Biofrontera Inc. 10-K

Item 8. Financial Statements and Supplementary Data INDEX TO FINANCIAL STATEMENTS Page Audited Financial Statements as of and for the Years Ended December 31, 2021 and 2020 Report of Independent Registered Public Accounting Firm (PCAOB ID No. 248 ) F-2 Balance Sheets as of December 31, 2021 and 2020 F-3 Statements of Operations for the years ended December 31, 2021 and 2020 F-4 Statements of Stockholders’ Equity for the years ended December 31, 2021 and 2020 F-5 Statements of Cash Flows for the years ended December 31, 2021 and 2020 F-6 Notes to the Financial Statements F-7 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders Biofrontera Inc. Opinion on the financial statements We have audited the accompanying balance sheets of Biofrontera Inc. (a Delaware corporation) (the “Company”) as of December 31, 2021 and 2020, the related statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2021. Boston, Massachusetts April 8, 2022 F- 2 Audited Financial Statements as of and for the Years Ended December 31, 2021 and 2020 BIOFRONTERA INC. BALANCE SHEETS ( In thousands, except par value and share amounts ) 2021 2020 December 31, 2021 2020 ASSETS Current assets: Cash and cash equivalents $ 24,545 $ 8,080 Accounts receivable, net 3,784 3,216 Other receivables, related party 8,647 73 Inventories 4,458 7,091 Prepaid expenses and other current assets 4,987 1,116 Total current assets 46,421 19,576 Other receivables long term, related party 2,813 - Property and equipment, net 267 370 Intangible asset, net 3,450 3,869 Other assets 268 323 Total assets $ 53,219 $ 24,138 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 658 $ 176 Accounts payable, related parties 282 1,538 Acquisition contract liabilities, net 3,242 - Accrued expenses and other current liabilities 9,654 2,706 Total current liabilities 13,836 4,420 Long-term liabilities: Acquisition contract liabilities, net 9,542 13,828 Warrant liabilities 12,854 - Other liabilities 5,649 62 Total liabilities $ 41,881 $ 18,310 Commitments and contingencies (see Note 23) - Stockholders’ equity: Common Stock, $ 0.001 par value, 300,000,000 shares authorized; 17,104,749 and 8,000,000 shares issued and outstanding as of December 31, 2021 and 2020 $ 17 $ 8 Additional paid-in capital 90,200 46,986 Accumulated deficit ( 78,879 ) ( 41,166 ) Total stockholders’ equity 11,338 5,828 Total liabilities and stockholders’ equity $ 53,219 $ 24,138 The accompanying notes are an integral part of these financial statements. F- 3 Audited Financial Statements as of and for the Years Ended December 31, 2021 and 2020 BIOFRONTERA INC. STATEMENTS OF OPERATIONS ( In thousands, except per share amounts and number of shares ) 2021 2020 December 31, 2021 2020 Products revenues, net $ 24,043 $ 18,787 Revenues, related party 57 62 Total revenues, net 24,100 18,849 Operating expenses Cost of revenues, related party 12,222 8,313 Cost of revenues, other 520 753 Selling, general and administrative 36,512 17,706 Selling, general and administrative, related party 697 411 Restructuring costs 752 1,132 Change in fair value of contingent consideration ( 1,402 ) 140 Total operating expenses 49,301 28,455 Loss from operations ( 25,201 ) ( 9,606 ) Other income (expense) Change in fair value of warrant liabilities ( 12,801 ) - Interest expense, net ( 344 ) ( 2,869 ) Other income, net 689 1,552 Total other income (expense) ( 12,456 ) ( 1,317 ) Loss before income taxes ( 37,657 ) ( 10,923 ) Income tax expense 56 64 Net loss $ ( 37,713 ) $ ( 10,987 ) Loss per common share: Basic and diluted $ ( 4.28 ) $ ( 479.48 ) Weighted-average common shares outstanding: Basic and diluted 8,808,233 22,915 The accompanying notes are an integral part of these financial statements. F- 4 Audited Financial Statements as of and for the Years Ended December 31, 2021 and 2020 BIOFRONTERA INC. STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands, except number of shares) Shares Amount In Capital Deficit Total Common Stock Additional Paid- Accumulated Shares Amount In Capital Deficit Total Balance at January 1, 2020 1,000 $ 0 $ - $ ( 30,179 ) $ ( 30,179 ) Conversion of debt to equity 7,999,000 8 46,986 - 46,994 Net loss - - - ( 10,987 ) ( 10,987 ) Balance at December 31, 2020 8,000,000 $ 8 46,986 $ ( 41,166 ) $ 5,828 Issuance of common stock and warrants under IPO, net of issuance costs of $ 3.1 million 3,600,000 4 14,939 - 14,943 Issuance of common stock and warrants under private placement offering, net of issuance costs of $ 0.3 million 1,350,000 1 2,689 - 2,690 Exercise of common stock warrants 2,647,606 3 13,235 - 13,238 Exercise of pre-funded warrants 1,507,143 1 12,222 - 12,223 Stock-based compensation 129 129 Net loss - - - ( 37,713 ) ( 37,713 ) Balance at December 31, 2021 17,104,749 $ 17 $ 90,200 $ ( 78,879 ) $ 11,338 The accompanying notes are an integral part of these financial statements. F- 5 Audited Financial Statements as of and for the Years Ended December 31, 2021 and 2020 BIOFRONTERA INC. STATEMENTS OF CASH FLOWS (In Thousands) 2021 2020 Years ended December 31, 2021 2020 Cash Flows From Operating Activities: Net loss $ ( 37,713 ) $ ( 10,987 ) Adjustments to reconcile net loss to cash flows used in operations Depreciation 122 144 Amortization of acquired intangible assets 418 418 Change in fair value of contingent consideration ( 1,402 ) 140 Change in fair value of warrant liabilities 12,801 - Stock-based compensation 129 - Provision for inventory obsolescence 33 401 Provision for (recovery of) doubtful accounts 44 ( 16 ) Non-cash interest expense 358 358 Changes in operating assets and liabilities: Accounts receivable ( 612 ) 1,169 Other receivables, related party ( 11,387 ) - Prepaid expenses and other assets ( 3,809 ) 364 Inventories 2,592 ( 273 ) Accounts payable and related party payables ( 773 ) ( 3,402 ) Accrued expenses and other liabilities 12,484 ( 685 ) Cash flows used in operating activities ( 26,715 ) ( 12,369 ) Cash flows from investing activities Purchases of property and equipment ( 11 ) - Cash flows used in investing activities ( 11 ) - Cash flows from financing activities Proceeds from issuance of common stock and warrants upon initial public offering, net of issuance costs 14,943 - Proceeds from issuance of common stock and warrants in private placement, net of issuance costs 14,995 - Proceeds from exercise of warrants 13,253 - Proceeds from related party indebtedness - 8,794 Proceeds from start-up cost financing - 4,400 Cash flows provided by financing activities 43,191 13,194 Net increase in cash and cash equivalents 16,465 825 Cash, cash equivalents and restricted cash, at the beginning of the period 8,277 7,452 Cash, cash equivalents and restricted cash, at the end of the period $ 24,742 $ 8,277 Supplemental disclosure of cash flow information Interest paid – related party $ - $ 3,073 Interest paid $ 2 $ - Income tax paid, net $ 56 $ 64 Supplemental non-cash investing and financing activities Issuance of 7,999,000 shares of common stock for conversion of debt $ - $ 46,994 Issuance costs included in accrued expenses and other liabilities $ 44 $ - Non-cash purchase of fixed assets $ 8 $ - Conversion of warrant liability to equity $ 12,208 $ - The accompanying notes are an integral part of these financial statements. F- 6 Notes to the Audited Financial Statements as of and for the Years Ended December 31, 2021 and 2020 1. Business Overview We are a U.S.-based biopharmaceutical company specializing in the commercialization of pharmaceutical products for the treatment of dermatological conditions, in particular, diseases caused primarily by exposure to sunlight that results in sun damage to the skin. Our principal licensed products focus on the treatment of actinic keratoses, which are skin lesions that can sometimes lead to skin cancer. We also market a licensed topical antibiotic for treatment of impetigo, a bacterial skin infection. Our principal product is Ameluz®, which is a prescription drug approved for use in combination with our licensor’s FDA approved medical device, the BF-RhodoLED® lamp series, for photodynamic therapy (“PDT”) (when used together, “Ameluz® PDT”) in the U.S. for the lesion-directed and field-directed treatment of actinic keratosis of mild-to-moderate severity on the face and scalp. We are currently selling Ameluz® for this indication in the U.S. under an exclusive license and supply agreement (“Ameluz LSA”) with Biofrontera Pharma GmbH dated as of October 1, 2016, as subsequently amended. Our second prescription drug product is Xepi® (ozenoxacin cream, 1%), a topical non-fluorinated quinolone that inhibits bacterial growth. Currently, no antibiotic resistance against Xepi® is known and it has been specifically approved by the FDA for the treatment of impetigo due to staphylococcus aureus or streptococcus pyogenes. The approved indication is impetigo, a common skin infection. It is approved for use in adults and children 2 months and older. We are currently selling Xepi® for this indication in the U.S. under an exclusive license and supply agreement (“Xepi LSA”) with Ferrer Internacional S.A. that was acquired by Biofrontera Inc. on March 25, 2019 through our acquisition of Cutanea Life Sciences, Inc. Refer to Note 16, Related Party Transactions , for further details. Liquidity and Going Concern The Company’s primary sources of liquidity are its existing cash balances and cash flows from equity financing transactions. During the year ended December 31, 2021, we received aggregate proceeds of $ 43.2 million, including $ 14.9 million from the sale of common stock in our IPO, $ 15.0 million from a private placement, and $ 13.3 million from warrants exercised for our common stock (See Note 18. Stockholders’Equity ). As of December 31, 2021, we had cash and cash equivalents of $ 24.5 million, compared to $ 8.1 million as of December 31, 2020. Since we commenced operations in 2015, we have generated significant losses. For the years ended December 31, 2021 and 2020, we incurred net losses of $ 37.7 million and $ 11.0 million, respectively. We incurred net cash outflows from operations of $ 26.7 million and $ 12.4 million, for the same periods, respectively. We had an accumulated deficit as of December 31, 2021 of $ 78.9 million. The Company’s short-term material cash requirements include working capital needs and satisfaction of contractual commitments including auto leases (see Note 23, Commitments and Contingencies ), Maruho start-up payments of $ 7.3 million (see Note 3. Acquisition Contract Liabilities ), and legal settlement expenses after reimbursement from Biofrontera AG of $ 5.6 million (see Note 13. Accrued Expenses and Other Current Liabilities ). Long-term material cash requirements include potential milestone payments to Ferrer Internacional S.A (See Note 23. Commitments and Contingencies ) and contingent consideration payments to Maruho (see Note 3. Acquisition Contract Liabilities). Additionally, we expect to continue to incur operating losses due to significant discretionary sales and marketing efforts as we seek to expand the commercialization of Ameluz ® and Xepi ® in the United States. We also expect to incur additional expenses to add and improve operational, financial and information systems and personnel, including personnel to support our product commercialization efforts. In addition, we expect to incur significant costs to continue to comply with corporate governance, internal controls and similar requirements applicable to us as a public company in the U.S. We expect capital expenditures to increase in 2022 to support the increase in our business needs including an ERP system. These factors raise doubt about our ability to continue as a going concern, which we have determined are mitigated by the following plans. Based on current operating plans and financial forecasts, we expect that our current cash and cash equivalents will be sufficient to fund our operations for at least the next twelve months from the date of issuance of our financial statements. However, we expect to have to obtain either equity or debt financing in the near term to support our future long-term growth and to mitigate the risk of our operating costs significantly exceeding the amounts currently estimated. If our current operating plans or financial forecasts change, or we are unable to obtain additional financing, we may need to reduce the discretionary spend on promotional expenses, branding, marketing consulting and defer some hiring. While we expect to continue being flexible in our spending over the next twelve months, we do not consider there to be a need to significantly revise our operations currently. F- 7 COVID-19 Related Risks and Uncertainties Since the beginning of 2020, COVID-19 has become a global pandemic. As a result of the measures implemented by governments around the world, our business operations have been directly affected. In particular, we experienced a significant decline in demand for our licensed products as a result of different priorities for medical treatments emerging, thereby causing a delay of actinic keratosis treatment for most patients. In order to mitigate the risk from COVID-19, we took expedited measures to reduce operating expenses and preserve cash, including headcount reduction, mandatory furlough, freezing hiring and discretionary spend, and voluntary salary reductions from the senior leadership. Due to the above management initiatives, lifting of some of the government restrictions and reopening of our customers’ businesses, our revenue recovered quickly since March 2021 . We were granted a one-time employee retention credit (“ERC”) under CARES Act in the amount of $ 0.3 million, which was recorded as other income during the year ended December 31, 2020. Due to the speed and fluidity with which the COVID-19 pandemic continues to evolve, and the emergence of highly contagious variants, we do not yet know the full extent of the impact of COVID-19 on our business operations. The ultimate extent of the impact of any epidemic, pandemic, outbreak, or other public health crisis on our business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of such epidemic, pandemic, outbreak, or other public health crisis and actions taken to contain or prevent the further spread, including the effectiveness of vaccination and booster vaccination campaigns, among others. Accordingly, we cannot predict the extent to which our business, financial condition and results of operations will be affected. 2. Summary of Significant Accounting Policies Basis for Preparation of the Financial Statements The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The information presented reflects the application of significant accounting policies described below. The financial statements are presented in U.S. dollars (“USD”). Segment Reporting Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision-maker in deciding how to allocate resources and assess performance. The Company’s chief operating decision maker (determined to be the Chief Executive Officer) does not manage any part of the Company separately, and the allocation of resources and assessment of performance are based on the Company’s operating results. We operate in a single reporting segment, the commercialization of pharmaceutical products for the treatment of dermatological conditions and diseases within the U.S. All business operations focus on the products Ameluz ® , including the complementary product BF-RhodoLED ® , and Xepi ® . We monitor and manage our business operations across these products collectively as one reporting segment. Use of Estimates The preparation of the financial statements in accordance with GAAP requires the use of estimates and assumptions by management that affect the reported amounts of assets and liabilities, as well as disclosure of contingent assets and liabilities, as reported on the balance sheet date, and the reported amounts of revenues and expenses arising during the reporting period. The main areas in which assumptions, estimates and the exercising of judgment are appropriate relate to, valuation allowances for receivables and inventory, contingent consideration, valuation of intangible and other long-lived assets, product sales allowances and reserves, share-based payments and income taxes including deferred tax assets and liabilities. Estimates are based on historical experience and other assumptions that are considered appropriate in the circumstances. They are continuously reviewed but may vary from the actual values. F- 8 Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less at the time of purchase to be cash equivalents. Restricted Cash Restricted cash consists primarily of deposits of cash collateral held in accordance with the terms of our corporate credit cards, in addition to one deposit held for a sublease. Accounts Receivable Accounts receivables are reported at their net realizable value. Any value adjustments are booked directly against the relevant receivable. We have standard payment terms that generally require payment within approximately 30 to 90 days. Management performs ongoing credit evaluations of its customers. An allowance for potentially uncollectible accounts is provided based on history, economic conditions, and composition of the accounts receivable aging. In some cases, the Company makes allowances for specific customers based on these and other factors. Provisions for the allowance for doubtful accounts are recorded in selling, general and administrative expenses in the accompanying statements of operations. Concentration of Credit Risk and Off-Balance Sheet Risk Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents, accounts receivable and other receivables, related party. The Company maintains all of its cash and cash equivalents at a single accredited financial institution, in amounts that exceed federally insured limits. The Company has no significant off-balance sheet risk such as foreign exchange contracts, option contracts, or other foreign hedging arrangements. Concentrations of credit risk with respect to receivables, which are typically unsecured, are somewhat mitigated due to the wide variety of customers using our products. We monitor the financial performance and creditworthiness of our customers so that we can properly assess and respond to changes in their credit profile. We continue to monitor these conditions and assess their possible impact on our business. Other receivables, related party consists of a receivable due from Biofrontera AG for its 50 % share of a legal settlement for which they are jointly and severally liable for the total settlement amount. The Company has a contractual right to repayment of its share of the settlement payment from Biofrontera AG under the Settlement Allocation Agreement entered into on December 9, 2021, which provided that the settlement payments would first be made by the Company and then reimbursed by Biofrontera AG for its share. Although this receivable has credit risk, it is mitigated by an executed Pledge Agreement which grants us a security interest in shares of stock for which we will have the right to sell upon an event of default. We are dependent on two suppliers, Biofrontera Pharma GmbH and Ferrer Internacional S.A., to supply drug products, including all underlying components, for our commercial efforts. These efforts could be adversely affected by a significant interruption in the supply of our finished products. Inventories Finished goods consist of pharmaceutical products purchased for resale and are stated at the lower of cost or net realizable value. Cost is calculated by applying the first-in-first-out method (FIFO). Inventory costs include the purchase price of finished goods and freight-in costs. The Company regularly reviews inventory quantities on hand and writes down to its net realizable value any inventory that it believes to be impaired. Management considers forecast demand in relation to the inventory on hand, competitiveness of product offerings, market conditions and product life cycles when determining excess and obsolescence and net realizable value adjustments. Once inventory is written down and a new cost basis is established, it is not written back up if demand increases. F- 9 Property, Plant and Equipment Property, plant and equipment are recorded at cost less accumulated depreciation. Depreciation is generally applied straight-line over the estimated useful life of assets. Leasehold improvements are amortized over the shorter of the asset’s estimated useful life or the lease term. The estimated useful lives of property, plant and equipment are: Schedule of Estimated Useful Lives of Property, Plant and Equipment Estimated Useful Life in Years Computer equipment 3 years Computer software 3 years Furniture and fixtures 3 - 5 years Leasehold improvements Shorter of estimated useful lives or the term of the lease Machinery & equipment 3 - 4 years The cost and accumulated depreciation of assets retired or sold are removed from the respective asset category, and any gain or loss is recognized in our statements of operations. Intangible Assets Intangible assets with finite lives are amortized over their estimated useful lives. Intangible assets with indefinite lives are not amortized. Intangible assets with finite lives and other long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of intangible assets with finite lives and other long-lived assets is measured by a comparison of the carrying amount of an asset or asset group to future net undiscounted cash flows expected to be generated by the asset or asset group. If these comparisons indicate that an asset is not recoverable, the Company will recognize an impairment loss for the amount by which the carrying value of the asset or asset group exceeds the related estimated fair value. Estimated fair value is based on either discounted future operating cash flows or appraised values, depending on the nature of the asset. Contingent Consideration Contingent consideration in a business combination is included as part of the acquisition cost and is recognized at fair value as of the acquisition date. For contingent consideration management is responsible for determining the appropriate valuation model and estimated fair value, and in doing so, considers a number of factors, including information provided by an outside valuation advisor. Contingent consideration liabilities are reported at their estimated fair values based on probability-adjusted present values of the consideration expected to be paid, using significant inputs and estimates. Key assumptions used in these estimates include probability assessments with respect to the likelihood of achieving certain milestones and discount rates consistent with the level of risk of achievement. The fair value of contingent consideration liabilities are remeasured each reporting period, with changes in the fair value included in current operations. The remeasured liability amount could be significantly different from the amount at the acquisition date, resulting in material charges or credits in future reporting periods. F- 10 Contingencies Loss contingency provisions are recorded if the potential loss from any claim, asserted or unasserted, or legal proceeding is considered probable and the amount can be reasonably estimated or a range of loss can be determined. These accruals represent management’s best estimate of probable loss. Disclosure also is provided when it is reasonably possible that a loss will be incurred or when it is reasonably possible that the amount of a loss will exceed the recorded provision. On a quarterly basis, we review the status of each significant matter and assess its potential financial exposure. Significant judgment is required in both the determination of probability and as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, accruals are based only on the best information available at the time. As additional information becomes available, we reassess the potential liability related to pending claims and litigation and may change our estimates. Legal costs associated with legal proceedings are expensed when incurred. Derivative Instruments The Company accounts for common stock warrants as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the warrants and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own stock and whether the holders of the warrants 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. At their issuance date and as of December 31, 2021, the IPO Warrants (see Note 18) were accounted for as equity as these instruments meet all of the requirements for equity classification under ASC 815-40. The Purchase Warrant and Pre-funded Warrant issued in connection with the private placement offering completed on December 1 , 2021 were accounted for as liabilities as these warrants provide for a cashless settlement provision which fails the requirement of the indexation guidance under ASC 815-40. The resulting warrant liabilities are re-measured at each balance sheet date until their exercise or expiration, and any change in fair value is recognized in the Company’s statement of operations. The fair values of the Purchase Warrant and Pre-funded Warrant as of December 1, 2021, the issuance date, were $ 5.7 million and $ 6.5 million, respectively. Given the nominal strike price of $ 0.0001 , the fair value of the Pre-funded Warrant was deemed to be equal to the market price of the underlying common stock. The fair value of the Purchase Warrant was estimated using Black-Scholes pricing model based on the following assumptions: Schedule of Fair value Warrant by Using Black-Scholes Pricing Model Assumptions At Issuance Date Stock price $ 4.33 Expiration term (in years) 5 Volatility 60.0 % Risk-free Rate 1.15 % Dividend yield 0.0 % The private placement offering costs of $ 1.7 million were allocated between warrants and the common stock based on the allocated proceeds. The offering costs allocated to the Purchase and Pre-funded Warrants of $ 1.4 million were immediately expensed and recorded as selling, general and administrative expense in the statement of operations for the year ended December 31, 2021. On December 28, 2021, the warrant holder exercised the Pre-funded Warrant. The Company revalued the Pre-funded Warrant at fair value of $ 12.2 million at the exercise date and reclassified the warrant liability balance into equity. The change in the fair value of $ 5.7 million of the Pre-funded Warrant between the issuance date and the exercise date was recognized in the statement of operations. The fair value of the Purchase Warrant that remained outstanding at December 31, 2021 was $ 12.9 million. The change in the fair value of $ 7.1 million of the Purchase Warrant between the issuance date and December 31, 2021 was recognized in the statement of operations. The fair value was estimated using Black-Scholes pricing model based on the following assumption: December 31, 2021 Stock price $ 7.52 Expiration term (in years) 4.92 Volatility 60.0 % Risk-free Rate 1.25 % Dividend yield 0.0 % Fair Value Measurements The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. ASC 820, Fair Value Measurements and Disclosures , or ASC 820, establishes a hierarchy of inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. The three levels of the fair value hierarchy are described below: Level 1 – Quoted prices in active markets for identical assets or liabilities. Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 – Unobservable inputs using estimates or assumptions developed by the Company, which reflect those that a market participant would use in pricing the asset or liability. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Fair Value of Financial Instruments The carrying amounts reflected in the balance sheets for cash and cash equivalents, accounts receivable, other receivables, prepaid expenses and other current assets, accounts payable and accrued expenses and other current liabilities approximate their fair values, due to their short-term nature. F- 11 Revenue Recognition The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers . Under ASC Topic 606, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. We recognize revenue when the customer obtains control of our product, which occurs at a point in time, typically upon delivery to the customer. To determine revenue recognition, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. We only apply the five-step model to contracts when collectability of the consideration to which we are entitled in exchange for the goods or services we transfer to the customer is determined to be probable. The Company realizes its revenue primarily through the sale of its pharmaceutical products. Sales of Ameluz ® are made directly to physicians, hospitals or other qualified healthcare providers. Sales are recognized, net of sales deductions, when ownership and control are transferred to the customer, which is generally upon delivery. Sales deductions include expected trade discounts and allowances, product returns, and government rebates. These discounts and allowances are estimated at the time of sale based on the amounts incurred or expected to be received for the related sales. Xepi® is sold directly to specialty pharmacies. Sales are recognized net of sales deductions when ownership and control are transferred to the customer, which is generally upon delivery. Sales deductions include expected returns, discounts and incentives such as payments made under patient assistance programs. These rebates are estimated at the time of sale based on the amounts incurred or expected to be received for the related sales. The payment terms for sales of our pharmaceutical products are generally short-term payment terms with the possibility of volume-based discounts,co-pay assistance discounts, or other rebates. BF RhodoLED ® is also sold directly to physicians, hospitals or other qualified healthcare providers through (i) direct sales or (ii) an evaluation period up to six-month for a fee, after which a customer can decide to purchase or return the lamp. For direct sales, revenue is recognized only after complete installation has taken place. As directed by the instruction manual, the lamp may only be used by the customer once it has been professionally installed. A final decision to purchase the lamps that are within the evaluation period does not need to be made until the end of the evaluation period. Lamps that are not returned at the end of the evaluation period are converted into sales in accordance with the contract terms. The Company generates immaterial revenues from the monthly fees during the evaluation period and from the sale of lamps at the end of the evaluation period. Variable Consideration Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which sales reserves are established and which result from discounts, rebates and other incentives that are offered within contracts between the Company and its customers. Components of variable consideration include trade discounts and allowances, product returns, government rebates, and other incentives such as patient co-pay assistance. Variable consideration is recorded on the balance sheet as either a reduction of accounts receivable, if expected to be claimed by a customer, or as a current liability, if expected to be payable to a third party other than a customer. Where appropriate, these estimates take into consideration relevant factors such as the Company’s historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. These reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the contract. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates, and record any necessary adjustments in the period such variances become known. F- 12 Trade Discounts and Allowances – The Company provides customers with trade discounts, rebates, allowances and/or other incentives. The Company records estimates for these items as a reduction of revenue in the same period the revenue is recognized. Government and Payor Rebates – The Company contracts with, or is subject to arrangements with, certain third-party payors, including pharmacy benefit managers and government agencies, for the payment of rebates with respect to utilization of its commercial products. The Company is also subject to discount and rebate obligations under state and federal Medicaid programs and Medicare. The Company records estimates for these discounts and rebates as a reduction of revenue in the same period the revenue is recognized. Other Incentives – The Company maintains a co-pay assistance program which is intended to provide financial assistance to qualified patients with the cost of purchasing Xepi®. The Company estimates and records accruals for these incentives as a reduction of revenue in the period the revenue is recognized. The Company estimates amounts for co-pay assistance based upon the number of claims and the cost per claim that the Company expects to receive associated with products sold to customers but remaining in the distribution channel at the end of each reporting period. Royalties For arrangements that include sales-based royalties, the Company recognizes royalty expense at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). Royalty expense is recognized as cost of revenues. Product Warranty The Company generally provides a 36-month warranty for sales of BF-RhodoLED ® for which estimated contractual warranty obligations are recorded as an expense at the time of installation. Customers do not have the option to purchase the warranty separately and the warranty does not provide the customer with a service beyond the assurance that BF-RhodoLED ® complies with agreed-upon specifications. Therefore, the warranty is not considered to be a performance obligation. The lamps are subject to regulatory and quality standards. Future warranty costs are estimated based on historical product performance rates and related costs to repair given products. The accounting estimate related to product warranty expense involves judgment in determining future estimated warranty costs. Should actual performance rates or repair costs differ from estimates, revisions to the estimated warranty liability would be required. Warranty expense incurred in 2021 and 2020 were $( 20,000 ) and $ 73,000 , respectively and are recognized as selling, general and administrative expenses. Contract Costs Incremental costs of obtaining a contract with a customer may be recorded as an asset if the costs are expected to be recovered. As a practical expedient, we recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that we otherwise would have recognized is one year or less. Sales commissions earned by the Company’s sales force are considered incremental costs of obtaining a contract. To date, we have expensed sales commissions as these costs are generally attributed to periods shorter than one year. Sales commissions are included in selling, general and administrative expenses. Cost of Revenues Cost of revenues is comprised of purchase costs of our products, third party logistics and distribution costs including packaging, freight, transportation, shipping and handling costs, and inventory adjustment due to expiring products, as well as sales-based royalties. Logistics and distribution costs totaled $ 0.4 million and $ 0.3 million for the years ended December 31, 2021 and 2020. F- 13 Share-Based Compensation The Company measures and recognizes share-based compensation expense for equity awards based on fair value at the grant date. The Company uses the Black-Scholes-Merton (“BSM”) option pricing model to calculate fair value of its stock option grants. The compensation cost for restricted stock awards is based on the closing price of the Company’s common stock on the date of grant. Share-based compensation expense recognized in the statements of operations is based on the period the services are performed and recognized as compensation expense on a straight-line basis over the requisite service period. The Company accounts for forfeitures as they occur. The BSM option pricing model requires the input of subjective assumptions, including the risk-free interest rate, the expected volatility of the value of the Company’s common stock, and the expected term of the option. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, the share-based compensation expense could be materially different in the future. These assumptions are estimated as follows: Risk-Free Interest Rate. The risk-free rate is based on the interest rate payable on United States Treasury securities in effect at the time of grant for a period that is commensurate with the assumed expected term. Expected Volatility. The Company based the volatility assumption on a weighted average of the peer group re-levered equity volatility with 80 % weight and the warrant implied volatility with 20 % weight. The peer group was developed based on companies in the biotechnology industry whose shares are publicly traded. Due to our limited historical data and the long-term nature of the awards, the peer group volatility was much more heavily weighted. Expected Term. The expected term represents the period of time that options are expected to be outstanding. Due to the lack of historical exercise data and given the plain vanilla nature of the options granted by the Company, the expected term is determined using the “simplified” method, as prescribed in SEC Staff Accounting Bulletin (“SAB”) No. 107 (“SAB 107”), whereby the expected life equals the average of the vesting term and the original contractual term. Dividend Yield. The dividend yield is 0% as the Company has never declared or paid, and for the foreseeable future does not expect to declare or pay, a dividend on its common stock. Foreign Currency Transactions Transactions realized in currencies other than USD are reported using the exchange rate on the date of the transaction. Selling, General and Administrative Expense Selling, general and administrative expenses are primarily comprised of compensation and benefits associated with our sales force, commercial support personnel, personnel in executive and other administrative functions, as well as medical affairs professionals. Other selling, general and administrative expenses include marketing, advertising, and other commercial costs to support the commercial operation of our product and professional fees for legal, consulting, and other general and administrative costs. Advertising costs are expensed as incurred. For the years ended December 31, 2021 and 2020, advertising costs totaled $ 0.5 million and $ 0.3 million, respectively. Income Taxes The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, Income Taxes , which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or in the Company’s tax returns. Deferred taxes are determined based on the difference between the financial reporting and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies. The Company accounts for uncertainty in income taxes recognized in the financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties. F- 14 Net Loss per Share Basic and diluted net income (loss) per common share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding. When the effects are not anti-dilutive, diluted earnings per share is computed by dividing the Company’s net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding and the impact of all dilutive potential common shares outstanding during the period, including stock options, restricted stock units, and warrants, using the treasury stock method. Recently Issued Accounting Pronouncements In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) , amending accounting guidance to simplify the accounting for income taxes, as part of its initiative to reduce complexity in the accounting standards. The amendments eliminate certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The amendments also clarify and simplify other aspects of the accounting for income taxes. The new standard is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. This standard became effective for us on January 1, 2021 and did not have a material impact on our financial statements and related disclosures. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , which requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The new guidance requires that a lessee recognize assets and liabilities for leases with lease terms of more than twelve months and recognition, presentation and measurement in the financial statements will depend on the lease classification as a finance or operating lease. In addition, the new guidance will require disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. The JOBS ACT provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows us to delay the adoption this new standard until it would otherwise apply to private companies. The new standard will be effective for us for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact of adopting this guidance. F- 15 In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , which requires entities to record expected credit losses for certain financial instruments, including trade receivables, as an allowance that reflects the entity’s current estimate of credit losses expected to be incurred. The new standard will be effective for us on January 1, 2023. The Company is currently evaluating the impact of adopting this guidance. 3. Acquisition Contract Liabilities On March 25, 2019, we entered into an agreement (as amended, the “Share Purchase Agreement”) with Maruho Co, Ltd. (“Maruho”) to acquire 100 % of the shares of Cutanea Life Sciences, Inc. (“Cutanea”). As of the date of the acquisition, Maruho Co, Ltd. owned approximately 29.9 % of Biofrontera AG through its fully owned subsidiary Maruho Deutschland GmbH. Biofrontera AG is our former parent, and currently a significant shareholder. Pursuant to the Share Purchase Agreement, Maruho agreed to provide $ 7.3 million in start-up cost financing for Cutanea’s redesigned business activities (“start-up costs”). These start-up costs are to be paid back to Maruho by the end of 2023 in accordance with contractual obligations related to an earn-out arrangement. In addition, as part of the earn-out arrangement with Maruho, the product profit amount from the sale of Cutanea products as defined in the share purchase agreement will be shared equally between Maruho and Biofrontera until 2030 (“contingent consideration”). In connection with this acquisition in 2019, we recorded the $ 7.3 million in start-up cost financing, a $ 1.7 million contract asset related to the benefit associated with the non-interest bearing start-up cost financing and $ 6.5 million of contingent consideration related to the estimated profits from the sale of Cutanea products to be shared equally with Maruho. The contract asset related to the start-up cost financing is amortized on a straight-line basis using a 6.0 % interest rate over the 57 -month term of the financing arrangement, which ends on December 31, 2023 . The contract asset is shown net of the related start-up cost financing within acquisition contract liabilities, net. The contingent consideration was recorded at acquisition-date fair value using a Monte Carlo simulation with an assumed discount rate of 6.0 % over the applicable term. The contingent consideration is recorded within acquisition contract liabilities, net. The amount of contingent consideration that could be payable is not subject to a cap under the agreement. The Company re-measures contingent consideration and re-assesses the underlying assumptions and estimates at each reporting period utilizing a scenario-based method. Acquisition contract liabilities, net consist of the following: Schedule of Acquisition Contract Liabilities (in thousands) Short Term Long Term December 31, 2021 December 31, 2020 Contingent consideration $ - $ 6,200 $ 6,200 $ 7,602 Start-up cost financing 3,600 3,700 7,300 7,300 Contract asset ( 358 ) ( 358 ) ( 716 ) ( 1,074 ) Acquisition contract liabilities, net $ 3,242 $ 9,542 $ 12,784 $ 13,828 4. Fair Value Measurements The following table presents information about the Company’s assets that are measured at fair value on a recurring basis at December 31, 2021 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value: Schedule of Fair Value Hierarchy Valuation Inputs December 31, (in thousands) Level 2021 Liabilities: Contingent Consideration 3 $ 6,200 Warrant liability – Purchase warrant 3 $ 12,854 Contingent Consideration Contingent consideration, which relates to the estimated profits from the sale of Cutanea products to be shared equally with Maruho, is reflected at fair value within acquisition contract liabilities, net on the balance sheets. The fair value is based on significant inputs not observable in the market, which represent a Level 3 measurement within the fair value hierarchy. The valuation of the contingent consideration utilizes a scenario-based method under which a set of payoffs are calculated using the term of the earnout, projections, and an appropriate metric risk premium. These payoffs are then discounted back from the payment date to the valuation date using a payment discount rate. Finally, the discounted payments are summed together to arrive at the value of the contingent consideration. The scenario-based method incorporates the following key assumptions: (i) the forecasted product profit amounts, (ii) the remaining contractual term, (iii) a metric risk premium, and (iv) a payment discount rate. The Company re-measures contingent consideration and re-assesses the underlying assumptions and estimates at each reporting period. F- 16 The following table provides a roll forward of the fair value of the contingent consideration: Schedule of Fair Value of Contingent Consideration (in thousands) Balance at December 31, 2019 $ 7,462 Change in fair value of contingent consideration 140 Balance at December 31, 2020 $ 7,602 Change in fair value of contingent consideration ( 1,402 ) Balance at December 31, 2021 $ 6,200 The increase (decrease) in fair value of the contingent consideration in the amount of $( 1.4 ) million and $ 0.1 million during the years ended December 31, 2021 and 2020 was recorded in operating expenses in the statements of operations. Warrant Liability The Purchase and Pre-funded Warrants were accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities in the accompanying balance sheet. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within the statement of operations. The Company utilizes a Black-Scholes option pricing model to estimate the fair value of the Purchase Warrant which is considered a Level 3 fair value measurement. Certain inputs utilized in our Black-Scholes pricing model may fluctuate in future periods based upon factors which are outside of the Company’s control. A significant change in one or more of these inputs used in the calculation of the fair value may cause a significant change to the fair value of our warrant liability which could also result in material non-cash gain or loss being reported in our statement of operations. The estimated fair value of the Pre-funded Warrant was deemed a Level 2 measurement as of December 31, 2021, as all the significant inputs to the valuation model used to estimate the fair value of these warrants were directly observable from the listed common stock shares. The following table presents the changes in the warrant liabilities measured at fair value (in thousands): Schedule of Changes in Fair Value Warrant Liabilities 1 2 3 Purchase Warrant (Level 3) Pre-funded Warrant (Level 2) Total Warrant Liability Fair value at January 1, 2021 $ - $ - $ - Fair value of warrants at December 1, 2021, date of issuance 5,735 6,526 12,261 Change in fair value of warrant liability 7,119 5,682 12,801 Exercise of prefunded warrants - ( 12,208 ) ( 12,208 ) Fair value at December 31, 2021 $ 12,854 - $ 12,854 5. Revenue We generate revenue primarily through the sales of our products Ameluz®, BF-RhodoLED® lamps and Xepi®. Revenue from the sales of our BF-RhodoLED® lamp and Xepi® are relatively insignificant compared with the revenues generated through our sales of Ameluz®. Schedule of Revenue Sales We generated $ 23.6 million of Ameluz® revenue, minimal Xepi® revenue, and $ 0.4 million of BF-RhodoLED® lamps revenue during the year ended December 31, 2021. We generated $ 18.1 million of Ameluz® revenue, $ 0.3 million of Xepi® revenue, and $ 0.4 million of BF-RhodoLED® lamps revenue during the year ended December 31, 2020. Related party revenue relates to an agreement with Biofrontera Bioscience GmbH (“Bioscience”) for BF-RhodoLED® leasing and installation service. Refer to Note 16, Related Party Transactions . An analysis of the changes in product revenue allowances and reserves is summarized as follows: Schedule of Revenue Allowance and Accrual Activities Co-pay Prompt Government assistance pay and payor (in thousands): Returns program discounts rebates Total Balance at January 1, 2020 68 269 8 49 394 Provision related to current period sales 149 213 15 216 593 Credit or payments made during the period - ( 430 ) ( 8 ) ( 222 ) ( 660 ) Balance at December 31, 2020 $ 217 $ 52 $ 15 $ 43 $ 327 Provision related to current period sales 6 423 40 168 637 Credit or payments made during the period ( 180 ) ( 374 ) ( 7 ) ( 157 ) ( 718 ) Balance at December 31, 2021 $ 43 $ 101 $ 48 $ 54 $ 246 6. Accounts Receivable, net Accounts receivable are mainly attributable to the sale of Ameluz ® , the BF-RhodoLED ® and Xepi®. It is expected that all trade receivables will be settled within twelve months of the balance sheet date. The allowance for doubtful accounts was $ 18,000 and $ 40,000 as of December 31, 2021 and 2020, respectively. F- 17 7. Other Receivables, Related Party The Company has recorded a receivable of $ 11.3 million due from Biofrontera AG for its 50% share of a legal settlement for which they are jointly and severally liable for the total settlement amount of $ 22.5 million. The Company has a contractual right to repayment of its share of the settlement payment from Biofrontera AG under the Settlement Allocation Agreement entered into on December 9, 2021, which provided that the settlement payments would first be made by the Company and then reimbursed by Biofrontera AG for its share. Of the total receivable of $ 11.3 million, $ 8.3 million is short-term and $ 2.8 million is a long-term receivable 8. Inventories Inventories are comprised of Ameluz ® , Xepi® and the BF-RhodoLED ® finished products. In assessing the consumption of inventories, the sequence of consumption is assumed to be based on the first-in-first-out (FIFO) method. During the year ended December 31, 2021 and 2020, we recorded a provision of $ 33,000 and $ 0.4 million, respectively for Xepi® inventory obsolescence due to product expiring. During the year ended December 31, 2021, we recorded a provision of $ 27,000 for potential damage to certain BF-RhodoLED ® devices. 9. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consist of the following: Schedule of Prepaid Expenses and Other Current Assets (in thousands) December 31, 2021 December 31, 2020 Receivable for common stock warrants proceeds $ 3,258 $ - Prepaid expenses 824 $ 497 Security deposits 149 121 Other 756 498 Total $ 4,987 $ 1,116 10. Property and Equipment, Net Property and equipment, net consists of the following: Schedule of Property and Equipment (in thousands) December 31, 2021 December 31, 2020 Computer equipment $ 85 $ 74 Computer software 27 27 Furniture & fixtures 81 81 Leasehold improvement 368 368 Machinery & equipment 112 111 Property and equipment, gross 673 661 Less: Accumulated depreciation ( 406 ) ( 291 ) Property and equipment, net $ 267 $ 370 Depreciation expense was $ 0.1 million for each of the years ended December 31, 2021, and 2020, respectively, which was included in selling, general and administrative expense on the statements of operations. F- 18 11. Intangible Asset, Net Intangible asset, net consists of the following: Schedule of Intangible Asset Net (in thousands) December 31, 2021 December 31, 2020 Xepi® license $ 4,600 $ 4,600 Less: Accumulated amortization ( 1,150 ) ( 731 ) Intangible asset, net $ 3,450 $ 3,869 The Xepi® license intangible asset was recorded at acquisition-date fair value of $ 4.6 million and is amortized on a straight-line basis over the useful life of 11 years. Amortization expense incurred during the years ended December 31, 2021 and 2020 was $ 0.4 million and $ 0.4 million, respectively. We review the Xepi ® license intangible asset for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. In December 2021, upon receiving notification of third-party manufacturing delays that impacted the timing of sales expansion and improved market positioning of the Xepi ® product, we deemed it necessary to assess the recoverability of our Xepi ® asset group. Future cash flows were estimated over the expected remaining useful life of the asset group and we determined that, on an undiscounted basis, expected cash flows exceeded the carrying amount of the asset group. 12. Statement of Cash Flows Reconciliation The following table provides a reconciliation of cash, cash equivalents, and restricted cash that sum to the total shown in the statements of cash flows: Schedule of Reconciliation of Cash, Cash Equivalents, and Restricted Cash (in thousands) December 31, 2021 December 31, 2020 Cash and cash equivalents $ 24,545 $ 8,080 Short-term restricted cash 47 47 Long-term restricted cash 150 150 Total cash, cash equivalent, and restricted cash shown on the statements of cash flows $ 24,742 $ 8,277 13. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of the following: Schedule of Accrued Expenses and Other Current Liabilities (in thousands) December 31, 2021 December 31, 2020 Legal settlement (See note 23) $ 5,625 $ - Employee compensation and benefits 2,384 1,810 Professional fees 570 - Product revenue allowances and reserves 246 327 Other 829 569 Total $ 9,654 $ 2,706 14. Other Long-Term Liabilities Other long-term liabilities consist of the following: Schedule of Other Long Term Liabilities (in thousands) December 31, 2021 December 31, 2020 Legal settlement – noncurrent (See note 23) $ 5,625 $ - Other 24 62 Total $ 5,649 $ 62 F- 19 15. Income Taxes As part of Congress’s response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), was signed into United States law on March 27, 2020 and modifies certain provisions of the Tax Cuts and Jobs Act, enacted in 2017, with respect to net operating losses. Under the CARES Act, the limitation on the deduction of net operating losses to 80 % of annual taxable income is suspended for taxable years beginning before January 1, 2021. The CARES Act did not have a material impact on the financial statements due to our full valuation allowance position. As a result of the net losses, we have incurred in each fiscal year since inception, we have recorded no provision for federal income taxes during such periods. Income tax expense incurred in 2021 and 2020 relates to state income taxes. A reconciliation of the expected income tax (benefit) computed using the federal statutory income tax rate to the Company’s effective income tax rate is as follows: Schedule of Effective Income Tax Rate Reconciliation 2021 2020 Year ended December 31, 2021 2020 Income tax computed at federal statutory tax rate 21.00 % 21.00 % State Taxes ( 0.09 )% ( 0.59 )% Permanent differences – non-deductible expenses ( 1.03 )% ( 0.36 )% Change in fair value of contingent consideration 0.78 % ( 0.27 )% Change in fair value of warrant liabilities ( 7.13 )% 0.0 % Change in valuation allowance ( 13.62 )% ( 20.37 )% Effective income tax rate ( 0.09 )% ( 0.59 )% The principal components of the Company’s deferred tax assets and liabilities consist of the following at December 31, 2021 and 2020: Schedule of Deferred Tax Assets and Liabilities (in thousands) December 31, 2021 December 31, 2020 Deferred tax assets (liabilities): Net operating loss carryforwards $ 24,307 $ 17,960 Intangible assets 5,132 6,441 Acquisition contract liabilities ( 187 ) ( 279 ) Property and equipment 103 76 Accrued expenses and reserves 1,693 424 Other 6 6 Total deferred tax assets 31,054 24,628 Less valuation allowance ( 31,054 ) ( 24,628 ) Net deferred taxes $ - $ - The Company has had no income tax expense due to operating losses incurred since inception. The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Based on this, the Company has provided a valuation allowance for the full amount of the net deferred tax assets as the realization of the deferred tax assets is not determined to be more likely than not. During 2021, the valuation allowance increased by $ 6.4 million, primarily due to the increase in the Company’s net operating loss carryforwards during the period. F- 20 As of December 31, 2021, the Company had approximately $ 99.4 million and $ 64.2 million of Federal and state net operating loss carryforwards, respectively. $ 89.8 million of the federal NOLs are not subject to expiration and the remaining NOLs begin to expire in 2036 . These loss carryforwards are available to reduce future federal taxable income, if any. These loss carryforwards are subject to review and possible adjustment by the appropriate taxing authorities. The amount of loss carryforwards that may be utilized in any future period may be limited based upon changes in the ownership of the Company’s shareholders. The Company follows the provisions of ASC 740-10, “Accounting for Uncertainty in Income Taxes,” which specifies how tax benefits for uncertain tax positions are to be recognized, measured, and recorded in financial statements; requires certain disclosures of uncertain tax matters; specifies how reserves for uncertain tax positions should be classified on the balance sheet; and provides transition and interim period guidance, among other provisions. As of December 31, 2021, the Company has not recorded any amounts for uncertain tax positions. The Company’s policy is to recognize interest and penalties accrued on any uncertain tax positions as a component of income tax expense, if any, in its statements of operations. The Company’s tax returns 2018 through 2021 remain open and subject to examination by the Internal Revenue Service and state taxing authorities. Net operating loss carryovers from earlier years are also subject to exam and adjustment. 16. Related Party Transactions License and Supply Agreement On October 1, 2016, the Company executed an exclusive license and supply agreement with Biofrontera Pharma GmbH (“Pharma”), which was amended in July 2019 to increase the Ameluz ® transfer price per unit from 35.0 % to 50.0 % of the anticipated net selling price per unit as defined in the agreement. It was further amended on October 8, 2021 so that the price we pay per unit will be based upon our sales history, although the minimum number of units to purchase per year remains unchanged. As a result of this amendment, the purchase price we pay Biofrontera Pharma for Ameluz ® will range from 30 % to 50 % of the anticipated net price per unit based on our level of annual revenue. Refer to Item I. Business - Commercial Partners and Agreements for further details. Under the agreement, the Company obtained an exclusive, non-transferable license to use the Pharma’s technology to market and sell the licensed products, Ameluz ® and BF-RhodoLED and must purchase the licensed products exclusively from Pharma. There was no consideration paid for the transfer of the license. Purchases of the licensed products during the years ended December 31, 2021 and 2020 were $ 9.4 million and $ 5.6 million, respectively, and recorded in inventories in the balance sheets, and, when sold, in cost of revenues, related party in the statements of operations. Amounts due and payable to Pharma as of December 31, 2021 and 2020 were $ 0.3 million and $ 1.3 million, respectively, which were recorded in accounts payable, related parties in the balance sheets. Loan Agreement On June 19, 2015, the Company entered into a 6 % interest bearing revolving loan agreement with Biofrontera AG, a significant shareholder of the Company. Interest was accrued and paid quarterly over the life of the loan. At December 31, 2021 and 2020, there was no loan principal balance outstanding. There was no interest expense related to the loan for the year ended December 31, 2021. Interest expense related to the loan was $ 2.5 million for the year ended December 31 2020. On December 31, 2020, the Company agreed to convert the outstanding principal balance of the revolving debt of $ 47.0 million into an aggregate of 7,999,000 shares of common stock at a purchase price of $ 5.875 per share, for an aggregate gross capital contribution of $ 47.0 million. On March 31, 2021, the Company entered into the Second Intercompany Revolving Loan Agreement with Biofrontera AG for $ 20.0 million of committed sources of funds. The revolving loan bears an annual interest rate of 6.0 % and will terminate on the second anniversary of the date of this loan agreement, March 31, 2023 (the “termination date”). The outstanding principal and interest balance of all advances shall be due and payable on the termination date. As of December 31, 2021, the Company had not drawn upon the Second Intercompany Revolving Loan Agreement and due to the completion of our initial public offering, the loan was effectively terminated. F- 21 Service Agreements In December 2021, we entered into an Amended and Restated Master Contract Services Agreement, or Services Agreement, which provides for the execution of statements of work that will replace the applicable provisions of our previous intercompany services agreement dated January 1, 2016, or 2016 Services Agreement, by and among us, Biofrontera AG, Biofrontera Pharma and Biofrontera Bioscience, enabling us to continue to use the Biofrontera Group’s IT resources as well as providing access to the Biofrontera Group’s resources with respect to quality management, regulatory affairs and medical affairs. If we deem that the Biofrontera Group should continue to provide these services we will execute a statement of work under the Services Agreement with respect to such services. We currently have statements of work in place regarding IT, regulatory affairs, medical affairs, pharmacovigilance, and Investor Relations services, and are continuously assessing the other services historically provided to us by Biofrontera AG to determine 1) if they will be needed, and 2) whether they can or should be obtained from other third-party providers. Expenses related to the service agreement were $ 0.7 million and $ 0.4 million for the years ended December 31, 2021 and 2020, which were recorded in selling, general and administrative, related party. Management asserts that these expenses represent a reasonable allocation from Biofrontera AG. Amounts due to Biofrontera AG related to the service agreement were $ 0.2 million as of both December 31, 2021 and 2020. which were recorded in accounts payable, related parties in the balance sheets. Clinical Lamp Lease Agreement On August 1, 2018, the Company executed a clinical lamp lease agreement with Biofrontera Bioscience GmbH (“Bioscience”) to provide lamps and associated services. Total revenue related to the clinical lamp lease agreements was approximately $ 57,000 and $ 62,000 for the years ended December 31, 2021 and 2020, respectively and recorded as revenues, related party. Amounts due from Bioscience for clinical lamp and other reimbursements were approximately $ 92,000 and $ 73,000 as of December 31, 2021 and 2020, respectively, which were recorded as accounts receivable, related party in the balance sheets. Reimbursements from Maruho Related to Cutanea Acquisition Pursuant to the Cutanea acquisition share purchase agreement, we received start-up cost financing and reimbursements for certain SPA costs. Refer to Note 3, Acquisition Contract Liabilities . For the year ended December 31, 2020, the Company received start-up cost financing from Maruho in the amount of $4.4 million, which was recorded as acquisition contract liabilities, net in the balance sheets. There was no start-up cost financing received during the year ended December 31, 2021. The amounts reimbursed relating to SPA costs of $ 0.5 million in 2021 and $ 1.2 million in 2020 were recorded as other income in the statements of operations as the related expenses were incurred. Amounts due from Maruho, primarily relating to SPA cost reimbursements, were $ 56,000 as of December 31, 2021 and were recorded in accounts receivable, related parties in the balance sheets. There were no amounts due from Maruho at December 31, 2020. Others The Company receives expense reimbursement from Biofrontera AG and Biofrontera Bioscience on a quarterly basis for costs incurred on behalf of these entities. Total expense reimbursements were $ 0.3 million for each of the years ended December 31, 2021 and 2020, which were netted against expenses incurred within selling, general and administrative expenses. On August 27, 2020, the Company received $ 1.5 million from Biofrontera Pharma GmbH to support the Company’s marketing efforts. The amount received was non-recurring, and was recorded as reduction of cost of revenues, related party and selling, general and administrative in the statements of operations for $ 1.1 million and $ 0.4 million, respectively. The Company has recorded a receivable of $ 11.3 million due from Biofrontera AG for its 50% share of a legal settlement for which they are jointly and severally liable for the total settlement amount of $ 22.5 million. The Company has a contractual right to repayment of its share of the settlement payment from Biofrontera AG under the Settlement Allocation Agreement entered into on December 9, 2021, which provided that the settlement payments would first be made by the Company and then reimbursed by Biofrontera AG for its share. Of the total receivable of $ 11.3 million, $ 8.3 million is short-term and $ 2.8 million is a long-term receivable F- 22 17. Restructuring costs We restructured the business of Cutanea and incurred restructuring costs which were subsequently reimbursed by Maruho. Restructuring costs primarily relate to the winding down of Cutanea’s operations. For the years ended December 31, 2021 and 2020, restructuring costs were incurred in the amount of $ 0.8 million and $ 1.1 million, respectively. 18. Stockholders’ Equity Under the Company’s amended and restated certificate of incorporation, dated December 21, 2020, the Company is authorized to issue 300,000,000 shares of common stock, par value $ 0.001 per share. The holders of common stock are entitled to one vote for each share held. Common stockholders are not entitled to receive dividends, unless declared by the Board of Directors. The Company has not declared dividends since inception. In the event of liquidation of the Company, dissolution or winding up, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities. The common stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. The outstanding shares of common stock are fully paid and non-assessable. Since 2015, the Company has had an Intercompany Revolving Loan Agreement with Biofrontera AG. Refer to Note 16, Related party transactions . On December 31, 2020, the Board of Directors of the Company approved a Debt Conversion Agreement with Biofrontera AG, effectively converting all outstanding principal balances under the Intercompany Revolving Loan Agreement to common stock shares. The conversion price for this transaction was $ 5.875 per share. In connection with the Debt Conversion Agreement, the Company issued 7,999,000 shares of common stock to Biofrontera AG. Initial Public Offering. On November 2, 2021, the Company completed its initial public offering (“IPO”) of 3,600,000 units (“Units”) each consisting of (i) one share of common stock of the Company, par value $ 0.001 per share and (ii) one warrant (the “IPO Warrants”) to purchase one common stock share at an exercise price of $ 5.00 per share. The IPO Warrants are immediately exercisable upon issuance for a period of five years after the issuance date. The common stock shares and Warrants were issued separately in the offering and may be transferred separately immediately upon issuance. The Units were sold at a price of $ 5.00 per Unit, with gross proceeds from the IPO of approximately $ 18 million, offset by $ 3.1 million in offering costs. At the IPO date, the underwriters also exercised in full their option to purchase up to an additional 540,000 IPO Warrants at the purchase price of $ 0.01 per Warrant to cover over-allotments. In connection with the IPO, the Company also issued to the underwriters Unit Purchase Options (“UPO”) to purchase, in the aggregate, (a) 108,000 Units and (b) 16,200 Warrants (relating to the underwriters’ exercise of the over-allotment option in full, with respect to the Warrants). The UPOs have an exercise price of $ 6.25 if exercisable for Units and $ 0.0125 if exercisable for Warrants. The UPOs are exercisable at any time from October 28, 2021 (“Effective Date”) through the 5 th anniversary of the Effective Date. The UPOs issued to the underwriters were accounted for as equity under ASC 718, Compensation -Stock Compensation (“ASC 718”). The fair value of the UPOs, which were fully vested at the issuance date, was recognized as an offering cost against the proceeds from the IPO. The estimated fair value of the UPO Units of $ 0.3 million at the IPO date was determined using a Black-Scholes option pricing model with the following assumptions: fair value of the underlying unit of $ 4.95 , expected volatility of 60.0 %, risk free rate of 1.15 %, remaining contractual term of 5 years and a dividend yield of 0 %. The estimated fair value of the UPO Warrants of $ 21,000 at the IPO date was determined using a Black-Scholes option pricing model with the following assumptions: fair value of the underlying unit of $ 1.29 , expected volatility of 60.0 %, risk free rate of 1.15 %, remaining contractual term of 5 years and a dividend yield of 0 %. Private Placement - On December 1, 2021, the Company settled the private placement in connection with a securities purchase agreement dated November 29, 2021 (“December 2021 PIPE”). In the December 2021 PIPE, the Company issued for the gross cash receipts of $ 15,000,000 (i) 1,350,000 shares of the common stock, (ii) a warrant to purchase up to 2,857,143 shares of the common stock (“Purchase Warrant”) and (iii) a warrant to purchase up to 1,507,143 shares of the common stock (“Pre-Funded Warrant”). Each of the Purchase Warrant and the Pre-Funded Warrant is exercisable immediately and has an exercise term of five years and an exercise price of: (a) $ 5.25 per share with respect to the Purchase Warrant and (b) a nominal exercise price of $ 0.0001 per share with respect to the Pre-Funded Warrant. The shares of common stock and the accompanying warrants were issued separately and were immediately separable upon issuance. The combined purchase price for one share of common stock and one Purchase Warrant was $ 5.25 and the combined purchase price for one Pre-Funded Warrant and one common warrant was $ 5.24 . F- 23 On December 28, 2021, 1,507,143 common stock shares were issued from the exercise of the Pre-Funded Warrant at an exercise price of $ 0.0001 per share of the Company’s common stock. In connection with the December 2021 PIPE, the Company, issued Unit Purchase Options (“PP-UPO”) to the placement agents to purchase, in the aggregate, (a) 85,714 Units, consisting of one share of common stock and one warrant to purchase common stock. The PP-UPOs have an exercise price of $ 6.56 and are exercisable at any time for the period of 5 years. The PP-UPOs issued to the underwriters were accounted for under ASC 718, Compensation -Stock Compensation (“ASC 718”). The fair value of the PP-UPOs, which were fully vested at the issuance date, was recognized as an offering cost of the December 2021 PIPE and allocated between warrants and common stock, based on the allocated proceeds. The Company estimated the fair value of the unit purchase options to be approximately $ 0.3 million at December 1, 2021 of which $ 0.2 million was allocated to the warrants and immediately expensed in the statement of operations and $ 0.1 million was allocated to the common stock and charged to equity. The fair value was determined using a Black-Scholes option pricing model with the following assumptions: fair value of the underlying unit of $ 6.39 , expected volatility of 60.0 %, risk free rate of 1.15 %, remaining contractual term of 5 years and a dividend yield of 0 %. Warrants – The following table summarizes information with regard to the IPO Warrants, Purchase Warrants and Pre-Funded Warrants (together, the “ Warrants”) activity for the year ended December 31, 2021: Schedule of Warrants Warrant - PIPE Warrant - IPO Total Warrants Weighted Average Exercise Price Balance, December 31, 2020 - - - Issued 4,364,286 4,140,000 8,504,286 $ 5.13 Exercised 1,507,143 2,647,606 4,154,749 $ 5.09 Balance, December 31, 2021 2,857,143 1,492,394 4,349,537 $ 5.16 19. Equity Incentive Plans and Share-Based Payments 2021 Omnibus Incentive Plan In 2021, our Board of Directors adopted and our shareholders approved the 2021 Omnibus Incentive Plan (“2021 Plan). Under the 2021 Plan, 2,750,000 shares are reserved and authorized for awards and the maximum contractual term is 10 years for stock options issued under the 2021 Plan. Non-qualified stock options During the year ended December 31, 2021, the Company granted non-qualified stock options to certain employees to purchase 617,696 shares of common stock under the 2021 Omnibus Incentive Plan. The options were granted to employees on December 9, 2021 with an exercise price of $ 4.77 and a contractual term of ten years . These stock options had a grant-date fair value of $ 1.5 million and vest annually over a three-year period, subject to the recipient’s continued service with the Company through the applicable vesting dates. The Company recognizes the grant-date fair value of share-based awards granted as compensation expense on a straight-line basis over the requisite service period. The fair value of stock options is estimated at the time of grant using the Black-Scholes option pricing model, which requires the use of inputs and assumptions such as the fair value of the underlying stock, exercise price of the option, expected term, risk-free interest rate, expected volatility and dividend yield. The Company elects to account for forfeitures as they occur. The fair value of each option grant was estimated on the date of the grant using the BSM option pricing model with the following assumptions: Schedule of Stock Options Assumptions 2021 Expected volatility 55.0 % Expected term (in years) 6.0 Risk-free interest rate 1.34 % Expected dividend yield 0.0 % Share-based compensation expense of approximately $ 30,000 was recorded in selling, general and administrative expenses on the accompanying statement of operations for the year ended December 31, 2021. There was no stock based compensation for the year ended December 31, 2020. F- 24 Options outstanding and exercisable under the employee share option plan as of December 31, 2021, and a summary of option activity during the year then ended is presented below. Schedule of Stock Option Activity Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value (1) Outstanding at December 31, 2020 - $ - Granted 617,696 $ 4.77 Exercised - $ - Canceled or forfeited ( 4,082 ) $ 4.77 Outstanding at December 31, 2021 613,614 $ 4.77 9.94 $ 1,687,439 Exercisable at December 31, 2021 - $ - - $ - Outstanding at December 31, 2021 613,614 $ 4.77 9.94 $ 1,687,439 (1) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the fair value of the common stock for the options that were in the money at December 31, 2021. As of December 31, 2021, there was $ 1.5 million of unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of approximately 2.94 years. Share-Based Compensation (RSUs) During the year ended December 31, 2021, the Company granted to certain members of management 170,068 restricted stock units, or RSUs. The fair value of each RSU is estimated based on the closing market price of the Company’s common stock on the grant date. There were no RSU’s granted during the year ended December 31, 2020. The RSUs had a grant-date fair value of $ 0.8 million and will be fully vested on June 9, 2022, six months after the grant date, subject to the recipient’s continued service with the Company through the applicable vesting dates. Share-based compensation expense of $ 0.1 million for the RSUs was recorded in selling, general and administrative expenses in the accompanying statement of operations for the year ended December 31, 2021. There was no share-based compensation for the year ended December 31, 2020. The following table summarizes the activity for RSUs during the year ended December 31, 2021: Schedule of Restricted Stock Unit Activity Shares Weighted Average Grant Date Fair Value Unvested balance at December 31, 2020 - $ - Granted 170,068 4.77 Vested - - Forfeited - - Unvested balance at December 31, 2021 170,068 $ 4.77 As of December 31, 2021, there was $ 0.7 million of unrecognized compensation cost related to unvested RSUs, which is expected to be recognized over a weighted-average period of approximately 0.44 years. F- 25 20. Interest Expense, net Interest expense, net consists of the following: Schedule of Interest Expense (in thousands) 2021 2020 For years ended December 31, (in thousands) 2021 2020 Related party interest expense $ - $ ( 2,539 ) Interest expense ( 2 ) - Contract asset interest expense ( 358 ) ( 358 ) Interest income 16 28 Interest expense, net $ ( 344 ) $ ( 2,869 ) Related party interest expense consists of interest expense incurred under our Revolving Loan Agreement with Biofrontera AG. Contract asset interest expense relates to the $ 1.7 million contract asset in connection with the $ 7.3 million start-up cost financing received from Maruho under the Cutanea acquisition share purchase agreement. The contract asset is amortized on a straight-line basis using a 6 % interest rate over the financing arrangement contract term, which ends on December 31, 2023 . 21. Other Income, net Other income, net consists of the following: Schedule of Other Income, Net (in thousands) 2021 2020 For years ended December 31, (in thousands) 2021 2020 Reimbursed SPA costs $ 539 $ 1,172 Employee retention credit (“ERC”) - 299 Other, net 150 81 Other income, net $ 689 $ 1,552 Other, net, primarily includes gain (loss) on foreign currency transactions and gain on termination of operating leases. 22. Net Loss per Share Basic and diluted net loss per share attributable to common stockholders is calculated as follows (in thousands, except share and per share amounts): Schedule of Basic and Diluted Net Loss Per Share Attributable to Common Stockholders 2021 2020 For years ended December 31, 2021 2020 Net loss $ ( 37,713 ) $ ( 10,987 ) Weighted average common shares outstanding, basic and diluted 8,808,233 22,915 Net loss per share, basic and diluted $ ( 4.28 ) $ ( 479.48 ) The following table sets forth the potential common shares that were not included in the diluted per share calculations because they would be anti-dilutive: Schedule of Antidilutive Securities Excluded From Computation of Earnings Per Share December 31, 2021 2020 Common stock warrants 4,349,537 - Common stock options 613,614 - Restricted Stock Units 170,068 - Total anti-dilutive securities 170,068 - 23. Commitments and Contingencies Facility Leases The Company leases its corporate headquarters under an operating lease that expires in November 2025. The Company provided the landlord with a security deposit in the amount of $ 0.1 million, which was recorded as other assets in the balance sheets. In connection with the acquisition of Cutanea Life Sciences, Inc., the Company assumed various property leases in Pennsylvania, which were non-cancellable. All Cutanea property leases are operating leases and ended in 2021. A security deposit in the amount of $ 0.1 million was recorded within prepaid expenses and other current assets at December 31, 2021 and December 31, 2020. Rent expense is recorded on a straight-line basis through the end of the lease term. Certain Cutanea office space was subleased to other tenants. The Company incurred rent expense, net of sublease income, in the amount of $ 0.8 million and $ 1.0 million for the years ended December 31, 2021 and 2020, respectively, which was included in selling, general, and administrative expenses. F- 26 Auto Leases The Company also leases autos for its field sales force with a lease payment term of 40 months . The Company incurred auto lease expense of $ 0.5 million for each of the years ended December 31, 2021 and 2020, respectively. The minimum aggregate payments of all future lease commitments at December 31, 2021, are as follows: (in thousands) Schedule of Future Commitments and Sublease Income Years ending December 31, Future lease commitments 2022 $ 695 2023 494 2024 470 2025 352 Thereafter - Total $ 2,011 Cutanea earnout payments We are obligated to repay to Maruho $ 3.6 million on December 31, 2022 and $ 3.7 million on December 31, 2023 in start-up cost financing paid to us in connection with the Cutanea acquisition. We are also obligated to share product profits with Maruho equally from January 1, 2020 through October 30, 2030. Refer to Note 3, Acquisition Contract Liabilities . Milestone payments with Ferrer Internacional S.A. Under the Xepi LSA, we are obligated to make payments to Ferrer upon the occurrence of certain milestones. Specifically, we must pay Ferrer i) $ 2,000,000 upon the first occasion when annual net sales of Xepi® under the Xepi LSA exceed $ 25,000,000 , and ii) $ 4,000,000 upon the first occasion annual net sales of Xepi® under the Xepi LSA exceed $ 50,000,000 . No payments were made in 2021 or 2020 related to Xepi® milestones Legal proceedings At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of FASB ASC Topic 450, Contingencies . The Company expenses as incurred the costs related to such legal proceedings. On November 29, 2021, the Company entered into a settlement and release agreement with respect to a lawsuit filed March 23, 2018 in the United States District Court for the District of Massachusetts in which we were alleged to have infringed on certain patents and misappropriated certain trade secrets. In the settlement, the Company and Biofrontera AG together agreed to make an aggregate payment of $ 22.5 million to settle the claims in the litigation. The Company will be responsible for $ 11.25 million of the aggregate settlement amount, plus interest accrued at a rate equal to the weekly average one-year constant maturity Treasury yield, and agreed to pay in three annual installments . The first installment of $ 11.3 million (of which $ 5.6 million was Biofrontera AG’s portion) was paid in December 2021 by the Company. While Biofrontera AG has agreed to pay a portion of the settlement, the Company remains jointly and severally liable for the full settlement amount, meaning that in the event Biofrontera AG does not pay all or a portion of the amount it owes under the agreement, the claimant could compel the Company to pay Biofrontera AG’s share. If either the Company or Biofrontera AG violates the terms of the settlement agreement, this could nullify the settlement and the Company may lose the benefits of the settlement and be liable for a greater amount. As of December 31, 2021, we have recorded a legal settlement liability in the amount of $ 11.3 million for the remaining payments due and a related receivable from related party of $ 11.3 million, in accordance with the Settlement Allocation Agreement entered into on December 9, 2021, which provided that the settlement payments would first be made by the Company and then reimbursed by Biofrontera AG for its share. As of April 8, Biofrontera AG has not paid the first reimbursement amount to the Company. We determined that the potential of Biofrontera AG to default on its obligation was less than probable. This is supported by the March 31, 2022 Amended Settlement Allocation Agreement between the Company and Biofrontera AG. The Amended Allocation Agreement provides certain remedies to the Company, if Biofrontera AG fails to make timely reimbursements, which the Company may implement in its sole discretion, including the ability to charge interest at a rate of 6.0 % per annum for each day that any reimbursement is past due and the ability to offset any overdue reimbursement amounts against payments owed to Biofrontera AG by the Company (including amounts owed under the Company’s license and supply agreement for Ameluz ® ). A s such , no reserve for the receivable has been recorded as of December 31, 2021. If needed, Biofrontera AG should also be able to monetize some or all of the 8,000,000 common stock shares in the Company in the open market Considering the lowest stock price since the IPO of $ 2.28 , Biofrontera AG can procure up to a little over $ 18 m from the stock sale to settle its current obligation as well as the amounts due in 2022 and 2023. The lock-up period will expire on May 2, 2021 allowing the shares to be freely traded after that point. 24. Retirement Plan The Company has a defined-contribution plan under Section 401(k) of Internal Revenue Code (the “401(k) Plan”). The 401(k) Plan covers all employees who meet defined minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. The Company matches 50% of employee contributions up to a maximum of 6% of employees’ salary. For each of the years ended December 31, 2021 and 2020, matching contribution costs paid by the Company were $ 0.2 million. 25. Subsequent Events Election of New Director On March 2, 2022, the board of directors of Biofrontera Inc. voted to increase the size of the Board from four directors to five directors and appointed Kevin D. Weber to fill the vacancy resulting from such increase. Mr. Weber will serve as a Class II Director to hold office for a term expiring at the annual meeting of the Company’s stockholders for fiscal year 2023. Mr. Weber’s term as director began upon his appointment at the March 2, 2022 meeting. Mr. Weber does not currently serve on any committees of the Board. Amendment to Lübbert Employment Agreement On March 2, 2022, Hermann Lübbert and the Company entered into an amendment to his employee agreement. The amendment is effective as of December 15, 2021 and the key terms of the Amendment are summarized below: Effective Date. Prof. Dr. Lübbert’s employment agreement was amended to remove the conditions for its effectiveness and replaced them with an effective date of December 15, 2021. Performance. The employment agreement was amended such that Prof. Dr. Lübbert agrees to devote 100 % of his working capacity to his duties as the Company’s Executive Chairman. Compensation. Under the Amendment, Prof. Dr. Lübbert’s base salary will be $ 468,500 and he will be eligible to receive a cash bonus of up to 65 % of his base salary upon the attainment of performance goals set in advance by the Board. The actual amount of any bonus shall depend upon the level of achievement of set targets, however no bonus shall be paid if the level of target achievement is below 70%. Amendment to Settlement Allocation Agreement On March 31, 2022, Biofrontera Inc. entered into an Amended Settlement Allocation Agreement (the “Allocation Agreement”) between the Company and Biofrontera AG in connection with the previously disclosed settlement on November 29, 2021 of the lawsuit brought against Biofrontera AG and its subsidiaries, including the Company, in March 2018 by DUSA Pharmaceuticals, Inc. (“DUSA”) and certain of its affiliates. Under the settlement agreement with DUSA, the Company and Biofrontera AG are jointly and severally liable for an aggregate payment of $ 22.5 million to DUSA, payable in three installments, to settle the claims of the lawsuit. The Company and Biofrontera AG had agreed at the time they entered into the settlement agreement that they would each be responsible for $ 11.25 million of the aggregate settlement amount. Biofrontera AG is a significant shareholder of the Company, its former parent and the licensor of the Company’s principal licensed product, Ameluz®. Under the terms of the Allocation Agreement, the Company and Biofrontera AG agreed that the Company will pay the full amount of each installment under the settlement agreement to DUSA when such installment is due. Biofrontera AG agrees to reimburse the Company for half of each such installment no later than January 31st of the year following such installment. The Company paid the full amount of first installment under the settlement agreement in December 2021 and, thus, the first reimbursement was due on January 31st, 2022. As of April 7, 2022, Biofrontera AG has not paid the first reimbursement amount to the Company. The Allocation Agreement provides certain remedies to the Company, if Biofrontera AG fails to make timely reimbursements, which the Company may implement in its sole discretion, including the ability to charge interest at a rate of 6.0 % per annum for each day that any reimbursement is past due and the ability to offset any overdue reimbursement amounts against payments owed to Biofrontera AG by the Company (including amounts owed under the Company’s license and supply agreement for Ameluz®). Amendment to Monaco Employment Agreement On April 1, 2022, Erica Monaco and the Company entered into an amendment to her employee agreement. The Amendment is effective as of April 1, 2022 and amends her compensation as follows: Base Salary: Ms. Monaco’s annual base salary will be increased to $ 450,000 from $ 300,000 . Cash Bonus: Ms. Monaco will now be eligible to receive a cash bonus of up to 60% of her base salary upon the attainment of performance goals set in advance by the Board; whereas she had been previously eligible to receive a cash bonus of up to 30% of her base salary. The actual amount of any bonus shall depend upon the level of achievement of set targets; however, no bonus shall be paid if the level of target achievement is below 70%. The remainder of Ms. Monaco’s Amended Employment Agreement remains in full force and effect. F- 27 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures None.