NRX Pharmaceuticals, Inc. 10-Q/A

Item 2. 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 “Selected Financial Data” and NRx Pharmaceuticals' financial statements and the related notes appearing elsewhere in this proxy statement / prospectus / consent solicitation statement. 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 in this proxy statement / prospectus / consent solicitation statement. All amounts in this report are in U.S. dollars, unless otherwise noted. Overview On May 24, 2021, Big Rock Partners Acquisition Group ("BRPA"), a special purpose acquisition company, consummated the Agreement and Plan of Merger (as amended, the “Merger Agreement”) with NeuroRx, Inc., a Delaware corporation (“NeuroRx”), and Big Rock Merger Corp., a Delaware corporation and wholly-owned, direct subsidiary of BRPA (“Merger Sub”). Pursuant to the Merger Agreement, on May 24, 2021 (the “Closing Date”), which has been accounted for as a reverse recapitalization, Merger Sub was merged with and into NeuroRx, with NeuroRx surviving the merger (“Merger” and, together with the other transactions contemplated by the Merger Agreement, the “Transactions”). On the Closing Date, BRPA changed its name to NRX Pharmaceuticals, Inc. (“NRx Pharmaceuticals" or the "Company”). ​ NRx Pharmaceuticals is a clinical stage pharmaceutical company that is developing NRX-101, the first oral therapeutic for the treatment of Acute Suicidal Behavior/Ideation (ASIB) in Bipolar Disorder and ZYESAMI (aviptadil), an intravenous and inhaled drug to treat respiratory failure in COVID-19. The NRx Pharmaceuticals Antidepressant Regime was developed based upon 30 years of basic science and clinical expertise contributed by Prof. Daniel Javitt, PhD, MD, related to the role of the brain’s N-methyl-D-aspartate (NMDA) receptor in regulating human thought processes in general and in regulating depression and suicidality. The NRx Pharmaceuticals Antidepressant Regime begins with a single dose of ketamine, an FDA approved anesthetic, followed by approximately six weeks of daily oral NRX-101. NRX-101 is being developed as a rapid-onset and sustained treatment for acute suicidal crisis associated with bipolar depression. NRX-101 combines DCS, a NMDA receptor modulator, and lurasidone, a 5-HT2a receptor antagonist. NRX-101 has been awarded Fast Track designation, Breakthrough Therapy designation, and a Special Protocol Agreement by the FDA. Peer-reviewed and published results from multiple Phase II clinical studies demonstrate a significant decline in symptoms of depression and suicidality following administration of DCS. Findings from one of these studies found that bipolar patients who were already receiving a 5-HT2a antagonist demonstrated more than a 50% reduction in symptoms of depression and a 75% reduction in suicidal ideation when ketamine and DCS were added to their treatment regimen. Side effects for patients in a P2a combination study of DCS and 5HT2a included mild sedation, headaches and hypomania. Breakthrough Therapy designation was awarded based on the STABIL-B study ( www.clinicaltrials.gov NCT02974010) that demonstrated a statistically significant advantage of NRX-101 vs. lurasidone (the current standard of care) in maintaining remission from depression and suicidality following a single stabilizing dose of ketamine. In March 2020, NRx Pharmaceuticals initiated development of RLF-100 (aviptadil acetate) (now reformulated as ZYESAMI) in partnership with Relief Therapeutics. ZYESAMI is based on 50 years of research, pioneered by Professor Sami Said, on the role of Vasoactive Intestinal Peptide in preventing and treating acute lung injury by protecting the Type II cell in the lung. The rights to Dr. Said’s scientific work are licensed by NRx Pharmaceuticals from the Research Foundation of the State University of New York and NRx Pharmaceuticals expects to cross-license such rights to Relief Therapeutics for use outside US, Canada, and Israel. In that partnership and pursuant to the Relief Agreement, Relief has committed to fund all costs of formulations and clinical development of the RLF Product for the treatment of COVID-19. The companies agreed that NRx Pharmaceuticals would lead all development and sales in the United States, Canada, and Israel, with NRx Pharmaceuticals receiving 50% of the profits generated in those territories. Relief is to lead the development and sale of the RLF Product in the rest of the world with NRx Pharmaceuticals receiving 15% of profits in Europe and the United Kingdom, together with 20% of profits in the rest of the world. For the six months ended June 30, 2021. 36 Table of Contents Relief has reimbursed NRx Pharmaceuticals for approximately $10.9 million of expenses, but has declined to pay approximately $6 million in invoiced costs associated with conduct of the RLF Product clinical trial, reformulation, and manufacture of ZYESAMI. Relief has additionally declined to fund the costs of the inhaled trial product. NRx Pharmaceuticals has advised Relief that NRx Pharmaceuticals is funding those costs with other capital. In an open-label, single center trial at Houston Methodist Hospital, ZYESAMI demonstrated a statistically significant 9-fold advantage in probability of survival and recovery from respiratory failure compared to the standard of care among patients with COVID-19 Respiratory Failure. On June 1, 2021, NRx Pharmaceuticals reported phase IIb/III study results of ZYESAMI in patients with respiratory failure due to critical COVID-19. The study identified a statistically significant increase in the likelihood that patients treated with ZYESAMI would be alive and free of respiratory failure at 60 days, compared to those treated with placebo, and identified a significantly shorter median hospital stay. The clinical study report filed with the FDA further documented statistically significant advantages for ZYESAMI on all major secondary endpoints. On the basis of these results, the Company applied for FDA Emergency Use Authorization on May 31, 2021 and is currently awaiting the FDA’s response to such application. Should Emergency Use Authorization be granted, this would provide the Company with a one-year period during which ZYESAMI could be marketed for the treatment of COVID-19 in the United States in advance of the Company filing a new drug application (NDA) with the FDA for formal approval of ZYESAMI for the treatment of COVID-19 based on the recently completed clinical trial and the additional clinical trials currently underway, including the NIH ACTIV3b/TESICO trial (NCT 04843761). If authorized for use, ZYESAMI would be the first drug in the United States indicated specifically for COVID-19 patients who are critically ill with respiratory failure. In July 2021, the nation of Georgia issued an Emergency Use Authorization (EUA) for intravenous ZYESAMI (aviptadil) for the treatment of critical COVID-19. Pursuant to this EUA, the Company has sent a team of physicians to Georgia to train local doctors about administering ZYESAMI and the effects of the medicine. The supply of intravenous doses by the Company is being discussed with the Georgia Ministry of Health and with the Ministries of Health of surrounding nations. Although the initial focus has been on the use of intravenous ZYESAMI, the Company has received permission from the FDA to test inhaled ZYESAMI in a phase 2/3 clinical trial for patients with early disease. The Company believes that the inhaled drug will be more convenient for patients to self-administer than the intravenous drug, provided patients are still able to inhale normally and do not have inflammatory debris clogging the alveoli. This clinical trial commenced in January 2021 and is expected to conclude by October 2021. In addition, the Company announced in July 2021 that the phase 2/3 trial for the use of inhaled ZYESAMI has been extended to the nation of Georgia. The Company has also commenced work on a third potential drug product by signing a Memorandum of Understanding with the Government of Israel (MoU) for an exclusive, worldwide license to develop a novel Coronavirus vaccine (BriLife) developed by the Israel Institute for Biological Research (IIBR). The vaccine has demonstrated a statistically-significant increase in COVID-neutralizing antibody (a sign of immunity to SARS-CoV-2) compared to placebo in phase 2a trials conducted in Israel. The vaccine has further shown indications of neutralizing antibody against that Delta variant of the SARS-CoV-2 virus in early human studies and in preclinical studies. Under the MoU, the Company is initiating a phase 2b/3 dose-confirmatory trial of the vaccine against COVID-19 in the nation of Georgia. The IIBR will provide technical assistance for the clinical trial. The clinical trial in Georgia will take place at the same time as the completion of the second phase of clinical trials in Israel. If the clinical trials are successful, and subject to the negotiation of definitive licensing agreements with the IIBR, the Company would have an exclusive license to commercialize the vaccine in exchange for agreed upon milestone and royalty payments. Since inception, NRx Pharmaceuticals has incurred significant operating losses. For the three months ended June 30, 2021 and 2020, NRx Pharmaceuticals, net loss was $117,613 and $102,287, respectively. For the six months ended June 30, 2021 and 2020, NRx Pharmaceuticals’ net loss was $25,606,487 and $1,487,769, respectively. As of June 30, 2021, NRx Pharmaceuticals had an accumulated deficit of $115,786,207. 37 Table of Contents COVID-19 Outbreak On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 Outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 Outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 Outbreak continues to evolve as new variants of the virus appear, including the delta variant. As such, NRx Pharmaceuticals cannot estimate the full magnitude, whether positive or negative, that the pandemic will have on NRx Pharmaceuticals’ business. If the COVID-19 Outbreak continues, it may have a material adverse effect on NRx Pharmaceuticals’ financial condition, liquidity, and future results of operations for the year ending December 31, 2020 and beyond. Management is actively monitoring the impact of the global pandemic on its financial condition, liquidity, operations, industry, and workforce. Alternatively, the COVID-19 Outbreak could have a material positive effect on market demand for the COVID-19 targeted therapeutics currently under development by NRx Pharmaceuticals. Given the daily evolution of the COVID-19 Outbreak and the global responses to curb its spread, NRx Pharmaceuticals. is not able to estimate the effects of the COVID-19 Outbreak on its results of operations, financial condition, or liquidity for the year ending December 31, 2021 and beyond. Aside from our COVID-19 related trials, as a result of the COVID-19 Outbreak, most of our other trials have been halted. Components of Results of Operations Operating expenses Research and development expenses NRx Pharmaceuticals’ research and development expenses consist primarily of costs associated with NRx Pharmaceuticals’ 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 expenses General and administrative expense consists primarily of salaries, stock-based compensation, consultant fees, and professional fees for legal and accounting services. Settlement Expense Settlement expense consists primarily of settlement expenses related to the GEM Warrant as further discussed under “—Contractual Obligations and Commitments—GEM Share Subscription Facility and Warrant.” Reimbursement of expenses from Relief Therapeutics Reimbursement of expenses from Relief consists primarily of reimbursable expenses as part of the Relief Agreement. 38 Table of Contents Results of operations for the three months ended June 30, 2021 and 2020 The following table sets forth NRx Pharmaceuticals’ selected statements of operations data for the following periods: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended June 30, ​ Change ​ 2021 (As restated) 2020 Dollars Percentage ​ ​ (Unaudited) ​ ​ ​ ​ ​ ​ Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ Research and development ​ $ 4,659,280 ​ $ 1,390,376 ​ $ 3,268,904 235 % General and administrative ​ 12,457,534 ​ 525,736 ​ $ 11,931,798 2,270 % Reimbursement of expenses from Relief Therapeutics ​ — ​ (2,020,931) ​ $ 2,020,931 (100) % Total operating expenses ​ 17,116,814 ​ (104,819) ​ $ 17,221,633 16,430 % Loss from operations ​ (17,116,814) ​ 104,819 ​ $ (17,221,633) (16,430) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other (income) expenses: ​ ​ ​ ​ Interest expense ​ 5,107 ​ 2,532 ​ $ 2,575 100 % Change in fair value of warrant liabilities ​ (17,359,009) ​ — ​ $ (17,359,009) 100 % Change in fair value of Earnout Cash liability ​ 354,701 ​ — ​ $ 354,701 100 % Total other (income) expenses ​ (16,999,201) ​ 2,532 ​ $ (17,001,733) (671,474) % Loss before tax ​ (117,613) ​ 102,287 ​ $ (219,900) (215) % Net loss ​ $ (117,613) ​ $ 102,287 ​ $ (219,900) (215) % ​ Operating expenses Research and development expenses For the three months ended June 30, 2021, NRx Pharmaceuticals recorded $4,659,280 of research and development expenses compared to $1,390,376 for the three months ended June 30, 2020. The increase of $3,268,904 related primarily to an increase of $2,907,887 in clinical trials and development expenses related to ZYESAMI (aviptadil), an increase of $361,017 in other research and development expenses, which includes an increase of $146,196 in stock-based compensation expense and an increase of $247,787 in regulatory consultants expense. General and administrative expenses For the three months ended June 30, 2021, NRx Pharmaceuticals recorded $12,457,534 of general and administrative expenses compared to $525,736 for the three months ended June 30, 2020. The increase of $11,931,798 related primarily to $5,474,283 of consultant fees of which $4,850,000 relates to non-cash consulting fees paid to EBC in common stock, $4,043,668 in stock compensation expense of which $3,345,212 relates to modification of stock options and warrants pursuant to the Merger, $710,381 of insurance expenses, $501,782 of payroll expenses, and $185,951 in other general and administrative expenses, partially offset by decrease of $1,015,733 in legal and professional fees. Reimbursement of expenses from Relief Therapeutics For the three months ended June 30, 2021, NRx Pharmaceuticals recorded $0 of reimbursement of expenses from Relief compared to $2,020,931 of reimbursement of expenses from Relief for the three months ended June 30, 2020. Other (income) expenses Interest expense For the three months ended June 30, 2021, NRx Pharmaceuticals recorded $5,107 of interest expense compared to $2,532 for the three months ended June 30, 2020. The increase of $2,575 related primarily to the accrued interest for outstanding notes during the period. Change in fair value of warrant liabilities For the three months ended June 30, 2021, NRx Pharmaceuticals recorded a gain of $17,359,009 related to the change in fair value of the warrant liabilities compared to $0 for the three months ended June 30, 2020. The increase of $17,359,009 39 Table of Contents related to the decrease in the fair value of certain Substitute Warrants and the Placement Warrants assumed pursuant to the Merger Agreement. Change in fair value of Earnout Cash liability For the three months ended June 30, 2021, NRx Pharmaceuticals recorded a loss of $354,701 related to the change in fair value of the earnout cash liability compared to $0 for the three months ended June 30, 2020. The increase of $354,701 related to the increase in the fair value of the earnout cash liability pursuant to the Merger Agreement. Results of operations for the six months ended June 30, 2021 and 2020 The following table sets forth NRx Pharmaceuticals' selected statements of operations data for the following periods: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six months ended June 30, ​ Change ​ 2021 (As restated) 2020 Dollars Percentage ​ ​ (Unaudited) ​ ​ ​ ​ ​ ​ Operating expenses: ​ ​ ​ ​ ​ ​ ​ Research and development ​ $ 7,567,984 ​ $ 1,994,709 ​ $ 5,573,275 279 % General and administrative ​ 14,558,936 ​ 1,141,390 ​ $ 13,417,546 1,176 % Settlement expense ​ 21,365,641 ​ — ​ $ 21,365,641 100 % Reimbursement of expenses from Relief Therapeutics ​ (771,244) ​ (2,020,931) ​ $ 1,249,687 (100) % Total operating expenses ​ 42,721,317 ​ 1,115,168 ​ $ 41,606,149 3,731 % Loss from operations ​ $ (42,721,317) ​ $ (1,115,168) ​ $ (41,606,149) (3,731) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other (income) expenses: ​ ​ ​ ​ Gain on extinguishment of debt ​ (120,810) ​ — ​ $ 120,810 — % Interest expense ​ 10,288 ​ 38,800 ​ $ (28,512) (73) % Change in fair value of warrant liabilities ​ ​ (17,359,009) ​ ​ — ​ $ (17,359,009) ​ (100) % Change in fair value of Earnout Cash liability ​ ​ 354,701 ​ ​ — ​ $ 354,701 ​ 100 % Change in fair value of embedded put ​ — ​ 27,160 ​ $ (27,160) — % Loss on conversion of convertible notes payable ​ — ​ 306,641 ​ $ (306,641) — % Total other (income) expenses ​ (17,114,830) ​ 372,601 ​ $ (17,487,431) (4,693) % Loss before tax ​ (25,606,487) ​ (1,487,769) ​ $ (24,118,718) (1,621) % Net loss ​ $ (25,606,487) ​ $ (1,487,769) ​ $ (24,118,718) (1,621) % ​ Operating expenses Research and development expenses For the six months ended June 30, 2021, NRx Pharmaceuticals recorded $7,567,984 of research and development expenses compared to $1,994,709 for the six months ended June 30, 2020. The increase of $5,573,275 related primarily to an increase of $4,569,807 in clinical trials and development expenses related to ZYESAMI (aviptadil) and an increase of $1,003,469 in other research and development expenses, which includes an increase of $608,266 in regulatory consultants expense and an increase of $151,645 in stock-based compensation expense. 40 Table of Contents General and administrative expenses For the six months ended June 30, 2021, NRx Pharmaceuticals recorded $14,558,936 of general and administrative expenses compared to $1,141,390 for the six months ended June 30, 2020. The increase of $13,417,546 related primarily to increases of $5,922,383 for consultant fees of which $4,850,000 relates to non-cash consulting fees paid to EBC in common stock, $4,321,114 in stock-based compensation expense of which $3,345,212 relates to modification of stock options and warrants pursuant to the Merger, $830,368 for payroll expenses, $772,343 of insurance expenses, and $282,849 in other general and administrative expenses, partially offset by a decrease of $1,288,490 in legal and professional fees, Settlement expense For the six months ended June 30, 2021, NRx Pharmaceuticals recorded $21,365,641 of settlement expense related to the GEM Warrant reflecting the incremental value through the date of issuance compared to $0 of settlement expense for the six months ended June 30, 2020. Reimbursement of expenses from Relief Therapeutics For the six months ended June 30, 2021, NRx Pharmaceuticals recorded $771,244 of reimbursement of expenses from Relief compared to $2,020,931 of reimbursement of expenses from Relief for the six months ended June 30, 2020. NRx Pharmaceuticals has received $10,904,065 in total from Relief in accordance with the Relief Agreement. Gain on extinguishment of debt For the six months ended June 30, 2021, NRx Pharmaceuticals recorded $120,810 of gain on extinguishment of debt compared to $0 for the six months ended June 30, 2020. The increase of $120,810 related to the forgiveness of the PPP Loan which resulted in a gain on extinguishment for the outstanding principal and accrued and unpaid interest. Interest expense For the six months ended June 30, 2021, NRx Pharmaceuticals recorded $10,288 of interest expense compared to $38,800 for the six months ended June 30, 2020. The decrease of $28,512 related primarily to the conversion of convertible notes payable in 2020. Change in fair value of warrant liabilities For the six months ended June 30, 2021, NRx Pharmaceuticals recorded a gain of $17,359,009 related to the change in fair value of the warrant liabilities compared to $0 for the six months ended June 30, 2020. The increase of $17,359,009 related to the decrease in the fair value of certain Substitute Warrants and the Placement Warrants assumed pursuant to the Merger Agreement. Change in fair value of Earnout Cash liability For the six months ended June 30, 2021, NRx Pharmaceuticals recorded other expense of $354,701 of change in fair value of the earnout cash liability compared to $0 for the six months ended June 30, 2020. The increase of $354,701 related to the increase in the fair value of the Earnout Cash liability pursuant to the Merger Agreement. Change in fair value of embedded put For the six months ended June 30, 2021, NRx Pharmaceuticals recorded $0 of change in fair value of embedded put compared to $27,160 for the six months ended June 30, 2020. The decrease of $27,160 related primarily to the conversion of convertible notes payable in 2020. Loss on conversion of convertible notes payable For the six months ended June 30, 2021, NRx Pharmaceuticals recorded $0 of loss on conversion of convertible notes payable compared to $306,641 for the six months ended June 30, 2020. The decrease of $306,641 related to the loss on extinguishment which was recorded upon the conversion of the convertible notes payable in 2020 for the difference 41 Table of Contents between the carrying value of the convertible notes, unamortized debt discount, and the fair value of the embedded put option, and the fair value of common shares issued. Liquidity and Capital Resources NRx Pharmaceuticals has generated no revenues, has incurred operating losses since inception, and expects to continue to incur significant operating losses for the foreseeable future and may never become profitable. From the inception of the ZYESAMI drug development program NRx Pharmaceuticals had funded all operating expenses related to the US development of ZYESAMI and the portion of corporate overhead attributable to that program from the Relief Agreement. The proceeds recorded as “Reimbursement of expenses from Relief Therapeutics” amounted to $771,244 for the six months ended June 30, 2021. Pursuant to the Relief Agreement, NRx Pharmaceuticals is responsible for not exceeding the Relief Product trial budget of $8.3 million by more than 30% (approximately $10.7 million) for the original sample size of 144 participants (the “ Initial Budget ”). In October 2020, the study’s Data Safety Monitoring Board and statistical consultant advised NRx Pharmaceuticals to increase the size of the study to at least 200 participants, resulting in an additional $4 million in potential study costs. The Relief Agreement states that costs of drug formulation, manufacture, CMC, stability, etc., are not included within the Initial Budget, however, Relief is required to fund the costs of formulation, stability, and manufacturing at MedisourceRx, Bachem, and Nephron Pharmaceuticals. The Relief Agreement states that in the event Relief does not approve additional overages to the Initial Budget, NRx Pharmaceuticals shall be free to bring in other parties in order to complete the aviptadil study. The Relief Agreement further provides for Relief to fund the costs associated with the clinical development of the inhaled Relief Product in the United States in reliance upon NRx Pharmaceuticals' agreement to conduct, manage, supervise and oversee its clinical development. Should Relief not fund the costs associated with the clinical development of the inhaled Relief Product in the United States, then NRx Pharmaceuticals shall have the freedom to bring a replacement investor. Relief has declined to pay approximately $6 million in invoiced costs associated with conduct of the IV trial, reformulation, and manufacture of ZYESAMI incurred subsequent to December 31, 2020. Relief has additionally declined to fund the costs of the inhaled ZYESAMI product. NRx Pharmaceuticals has initiated the inhaled use clinical trial with other capital. Reverse Recapitalization Merger Pursuant to the terms of the Merger Agreement, NeuroRx’s securityholders (including option holders and warrant holders) who own NeuroRx securities immediately prior to the Effective Time will have the contingent right to receive their pro rata portion of (i) an aggregate of 25,000,000 shares of Common Stock (“Earnout Shares”) if, prior to December 31, 2022, the NeuroRx COVID-19 Drug (i.e., ZYESAMI TM ) receives emergency use authorization by the Food and Drug Administration (“FDA”) and NeuroRx submits and the FDA files for review a new drug application for the NeuroRx COVID-19 Drug (i.e., ZYESAMI TM ) (the occurrence of the foregoing, the “Earnout Shares Milestone”), and (ii) an aggregate of $100,000,000 in cash (“Earnout Cash”) upon the earlier to occur of (x) FDA approval of the NeuroRx COVID-19 Drug (i.e., ZYESAMI TM ) and the listing of the NeuroRx COVID-19 Drug in the FDA’s “Orange Book” and (y) FDA approval of the NeuroRx Antidepressant Drug Regimen (i.e., NRX-100/101) and the listing of the NeuroRx Antidepressant Drug Regimen (i.e., NRX-100/101) in the FDA’s “Orange Book,” in each case prior to December 31, 2022 (the occurrence of either of clauses (x) or (y), the “Earnout Cash Milestone”). If the Earnout Shares Milestone is achieved, the Earnout Shares will be issued within five (5) Business Days after the occurrence of the Earnout Shares Milestone. If the Earnout Cash Milestone is achieved, the Merger Agreement does not require the Earnout Cash to be delivered to NeuroRx securityholders within any specified period of time, and the board of directors of NRx Pharmaceuticals will use its good faith judgment to determine the date to pay the Earnout Cash. At June 30, 2021, the fair value of the Earnout Cash liability has been estimated to be $25,874,896. Upon closing of the Merger, the estimated fair value of the Earnout Shares was $255,822,071 with such amount recognized as a deemed dividend. As the Company is in an accumulated deficit position as of the measurement date, the resulting deemed dividend is recorded as a reduction of additional paid-in capital with a corresponding offset recorded to additional paid-in capital (i.e., net impact to additional paid-in capital of $0). The benefit of the contingent right to receive Earnout Cash for option and warrant holders occurs through the Option Exchange Ratio and therefore the amount of Earnout Cash for common stockholders is approximately $88,837,121. In connection with the Merger, a number of subscribers (each, a “Subscriber”) purchased from the Company an aggregate of 1,000,000 shares of Common Stock (the “PIPE”), for a purchase price of $10.00 per share and an aggregate purchase 42 Table of Contents price of $10,000,000 (the “PIPE Shares”), pursuant to separate subscription agreements (each, a “Subscription Agreement”) entered into prior to the Closing Date. The Company received $8,100,000 in net proceeds after transaction costs. NRx Pharmaceuticals expects to continue to incur operating losses and net cash outflows until such time as it generates a level of revenue from sale or licensing of drug products to support its cost structure. There is no assurance that NRx Pharmaceuticals will achieve profitable operations and if achieved, whether it will be sustained on a continued basis. NRx Pharmaceuticals intends to fund ongoing activities by raising additional capital through equity or debt financings. There can be no assurance that NRX will be successful in raising that additional capital or that such capital, if available, will be on terms that are acceptable to NRx Pharmaceuticals. If NRx Pharmaceuticals is unable to raise sufficient additional capital, NRx Pharmaceuticals may be compelled to reduce the scope of its operations and planned capital expenditures. Prior to the Merger, the Company sold 62,366 shares of common stock during the three months ended June 30, 2021 and received gross proceeds of $1,436,274. The Company sold 398,647 shares of common stock during the six months ended June 30, 2021 and received gross proceeds of $8,363,132. In addition, 1,496,216 warrants were exercised generating gross proceeds of $7,500,018. Subsequent to June 30, 2021, NRx Pharmaceuticals received $9,186,316 from the exercise of the GEM Warrant for the purchase of 1,833,596 shares. NRx Pharmaceuticals’ research programs beyond 2021 would require additional funding either from sales of product or from external investment. Until such time as NRx Pharmaceuticals is able to establish a revenue stream from the sale of its therapeutic products, NRx Pharmaceuticals is dependent upon obtaining necessary equity and/or debt financing to continue operations. NRx Pharmaceuticals cannot make any assurances that sales of ZYESAMI will commence in 2021 or that additional financings will be available to it and, if available, on acceptable terms or at all. This could negatively impact NRx Pharmaceuticals' business and operations and could also lead to the reduction of NRx Pharmaceuticals' operations. Cash Flow Summary for the six months ended June 30, 2021 and 2020 The following table shows a summary of NRx Pharmaceuticals' cash flows for each of the periods shown below: ​ ​ ​ ​ ​ ​ ​ ​ ​ Six months ended June 30, ​ 2021 (As restated) 2020 ​ ​ (Unaudited) Net cash used in operating activities ​ $ (14,408,126) ​ $ (728,272) Net cash used in investing activities ​ (2,783) ​ — Net cash provided by financing activities ​ ​ 25,938,728 ​ ​ 846,836 Net increase (decrease) in cash ​ $ 11,527,819 ​ $ 118,564 ​ Operating activities During the six months ended June 30, 2021, operating activities used $14,408,126 of cash, primarily resulting from a net loss of $25,606,487, reduced by non-cash charges of $8,906,806, including $21,365,641 of non-cash settlement expense related to the GEM Warrant, $4,655,028 of stock-based compensation expense, $354,701 of change in fair value of earnout cash liability, partially offset by $120,810 of gain on the extinguishment of debt, and $17,359,009 of gain from the change in fair value of warrant liabilities; and a decrease in operating assets and liabilities of $2,558,445. During the six months ended June 30, 2020, operating activities used $728,272 of cash, primarily resulting from a net loss of $1,487,769, partially reduced by non-cash charges of $559,516, including $306,641 of loss on conversion of notes payable, $26,992 of non-cash interest expense, $182,269 of stock-based compensation expense, and $16,454 of amortization of debt discount. 43 Table of Contents Investing activities During the six months ended June 30, 2021, investing activities used $2,783 of cash, primarily resulting from the purchase of computer equipment. There were no investing activities for the six months ended June 30, 2020. Financing activities During the six months ended June 30, 2021, financing activities provided $25,938,728 of cash, primarily resulting from $8,489,082 from the issuance of shares of NRx Pharmaceuticals common stock, $7,500,018 of the issuance of common stock for the partial exercise of the GEM Warrant, and $11,049,628 for the effect of the Merger, net of transaction costs, partially offset by a $1,100,000 repayment of notes payable. During the six months ended June 30, 2020, financing activities provided $846,836 of cash, primarily resulting from $619,842 of proceeds from notes payable and $226,994 of proceeds from the issuance of shares of NRx Pharmaceuticals common stock. Contractual Obligations and Commitments See Note 9, Commitments and Contingencies, of the notes to NRx Pharmaceuticals’ unaudited condensed consolidated financial statements for the three months ended and six months ended June 30, 2021 included elsewhere in this report for further discussion of NRx Pharmaceuticals' commitments and contingencies. Milestone Payments Pursuant to the legal settlement with 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 shall be due to SHMH, together with milestone payments of $250,000, upon completion of phase 3 trials and commercial sale of NRX-101. The milestone payments for developmental and commercial milestones range from $100,000 to $750,000. Annual maintenance fees range up to $150,000. Off-Balance Sheet Arrangements NRx Pharmaceuticals is not party to any off-balance sheet transactions. NRx Pharmaceuticals has no guarantees or obligations other than those which arise out of normal business operations. Critical Accounting Policies and Significant Judgments and Estimates NRx Pharmaceuticals' 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 U.S. 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 U.S. GAAP, NRx Pharmaceuticals evaluates its estimates and judgments on an ongoing basis. The most significant estimates relate to the valuation of conversion features of convertible notes and common stock, the valuation of stock options and warrants and the valuation allowance of deferred tax assets resulting from net operating losses. 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. NRx Pharmaceuticals 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 NRx Pharmaceuticals applies those principles. While its significant accounting policies are more fully described in Note 3 to its financial statements, NRx Pharmaceuticals believes the following are the critical accounting policies used in the preparation of its financial statements that require significant estimates and judgments. 44 Table of Contents Fair value of common and preferred stock Prior to the Merger, in order to determine the fair value of shares of its common stock, the Company's board of directors considered, among other things, contemporaneous valuations of its common stock and preferred stock based on arms-length transactions with third party investors. Subsequent to the Merger, the Board determines the fair value of the Common Stock based on the closing market price on the date of grant. Share-based compensation Our stock-based awards are classified as equity (stock options and warrants). We recognize related share-based compensation expense based on the grant date fair value of the awards. We estimate the fair value of all stock-based awards using the Black-Scholes-Merton valuation model which requires the use of subjective assumptions that could materially impact the estimation of fair value and related compensation expense to be recognized. One of these assumptions include the expected volatility of our stock price. Developing this assumption requires the use of judgment. The Company, both prior to and after the Merger, lacks company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies. We also estimate the fair value of our common stock based on third party sales of our common stock 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 Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which 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 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 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. Earnout Cash liability The fair value of the Earnout Cash liability has been estimated using probability-weighted discounted cash flow models (DCFs) with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement as defined in ASC 820. The DCFs incorporate Level 3 inputs including estimated discount rates that we believe market participants would consider relevant in pricing and the projected timing and amount of cash flows, which are estimated and developed, considering the uncertainties associated with the obligations. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations. ​ Item 3. Quantitative and Qualitative Disclosures About Market Risk. As a smaller reporting company, we are not required to provide the information required by this Item.