Biofrontera Inc. 10-Q

Item 4. Controls and Procedures. We maintain a system of disclosure controls and procedures, as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which is designed to provide reasonable assurance that information required to be disclosed in our reports filed pursuant to the Exchange Act is accumulated and communicated to management in a timely manner. Management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives. Because there are inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud have been or will be detected. Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Corporate Controller, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, and as a result of the material weakness described below, our Chief Executive Officer and Corporate Controller concluded that, as of September 30, 2021, our disclosure controls and procedures were not effective at the reasonable assurance level. Material Weakness A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. In connection with the audits of our financial statements as of and for the years ended December 31, 2020 and December 31, 2019, we identified a material weakness in our internal control over financial reporting. The material weakness we identified pertains to our oversight of work being performed for the Company by third-party service providers; as the Company’s management review control over information produced by a third-party service provider was not sufficiently precise to identify an error. Specifically, as part of the valuation of an intangible asset in connection with the acquisition of Cutanea, we failed to identify a computational error within the valuation model for the Xepi ® intangible asset. While we have taken steps to enhance our internal control environment and continue to address the underlying cause of the material weakness by the creation of additional controls including those designed to strengthen our review and validation of the work product from third-party service providers, the steps we have taken to date, and that we are continuing to implement, may not be sufficient to remediate this material weakness or to avoid the identification of material weaknesses in the future. We will monitor the effectiveness of our remediation plan and will make changes we determine to be appropriate. We are still in process of remediating this material weakness as of September 30, 2021. If we are unable to remediate this material weakness, or if we identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal control, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence in us and, as a result, our stock price. 34 PART II – OTHER INFORMATION Item 1. Legal Proceedings See discussion of Legal Proceedings in Note 18 to the financial statements included in Part 1, Item 1 of this report. Item 1A. Risk Factors As a smaller reporting company, we are not required to provide disclosure pursuant to this item in this Form 10-Q. However, you should carefully consider the “Risk Factors” included in the Final Prospectus, for a discussion of important factors that could materially affect our business, financial condition and/or operating results.