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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended: June 30, 2021

   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to

Commission File Number: 001-39412

NRX PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Delaware

 

82-2844431

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

1201 Orange Street, Suite 600

Wilmington, DE 19801

(Address of principal executive offices) (Zip Code)

(484) 254-6134

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

 

Trading Symbol(s)

 

Name of each exchange on which registered:

Common Stock, par value $0.001 per share

 

NRXP

 

The Nasdaq Stock Market LLC

Warrants to purchase one share of Common Stock

NRXPW

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¬

 

Accelerated filer ¬

 

 

 

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

As of August 16, 2021, the registrant had 48,603,585 shares of common stock outstanding.

Table of Contents

 

Page

Condensed Consolidated Balance Sheets as of June 30, 2021 (Unaudited) and December 31, 2020

3

Unaudited Condensed Consolidated Statements of Operations for the three months and six months ended June 30, 2021 and 2020

4

Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the six months ended June 30, 2021 and 2020

5

Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020

7

Notes to Unaudited Condensed Consolidated Financial Statements

8

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

32

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

41

ITEM 4.

Controls and Procedures

41

 

 

 

ITEM 1.

Legal Proceedings

42

ITEM 1A.

Risk Factors

42

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

42

ITEM 5.

Other Information

42

ITEM 6.

Exhibits

43

SIGNATURES

44

Table of Contents

PART I FINANCIAL INFORMATION

ITEM 1. Financial Statements.

NRX PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

    

June 30, 2021

    

December 31, 2020

(Unaudited)

ASSETS

 

  

 

  

Current assets:

 

  

 

  

Cash

$

13,386,332

$

1,858,513

Account receivable, net of allowance of $5,470,897 and $257,463 as of June 30, 2021 and December 31, 2020, respectively

 

 

831,390

Prepaid expenses and other current assets

 

5,147,650

 

240,352

Total current assets

 

18,533,982

 

2,930,255

Other assets

 

12,730

 

10,914

Total assets

$

18,546,712

$

2,941,169

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable (includes $44,201 and $149,067 due to related parties)

$

6,268,319

$

3,153,310

Accrued and other current liabilities

 

1,506,337

 

1,728,483

Accrued clinical site costs

 

1,133,312

 

1,547,432

Earnout Cash liability

25,874,896

Warrant liabilities

515,025

Notes payable and accrued interest

 

173,694

 

248,861

Accrued settlement expense

 

 

39,486,139

Total current liabilities

 

35,471,583

 

46,164,225

Notes payable and accrued interest

 

512,472

 

547,827

Total liabilities

$

35,984,055

$

46,712,052

Stockholders’ equity (deficit):

 

  

 

  

Preferred stock, $0.001 par value, 50,000,000 shares authorized; 0 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively

Common stock, $0.001 par value, 500,000,000 shares authorized; 48,603,585 and 42,973,462 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively

 

48,604

 

42,974

Additional paid-in capital

 

114,190,620

 

46,365,863

Accumulated deficit

 

(131,676,567)

 

(90,179,720)

Total stockholders’ equity (deficit)

 

(17,437,343)

 

(43,770,883)

Total liabilities and stockholders' equity

$

18,546,712

$

2,941,169

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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Table of Contents

NRX PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Three months ended

 

Six months ended

June 30, 

 

June 30, 

    

2021

    

2020

    

2021

    

2020

Operating expenses:

 

  

 

  

  

 

  

Research and development

$

4,659,280

$

1,390,376

$

7,567,984

$

1,994,709

General and administrative

 

12,457,534

 

525,736

 

14,558,936

 

1,141,390

Settlement expense

 

 

 

21,365,641

 

Reimbursement of expenses from Relief Therapeutics

 

 

(2,020,931)

 

(771,244)

 

(2,020,931)

Total operating expenses

 

17,116,814

 

(104,819)

 

42,721,317

 

1,115,168

Income (loss) from operations

 

(17,116,814)

 

104,819

 

(42,721,317)

 

(1,115,168)

Other (income) expenses:

 

  

 

 

 

Gain on extinguishment of debt

 

 

 

(120,810)

 

Interest expense

 

5,107

 

2,532

 

10,288

 

38,800

Change in fair value of warrant liability

 

(1,468,649)

 

 

(1,468,649)

 

Change in fair value of Earnout Cash liability

 

354,701

 

 

354,701

 

Change in fair value of embedded put

 

 

 

 

27,160

Loss on conversion of convertible notes payable

 

 

 

 

306,641

Total other (income) expenses

 

(1,108,841)

 

2,532

 

(1,224,470)

 

372,601

Income (loss) before tax

(16,007,973)

102,287

(41,496,847)

(1,487,769)

Provision for income taxes

Net income (loss)

 

(16,007,973)

 

102,287

 

(41,496,847)

 

(1,487,769)

Deemed dividend - warrants

(2,691,799)

(2,691,799)

Deemed dividend - Earnout Shares

(253,130,272)

(253,130,272)

Net income (loss) attributable to common stockholders

$

(271,830,043)

$

102,287

$

(297,318,917)

$

(1,487,769)

Net earnings (loss) per share:

Basic

$

(0.38)

$

$

(1.07)

$

(0.04)

Diluted

$

(0.38)

$

$

(1.07)

$

(0.04)

Net earnings (loss) per share attributable to common stockholders:

Basic

$

(6.51)

$

$

(7.68)

$

(0.04)

Diluted

$

(6.51)

$

$

(7.68)

$

(0.04)

Weighted average common shares outstanding:

Basic

41,727,480

33,819,205

38,709,614

33,799,503

Diluted

41,727,480

36,656,420

38,709,614

33,799,503

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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NRX PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

Six months ended June 30, 2021

Series A Convertible

Series B-1A Convertible

Series B-1 Convertible

Series B-2 Convertible

Additional

Total

Preferred Stock

Preferred Stock

Preferred Stock

Preferred Stock

Common Stock

Paid-in-

Accumulated

Stockholders’

Shares

Amount

Shares

Amount

Shares

Amount

Shares

Amount

Shares

Amount

Capital

Deficit

Equity (Deficit)

Balance - December 31, 2020 (as previously reported)

    

1,000,000

    

$

1,000

    

316,848

    

$

317

    

1,050,695

    

$

1,050

    

4,167

    

$

4

    

11,227,676

    

$

11,228

    

$

46,387,649

    

$

(90,179,720)

    

$

(43,778,472)

Retroactive application of reverse recapitalization (Note 4)

(1,000,000)

(1,000)

(316,848)

(317)

(1,050,695)

(1,050)

(4,167)

(4)

31,745,786

31,746

(21,786)

7,589

Balance - December 31, 2020, effect of Merger (Note 4)

$

$

$

$

42,973,462

$

42,974

$

46,365,863

$

(90,179,720)

$

(43,770,883)

Common stock issued

 

 

 

 

 

 

 

333,121

 

333

 

6,926,753

 

 

6,927,086

Proceeds from issuance of common stock for exercise of warrant

 

 

 

 

 

 

 

1,496,216

 

1,496

 

7,498,522

 

 

7,500,018

Reclassification of settlement liability upon issuance of warrant

 

 

 

 

 

 

 

 

 

60,851,779

 

 

60,851,779

Stock-based compensation

 

 

 

 

 

 

 

 

 

371,698

 

 

371,698

Net loss

 

 

 

(25,488,874)

(25,488,874)

Balance - March 31, 2021

 

$

 

$

 

$

$

44,802,799

$

44,803

$

122,014,615

$

(115,668,594)

$

6,390,824

Common stock issued

 

 

 

 

 

 

 

71,056

 

71

 

1,562,201

 

 

1,562,272

Effect of Merger and recapitalization, net of redemptions and issuance costs of $1,412,846

 

 

 

 

 

 

 

2,529,730

 

2,530

 

(26,618,326)

 

 

(26,615,796)

Common stock issued pursuant to PIPE financing, net of issuance costs of $1,900,000

 

 

 

 

 

 

 

1,000,000

 

1,000

 

8,099,000

 

 

8,100,000

Common stock issued for advisor services

 

 

 

 

 

 

 

200,000

 

200

 

4,849,800

 

 

4,850,000

Modification of option awards pursuant to Merger

 

 

 

 

 

 

 

 

 

1,014,640

 

 

1,014,640

Modification of warrants pursuant to Merger

 

 

 

2,330,572

2,330,572

Stock-based compensation

938,118

938,118

Net loss

(16,007,973)

(16,007,973)

Balance - June 30, 2021

$

$

$

$

48,603,585

$

48,604

$

114,190,620

$

(131,676,567)

$

(17,437,343)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

5

Table of Contents

Six months ended June 30, 2020

Series A Convertible

Series B-1A Convertible

Series B-1 Convertible

Series B-2 Convertible

Additional

Total

Preferred Stock

Preferred Stock

Preferred Stock

Preferred Stock

Common Stock

Paid-in-

Accumulated

Stockholders’

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Deficit

    

Equity (Deficit)

Balance - December 31, 2019 (as previously reported)

1,000,000

$

1,000

316,848

$

317

1,050,695

$

1,050

 

$

 

10,686,191

$

10,686

$

33,538,813

$

(38,402,816)

$

(4,850,950)

Retroactive application of reverse recapitalization (Note 4)

(1,000,000)

(1,000)

(316,848)

(317)

(1,050,695)

(1,050)

— 

— 

30,563,009

30,563

(20,651)

7,545

Balance - December 31, 2019, effect of Merger (Note 4)

$

— 

$

— 

— 

$

— 

— 

$

— 

41,249,200

$

41,249

$

33,518,162

$

(38,402,816)

$

(4,843,405)

Common stock issued

— 

— 

— 

— 

— 

— 

— 

50,844

51

176,974

177,025

Series B-2 convertible preferred stock issued

— 

— 

— 

— 

— 

13,168

13

50,000

50,013

Stock-based compensation

— 

— 

— 

— 

— 

— 

— 

— 

88,803

88,803

Net loss

— 

— 

— 

— 

— 

— 

— 

— 

(1,590,056)

(1,590,056)

Balance - March 31, 2020

$

$

$

$

41,313,212

$

41,313

$

33,833,939

$

(39,992,872)

$

(6,117,620)

Stock-based compensation

— 

— 

— 

— 

— 

— 

— 

— 

— 

93,466

93,466

Net income

— 

— 

— 

— 

— 

— 

— 

— 

— 

$

102,287

102,287

Balance - June 30, 2020

$

$

$

$

41,313,212

$

41,313

$

33,927,405

$

(39,890,585)

$

(5,921,867)

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NRX PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Six months ended June 30, 

    

2021

    

2020

CASH FLOWS FROM OPERATING ACTIVITIES:

 

  

 

  

Net Loss

$

(41,496,847)

$

(1,487,769)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

Depreciation expense

 

967

 

Stock-based compensation

 

4,655,028

 

182,269

Gain on extinguishment of debt

 

(120,810)

 

Change in fair value of warrant liabilities

(1,468,649)

Change in fair value of Earnout Cash liability

354,701

Change in fair value of embedded put

 

 

27,160

Amortization of debt discount

 

 

16,454

Non-cash interest expense

 

10,288

 

26,992

Non-cash settlement expense

 

21,365,641

 

Non-cash consulting expense

 

4,850,000

 

Loss on conversion of notes payable

 

 

306,641

Changes in operating assets and liabilities:

 

 

Accounts receivable

 

831,390

 

(314,222)

Prepaid expenses and other assets

 

(4,847,806)

 

(46,760)

Accounts payable

 

2,562,762

 

562,409

Accrued expenses and other liabilities

 

(1,104,791)

 

(1,446)

Net cash used in operating activities

(14,408,126)

(728,272)

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of computer equipment

(2,783)

Net cash used in investing activities

(2,783)

CASH FLOWS FROM FINANCING ACTIVITIES

 

Proceeds from notes payable

619,842

Proceeds from issuance of series B-2 Preferred stock

 

50,004

Proceeds from issuance of common stock, net of transaction costs

 

8,489,082

176,990

Proceeds from issuance of common stock for exercise of warrant

7,500,018

Effect of Merger, net of transaction costs

11,049,628

Repayment of notes payable assumed in Merger

(1,100,000)

Net cash provided by financing activities

 

25,938,728

846,836

Net increase in cash

 

11,527,819

118,564

Cash at beginning of period

 

1,858,513

877,421

Cash at end of period

$

13,386,332

$

995,985

Supplemental disclosure of cash flow information:

 

  

Non-cash investing and financing activities

 

  

Reclassification of settlement liability upon issuance of warrant

$

60,851,779

$

Extinguishment of Paycheck Protection Program Loan

$

120,810

$

The accompanying notes are an integral part of these consolidated financial statements.

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NRX PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization

The Business

On May 24, 2021, we consummated the business combination, or the Business Combination, contemplated by the Agreement and Plan of Merger (as amended, the “Merger Agreement”), dated December 13, 2020, by and among our company (formerly known as Big Rock Partners Acquisition Corp. (“BRPA”)), NeuroRx, Inc., a Delaware corporation (“NeuroRx”), Big Rock Merger Corp., and a Delaware corporation and wholly-owned, direct subsidiary of BRPA (“Merger Sub”), pursuant to which Big Rock Merger Corp. was merged with and into NeuroRx, with NeuroRx surviving the merger (“Merger”). As a result of the Merger, and upon consummation of the Merger and other transactions contemplated by the Merger Agreement, NeuroRx became a wholly-owned, direct subsidiary of BRPA. Upon the closing of the Business Combination, we changed our name to NRx Pharmaceuticals, Inc. (“NRx Pharmaceuticals,” “NRXP,” “we,” or the “Company”), with the stockholders of NeuroRx becoming stockholders of NRx Pharmaceuticals.

The Company is a clinical-stage small molecule pharmaceutical company which develops novel therapeutics for the treatment of central nervous system disorders and life-threatening pulmonary diseases through its wholly-owned operating subsidiary, NeuroRx.  On September 21, 2020, we announced a commercial partnership with Relief Therapeutics Holding AG (“Relief”) for global commercialization of RLF-100 (aviptadil acetate) (now reformulated as ZYESAMITM), an FDA Fast Track-designated, investigational, pre-commercial drug for COVID-19 related respiratory failure (the “NRx COVID-19 Drug”). The partnership affords Relief the right to fund all formulations and clinical development of aviptadil for treatment of respiratory disease, in exchange for a predetermined share of profits. An application for emergency use authorization (“EUA”) for this product candidate is pending before the U.S. Food and Drug Administration (“FDA”). In addition, ZYESAMITM has received EUA in the nation of Georgia. We are also developing NRX-100/101, an FDA Breakthrough Therapy-designated, investigational, pre-commercial drug for treating bipolar depression in patients with acute suicidal ideation and behavior (the “NRx Antidepressant Drug Regimen”). The Company has been granted exclusive worldwide development rights to a new potential COVID-19 vaccine called BriLife pursuant to a Memorandum of Understanding with the Government of Israel. The Company is commencing a clinical trial of the BriLife vaccine in the nation of Georgia. If the Georgia clinical trial, and other clinical trials running in Israel are successful, the Company expects to enter into a long-term royalty-bearing licensing agreement for the commercialization of the vaccine.

2. Liquidity

As of June 30, 2021, the Company had $13,386,332 in cash. Since inception the Company has experienced net losses and negative cash flows from operations each fiscal year. The Company has no revenues and expects to continue to incur operating losses for the foreseeable future, and may never become profitable. The Company is dependent on its ability to continue to raise equity and/or debt financing to continue operations, and the attainment of profitable operations. The Company has a collaboration agreement with Relief which provided for funding by Relief of certain research and development expenses related to the U.S. development of ZYESAMITM and the portion of corporate overhead attributable to that program. The proceeds received amounted to $771,244 for the six months ended June 30, 2021. Subsequent to December 31, 2020, Relief has declined to reimburse the Company for any additional expenses related to the IV clinical trials for the ZYESAMITM. The IV clinical trials for the ZYESAMITM were completed on February 24, 2021. Subsequent to June 30, 2021, the Company received $9,186,316 from the exercise of a warrant for the purchase of 1,833,596 shares of common stock. Accordingly, the Company believes that it currently has sufficient funds to support operations through the next twelve months from the date the condensed consolidated financial statements are issued. The Company cannot make any assurances that additional financings will be available to it and, if available, on acceptable terms or at all. This could negatively impact the Company’s business and operations and could also lead to the reduction of the Company’s operations.

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NRX PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

COVID-19 Outbreak

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 Outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 Outbreak as a pandemic, based on the rapid increase in exposure globally.

The full impact of the COVID-19 Outbreak continues to evolve as of the date of this report. If the COVID-19 Outbreak continues, it may have a material adverse effect on the Company’s financial condition, liquidity, and future results of operations for the year ending December 31, 2021 and beyond. Management is actively monitoring the impact of the global pandemic on its financial condition, liquidity, operations, industry, and workforce. Given the daily evolution of the COVID-19 Outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 Outbreak on its results of operations, financial condition, or liquidity for the year ending December 31, 2021 and beyond.

3. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) as determined by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited interim condensed financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. The results of operations for any interim periods are not necessarily indicative of the results that may be expected for the entire fiscal year or any other interim period.

The merger between Merger Sub and NeuroRx was accounted for as a reverse recapitalization in accordance with U.S. GAAP (the “Reverse Recapitalization”). Under this method of accounting, BRPA was treated as the “acquired” company and NeuroRx is treated as the acquirer for financial reporting purposes.

Accordingly, for accounting purposes, the Reverse Recapitalization was treated as the equivalent of NeuroRx issuing stock for the net assets of BRPA, accompanied by a recapitalization. The net assets of BRPA are stated at historical cost, with no goodwill or other intangible assets recorded.

NeuroRx was determined to be the accounting acquirer based on the following predominant factors:

NeuroRx’s shareholders have the largest portion of voting rights in the Company;
the Board and Management are primarily composed of individuals associated with NeuroRx; and
NeuroRx was the larger entity based on historical operating activity and NeuroRx had the larger employee base at the time of the Merger.

The consolidated assets, liabilities and results of operations prior to the Reverse Recapitalization are those of NeuroRx. The shares and corresponding capital amounts and losses per share, prior to the Merger, have been retroactively restated based on shares reflecting the exchange ratio established in the Merger.

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Table of Contents

NRX PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in its financial statements and the reported amounts of expenses during the reporting period. The most significant estimates in the Company’s financial statements relate to the valuation of common and preferred stock, stock options, warrants, contingent consideration and the valuation allowance of deferred tax assets resulting from net operating losses. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.

Certain Risks and Uncertainties

The Company’s activities are subject to significant risks and uncertainties including the risk of failure to secure additional funding to properly execute the Company’s business plan. The Company is subject to risks that are common to companies in the pharmaceutical industry, including, but not limited to, development by the Company or its competitors of new technological innovations, dependence on key personnel, reliance on third party manufacturers, protection of proprietary technology, and compliance with regulatory requirements.

Fair Value of Financial Instruments

ASC 820, Fair Value Measurements, provides guidance on the development and disclosure of fair value measurements. Under this accounting guidance, fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

The accounting guidance classifies fair value measurements in one of the following three categories for disclosure purposes:

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Inputs other than Level 1 prices for similar assets or liabilities that are directly or indirectly observable in the marketplace.

Level 3: Unobservable inputs which are supported by little or no market activity and values determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation. (Refer to Note 12)

Accounts Receivable

Accounts receivable consist of balances due from collaborative partners. In determining collectability, historical trends are evaluated, and specific partner issues are reviewed on a periodic basis to arrive at appropriate allowances. As of June 30, 2021, the Company has recorded an allowance for doubtful accounts of $5,470,897 as the Company does not expect to collect on amounts due to the Company owed from Relief.

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NRX PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Concentration of Credit Risk and Off-Balance Sheet Risk

Cash is the only financial instrument that is potentially subject to concentrations of credit risk. The Company’s cash is deposited in accounts at large financial institutions, and amounts may exceed federally insured limits. The Company believes it is not exposed to significant credit risk due to the financial strength of the depository institutions in which the cash is held. The Company has no financial instruments with off-balance sheet risk of loss.

Research and Development Costs

The Company’s research and development expenses consist primarily of costs associated with the Company’s clinical trials, salaries, payroll taxes, employee benefits, and stock-based compensation charges for those individuals involved in ongoing research and development efforts. Research and development costs are expensed as incurred. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received.

Stock-Based Compensation

The Company expenses stock-based compensation to employees and non-employees over the requisite service period based on the estimated grant-date fair value of the awards. The Company accounts for forfeitures as they occur. Stock-based awards with graded-vesting schedules are recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model, and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. All stock-based compensation costs are recorded in general and administrative or research and development costs in the consolidated statements of operations based upon the underlying individual’s role at the Company.

Modification of stock options and warrants

A change in any of the terms or conditions of stock options and warrants is accounted for as a modification. Incremental stock-based compensation cost is measured as the excess, if any, of the fair value of the modified option over the fair value of the original option/warrant immediately before its terms are modified, measured based on the fair value of the ordinary shares and other pertinent factors at the modification date. For vested stock options and warrants to board members, we recognize incremental compensation cost in the period the modification occurs. For unvested stock options, we recognize over the remaining requisite service period, the sum of the incremental compensation cost and the remaining unrecognized compensation cost for the original award on the modification date. If the fair value of the modified option is lower than the fair value of the original option immediately before modification, the minimum compensation cost we recognize is the cost of the original award. The accounting for incremental fair value of warrants is based on the specific facts and circumstances related to the modification which may result in a reduction of additional paid-in capital, recognition of costs for services rendered, or recognized as a deemed dividend.

Warrants

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 stock 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

11

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NRX PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 Placement Warrants was estimated using a Black Scholes valuation approach (see Notes 10 and 12).

Income Taxes

Income taxes are recorded in accordance with ASC 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are provided, if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit would more likely than not be realized assuming examination by the taxing authority. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. The Company recognizes any interest and penalties accrued related to unrecognized tax benefits as income tax expense.

Earnings (Loss) Per Share

Basic loss per share of common stock is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted earnings per share excludes, when applicable, the potential impact of stock options, common stock warrant shares, and other dilutive instruments because their effect would be anti-dilutive in the periods in which we incur a net loss.

The following table summarized the basic and diluted earnings per share calculations:

Three Months Ended June 30,

Six Months Ended June 30,

    

2021

    

2020

    

2021

    

2020

Numerator:

 

 

 

 

Net income (loss) attributable to common stock—basic and diluted

 

$

(16,007,973)

 

$

102,287

 

$

(41,496,847)

 

$

(1,487,769)

Denominator:

 

 

 

 

Weighted average shares — basic

41,727,480

33,819,205

38,709,614

33,799,503

Effect of other dilutive securities

2,837,215

Weighted average shares — diluted

41,727,480

36,656,420

38,709,614

33,799,503

Basic earnings (loss) per share

$

(0.38)

$

$

(1.07)

$

(0.04)

Diluted earnings (loss) per share

$

(0.38)

$

$

(1.07)

$

(0.04)

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NRX PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following outstanding shares of common stock equivalents were excluded from the computation of the diluted net earnings (loss) per share attributable to common stock for the periods in which a net loss is presented because their effect would have been anti-dilutive.

Three Months Ended June 30,

Six Months Ended June 30,

    

2021

    

2020

    

2021

    

2020

Stock options

 

2,919,493

 

 

2,919,493

 

1,166,863

Common stock warrants

 

8,495,316

 

 

8,495,316

 

1,670,352

Common stock issuable pursuant to UPOs (Note 10)

600,000

600,000

Common stock warrants pursuant to UPOs (Note 10)

300,000

300,000

Public Rights pursuant to UPOs (Note 10)

60,000

60,000

Earnout Shares

22,209,280

22,209,280

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes: Simplifying the Accounting for Income Taxes. This guidance removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. This guidance also clarifies and simplifies other areas of ASC 740. This ASU will be effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company does not expect this guidance to have a significant impact on its financial statements.

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. The ASU is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020 and adoption must be as of the beginning of the Company’s annual fiscal year. We adopted ASU 2020-06 on January 1, 2021. There was no impact to our consolidated financial statements at the date of adoption.

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments (Subtopic 470-50), Compensation - Stock Compensation (Topic 718) and Derivatives and Hedging - Contracts in an Entity's Own Equity (Subtopic 815-40) - Issuer's Accounting for Certain Modifications or Exchange of Freestanding Equity-Classified Written Call Options, which provides guidance for a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as (1) an adjustment to equity and, if so, the related earnings per share (EPS) effects, if any, or (2) an expense and, if so, the manner and pattern of recognition. The amendments in this ASU are effective January 1, 2022, including interim periods. Early adoption is permitted. The Company has elected to early adopt the provisions of ASU 2021-04 effective January 1, 2021.

4. Reverse Recapitalization

As discussed in Note 1, on May 24, 2021 (the “Closing Date”), BRPA closed the Business Combination with NeuroRx, as a result of which NeuroRx became a wholly-owned subsidiary of BRPA. While BRPA was the legal acquirer of NeuroRx in the business combination, for accounting purposes, the Merger is treated as a Reverse Recapitalization, whereby NeuroRx is deemed to be the accounting acquirer, and the historical financial statements of NeuroRx became the historical financial statements of BRPA (renamed NRx Pharmaceuticals, Inc.) upon the closing of the Merger. Under this method of accounting, BRPA was treated as the “acquired” company and NeuroRx is treated as the acquirer for financial reporting purposes. Accordingly, for accounting purposes, the Merger was treated as the equivalent of NeuroRx issuing stock for the net assets of BRPA, accompanied by a recapitalization. The net assets of BRPA were stated at historical cost, with no goodwill or other intangible assets recorded.

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NRX PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Pursuant to the Merger Agreement, the aggregate consideration payable to stockholders of NeuroRx at the Closing Date consists of 50,000,000 shares (“Closing Consideration”) of BRPA common stock, par value $0.001 per share (“Common Stock”). At the effective time of the Merger (the “Effective Time”), and subject to the terms and conditions of the Merger Agreement, each share of NeuroRx common stock, par value $0.001 per share, and each share of the NeuroRx convertible preferred stock that was convertible into a share of NeuroRx common stock at a one-to-one ratio pursuant to the NeuroRx certificate of incorporation, was converted into Common Stock equal to 3.16 (the “Exchange Ratio”). Each option and warrant of NeuroRx that was outstanding and unexercised immediately prior to the Effective Time (whether vested or unvested) was assumed by BRPA and converted into an option or warrant to acquire an adjusted number of shares of Common Stock at an adjusted exercise price per share, in each case, pursuant to the terms of the Merger Agreement (the “Substitute Options” and the “Substitute Warrants,” respectively), based on an exchange ratio of 4.96:1 (the “Option Exchange Ratio”), and will continue to be governed by substantially the same terms and conditions, including vesting, as were applicable to the original instrument.

In addition, the securityholders of NeuroRx (including option holders and warrant holders) who own NeuroRx securities immediately prior to the Effective Time received the 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 outstanding shares of NeuroRx preferred stock (as calculated pursuant to the NeuroRx certificate of incorporation), immediately prior to the Effective Time, was 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.

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 Effective Time will have the contingent right to receive their pro rata portion of (i) an aggregate of 25,000,000 shares of Common Stock (“Earnout Shares”), of which 935,608 and 1,920,492 are subject to the terms and conditions of the Substitute Options and Substitute Warrants, if, prior to December 31, 2022, the NeuroRx COVID-19 Drug (i.e., ZYESAMITM) 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 (i.e., ZYESAMITM) (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 (i.e., ZYESAMITM) 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 (i.e., NRX-100/101) and the listing of the NeuroRx Antidepressant Drug Regimen (i.e., NRX-100/101) 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”). If the Earnout Shares Milestone is achieved, the Earnout Shares will be issued within five (5) Business Days after the occurrence of the Earnout Shares Milestone. If the Earnout Cash Milestone is achieved, the Merger Agreement does not require the Earnout Cash to be delivered to NeuroRx securityholders within any specified period of time, and the board of directors of NRx Pharmaceuticals will use its good faith judgment to determine the date to pay the Earnout Cash. The Earnout Cash Milestone was recognized as a contingent liability and measured at an estimated fair value at the Closing Date and will be each period end thereafter until earned or December 31, 2022 (see Note 12). The Earnout Shares Milestone was recognized in equity and, upon closing of the Merger, the estimated fair value of the Earnout Shares was $253,130,272 with such amount recognized as a deemed dividend (see Note 12). The benefit of the contingent right to receive Earnout Shares and Earnout Cash for option and warrant holders occurs through the Option Exchange Ratio and therefore the amount of Earnout Shares and Earnout Cash for common stockholders is approximately 22,209,280 shares and $88,837,121.

In the event that either the Earnout Shares Milestone or the Earnout Cash Milestone does not occur prior to December 31, 2022, each Substitute Option and Substitute Warrant will be adjusted such that the number of shares of Common Stock subject to each adjusted Substitute Option or Substitute Warrant, the exercise price per share of each adjusted Substitute Option or Substitute Warrant and the aggregate intrinsic value of each adjusted Substitute Option or Substitute Warrant will equal the respective number of shares, exercise price per share and aggregate intrinsic value that would have resulted following the adjustment of the applicable underlying such option or warrant had the conversion of the legacy NeuroRx option and warrants into the Substitute Options or Substitute Warrants been applied using the Exchange Ratio (3.16:1). If neither the Earnout Shares Milestone nor the Earnout Cash Milestone occurs, each Substitute Option and Warrant will be

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NRX PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

adjusted based on the Exchange Ratio. If any Substitute Options or Substitute Warrants are exercised prior to the earlier of (i) the date that both the Earnout Shares Milestone and Earnout Cash Milestone occur and (ii) December 31, 2022, a sufficient number of shares of Common Stock will be held in escrow pending the applicable adjustment to such Substitute Options or Substitute Warrants. Following the determination of that adjustment, NRx Pharmaceuticals will retain any shares forfeited by the option or warrant holder in connection with the adjustment and return any remaining shares to the option or warrant holder.

In connection with the Merger, a number of subscribers (each, a “Subscriber”) purchased from the Company an aggregate of 1,000,000 shares of Common Stock (the “PIPE”), for a purchase price of $10.00 per share and an aggregate purchase price of $10,000,000 (the “PIPE Shares”), pursuant to separate subscription agreements (each, a “Subscription Agreement”) entered into prior to the Closing Date.

The following table reconciles the elements of the Merger to the Unaudited Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2021:

    

Recapitalization

Cash - BRPA trust and cash, net of redemptions

$

4,362,474

Cash - PIPE financing, net of transaction costs

 

8,100,000

Less: transaction costs and advisory fees allocated to NRXP equity

 

(1,412,846)

Effect of Merger, net of redemptions and transaction costs

$

11,049,628

The following table reconciles the elements of the Merger to the Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the six months ended June 30, 2021:

    

Recapitalization

Cash - BRPA trust and cash, net of redemptions

$

4,362,474

Non-cash net working capital assumed from BRPA

 

(961,555)

Less: notes payable assumed from BRPA

 

(1,100,000)

Less: fair value of assumed Placement Warrants

 

(1,983,674)

Less: fair value of Earnout Cash

 

(25,520,195)

Less: transaction costs and advisory fees allocated to NRXP equity

 

(