Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

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' condensed 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. All references to "Note," followed by a number reference from 1 to 15 herein, refer to the applicable corresponding numbered footnotes to these condensed consolidated financial statements.

Overview

NRx Pharmaceuticals, Inc. (Nasdaq: NRXP) ("NRx", the "Company", "we", "us" or "our") is a clinical-stage bio-pharmaceutical company which develops and will distribute, through its wholly-owned operating subsidiary, NeuroRx, Inc., ("NeuroRx"), novel therapeutics for the treatment of central nervous system disorders including suicidal depression, chronic pain, post-traumatic stress disorder ("PTSD") and schizophrenia. NRx is additionally the founder and majority owner of HOPE Therapeutics, Inc. ("HOPE"), a medical services company that offers interventional psychiatry care to patients with treatment-resistant depression and PTSD with a combination of neuroplastic drugs, transcranial magnetic stimulation ("TMS"), digital therapeutics, and hyperbaric therapy. All of our current drug development activities are focused on drugs that enhance neuroplasticity by modulating 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. The Company has two lead drug candidates - NRX-100, a preservative-free formulation of ketamine for intravenous infusion, and NRX-101, an oral fixed dose combination of D-cycloserine ("DCS") and lurasidone. NRX-100 and NRX-101 are in the process of submission for Food and Drug Administration ("FDA") approval as follows:

1.

An Abbreviated New Drug Application ("ANDA") for NRX-100 was filed, with priority review requested, during the third quarter of 2025. After meeting with the FDA in August 2025, the Company re-filed the ANDA, following FDA notification of approval of a suitability petition for NRx's proposed strength of preservative-free ketamine, KETAFREETM. On November 6, 2025, the Company received a communication from the FDA in which no significant deficiencies were identified in the revised filing. This letter is consistent with the Company's ambition to launch KETAFREE™ in Q1 2026. The Company has additionally submitted a citizen petition seeking to have benzethonium chloride, a toxic preservative, removed from all commercial presentations of ketamine.

2.

A New Drug Application ("NDA") for NRX-100, originally initiated during the fourth quarter of 2024, is expected to be completed in the fourth quarter 2025. This follows award of Fast Track Designation by the FDA for the Company's expanded indication of "Treatment of Suicidal Ideation in Depression, including Bipolar Depression." A key element of the Company's PDUFA strategy has focused on obtaining data to confirm the ketamine efficacy seen in clinical trials conducted under governmental auspices in the US and France. The Company has now arranged to submit Real World Efficacy Data drawn from 65,000 patients treated for depression with intravenous ketamine compared to 6,000 patients treated with intranasal S-ketamine, which will be submitted as part of the NDA. An interim analysis drawn from the first 20,000 patients suggests that IV ketamine may have a more rapid onset of action and larger magnitude of effect than nasal S-ketamine. The Company has applied to receive a Commissioner's National Priority Voucher (CNPV), which could significantly reduce review time. The Company has completed all required manufacturing steps and demonstrated room temperature shelf stability to support a three year shelf life.

3)

An NDA filing for NRX-101 has been initiated with the submission of the Module 3 manufacturing file to the FDA. The drug was previously awarded Breakthrough Therapy Designation and accordingly the Company is requesting rolling review from the NDA. Breakthrough Therapy Designation is granted by the FDA to facilitate the development and expedite the review of drugs to treat serious conditions that address an unmet medical need and have demonstrated preliminary evidence of efficacy as determined by the FDA. Based on current data, the Company aims to seek accelerated approval for use of NRX-101 in patients with bipolar depression who exhibit suicidal ideation on currently approved medication.

4)

In the third quarter, the Company was made aware of dramatic findings suggesting that low-dose D-cycloserine (the key ingredient in NRX-101) may increase the antidepressant and antisuicidal effects of TMS by more than 2-fold, as demonstrated in a randomized controlled trial and subsequently confirmed with real world experience and mechanistic studies. Accordingly, the Company has filed a protocol with the FDA to test the use of low-dose NRX-101 in conjunction with the one-day TMS protocol (ONE-D) that has been published in association with the FDA-cleared Ampa Health TMS device. Should this study demonstrate safety and efficacy, it could represent a dramatic expansion of the market for NRX-101 and have the potential to offer patients a rapid remission from severe depression and PTSD with a single day of treatment. Millions of Americans are expected to be treated with TMS in coming years. Success in this planned clinical trial would lead to a 2027 PDUFA date for this previously unanticipated indication.

As previously announced, in February 2024, NRx incorporated HOPE Therapeutics, a medical care delivery organization focused on providing cutting-edge, comprehensive interventional psychiatric treatment with the most effective treatments available, including NMDA-targeted and other neuroplastic drugs, such as ketamine, Spravato and NRX-101, neuromodulatory devices, such as TMS, hyperbaric therapy, digital therapeutics, and medication management.

On December 2, 2024, HOPE formed HTX Management Company, LLC, a wholly owned subsidiary organized as a Delaware limited liability company, for the purpose of supporting future operations associated with any acquired businesses.

On September 8, 2025, HOPE became a revenue-generating clinical enterprise through its completion of the previously announced acquisition of Dura Medical, LLC ("Dura"), a Florida limited liability company, and a revenue-generating clinical organization with locations in Naples and Ft. Myers, Florida. Founded in 2018, Dura offers precision-based interventional psychiatry services, including ketamine infusion therapy, TMS, Spravato®, stellate ganglion blocks, and psychotherapy.

Subsequent to the third quarter, the Company completed the previously announced addition of Cohen and Associates, based in Sarasota, FL, to the HOPE Network with a strategic minority investment, which expanded HOPE's footprint on the West Coast of Florida, and related appointment of Dr. Rebecca Cohen as HOPE's Medical Director. On November 10, 2025, HOPE announced completion of clinical training on the Ampa Health TMS device and initiation of the ONE-D protocol at its Florida locations. The ONE-D protocol has been reported in the peer-reviewed literature to achieve 87% response and 72% remission from severe depression at 6 weeks following a single day of TMS treatment, combined with D-cycloserine. HOPE is the first clinical enterprise to offer this one-day treatment protocol in Florida and one of the first to offer this therapy nationwide.

Through the third quarter of 2025 and in the subsequent period, key achievements by the Company in support of its overall mission to improve and save the lives of patients affected by central nervous system disorders including suicidal depression, chronic pain, post-traumatic stress disorder and schizophrenia include the following:

Drug Development

	●	Grant of Fast Track Designation for NRX-100 from the FDA for all indications and types of depression and related disorders based on its potential to satisfy an unmet medical need. This designation represents an approximately 10-fold expansion of the addressable market to 13 million Americans, compared to the original Fast Track Designation issued in 2017 for bipolar depression alone. The Designation letter contains a specific finding that NRX-100 addresses an "unmet medical need." This is a specific qualifying requirement for the Commissioner's National Priority Voucher Program.
	●	Re-filing of an Abbreviated New Drug Application ("ANDA") for NRX-100 (preservative-free intravenous ketamine) following FDA notice of approval of its Suitability Petition for NRx's proposed strength of preservative-free ketamine, KETAFREE™. On November 6, 2025 the Company received a communication from FDA that did not identify any major deficiencies in the revised ANDA submission consistent with ANDA approval in Q2 2026.
	●	Filing of Commissioner's National Priority Voucher application for intravenous ketamine (NRX-100). Subsequently, the Company was invited to attend a closed-door listening session with the FDA Commissioner and senior staff.
	●	Submission of stability data for NRX-100 to the manufacturing data on file with FDA sufficient to support three years of room temperature shelf stability for NRX-100.
	●	Submission of draft labeling for NRX-100 in the treatment of suicidal depression based on the Fast Track Designation received.
	●	Completion of a toxicology assessment of Benzethonium Chloride, documenting its lack of "Generally Recognized as Safe" (GRAS) status and lack of safety data to support its use in intravenous presentations of ketamine.
	●	Filing of a Citizen Petition with the U.S. Food and Drug Administration to seek the removal of benzethonium chloride, a toxic preservative, from all ketamine products for intravenous administration.
	●	Filing of a patent application for NRX-100, the Company's proprietary preservative-free formulation of intravenous ketamine.
	●	Receipt of filing fee waiver from the FDA for NRX-100.
	●	Filing of module 3 manufacturing data to support a New Drug Application for NRX-101 in the treatment of patients with suicidal bipolar depression and akathisia despite treatment with already-approved medication.

HOPE Therapeutics

	●	Completed the acquisition of Dura Medical and subsequent acquisition of an interest in Cohen and Associates, LLC with first clinical revenue recorded during Q3.
	●	Appointment of Dr. Rebecca Cohen as HOPE's Medical Director.
	●	Completion of clinical training and First-in-Florida initiation of one day depression treatment (ONE-D) utilizing D-cycloserine and the Ampa Health FDA-cleared TMS device.

Recent Developments

Financing

In May 2025, the Company reinstated the at-the-market offering and increased the maximum aggregate offering amount and filed a prospectus supplement under the offering agreement for an aggregate of $20,000,000. During the three months ended September 30, 2025, in connection with the at-the-market offering, the Company sold an aggregate of 1,350,788 shares of Common Stock for approximately $3.81 million, net of less than $0.1 million in transaction costs. During the nine months ended September 30, 2025, in connection with the at-the-market offering, the Company sold an aggregate of 1,749,866 shares of Common Stock for approximately $4.75 million, net of $0.1 million in transaction costs. Pursuant to the Anson Purchase Agreement, on January 28, 2025, the Company issued $5.4 million of Third Tranche Anson Notes at an 8% original issue discount for total cash proceeds of approximately $5.0 million. On August 18, 2025, the Company entered into the Second RD Purchase Agreement with certain accredited investors for the sale of an aggregate of 3,959,999 shares of the Company's Common Stock, at a purchase price of $1.65 per share. The Second Registered Direct Offering closed on August 18, 2025, and resulted in net proceeds of approximately $6.2 million, after deducting placement agent fees and other offering-related expenses of approximately $0.3 million. On September 30, 2025, the 1,870,960 shares underlying Anson Warrants were exercised for cash proceeds of $3.09 million. Because the exercise proceeds were received subsequent to September 30, 2025, the Company recorded a subscription receivable asset of $3.09 million as of September 30, 2025. The exercise proceeds of $3.09 million were received on October 1, 2025.

Although no assurances can be given, management believes that it will be able to secure necessary financing to support and consummate both its previously announced acquisitions and potential future acquisition candidates, execute its business plan and achieve its projected revenue objectives.

Drug Development

NRX-100 - Preservative-Free Ketamine:

As described in previous filings, we have undertaken two paths to market for NRX-100: a generic-approval path under an Abbreviated New Drug Application (ANDA) to address the current generic market for ketamine and an innovative drug path under a New Drug Application (NDA) to develop ketamine for use in treating suicidal depression. The ANDA market is estimated at $750 million today and we anticipate entering this market in early 2026. There is one ketamine-based drug currently marketed for treatment of depression and its manufacturer recently reported $1.3 billion in 2024 sales. With recent positive changes in the regulatory environment, we similarly anticipate entering the innovative market for ketamine in early-mid 2026.

Our proprietary, preservative free formulation is the subject of a US patent filing that has potential to confer market exclusivity. In addition, we have filed a Citizen Petition with the FDA noting that the Benzethonium Chloride (BZT) preservative in ketamine is not Generally Recognized as Safe (GRAS) and has not been demonstrated to be safe in the context of this product. Historically, BZT was added to ketamine to enable multidose use and multi-patient use from a single vial. Those uses are no longer common in US healthcare facilities. We have performed an extensive review of the toxicology literature around BZT and determined that the FDA no longer allows BZT to be used in hand cleansers and topical antiseptics.¹BZT is part of a class of quaternary amines that have been shown to be toxic to corneal and conjunctival cells. A related compound in this class, Benzalkonium Chloride, has been removed from many eyedrops because of this demonstrated toxicity. The toxicology review link suggests that while single dose administration of preserved ketamine is generally thought of as safe, the cumulative dose of BZT with repeated intravenous administration may approach a toxicologically-concerning exposure to this compound.

¹Toxicological Evaluation of Benzethonium Chloride in Ketamine Formulations. Zenodo. https://doi.org/10.5281/zenodo.16883346)

In general, we anticipate that a preservative-free form of ketamine will be welcomed by physicians and patients, which may enable NRX-100 to gain a larger share of the existing ketamine market than would be available to an undifferentiated product. However, should the Citizens Petition be granted the share of the generic market captured by NRX-100 could be considerably higher.

The first filing of the ANDA in June 2025 received a "Refuse to Receive" letter from the FDA primarily based on a difference in the concentration of a single inactive ingredient (sodium chloride) between the NRX-100 formulation and the reference formulation of KETALAR®. The Company met with leadership of the Office of Generic Drugs and agreed to adjust the sodium chloride concentration to within 5% of the reference product. The ANDA was refiled in September 2025 and the Company received a letter in November 2025 identifying only several minor administrative discrepancies, all of which have now been addressed without starting a new regulatory cycle. The Company is aware of no impediments to an acceptance of the ANDA package and anticipates regulatory action in the Q2 2026 time frame.

The request by the FDA to alter the sodium chloride level in the ANDA formulation creates a permanent formulation difference between the ANDA product (KETAFREE™) and the NRX-100 innovative product. This difference will result in two different drug identification numbers post approval and will enable the Company to establish different commercial paths for KETAFREE™ and NRX-100. Ongoing stability data remains on track for three years of room temperature shelf stability, the maximum allowed for a sterile injectable product.

Our path to New Drug Approval of Ketamine for treatment of depression was substantially augmented on August 8, 2025 by award of an expanded Fast Track Designation (FTD) to NRX-100 by the FDA Division of Psychiatry Products. Originally, in 2017, the FDA awarded FTD to NRX-100 in association with NRX-101 for the treatment of suicidal bipolar depression. During the current quarter, the FDA gave a far broader Fast Track Designation to NRX-100, designating it for "Treatment of suicidal ideation in depression, including bipolar depression," According to the US Centers for Disease Control (CDC), 3.6 million Americans contemplate suicide each year, with 1.5 million attempting suicide and an American dying of suicide every 11 minutes.

The FDA further augmented the potential path to market of NRX-100 by establishing the Commissioner's National Priority Voucher Program (CNPV). The key criteria are shown below, taken from the FDA website. To receive a CNPV, a product must meet at least one of the criteria below. Management believes that NRX-100 meets all five criteria.

●

Addressing a U.S. public health crisis. An example could include developing a universal flu vaccine that could provide broad protection against multiple strains of influenza, including those with pandemic potential.

●

Delivering more innovative cures for the American people. The focus for this priority is transformative impact that far outstrips the threshold for breakthrough therapy designation. Examples could include creating a novel immunotherapy that reprograms the body's immune system to fight multiple diseases; or transforming mental health care through a novel treatment for PTSD.

●

Addressing a large unmet medical need. This includes a condition that available therapies do not adequately diagnose or treat, including drugs to treat or prevent rare diseases or addressing America's chronic disease crisis.

●

Onshoring drug development and manufacturing to advance the health interests of Americans and strengthen U.S. supply chain resiliency. Examples could include companies with new manufacturing establishments that shift manufacturing of essential medicines (such as generic sterile injectables) from foreign facilities to the U.S.; or a clinical trial that maintains robust U.S. enrollment to support generalizability for Americans against the U.S. standard of care.

●

Increasing affordability. This could include a company that lowers the U.S. price of a drug or drugs consistent with Most Favored Nation pricing or reduces other downstream medical utilization to lower overall healthcare costs.

Receipt of a CNPV affords a substantially faster review time of 1-2 months vs. 10-12 months, enhanced communication throughout the review process, a multidisciplinary team-based evaluation, and potential for accelerated approval if the applicable requirements are met. Key to this process is determination that the candidate product meets a large, unmet medical need. That determination was specifically made in the case of NRX-100 by the Division of Psychiatry Products and included in the Fast Track Determination letter. There is an additional feature to the CNPV that may limit eligibility to a relatively few drugs. The CNPV requires that a Company's module 3 manufacturing data be on file. These data were initially filed for NRX-100 in December 2024, and the stability data were updated in July 2025 to support three years of room temperature shelf stability.

NRx intends to seek Accelerated Approval of NRX-100. The data that have been licensed from the Government of France and Columbia University demonstrate that intravenous ketamine is superior to placebo and to active placebo in reducing suicidal ideation and depression within hours and has an effect duration of about a week. The PCORI-funded trial of ketamine vs. ECT demonstrates non-inferiority to ECT on depression over a 6-month period. The Company believes that these data are sufficient for an FDA grant of initial market access subject to confirmatory data. However, longer term data are desirable for a drug that may ultimately be used in millions of patients each year. Additional detail regarding established ketamine efficacy data is noted below.

In addition to the experimental data shown above, the Company will be presenting Real World Data from two sources that capture medical record information from approximately 70,000 and 1,200 patients, respectively. An example drawn from the first 20,000 such patients examined is depicted below and suggests that the effect of ketamine seen in Real World Data are consistent with the results observed in randomized clinical trials. Unlike the randomized trials that compared ketamine to placebo and active comparator, the Real World Data also compares intravenous ketamine to intranasal SPRAVATO® with favorable findings.

Under the accelerated approval pathway, a Company is obligated to provide confirmatory data of safety and efficacy within five years of accelerated approval. In this case, NRx has contracted with the sponsors of a 450-person randomized non-inferiority trial of intravenous racemic ketamine compared to intranasal S-ketamine. The Company hypothesizes that NRX-100 will prove to be non-inferior to intranasal S-ketamine in reducing symptoms of depression and may prove superior in reducing symptoms of suicidality.

NRX-101: Original indication in Bipolar Depression

Clinical progress related to NRX-101 is documented in recently-filed forms 10-K and 10-Q. During Q2 2025 and in subsequent events, management has focused on preparing the New Drug Application of NRX-101, submitting more than 80,000 pages of manufacturing, non-clinical, and clinical material in July 2025. Breakthrough Therapy Designation was awarded to NRX-101 by the FDA in 2018.

As noted previously, NRX-101 demonstrated a statistically-significant benefit in reduction of suicidality and reduction of akathisia in a randomized, well-controlled trial against lurasidone. These findings confirm the initial results reported in the Company's STABIL-B trial. The Company anticipates filing an NDA for Accelerated Approval of NRX-101 for treatment of "Suicidal Bipolar Depression in patients with Akathisia and Active Suicidal Ideation despite standard of care therapy." NRX-101 is the only oral medicine that has ever been demonstrated in two randomized trials to reduce active suicidality and akathisia, to the Company's knowledge. The Company is in active discussion with an academic medical center that has already demonstrated leadership in the successful phase 2 trial to conduct the confirmatory research required post Accelerated Approval under an already-funded national multicenter trial. The Company is currently applying for a PDUFA fee waiver from the FDA on the grounds of overwhelming public health need.

NRX-101: New indication in augmenting the effects of Transcranial Magnetic Stimulation (TMS).

In the third quarter, the Company identified a promising new indication for NRX-101 that potentially offers rapid path to commercialization for this Breakthrough Therapy-designated drug. Recent evidence suggests that NRX-101 may confer a significant added advantage to the clinical results of Transcranial Magnetic Stimulation.²Cole and colleagues reported that patients randomized to DCS vs. Placebo concurrent with TMS using a standard protocol experienced a greater than two-fold benefit in terms of reduction in symptoms of depression. Clinical response of 75% and remission of 40% was seen in the DCS-treated group.

A substantial body of nonclinical literature has been published in subsequent years demonstrating that DCS at low doses exerts a neuroplasticity effect and causes dendritic sprouting in areas of the brain associated with depression.

On November 4, 2025, Real World Data were presented in conjunction with use of the Ampa TMS device and a one day TMS protocol, combined with a single administration of oral DCS.³The authors reported 87% clinical response and 72% remission manifesting at 6 weeks after a single day of treatment on the Hamilton Depression Rating Scale with similar findings on other standard test measures.

²Cole J, et.al. Efficacy of Adjunctive D-Cycloserine to Intermittent Theta-Burst Stimulation for Major Depressive Disorder: A Randomized Clinical Trial. JAMA Psychiatry. 2022;79(12):1153-1161. doi:10.1001/jamapsychiatry.2022.3255

³Vaughn, Donald & Marino, Brooke & Engelbertson, Alex & Dojnov, Aleksandra & Weiss, Nick & Vila-Rodriguez, Fidel & Nanos, Georgine & Downar, Jonathan. (2024). Real-world effectiveness of a single-day regimen for transcranial magnetic stimulation using Optimized, Neuroplastogen-Enhanced techniques in Depression (ONE-D). 10.21203/rs.3.rs-5679327/v1.

Although the above studies were conducted with DCS alone, the Seromycin® (D-cycloserine) label lists a clear contra-indication for the use of DCS in patients with depression. That contraindication was part of the basis for the agreement between NRx and the FDA to combine DCS and lurasidone into NRX-101 and the FDA's decision to assign an indication for NRX-101 together with Breakthrough Therapy Designation in the treatment of Bipolar Depression. The Company has now filed with the FDA to expand the Breakthrough Therapy indication to the treatment of Treatment-resistant Depression.

Based on the above findings, NRX-101 containing comparable doses of D-cycloserine is now being offered to physicians treating with TMS who are willing to provide NRx with outcomes data. The Company is now planning a phase 3 registration trial for the use of NRX-101 vs. placebo in conjunction with Theta-burst TMS. Based on the rapid adoption of accelerated TMS and the dramatic results seen, we estimate that between 1 and 3 million Americans will receive TMS for depression annually. The Company holds numerous composition of matter and method patents on the use of NRX-101 that have the potential to create a substantial period of market exclusivity should the drug be approved.

HOPE Therapeutics: Operating Progress

In the last month of the quarter, NRx consummated, through its HOPE subsidiary, its first clinic acquisition (Dura) leading to its first revenue from operations. Note that the revenue shown on the financial statement represents only three weeks of clinical revenue and that revenues are expected to grow as more clinical footprint is acquired. In October 2025, the NRx, through its HOPE subsidiary, completed the acquisition of a minority interest in Cohen.

Subsequent to the quarter, NRx became the first clinical entity to partner with Ampa Health in the State of Florida and one of the first nationwide. The Ampa device is unique because of the results demonstrated with the ONE-D protocol and the dramatic rate of clinical response (87%) and remission (72%) seen when this TMS device is combined with the key ingredient of NRX-101. The Company is in active acquisition mode and is also establishing partnerships with TMS providers that could enable HOPE to enter into a Medical Services Organization (MSO) structure with partner entities.

In October 2018, the Company was the only commercial entity invited to participate in the national Stop Suisilence weekend at the US Army Museum at Fort Belvoir, VA. HOPE's CEO presented opposite active duty and retired members of the US military including numerous flag officers and the Senior Advisor to the Secretary of Veterans Affairs. HOPE has active contracts to provide care to Veterans through the Veterans Health Administration and to Active Duty and Retired military personnel through TRICARE. Reimbursement is provided for approved drugs and therapies including SPRAVATO and TMS, together with administration of intravenous ketamine, which remains an off-label use, pending approval of NRX-100.

Financial Results

Since inception, the Company has incurred significant operating losses. For the three months ended September 30, 2025 and 2024, the Company's net loss was $5.9 million and $1.6 million, respectively. For the nine months ended September 30, 2025 and 2024, the Company's net loss was $29.0 million and $16.1 million, respectively. As of September 30, 2025, the Company had an accumulated deficit of $307.3 million, a stockholders' deficit of $25.8 million and a working capital deficit of $28.7 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 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 stockholders. 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. The Company will continue to carefully monitor the impact of its continuing operations on its 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 condensed 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.

The accompanying condensed 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 condensed 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.

Components of Results of Operations

Revenues

The Company recognizes patient service revenue in accordance with ASC 606, Revenue from Contracts with Customers. Revenue is recognized as performance obligations are satisfied, which occurs over time as patients simultaneously receive and consume the benefits of the services provided. Each treatment or visit generally represents a separate contract.

Procedural services, such as ketamine infusions, esketamine administration, TMS sessions, and SGB/epidural procedures, are recognized at the point in time when services are rendered.

For the three and nine months ended September 30, 2025, the Company recorded total revenue of approximately $0.2 million, which was solely attributable to patient services provided by Dura following its acquisition on September 8, 2025. Prior to the acquisition, the Company did not generate revenue as it was in the development stage and primarily focused on corporate formation, financing, and acquisition-related activities.

The initial post-acquisition revenue reflects only a partial period of operations and therefore is not indicative of the Company's expected ongoing revenue levels. Management anticipates that revenue will increase in subsequent periods as Dura's operations are fully integrated and additional clinical capacity, patient volume, and service lines are expanded under the Company's ownership.

Operating Expense

Cost of patient services

Cost of patient services consists primarily of direct expenses associated with providing healthcare services, including salaries and benefits for clinical personnel, medical supplies, pharmaceuticals, and other costs directly attributable to patient care. These costs are expensed as incurred.

For the three and nine months ended September 30, 2025, cost of patient services related solely to operations of Dura following its acquisition on September 8, 2025. Given the limited period of post-acquisition operations, current cost levels are not representative of the Company's expected ongoing operating costs. Management anticipates that cost of patient services will increase in proportion with the expected growth in patient volumes and expansion of clinical activities in future periods.

Research and development expense

The Company's research and development expense consists primarily of costs associated with the Company's 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 expenses consist primarily of salaries, stock-based compensation, consultant fees, and professional fees for legal and accounting services.

Settlement (income) expense

Settlement (income) expense during the three and nine months ended September 30, 2025, consists of amounts related to the resolution of legal claims and income recognized from the reduction of previously accrued settlement liabilities, as certain matters were settled for less than originally estimated.

Results of operations for the three months ended September 30, 2025 and 2024

The following table sets forth the Company's selected statements of operations data for the following periods (in thousands):

		Three months ended September 30,								Change
		2025				2024				Dollars
		(Unaudited)
Net patient service revenue		$	242			$	-			$	242
Operating expense:
Cost of patient services		$	97			$	-			$	97
Research and development			1,429				611				818
Selling, general and administrative			2,808				2,409				399
Depreciation and amortization			26				2				24
Settlement (income) expense			(94	)			-				(94	)
Total operating expense			4,266				3,022				1,244
Loss from operations		$	(4,024	)		$	(3,022	)		$	(1,002	)
Other expense (income):
Interest income		$	(2	)		$	(6	)		$	4
Interest expense			-				-				-
Change in fair value of convertible note payable			1,502				(1,355	)			2,857
Change in fair value of warrant liabilities			4,963				(165	)			5,128
Loss on issuance of Registered Direct Offering			-				-				-
Loss on Consideration Shares and Warrants			-				-				-
Convertible note default penalty			-				-				-
Loss on convertible note conversions			772				127				645
Gain on exercise of warrants			(5,369	)			-				(5,369	)
Total other expense			1,866				(1,399	)			3,265
Loss before tax			(5,890	)			(1,623	)			(4,267	)
Net loss		$	(5,890	)		$	(1,623	)		$	(4,267	)

Net patient service revenue

For the three months ended September 30, 2025, the Company recorded $0.2 million in net patient service revenues from the clinical services provided by Dura following the acquisition dated September 8, 2025. The Company did not record revenues for the three months ended September 30, 2024.

Operating expense

Cost of patient services

For the three months ended September 30, 2025, the Company recorded $0.1 million in costs of patient services, as compared to $0 incurred during the three months ended September 30, 2024. This increase can be attributed to the acquisition of Dura on September 8, 2025.

Research and development expense

For the three months ended September 30, 2025, the Company recorded $1.4 million of research and development expense, as compared to approximately $0.6 million for the three months ended September 30, 2024. The increase of $0.8 million is related primarily due to a $0.4 million increase in clinical trials and development and a $0.3 million increase in regulatory and process development consulting costs. The research and development expense for each of the three months ended September 30, 2025 and 2024, includes less than $0.1 million of non-cash stock-based compensation.

General and administrative expense

For the three months ended September 30, 2025, the Company recorded $2.8 million of general and administrative expense, as compared to approximately $2.4 million for the three months ended September 30, 2024. The increase of $0.5 million is related primarily to an increase of $0.9 million in employee expenses and $0.1 in legal and professional expenses, partially offset by a decrease of $0.4 million in consulting costs and $0.2 million in insurance costs. General and administrative expense includes less than $0.1 million of non-cash stock-based compensation for both of the three months ended September 30, 2025 and 2024.

Settlement (income) expense

For the three months ended September 30, 2025, the Company recognized settlement income of approximately $0.1 million resulting from the adjustment of previously accrued settlement amounts, as certain legal matters were settled for less than initially accrued. The Company did not incur any settlement income or expense during the three months ended September 30, 2024.

Depreciation and amortization

Depreciation and amortization expense increased to $26 for the nine months ended September 30, 2025, compared to $2 for the same period in 2024, primarily due to the recognition of depreciation and amortization on property and equipment and intangible assets acquired in the Dura acquisition completed in September 2025.

Other expense (income)

Interest income

For the three months ended September 30, 2025, the Company recorded less than $0.1 million of interest income, as compared to less than $0.1 million of interest income for the three months ended September 30, 2024.

Change in fair value of convertible notes payable

For three months ended September 30, 2025, the Company recorded a loss of $1.5 million related to the change in fair value of the convertible notes payable which are accounted for under the fair value option. For the three months ended September 30, 2024, the Company recorded a gain of $1.4 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 three months ended September 30, 2025, the Company recorded a loss of $5.0 million related to the change in fair value of the warrant liabilities, as compared to a gain of $0.2 million for the three months ended September 30, 2024. The increase in loss during the three months ended September 30, 2025 was attributed to the warrants issued in conjunction with the First, Second and Third Tranches of the Anson Notes, additional shares of Anson Warrants issued as a result anti-dilutive provision, as well as increase in the Company's stock prices.

Loss on convertible note conversions

For the three months ended September 30, 2025, the Company recorded a loss of $0.8 million related to convertible note conversion, as compared to a loss of $0.1 million during the three months ended September 30, 2024. These conversions were calculated as the difference between the conversion price per the terms of the Anson first tranche senior secured convertible notes agreements relative to the fair value of the Common Stock on the date of conversion as described further under footnote 10 to the accompanying unaudited condensed consolidated financial statements.

Gain on exercise of warrants

For the three months ended September 30, 2025, the Company recorded a $5.4 million gain on the exercise of warrants. This results from the settlement of the warrant liability for exercised warrants (see Note 12).

Results of operations for the nine months ended September 30, 2025 and 2024

The following table sets forth the Company's selected statements of operations data for the following periods (in thousands):

		Nine months ended September 30,								Change
		2025				2024				Dollars
		(Unaudited)
Net patient service revenue		$	242			$	-			$	242
Operating expense:
Cost of patient services		$	97			$	-			$	97
Research and development			3,219				5,163				(1,944	)
Selling, general and administrative			8,492				10,903				(2,411	)
Depreciation and amortization			28				4				24
Settlement (income) expense			6				-				6
Total operating expense			11,842				16,070				(4,228	)
Loss from operations		$	(11,600	)		$	(16,070	)		$	4,470
Other expense (income):
Interest income		$	(8	)		$	(40	)		$	32
Interest expense			-				230				(230	)
Change in fair value of convertible note payable			8,032				(1,014	)			9,046
Change in fair value of warrant liabilities			8,481				(174	)			8,655
Loss on issuance of Registered Direct Offering			730				-				730
Loss on Consideration Shares and Warrants			1,277				-				1,277
Convertible note default penalty			-				849				(849	)
Loss on convertible note conversions			4,239				127				4,112
Gain on exercise of warrants			(5,369	)			-				(5,369	)
Total other expense			17,382				(22	)			17,404
Loss before tax			(28,982	)			(16,048	)			(12,934	)
Net loss		$	(28,982	)		$	(16,048	)		$	(12,934	)

Net patient service revenue

For the nine months ended September 30, 2025, the Company recorded $0.2 million in net patient service revenues from the clinical services provided by Dura following the acquisition dated September 8, 2025. The Company did not record revenues for the nine months ended September 30, 2024.

Operating expenses

Cost of patient services

For the nine months ended September 30, 2025, the Company recorded $0.1 million in costs of patient services, as compared to $0 incurred during the nine months ended September 30, 2024. This increase can be attributed to the acquisition of Dura completed on September 8, 2025.

Research and development expense

For the nine months ended September 30, 2025, the Company recorded $3.2 million of research and development expense, as compared to approximately $5.2 million for the nine months ended September 30, 2024. The decrease of $2.0 million is mainly related primarily due to the conclusion of the phase 2 study related to NRX-101 and the Company's cash conservation efforts, $0.3 million in clinical costs, $1.4 million in other regulatory and process development costs, and $0.3 million in regulatory and process consultants' fees. The research and development expense for each of the nine months ended September 30, 2025 and 2024, respectively, includes less than $0.1 million of non-cash stock-based compensation.

General and administrative expense

For the nine months ended September 30, 2025, the Company recorded $8.5 million of general and administrative expense, as compared to approximately $10.9 million for the nine months ended September 30, 2024. The decrease of $2.4 million is primary related to a decrease of $2.5 million in consultant fees, $0.4 million in insurance expense and $0.4 million by other administrative expenses, offset by increase of $0.6 million in employee expenses and $0.3 million in legal expense. General and administrative expense includes $0.7 million and $0.3 million of non-cash stock-based compensation for the nine months ended September 30, 2025 and 2024, respectively.

Depreciation and amortization

Depreciation and amortization expense increased to $28,000 for the nine months ended September 30, 2025, compared to $4,000 for the same period in 2024, primarily due to the recognition of depreciation and amortization on property and equipment and intangible assets acquired in the Dura acquisition completed in September 2025.

Settlement (income) expense

For the nine months ended September 30, 2025, the Company recognized settlement income of less than $0.1 million resulting from the adjustment of previously accrued settlement amounts, as certain legal matters were settled for less than initially accrued. The Company did not incur any settlement income or expense during the nine months ended September 30, 2024.

Other expense (income)

Interest income

For the nine months ended September 30, 2025, the Company recorded less than $0.1 million of interest income, as compared to less than $0.1 million of interest income for the nine months ended September 30, 2024.

Interest expense

For the six months ended September 30, 2025, the Company recorded $0 of interest expense, as compared to $0.2 million of interest expense for the nine months ended September 30, 2024. The decrease of $0.2 million is due to premiums for cash payments on the convertible note for the nine months ended September 30, 2024. The interest expense on the convertible notes is embedded in the change in fair value of convertible notes payable, which are accounting for under the fair value option.

Convertible note default penalty

For the nine months ended September 30, 2025, the Company recorded no default penalty, as compared to $0.8 million of a default penalty for the nine months ended September 30, 2024. The decrease is due to alleged default in connection with the convertible note in 2024 and no such event of default during the nine months ended September 30, 2025.

Change in fair value of convertible notes payable

For nine months ended September 30, 2025, the Company recorded a loss of $8.0 million related to the change in fair value of the convertible notes payable which are accounted for under the fair value option. For the nine months ended September 30, 2024, the Company recorded loss of $1.0 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 nine months ended September 30, 2025, the Company recorded a loss of $8.5 million related to the change in fair value of the warrant liabilities, as compared to a gain of $0.2 million for the nine months ended September 30, 2024. The increase in loss during the nine months ended September 30, 2025 was attributed to the warrants issued in conjunction with the First, Second and Third Tranches of the Anson Notes and the effects of the full ratchet antidilution trigger on the Anson Warrants in the third quarter of 2025, as well as increase in the Company's fair value of its common shares.

Loss on issuance of Registered Direct Offering

For the nine months ended September 30, 2025, the Company recorded a loss of $0.7 million related to the issuance of the First Registered Direct Offering, as compared to $0 during the nine months ended September 30, 2024. As the fair value of the warrant liabilities issued in the Registered Direct Offering exceeded the net proceeds received of $3.3 million, the Company recognized the excess of the fair value over the net proceeds received of $3.26 million as a loss upon issuance of RD Shares of $0.7 million which is included in other expense (income) in the condensed consolidated statement of operations for the period ended September 30, 2025.

Loss on Considerations shares and warrants

For the nine months ended September 30, 2025, the Company recognized a $1.3 million loss related to the March 20, 2025 issuance of 303,819 Consideration Shares and 303,819 Consideration Warrants to Anson under the terms of CWA. This loss, totaling $1.3 million, was recorded within other expense in the condensed consolidated statement of operations.

Loss on convertible note conversion

For the nine months ended September 30, 2025, the Company recorded a loss of $4.2 million related to convertible note conversion, as compared to $0.1 million during the nine months ended September 30, 2024. These conversions were calculated as the difference between the conversion price per the terms of the Anson first tranche senior secured convertible note agreements relative to the fair value of the Common Stock on the date of conversion as described further under footnote 10 to the accompanying unaudited condensed consolidated financial statements.

Gain on exercise of warrants

For the nine months ended September 30, 2025, the Company recorded a $5.4 million gain on the exercise of Anson warrants, resulting from the settlement of warrant liabilities for exercised awarrants (See Note 12).

Liquidity and Capital Resources

The Company has generated minimal 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 significant 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.

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 under the Offering Agreement for an aggregate of $4.9 million (the "ATM Offering"). On August 14, 2024, the Company reduced the amount under the Offering Agreement to $0 and suspended the ATM Offering. On April 17, 2025, the Company reinstated the ATM Offering and filed a prospectus supplement under the Offering Agreement for an aggregate of $20 million.

Through September 30, 2025, the Company received aggregate net cash proceeds to the Company from the ATM Offering of approximately $6.1 million, with $4.7 million of net aggregate net cash proceeds received during the nine months ending September 30, 2025.

Cash Flow

The following table presents selected financial information and statistics for each of the periods shown below:

		September 30, 2025				December 31, 2024
Balance Sheet Data:
Cash		$	7,184			$	1,443
Total assets			14,996				3,651
Convertible notes payable and accrued interest			9,909				6,257
Total liabilities			40,751				26,874
Total stockholders' deficit			(25,755	)			(23,223	)

		Nine months ended September 30,
		2025				2024
		(Unaudited)
Statement of Cash Flow Data:
Net cash used in operating activities		$	(10,399	)		$	(8,539	)
Net cash used in investing activities			(2,561	)			-
Net cash provided by financing activities			18,701				5,590
Net increase (decrease) in cash		$	5,741			$	(2,949	)

Operating Activities

During the nine months ended September 30, 2025, operating activities used approximately $10.4 million of cash, primarily resulting from a net loss of $29.0 million partially offset by net non-cash losses of $17.9 million, including $8.0 million in change in fair value of convertible promissory notes, $0.7 million of stock-based compensation and Common Stock issued in exchange for services, $4.2 million loss in convertible note conversion, $1.3 million of loss on Consideration Shares and Warrants, $0.4 million in debt issuance costs, $0.7 million in loss on issuance of Register Direct offering, $8.5 million loss in change in fair value of warrant liabilities, $5.4 million in gain on exercise of warrants, and changes in operating assets and liabilities of less than $0.1 million.

During the nine months ended September 30, 2024, operating activities used approximately $8.5 million of cash, primarily resulting from a net loss of $16.0 million, partially offset by (a) net non-cash losses of $2.1 million, including a gain of $1.0 million in change in fair value of convertible promissory notes, and gain of $0.2 million in change in fair value of warrants, $0.4 million of stock-based compensation, $1.3 million of contract costs related to Alvogen termination, $0.8 million of default penalties, $0.5 million in debt issuance costs, and (b) changes in operating assets and liabilities of $5.4 million.

Investing Activities

Net cash used in investing activities was $2.6 million for the nine months ended September 30, 2025, compared to no cash used in investing activities during the comparable period in 2024. The outflows in the current period were primarily related to the cash consideration paid in connection with the acquisition of Dura, net of cash acquired. The Company did not incur any significant capital expenditure during either period.

Financing Activities

During the nine months ended September 30, 2025, financing activities provided $18.7 million of cash resulting from $9.4 million in proceeds from issuance of Common Stock and warrants related to the RD Offering and $5.0 million in proceeds from the Anson Notes, $4.8 million in proceeds from issuance of Common Stock in connection with ATM offering, offset by $0.4 million in repayments of and by $0.2 million of proceeds from insurance notes, and $0.2 million in debt issuance costs due to the fair value election on Anson Notes.

During the nine months ended September 30, 2024, financing activities provided $5.6 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, $2.9 million in proceeds from the Anson Notes, and $2.1 million from warrant proceeds offset by $4.8 million in repayments of the convertible notes.

Contractual Obligations and Commitments

See Note 10, Debt, and Note 11, Commitments and Contingencies, of the notes to the Company's condensed consolidated financial statements as of and for the nine months ended September 30, 2025 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.

Dura Acquisition

Under Dura Definitive Purchase Agreement, The Company may be required to pay up to $3.0 million in contingent earn-out payments based on EBITDA performance during the first three years following Closing. Payments are subject to the Seller's continued employment and are prorated based on actual results achieved. The purchase price is also subject to customary post-closing adjustments for working capital, cash, and indebtedness.

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.

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 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 evaluates its estimates and judgments on an ongoing basis. The most critical estimates relate to stock-based compensation, the valuation of warrants, and the valuation of convertible notes payable. NRx bases its estimates and assumptions on current facts, historical experiences, and various other factors that NRx 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.

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, Anson Warrants, Consideration Warrants, and Anson Registered Direct Offering Warrants were 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 Notes 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 condensed 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.

Purchase Price Allocation

We account for business combinations in accordance with ASC Topic 805 Business Combinations, which requires that the assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date and that the excess of consideration transferred over the fair value of net identifiable assets be recorded as goodwill.

The allocation of the purchase price to tangible assets (clinic equipment, leasehold improvements) and identifiable intangible assets (e.g., contracts, clinic trade names) and liabilities assumed (e.g., assumed leases, employee benefit obligations) is based on management's estimate of fair value as of the acquisition date. This allocation process is considered a critical accounting estimate due to the significant judgments and assumptions inherent in determining the estimated fair values, including the selection of valuation methods (e.g., relief from royalty, multi-period excess earnings, replacement cost), discount rates, expected future cash flows, attrition rates, and useful lives of intangible assets. For the Dura acquisition, the estimated useful lives of acquired intangible assets ranged from 3 to 8 years, and discount rates applied ranged from 12% to 15%. Subsequent adjustments, within the one-year measurement period, may be made as additional information becomes available regarding facts and circumstances that existed at the acquisition date.

Goodwill

Goodwill recorded in connection with Dura acquisitions is attributable to the assembled workforce, anticipated growth in the Florida region, and synergies expected from integrating the clinics into our existing operations. Goodwill is not amortized but is subject to annual impairment testing and more frequently if indicators of impairment exist. We test goodwill for impairment for its reporting units on an annual basis, or when events occur, or when circumstances indicate the fair value of a reporting unit is below its carrying value.

We perform our annual goodwill impairment assessment on December 31^st of each year or as impairment indicators dictate.

When evaluating the potential impairment of goodwill, management first assess a range of qualitative factors, including but not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for our products and services, regulatory and political developments, entity specific factors such as strategy and changes in key personnel, and the overall financial performance for each of our reporting units. If, after completing this assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we then proceed to the impairment testing methodology using an appropriate valuation method.

We compare the carrying value of the reporting unit, including goodwill, with its fair value, as determined by its estimated discounted cash flows. If the carrying value of a reporting unit exceeds its fair value, then the amount of impairment to be recognized is recognized as the amount by which the carrying amount exceeds the fair value.

When required, we may arrive at our estimates of fair value using a discounted cash flow methodology which includes estimates of future cash flows to be generated by specifically identified assets, as well as selecting a discount rate to measure the present value of those anticipated cash flows. Estimating future cash flows requires significant judgment and includes making assumptions about projected growth rates, industry-specific factors, working capital requirements, weighted average cost of capital, and current and anticipated operating conditions. The use of different assumptions or estimates for future cash flows could produce different results.