Funding Agreement, BRAC has also agreed to loan the Company all funds necessary to pay expenses incurred in connection with and in order to consummate a Business Combination (the “Business Combination Expenses”) and such loans will be added to the Initial Notes.
In connection with the stockholders’ approval of the extended date of August 22, 2019, the Company issued another unsecured promissory note (the “Second Note”) in favor of BRAC in order to pay for part of the third extension payment in the original principal amount of $6,814.
On December 31, 2019, the Company issued an unsecured promissory note, as amended on March 31, 2020, June 30,2020 and September 30, 2020, (the “Third Note” and, together with the Initial Notes and the Second Note, the “Extension Notes”) in favor of BRAC in the aggregate principal amount of $317,547 in order to pay for part of the extension payments. Through December 31, 2020, BRAC loaned the Company an aggregate of $423,075, of which $141,299 was loaned during the year ended December 31, 2020 to pay for part of the extension payments through December 23, 2020 and $32,967 was loaned during the year ended December 31, 2020 to pay for extension related costs and $100,000 was loaned during the year ended December 31, 2020 for working capital purposes.
If the Company does not consummate a Business Combination, all outstanding loans under the Extension Notes will be forgiven, except to the extent of any funds held outside of the Trust Account after paying all other fees and expenses of the Company incurred prior to the date of such failure to consummate a Business Combination.
As of December 31, 2020, the outstanding balance under the Extension Notes amounted to an aggregate of approximately $1,809,889.
The Sponsor has agreed to be responsible for all liabilities of the Company effective November 17, 2018, except for liabilities associated with the possible redemption of shares by the Company’s shareholders, as described in the Company’s Amended and Restated Certificate of Incorporation. The Sponsor has also agreed to loan the Company the funds necessary to pay the expenses of the Company other than the Business Combination Expenses through the closing of a Business Combination when and as needed in order for the Company to continue in operation (the “Non-Business Combination Related Expenses”). Upon consummation of a Business Combination, up to $200,000 of the Non-Business Combination Related Expenses will be repaid by the Company to the Sponsor provided that the Company has funds available to it sufficient to repay such expenses (the “Cap”) as well as to pay for all stockholder redemptions, all Business Combination Expenses, repayment of the Extension Notes, and any funds necessary for the working capital requirements of the Company following closing of the Business Combination. Any remaining amounts in excess of the Cap will be forgiven. On December 31, 2019, the Company issued an unsecured promissory note to the Sponsor, as amended on March 31, 2020, June 30, 2020 and September 30, 2020, in the principal amount of approximately $862,148 to pay for Non-Business Combination Related Expenses incurred through December 31, 2020 and expenses incurred thereafter. If the Company does not consummate a Business Combination, all outstanding loans made by the Sponsor to cover the Non-Business Combination Related Expenses will be forgiven, except as set forth above. The Company repaid $35,000 of such loans during the year ended December 31, 2020.
Through December 31, 2020, AZ Property Partners loaned the Company an aggregate of $862,148, of which $141,299 was loaned during the year ended December 31, 2020 to pay for part of the extension payments through December 23, 2020 and $339,708 was loaned during the year ended December 31, 2020 to pay for Non-Business Combination Related Expenses.
As of December 31, 2020, the outstanding balance under promissory note with AZ Property Partners amounted to $862,148.
8. COMMITMENTS AND CONTINGENCIES
Forgiveness of Debt
During the year ended December 31, 2020, one of the Company’s service providers forgave certain amounts due to them in connection with previously provided services. As a result, the Company recorded a forgiveness of debt in the amount of $352,071.
Registration Rights
Pursuant to a registration rights agreement entered into on November 20, 2017, the holders of the Company’s common stock prior to the Initial Public Offering (the “Founder Shares”), Private Placement Units (and their underlying securities), the shares issued to EarlyBirdCapital at the closing of the Initial Public Offering (the “Representative Shares”) and any Units that may be issued upon conversion of the working capital loans (and their underlying securities) are entitled to registration rights. The holders of a majority of these securities are entitled to make up to three demands, excluding short form demands, that the Company register such securities. The holders of the majority of the Founder’s Shares can elect to exercise these registration rights at any time commencing three months prior to the date on which these shares of common stock are to be released from escrow. The holders of a majority of the Private Placement Units or Units issued to the Sponsor, officers, directors or their affiliates in payment of working capital loans made to the Company (in each case, including the underlying securities) can elect to exercise these registration rights at any time after the Company consummates a Business Combination. In addition, the holders will have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of a Business Combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”). Notwithstanding anything to the contrary, EarlyBirdCapital and its designees may participate in a “piggy-back” registration during the seven-year period beginning on the effective date of the registration statement. However, the registration rights agreement will provide that the Company will not permit any registration statement filed under the Securities Act to become effective until termination of the applicable lock-up period. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Business Combination Marketing Agreement
The Company has engaged EarlyBirdCapital as an advisor in connection with a Business Combination to assist the Company in holding meetings with its stockholders to discuss a potential Business Combination and the target business’ attributes, introduce the Company to potential investors that are interested in purchasing securities, assist the Company in obtaining stockholder approval for the Business Combination and assist the Company with its press releases and public filings in connection with a Business Combination. The Company will pay EarlyBirdCapital a cash fee for such services upon the consummation of a Business Combination in an amount equal to 4.0% of the gross proceeds of the Initial Public Offering (exclusive of any applicable finders’ fees which might become payable). If a Business Combination is not consummated for any reason, no fee will be due or payable.
Merger Agreement
On December 13, 2020, the Company, NeuroRx and Merger Sub, entered into an Agreement and Plan of Merger (“Merger Agreement”). Pursuant to the Merger Agreement, Merger Sub will merge with and into NeuroRx, with NeuroRx surviving the merger (“Merger”). As a result of the Merger, and upon consummation of the Merger and the other transactions contemplated by the Merger Agreement (“Transactions”), NeuroRx will become a wholly-owned subsidiary of the Company, with the stockholders of NeuroRx becoming stockholders of the Company.
Pursuant to the Merger Agreement, the aggregate consideration payable to the stockholders of NeuroRx at the effective time of the Merger (the “Effective Time”) will equal 50,000,000 shares (“Closing Consideration”) of the Company’s common stock, par value $0.001 per share (“Company Common Stock”), plus the additional contingent right to receive the Earnout Shares and Earnout Cash (each as defined below). At the Effective Time, each outstanding share of NeuroRx common stock (including shares of NeuroRx common stock resulting from the conversion of NeuroRx preferred stock immediately prior to the Effective Time) will be converted into the right to receive a pro rata portion of the Closing Consideration and the contingent right to receive a pro rata portion of the Earnout Shares and Earnout Cash. Each option and warrant of NeuroRx that is outstanding and unexercised immediately prior to the Effective Time will be assumed by the Company and will represent the right to acquire an adjusted number of shares of the Company Common Stock at an adjusted exercise price, in each case, pursuant to the terms of the Merger Agreement.
As part of the aggregate consideration payable to NeuroRx’s securityholders pursuant to the terms of the Merger Agreement, NeuroRx’s securityholders (including option holders and warrant holders) who own NeuroRx securities immediately prior to the closing of the Transactions will have the contingent right to receive their pro rata portion of (i) an aggregate of 25,000,000 shares of the Company Common Stock (“Earnout Shares”) if, prior to December 31, 2022, the NeuroRx COVID-19 Drug receives emergency use authorization by the Food and Drug Administration (“FDA”) and NeuroRx submits and the FDA files for review a new drug application for the NeuroRx COVID-19 Drug (the occurrence of the foregoing, the “Earnout Shares Milestone”), and (ii) an aggregate of $100,000,000 in cash (“Earnout Cash”) upon the earlier to occur of (x) FDA approval of the NeuroRx COVID-19 Drug and the listing of the NeuroRx COVID-19 Drug in the FDA’s “Orange Book” and (y) FDA approval of the NeuroRx Antidepressant Drug Regimen and the listing of the NeuroRx Antidepressant Drug Regimen in the FDA’s “Orange Book,” in each case prior to December 31, 2022 (the occurrence of either of clauses (x) or (y), the “Earnout Cash Milestone”).
The Merger Agreement contains customary representations, warranties and covenants by the parties thereto and the closing is subject to certain conditions as further described in the Merger Agreement.
9. STOCKHOLDERS’ EQUITY
Preferred Stock — The Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.001 per share with such designation, rights and preferences as may be determined from time to time by the Company’s Board of Directors. At December 31, 2020 and 2019, there were no shares of preferred stock issued or outstanding.
Common Stock — The Company is authorized to issue 100,000,000 shares of common stock with a par value of $0.001 per share. Holders of the Company’s common stock are entitled to one vote for each share. At December 31, 2020 and 2019, there were 2,688,242 and 2,844,414 shares of common stock issued and outstanding, respectively (excluding -0- and 2,305,335 shares of common stock subject to possible redemption, respectively).
Rights — Each holder of a right will receive one-tenth (1/10) of one share of common stock upon consummation of a Business Combination, even if the holder of such right redeemed all shares held by it in connection with a Business Combination. No fractional shares will be issued upon conversion of the rights. No additional consideration will be required to be paid by a holder of rights in order to receive its additional shares upon consummation of a Business Combination, as the consideration related thereto has been included in the Unit purchase price paid for by investors in the Initial Public Offering. If the Company enters into a definitive agreement for a Business Combination in which the Company will not be the surviving entity, the definitive agreement will provide for the holders of rights to receive the same per share consideration the holders of the common stock will receive in the transaction on an as-converted into common stock basis and each holder of a right will be required to affirmatively convert its rights in order to receive 1/10 share underlying each right (without paying additional consideration). The shares issuable upon conversion of the rights will be freely tradable (except to the extent held by affiliates of the Company).
If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of rights will not receive any of such funds with respect to their rights, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with respect to such rights, and the rights will expire worthless. Further, there are no contractual penalties for failure to deliver securities to the holders of the rights upon consummation of a Business Combination. Additionally, in no event will the Company be required to net cash settle the rights. Accordingly, holders of the rights might not receive the shares of common stock underlying the rights.
Representative Shares
At the closing of the Initial Public Offering, the Company issued EarlyBirdCapital and its designees 120,000 Representative Shares. On November 29, 2017, the Company issued an additional 18,000 Representative Shares for no consideration. The Company accounted for the Representative Shares as an expense of the Initial Public Offering resulting in a charge directly to stockholders’ equity. The Company determined the fair value of Representative Shares to be $1,380,000 based upon the offering price of the Units of $10.00 per Unit. The underwriter has agreed not to transfer, assign or sell any such shares until the completion of a Business Combination. In addition, the underwriter and its designees have agreed (i) to waive their redemption rights with respect to such shares in connection with the completion of a Business Combination and (ii) to waive their rights to liquidating distributions from the Trust Account with respect to such shares if the Company fails to complete a Business Combination within the Combination Period.
Unit Purchase Option
On November 22, 2017, the Company sold to EarlyBirdCapital, for $100, an option to purchase up to 600,000 Units exercisable at $10.00 per Unit (or an aggregate exercise price of $6,000,000) commencing on the later of November 20, 2018 or the consummation of a Business Combination. The unit purchase option may be exercised for cash or on a cashless basis, at the holder’s option, and expires five years from November 20, 2017. The Units issuable upon exercise of this option are identical to those offered in the Initial Public Offering. The Company accounted for the unit purchase option, inclusive of the receipt of $100 cash payment, as an expense of the Initial Public Offering resulting in a charge directly to stockholders’ equity. The Company estimated the fair value of this unit purchase option to be $2,042,889 (or $3.40 per Unit) using the Black-Scholes option-pricing model. The fair value of the unit purchase option granted to the underwriters was estimated as of the date of grant using the following assumptions: (1) expected volatility of 35%, (2) risk-free interest rate of 2.05% and (3) expected life of five years. The option and such units purchased pursuant to the option, as well as the common stock underlying such units, the rights included in such units, the common stock that is issuable for the rights included in such units, the warrants included in such units, and the shares underlying such warrants, have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA’s NASDAQ Conduct Rules. Additionally, the option may not be sold, transferred, assigned, pledged or hypothecated for a one-year period (including the foregoing 180-day period) following the date of Initial Public Offering except to any underwriter and selected dealer participating in the Initial Public Offering and their bona fide officers or partners. The option grants to holders demand and “piggy back” rights for periods of five and seven years, respectively, from the effective date of the registration statement with respect to the registration under the Securities Act of the securities directly and indirectly issuable upon exercise of the option. The Company will bear all fees and expenses attendant to registering the securities, other than underwriting commissions which will be paid for by the holders themselves. The exercise price and number of units issuable upon exercise of the option may be adjusted in certain circumstances including in the event of a stock dividend, or the Company’s recapitalization, reorganization, merger or consolidation. However, the option will not be adjusted for issuances of common stock at a price below its exercise price.
10. WARRANT LIABILITY
Warrants — Public Warrants may only be exercised for a whole number of shares. No fractional shares will be issued upon exercise of the Public Warrants. The Public Warrants will become exercisable on the later of the completion of a Business Combination and November 22, 2018; provided in that the Company has an effective registration statement under the Securities Act covering the shares of common stock issuable upon exercise of the Public Warrants and a current prospectus relating to them is available. The Company has agreed that as soon as practicable, the Company will use its best efforts to file with the SEC a registration statement for the registration, under the Securities Act, of the shares of common stock issuable upon exercise of the Public Warrants. The Company will use its best efforts to cause the same to become effective and to maintain the effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration of the Public Warrants in accordance with the provisions of the warrant agreement. Notwithstanding the foregoing, if a registration statement covering the shares of common stock issuable upon exercise of the Public Warrants is not effective 90 days following the consummation of Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company shall have failed to maintain an effective registration statement, exercise warrants on a cashless basis pursuant to the exemption provided by Section 3(a)(9) of the Securities Act, provided that such exemption is available. If that exemption, or another exemption, is not available, holders will not be able to exercise their warrants on a cashless basis. The Public Warrants will expire five years after the completion of a Business Combination or earlier upon redemption or liquidation.
The Company may redeem the Public Warrants:
| | ●Director | in whole and not in part; | May 1, 2023 |
| | ● | at a price of $0.01 per warrant; | | |
| /s/ Chaim Hurvitz | | | | |
| Chaim Hurvitz | | Director | | May 1, 2023 |
| | ● | at any time during the exercise period; | | |
| /s/ Jonathan C. Javitt | ● | upon a minimum of 30 days’ prior written notice of redemption; and | | |
| Jonathan C. Javitt | ● | if, and only if, the last sale price of the Company’s common stock equals or exceeds $21.00 per share for any 20 trading days within a 30-trading day period ending on the third business day prior to the date on which the Company sends the notice of redemption to the warrant holders. |
| | ●Director | If, and only if, there is a current registration statement in effect with respect to the shares of common stock underlying such warrants. |
If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement.
The exercise price and number of shares of common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuance of common stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire worthless.
11. INCOME TAX
The Company’s net deferred tax assets are as follows:
| | |
| | | |
| Deferred tax assets | | |
| Net operating loss carryforward | $105,559 | $— |
| Unrealized gain on marketable securities | — | — |
| Total deferred tax assets | 105,559 | — |
| Valuation Allowance | (105,559) | — |
| Deferred tax assets, net valuation allowance | $— | $— |
The income tax provision consists of the following:
| | |
| | | |
| Federal | | |
| Current | $17,841 | $102,332 |
| Deferred | (87,480) | 2,936 |
| | | |
| State and Local | | |
| Current | — | — |
| Deferred | (18,079) | — |
| | | |
| Change in valuation allowance | 105,559 | (21,062) |
| | | |
| Income tax provision | $17,841 | $84,206 |
As of December 31, 2020 and 2019, the Company had $416,571 and $-0- of U.S. federal and state net operating loss carryovers available to offset future taxable income, respectively, which carryforward indefinitely.
In assessing the realization of the deferred tax assets, management considers whether it is more likely than not that some portion of all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration of all of the information available, management believes that significant uncertainty exists with respect to future realization of the deferred tax assets and has therefore established a full valuation allowance. For the year ended December 31, 2020 and 2019, the change in the valuation allowance was $105,559 and $21,062.
A reconciliation of the federal income tax rate to the Company’s effective tax rate is as follows:
| | | |
| | | |
| Statutory federal income tax rate | 21.0% | 21.0% |
| State taxes, net of federal tax benefit | 4.3% | 0.0% |
| True-ups | (1.7)% | 0.4% |
| Change in FV of warrant liabilities | (15.5)% | 0.0% |
| Valuation allowance | (9.9)% | (4.3)% |
| Income tax provision | (1.7)% | 17.1% |
The Company files income tax returns in the U.S. federal jurisdiction and is subject to examination by the various taxing authorities. The Company's tax returns since inception remain open to examination by the taxing authorities.
12. FAIR VALUE MEASUREMENTS
The Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis at December 31, 2020 and 2019, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
| Description | | | |
| Assets: | | | |
| Cash and marketable securities held in Trust Account | 1 | $5,967,947 | $32,005,205 |
| | | | |
| Liabilities: | | | |
| Warrant Liability – Private Placement Warrants | 3 | $655,098 | — |
The Company utilizes a Black-Scholes model approach to value the Placement Warrants at each reporting period, with changes in fair value recognized in the Statements of Operations. The estimated fair value of the warrant liability is determined using Level 3 inputs. Inherent in a binomial options pricing model are assumptions related to expected share-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its common stock based on historical volatility that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates to remain at zero.
The significant unobservable inputs used in the Black-Scholes model to measure the warrant liabilities that are categorized within Level 3 of the fair value hierarchy are as follows:
| | |
Stock price | $24.50
|
Strike price | $11.50
|
Term (in years) | 5.0
|
Volatility | 25.0%
|
Risk-free rate | 0.4%
|
Dividend yield | 0.0%
|
Fair value of private warrants | 4.81
May 1, 2023 |
The following table provides a summary of the changes in fair value of the Company’s Level 3 financial instruments that are measured at fair value on a recurring basis:
| |
Fair value as of December 31, 2019 | $—
|
Change in valuation inputs or other assumptions | 655,098
|
Fair value as of December 31, 2020 | $655,098
|
There were no transfers between Levels 1, 2 or 3 during the year ended December 31, 2020.
13. SUBSEQUENT EVENTS
The Company evaluates subsequent events and transactions that occur after the consolidated balance sheet date up to the date that the financial statements were issued. Based upon this review, other than as described below and in Note 2, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.
Nasdaq Compliance
On January 15, 2021, the Company received notice from the Nasdaq that a Nasdaq Hearings Panel (“Panel”) had granted the Company’s request to continue its listing on Nasdaq through May 24, 2021 (“Extended Date”).
On January 4, 2021, the Company received a notice from the Staff stating that the Company’s failure to hold an annual stockholder meeting for the fiscal year ended December 31, 2019 by December 31, 2020, as required by Nasdaq Listing Rule 5820, could serve as an additional basis for delisting the Company’s securities from Nasdaq. The Company requested a hearing before the Panel to appeal the Staff’s determination with respect to both notices and the hearing was held on January 14, 2021. The Panel’s decision is subject to certain conditions, including that the Company will have completed its proposed business combination (the “Business Combination”) with NeuroRx on or before the Extended Date and that the combined company will have demonstrated compliance with all requirements for initial listing on Nasdaq. While the Company expects to complete the Business Combination by the Extended Date, the Company cannot assure you that it will be able to do so.
Subscription Agreement
On March 12, 2021, the Company entered into subscription agreements (“Subscription Agreements”) with certain qualified institutional buyers and institutional accredited investors (collectively, the “PIPE Investors”), pursuant to which the Company will, substantially concurrently with, and contingent upon, the consummation of the Merger, issue an aggregate of 1,000,000 shares of the Company Common Stock, par value $0.001 per share, to the PIPE Investors at a price of $10.00 per share, for aggregate gross proceeds to the Company of $10,000,000 (the “PIPE”). The closing of the PIPE is conditioned upon, among other things, (i) the substantially concurrent consummation of the Merger, (ii) the accuracy of all representations and warranties of the Company and the PIPE Investors in the Subscription Agreements, and the performance of all covenants of the Company and the PIPE Investors under the Subscription Agreements, (iii) the shares of the Company Common Stock shall have been approved for listing on the Nasdaq Capital Market, subject to official notice of issuance, and (iv) the Merger Agreement shall not have been terminated or rescinded, and no amendment, waiver or modification shall have occurred thereunder that would materially adversely affect the economic benefits that the PIPE Investor would reasonably expect to receive under the Subscription Agreement without having received the PIPE Investor’s prior written consent (not to be unreasonably withheld, conditioned, or delayed).
Amendment to the Merger Agreement
On March 19, 2021, the Company entered into a second amendment (“Amendment”) to the Merger Agreement with NeuroRx and Merger Sub. The Amendment extends the outside date by which the parties must consummate the Merger from April 23, 2021 to May 24, 2021.
Legal Proceedings
In connection with the proposed Merger with NeuroRx, a purported stockholder of the Company has filed a lawsuit and other purported stockholders have threatened to file lawsuits alleging breaches of fiduciary duty and violations of the disclosure requirements of the Exchange Act. The Company intends to defend the matters vigorously. These matters are in the early stages and the Company is currently unable to reasonably determine the outcome or estimate any potential losses, and, as such, has not recorded a loss contingency.