What changed in this filing

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Item 1. Financial Statements

2022-05-13 compared with 2021-11-30 · 498 added, 550 removed, 227 unchanged (82% of the section changed)

Financial Statements

thousands, except par value and share amount )

September 30, 2021

December 31, 2020

thousands, except par value and share amounts )

March 31, 2022

Current assets:

1 unchanged sentence

Accounts receivable, net

Accounts receivable, related parties

Other receivables, related party

Prepaid expenses and other current assets

Total current assets

Other receivables long term, related party

Property and equipment, net

Intangible asset, net

LIABILITIES AND STOCKHOLDER’S EQUITY

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

1 unchanged sentence

Accounts payable, related parties

Acquisition contract liabilities, net

Accrued expenses and other current liabilities

2 unchanged sentences

Acquisition contract liabilities, net

Warrant liability

Other liabilities

1 unchanged sentence

Commitments and contingencies (see Note 23)

Stockholder’s equity(deficit):

Common Stock, $ 0.001 par value, 300,000,000 shares authorized;

8,000,000 shares issued and outstanding

Stockholders’ equity:

Preferred Stock, $ 0.001

par value, 20,000,000 shares authorized, zero

shares issued and outstanding as of March 31, 2022 and December 31, 2021

Common Stock, $ 0.001 par

value, 300,000,000 shares authorized;

shares issued and outstanding as of March 31, 2022 and December 31, 2021

Additional paid-in capital

Accumulated deficit

Total stockholder’s equity (deficit)

Total liabilities and stockholder’s equity (deficit)

Total stockholders’ equity

Total liabilities and stockholders’ equity

accompanying notes are an integral part of these financial statements.

1 unchanged sentence

thousands, except per share amounts and number of shares )

Three months ended

September 30,

Nine months ended

September 30,

Three Months Ended March 31,

Products revenues, net

11 unchanged sentences

Other income (expense)

Change in fair value of warrant liabilities

Interest expense, net

Other income (expense), net

Other income, net

Total other income (expense)

Loss before income taxes

Income (loss) before income taxes

Income tax expense

Loss per common share:

Basic and diluted

$ ( 2984.67 )

$ ( 10,800.96 )

Net income (loss)

Income (loss) per common share:

Weighted-average common shares outstanding:

Basic and diluted

accompanying notes are an integral part of these financial statements.

OF STOCKHOLDER’S EQUITY (DEFICIT)

OF STOCKHOLDERS’ EQUITY

thousands, except number of shares)

Additional Paid-

For the three months ended September 30, 2021

Balance at June 30, 2021

Balance, September 30, 2021

For the nine months ended September 30, 2021

Balance, December 31, 2020

Balance, September 30, 2021

Months Ended March 31, 2022 and 2021

Additional Paid-

For the three months ended September 30, 2020

Balance at June 30, 2020

Balance, September 30, 2020

For the nine months ended September 30, 2020

Balance, December 31, 2019

Balance, September 30, 2020

Balance, January 1, 2021

Balance, March 31, 2021

Balance, January 1, 2022

Stock-based compensation

Net income (loss)

Balance, March 31, 2022

accompanying notes are an integral part of these financial statements.

OF CASH FLOWS

Nine months ended September 30,

Three Months Ended March 31,

Cash Flows From Operating Activities:

Adjustments to reconcile net loss to cash flows used in operations:

Net income (loss)

Adjustments to reconcile net income (loss) to cash flows used in operations

Amortization of acquired intangible assets

Change in fair value of contingent consideration

Gain from disposal of property and equipment

Change in fair value of warrant liabilities

Stock-based compensation

Provision for inventory obsolescence

2 unchanged sentences

Changes in operating assets and liabilities:

Accounts receivable and related party receivables

Accounts receivable

Other receivables, related party

Prepaid expenses and other assets

5 unchanged sentences

Cash flows used in investing activities

Cash flows from financing activities:

Proceeds from related party indebtedness

Proceeds from start-up cost financing

Payment of deferred offering costs

Cash flows provided by (used in) financing activities

Net decrease in cash and cash equivalents

2 unchanged sentences

Supplemental disclosure of cash flow information

Interest paid - related party

Interest paid

Income tax paid, net

1 unchanged sentence

Deferred offering costs included in accrued expenses and other liabilities

Non-cash purchase of fixed assets included in accounts payable and related party

accompanying notes are an integral part of these financial statements.

to the Financial Statements

to Financial Statements

Business Overview

5 unchanged sentences

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 medical device, which has been approved by

Food and Drug Administration (“FDA”), the BF-RhodoLED ® lamp, for photodynamic therapy in the

for the lesion-directed and field-directed treatment of actinic keratosis of mild-to-moderate severity on the face and scalp.

are currently selling Ameluz ® for this indication in the U.S.

under an exclusive license and supply agreement (“Ameluz

LSA”) with Biofrontera Pharma GmbH (“Pharma”) dated as of October 1, 2016, as subsequently amended on June 16,

2021 and further amended on October 8, 2021.

Under the Ameluz LSA, we hold the exclusive license to sell Ameluz ® and BF-RhodoLED ®

for all indications currently approved by the FDA as well as all future FDA-approved indications.

second prescription drug product is Xepi ® (ozenoxacin cream, 1%), a topical non-fluorinated quinolone that inhibits bacterial

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

It is approved for use in adults and children 2 months and older.

We are currently selling Xepi ® for this indication

under an exclusive license and supply agreement (“Xepi LSA”) with Ferrer Internacional S.A.

that was acquired by Biofrontera Inc.

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”), by and among us and Biofrontera Pharma GmbH and Biofrontera Bioscience GmbH (collectively, the (“Ameluz

Licensor”) originally dated as of October 1, 2016, and as subsequently amended on October 8, 2021.

Refer to Note 16, Related

Party Transactions , for further details.

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.

approved for use in adults and children 2 months and older.

We are currently selling Xepi® for this indication in the U.S.

an exclusive license and supply agreement (“Xepi LSA”) with Ferrer Internacional S.A.

(“Ferrer”) that

was acquired by Biofrontera Inc.

on March 25, 2019 through our acquisition of Cutanea Life Sciences, Inc.

Refer to Note 14, Related Party Transactions , for further details.

Refer to Note 16, Related

Party Transactions , for further details.

and Going Concern

devote a substantial portion of our cash resources to the commercialization of our licensed products, Ameluz®, BF-RhodoLED® and

We have historically financed our operating and capital expenditures through cash proceeds generated from our product sales

and proceeds received in connection with the Intercompany Revolving Loan Agreement with our parent, Biofrontera AG.

On December 31, 2020,

the Company agreed to convert the outstanding principal balance of the revolving debt in the amount of $ 47.0 million into an aggregate

of 7,999,000 shares of common stock at a purchase price of $ 5.875 per share, which was based on our internal assessment and agreement

with our parent, for an aggregate gross capital contribution of $ 47.0 million.

inception, we have incurred losses and generated negative cash flows from operations.

As of December 31, 2020, we had an accumulated

deficit of $ 41.2 million

and cash and cash equivalents of $ 8.1

As of September 30, 2021, we had an

accumulated deficit of $ 64.4

million, which is inclusive of a legal settlement liability

of $ 11.25 million – see Legal Proceedings section in Note 19 for further details,

and cash and cash equivalents of $ 1.7

expect to continue to generate revenue from product sales.

We also expect to continue to incur operating losses from significant sales

and marketing efforts in the U.S as we seek to expand the commercialization of Ameluz® and Xepi ® .

In addition, we

expect to incur additional expenses to add and improve operational, financial and information systems and personnel, including personnel

to support our product commercialization efforts.

We also expect to incur additional costs to continue to comply with corporate governance,

internal controls and similar requirements applicable to us as a public company in the U.S.

future growth is dependent on our ability to obtain equity or debt financing.

On March 31, 2021, we entered into the Second Intercompany

Revolving Loan Agreement with Biofrontera AG for $ 20 .0 million of committed sources of funds for a two-year term .

November 2, 2021, we completed an initial public offering (“IPO”) and issued and sold 3,600,000 units (“Units”),

each consisting of (i) one share of common stock of the Company, par value $ 0.001 per share (the “Shares”) and (ii) one warrant

of the Company (the “Warrants”) entitling the holder to purchase one Share at an exercise price of $ 5.00 per Share .

the underwriters exercised in full their option to purchase up to an additional 540,000 Warrants to cover over-allotments.

were sold at a price of $ 5.00 per Unit, and the Company estimates the net proceeds from the IPO to be $ 15.4 million, after deducting

estimated underwriting discounts and commissions and estimated offering expenses payable by the Company.

On November 24 and November 26, 2021, investors

exercised their warrants to purchase a total of 854,000 shares of common stock at an exercise price of $ 5.00 per share, resulting in

estimated net proceeds of $ 3.9 million after deducting underwriting discounts and commission.

On November 29, 2021, we entered into a securities

purchase agreement with a single institutional investor for the purchase of 2,857,143 shares of our common stock (or common stock equivalents

in lieu thereof) and warrants to purchase up to an aggregate of 2,857,143 shares of common stock, in a private placement.

purchase price for one share of common stock (or common stock equivalent) and a warrant to purchase one share of common stock is $ 5.25 .

The warrants have an exercise price of $ 5.25 per share, will be immediately exercisable, and will expire five years from the issuance

The gross proceeds from the private placement offering are expected to be approximately $ 15.0 million.

The private offering is

expected to close on or about December 1, 2021, subject to the satisfaction of customary closing conditions.

the funds available under the Second Intercompany Revolving Loan Agreement, the net proceeds from the IPO, and the proceeds

from the private placement offering, we will have sufficient funds to support the operating, investing, and financing activities

of the Company through at least twelve months from the date of the issuance of the interim financial statements.

Company’s primary sources of liquidity are its existing cash balances and cash flows from equity financing transactions received

As of March 31, 2022, we had cash and cash equivalents of $ 22.4 million, compared to $ 24.5 million as of December 31, 2021.

we commenced operations in 2015, we have generated significant losses.

For the three months ended March 31, 2022 and 2021, we incurred

losses from operations of $ 3.1 million and $ 3.5 million, respectively.

We incurred net cash outflows from operations of $ 2.1 million

and $ 3.4 million, for the same periods, respectively.

We had an accumulated deficit as of March 31, 2022 of $ 73.3 million.

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, a significant shareholder and our former

parent company, 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

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

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.

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 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.

Summary of Significant Accounting Policies

for Preparation of the Financial Statements

accompanying unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”)

for interim financial information and with the instructions to Form 10-Q and Article 8 and Article 10 of Regulation S-X.

sheet as of December 31, 2020 was derived from the Company’s audited financial statements.

These unaudited condensed financial

statements should be read in conjunction with the audited financial statements and notes thereto for the fiscal year ended December 31,

2020, included in the Company’s final prospectus for the Company’s initial public offering, as filed with the Securities

and Exchange Commission (the “SEC”) pursuant to Rule 424(b) under the Securities Act of 1933, on November 1, 2021 (“Final

Prospectus”).

In the opinion of management, the interim unaudited condensed financial statements reflect all adjustments, consisting

of normal recurring adjustments, necessary for a fair presentation of the Company’s financial position for the periods presented.

The results for the interim periods presented are not necessarily indicative of future results.

financial statements are presented in U.S.

dollars (“USD”) or thousands of USD.

accompanying unaudited interim financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities

and Exchange Commission (“SEC”) for interim financial reporting.

Certain information and footnote disclosures normally included

in the annual financial statements prepared in accordance with U.S.

generally accepted accounting principles (“U.S.

have been condensed or omitted pursuant to such rules and regulations.

In the Company’s opinion, the unaudited financial statements

include all material adjustments, all of which are of a normal and recurring nature, necessary to present fairly the Company’s

financial position as of March 31, 2022, the Company’s operating results for the three months ended March 31, 2022 and 2021, and

the Company’s cash flows for the three months ended March 31, 2022 and 2021.

The accompanying financial information as of December

31, 2021 is derived from audited financial statements.

Interim results are not necessarily indicative of results for a full year.

information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form

10-K for the year ended December 31, 2021, filed with the SEC on April 11, 2022.

amounts shown in these financial statements and accompanying notes are in thousands, except percentages and per share and share amounts.

Company’s significant accounting policies are discussed in Note 2—Summary of Significant Accounting Policies within

the notes to financial statements for the year ended December 31, 2020, included in the Company’s Final Prospectus.

been no significant changes to these policies during the nine months ended September 30, 2021, except as noted below.

the notes to financial statements for the year ended December 31, 2021, included in the Company’s Annual Report on Form 10-K.

have been no significant changes to these policies during the three months ended March 31, 2022.

preparation of the financial statements in accordance with U.S.

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, valuation of

contingent consideration and warrant liabilities, 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.

Issued Accounting Pronouncements

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 Company adopted ASU 2019-12 on January 1, 2021.

The adoption did not have a material impact on the Company’s

financial statements and disclosures for the nine months ended September 30, 2021.

Issued Accounting Pronouncements Not Yet Effective

February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , which requires organizations that lease assets to recognize on

8 unchanged sentences

for complying with new or revised accounting standards.

This allows us to delay the adoption of 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.

This allows us to delay the adoption of 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

June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

6 unchanged sentences

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.

March 25, 2019, we entered into an agreement (as amended, the “Share Purchase Agreement”) with Maruho Co, Ltd.

to acquire 100 % of the shares of Cutanea Life Sciences, Inc.

As of the date of the acquisition, Maruho Co, Ltd.

owned approximately 29.9 % of

our parent, Biofrontera AG through its fully owned subsidiary Maruho Deutschland GmbH.

The acquisition

of Cutanea has enabled us to market Xepi ® , an FDA-approved drug that had been introduced in the US market in November

the date of acquisition, we were entitled to restructure the business of Cutanea and be reimbursed by Maruho for these restructuring

These restructuring costs Maruho agreed to pay are referred to as “SPA Costs” under the arrangement and are to be

accounted for as other income in the period the amounts are determined in accordance with ASC 810.

Refer to Note 15, Restructuring

costs , for further detail.

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”).

connection with this acquisition, we recorded:

million intangible asset related to the Xepi ® license refer, (Refer to Note 9, Intangible Asset, net , for further

detail) (ii) a $ 1.7

million contract asset related to the benefit associated with the non-interest bearing start-up cost financing, (iii) $ 6.5

million of contingent consideration related to the estimated profits from the sale of Cutanea products to be shared equally with

Maruho, (iv) a bargain purchase gain of $ 5.7

million due to the excess fair value of the net assets acquired over the cash consideration transferred, as well as (v) a favorable

lease asset of $ 69,000

related to the leased properties.

The total fair value of the consideration expected to be transferred from the Company to Maruho

was the one US dollar purchase price and $ 6.5

million of contingent consideration related to the earn-out.

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.

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”).

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.

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 start-up cost financing was determined to represent interest

free financing arranged for the benefit of the Company and, as such, was excluded from the purchase consideration.

The contract asset

is shown net of the related start-up cost financing within acquisition contract liabilities, net.

contingent consideration was recorded at acquisition-date fair value using a Monte Carlo simulation with an assumed discount rate

over the applicable term.

The contract asset is shown net of the related start-up cost financing

within acquisition contract liabilities, net.

contingent consideration was recorded at acquisition-date fair value using a Monte Carlo simulation with an assumed discount rate of

approximately 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.

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.

contract liabilities, net consist of the following:

of Acquisition Contact Liabilities

Schedule of Acquisition Contract Liabilities

(in thousands)

September 30, 2021

December 31, 2021

Short-term acquisition contract liabilities:

Contingent consideration

2 unchanged sentences

Acquisition contract liabilities, net

Long-term acquisition contract liabilities:

Contingent consideration

Start-up cost financing

Contract asset

Acquisition contract liabilities, net

Total acquisition contract liabilities:

Contingent consideration

Start-up cost financing

Contract asset

Acquisition contract liabilities, net

Fair Value Measurements

following table presents information about the Company’s assets that are measured at fair value on a recurring basis at March 31,

2022 and December 31, 2021 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair

of Fair Value Hierarchy Valuation Inputs

(in thousands)

Contingent Consideration

Warrant liability- Purchase warrant

Consideration

consideration, which relates to the estimated profits from the sale of Cutanea products to be shared equally with Maruho, is reflected

3 unchanged sentences

The valuation of the contingent consideration utilizes

a Monte Carlo simulation model, which incorporates the following key assumptions and estimates:

(i) the product profit amount to be shared

equally with Maruho, (ii) remaining contractual term, (iii) risk discount rate, and (iv) payment discount rate of 6.0 %.

The Company re-measures

contingent consideration and re-assesses the underlying assumptions and estimates at each reporting period.

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.

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.

following table provides a roll forward of the fair value of the contingent consideration:

of Fair Value of Contingent Consideration

Schedule of Fair Value of Contingent Consideration

(in thousands)

Balance at December 31, 2020

Issuance of contingent consideration at acquisition date

Change in fair value of contingent consideration

Balance at December 31, 2019

Change in fair value of contingent consideration

Balance at March 31, 2021

Balance at December 31, 2021

Change in fair value of contingent consideration

Balance at September 30, 2021

change in fair value of the contingent consideration is recorded in operating expenses in the statements of operations.

The fair value

of the contingent consideration increased $ 0.7 million and $ 1.7 million for the three and nine months ended September 30, 2021, respectively.

The fair value of the contingent consideration increased $ 0.1 million and $ 0.2 million for the three and nine months ended September

30, 2020, respectively.

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 ® .

of Revenue Sales of Products

(in thousands)

For three months ended

September 30,

For nine months ended

September 30,

Balance at March 31, 2022

issued in conjunction with the private placement to an institutional shareholder which closed on December 2, 2021 were accounted for

as liabilities in accordance with ASC 815-40.

Pre-funded common stock purchase warrants to purchase up to 1,507,143

shares of our common

stock at a nominal exercise price (the “Pre-funded Warrants”) were exercised in 2021 and the common stock purchase

warrants to purchase up to 2,857,143

shares of our common

stock at an exercise price of $ 5.25

per share (the Purchase

Warrants”) are presented within warrant liability in the accompanying balance sheets.

The warrant liability is measured

at fair value at inception and on a recurring basis, with changes in fair value presented within the statements of operations.

Company utilizes a Black-Scholes option pricing model to estimate the fair value of the Purchase Warrants 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 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 statements of operations.

following table presents the changes in the warrant liability measured at fair value (in thousands):

of Changes in Fair Value Warrant Liabilities

(in thousands)

Product revenues, net

Related party revenues

Revenues, net

generated $ 4.3 million and $ 14.6 million of Ameluz ® revenue, de minimus amounts of Xepi ® revenue and $ 73,000

and $ 0.3 million of BF-RhodoLED ® lamps revenue during the three and nine months ended September 30, 2021, respectively.

the three and nine months ended September 30, 2020, we generated $ 3.1 million and $ 9.7 million of Ameluz ® revenue, $ 54,000

and $ 0.2 million of Xepi ® revenue, and $ 86,000 and $ 0.3 million of BF-RhodoLED ® lamps.

party revenue relates to an agreement with Biofrontera Bioscience GmbH (“Bioscience”) for BF-RhodoLED ® leasing

and installation service.

Fair value at December 31, 2021

Change in fair value of warrant liability

Fair value at March 31, 2022

generate revenue primarily through the sales of our licensed products Ameluz®, BF-RhodoLED® lamps and Xepi®.

the sales of our BF-RhodoLED® lamp and Xepi® are relatively insignificant compared with the revenues generated through our sales

generated $ 9.6 million of Ameluz® revenue, $ 0.1 million Xepi® revenue, and $ 0.1 million of BF-RhodoLED® lamps revenue during

the three months ended March 31, 2022.

We generated $ 4.5 million of Ameluz® revenue, minimal Xepi® revenue, and $ 0.2 million

of BF-RhodoLED® lamps revenue during the three months ended March 31, 2021.

party revenue relates to an agreement with Biofrontera Bioscience GmbH (“Bioscience”) for BF-RhodoLED® leasing and installation

Refer to Note 16, Related Party Transactions .

analysis of the changes in product revenue allowances and reserves is summarized as follows:

Schedule of Tabular Disclosure of Revenue Allowance and Accrual Activities

(in thousands):

Schedule of Revenue Allowance and Accrual Activities

(in thousands):

Co-pay assistance program

Prompt pay discounts

Government and payor rebates

Balance at December 31, 2020

1 unchanged sentence

Credit or payments made during the period

Balance at September 30, 2021

Balance at March 31, 2021

Balance at December 31, 2021

Provision related to current period sales

Credit or payments made during the period

Balance at March 31, 2022

Accounts Receivable, net

receivable are mainly attributable to the sale of Ameluz ® , the BF-RhodoLED ® and Xepi®.

is expected that all trade receivables will be settled within twelve months of the balance sheet date.

allowance for doubtful accounts was $ 9,000 and $ 40,000 as of September 30,2021 and December 31, 2020, respectively.

It is expected

that all trade receivables will be settled within twelve months of the balance sheet date.

allowance for doubtful accounts was $ 60,000 and $ 18,000 as of March 31, 2022 and December 31, 2021, respectively.

Other Receivables, Related Party

Company has recorded a receivable of $ 11.3 million due from Biofrontera AG for its 50% share of a legal settlement for which both parties

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 and

amended on March 31, 2022, 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 $ 8.4 million is short-term and $ 2.8 million is long-term.

of May 11, 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 March 31, 2022 or December 31, 2021.

remaining $ 0.2 million of other receivables, related party pertains to service agreements and chargebacks.

See Note 16- Related Party

Transactions .

are comprised of Ameluz ® , Xepi® and the BF-RhodoLED ® finished products.

assessing the consumption of inventories, the sequence of consumption is assumed to be based on the first-in-first-out (FIFO) method.

During the three and nine months ended September 30, 2021, we recorded a $ ( 3,000 ) and $ 31,000 provision, respectively, for Xepi ®

inventory obsolescence.

During the three and nine months ended September 30, 2020, we recorded a $ 0.4 million and $ 0.4 million

provision, respectively, for Xepi ® inventory obsolescence due to product expiring.

There was no provision for obsolescence recorded for the three months ended March 31, 2022.

We recorded a provision of $ 35,000

for Xepi® inventory obsolescence, for the

three months ended March 31, 2021.

Prepaid Expenses and Other Current Assets

2 unchanged sentences

(in thousands)

September 30,

Receivable for common stock warrants proceeds

Prepaid expenses

9 unchanged sentences

Machinery & equipment

Office equipment

Property and equipment, gross

1 unchanged sentence

Property and equipment, net

expense is included in selling, general and administrative expense on the statements of operations.

Depreciation expense was $ 29,000

and $ 95,000 for the three and nine months ended September 30, 2021, respectively.

Depreciation expense was $ 36,000 and $ 109,000 for the

three and nine months ended September 30, 2020, respectively.

expense was $ 26,000 and $ 33,000 , for the three months ended March 31, 2022, and 2021, respectively, which was included in selling, general

and administrative expense on the statements of operations.

Intangible Asset, Net

2 unchanged sentences

(in thousands)

September 30,

Xepi® license

1 unchanged sentence

Intangible asset, net

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 is included in selling, general and administrative expense on the statements

of operations.

Amortization expense for the three and nine months ended September 30, 2021 was $ 0.1 million and $ 0.3 million, respectively.

Amortization expense for the three and nine months ended September 30, 2020 was $ 0.1 million and $ 0.3 million, respectively.

annual amortization expense for the next five years from 2021 to 2025 is $ 0.4 million each year.

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

Amortization expense for the three months ended March

31, 2022 and 2021 was $ 0.1

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.

As of March 31, 2020, given the impact to the global economy, as well as

the Company’s operations, from the COVID-19 pandemic, the Company determined an interim impairment analysis was warranted for the

Xepi ® license acquired in the Cutanea business combination.

The Company evaluated the Xepi ® license for

impairment using an undiscounted cash flow analysis and determined no impairment charge was necessary.

Company did not recognize any intangible asset impairment charges during the three and nine months ended September 30, 2021 or 2020.

Statement of Cash Flows

The Company did not recognize any impairment charges during the three months

ended March 31, 2022 or March 31, 2021.

Statement of Cash Flows Reconciliation

following table provides a reconciliation of cash, cash equivalents, and restricted cash that sum to the total shown in the statements

of cash flows:

of Reconciliation of Cash, Cash Equivalents, and Restricted Cash

Schedule of Reconciliation of Cash, Cash Equivalents, and Restricted Cash

(in thousands)

September 30,

Cash and cash equivalents

6 unchanged sentences

(in thousands)

September 30,

Legal settlement

Legal settlement (See note 23)

Employee compensation and benefits

1 unchanged sentence

Product revenue allowances and reserves

Restructuring liability

Other Long-Term Liabilities

2 unchanged sentences

(in thousands)

September 30,

Legal settlement - noncurrent

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.

a result of the net losses we have incurred since inception, we have recorded no provision for federal income taxes during such periods.

Income tax expense incurred for the three and nine months ended September 30, 2021 and 2020 relates to state income taxes.

September 30, 2021 and December 31, 2020, the Company had no unrecognized tax benefits.

Legal settlement – noncurrent (See note 23)

a result of the net losses we have incurred in each fiscal year since inception, we have recorded no provision for federal income taxes

for the three-month periods ended March 31, 2022 and 2021.

Income tax expense incurred for the three months ended March 31, 2022

and 2021 relates to state income taxes.

At March 31, 2022 and December 31, 2021, the Company had no unrecognized tax benefits.

The Company continues to be in a cumulative loss

position and as such, is maintaining a full valuation allowance.

and penalty charges, if any, related to unrecognized tax benefits would be classified as income tax expense in the accompanying statements

of operations.

As of September 30,2021, and December 31, 2020, the Company has no accrued interest related to uncertain tax positions.

Since the Company is in a loss carryforward position, it is generally subject to examination by the U.S.

federal, state, and local income

tax authorities for all tax years in which a loss carryforward is available.

As of March 31, 2022, and December 31, 2021, the Company has no accrued interest related to uncertain tax positions.

the Company is in a loss carryforward position, it is generally subject to examination by the U.S.

federal, state, and local income tax

authorities for all tax years in which a loss carryforward is available.

Related Party Transactions

and Supply Agreement

July 15, 2016, the Company executed an exclusive license and supply agreement with Pharma, which was amended in July 2019 to increase

the Ameluz transfer price per unit from 35.0 %

of the anticipated net selling price per unit

as defined in the agreement.

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.

consideration paid for the transfer of the license.

Refer to Note 21 Subsequent Events, for amendment to license and supply agreement dated October 8, 2021.

of the licensed products during the three and nine months ended September 30, 2021 were $ 1.0

million and $ 5.7

million respectively, and recorded in inventories

in the balance sheets, and, when sold, in cost of revenues, related party in the statements of operations.

Purchases of the licensed

products during the three and nine months ended September 30, 2020 were $ 0.3

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.

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 in our

Annual Report on Form 10-K for the year ended December 31, 2021 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.

of the licensed products during the three months ended March 31, 2022 and 2021 were $ 5.2 million and $ 3.0 million, respectively, and

recorded in inventories in the balance sheets, and, when sold, in cost of revenues, related party in the statements of operations.

due and payable to Pharma as of March 31, 2022 and December 31, 2021 were $ 0.3 million and $ 0.3 million, respectively, which were recorded

in accounts payable, related parties in the balance sheets.

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 IT resources of Biofrontera AG and its wholly owned subsidiaries (the “Biofrontera Group”) 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 $ 0.1

million and $ 0.2

Amounts due and payable to Pharma as

of September 30, 2021 and December 31, 2020 were $ 1.3

million, which were recorded in accounts payable,

related parties in the balance sheets.

June 19, 2015, the Company entered into a 6 % interest bearing revolving loan agreement with Biofrontera AG, the Company’s parent.

Interest was accrued and paid quarterly over the life of the loan.

As of September 30, 2021 and December 31,2020, there was no loan principal

balance outstanding.

There was no interest expense recognized for the three or nine months ended September 30, 2021.

Interest expense

for the three and nine months ended September 30, 2020 was $ 0.7 million and $ 1.9 million, respectively.

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 price of $ 5.875 per share, for an aggregate gross capital contribution of $ 47.0 million.

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.

In the event of a change in control of the Company at any point prior to the termination

date, Biofrontera AG’s obligation to make advances to the Company shall be discharged immediately upon the effective date of the

change of control;

and all outstanding obligations of the Company must be paid back in full within twelve months of the effective date

of the change of control.

Biofrontera AG may require the Company to pay all outstanding obligations at any time on or after the date

that is ten calendar days following the closing of a transaction that reduces the voting rights of the Company in Biofrontera AG to less

As of September 30, 2021, the Company has not drawn upon the Second Intercompany Revolving Loan Agreement.

January 1, 2016, the Company executed an intercompany service agreement with Biofrontera AG.

Under the agreement, the Company receives

services which include accounting consolidation, information technology support, and pharmacovigilance services.

July 2, 2021, we entered into a new intercompany services agreement (“2021 Services Agreement”) which provides for the execution

of statements of work that will supersede the applicable provisions of the 2016 Services Agreement.

The 2021 Services Agreement enables

us to continue relying on Biofrontera AG and its subsidiaries for various services it has historically provided to us, including information

technology and pharmacovigilance support.

Under the 2021 Services Agreement we have agreed that the applicable provisions related to

reimbursement and allocation of expenses in the 2016 Services Agreement will remain in effect until we execute a statement of work under

the 2021 Services Agreement that supersedes such provisions.

Expenses related to the service agreement were $ 0.2 million and $ 0.5 million

for the three and nine months ended September 30, 2021, respectively, and $ 0.1 million and $ 0.4 million for the three and nine months

ended September 30, 2020, respectively, 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 $ 0.3 million and $ 0.3 million as of September 30, 2021 and December 31, 2020, respectively, which were recorded in accounts payable,

related parties in the balance sheets.

for the three months ended March 31, 2022 and 2021, respectively which were recorded in selling, general and administrative, related

There were no

amounts due to Biofrontera AG related to the

service agreement as of March 31, 2022.

Amounts due to Biofrontera AG related to the service agreement were $ 0.2

million as of December 31, 2021 which were recorded

in accounts payable, related parties in the balance sheets.

Lamp Lease Agreement

August 1, 2018, the Company executed a clinical lamp lease agreement with Bioscience to provide

August 1, 2018, the Company executed a clinical lamp lease agreement with Biofrontera Bioscience GmbH (“Bioscience”) to provide

lamps and associated services.

revenue related to the clinical lamp lease agreements was approximately $ 15,000

for the three months ended September 30, 2021

revenue related to the clinical lamp lease agreement was approximately $ 15,000 and $ 13,000 for the three months ended March 31, 2022

and 2021, respectively and recorded as revenues, related party.

Total revenue related to the clinical lamp lease agreements was approximately

for the nine months ended September 30, 2021

and 2020, respectively.

Amounts due from Bioscience for clinical lamp and reimbursement were approximately $ 37,000

as of September 30, 2021 and December 31, 2020,

respectively, which were recorded as accounts receivable, related parties in the balance sheets.

Amounts due from Bioscience for clinical lamp and other reimbursements

were approximately $ 99,000 and $ 92,000 as of March 31, 2022 and December 31, 2021, respectively, which were recorded as other receivables,

related party in the balance sheets.

Reimbursements

from Maruho Related to Cutanea Acquisition

to the Cutanea Share Purchase Agreement, we received start-up cost financing and reimbursements for certain SPA costs.

to the Cutanea acquisition share purchase agreement, we received start-up cost financing and reimbursements for certain costs.

These restructuring costs Maruho agreed to pay are referred to as “SPA costs” under the arrangement and are to be accounted

for as other income.

Refer to Note 3, Acquisition Contract Liabilities .

the nine months ended September 30, 2020, the Company received start-up cost financing from Maruho in the amount of $ 3.4 million, which

was recorded as acquisition contract liabilities, net in the balance sheets.

No start-up cost financing was received during the nine

months ended September 30, 2021.

amounts reimbursed relating to SPA costs were recorded as other income in the statements of operations as the related expenses were recorded.

For the three and nine months ended September 30, 2021, the reimbursed amounts recognized relating to SPA costs were $ 0.2 million and $ 0.5 million.

three and nine months ended September 30, 2020, the amounts reimbursed relating to SPA costs were $ 0.2

million and $ 0.7

million, respectively.

due from Maruho were $ 3,000 as of September 30, 2021 and were recorded in accounts receivable, related parties in the balance sheets.

There were no amounts due to Maruho at December 31, 2020.

Company receives expense reimbursement from Biofrontera AG and Bioscience on quarterly basis for costs incurred on behalf

of these entities, which are netted against expenses incurred within selling, general and administrative expenses.

Total expense reimbursements

were $ 0.2 million and $ 0.7 million for the three and nine months ended September 30, 2021, respectively.

Total expense reimbursements

for the three and nine months ended September 30, 2020 were $ 0.2 million and $ 0.6 million, respectively

August 27, 2020, the Company received $ 1.5 million from Pharma to support the Company’s marketing efforts.

the three and nine months ended September 30, 2020, the Company recorded $ 0.1 million as a reduction of selling, general and administrative

costs in the statement of operations to offset the $ 0.1 million of specific, incremental, identifiable marketing costs incurred to support

the sales of Ameluz and of BF-RhodoLED and $ 1.1 million as a reduction of cost of revenue, related party.

The remaining $ 0.3 million

was recorded as a deferred liability as of September 30, 2020, with the expectation of additional marketing costs to be incurred in the

fourth quarter.

amounts reimbursed relating to SPA costs for the three months ended March 31, 2022.

For the three months ended March 31, 2021, the

amounts reimbursed relating to SPA costs were $ 0.1

million and were recorded as other income in the statements of operations as the related expenses were incurred.

As of March 31,

2022 and December 31, 2021 amounts due from Maruho, primarily relating to SPA cost reimbursements, were $ 56,000

for each of the periods and were recorded in other receivables, related parties in the balance sheets.

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 $ 0.1 million for the three months ended March 31, 2022 and 2021, which were netted

against expenses incurred within selling, general and administrative expenses.

Company has recorded a receivable of $ 11.3 million due from Biofrontera AG for its 50 % share of a legal settlement for which both parties

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 and

amended on March 31, 2022, which provided that the settlement payments would first be made by the Company and then reimbursed by Biofrontera

AG for its share.

The amended 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®).

The Company has accrued

$ 56,000 of interest income as of March 31, 2022.

Of the total receivable of $ 11.3 million, $ 8.5 million is short-term and $ 2.8 million

is a long-term receivable.

Restructuring costs

1 unchanged sentence

Restructuring costs

primarily relate to Aktipak ® discontinuation, personnel costs related to the termination all Cutanea employees, and the

winding down of Cutanea’s operations.

For the three and nine months ended September 30, 2021, restructuring costs were incurred

in the amount of $ 0.2 million and $ 0.7 million, respectively.

For the three and nine months ended September 30, 2020, restructuring costs

were incurred in the amount of $ 0.2 million and $ 0.9 million, respectively

of September 30, 2021, the Company does not expect to incur additional product discontinuation or personnel costs.

As of September 30,

2021, the remaining amount the Company expects to incur related to facility exit costs is $ 0.1

The expected completion date of the

remaining facility exit activities is in the fourth quarter of 2021.

primarily relate to the winding down of Cutanea’s operations.

There were no restructuring costs for the three months ended March

For the three months ended March 31, 2021, restructuring costs were incurred in the amount of $ 0.3 million.

Stockholders’ Equity

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 and 20,000,000 shares of preferred stock, par value $ 0.001 per share.

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.

Equity Incentive Plans and Share-Based Payments

Omnibus Incentive Plan

2021, our Board of Directors adopted, and our shareholders approved the 2021 Omnibus Incentive Plan (“2021 Plan).

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

Non-qualified

stock options

the quarter ended March 31, 2022, the Company granted non-qualified stock options to certain employees to purchase 28,378 shares of common

stock under the 2021 Omnibus Incentive Plan.

The options were granted to employees on March 2, 2022 with an exercise price

of $ 2.96 and a contractual term of ten years .

These stock options had a grant-date fair value of $ 44,000 and vest annually over a three-year

period, subject to the recipient’s continued service with the Company through the applicable vesting dates.

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.

fair value of each option grant was estimated on the grant date of March 2, 2022, using the Black-Scholes option pricing model with the

following assumptions:

fair value of the underlying unit of $ 2.96 , expected volatility of 55.0 % , risk free rate of 1.79 % , term of 6 years

and a dividend yield of 0 .

compensation expense of approximately $ 0.1 million was recorded in selling, general and administrative expenses on the accompanying statement

of operations for the three months ended March 31, 2022.

There was no stock based compensation for the three months ended March 31, 2021.

outstanding and exercisable under the employee share option plan as of March 31, 2022 and a summary of option activity during the three

months then ended is presented below.

Schedule of Stock Unit Activity

Weighted Average Exercise Price

Weighted Average Remaining Contractual Term

Intrinsic Value (1)

Outstanding at December 31, 2021

Canceled or forfeited

Outstanding at March 31, 2022

Exercisable at March 31, 2022

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 March 31, 2022.

of March 31, 2022, there was $ 1.3 million of unrecognized compensation cost related to unvested stock options, which is expected to be

recognized over a weighted-average period of approximately 2.70 years.

Compensation (RSUs)

were no RSU’s granted during the three months ended March 31, 2022.

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.

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 $ 0.4

million for the RSUs was recorded in selling, general and administrative expenses in the accompanying statement of operations for the

three months ended March 31, 2022.

There was no share-based compensation for the three months ended March 31, 2021.

of March 31, 2022, there was $ 0.3 million of unrecognized compensation cost related to unvested RSUs, which is expected to be recognized

over a weighted-average period of approximately 0.19 years.

Interest Expense, net

expense, net consists of the following:

of Interest Expense

Schedule of Interest Expense

(in thousands)

For three months ended

September 30,

For nine months ended

September 30,

Three Months Ended March 31,

(in thousands)

Related party interest expense

Interest expense

Contract asset interest expense

1 unchanged sentence

Interest expense, net

party interest expense consists of interest expenses incurred under our Revolving Loan Agreement with Biofrontera AG.

asset interest expense relates to the $ 1.7 million contract asset in connection with the $ 7.3 million start-up cost financing received

2 unchanged sentences

6 % interest rate over the financing arrangement contract term, which ends on December 31, 2023 .

Other Income (Expense), net

income (expense), net consists

of the following:

of Other Income (Expenses)

Other Income, net

income, net consists of the following:

Schedule of Other Income, Net

(in thousands)

For three months ended

September 30,

For nine months ended

September 30,

Three Months Ended March 31,

(in thousands)

Reimbursed SPA costs

Other income (expense), net

Other income, net

net, primarily includes gain (loss) on foreign currency transactions and gain on termination of operating leases.

Net Loss per Share

and diluted net loss per share attributable to common stockholders is calculated as follows (in thousands, except share and per share

of Basic and Diluted Net Loss Per Share Attributable to Common Stockholders

For three months ended

September 30,

For nine months ended

September 30,

Weighted average common shares outstanding, basic and diluted

Net loss per share, basic and diluted

$ ( 2,984.67 )

$ ( 10,800.96 )

Commitment and Contingencies

net earnings per common share are calculated by dividing net income by the weighted average number of common shares outstanding during

Diluted net earnings per common share are calculated by dividing net income by the diluted weighted average number of common

shares outstanding during the period.

The diluted shares include the dilutive effect of stock-based awards based on the treasury stock

and diluted net income (loss) per share attributable to common stockholders is calculated as follows:

Schedule of Basic and Diluted Net Loss Per Share Attributable to Common Stockholders

Three Months Ended March 31,

dollars are in thousands)

Net income (loss)

Basic weighted average common shares outstanding

Effect of dilutive securities

Stock options and restricted stock units

Diluted weighted average common shares outstanding

Net earnings (loss) per share:

following table sets forth the potential common shares that were not included in the diluted per share calculations for the three months

ended March 31, 2022 because the exercise price was greater than their average market value and they would be anti-dilutive:

Schedule of Anti-dilutive Securities Excluded From Computation of Earnings Per Share

Common stock warrants

Common stock options

Restricted Stock Units

Total anti-dilutive securities

Commitments and Contingencies

Company leases its corporate headquarters under an operating lease that expires in November 2025.

1 unchanged sentence

a security deposit in the amount of $ 0.1 million, which was recorded as other assets in the balance sheets.

connection with the acquisition of Cutanea, the Company inherited various property leases in Pennsylvania, which

were non-cancellable.

All Cutanea property leases are operating leases and will end in 2021.

A security deposit in the amount of $ 0.1

million was recorded as prepaid expenses and other current assets at December 31, 2020 and September 30, 2021.

expense is recorded on a straight-line basis through the end of the lease term.

Certain Cutanea office space is subleased to other tenants.

The Company incurred rent expense, net of sublease income, in the amount of $ 0.2 million and $ 0.6 million for the three and nine months

ended September 30, 2021, respectively, which was included in selling, general, and administrative expenses and restructuring costs.

The rent expense, net of sublease income, for the three and nine months ended September 30, 2020 was $ 0.2 million and $ 0.8 million, respectively.

The Company incurred rent expense, in the amount of $ 0.1

million and $ 0.2 million for the three months ended March 31, 2022 and 2021, which was included in selling, general, and administrative

Company also leases autos for its field sales force with a lease payment term of 40 months.

The Company incurred auto lease expense of

$ 0.1 million and $ 0.4 million for the three and nine months ended September 30, 2021, respectively.

Auto lease expense for the three

and nine months ended September 30, 2020 was $ 0.1 million and $ 0.4 million, respectively.

minimum aggregate payments of all future lease commitments, net of future sublease income, at September 30, 2021, are as follows:

of Future Commitments and Sublease Income

(in thousands)

$ 0.1 million for the three months ended March 31, 2022 and 2021.

minimum aggregate payments of all future lease commitments as of March 31, 2022, are as follows:

Schedule of Future Commitments and Sublease Income

Years ending December 31,

Gross future lease commitments

Sublease income

Net future lease commitments

2021 Remaining

Future lease commitments

Remainder of 2022

earnout payments

are obligated to repay to Maruho $ 3.6 million on December 31, 2022 and $ 3.7 million on December 31, 2023 for start-up cost financing

paid to us in connection with the Cutanea acquisition.

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.

are also obligated to share product profits with Maruho equally from January 1, 2020 through October 30, 2030.

4 unchanged sentences

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 related

to Xepi ® milestones for the three and nine months ended September 30, 2021, or 2020.

As of September 30, 2021, we were

unable to estimate the timing or likelihood of achieving these milestones.

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.

We are a named party to a lawsuit filed March 23, 2018 in the United States District Court for

the District of Massachusetts in which we are alleged to have infringed on certain patents and misappropriated certain trade

Prior to the closing of the IPO, Biofrontera AG shall be responsible for 100% of the legal fees, costs and expenses

related to this matter.

After the closing of the IPO Biofrontera AG and the Company agreed to share the related legal costs at a

rate of 69% and 31%, respectively.

November 29, 2021, the Company entered into a settlement and release agreement with the respect to the above mentioned litigation.

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 1-year constant maturity Treasury yield , and agreed to pay in three installments, as

the 25th day following the entry into the settlement agreement, the Company will pay 50%

of the aggregate amount it owes ;

the 365th day following the entry into the settlement agreement, the Company will pay 25%

of the aggregate amount it owes ;

the 730th day following entry into the settlement, the Company will pay 25% of the aggregate

amount it owes.

of September 30, 2021, we recorded a legal settlement liability in the amount of $ 11.25 million.

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 for the three months ended

March 31, 2022 or 2021 related to Xepi® milestones.

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.

We are not presently a party to any pending legal proceedings.

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.

Biofrontera AG has agreed to pay a portion of the settlement, both parties remain 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 March 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.

Retirement Plan

4 unchanged sentences

The Company matches 50% of employee contributions up to a maximum of 6% of employees’ salary .

the three and nine months ended September 30, 2021, matching contribution costs paid by the Company were $ 59,000 and $ 0.2 million, respectively.

For the three and nine months ended September 30, 2020, matching contribution costs paid by the Company were $ 31,000 and $ 0.2 million.

the three months ended March 31, 2022 and 2021, matching contribution costs paid by the Company were $ 64,000 and $ 61,000 , respectively.

Subsequent Events

Company has evaluated events or transactions that occurred after September 30, 2021 for potential recognition or disclosure through November

30, 2021, which is the date these interim financial statements were available to be issued.

October 1, 2021 we entered into an amended employment agreement with Professor Hermann Lübbert, Ph.D.

that will become

effective upon (i) the consummation of the offering and (ii) the earlier of either of the following occurrences:

(a) the date on which

Biofrontera AG is first deemed not to control us under German law or (b) the day after his last day of employment with Biofrontera AG.

The agreement provides that Prof.

Lübbert will serve as our Executive Chairman and, as long as he remains Chief Executive Officer

of Biofrontera AG, devotes 30% of his working capacity to his responsibilities as Executive Chairman and 70% to his responsibilities

to Biofrontera AG.

If his employment with Biofrontera AG is terminated, he may devote a larger percentage of his working capacity (up

to 100%) to the performance of his duties as Executive Chairman, subject to the approval and consent of our board of directors.

the period following the consummation of the Offering that the amended employment agreement is not effective, we will reimburse Biofrontera

AG for a portion of his salary to be agreed between us and Biofrontera AG.

The agreement also addresses the possible scenario in which

Lübbert resigns from his position at Biofrontera AG and devotes 100% of his time to his role as Executive Chairman.

his resignation from Biofrontera AG, Prof Dr.

Lübbert will receive a salary to be determined and approved by our board of directors

at that time, which will be commensurate with the scope of his responsibilities and appropriate with respect to the Company’s financial

We also agree to allow Prof.

Lübbert to participate in any benefit programs we make available to our employees Prof.

Lübbert is further eligible to receive an annual target performance bonus of up to 100% of his base salary at the time, based

on certain annual corporate goals and individual performance goals established annually by our board of directors.

No bonus will be paid

if our board of directors determines that the target achievement of the respective year was below 70%.

October 8, 2021, we entered into a Corrected Amendment to Amended and Restated License and Supply Agreement for Ameluz to change the

purchase price we will pay per unit to Pharma for Ameluz® from 50.0% to an amount to be based on our sales history:

- 50% of the anticipated net price per unit until we generate $ 30 million in revenue from sales of the products we license from Pharma during a given Commercial Year (as defined in the Ameluz LSA);

- 40% of the anticipated net price per unit for all revenues we generate between $ 30 million and $ 50 million from sales of the products we license from Pharma;

- 30% of the anticipated net price per unit for all revenues we generate above $ 50 million from sales of the products we license from Pharma.

amendment to the Ameluz LSA also entitles us to take over clinical trial and regulatory work under certain circumstances with respect

to the indications that Biofrontera AG and its consolidated subsidiaries, Pharma, Bioscience, Biofrontera Neuroscience GmbH, and Biofrontera

Development GmbH (collectively, the “Biofrontera Group”) is currently seeking from the FDA (as well as certain

other studies identified in the Corrected Amendment to the Ameluz LSA), most of which are described in the Final Prospectus in the section

titled “—Our Licensors’ Research and Development Programs—Current Clinical Trials for Ameluz® for the U.S.

Market” and subtract the cost of the trials from the transfer price of Ameluz®, but it does not grant that right with respect

to any indications that might be pursued in the future.

November 2, 2021, we consummated our IPO of 3,600,000

each consisting of (i) one share of common stock of the Company, par value $ 0.001

per share and (ii) one warrant of the Company

entitling the holder to purchase one Share at an exercise price of $ 5.00

The Warrants are immediately exercisable

upon issuance and are exercisable for a period of five

years after the issuance date.

The Shares and

Warrants were issued separately in the offering and may be transferred separately immediately upon issuance.

The underwriters exercised

in full their option to purchase up to an additional 540,000

Warrants to cover over-allotments.

were sold at a price of $ 5.00

per Unit, and the Company estimates the net proceeds

from the IPO to be $ 15.4

million, after deducting estimated underwriting

discounts and commissions and estimated offering expenses payable by the Company.

In connection with the IPO, the Company issued to the

underwriters Unit Purchase Options to purchase, in the aggregate, (a) 108,000

Units and (b) an additional 16,200

Warrants (relating to the underwriters’

exercise of the over-allotment option in full, with respect to the Warrants).

connection with the consummation of the IPO, on November 2, 2021, Erica Monaco resigned her position on the board of directors of the

Company and John J.

Borer, Beth J.

Hoffman, Ph.D, and Loretta M.

Wedge, CPA, CCGMA (collectively, the “Directors”) were appointed

to the board of directors of the Company (the “Board”).

The Board has determined that each of Dr.

Hoffman and Ms.

independent directors within the meaning of applicable SEC and Nasdaq rules.

Effective November 2, 2021, each of the Directors was appointed

to the Board’s Audit Committee, the Board’s Nominating and Corporate Governance Committee and the Board’s Compensation

November 2, 2021, the Company filed an Amended and Restated Certificate of Incorporation (the “Amended and Restated Certificate”)

with the Secretary of State of the State of Delaware in connection with the IPO.

The amendment allowed for a classified board and

the issuance of preferred stock.

The Board and sole existing stockholder previously approved the Amended and Restated Certificate

to be effective upon the consummation of the IPO.

November 24 and November 26, 2021, investors exercised their warrants to purchase a total of 854,000 shares of common stock at

an exercise price of $ 5.00 per share, resulting in estimated net proceeds of $ 3.9 million after deducting underwriting discounts and

November 29, 2021, the Company entered into a settlement and release agreement with respect to the previously mentioned litigation.

to Legal Proceedings section in Note 19 for further details.

November 29, 2021, the Company entered into a securities purchase agreement with a single institutional investor for the purchase of

2,857,143 shares of its common stock (or common stock equivalents in lieu thereof) and warrants to purchase up to an aggregate of 2,857,143

shares of common stock, in a private placement.

The combined purchase price for one share of common stock (or common stock equivalent)

and a warrant to purchase one share of common stock is $ 5.25 .

The warrants have an exercise price of $ 5.25 per share, will be immediately

exercisable, and will expire five years from the issuance date.

The gross proceeds from the private placement offering are expected to

be approximately $ 15.0 million.

The private offering is expected to close on or about December 1, 2021, subject to the satisfaction of

customary closing conditions.

have completed an evaluation of subsequent events after the balance sheet date of March 31, 2022 through the date this Quarterly Report

on Form 10-Q was submitted to the SEC.

We have concluded that no subsequent events have occurred that require recognition in the financial

statements or disclosure in the notes to the financial statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements