Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-K/A
(Amendment No. 1)
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2020
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
Commission File Number: 001-38302
BIG ROCK PARTNERS ACQUISITION CORP.
(Exact name of registrant as specified in its charter)
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Delaware
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82-2844431
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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2645 N. Federal Highway, Suite 230
Delray Beach, Florida 33483
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (310)
734-2300
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Units, each consisting of one share of Common Stock, one Right and
one-half of one Warrant
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BRPAU
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The NASDAQ Stock Market LLC
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Common Stock, par value $0.001 per share
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BRPA
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The NASDAQ Stock Market LLC
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Rights, exchangeable into one-tenth of one share of Common
Stock
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BRPAR
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The NASDAQ Stock Market LLC
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Warrants, each whole warrant exercisable for one share of Common
Stock at an exercise price of $11.50
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BRPAW
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The NASDAQ Stock Market LLC
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities
Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ☐ No ☒
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 the
definitions of “large accelerated
filer,” “accelerated
filer,” “smaller reporting
company,” and “emerging growth
company” in Rule 12b-2 of the Exchange
Act.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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Emerging
growth company
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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 has filed a report on
and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b))
by the registered public accounting firm that prepared or issued
its audit report. ☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the
Act) Yes ☒ No ☐
The aggregate market value of the voting and non-voting common
stock outstanding, other than shares held by persons who may be
deemed affiliates of the registrant, computed by reference to the
closing price for the common stock as of the last business day of
the registrant’s most recently completed second fiscal
quarter ($10.50 as of June 30, 2020), as reported on the Nasdaq
Capital Market, was approximately $6.1 million.
The number of shares outstanding of the registrant’s common
stock, as of May 7, 2021, was
2,687,912.
Documents Incorporated by Reference: None.
EXPLANATORY
NOTE
Overview
Big Rock Partners
Acquisition Corp. (the “Company”) is filing this Amendment No. 1 on Form 10-K/A (the
“Amendment”) to the Annual Report on Form 10-K for the
year ended December 31, 2020, originally filed with the U.S.
Securities and Exchange Commission (the “SEC”) on April
1, 2021 (the “Original 10-K”) as a comprehensive amendment to amend and restate
its
financial statements
and related footnote disclosures as of December 31, 2020.
Accordingly, the following sections of the Original 10-K are being
amended and restated hereby: Part I, Item 1A “Risk
Factors”, Part II, Item 7 “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations”, Part II, Item 8 “Financial Statements and
Supplementary Data”, Part II, Item 9A “Controls and
Procedures” and Part IV, Item 15, “Exhibits and
Financial Statement Schedules”. In addition, as required by
Rule 12b-15 under the Securities Exchange Act of 1934, as amended
(“Exchange Act”), new certifications by our principal
executive officer and principal financial officer are being filed
as exhibits to this Amendment.
As
noted above, Part II, Item 8 “Financial Statements and
Supplementary Data” of this Amendment reflects the
restatement of financial information included in the
Company’s Original 10-K filed with the SEC. This Amendment
supersedes the financial information included in the Original
10-K.
Except
as described above, no other changes have been made to the Original
10-K. The Original 10-K continues to speak as of the date of the
Original 10-K, and we have not updated the disclosures contained
therein to reflect any events which occurred at a date subsequent
to the filing of the Original 10-K. Accordingly, this Amendment
should be read in conjunction with the Original 10-K and our
filings with the SEC subsequent to the date of the Original
10-K.
Background of Restatement
On
May 6, 2021, the audit committee of the board of directors
(“Audit Committee”) of the Company determined, after
consultation with Marcum LLP, the Company’s independent
registered public accounting firm, that the Company’s
financial statements which were included in the Original 10-K
should no longer be relied upon due to an error in such financial
statements relating to the Company’s classification of an
aggregate of 136,250 warrants that were issued to the
Company’s sponsor in a private placement that closed
concurrently with the closing of the Company’s initial public
offering (“Private Warrants”) as equity. Similarly, the
Company’s management’s reports on the effectiveness of
internal control over financial reporting for such periods should
no longer be relied upon.
The
error was uncovered following the release of a joint statement on
April 12, 2021 by the Acting Director of the Division of
Corporation Finance and Acting Chief Accountant of the SEC
regarding the accounting and reporting considerations for warrants
issued by special purpose acquisition companies entitled
“Staff Statement 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 result of the SEC Statement, the Company
reevaluated the accounting treatment of the Private Warrants. In
consideration of the guidance in Accounting Standards Codification
(“ASC”) 815-40, “Derivatives and Hedging
— 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 Private Warrants are not indexed to the
Company’s common stock 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. Accordingly, the Private
Warrants are required to be classified as a liability measured at
fair value at inception (on the date of issuance) and at each
reporting date in accordance with ASC 820, “Fair Value
Measurement”, with
changes in fair value recognized in the statement of operations in
the period of change.
The
restatement results in non-cash, non-operating financial statement
corrections and will have no impact on the Company’s current
or previously reported cash position, operating expenses or total
operating, investing or financing cash flows.
See
Part IV, Item 15, Note 2, “Restatement of Previously Issued
Financial Statements” of the notes to the consolidated
financial statements of this Amendment for a more detailed
discussion of the error and the effects of the
restatement.
Internal Control Considerations
In
connection with the restatement, the Company’s management
reassessed the effectiveness of its disclosure controls and
procedures as of December 31, 2020. As a result of that
reassessment and in light of the SEC Statement, the Company’s
management determined that its disclosure controls and procedures
as of December 31, 2020 were not effective solely as a result
of its classification of the Private Warrants as components of
equity instead of as derivative liabilities. For a discussion of
management’s consideration of the material weakness
identified, see Item 9A. Controls and Procedures included in this
Amendment.
2
Item 1A Risk Factors
Our business, financial condition, operating results, and cash
flows may be impacted by a number of factors, many of which are
beyond our control, including those set forth below and elsewhere
in this Amendment and the Original 10-K, the occurrence 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. 1 to the Registration Statement on Form S-4/A which
we filed with the SEC on April 16, 2021, as may be further amended
from time to time. The risks presented below assumes that we will
not consummate the proposed business combination with NeuroRx, 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
Relating to the Restatement
Our Private Warrants are accounted for 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 Director of the Division of Corporation
Finance and Acting Chief Accountant of the SEC together issued a
statement regarding the accounting and reporting considerations for
warrants issued by special purpose acquisition companies entitled
“Staff Statement 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 result of the SEC Statement, we
reevaluated the accounting treatment of the Private Warrants and
determined to classify the Private Warrants as liabilities measured
at fair value, with changes in fair value recognized in the
statement of operations in the period of
change.
As
a result, included on our consolidated balance sheet as of December
31, 2020 is a derivative liability related 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, with a resulting non-cash
gain or loss related to the change in the fair value being
recognized in earnings in the statement of operations. As a result
of the recurring fair value measurement, 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 losses on our Private Warrants each reporting period and
that the amount of such gains or losses could be
material.
We have identified a material weakness in our internal control over
financial reporting 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.
3
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
and for the fiscal year ended December 31, 2020. Such restatement
may have the effect of eroding investor confidence in the Company
and our financial reporting and accounting practices and processes,
and may negatively impact the trading price of our securities,
could have a material adverse effect on our business, results of
operations and financial condition, may make it more difficult 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 offering 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
distributions 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 investors
prior to such date unless (i) we consummate a business combination
prior thereto or (ii) we seek to amend our amended and restated
certificate of incorporation prior to consummation of a business
combination, and only then in cases where investors have sought to
convert or sell their shares to us. Only after the expiration of
this full time period will public security holders be entitled to
distributions from the trust account if we are unable to complete a
business combination. Accordingly, investors’ funds may
be unavailable to them until after 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.
We
have until May 24, 2021 (or such later date as may be
approved by our stockholders) to complete an initial business
combination. Any potential target business with which we enter into
negotiations concerning a business combination 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 unable to complete a business
combination with any other target business. This risk will increase
as we get closer to the time limit referenced above.
4
Our public stockholders may not be afforded 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 against the proposed business combination,
into their pro rata share of the aggregate amount then on deposit
in the trust account (net of taxes payable), or (2) provide our
public stockholders with the 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 share of
the aggregate amount then on deposit in 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
stockholder approval of a proposed business combination or will
allow stockholders to sell their shares to us in a tender offer
will be made by us, solely in our discretion, and will be based on
a variety of factors such as the timing of the transaction and
whether the terms of the transaction would otherwise require us to
seek stockholder approval. For instance, Nasdaq rules currently
allow us to engage in a tender offer in lieu of a stockholder
meeting but would still require us to obtain stockholder approval
if we were seeking to issue more than 20% of our outstanding shares
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% of our outstanding shares, we
would seek stockholder approval of such business combination
instead of conducting a tender offer.
Our Sponsor, BRAC, and designees 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 serve for a term of two years with only one class of
directors being elected 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 least the
consummation of the business combination. If there is an annual
meeting, 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.
5
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 to the limitations described elsewhere
in this Amendment and the Original 10-K) regardless 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.
6
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 in accordance with such
standards.
The
federal proxy rules require that a proxy statement 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 be required to be prepared in accordance with, or be
reconciled to, accounting principles generally accepted in the
United States of America, or GAAP, or international financial
reporting standards, or IFRS, depending on the circumstances, and
the historical financial statements may be required to be audited
in accordance with the standards of the Public Company Accounting
Oversight Board (United States), or PCAOB. We will include 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 time of the consummation 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;
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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.
7
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:
●
solely
dependent upon the performance of a single business,
or
●
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.
8
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.
9
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.
10
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:
●
rules
and regulations or currency conversion or corporate withholding
taxes on individuals;
●
tariffs
and trade barriers;
●
regulations
related to customs and import/export matters;
●
longer
payment cycles;
●
tax
issues, such as tax law changes and variations in tax laws as
compared to the United States;
●
currency
fluctuations and exchange controls;
●
challenges
in collecting accounts receivable;
●
cultural
and language differences;
●
employment
regulations;
●
crime,
strikes, riots, civil disturbances, terrorist attacks and wars;
and
●
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.
11
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.
12
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).
13
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.
14
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:
●
a
limited availability of market quotations for our
securities;
●
reduced
liquidity with respect to our securities;
●
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;
●
a
limited amount of news and analyst coverage for our company;
and
●
a
decreased ability to issue additional securities or obtain
additional financing in the future.
15
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.
16
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.
17
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.
18
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:
●
restrictions
on the nature of our investments; and
●
restrictions
on the issuance of securities.
In
addition, we may have imposed upon us certain burdensome
requirements, including:
●
registration
as an investment company;
●
adoption
of a specific form of corporate structure; and
●
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. 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.
19
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” of this
Amendment. Certain information contained in the discussion 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 assumed 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.
20
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.
21
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.
22
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.
23
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.
24
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.
25
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.
Restatement
of Previously Issued Financial Statements
On
April 28, 2021, we revised our prior position on accounting for
warrants and concluded that our previously issued financial
statements as 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.
26
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES
(a) The following
documents are filed as part of this Amendment:
(1) Financial
Statements:
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Financial
Statements:
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(2) Financial
Statement Schedules:
None.
(3)
Exhibits
The following exhibits are filed as part of, or incorporated by
reference into, this Amendment.
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Exhibit No.
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Description
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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).
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2.2
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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).
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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).
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Amended
and Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.1 to the Company’s Form 8-K, filed on
November 22, 2017).
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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).
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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).
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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).
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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).
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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).
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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).
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Amended and
Restated Bylaws (incorporated by reference to Exhibit 3.2 to the
Company’s Form 8-K, filed on November 22,
2017).
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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).
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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).
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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).
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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).
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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).
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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).
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27
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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).
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4.8
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Description
of Registrant's Securities (incorporated by reference to Exhibit
4.8 to the Company’s Form 10-K filed on April 1,
2021).
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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).
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| 10.1(b) |
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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).
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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).
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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).
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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).
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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).
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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).
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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).
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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).
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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).
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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).
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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).
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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).
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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).
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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).
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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).
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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).
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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).
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10.16
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Promissory Note in
favor of A/Z Property Partners, LLC, dated December 31,
2019.
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Form of
Subscription Agreement (incorporated by reference to Exhibit 10.1
to the Company’s Form 8-K, filed on March 12,
2021).
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Certification
of the Chief Executive Officer required by Rule 13a-14(a) or Rule
15d-14(a).
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Certification
of the Chief Financial Officer required by Rule 13a-14(a) or Rule
15d-14(a).
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Certification
of the Chief Executive Officer required by Rule 13a-14(b) or Rule
15d-14(b) and 18 U.S.C. 1350.
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Certification
of the Chief Financial Officer required by Rule 13a-14(b) or Rule
15d-14(b) and 18 U.S.C. 1350.
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101.INS
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XBRL
Instance Document*.
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101.SCH
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XBRL
Taxonomy Extension Schema Document*.
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101.CAL
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XBRL
Taxonomy Extension Calculation Linkbase Document*.
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101.DEF
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XBRL
Taxonomy Extension Definition Linkbase Document*.
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101.LAB
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XBRL
Taxonomy Extension Label Linkbase Document*.
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101.PRE
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XBRL
Taxonomy Extension Presentation Linkbase Document*.
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*
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Filed
herewith
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**
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Furnished herewith
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28
SIGNATURES
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.
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BIG ROCK PARTNERS ACQUISITION CORP.
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May
13, 2021
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By:
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/s/ Richard Ackerman
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Richard
Ackerman
Chairman,
President and Chief Executive Officer
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Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
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Signature
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Title
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Date
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/s/
Richard Ackerman
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|
Chairman, President
and Chief Executive Officer (Principal Executive
Officer)
|
|
May 13,
2021
|
|
Richard
Ackerman
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Bennett Kim
|
|
Chief Financial
Officer, Chief Investment Officer and Director (Principal Financial
and Accounting Officer)
|
|
May 13,
2021
|
|
Bennett
Kim
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Richard Birdoff
|
|
Director
|
|
May 13,
2021
|
|
Richard
Birdoff
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Michael Fong
|
|
Director
|
|
May 13,
2021
|
|
Michael
Fong
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Stuart F. Koenig
|
|
Director
|
|
May 13,
2021
|
|
Stuart F.
Koenig
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Albert G. Rex
|
|
Director
|
|
May 13,
2021
|
|
Albert G.
Rex
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Troy Taylor
|
|
Director
|
|
May 13,
2021
|
|
Troy T.
Taylor
|
|
|
|
|
29
BIG ROCK PARTNERS ACQUISITION CORP.
INDEX TO FINANCIAL STATEMENTS
|
Financial
Statements:
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To 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.
F-2
BIG ROCK PARTNERS ACQUISITION CORP.
CONSOLIDATED BALANCE SHEETS
|
|
December 31,
|
|
|
|
2020 (As
Restated)
|
2019
|
|
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.
F-3
BIG ROCK PARTNERS ACQUISITION CORP.
STATEMENTS OF OPERATIONS
|
|
Year Ended
December 31,
|
|
|
|
2020 (As
Restated)
|
2019
|
|
|
|
|
|
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.
F-4
BIG ROCK PARTNERS ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
|
|
Common
Stock
|
Additional
Paid-in
|
Retained
Earnings/ (Accumulated
|
Total
Stockholders’
|
|
|
|
Shares
|
Amount
|
Capital
|
Deficit)
|
Equity
|
|
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.
F-5
BIG ROCK PARTNERS ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
|
|
Year Ended December 31,
|
|
|
|
2020 (As
Restated)
|
2019
|
|
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.
F-6
1. DESCRIPTION OF ORGANIZATION AND
BUSINESS OPERATIONS
Big
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.
F-7
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).
F-8
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.
F-9
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.
F-10
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.
F-11
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.
|
|
As Previously Reported
|
Adjustment
|
As Restated
|
|
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
|
F-12
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.
F-13
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.
F-14
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.
F-15
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):
|
|
Year Ended
December 31,
|
|
|
|
2020
|
2019
|
|
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.
F-16
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.
F-17
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.
F-18
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.
F-19
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).
F-20
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.
F-21
The
Company may redeem the Public Warrants:
|
|
●
|
in whole and not in
part;
|
|
|
●
|
at a price of $0.01
per warrant;
|
|
|
●
|
at any time during
the exercise period;
|
|
|
●
|
upon a minimum of
30 days’ prior written notice of redemption;
and
|
|
|
●
|
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.
|
|
|
●
|
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:
|
|
December
31,
|
|
|
|
2020
|
2019
|
|
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:
|
|
As of
December 31,
|
|
|
|
2020
|
2019
|
|
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
|
F-22
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:
|
|
December
31,
2020
|
December
31,
2019
|
|
|
|
|
|
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.
F-23
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
|
Level
|
December
31,
2020
|
December
31,
2019
|
|
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:
|
|
As of
December 31, 2020
|
|
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
|
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:
|
|
Warrant Liability
|
|
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.
F-24
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.
F-25