NRX Pharmaceuticals, Inc. 10-K

Item 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Principal Market or Markets Our shares of common stock are currently quoted on the Nasdaq Capital Market under the symbol “NRXP.” Our common stock commenced trading on the Nasdaq Capital Market on May 25, 2021. Prior to such date, our shares of common stock were traded on the Nasdaq Capital Market under the symbol “BRPA.” Approximate Number of Holders of Common Stock As of December 31, 2024, there were approximately 59 record holders of the Company’s common stock. The actual number of stockholders is greater than the number of record holders because stockholders who are beneficial owners but whose shares are held in street name by brokers or other nominees are not counted as separate record holders. Dividends Holders of our common stock are entitled to receive such dividends as may be declared by our Board. No cash dividends have been declared or paid with respect to our common stock and no cash dividends are anticipated to be paid in the foreseeable future. Any future decisions as to the payment of dividends will be at the discretion of our Board, subject to applicable law. Recent Sales by the Company of Unregistered Securities We entered into a Confidential Settlement Agreement and Release, dated July 17, 2023 (the “Settlement Agreement”), with NeuroRx, Inc., GEM Yield Bahamas Limited and GEM Global Yield LLC SCS, pursuant to which we agreed to issue an aggregate of 67,568 shares (the “Settlement Shares”) of common stock to GEM Global Yield LLC SCS. On August 31, 2023, we issued the Settlement Shares to GEM in a private placement under the terms of the Settlement Agreement and, accordingly, we did not receive any proceeds in connection with the issuance of the Settlement Shares. The Settlement Shares were issued pursuant to an exemption to registration requirement of the Securities Act in reliance on Section 4(a)(2) of the Securities Act. On August 28, 2023, the Company entered into a securities purchase agreement (the “Preferred Stock Securities Purchase Agreement”) with certain purchasers (the “August Investors”), pursuant to which the Company issued 3,000,000 shares of the Company’s Series A Convertible Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”), and one (1) investor warrant (each an “August Investor Warrant”) for every share of Series A Preferred Stock issued. The shares of Series A Preferred Stock and the August Investor Warrants were offered pursuant to a private placement under Section 4(a)(2) of the Securities Act. Each August Investor Warrant entitles the holder to purchase one (1) share of common stock at a purchase price of $4.00 per share. The aggregate purchase price for each share of Series A Preferred Stock and associated August Investor Warrant was $4.00. The August Investor Warrants are exercisable starting on the six-month anniversary of the date of issuance and will have a term of five years from the date of issuance. The August Investor Warrants may also be exercised during the initial six-month period after issuance, at the option of the August Investors, if the closing share price of the common stock equals or exceeds $1.20 per share on any trading day. The aggregate net cash proceeds to the Company from the August Offering were approximately $1.0 million. On February 7, 2024, we entered into the First Amendment (the “Amendment”) to the License Agreement (as defined below) with Alvogen, effective as of the same date. Pursuant to the terms of the Amendment, we issued to Alvogen 419,598 warrants to purchase the Company’s common stock, at a strike price of $4.00 per share with three (3) year term (“Alvogen Warrants”). The Alvogen Warrants were issues pursuant to an exemption to registration requirement of the Securities Act in reliance on Section 4(a)(2) of the Securities Act. On February 29, 2024, we entered into a securities purchase agreement with an investor providing for the issuance and sale of 270,000 shares of common stock and warrants to purchase up to 270,000 shares of common stock (the “February Warrants”) at a price of $3.80 per share of common stock and accompanying warrant, which represents a 26.7% premium to the offering price in February 2024 Public Offering. The common stock and the February Warrants were offered pursuant to a private placement (the “February 2024 Private Placement”) under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). The February Warrants will have an exercise price of $3.80 per share, are initially exercisable beginning six months following the date of issuance, and will expire 5 years from the date of issuance. The aggregate net cash proceeds to the Company from the February 2024 Private Placement were approximately $1.0 million. Page 73 Table of Contents On August 12, 2024, the Company executed a Securities Purchase Agreement (the “August SPA”) and related agreements, under which the Company agreed to sell and issue, and certain purchasers agreed to purchase, an aggregate of $16.3 million of securities. The consideration payable by the purchasers under the August SPA will be comprised of three equal closings of $5.435 million, each subject to certain closing conditions. The securities to be issued and sold by the Company include up to $16.3 million of senior secured convertible notes (the “Notes”) and warrants to purchase shares of the Company’s common stock (the “Warrants”). On each of August, 14, 2024, October 10, 2024, and January 28, 2025, the consummated the first tranche, second tranche, and third tranche, respectively, under the August SPA, with gross proceeds to the Company of $16.3 million. The Notes and Warrants were offered pursuant to a private placement under Section 4(a)(2) of the Securities Act. The Notes bear interest at the rate of 6% per annum and mature in 15 months following their date of issuance. The Notes may be settled in cash or in shares of the Company’s common stock, at the sole discretion of the holder, at the applicable conversion price. The Notes may not be prepaid by the Company however, the holders of the Notes may elect to convert the Notes, in whole or in part, into shares of the Company’s common stock at any time after the original issuance date. The conversion price: (A) for the Notes issued in the first tranche will equal the lower of (i) $2.4168, or (ii) a price equal to 92% of the lowest volume-weighted average price during the seven-trading day period immediately preceding the applicable conversion date (the “Alternative Conversion Price”); (B) for the Notes issued in the second tranche will equal the lower of (i) $1.766, or (ii) the Alternative Conversion Price; and (C) for the Notes issued in the third tranche will equal the lower of (i) $3.78, or (ii) the Alternative Conversion Price. The Notes include certain redemption, protection features and default interest and penalties. The Warrants have a term of 5 years, an exercise price of $2.4168 per share for the Warrants issued in the first tranche, $1.766 per share for the Warrants issued in the second tranche, and $3.78 per share for the Warrants issued in the third tranche, each subject to adjustment as more specifically set forth in the Warrants, and are exercisable immediately upon issuance. Repurchases of Securities None. Use of Proceeds The Company intends to use the net proceeds from the offerings detailed above for working capital and general corporate purposes. Item 6. [Reserved] Page 74 Table of Contents Item 7. Management ’ s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of NRx Pharmaceuticals ’ financial condition and plan of operations together with NRx Pharmaceuticals' consolidated financial statements and the related notes appearing elsewhere herein. In addition to historical information, this discussion and analysis contains forward looking statements that involve risks, uncertainties and assumptions. NRx Pharmaceuticals ’ actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section entitled “ Risk Factors ” included elsewhere herein. NRx Pharmaceuticals, Inc. (Nasdaq: NRXP) (“ NRX ” or the “ Company ”) is a clinical-stage bio-pharmaceutical company which develops and will distribute, through its wholly-owned operating subsidiaries, NeuroRx, Inc. (“ NeuroRx ”), and HOPE Therapeutics, Inc. (“ HOPE ”), novel therapeutics for the treatment of central nervous system disorders including suicidal depression, chronic pain, and post-traumatic stress disorder (“ PTSD ”) and now schizophrenia. All of our current drug development activities are focused drugs that modulate on the N-methyl-D-aspartate (“ NMDA ”) receptor in the brain and nervous system, a neurochemical pathway that has been disclosed in detail in our annual filings. NeuroRx is organized as a traditional research and development (" R&D ") company, whereas HOPE is organized as a specialty pharmaceutical company intended to distribute ketamine and other therapeutic options to clinics that serve patients with suicidal depression and PTSD. The Company has two lead drug candidates that are expected to be submitted by year end for Food and Drug Administration (" FDA ") approval with anticipated FDA decision dates under the Prescription Drug User Fee Act (“ PDUFA ”) by the end of June 2025: NRX-101, an oral fixed dose combination of D-cycloserine and lurasidone and NRX-100, a preservative-free formulation of ketamine for intravenous infusion. The 2024 fiscal year marked a period of both expansion and change for NRx. During the year the Company implemented a restructuring of its leadership to address challenges related to capital formation, clinical trial enrollment, and corporate development. These efforts led to measurable achievements in 2024 and positioned the Company for growth and the achievement of our development objectives in 2025. During 2024 and through the date of this Annual Report, the Company has achieved the following: Financing We consummated a series of financing agreements with an institutional investor for up to $16.3 million in debt capital, for which we closed on $10.87 million in 2024 and subsequently closed $8.5 million in a combination of convertible debt and an above-market common stock and warrant offering in January 2025. We were presented with and are currently negotiating a term sheet with a publicly-traded strategic investor to provide additional capital to support the expansion of HOPE clinics. In addition, management is negotiating with several commercial lenders to provide additional financing to support the acquisition of additional clinics on standard commercial loan terms. Although no assurances can be given, and assuming we’re able to consummate the proposed financings, management believes that we will have sufficient financing to consummate our previously announced acquisitions, execute our business plan and achieve our projected revenue objectives. Drug Development ● We initiated the filing of a New Drug Application (“NDA”) in the fourth quarter of 2024 for Accelerated Approval under Breakthrough and Priority Review of NRX-101 in treatment of bipolar depression in people at risk of akathisia, based on the Phase 2b/3 and STABIL-B data. Three manufacturing lots are now completed with more than 12 months of room temperature shelf-stability. The anticipated PDUFA date for this application is prior to June 30, 2025. Work is ongoing to prepare the module 3 manufacturing section documenting our transition from manufacturing at WuXi Apptec in Shanghai to manufacturing of NRX-101 in the United States. ● We accepted a non-binding offer from a commercial pharmaceutical company to license and distribute NRX-100 (preservative-free ketamine) that provides for $325 million in potential milestones plus a sliding scale royalty that ranges from 11% - 16% of sales. Page 75 ● We retained counsel to file a citizen’s petition with the FDA to remove benzethonium chloride, a known neurotoxic substance from presentations of ketamine intended for intravenous use. Management believes that the preservative-free feature of NRX-100 will be deemed of benefit to patients because of the known toxicity of benzethonium chloride in current generic products. ● We filed module 3 (manufacturing) of its NDA for NRX-100 (preservative-free sterile ketamine) in a tamper-resistant, diversion resistant packaging presentation. NRX-100 was previously granted Fast Track Designation by FDA in combination with use of NRX-101. Ketamine efficacy data is in hand from four clinical trials. Three manufacturing lots are now completed with filed stability data suitable for shelf life exceeding two years at room temperature. The anticipated PDUFA date for this settlement is prior to December 30, 2025. We also anticipate filing an Abbreviated New Drug Application (“ANDA”) for the use of preservative-free ketamine in all currently-indicated clinical applications. ● As a next-generation product, we developed a novel, patentable pH neutral formulation for ketamine (designed as HTX-100) that will be suitable for both intravenous and subcutaneous administration. Initial laboratory lots demonstrate shelf stability and ongoing stability is being assessed. Ketamine in its current commercial presentations cannot be administered subcutaneously because of its high acidic (pH 3.5-4.0) properties, an acidity range that is known to cause pain and skin ulcers. We anticipate that this product will begin clinical testing in by 2026. ● NRX-101 in the treatment of Complicated Urinary Tract Infection (“cUTI”) was granted Qualified Infectious Disease Product (“ QIDP ”), Fast Track, and Priority Review designations. We have now demonstrated that NRX-101 does not damage the microbiome of the gut, in contrast to all other advanced antibiotics and is less likely to cause C. Difficile infection (a potentially lethal side effect of antibiotic treatment). NRx is reviewing partnership options. ● We executed a Memorandum of Understanding with Foundation FundaMental for rights to develop a potential disease modifying drug for schizophrenia, autism, and acute mania. If successful, this would represent the first drug to reverse the underlying disease mechanism of these conditions, rather than simply treating symptoms. HOPE Therapeutics ● We partnered with representatives of ketamine clinic operators to construct a care platform that will include ketamine, operational support, and digital therapeutic extensions. In advance of FDA approval, HOPE anticipates that it will supply ketamine under 503b pharmacy licensure to meet the national ketamine shortage declared by FDA; ● We signed non-binding letters of intent to acquire three precision psychiatry centers, the closing of which is subject to execution of definitive agreements. We are also currently negotiating the terms and conditions for the acquisition of six other psychiatry centers, which are subject to due diligence review and execution of definitive agreements. Upon closing, the acquisitions will form the foundation for the development of HOPE to achieve our objective of creating a national network offering interventional psychiatry to treat suicidal depression and PTSD; ● We engaged BTIG, a leading investment bank, to support us in identifying and acquiring additional clinic candidates to join the HOPE network, sufficient to achieve management’s forecasted revenue targets by year-end 2025. ● Our potential acquisition targets have contracts with the Veterans Administration for the treatment of depression and, assuming closing of our previously announced acquisitions, we expect to expand to the treatment of PTSD by year-end 2025. Other Developments In November 2022, the Company issued a Convertible Promissory Note to Streeterville, LLC (“Streeterville Notes”) as previously disclosed. In March 2024, Streeterville deemed a proposed dividend of HOPE shares to constitute a basis of default under the Streeterville Notes. Subsequent arbitration found that the proposed HOPE dividend was not a basis for default. In August 2024 the Company signed a settlement agreement with Streeterville to redeem the Streeterville Notes at a discount to the amounts claimed and completed payments of $5.55 million in satisfaction of all claims under the Streeterville Notes in October 2024. On March 28, 2024, the Company filed with the Secretary of State of the State of Delaware a Certificate of Amendment to the Company’s Second Amended and Restated Certificate of Incorporation (the “Charter Amendment”) to effect a 1-for-10 reverse stock split (the “Reverse Stock Split”) of the Company’s Common Stock, which Reverse Stock Split was effective as of April 1, 2024. All references in this Annual Report to number of common shares, price per share and weighted average number of shares outstanding have been adjusted to reflect the Reverse Split on a retroactive basis. Page 76 Table of Contents Company Overview The Company has two lead compounds today, NRX-100, a proprietary presentation of ketamine and NRX-101, a patented fixed-dose combination of D-cycloserine and lurasidone. Both products have Fast Track designation from the FDA for the treatment of suicidal bipolar depression. NRX-101 additionally has Breakthrough Therapy Designation and a Biomarker Letter of Support from the FDA for this purpose. To the Company’s knowledge, NRX-101 is the only oral antidepressant demonstrated to reduce suicidal ideation in a phase 2 trial. For mechanistic reasons unrelated to its central nervous system N-methyl-D-aspartate (“CNS NMDA”) antagonist properties, NRX-101 interferes with cell wall formation in certain bacteria, rendering it a potent antibiotic and is demonstrated to kill certain treatment-resistant urinary tract bacteria. Accordingly, NRX-101 has been awarded Qualified Infectious Disease Product Designation and Fast Track Designation by the FDA to treat Complicated Urinary Tract Infection and Pyelonephritis. Our strategy is to apply innovative science to known molecules in the pursuit of therapies for high unmet needs, including lethal conditions (NeuroRx) and to distribute ketamine and ancillary therapies to qualified clinics and practitioners who treat patients with suicidal depression (HOPE). The Company has announced plans to spin off HOPE to a freestanding company, to be owned by the Company, current investors in the Company, and future investors. NeuroRx was founded in 2015 by Professors Jonathan Javitt, MD, MPH and Daniel Javitt, PhD, MD, as a privately-funded R&D company targeting psychiatry drug development and attracted sufficient capital to enter phase 2b/3 research in 2016. The Company was forced to suspend CNS drug development in January 2020, due to the COVID pandemic. However, activities related to development of COVID drugs (as disclosed in prior filings) enabled the Company to continue operations and attract capital to return to CNS development. The COVID lockdown ended in March 2022 and the Company’s Board unanimously voted to return NRx’s focus to CNS drug development and to recruit a new Chief Executive Officer with legal and business skills that would complement the scientific strength of the Company’s Founder, Chairman, and Chief Scientist. Subsequently, in June 2022, the NIH trial announced futility in its attempt to replicate the survival benefit reported for Aviptadil in patients on ventilators for COVID-19 and subsequently disclosed its failure to fully treat 30% of those randomized to Aviptadil. The trial could not be restarted because it was unrecruitable in the aftermath of the pandemic. In December 2022, the Company agreed to return all Aviptadil assets to Relief in exchange for a commitment by Relief to use commercially-reasonable efforts to develop Aviptadil and to pay NRx more than $30 million in royalties and milestones from its future success, if any. In December 2023, the Company’s reorganized Board of Directors re-elected Dr. Javitt as its Chairman. At the same time, the Company announced its plan to form HOPE Therapeutics as a specialty pharmaceutical company to develop a clinical market for ketamine and other treatments for suicidal depression. In November 2024, the Board asked Dr. Javitt to return as interim CEO and appointed him CEO in December 2024. Page 77 Table of Contents 2024 Financings August 2024 SPA On August 12, 2024, the Company executed a Securities Purchase Agreement (the “August SPA”) and related agreements, under which the Company agreed to sell and issue, and certain purchasers agreed to purchase, an aggregate of $16.3 million of securities. The consideration payable by the purchasers under the August SPA will be comprised of three equal closings of $5.435 million, each subject to certain closing conditions. The securities to be issued and sold by the Company include up to $16.3 million of senior secured convertible notes (the “Notes”) and warrants to purchase shares of the Company’s common stock (the “Warrants”). The proceeds arising from the sale of the Notes and the Warrants were used to settle the Company’s outstanding amounts owed to Streeterville (as defined below) and other working capital needs. The Company has, as of the date of this Annual Report, consummated the first tranche, second tranche, and third tranche under the August SPA, with gross proceeds to the Company of $16.3 million. The Notes bear interest at the rate of 6% per annum and mature in 15 months following their date of issuance. The Notes may be settled in cash or in shares of the Company’s common stock, at the sole discretion of the holder, at the applicable conversion price. The Notes may not be prepaid by the Company however, the holders of the Notes may elect to convert the Notes, in whole or in part, into shares of the Company’s common stock at any time after the original issuance date. The conversion price: (A) for the Notes issued in the first tranche will equal the lower of (i) $2.4168, or (ii) a price equal to 92% of the lowest volume-weighted average price during the seven-trading day period immediately preceding the applicable conversion date (the “Alternative Conversion Price”); (B) for the Notes issued in the second tranche will equal the lower of (i) $1.766, or (ii) the Alternative Conversion Price; and (C) for the Notes issued in the third tranche will equal the lower of (i) $3.78, or (ii) the Alternative Conversion Price. The Notes include certain redemption, protection features and default interest and penalties. The Notes are secured by all assets of the Company, including its intellectual property. The Warrants have a term of 5 years, an exercise price of $2.4168 per share for the Warrants issued in the first tranche, $1.766 per share for the Warrants issued in the second tranche, and $3.78 per share for the Warrants issued in the third tranche. On January 27, 2025, the Company and the Investors entered into a Consent and Waiver Agreement (the “CWA”), relating to certain rights and prohibitions arising under the August SPA and the Notes. In the CWA, each of the Investors provided its consent under certain restrictive provisions, and waived certain rights, including, among other things, a right to participate in certain Qualified Financings (as defined in the CWA) made by us under the August SPA and the Notes, the prohibition on issuance of certain equity securities, and waiver of any potential liquidated damages arising under that certain Registration Rights Agreement by and between the Company and the Investors dated August 14, 2024, until March 31, 2025. As consideration for entering into the CWA, in the event that the VWAP of the common stock is less than the per share purchase price of the common stock sold to the Investors in the Registered Direct Offering on the Trading Day (as defined in the RD Purchase Agreement) immediately prior to the date that the Investors submit their first conversion notice to convert any portion of the Notes issued or to be issued in the Second Closing (as defined in the August SPA) or the Third Closing (as defined in the August SPA), respectively, into shares of common stock, the Company agreed to issue to the Investors: (i) that number of shares of common stock equal to (a) the quotient of (I) aggregate purchase price to be paid for all securities in the Registered Direct Offering, divided by (II) the price per share of common stock after giving effect to the VWAP-Based Adjustment (as defined below), minus (b) the number of shares of common stock issued, or to be issued, to the Investors at or upon the consummation of the Registered Direct Offering (the “Consideration Shares”), and (ii) common stock purchase warrants to purchase shares of common stock equal to 100% of the aggregate number of Consideration Shares to be issued, with an exercise price equal to the dollar value of the VWAP-Based Adjustment (the “Consideration Warrants”). For purposes of the CWA, the “VWAP Based-Adjustment” means that amount, in dollars, equal to the greater of either (a) the VWAP of the common stock on the Trading Day immediately prior to the date that the Investors submit their first conversion notice to convert any portion of the Notes issued and to be issued in the Second Closing or Third Closing into shares of the Company’s common stock, or (b) 80% of the closing price of the common stock on the Trading Day immediately prior to the closing of the Registered Direct Offering, subject to adjustment as more specifically set forth in the Warrants, and are exercisable immediately upon issuance. Page 78 Table of Contents April 2024 Offering On April 18, 2024, the Company entered into an underwriting agreement (the “April Underwriting Agreement”) with EF Hutton LLC (the “Representative”), as the representative of the several underwriters named therein (the “April Underwriters”), relating to an underwritten public offering (the “April 2024 Public Offering”) of 607,000 shares (the “April Shares”) of common stock. The public offering price for each share of common stock was $3.30. On April 19, 2024, the offering closed. Aggregated proceeds from the offering were approximately $2.4 million (including proceeds from the exercise of the over-allotment option granted to the Representative, as more fully described below), before deducting underwriting discounts and commission and estimated expenses payable by the Company. Pursuant to the April Underwriting Agreement and the engagement letter dated April 18, 2024, by and between the Company and Representative, the Company agreed to issue to the Representative in connection with the April Offering, a warrant to purchase up to a number of shares of common stock representing 5.0% of the Shares and any April Option Shares (as defined below) sold, at an initial exercise price of $3.63 per share, subject to certain adjustments (the “April Underwriter's Warrant”). On April 19, 2024, the Company issued to the Representative the April Underwriter's Warrant to purchase up to 30,350 shares of common stock. The April Underwriter's Warrants and Over-Allotment Warrants is exercisable nine months following the date of the Underwriting Agreement and terminates on the five-year anniversary of the date of the April Underwriting Agreement. Pursuant to the April Underwriting Agreement, the Company also granted the Representative a 45-day option to purchase up to an additional 91,050 shares (the “April Option Shares”) of the common stock on the same terms as the April Shares sold in the April 2024 Public Offering (the “April Over-Allotment Option”). In connection with the April Overallotment Exercise, we issued an additional April Underwriter's Warrant to purchase up to 4,553 shares of common stock. The April Overallotment Exercise was exercised in full and closed. At-The-Market Offering Agreement On April 15, 2024, the Company increased the maximum aggregate offering amount of the shares of common stock issuable under that certain At the Market Offering Agreement, dated August 14, 2023 (the “ Offering Agreement ”), with H.C. Wainwright & Co., and filed a prospectus supplement (the “ Current Prospectus Supplement ”) under the Offering Agreement for an aggregate of $4.9 million (the “ ATM Offering ”). On August 14, 2024, the Company reduced the amount to under the Offering Agreement to $0 and suspended the ATM Offering. Though December 31, 2024, the Company received aggregate net cash proceeds to the Company from the ATM Offering of approximately $1.6 million. February 2024 Offerings On February 27, 2024, we entered into an underwriting agreement (the “February Underwriting Agreement”) with the Representative (as defined above), as the representative of the several underwriters named therein (the “February Underwriters”), relating to an underwritten public offering (the “February 2024 Public Offering”) of 500,000 shares (the “February Shares”) of the Company’s common stock. The public offering price for each share of common stock was $3.00, and the February Underwriters purchased the shares of common stock pursuant to the February Underwriting Agreement at a price for each share of common stock of $2.76. On February 28, 2024, the February 2024 Public offering closed. Aggregate gross proceeds from the February 2024 Public Offering were approximately $1.7 million (including proceeds from the exercise of the over-allotment option granted to the Representative, as more fully described below), before deducting underwriting discounts and commissions and estimated expenses payable by the Company. Page 79 Table of Contents Pursuant to the February Underwriting Agreement and the engagement letter, dated as of February 22, 2024, by and between the Company and the Representative, the Company agreed to issue to the Representative in connection with the February 2024 Public Offering, a warrant to purchase up to a number of shares of common stock representing 5.0% of the shares of common stock and any February Option Shares (as defined below) sold, at an initial exercise price of $3.30 per share, subject to certain adjustments (the “February Underwriter’s Warrant”). On February 28, 2024, the Company issued to the Representative the February Underwriter’s Warrant to purchase up to 25,000 shares of common stock. The February Underwriter’s Warrant is exercisable six months following the date of the February Underwriting Agreement and terminates on the five-year anniversary of the date of the February Underwriting Agreement. Pursuant to the February Underwriting Agreement, the Company also granted the Representative a 45-day option to purchase up to an additional 75,000 shares (the “February Option Shares”) of the common stock on the same terms as the February Shares sold in the February 2024 Public Offering (the “February Over-Allotment Option”). On March 5, 2024, the February Underwriters exercised the February Over-Allotment Option to purchase the February Option Shares. In connection with the February Overallotment Exercise, we issued an additional February Underwriter’s Warrant to purchase up to 3,750 shares of common stock. The February Overallotment Exercise closed on March 6, 2024. On February 29, 2024, we entered into a securities purchase agreement with an investor providing for the issuance and sale of 270,000 shares of common stock and warrants to purchase up to 270,000 shares of common stock (the “February Warrants”) at a price of $3.80 per share of common stock and accompanying warrant, which represents a 26.7% premium to the offering price in February 2024 Public Offering. The common stock and the February Warrants were offered pursuant to a private placement (the “February 2024 Private Placement”) under Section 4(a)(2) of the Securities Act. The February Warrants will have an exercise price of $3.80 per share, are initially exercisable beginning six months following the date of issuance, and will expire 5 years from the date of issuance. The aggregate net cash proceeds to the Company from the February 2024 Private Placement were approximately $1.0 million. 2025 Financings As set forth below, subsequent to December 31, 2024, the Company secured $8.5 million in new financing and anticipates supplementing existing capital with commercial credit and strategic investments sufficient to satisfy our working capital requirements through the end of the fiscal year ending December 31, 2025. January 2025 Securities Purchase Agreement On or about January 27, 2025, the Company entered into a securities purchase agreement (the “RD Purchase Agreement”) with certain accredited investors (the “Investors”) for the sale by the Company of 1,215,278 shares (the “RD Shares”) of common stock to the Investors, at a purchase price of $2.88 per share, in a registered direct offering (the “Registered Direct Offering”). Concurrently with the sale of the RD Shares, pursuant to the RD Purchase Agreement the Company also sold to the Investors unregistered common stock purchase warrants (the “RD Warrants”) to purchase up to an aggregate of 1,215,278 shares of common stock (the “RD Warrant Shares”), in a private placement. Subject to certain beneficial ownership limitations, the RD Warrants are immediately exercisable upon issuance at an exercise price equal to $2.88 per share of common stock, subject to adjustments as provided under the terms of the RD Warrants. The RD Warrants are exercisable for five years from the RD Closing Date (as defined below). The closing of the sales of these securities under the RD Purchase Agreement occurred on or about January 29, 2025 (the “RD Closing Date”). The gross proceeds to the Company from the offerings were approximately $3,500,000, before deducting offering expenses, and excluding the proceeds, if any, from the exercise of the RD Warrants. The Company intends to use the net proceeds from the transactions for general corporate purposes, including the funding of certain capital expenditures. The RD Shares were offered and sold by the Company pursuant to an effective shelf registration statement on Form S-3, which was filed with the SEC on June 9, 2022, and subsequently declared effective on June 21, 2022 (File No. 333-265492) (the “Registration Statement”), and the base prospectus dated as of June 21, 2022, contained therein. The RD Warrants and the RD Warrant Shares were sold and issued without registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act as transactions not involving a public offering and Rule 506 promulgated under the Securities Act as sales to accredited investors, and in reliance on similar exemptions under applicable state laws. Page 80 Proposed Strategic Investment and Commercial Funding The Company is currently in negotiations with a publicly-traded entity engaged in the manufacture of FDA-cleared devices for Transcranial Magnetic Stimulation to provide acquisition capital to support the expansion of HOPE, and is currently in negotiations with several commercial banks to provide additional acquisition financing for HOPE. Although no assurances can be given, assuming consummation of the financings on terms currently contemplated by management, we will achieve our objective of financing less than 50% of the proposed acquisition costs, thereby enabling the Company to optimize its cost of acquisition capital as it expands the HOPE clinic network. Terminated January 2025 Financing The Company was a party to definitive stock purchase agreements with an Arizona-based investment firm, Smith and Sauer, through their affiliate, JGS Holdings, LLC (“JGS Holdings”) whereby JGS Holdings committed to invest $2.0 million in NRx’s common stock, with an additional commitment of $25.0 million to be invested directly in HOPE. JGS Holdings defaulted under the terms of the agreements, despite several extensions of the closing date. The Company formally terminated the stock purchase agreement on March 13, 2025. Although no assurances can be given, management is currently negotiating with an alternative strategic investor to replace the investment contemplated with JGS Holdings, and, together with alternative sources of equity and debt capital, management believes it will able to fund its previously announced acquisitions on terms more favorable to our shareholders. Financial Results Since inception, NRx has incurred significant operating losses. For the years ended December 31, 2024 and 2023, NRx Pharmaceuticals’ net loss was $25.1 million and $30.2 million, respectively. As of December 31, 2024, NRx Pharmaceuticals had an accumulated deficit of $278.3 million, a stockholders’ deficit of $23.5 million and a working capital deficit of $18.8 million. Going Concern The Company’s ongoing clinical activities continue to generate losses and net cash outflows from operations. The Company plans to pursue additional equity or debt financing or refinancing opportunities in 2025 to fund ongoing clinical activities, to meet obligations under its current debt arrangements and for the general corporate purposes of the Company. Such arrangements may take the form of loans, equity offerings, strategic agreements, licensing agreements, joint ventures or other agreements. The sale of equity could result in additional dilution to the Company’s existing shareholders. The Company cannot make any assurances that additional financing will be available to it and, if available, on acceptable terms, or that it will be able to refinance its existing debt obligations which could negatively impact the Company’s business and operations and could also lead to a reduction in the Company’s operations. We will continue to carefully monitor the impact of our continuing operations on our working capital needs and debt repayment obligations. As such, the Company has concluded that substantial doubt exists about the Company’s ability to continue as a going concern for a period of at least twelve months from the date of issuance of these consolidated financial statements. The Company may raise substantial additional funds, and if it does so, it may do so through one or more of the following: issuance of additional debt or equity and/or the completion of a licensing or other commercial transaction for one of the Company’s product candidates. Page 81 Table of Contents The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that may be necessary if the Company is unable to continue as a going concern. Nasdaq Listing Requirements On July 20, 2023, we received a written notification (the “Notice”) from the Nasdaq Stock Market LLC (“Nasdaq”) indicating that NRx Pharmaceuticals is not in compliance with Nasdaq Listing Rule 5450(b)(2)(A) – Market Value of Listed Securities (“MVLS”) because the Company had not maintained a minimum MVLS of $50,000,000 for the last thirty-three (33) consecutive business days. Pursuant to Nasdaq Listing Rule 5810(c)(3)(C), we have been provided an initial compliance period of 180 calendar days, or until January 22, 2024, to regain compliance with the MVLS requirement. To regain compliance, our MVLS must meet or exceed $50,000,000 for a minimum period of ten consecutive business days prior to January 22, 2024. If we do not regain compliance within the allotted compliance period Nasdaq will provide notice that our shares of common stock will be subject to delisting and may potentially be traded on the Over-the-Counter market thereafter. On October 17, 2023, we received formal notice from the Nasdaq Listing Qualifications Staff (the “Staff”) indicating that, based upon our non-compliance with the minimum bid price requirement for continued listing on The Nasdaq Global Market, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Rule”), our securities were subject to delisting unless we timely request a hearing before the Nasdaq Hearings Panel (the “Panel”), which such hearing was timely requested and subsequently held on January 4, 2024. On January 16, 2024, the Panel granted our request for an exception to the Nasdaq Listing Rules until April 16, 2024, to demonstrate compliance with the Minimum Bid Price Requirement, subject to our filing all necessary documentation required to transfer our listing from the Nasdaq Global Market to the Nasdaq Capital Market on or before January 19, 2024, and our demonstrating compliance with the Minimum Bid Price Requirement on or before April 16, 2024. On February 1, 2024, the Nasdaq Stock Market informed us that it had approved our application to transfer our listing to the Nasdaq Capital Market. Our securities were transferred from the Nasdaq Global Market to the Nasdaq Capital Market at the opening of business on January 19, 2024. The Company subsequently established compliance with the Nasdaq Market Value of Listed Securities requirement and was notified of this by the Nasdaq. On August 6, 2024, we received a written notification from the Staff indicating that we were not in compliance with Nasdaq Listing Rule 5550(b)(2) because we had not maintained a minimum MVLS of $35,000,000 for the previous 33 consecutive business days. We were provided an initial compliance period of 180 calendar days, or until February 3, 2025, to regain compliance with the minimum MVLS requirement. On January 17, 2025, the Company received a written notice from Nasdaq that the Company had regained compliance with the minimum market value of listed securities requirement under Nasdaq Listing Rule 5550(b)(2). Components of Results of Operations Operating Expense Research and development expense The Company’s research and development expense consists primarily of costs associated with its clinical trials, salaries, payroll taxes, employee benefits, and equity-based compensation charges for those individuals involved in ongoing research and development efforts. Research and development costs are expensed as incurred. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received. General and administrative expense General and administrative expense consists primarily of salaries, stock-based compensation, consultant fees, and professional fees for legal and accounting services. Page 82 Table of Contents Settlement (income) expense Settlement expense during the year ended December 31, 2023 consists of settlement expenses related to the NeuroRx and GEM settlement and release agreement (the “Settlement Agreement”). See Note 8 “Commitment and Contingencies” of the notes to the Company’s consolidated financial statements included elsewhere in this report for further information. Settlement income during the year ended December 31, 2024 consists of settlement income related to the Company’s costs related to clinical trials with a specific vendor. A closing cost adjustment was applied to these clinical trial and research expenses, resulting in the issuance of a credit memo for approximately $1.2 million, significantly lower than the original billing. Results of operations for the years ended December 31, 2024 and 2023 The following table sets forth the Company’s selected statements of operations data for the following periods (in thousands): Year Ended December 31, Change 2024 2023 Dollars Operating expense: Research and development $ 6,199 $ 13,371 $ (7,172 ) General and administrative 13,505 14,216 (711 ) Settlement (income) expense (1,202 ) 250 (1,452 ) Total operating expenses 18,502 27,837 (9,335 ) Loss from operations $ (18,502 ) $ (27,837 ) $ 9,335 Other (income) expense: Interest income $ (44 ) $ (494 ) $ 450 Interest expense 230 120 110 Convertible note default penalty 849 — 849 Change in fair value of convertible note payable and accrued interest 2,654 2,707 (53 ) Change in fair value of warrant liabilities 1,657 (20 ) 1,677 Loss on convertible note redemptions 1,278 — 1,277 Total other (income) expense 6,624 2,313 4,311 Net loss $ (25,126 ) $ (30,150 ) $ 5,024 Operating Expense Research and development expense For the year ended December 31, 2024, the Company recorded $6.2 million of research and development expense compared to approximately $13.4 million for the year ended December 31, 2023. The decrease of $7.2 million is related primarily to a decrease of $7.6 million in clinical trials and development expense due to the conclusion of the phase 2 study related to NRX-101 and the Company's cash conservation efforts, $0.3 million in shipping, freight, and delivery, $0.1 million in other regulatory and process development costs, and $0.4 million in payroll and payroll related expenses, partially offset by an increase in $1.3 million related to Alvogen warrants and $0.3 million related to stock based compensation. The research and development expenses for the years ended December 31, 2024 and 2023, respectively, include $0.1 million and ($0.2) million, respectively, of non-cash stock-based compensation. General and administrative expense For the year ended December 31, 2024, NRx Pharmaceuticals recorded $13.5 million of general and administrative expenses compared to approximately $14.2 million for the year ended December 31, 2023. The decrease of $0.7 million is related primarily to a decrease of $2.2 million in insurance expense, $1.3 million in employee expense, $0.2 million in stock-based compensation expense, and $0.2 million in patent expense, partially offset by an increase of $1.6 million in consultant fees, and $1.3 million in legal expense. The general and administrative expenses for the years ended December 31, 2024 and 2023, respectively, include $0.4 million and $0.6 million, respectively, of non-cash stock-based compensation. Page 83 Table of Contents Other (income) expense Interest income For the year ended December 31, 2024, the Company recorded less than $0.1 million of interest income compared to approximately $0.5 million of interest income for the year ended December 31, 2023. The decrease of $0.5 million is due to a large decrease in the balance in the Company’s money market account at December 31, 2024 as compared to the prior year. Interest expense For the year ended December 31, 2024, the Company recorded $0.2 million of interest expense, compared to $0.1 million of interest expense for the year ended December 31, 2023. The increase of $0.1 million is due to premiums for cash payments on the convertible note. Convertible note default penalty For the year ended December 31, 2024, the Company recorded $0.8 million of a default penalty, compared to $0 for the year ended December 31, 2023. The increase is due to alleged default in connection with the Streeterville convertible note. Change in fair value of convertible note payable For the year ended December 31, 2024, the Company recorded a loss of approximately $2.7 million related to the change in fair value of the convertible notes payable which are accounted for under the fair value option. For the year ended December 31, 2023, the Company recorded a loss of approximately $2.7 million related to the change in fair value of the convertible note payable which is accounted for under the fair value option. Change in fair value of warrant liabilities For the year ended December 31, 2024, the Company recorded a loss of $1.7 million related to the change in fair value of the warrant liabilities compared to a gain of less than $0.1 million for the year ended December 31, 2023. The increase in loss during the year ended December 31, 2024 was attributed to the warrants issued in conjunction with the First and the Second Trenches of the Anson Notes. Loss on convertible note redemptions For year ended December 31, 2024, the Company recorded a loss of $1.3 million related to convertible note redemptions calculated as the difference between the redemption price as calculated as per the terms of the Anson and Streeterville Notes (See Note 7) relative to the fair value of the common stock on the date of redemption. Liquidity and Capital Resources The Company has generated no revenues, has incurred operating losses since inception, expects to continue to incur significant operating losses for the foreseeable future and may never become profitable. Until such time as the Company is able to establish a revenue stream from the sale of its therapeutic products, it is dependent upon obtaining necessary equity and/or debt financing to continue operations. The Company cannot make any assurances that sales of NRX-101 will commence in the near term or that additional financings will be available to it on acceptable terms or at all. This could negatively impact our business and operations and could also lead to the reduction of our operations. January 2025 Securities Purchase Agreement On or about January 27, 2025, the Company entered into the RD Purchase Agreement with the Investors for the sale by the Company of the RD Shares to the Investors in an aggregate of 1,215,278 shares of common stock, at a purchase price of $2.88 per share, in the Registered Direct Offering. Concurrently with the sale of the RD Shares, pursuant to the RD Purchase Agreement the Company also sold to the Investors the unregistered RD Warrants to purchase the RD Warrant Shares, in a private placement. Subject to certain beneficial ownership limitations, the RD Warrants are immediately exercisable upon issuance at an exercise price equal to $2.88 per share of common stock, subject to adjustments as provided under the terms of the RD Warrants. The RD Warrants are exercisable for five years from the RD Closing Date. The closing of the sales of these securities under the RD Purchase Agreement occurred on or about the RD Closing Date. Page 84 Table of Contents The gross proceeds to the Company from the offerings were approximately $3,500,000, before deducting offering expenses, and excluding the proceeds, if any, from the exercise of the RD Warrants. The Company intends to use the net proceeds from the transactions for general corporate purposes, including the funding of certain capital expenditures. The RD Shares were offered and sold by the Company pursuant to an effective shelf registration statement on Form S-3, which was filed with the SEC on June 9, 2022, and subsequently declared effective on June 21, 2022 (File No. 333-265492) (the “Registration Statement”), and the base prospectus dated as of June 21, 2022, contained therein. The RD Warrants and the RD Warrant Shares were sold and issued without registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act as transactions not involving a public offering and Rule 506 promulgated under the Securities Act as sales to accredited investors, and in reliance on similar exemptions under applicable state laws. August 2024 SPA On August 12, 2024, the Company executed the August SPA and related agreements, under which the Company agreed to sell and issue, and certain purchasers agreed to purchase, an aggregate of $16.3 million of Notes and Warrants. The consideration payable by the purchasers under the August SPA will be comprised of three equal closings of $5.435 million, each subject to certain closing conditions. The proceeds arising from the sale of the Notes and the Warrants were used to settle the Company’s outstanding amounts owed to Streeterville (as defined below) and other working capital needs. The Company has, as of the date of this Annual Report, consummated the first tranche, second tranche, and third tranche under the August SPA, with gross proceeds to the Company of $16.3 million. The Notes bear interest at the rate of 6% per annum and mature in 15 months following their date of issuance. The Notes may be settled in cash or in shares of the Company’s common stock, at the sole discretion of the holder, at the applicable conversion price. The Notes may not be prepaid by the Company however, the holders of the Notes may elect to convert the Notes, in whole or in part, into shares of the Company’s common stock at any time after the original issuance date. The conversion price: (A) for the Notes issued in the first tranche will equal the lower of (i) $2.4168, or (ii) the Alternative Conversion Price; (B) for the Notes issued in the second tranche will equal the lower of (i) $1.766, or (ii) the Alternative Conversion Price; and (C) for the Notes issued in the third tranche will equal the lower of (i) $3.78, or (ii) the Alternative Conversion Price. The Notes include certain redemption, protection features and default interest and penalties. The Notes are secured by all assets of the Company, including its intellectual property. The Warrants have a term of 5 years, an exercise price of $2.4168 per share for the Warrants issued in the first tranche, $1.766 per share for the Warrants issued in the second tranche, and $3.78 per share for the Warrants issued in the third tranche, each subject to adjustment as more specifically set forth in the Warrants, and are exercisable immediately upon issuance Page 85 Table of Contents April 2024 Offering On April 18, 2024, we entered into the April Underwriting Agreement with the Representative, as the representative of the April Underwriters, relating to the April Offering of the Shares, which April Offering closed on the April Closing Date. The public offering price for each share of common stock was $3.30. Pursuant to the April Underwriting Agreement, the Company also granted the Representative the April Over-Allotment Option. Aggregated gross proceeds from the April Underwriting Agreement were approximately $2.4 million (including April Overallotment Exercise proceeds), before deducting and commissions and estimated expenses payable by the Company. The Company intends to use the net proceeds from the April 2024 Public Offering for working capital and general corporate purposes. On May 23, 2024, the Underwriters in the April 2024 Public Offering exercised their April Over-Allotment Option to purchase an additional 91,050 April Option Shares. In connection with the April Overallotment Exercise, we issued an additional April Underwriter Warrant to purchase up to 4,553 shares of common stock. The April Overallotment was exercised in full and closed on May 23, 2024. February 2024 Offerings On February 27, 2024, the Company entered into a February Underwriting Agreement with EF Hutton LLC, as the Representative of the February Underwriters, relating to the February 2024 Public Offering. The public offering price for each share of common stock was $3.00 and the February Underwriters purchased the shares of common stock pursuant to the February Underwriting Agreement at a price for each share of common stock of $2.76. Pursuant to the February Underwriting Agreement, the Company also granted the Representative the February Over-Allotment Option. Aggregate gross proceeds from the February Underwriting Agreement were approximately $1.7 million (including February Overallotment Exercise proceeds), before deducting underwriting discounts and commissions and estimated expenses payable by the Company. The Company intends to use the net proceeds from the February 2024 Public Offering for working capital and general corporate purposes. The Company also used the proceeds from February 2024 Public Offering to repay the Convertible Promissory Note initially issued to Streeterville Capital, LLC in November 2022. On March 5, 2024, the Underwriters in the February 2024 Public Offering exercised their February Over-Allotment Option to purchase an additional 75,000 February Option Shares. In connection with the February Overallotment Exercise, we issued an additional February Underwriter’s Warrant to purchase up to 3,750 shares of common stock. The February Overallotment Exercise closed on March 6, 2024. On February 29, 2024, the Company completed the February 2024 Private Placement. Pursuant to the securities purchase agreement, the Company issued and sold 270,000 shares of common stock and warrants to purchase up to 270,000 shares of common stock at a price of $3.80 per share of common stock and accompanying warrant, which represents a 26.7% premium to the offering price in February 2024 Public Offering. The common stock and the February Warrants were offered pursuant to a private placement under Section 4(a)(2) of the Securities Act. The February Warrants will have an exercise price of $3.80 per share, are initially exercisable beginning six months following the date of issuance, and will expire 5 years from the date of issuance. The aggregate net cash proceeds to the Company from the February 2024 Private Placement were approximately $1.0 million. At-The Market Offering Agreement On April 15, 2024, the Company increased the maximum aggregate offering amount of the shares of common stock issuable under that certain At the Market Offering Agreement, dated August 14, 2023 (the “Offering Agreement”), with H.C. Wainwright & Co., and filed a prospectus supplement (the “Current Prospectus Supplement”) under the Offering Agreement for an aggregate of $4.9 million (the “ATM Offering”). On August 14, 2024, the Company reduced the amount to under the Offering Agreement to $0 and suspended the ATM Offering. Through December 31, 2024, the Company received aggregate net cash proceeds to the Company from the ATM Offering of approximately $1.6 million. Page 86 Table of Contents Cash Flows The following table presents selected financial information and statistics for each of the periods shown below: December 31, 2024 2023 Balance Sheet Data: Cash $ 1,443 $ 4,595 Total assets 3,651 7,315 Convertible note payable 6,257 9,161 Total liabilities 26,874 19,048 Total stockholders' (deficit) equity (23,223 ) (11,733 ) Statement of Cash Flow Data: Net cash used in operating activities (10,637 ) (21,657 ) Net cash used in investing activities — (3 ) Net cash provided by financing activities 7,485 6,201 Net (decrease) increase in cash $ (3,152 ) $ (15,459 ) During the year ended December 31, 2024, operating activities used approximately $10.6 million of cash, primarily resulting from a net loss of $25.1 million, partially offset by (a) net non-cash losses of $9.2 million, including a loss of $2.7 million in change in fair value of convertible promissory notes, and loss of $1.7 million in change in fair value of warrants, $0.5 million of stock-based compensation, $1.3 million loss in convertible note redemptions, $1.3 million of warrant issuance costs related to Alvogen termination, $0.8 million of default penalties, $0.9 million in debt issuance costs, and (b) changes in operating assets and liabilities of $5.3 million. During the year ended December 31, 2023, operating activities used approximately $21.7 million of cash, primarily resulting from a net loss of $30.2 million, reduced by (a) net non-cash losses of $3.3 million, including $2.7 million in change in fair value of convertible promissory note, $0.4 million of stock-based compensation, and $0.3 million of non-cash settlement expenses, and (b) changes in operating assets and liabilities of $5.2 million. Investing activities During the years ended December 31, 2024 investing activities used $0. During the year ended December 31, 2023 investing activities used less than $0.1 million of cash related to the purchase of equipment. Financing activities During the year ended December 31, 2024, financing activities provided $7.4 million of cash resulting from $1.0 million in proceeds from issuance of common stock and warrants issued in a private placement, $4.9 million in proceeds from issuance of common stock and warrants, $6.0 million in proceeds from the Anson Notes, and $4.0 million from warrant proceeds attributes to the Anson Notes offset by $7.9 million in repayments of the convertible notes and $0.9 million in debt issuance costs due to the fair value election on Anson Notes. During the year ended December 31, 2023, financing activities provided $6.2 million of cash resulting from $8.1 million in proceeds from issuance of common stock and warrants issued in a private placement, $1.2 million in proceeds from issuance of Series A preferred stock and warrants, partially offset by $3.1 million of repayments of convertible notes. Contractual Obligations and Commitments See Note 7, Debt, and Note 8, Commitments and Contingencies, of the notes to the Company’s consolidated financial statements as of and for the year ended December 31, 2024 included elsewhere in this report for further discussion of the Company’s commitments and contingencies. Milestone Payments Pursuant to the legal settlement with Sarah Herzog Memorial Hospital Ezrat Nashim (“SHMH”) in September 2018, which included the license of intellectual property rights from SHMH, an ongoing royalty of 1% to 2.5% of NRX-101 gross sales is due to SHMH, together with milestone payments of $0.3 million, upon completion of phase 3 trials and commercial sale of NRX-101. The milestone payments for developmental and commercial milestones range from $0.1 million to $0.8 million. Annual maintenance fees are up to $0.2 million. Off-Balance Sheet Arrangements The Company is not party to any off-balance sheet transactions. The Company has no guarantees or obligations other than those which arise out of normal business operations. Page 87 Table of Contents Critical Accounting Policies and Significant Judgments and Estimates The Company's management’s discussion and analysis of its financial condition and results of operations is based on its financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The preparation of these financial statements requires NRx Pharmaceuticals to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the balance sheet and the reported amounts of expenses during the reporting period. In accordance with GAAP, NRx Pharmaceuticals evaluates its estimates and judgments on an ongoing basis. The most significant estimates relate to the earnout cash liability, stock-based compensation, and the valuation of warrants. NRx Pharmaceuticals bases its estimates and assumptions on current facts, historical experiences, and various other factors that NRx Pharmaceuticals believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company defines its critical accounting policies as those accounting principles that require it to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on its financial condition and results of operations, as well as the specific manner in which the Company applies those principles. While its significant accounting policies are more fully described in Note 3 to its financial statements, the Company believes the following are the critical accounting policies used in the preparation of its financial statements that require significant estimates and judgments. Stock-based compensation We measure stock option awards granted to employees and directors based on the fair value of the award on the date of the grant and recognize compensation expense of those awards over the requisite service period, which is generally the vesting period of the respective award. For restricted stock awards, the grant date fair value is the fair market value per share as of the grant date based on the closing trading price for the Company’s stock. The straight-line method of expense recognition is applied to awards with service-only conditions. We account for forfeitures as they occur. We estimate the fair value of each stock option award using the Black-Scholes option-pricing model, which uses as inputs the fair value of our common stock and assumptions we make for the volatility of our common stock, the expected term of our stock-based awards, the risk-free interest rate for a period that approximates the expected term of our stock-based awards, and our expected dividend yield. Therefore, we estimate our expected volatility based on the implied volatility of publicly traded warrants on our common stock and historical volatility of a set of our publicly traded peer companies. We estimate the expected term of our options using the "simplified" method for awards that qualify as "plain-vanilla" options. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that we have never paid cash dividends on common stock and do not expect to pay any cash dividends in the foreseeable future. The assumptions used in determining the fair value of stock-based awards represent reasonable estimates, but the estimates involve inherent uncertainties and the application of our judgment. As a result, if factors change and we use significantly different assumptions or estimates, our stock-based compensation expense could be materially different in the future. Warrant liabilities We account 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 ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which 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. Page 88 Table of Contents 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, or date of modification, 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 and the fair value of the Substitute Warrants was estimated using a modified Black Scholes valuation approach which applies a probability factor based on the earnout cash milestone and earnout shares milestone probabilities of achievement at each reporting period. Convertible note payable As permitted under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 825, Financial Instruments (“ASC 825”), the Company elects to account for its convertible promissory notes, which meets the required criteria, at fair value at inception and at each subsequent reporting date. Subsequent changes in fair value are recorded as a component of non-operating loss in the consolidated statements of operations. As a result of electing the fair value option, direct costs and fees related to the convertible promissory notes are expensed as incurred. The Company estimates the fair value of the convertible notes payable using a Monte Carlo simulation model, which uses as inputs the fair value of our common stock and estimates for the equity volatility and volume volatility of our common stock, the time to expiration (i.e. expected termination date) of the convertible note, the risk-free interest rate for a period that approximates the time to expiration, and probability of default. Therefore, we estimate our expected future equity and volume volatility based on the historical volatility of both our common stock utilizing a lookback period consistent with the time to expiration. The time to expiration is based on the contractual maturity date, giving consideration to the mandatory and potential accelerated redemptions beginning six months from the issuance date. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of measurement for time periods approximately equal to the time to expiration. Probability of default is estimated using Bloomberg's Default Risk function which uses our financial information to calculate a default risk specific to the Company. The assumptions used in determining the fair value of the convertible note payable represent reasonable estimates, but the estimates involve inherent uncertainties and the application of our judgment. As a result, if factors change and we use significantly different assumptions or estimates, the change in fair value of the convertible note payable recorded to other (income) expense could be materially different in the future. Item 7A. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, we are not required to provide the information required by this Item. Page 89 Table of Contents