10-Q

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

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section13(a) of the Exchange Act. ☒

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

As of May 9, 2023, there were 6,063,964 shares of common stock, par value $0.01 per share, outstanding.

This Quarterly Report on Form 10-Q, or Quarterly Report, contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this Quarterly Report regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” “would,” “could,” “should,” “potential,” “seek,” “evaluate,” “pursue,” “continue,” “design,” “impact,” “affect,” “forecast,” “target,” “outlook,” “initiative,” “objective,” “designed,” “priorities,” “goal,” or the negative of such terms and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Such statements are based on assumptions and expectations that may not be realized and are inherently subject to risks, uncertainties and other factors, many of which cannot be predicted with accuracy and some of which might not even be anticipated.

These forward-looking statements in this Quarterly Report include, among other things, statements about:

Any forward-looking statements that we make in this Quarterly Report speak only as of the date of such statement, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this Quarterly Report or to reflect the occurrence of unanticipated events. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

You should also read carefully the factors described in the “Risk Factors” included in Part II, Item 1A of this Quarterly Report and Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on February 23, 2023, or the 2022 Annual Report, to better understand significant risks and uncertainties inherent in our business and underlying any forward-looking statements. As a result of these factors, actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements in this Quarterly Report and you should not place undue reliance on any forward-looking statements.

On February 16, 2022, the Company effected a reverse split of shares of the Company’s common stock on a 1-for-35 basis (the “Reverse Stock Split”). On December 1, 2022, the Company effected a second reverse split of shares of the Company’s common stock on a 1-for-40 basis (the “December Reverse Stock Split”). All issued and outstanding shares of common stock, warrants, common stock options, and unvested restricted stock units and the related per share amounts contained in the financial statements have been retroactively adjusted to reflect these reverse stock splits for all periods presented. The par value and authorized shares of common stock were not adjusted as a result of the reverse stock splits. Additionally, the authorized, issued and outstanding shares of preferred stock and their related per share amount, other than the conversion price per share, was not adjusted as a result of the reverse stock splits.

(a) Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), for interim financial information and with the instructions of Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all of the information and notes required by U.S. GAAP for complete annual financial statements. In the opinion of management, the accompanying consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the financial statements) considered necessary to present fairly the Company’s results for the interim periods. Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2023.

The accompanying unaudited interim consolidated financial statements should be read in conjunction with the annual audited financial statements and related notes as of and for the year ended December 31, 2022 included in the Company’s Form 10-K.

(b) Use of Estimates

The preparation of financial statements and the notes to the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from such estimates.

Cash and cash equivalents represents cash in banks and highly liquid short-term investments that have maturities of three months or less when acquired to be cash equivalents. These highly liquid short-term investments are both readily convertible to known amounts of cash and so near to their maturity that they present insignificant risk of changes in value because of the changes in interest rates.

(d) Property and Equipment

Property and equipment are recorded at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which are as follows: three to seven years for furniture and office equipment; six to ten years for manufacturing equipment; and the shorter of the remaining lease term or useful life for leasehold improvements. Repairs and maintenance costs are expensed as incurred.

BAUDAX BIO, INC.

Notes to the Consolidated Financial Statements

(amounts in thousands, except share and per share data)

(Unaudited)

(e) Goodwill

Goodwill represents the excess of purchase price over the fair value of net assets acquired by the Company. Goodwill is not amortized but assessed for impairment on an annual basis or more frequently if impairment indicators exist. The impairment model prescribes a one-step method for determining impairment.

The one-step quantitative test calculates the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The Company has one reporting unit.

The Company performs its annual goodwill impairment test as of November 30th, or whenever an event or change in circumstances occurs that would require reassessment of the recoverability of goodwill. In performing the evaluation, the Company assesses qualitative factors such as overall financial performance of its reporting unit, anticipated changes in industry and market conditions, including recent tax reform, intellectual property protection, and competitive environments. The Company performed an impairment test as of March 31, 2023 after identifying indicators of impairment. There was no impairment to goodwill based on the analysis.

(f) Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash equivalents. The Company manages its cash and cash equivalents based on established guidelines relative to diversification and maturities to maintain safety and liquidity.

(g) Research and Development

Research and development costs for the Company’s proprietary products/product candidates are charged to expense as incurred. Research and development expenses consist of internal costs and funds paid to third parties for the provision of services for pre-commercialization and manufacturing scale-up activities, drug development, pre-clinical activities, clinical trials, statistical analysis, report writing and regulatory filing fees and compliance costs. At the end of the reporting period, the Company compares payments made to third-party service providers to the estimated progress toward completion of the research or development project. Such estimates are subject to change as additional information becomes available. Depending on the timing of payments to the service providers and the progress that the Company estimates has been made as a result of the service provided, the Company may record net prepaid or accrued expenses relating to these costs.

Upfront and milestone payments made to third parties who perform research and development services on the Company’s behalf are expensed as services are rendered. Costs incurred in obtaining product technology licenses are charged to research and development expense as acquired in-process research and development (“IPR&D”) if the technology licensed has not reached technological feasibility and has no alternative future use.

(h) Stock-Based Awards

Share-based compensation included in the consolidated financial statements is based upon the Baudax Bio, Inc. 2019 Equity Incentive Plan (the “2019 Plan”). The plan includes grants of stock options, time-based vesting restricted stock units (“RSUs”) and performance-based RSUs. The Company measures employee stock-based awards at grant-date fair value and recognizes employee compensation expense on a straight-line basis over the vesting period of the award. The Company accounts for forfeitures as they occur.

Determining the appropriate fair value of stock options requires the input of subjective assumptions, including the expected life of the option and expected stock price volatility. The Company uses the Black-Scholes option pricing model to value its stock option awards. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and/or management uses different assumptions, stock-based compensation expense could be materially different for future awards.

BAUDAX BIO, INC.

Notes to the Consolidated Financial Statements

(amounts in thousands, except share and per share data)

(Unaudited)

The expected life of stock options was estimated using the “simplified method,” as the Company has limited historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock options grants. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. For stock price volatility, the Company uses an average of its peer group’s volatility in order to estimate future stock price trends. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected life of the option. The Company has never declared or paid cash dividends and has no plans to do so in the foreseeable future, therefore the dividend yield is zero.

(i) Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. A valuation allowance is recorded to the extent it is more likely than not that some portion or all of the deferred tax assets will not be realized. Because of the Company’s history of losses as a standalone entity, a full valuation allowance is recorded against deferred tax assets in all periods presented.

Unrecognized income tax benefits represent income tax positions taken on income tax returns that have not been recognized in the consolidated financial statements. The Company recognizes the benefit of an income tax position only if it is more likely than not (greater than 50%) that the tax position will be sustained upon tax examination, based solely on the technical merits of the tax position. Otherwise, no benefit is recognized. The tax benefits recognized are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company does not anticipate significant changes in the amount of unrecognized income tax benefits over the next year.

(j) Net Income (Loss) Per Common Share

Net loss per common share is computed using the two-class method required due to the participating nature of the Series A Preferred Stock (as defined and discussed in Note 12(b)). Except with respect to voting and conversion, the rights of the holders of the Company’s common stock and the Company’s Series A Preferred Stock are identical. Each class of shares has the same rights to dividends. Although the Preferred Stock are participating securities, such securities do not participate in net losses and therefore do not impact the Company’s net loss per share calculation as of March 31, 2023.

Basic net loss per common share is determined by dividing net loss attributable to common shareholders by the weighted average common shares outstanding during the period. Diluted net loss per common share is determined using the weighted average common shares outstanding during the period plus the weighted average number of shares of common shares that would be issued assuming exercise or conversion of all potentially dilutive instruments. Outstanding warrants, common stock options and unvested restricted stock units are excluded from the calculation of diluted net loss per share when their effect would be anti-dilutive.

For purposes of calculating basic and diluted loss per common share, the denominator includes the weighted average common shares outstanding, the weighted average common stock equivalents for warrants priced at par value, or $0.01, as the underlying common shares will be issued for little cash consideration and the conditions for the issuance of the underlying common shares are met when such warrants are issued, and, with regard to diluted loss per common share, the number of common stock equivalents if the inclusion of such common stock equivalents would be dilutive.

BAUDAX BIO, INC.

Notes to the Consolidated Financial Statements

(amounts in thousands, except share and per share data)

(Unaudited)

The following table sets forth the computation of basic and diluted income (loss) per share:


	Three Months Ended March 31,
	2023			2022
Basic and Diluted Income (Loss) Per Share
Net loss from continuing operations	$	(7,386	)	$	(8,194	)
Net income (loss) from discontinued operation	$	18,790		$	(4,615	)
Net income (loss)	$	11,404		$	(12,809	)

Net loss per share from continuing operations	$	(3.19	)	$	(81.16	)
Net income (loss) per share from discontinued operation	$	8.10		$	(45.71	)
Net income (loss) per share of common stock, basic and diluted	$	4.91		$	(126.87	)

Weighted average common shares outstanding, basic and diluted		2,318,539			100,961


Pennsylvania	47-4639500
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

490 Lapp Road, Malvern, Pennsylvania	19355
(Address of principal executive offices)	(Zip Code)


Title of Each Class	Trading Symbol	Name of Exchange on Which Registered
Common Stock, par value $0.01	BXRX	Nasdaq Capital Market


			Page

Forward-Looking Statements			3

PART I. FINANCIAL INFORMATION			5

	Item 1.	Consolidated Financial Statements (Unaudited)	5

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39

	Item 4.	Controls and Procedures	40

PART II. OTHER INFORMATION			41

	Item 1.	Legal Proceedings	41

	Item 1A.	Risk Factors	41

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41

	Item 3.	Defaults Upon Senior Securities	42

	Item 4.	Mine Safety Disclosures	42

	Item 5.	Other Information	42

	Item 6.	Exhibits	44

SIGNATURES			46


(amounts in thousands, except share and per share data)	March 31, 2023			December 31, 2022

Assets
Current assets:
Cash and cash equivalents	$	3,803		$	5,259
Prepaid expenses and other current assets		305			303
Current assets of discontinued operation		—			785
Total current assets		4,108			6,347
Property and equipment, net		1			9
Goodwill		2,127			2,127
Other long-term assets		829			854
Non-current assets of discontinued operation		—			695
Total assets	$	7,065		$	10,032
Liabilities and Shareholders' (Deficit) Equity
Current liabilities:
Accounts payable	$	3,837		$	3,198
Accrued expenses and other current liabilities		2,534			2,364
Current portion of long-term debt, net		6,000			5,600
Current liabilities of discontinued operation		—			10,298
Total current liabilities		12,371			21,460
Long-term debt, net		1,433			1,519
Other long-term liabilities		574			598
Non-current liabilities of discontinued operation		—			10,697
Total liabilities		14,378			34,274
Commitments and contingencies (Note 11)
Shareholders’ (deficit) equity:
Preferred stock, $0.01 par value. Authorized, 10,000,000 shares; issued and outstanding, 0 shares at March 31, 2023 and December 31, 2022		—			—
Common stock, $0.01 par value. Authorized, 190,000,000 shares; issued and outstanding, 2,585,702 shares at March 31, 2023 and 1,623,913 shares at December 31, 2022		26			16
Additional paid-in capital		172,161			166,646
Accumulated deficit		(179,500	)		(190,904	)
Total shareholders’ deficit		(7,313	)		(24,242	)
Total liabilities and shareholders’ deficit	$	7,065		$	10,032


	For the Three Months Ended March 31,
(amounts in thousands, except share and per share data)	2023			2022
Operating expenses:
Research and development	$	2,917		$	694
Selling, general and administrative		1,771			6,934
Change in warrant valuation		—			(5	)
Total operating expenses		4,688			7,623
Operating loss from continuing operations		(4,688	)		(7,623	)
Other expense:
Other expense, net		(2,698	)		(571	)
Net loss from continuing operations	$	(7,386	)	$	(8,194	)
Income (loss) on discontinued operation		18,790			(4,615	)
Net income (loss)	$	11,404		$	(12,809	)

Per share information:
Net loss per share from continuing operations, basic and diluted	$	(3.19	)	$	(81.16	)
Net income (loss) per share from discontinued operation, basic and diluted	$	8.10		$	(45.71	)
Net income (loss) per share, basic and diluted	$	4.91		$	(126.87	)
Weighted average common shares outstanding, basic and diluted		2,318,539			100,961


☒		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


☐		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒

		Emerging growth company	☒


For the Three Months Ended March 31, 2023
	Preferred Stock				Common Stock				Additional
(amounts in thousands, except share data)	Shares		Amount		Shares		Amount		paid-in capital			Accumulated Deficit			Total
Balance, December 31, 2022		—	$	—		1,623,913	$	16	$	166,646		$	(190,904	)	$	(24,242	)
Stock-based compensation expense		—		—		—		—		194			—			194
Issuance of common stock and warrants for public offering, net		—		—		—		—		(55	)		—			(55	)
Issuance of shares pursuant to vesting of restricted stock units, net of shares withheld for income taxes		—		—		2		—		—			—			—
Exercise of warrants		—		—		961,787		10		4,318			—			4,328
Issuance of warrants for MAM debt amendment		—		—		—		—		1,058			—			1,058
Net income		—		—		—		—		—			11,404			11,404
Balance, March 31, 2023		—	$	—		2,585,702	$	26	$	172,161		$	(179,500	)	$	(7,313	)


	For the Three Months Ended March 31,
(amounts in thousands)	2023			2022
Cash flows from operating activities:
Net income (loss)	$	11,404		$	(12,809	)
(Income) loss on discontinued operation		(18,790	)		4,615
Adjustments to reconcile net income (loss) from continuing operations to net cash used in operating activities from continuing operations:
Stock-based compensation		191			491
Non-cash interest expense		276			226
Depreciation expense		3			14
Non-cash loss on retirement of fixed assets		5			—
Loss on extinguishment of debt		2,196			—
Change in warrant valuation		—			(5	)
Changes in operating assets and liabilities:
Prepaid expenses and other assets		28			(325	)
Accounts payable, accrued expenses and other liabilities		749			2,021
Net cash used in operating activities, continuing operations		(3,938	)		(5,772	)
Cash flows from financing activities:
Payment of deferred financing costs		(5	)		—
Proceeds from public offering, net of transaction costs		(15	)		9,074
Proceeds from registered direct offerings, net of transaction costs		—			(13	)
Payments on long-term debt		(1,100	)		—
Proceeds from warrant exercises		4,328			—
Payments of withholdings on shares withheld for income taxes		—			(2	)
Net cash provided by financing activities, continuing operations		3,208			9,059
Net (decrease) increase in cash and cash equivalents from continuing operations		(730	)		3,287
Discontinued operation:
Cash flows used in operating activities		(726	)		(7,131	)
Cash flows used in investing activities		—			(20	)
Cash flows used in financing activities		—			(500	)
Net decrease in cash and cash equivalents from discontinued operations		(726	)		(7,651	)
Cash and cash equivalents, beginning of period		5,259			15,891
Cash and cash equivalents, end of period	$	3,803		$	11,527
Supplemental disclosure of cash flow information:
Offering costs included in accounts payable and accrued expenses	$	850		$	281