What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-12 compared with 2022-05-13 · 278 added, 256 removed, 227 unchanged (70% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking

Forward-Looking Statements

Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements.

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capital requirements, our need for additional financing, statements regarding the efficacy and intended use of our technologies under

development, the timelines and strategy for bringing such licensed products to market, the timeline for regulatory review and approval

development, the timelines and strategy for bringing licensed products to market, the timeline for regulatory review and approval

of our licensed products, and other statements that are not historical facts, including statements which may be preceded by the words

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that may cause such differences include, but are not limited to:

our reliance on sales of

products we license from other companies as our sole source of revenue;

the success of our competitors

in developing generic topical dermatological products that successfully compete with our licensed products;

the success of our principal

licensed product Ameluz ® ;

reliance on sales of products we license from other companies as our sole source of revenue;

success of our competitors in developing generic topical dermatological products that successfully compete with our licensed products;

success of our principal licensed product Ameluz ® ;

ability of Biofrontera Pharma, Biofrontera Bioscience and Ferrer Internacional S.A.

referred to collectively as our (“licensors”) to establish and maintain relationships with contract manufacturers

that are able to supply us with enough of the licensed products to meet our demand;

the ability of our licensors

or our licensors’ manufacturing partners, as applicable, to supply Ameluz®, BF-RhodoLED® lamps, Xepi® or other

licensed products that we market in sufficient quantities and at acceptable quality and cost levels, and to fully comply with current

good manufacturing practice or other applicable manufacturing regulations;

the ability of our licensors

to successfully defend or enforce patents related to our licensed products;

the effect of the COVID-19

global pandemic, including mitigation efforts and economic effects;

the availability of insurance

coverage and medical expense reimbursement for our licensed products;

the impact of legislative

and regulatory changes;

competition from other

pharmaceutical and medical device companies and existing treatments, such as simple curettage and cryotherapy;

our success in achieving

profitability;

our ability to obtain additional

financing as needed to implement our growth strategy.

our success in remediating

material weaknesses in our internal control over financial reporting and in establishing adequate internal controls over financial

our ability to retain and

recruit key personnel;

our success in making the

transition to operate as a public company;

referred to collectively as our (“licensors”) to establish and maintain relationships with contract manufacturers that

are able to supply us with enough of the licensed products to meet our demand;

ability of our licensors or our licensors’ manufacturing partners, as applicable, to supply Ameluz®, BF-RhodoLED® lamps,

Xepi® or other licensed products that we market in sufficient quantities and at acceptable quality and cost levels, and to fully

comply with current good manufacturing practice or other applicable manufacturing regulations;

ability of our licensors to successfully defend or enforce patents related to our licensed products;

effect of the COVID-19 global pandemic, including mitigation efforts and economic effects;

availability of insurance coverage and medical expense reimbursement for our licensed products;

impact of legislative and regulatory changes;

from other pharmaceutical and medical device companies and existing treatments, such as simple curettage and cryotherapy;

success in achieving profitability;

ability to obtain additional financing as needed to implement our growth strategy.

success in remediating material weaknesses in our internal control over financial reporting and in establishing adequate internal

controls over financial reporting;

ability to retain and recruit key personnel;

success in making the transition to operate as a public company;

other risks identified in Item 1A.

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principal licensed product is Ameluz®, which is a prescription drug approved for use in combination with our licensor’s FDA-approved

medical devices, the BF-RhodoLED® lamp series consisting of the BF-RhodoLED® and the RhodoLED® XL lamps, for

photodynamic therapy in the United States for the lesion-directed and field-directed treatment of actinic keratoses of mild-to-moderate

severity on the face and scalp.

medical devices, the BF-RhodoLED® lamp series consisting of the BF-RhodoLED® and the RhodoLED® XL lamps, for photodynamic

therapy in the United States for the lesion-directed and field-directed treatment of actinic keratoses 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.

Under the Ameluz

LSA, we hold the exclusive license to sell Ameluz® and the BF-RhodoLED® lamp in the United States for all indications currently

approved by the FDA as well as all future FDA-approved indications that the Ameluz Licensor may pursue.

We are obliged to purchase

Ameluz® and the RhodoLED® devices exclusively from the Licensor.

Under the Ameluz LSA, the Licensor is obliged to manufacture,

perform regulatory work and sponsor certain clinical trials on its own expense.

In consideration, we are obligated to pay a transfer

price of 30-50% of our net sales of Ameluz®.

We have the authority under the Ameluz LSA in certain circumstances to i) take over

clinical development with respect to the indications the Ameluz Licensor is currently pursuing with the FDA (as well as certain other

clinical studies identified in the Ameluz LSA), ii) take over the regulatory and manufacturing responsibilities from the Ameluz

Licensor, and iii) to offset the costs of such operations by adjusting the transfer price for Ameluz® or to reduce the transfer

price at a fixed ratio.

The Ameluz Licensor does not have any obligation under the Ameluz LSA, as amended, to perform or finance

clinical trials to promote new indications beyond those they are currently pursuing with the FDA (as well as certain other clinical studies

identified in the Ameluz LSA).

Under the Ameluz LSA, further extensions of the approved indications for Ameluz® photodynamic therapy

in the United States are anticipated.

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.

Under the Ameluz LSA, we hold

the exclusive license to sell Ameluz® and the BF-RhodoLED® lamp in the United States for all indications currently approved by

the FDA as well as all future FDA-approved indications that the Ameluz Licensor may pursue.

We are obliged to purchase Ameluz® and

the RhodoLED® devices exclusively from the Licensor.

Under the Ameluz LSA, the Licensor is obliged to manufacture, perform regulatory

work and sponsor certain clinical trials on its own expense.

In consideration, we are obligated to pay a transfer price of 30-50% of

our net sales of Ameluz®.

We have the authority under the Ameluz LSA in certain circumstances to i) take over clinical development

with respect to the indications the Ameluz Licensor is currently pursuing with the FDA (as well as certain other clinical studies identified

in the Ameluz LSA), ii) take over the regulatory and manufacturing responsibilities from the Ameluz Licensor, and iii) to offset the

costs of such operations by adjusting the transfer price for Ameluz® or to reduce the transfer price at a fixed ratio.

Licensor does not have any obligation under the Ameluz LSA, as amended, to perform or finance clinical trials to promote new indications

beyond those they are currently pursuing with the FDA (as well as certain other clinical studies identified in the Ameluz LSA).

the Ameluz LSA, further extensions of the approved indications for Ameluz® photodynamic therapy in the United States are anticipated.

second prescription drug licensed product in our portfolio is Xepi® (ozenoxacin cream, 1%), a topical non-fluorinated quinolone that

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under an exclusive

license and supply agreement (“Xepi LSA”) with Ferrer that was acquired by Biofrontera on March

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

license and supply agreement (“Xepi LSA”) with Ferrer that was acquired by Biofrontera on March 25, 2019 through our acquisition

of Cutanea Life Sciences, Inc.

principal objective is to increase the sales of our licensed products in the United States.

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the following:

expanding our sales in

the United States of Ameluz ® in combination with the RhodoLED ® lamp for the treatment of minimally

to moderately thick actinic keratoses of the face and scalp and positioning Ameluz ® to be a leading photodynamic therapy

product, by growing our dedicated sales and marketing infrastructure in the United States;

expanding our sales of

Xepi ® for treatment of impetigo by improving the market positioning of the licensed product;

leveraging the potential for future approvals and label

extensions of our portfolio products that are in the pipeline for the U.S.

market through the LSAs with our Licensors.

our sales in the United States of Ameluz ® in combination with the RhodoLED ® lamp for the treatment

of minimally to moderately thick actinic keratoses of the face and scalp and positioning Ameluz ® to be a leading photodynamic

therapy product, by growing our dedicated sales and marketing infrastructure in the United States;

our sales of Xepi ® for treatment of impetigo by improving the market positioning of the licensed product;

the potential for future approvals and label extensions of our portfolio products that are in the pipeline for the U.S.

market through

the LSAs with our Licensors.

strategic objectives also include further expansion of our product and business portfolio through various methods to pursue selective

strategic investment and acquisition opportunities to expand and support our business growth, including but not limited to:

in-licensing further products

or product opportunities and developing them for the U.S.

procuring products through

asset acquisition from other healthcare companies;

procuring products through

share acquisition of some or all shares of other healthcare companies, including the possible acquisition of shares of our former

parent company and significant stockholder, Biofrontera AG.

further products or product opportunities and developing them for the U.S.

products through asset acquisition from other healthcare companies;

products through share acquisition of some or all shares of other healthcare companies, including the possible acquisition of shares

of our former parent company and significant stockholder, Biofrontera AG.

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

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a seasonally strong increase in sales, indicating a revenue recovery from the global COVID-19 pandemic.

However, 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.

However, 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,

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As Teligent, Inc, is no longer a viable manufacturing option,

Ferrer is evaluating options for a new contract manufacturer for Xepi ® , but the process of engaging one or more new contract

manufacturers to replace Teligent, Inc.

will require significant time, including the time it will take the new contract manufacturer(s)

Ferrer has selected a new contract manufacturer for Xepi ® , but the process will require significant time, including the time it will take the new contract manufacturer

to reach a level of production to meet our commercial needs.

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it will be enough to complete the commercialization of Xepi ® in accordance with the originally planned timeline.

the uncertainty of supply chain, we expect a delay in shipments of Xepi ® for the next 18 months, however, the Company

expects Ferrer to perform its obligations under the Xepi LSA to use its commercially reasonable efforts to qualify an alternative supplier

during this period of time.

the uncertainty of supply chain, we expect a delay in shipments of Xepi ® for the next 18 months.

Despite these delays, our total revenues will not be significantly impacted since the majority of our revenues

are from sales of Ameluz ® .

After adjusting our forecast due to supply chain issues, we expect our net Xepi revenues impact

to be $0.5 million over the next twelve months.

We continue to monitor the impacts of the supply chain on our business and are focused

on ensuring the stability of the supply chains for Ameluz ® and RhodoLED ® .

After adjusting our forecast due to supply chain issues, we expect our net Xepi ®

revenues impact to be $0.5 million over the next twelve months.

We continue to monitor the impacts of the supply chain on our business

and are focused on ensuring the stability of the supply chains for Ameluz ® and RhodoLED ® .

of Our Results of Operations

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primary factors that determine our revenue derived from our licensed products are:

the level of orders generated by our sales force;

the level of prescriptions and institutional demand

for our licensed products;

unit sales prices.

level of orders generated by our sales force;

level of prescriptions and institutional demand for our licensed products;

sales prices.

Party Revenues

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expenses include marketing, trade, and other commercial costs necessary to support the commercial operation of our licensed products

and professional fees for legal, consulting and accounting services.

Selling, general and administrative expenses also include the amortization

of our intangible asset and our legal settlement expenses.

and professional fees for legal, consulting, accounting services and the amortization of our intangible asset.

General and Administrative Expenses, Related Party

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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.

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.

Restructuring

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in Fair Value of Contingent Consideration

connection with the Cutanea acquisition, we recorded contingent consideration related to the estimated profits from the sale of Cutanea

products to be shared equally with Maruho.

The fair value of such contingent consideration was determined to be $6.5 million on the acquisition

date of March 25, 2019 and is re-measured at each reporting date until the contingency is resolved.

connection with the Cutanea acquisition, we recorded contingent consideration related to the estimated profits from the sale of

Cutanea products to be shared equally with Maruho.

The fair value of such contingent consideration was determined to be $6.5 million

on the acquisition date of March 25, 2019 and is re-measured at each reporting date, with changes in fair value presented within the

statements of operations, until the contingency is resolved.

in Fair Value of Warrant Liabilities

stock warrants to purchase up to 2,857,143 shares of our common stock at an exercise price of $5.25 per share were issued in conjunction

with the private placement which closed on December 2, 2021 and were accounted for as liabilities in accordance with ASC 815-40.

stock warrants issued in conjunction with private placement financing transactions which closed on December 2, 2021 and May 17, 2022

are accounted for as liabilities in accordance with ASC 815-40.

warrant liability is measured at fair value at inception and on a recurring basis, with changes in fair value presented within the statements

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expense, net, primarily consists of amortization of the contract asset related to the start-up cost financing from Maruho Co.

(“Maruho”) agreement (“Share Purchase Agreement”) to acquire 100% of the Shares of Cutanea Life Sciences, Inc.

(“Cutanea”), offset by interest income of 6% per annum for each day that any reimbursement is past due related to the Settlement

Allocation Agreement with Biofrontera AG and immaterial amounts of interest income earned on our financing of customer purchases of RhodoLED ®

(“Maruho”) agreement (“Share Purchase Agreement”) to acquire 100% of the Shares of Cutanea Life

Sciences, Inc.

(“Cutanea”), offset by interest income of 6% per annum for each day that any reimbursement is past due

related to the Amended Settlement Allocation Agreement with Biofrontera AG and immaterial amounts of interest income earned on our

financing of customer purchases of RhodoLED ® lamps.

income, net primarily includes (i) reimbursed Share Purchase Agreement costs, and (ii) gain (loss) on foreign currency transactions.

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of Operations

of the Three Months ended March 31, 2022 and 2021

following table summarizes our results of operations for the three months ended March 31, 2022 and 2021:

( in thousands)

Product revenues, net

Related party revenues

of the Three Months ended June 30, 2022 and 2021

following table summarizes our results of operations for the three months ended June 30, 2022 and 2021:

revenues, net

Operating expenses:

Cost of revenues, related party

Cost of revenues, other

Selling, general and administrative

Selling, general and administrative, related party

Restructuring costs

Change in fair value of contingent consideration

Total operating expenses

Loss from operations

Change in fair value of warrant liabilities

Interest expense, net

Other income, net

Loss before income taxes

Income tax expenses

product revenue was $9.8 million and $4.7 million for the first three months of 2022 and 2021, respectively, an increase of $5.0 million,

The increase was primarily driven by the higher volume of Ameluz ® orders, which resulted in an increase in

Ameluz ® revenue of $4.6 million, which was coupled with the impact of price related to Ameluz ® of $0.4

party revenues

of revenues, related party

of revenues, related party was $5.0 million and $2.4 million for the first three months of 2022 and 2021, respectively, an increase of

of revenues, other

general and administrative

general and administrative, related party

Restructuring

in fair value of contingent consideration

from operations

in fair value of warrant liabilities

before income taxes

product revenue was $4.5 million and $5.9 million for the three months ended June 30, 2022 and 2021, respectively, a decrease of $1.4

million, or 23.9%.

which was driven by the increase in Ameluz ® product revenue.

The decrease was primarily driven by the lower volume of Ameluz ® orders, which resulted in a decrease

in Ameluz ® revenue of $1.5 million, which was partially offset with the impact of the price increase

related to Ameluz ® of $0.1 million.

of Revenues, Related Party

of revenues, related party was $2.4 million and $3.0 million for the three months ended June 30, 2022 and 2021, respectively, a decrease

of $0.6 million, or 19.2%.

which was driven by the decrease in Ameluz ® product revenue.

Cost of revenues, related party

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of Revenues, Other

of revenues, other was consistent at $0.2 million for both the first three months of 2022 and 2021

of revenues, other was $0.2 million and $0.1 million for the three months ended June 30, 2022 and 2021, respectively.

General and Administrative Expenses

general and administrative expenses were $7.6 million and $4.8 million for the first three months of 2022 and 2021, respectively, an

increase of $2.9 million, or 60.0%.

increase was primarily driven by legal expenses of $0.5 million and business insurance of $0.5 million.

Headcount costs also increased

$0.4 million as a result of (i) resumed hiring in 2022 and (ii) higher commission expenses related to improved sales performance.

increase was further driven by stock compensation expense of $0.5 million, resumed travel of $0.3 million as well as higher year over

year consulting expenses of $0.2 million.

general and administrative expenses were $9.7 million and $5.6 million for the three months ended June 30, 2022 and 2021, respectively,

an increase of $4.1 million, or 74.2%.

increase was primarily driven by legal expenses of $0.8 million, issuance costs related to a private placement financing of $0.7

million and business insurance of $0.5 million.

Headcount costs also increased $0.7 million as a result of resumed hiring in 2022.

The increase was further driven by stock compensation expense of $0.6 million, general consulting expenses $0.5M as well as resumed

travel of $0.2 million

General and Administrative Expenses, Related Party

general and administrative expenses, related party were $0.1 million and $0.2 million for the first three months of 2022 and 2021, respectively,

a decrease of $0.1 million or -42.1%.

Related party expense is based on statements of work issued under the Services Agreement with the

Biofrontera Group.

general and administrative expenses, related party were $0.3 million and $0.2 million for the three months ended June 30, 2022 and 2021,

respectively, an increase of $0.1 million or 76.5%.

Related party expense is based on statements of work issued under the Services Agreement

with the Biofrontera Group.

We currently have statements of work in place regarding IT, regulatory affairs, medical affairs, pharmacovigilance,

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provided to us related to accounting consolidation, IT support and pharmacovigilance.

Decrease of $0.1 million is mainly

related to IT development and quality assurance services.

Biofrontera AG provides IT development application services as well as any

network issues and hosts Biofrontera, Inc.’s servers.

Increase of $0.2 million is mainly related to IT

development and quality assurance services.

Restructuring

were no restructuring costs for the three months ended June 30,2022.

Restructuring costs were $0.2 million for three months ended June

30, 2021, which was related to facility exit costs.

in Fair Value of Contingent Consideration

change in fair value of contingent consideration was a decrease of $1.9 million and an increase of $0.5 million for the three months

ended June 30, 2022 and 2021, respectively.

The change in fair value of contingent consideration is driven by the estimated profit share

the Company is required to pay under the Share Purchase Agreement.

in Fair Value of Warrant Liabilities

change in fair value of warrant liabilities was a decrease of $5.4 million for three months ended June 30, 2022.

The change in fair

value of warrant liabilities was driven by changes in the underlying value of the common stock.

There were no warrant liabilities as

of June 30, 2021.

of the Six Months ended June 30, 2022 and 2021

following table summarizes our results of operations for the six months ended June 30, 2022 and 2021:

revenues, net

party revenues

of revenues, related party

of revenues, other

general and administrative

general and administrative, related party

Restructuring

costs were $0.0 million and $0.3 million for 2022 and 2021, respectively, a decrease of $0.3 million, or 100%, which was related to facility

in fair value of contingent consideration

change in fair value of contingent consideration was $0 million and $0.5 million for the first three months of 2022 and 2021, respectively,

a decrease of $0.5 million or -100.0%.

The change in fair value of contingent consideration is driven by the estimated profit share the

Company is required to pay under the Share Purchase Agreement.

operating expenses

from operations

in fair value of warrant liabilities

change in fair value of warrant liabilities was a decrease of $8.7 million for 2022.

before income taxes

product revenue was $14.2 million and $10.6 million for the six months ended June 30, 2022 and 2021, respectively, an increase of $3.6

million, or 34.1%.

The increase was primarily driven by (i) higher volume of Ameluz ® orders, which resulted in an increase

in Ameluz ® revenue of $3.5 million, and (ii) an Ameluz ® price increase which further increased Ameluz ®

revenue by $0.1 million.

of Revenues, Related Party

of revenues, related party was $7.4 million and $5.4 million for the six months ended June 30, 2022 and 2021, respectively, an increase

of $2.0 million, or 37.1% which was driven by the increase in Ameluz ® product revenue.

Cost of revenues, related party

is directly correlated to the selling price under the Ameluz LSA.

of Revenues, Other

of revenues, other was consistent at $0.3 million for the six months ended June 30, 2022 and 2021.

General and Administrative Expenses

general and administrative expenses were $17.3 million and $10.3 million for the six months ended June 30, 2022 and 2021, respectively,

an increase of $7.0 million, or 67.7%.

increase was primarily driven by legal expenses of $1.3 million and business insurance of $1.0 million.

Headcount costs also increased

$1.2 million as a result of resumed hiring in 2022.

The increase was further driven by stock compensation expense of $1.1 million, issuance

costs related to a private placement financing of $0.7 million, consulting expenses of $0.7 million and resumed travel of $0.5 million.

General and Administrative Expenses, Related Party

Selling, general and administrative expenses, related

party were $0.4 million for the six months ended June 30, 2022 and 2021.

Related party expense is based on statements of work issued under

the Services Agreement with the Biofrontera Group.

We currently have statements of work in place regarding IT, regulatory affairs, medical

affairs, pharmacovigilance, and investor relations services.

Prior period related party expense was based on costs incurred by Biofrontera

AG plus 6% for services provided to us related to accounting consolidation, IT support and pharmacovigilance.

Restructuring

were no restructuring costs for the six months ended June 30, 2022.

Restructuring costs were $0.5 million for the six months ended June

30, 2021, which was related to facility exit costs.

in Fair Value of Contingent Consideration

The change in fair value

of contingent consideration was a decrease of $1.9 million and an increase of $1.0 million for the six months ended June 30, 2022 and

2021, respectively.

The change in fair value of contingent consideration is driven by the estimated profit share the Company is required

to pay under the Share Purchase Agreement.

in Fair Value of Warrant Liabilities

The change in fair value

of warrant liabilities was a decrease of $14.1 million for the six months ended June 30, 2022.

The change in fair value of warrant liabilities

was driven by changes in the underlying value of the common stock.

There were no warrant liabilities as of March 31, 2021.

expense, net was $33 thousand and $0.1 million for the first three months of 2022 and 2021, respectively.

The slight decrease

in interest expense was mainly driven by legal settlement interest income in 2022.

Interest expense from the straight-line

amortization of the contract asset related to start-up cost financing received from Maruho under the Cutanea acquisition purchase

agreement was $0.1 million during both periods.

income, net was $23 thousand and $79 thousand in the first three months of 2022 and 2021, respectively, a decrease of $56 thousand or

Decrease is primarily related to the decrease in reimbursed costs under the Share Purchase Agreement with Maruho.

Income (Loss) to Adjusted EBITDA Reconciliation for the Three Months Ended March 31, 2022 and 2021

There were no warrant liabilities as of June 30, 2021.

Income (Loss) to Adjusted EBITDA Reconciliation for the Six Months Ended June 30, 2022 and 2021

define adjusted EBITDA as net income or loss before interest income and expense, income taxes, depreciation and amortization, and other

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contingent consideration as this is non-cash.

in fair value of warrant liabilities:

The Purchase and Pre-funded Warrants issued in conjunction with a private placement equity

financing were accounted for as liabilities in accordance with ASC 815-40.

The warrant liabilities were measured at fair value at inception

and are remeasured at each reporting date, with changes in fair value presented within the statement of operations.

We exclude the impact

of the change in fair value of warrant liabilities as this is non-cash.

Change in fair value of warrant liabilities:

The warrants issued in conjunction with private placement equity financings were accounted for as liabilities

in accordance with ASC 815-40.

The warrant liabilities were measured at fair value at inception and are remeasured at each reporting date,

with changes in fair value presented within the statement of operations.

We exclude the impact of the change in fair value of warrant

liabilities as this is non-cash.

EBITDA margin is adjusted EBITDA for a particular period expressed as a percentage of revenues for that period.

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information is viewed with GAAP financial information, investors are provided with a more meaningful understanding of our ongoing operating

below table presents a reconciliation from net income (loss) to Adjusted EBITDA for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

Net income/(loss)

Interest expense, net

Income tax expenses

Depreciation and amortization

Change in fair value of contingent consideration

Change in fair value of warrant liabilities

Adjusted EBITDA

Adjusted EBITDA margin

EBITDA decreased from ($2.8) million for the first three months of 2021 to ($3.0) million for the first three months of 2022.

EBITDA margin improved to (30.3%) for the first three months of 2022 from (59.3%) for the first three months of 2021.

below table presents a reconciliation from net income (loss) to Adjusted EBITDA for the three and six months ended June 30, 2022 and

income (loss)

and amortization

in fair value of contingent consideration

in fair value of warrant liabilities

EBITDA margin

EBITDA decreased from ($2.9) million during the three months ended June 30, 2021 to ($8.0) million for the three months ended June 30,

Our adjusted EBITDA margin decreased from (49.4%) to (178.4%) during the same periods.

EBITDA decreased from ($5.7) million during the six months ended June 30, 2021 to ($11.3) million for the six months ended June 30, 2022.

Our adjusted EBITDA margin decreased from (53.9%) to (78.6%) during the same periods.

and Capital Resources

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.

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

of 2022, we received aggregate proceeds of $9.4 million from the sale of common stock and warrants in a private placement (See note

18 Stockholders’ Equity) .

As of June 30, 2022, we had cash and cash equivalents of $31.9 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.

Contract Liabilities ), and legal settlement expenses after reimbursement from Biofrontera AG a significant shareholder and former

parent company, of $5.6 million (see Note 13.

For the six months ended June 30, 2022 and 2021, we incurred losses

from operations of $9.3 million and $7.2 million, respectively.

We incurred net cash outflows from operations of $2.0 million and $4.5

million, for the same periods, respectively.

We had an accumulated deficit as of June 30, 2022 of $74.2 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 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

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.

adequacy of our available funds to meet our future operating and capital requirements will depend on many factors, including the amounts

of future revenues generated by our products.

Due to numerous factors described in more detail under the caption Part I, Item 1A, “Risk

Factors” of this Form 10-K and our contractual obligations and commitments, we may require significant additional funds earlier

than we currently expect in order to continue to commercialize Ameluz®, BF-RhodoLED® lamp series, and Xepi® and to support

the operating, investing, and financing activities of the Company beyond the next twelve months.

Long-term material cash requirements include potential milestone payments to Ferrer Internacional S.A (See Note 23.

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, regulatory reporting and other 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

Our future growth is dependent on our

ability to obtain additional equity financing.

On July 26, 2022, pursuant to a warrant exercise inducement offer letter (the

“Inducement Letter”), an investor exercised certain of its existing warrants, issued in a private placement on December 1, 2021, to purchase 2,857,143 shares of common

stock, at a price of $1.62 per share, resulting in gross proceeds of $4.6 million ( See Note 25 Subsequent Events) .

current operating plans and financial forecasts, we expect that our current cash and cash equivalents, along with the proceeds

received from the exercise of such warrants in accordance with the Inducement Letter, will be sufficient to fund our operations for at

least the next twelve months from the date of issuance of our financial statements.

However, 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.

The adequacy of our available funds to meet our future operating and capital

requirements will depend on many factors, including the amounts of future revenues generated by our products.

Due to numerous factors

described in more detail under the caption Part I, Item 1A, “Risk Factors” of this Form 10-K and our contractual obligations

and commitments, we may require significant additional funds earlier than we currently expect in order to continue to commercialize Ameluz®,

BF-RhodoLED® lamp series, and Xepi® and to support the operating, investing, and financing activities of the Company beyond the

next twelve months.

future use of operating cash and capital requirements will depend on many forward-looking factors, including the following:

the costs of our commercialization

activities for Ameluz ® and Xepi ® ;

the extent to which we

acquire or invest in licensed products, businesses and technologies;

the extent to which we

choose to establish collaboration, co-promotion, distribution or other similar agreements for our licensed products;

the cost to fulfill our

contractual obligations for various operating leases on vehicles and office space;

the requirement to pay

back $7.3 million of start-up cost financing to Maruho and make any contingent profit- sharing payments to Maruho in connection with

the Cutanea acquisition.

the ability to collect

a receivable of $11.3 million from Biofrontera AG (in accordance with the Settlement Allocation Agreement) for reimbursement of legal

settlement payments made and to be made on their behalf for which both parties are jointly and severally liable.

costs of our commercialization activities for Ameluz ® and Xepi ® ;

extent to which we acquire or invest in licensed products, businesses and technologies;

extent to which we choose to establish collaboration, co-promotion, distribution or other similar agreements for our licensed products;

cost to fulfill our contractual obligations for various operating leases on vehicles and office space;

requirement to pay back $7.3 million of start-up cost financing to Maruho and make any contingent profit- sharing payments to Maruho

in connection with the Cutanea acquisition.

ability to collect a receivable of $5.6 million from Biofrontera AG (in accordance with the Settlement Allocation Agreement) for

reimbursement of legal settlement payments to be made on their behalf for which both parties are jointly and severally liable.

will continue to assess our operating costs and expenses and our cash and cash equivalents and, if circumstances warrant, we will make

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following table summarizes our cash provided by and (used in) operating, investing and financing activities:

Three Months Ended March 31,

(in thousands)

Net cash used in operating activities

Net cash provided by (used in) investing activities

Net decrease in cash and restricted cash

the first three months of 2022, operating activities used $2.1 million of cash, primarily resulting from our loss from operations of

$3.1 million, adjusted for non-cash expense of stock-based compensation of $0.5 million, non-cash interest expense of $0.1 million, and

depreciation and amortization in the aggregate of $0.1 million and net cash used by changes in our operating assets and liabilities of

Months Ended June 30,

cash used in operating activities

cash used in investing activities

cash provided by (used) in financing activities

increase (decrease) in cash and restricted cash

the six months ended June 30, 2022, operating activities used $2.0 million of cash, primarily resulting from our net income of $4.7 million,

adjusted for non-cash expense of stock-based compensation of $1.1 million, $0.3M depreciation and amortization, $0.2 million interest

expense as well as $7.6 million of working capital changes which was offset by the change in fair value of warrant liabilities $14.1M

and the change in fair value of contingent consideration $1.9 million.

the six months ended June 30, 2021, operating activities used $4.5 million of cash, primarily resulting from our net loss of $7.2 million,

adjusted for non-cash expense of $1.5 million as an offset and net cash provided by changes in our operating assets and liabilities of

$1.2 million.

the three months ended March 31, 2021, operating activities used $3.4 million of cash, primarily resulting from our net loss of $3.5

million, adjusted for non-cash expense of $0.8 million as an offset and net cash used by changes in our operating assets and liabilities

of $0.7 million.

the first three months of 2022, net cash used in investing activities in the amount of $5,000 consisted of the purchase of computer equipment.

the first three months 2022 and 2021, there was no net cash provided by or used in financing activities.

the six months ended June 30, 2022 and 2021, net cash used in investing activities in the amount of $36,000 and $3,000, respectively,

consisted of the purchase of computer equipment.

the six months ended June 30, 2022, net cash from financing activities was $9.4 million driven entirely by proceeds from the sale of

common stock and warrants in a private placement (See note 18 Stockholders’ Equity) .

the six months ended June 30, 2021, cash used in financing activities was $0.5 million related to payments of deferred offering costs.

Policies and Significant Judgments and Estimates

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Accounting Estimates

of our critical accounting estimates is included in the Company’s Annual Report on Form 10-K for the year ended December 31,

There were no material changes to our critical accounting estimates for the three months ended March 31, 2022.

summary of our critical accounting estimates is included in the Company’s Annual Report on Form 10-K for the year ended December

There were no material changes to our critical accounting estimates for the six months ended June 30, 2022.

Sheet Arrangements

the contractual obligations and commitments as discussed in the Liquidity and Capital Resources , we did not have during the periods

presented, and we do not currently have, any other off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

the contractual obligations and commitments as discussed in the section titled Liquidity and Capital Resources , we did not

have during the periods presented, and we do not currently have, any other off-balance sheet arrangements, as defined in the rules

and regulations of the SEC.

Growth Company Status

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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 2. Management’s Discussion and Analysis