Biofrontera Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Certain statements in this Form 10-Q constitute “forward-looking statements”. Such statements include estimates of our expenses, future revenue, 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 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 “intends,” “may,” “will,” “plans,” “expects,” “anticipates,” “projects,” “predicts,” “estimates,” “aims,” “believes,” “hopes,” “potential” or similar words. Forward-looking statements are not guaranties of future performance, are based on certain assumptions and are subject to various known and unknown risks and uncertainties, many of which are beyond our control. Actual results may differ materially from the expectations contained in the forward-looking statements. Factors 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 ® ; ● the ability of Biofrontera Pharma, Biofrontera Bioscience and Ferrer Internacional S.A. (“Ferrer”) , 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 reporting; ● our ability to retain and recruit key personnel; ● our success in making the transition to operate as a public company; ● such other risks identified in Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and any other filings with the SEC. 20 More detailed information about us and the risk factors that may affect the realization of forward-looking statements, including the forward-looking statements in this Quarterly Report on Form 10-Q, is set forth in our filings with the SEC, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. We urge investors and security holders to read those documents free of charge at the SEC’s web site at www.sec.gov. We do not undertake to publicly update or revise our forward-looking statements as a result of new information, future events or otherwise, except as required by law. Overview Biofrontera Inc. (the “Company”) includes its wholly owned subsidiary Bio-FRI GmbH (“Bio-FRI” or “subsidiary”). Our subsidiary, Bio-FRI was formed on February 9, 2022, as a German presence to facilitate our relationship with our Ameluz Licensor. We are a U.S.-based biopharmaceutical company specializing in the commercialization of pharmaceutical products for the treatment of dermatological conditions, in particular, diseases caused primarily by exposure to sunlight that result in sun damage to the skin. Our principal licensed product focuses on the treatment of actinic keratoses, which are skin lesions that can sometimes lead to skin cancer. We also market a topical antibiotic for treatment of impetigo, a bacterial skin infection. Our 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. 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. Our second prescription drug licensed product in our portfolio 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, a common skin infection, due to Staphylococcus aureus or Streptococcus pyogenes. It is approved for use in adults and children 2 months and older. We are currently selling Xepi® for this indication in the U.S. under an exclusive license and supply agreement (“Xepi LSA”) with Ferrer that was acquired by Biofrontera on March 25, 2019 through our acquisition of Cutanea Life Sciences, Inc. (“Cutanea”). Our principal objective is to increase the sales of our licensed products in the United States. The key elements of our strategy include the following: ● expanding our sales in the United States of Ameluz ® in combination with the BF-RhodoLED® lamp series 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; and ● 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. 21 Our 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. market; ● procuring products through asset acquisition from other healthcare companies; and ● 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 . We devote a substantial portion of our cash resources to the commercialization of our licensed products, Ameluz ® , the RhodoLED ® lamp series. We have financed our operating and capital expenditures through cash proceeds generated from our product sales and proceeds received in equity financings. We believe that important measures of our results of operations include product revenue, operating income (loss) and adjusted EBITDA (a non-GAAP measure as defined below). Our sole source of revenue is sales of products that we license from certain related and unrelated companies. Our long-term financial objectives include consistent revenue growth and expanding operating margins. Accordingly, we are focused on licensed product sales expansion to drive revenue growth and improve operating efficiencies, including effective resource utilization, information technology leverage and overhead cost management. Key factors affecting our performance As a result of a number of factors, our historical results of operations may not be comparable to our results of operations in future periods, and our results of operations may not be directly comparable from period to period. Set forth below is a brief discussion of the key factors impacting our results of operations. Seasonality Because traditional photodynamic therapy treatments using a lamp are performed more frequently during the winter, our revenue is subject to some seasonality and has historically been higher during the first and fourth quarters than during the second and third quarters. COVID-19 Since the beginning of 2020, COVID-19 has become a global pandemic. As a result of the measures implemented by governments around the world, our business operations have been directly affected. In particular, we experienced a significant decline in demand for our licensed products as a result of different priorities for medical treatments emerging, thereby causing a delay of actinic keratosis treatment for most patients. Our revenue was directly affected by the global COVID-19 pandemic starting in mid-March of 2020. From that point on, rising infection rates and the resulting American Academy of Dermatology’s official recommendation to care for patients through remote diagnosis and treatment (telehealth) led to significantly declining patient numbers and widespread, albeit temporary, physician practice closures. As COVID-19 vaccines started to roll-out to the general public in March 2021, we experienced an increase in patients willing to undergo treatment for actinic keratosis. In the fourth quarter of 2021 continuing through the first quarter of 2022, we again saw 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. The ultimate extent of the impact of any epidemic, pandemic, outbreak, or other public health crisis on our business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of such epidemic, pandemic, outbreak, or other public health crisis and actions taken to contain or prevent the further spread, including the effectiveness of vaccination and booster vaccination campaigns, among others. Accordingly, we cannot predict the extent to which our business, financial condition and results of operations will be affected. We remain focused on maintaining a strong balance sheet, liquidity and financial flexibility and continue to monitor developments as we deal with the disruptions and uncertainties from a business and financial perspective relating to COVID-19 and variants thereof. 22 Supply Chain While our Licensors take reasonable precautions to ensure the successful production of our commercially licensed products, their contract manufacturers may experience a myriad of business difficulties (i.e. workforce instability, supply chain issues, erosion of customer base, etc.) that could impact their financial solvency. In December 2021, we were notified by Ferrer of third-party manufacturing delays for the Xepi® product and of their manufacturer’s (Teligent, Inc.) Chapter 11 bankruptcy filing on October 14, 2021 and, in February 2022, Teligent Inc. filed a motion to convert the proceedings into a Chapter 7 liquidation. As Teligent, Inc, is no longer a viable manufacturing option, 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. Although we have inventory of Xepi ® on hand, we do not expect it will be enough to complete the commercialization of Xepi ® in accordance with the originally planned timeline. Due to the uncertainty of supply chain, we expect a delay in shipments of Xepi ® for the next 15 months from the new contract manufacturer. Despite these delays, our total revenues will not be significantly impacted since the majority of our revenues are from sales of Ameluz ® . 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 ® . Components of Our Results of Operations Product Revenue, net We generate product revenues through the third-party sales of our licensed products Ameluz ® , RhodoLED ® lamps and Xepi ® . Revenues from product sales are recorded net of discounts, rebates and other incentives, including trade discounts and allowances, product returns, government rebates, and other incentives such as patient co-pay assistance. Revenue from the sales of our RhodoLED ® lamp and Xepi ® are relatively insignificant compared with revenues generated through our sales of Ameluz ® . The 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; and ● unit sales prices. Related Party Revenues We also generate insignificant related party revenue in connection with an agreement with Biofrontera Bioscience to provide RhodoLED ® lamps and associated services for the clinical trials performed by Biofrontera Bioscience. Cost of Revenues, Related Party Cost of revenues, related party, is comprised of purchase costs of our licensed products, Ameluz ® and RhodoLED ® lamps from Biofrontera Pharma GmbH. Cost of Revenues, Other Cost of revenues, other, is comprised of purchase costs of our licensed product, Xepi ® , third-party logistics and distribution costs including packaging, freight, transportation, shipping and handling costs, inventory adjustment due to expiring Xepi ® products, as well as sales-based Xepi ® royalties. 23 Selling, General and Administrative Expense Selling, general and administrative expenses consist principally of costs associated with our sales force, commercial support personnel, personnel in executive and other administrative functions, as well as medical affairs professionals. Other selling, general and administrative expenses include marketing, trade, and other commercial costs necessary to support the commercial operation of our licensed products and professional fees for legal, consulting, accounting services and the amortization of our intangible asset. Selling, General and Administrative Expenses, Related Party Selling, general and administrative expenses, related party, primarily relate to the services provided by our significant stockholder, Biofrontera AG, for accounting consolidation, IT support, and pharmacovigilance. These expenses were previously charged to us based on costs incurred plus 6% in accordance with the 2016 Services Agreement. As of December 31, 2021, we entered into the Services Agreement which provides for the execution of statements of work that supersedes the applicable provisions of the 2016 Services Agreement. The Services Agreement enables us to continue relying on Biofrontera AG and its subsidiaries for various services it has historically provided to us, including IT and pharmacovigilance support. 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. Restructuring Costs We restructured the business of Cutanea and incurred restructuring costs, which were subsequently reimbursed by Maruho. Restructuring costs primarily relate to Aktipak ® discontinuation, personnel costs related to the termination of all Cutanea employees, and the winding down of Cutanea’s operations. Change in Fair Value of Contingent Consideration In 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 consolidated statements of operations, until the contingency is resolved. Change in Fair Value of Warrant Liabilities Common stock warrants issued in conjunction with private placement financing transactions are accounted for as liabilities in accordance with ASC 815-40. The warrant liability is measured at fair value at inception and on a recurring basis, with changes in fair value presented within the consolidated statements of operations. Interest Expense, net Interest expense, net, primarily consists of amortization of the contract asset related to the start-up cost financing from Maruho Co. Ltd’s. (“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. 24 Other Income, net Other income, net primarily includes (i) reimbursed Share Purchase Agreement costs, and (ii) gain (loss) on foreign currency transactions. Income Taxes As a result of the net losses, we have incurred in each fiscal year since inception, we have recorded no provision for federal income taxes during such periods. Income tax expense incurred relates to state income taxes. Results of Operations Comparison of the Three Months ended September 30, 2022 and 2021 The following table summarizes our results of operations for the three months ended September 30, 2022 and 2021: ( in thousands) 2022 2021 Change Product revenues, net $ 4,290 $ 4,319 $ (29 ) Related party revenues 32 15 17 Revenues, net 4,322 $ 4,334 (12 ) Operating expenses: Cost of revenues, related party 2,127 2,249 (122 ) Cost of revenues, other 98 41 57 Selling, general and administrative 7,765 17,090 (9,325 ) Selling, general and administrative, related party 171 160 11 Restructuring costs - 199 (199 ) Change in fair value of contingent consideration (2,200 ) 700 (2,900 ) Total operating expenses 7,961 20,439 (12,478 ) Loss from operations (3,639 ) (16,105 ) 12,466 Change in fair value of warrant liabilities 1,185 - 1,185 Interest expense, net (89 ) (86 ) (3 ) Other income, net (22 ) 185 (207 ) Loss before income taxes (2,565 ) (16,006 ) 13,441 Income tax expenses 1 6 (5 ) Net loss $ (2,566 ) $ (16,012 ) $ 13,446 25 Operating Expenses Selling, General and Administrative Expenses Selling, general and administrative expenses were $7.8 million and $17.1 million for the three months ended September 30, 2022 and 2021, respectively, a decrease of $9.3 million, or 54.6%. The decrease was primarily driven by legal settlement expense incurred in 2021 of $11.3 million. This decrease was partially offset by an increase in headcount costs of $0.8 million as a result of resumed hiring in 2022 plus additional business insurance of $0.5 million, general consulting expense of $0.4 million and stock compensation expense of $0.4 million. Restructuring Costs There were no restructuring costs for the three months ended September 30, 2022. Restructuring costs were $0.2 million for three months ended September 30, 2021, which were related to facility exit costs. Change in Fair Value of Contingent Consideration The change in fair value of contingent consideration was a decrease of $2.2 million and an increase of $0.7 million for the three months ended September 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. Change in Fair Value of Warrant Liabilities The change in fair value of warrant liabilities was a decrease of $1.2 million for three months ended September 30, 2022. The change in fair value of warrant liabilities was driven by changes in the underlying value of the common stock, as well as the modification of the 2021 Purchase Warrant. There were no warrant liabilities as of September 30, 2021. 26 Comparison of the Nine Months ended September 30, 2022 and 2021 The following table summarizes our results of operations for the nine months ended September 30, 2022 and 2021: ( in thousands) 2022 2021 Change Product revenues, net $ 18,467 $ 14,890 $ 3,577 Related party revenues 63 42 21 Revenues, net 18,530 $ 14,932 3,598 Operating expenses: Cost of revenues, related party 9,504 7,630 1,874 Cost of revenues, other 425 339 86 Selling, general and administrative 25,050 27,412 (2,362 ) Selling, general and administrative, related party 612 520 92 Restructuring costs - 654 (654 ) Change in fair value of contingent consideration (4,100 ) 1,698 (5,798 ) Total operating expenses 31,491 38,253 (6,762 ) Loss from operations (12,961 ) (23,321 ) 10,360 Change in fair value of warrant liabilities 15,267 - 15,267 Interest expense, net (160 ) (255 ) 95 Other income, net 30 419 (389 ) Income (loss) before income taxes 2,176 (23,157 ) 25,353 Income tax expenses 31 51 (20 ) Net income (loss) $ 2,145 $ (23,208 ) $ 25,353 Product Revenue, net Net product revenue was $18.5 million and $14.9 million for the nine months ended September 30, 2022 and 2021, respectively, an increase of $3.6 million, or 24.0%. The increase was primarily driven by (i) higher volume of Ameluz ® orders, which resulted in an increase in Ameluz ® revenue of $3.2 million, and (ii) an Ameluz ® price increase which further increased Ameluz ® revenue by $0.2 million. 27 Operating Expenses Cost of Revenues, Related Party Cost of revenues, related party was $9.5 million and $7.6 million for the nine months ended September 30, 2022 and 2021, respectively, an increase of $1.9 million, or 24.6% 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. Selling, General and Administrative Expenses Selling, general and administrative expenses were $25.1 million and $27.4 million for the nine months ended September 30, 2022 and 2021, respectively, a decrease of $2.4 million, or 8.6%. The decrease was primarily driven by legal settlement expense incurred in 2021 of $11.3 million. This decrease was partially offset by legal expenses of $1.4 million, issuance costs related to a private placement financing of $1.0 million and business insurance of $1.5 million. Headcount costs also increased $2.0 million as a result of resumed hiring in 2022. The increase was further driven by stock compensation expense of $1.5 million, consulting expenses of $1.1 million and resumed travel of $0.5 million. Restructuring Costs There were no restructuring costs for the nine months ended September 30, 2022. Restructuring costs were $0.7 million for the nine months ended September 30, 2021, which was related to facility exit costs. Change in Fair Value of Contingent Consideration The change in fair value of contingent consideration was a decrease of $4.1 million and an increase of $1.7 million for the nine months ended September 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. Change in Fair Value of Warrant Liabilities The change in fair value of warrant liabilities was a decrease of $15.3 million for the nine months ended September 30, 2022. The change in fair value of warrant liabilities was driven by changes in the underlying value of the common stock, as well as the modification of the 2021 Purchase Warrant. There were no warrant liabilities as of September 30, 2021. 28 Net Income (Loss) to Adjusted EBITDA Reconciliation for the Nine Months Ended September 30, 2022 and 2021 We define adjusted EBITDA as net income or loss before interest income and expense, income taxes, depreciation and amortization, and other non-operating items from our consolidated statements of operations as well as certain other items considered outside the normal course of our operations specifically described below. Adjusted EBITDA is not a presentation made in accordance with GAAP. Our definition of adjusted EBITDA may vary from the use of similarly-titled measures by others in our industry due to the potential inconsistencies in the method of calculation and differences due to items subject to interpretation. Adjusted EBITDA should not be considered as an alternative to net income or loss, operating income/(loss), cash flows from operating activities or any other performance measures derived in accordance with GAAP as measures of operating performance or liquidity. Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Change in fair value of contingent consideration: Pursuant to the Share Purchase Agreement, the profits from the sale of Cutanea products will be shared equally between Maruho and Biofrontera until 2030. The fair value of the contingent consideration was determined to be $6.5 million on the acquisition date and is re-measured at each reporting date. We exclude the impact of the change in fair value of contingent consideration 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 consolidated statement of operations. We exclude the impact of the change in fair value of warrant liabilities as this is non-cash. Stock based compensation: To measure operating performance, we exclude the impact of costs relating to share-based compensation. Due to the subjective assumptions and a variety of award types, we believe that the exclusion of share-based compensation expense, which is typically non-cash, allows for more meaningful comparisons of our operating results to peer companies. Share-based compensation expense can vary significantly based on the timing, size and nature of awards granted. Expensed issuance costs: To measure operating performance, we exclude the portion of issuance costs related to our warrant liabilities. We do not expect to incur this type of expense on a recurring basis and believe the exclusion of these costs allows management and the users of the financial statements to better understand our financial results. Adjusted EBITDA margin is adjusted EBITDA for a particular period expressed as a percentage of revenues for that period. We use adjusted EBITDA to measure our performance from period to period and to compare our results to those of our competitors. In addition to adjusted EBITDA being a significant measure of performance for management purposes, we also believe that this presentation provides useful information to investors regarding financial and business trends related to our results of operations and that when non-GAAP financial information is viewed with GAAP financial information, investors are provided with a more meaningful understanding of our ongoing operating performance. The below table presents a reconciliation from net income (loss) to Adjusted EBITDA for the three and nine months ended September 30, 2022 and 2021: Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Net income (loss) $ (2,566 ) $ (16,012 ) $ 2,145 $ (23,208 ) Interest expense, net 89 86 160 255 Income tax expense 1 6 31 51 Depreciation and amortization 130 134 394 409 EBITDA (2,346 ) (15,786 ) 2,730 (22,493 ) Change in fair value of contingent consideration (2,200 ) 700 (4,100 ) 1,698 Change in fair value of warrant liabilities (1,185 ) - (15,267 ) - Legal settlement expenses - 11,250 - 11,250 Stock-based compensation 400 - 1,469 - Expensed issuance costs 320 - 1,045 - Adjusted EBITDA $ (5,011 ) $ (3,836 ) $ (14,123 ) $ (9,545 ) Adjusted EBITDA margin -115.9 % -88.5 % -76.2 % -63.9 % 29 Adjusted EBITDA Adjusted EBITDA decreased from ($3.8) million during the three months ended September 30, 2021 to ($5.00) million for the three months ended September 30, 2022. Our adjusted EBITDA margin decreased from (88.5%) to (115.9%) during the same periods. Adjusted EBITDA decreased from ($9.5) million during the nine months ended September 30, 2021 to ($14.11) million for the nine months ended September 30, 2022. Our adjusted EBITDA margin decreased from (63.9%) to (76.2%) during the same periods. Liquidity and Capital Resources The Company’s primary sources of liquidity are its existing cash balances and cash flows from equity financing transactions. In July of 2022, we received proceeds of $4.6 million from the exercise of common stock warrants (See Note 18 Stockholders’ Equity) . As of September 30, 2022, we had cash and cash equivalents of $27.5 million, compared to $24.5 million as of December 31, 2021. Since we commenced operations in 2015, we have generated significant losses. For the nine months ended September 30, 2022 and 2021, we incurred losses from operations of $13.0 million and $23.3 million, respectively. We incurred net cash out-flow from operation of $7.9 million and $5.7 million for the nine months ended September 30, 222 and September 30, 2021. We had an accumulated deficit as of September 30, 2022 of $76.7 million. The Company’s short-term material cash requirements include working capital needs and satisfaction of contractual commitments including auto leases (see Note 23, Commitments and Contingencies ), Maruho start-up payments of $7.3 million (see Note 3. Acquisition Contract Liabilities ), and legal settlement expenses after reimbursement from Biofrontera AG, 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 our licensed products 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 also intend to be opportunistic in our business plans which may include acquiring additional shares of Biofrontera AG as a strategic measure. Our future growth is dependent on our ability to obtain additional equity. 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, 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 licensed products. Due to numerous factors described in more detail under the caption Part I, Item 1A, “Risk Factors” of the 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 to support the operating, investing, and financing activities of the Company beyond the next twelve months. 30 Our 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 ® ; ● 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; and ● the 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. We will continue to assess our operating costs and expenses and our cash and cash equivalents and, if circumstances warrant, we will make appropriate adjustments to our operating plan. Cash Flows The following table summarizes our cash provided by and (used in) operating, investing and financing activities: Nine Months Ended September 30, (in thousands) 2022 2021 Net cash used in operating activities $ (7,928 ) $ (5,725 ) Net cash used in investing activities (3,070 ) (2 ) Net cash provided by (used) in financing activities 14,021 (638 ) Net increase (decrease) in cash and restricted cash $ 3,023 $ (6,365 ) Operating Activities During the nine months ended September 30, 2022, operating activities used $7.9 million of cash, primarily resulting from our net income of $1.1 million, decreased by the non-cash change in fair value of warrant liabilities of $15.3 million and the change in fair value of contingent consideration of $3.4 million and offset by the non-cash expense of stock-based compensation of $1.5 million, $0.4 million depreciation and amortization, $0.3 million interest expense as well as $7.3 million of working capital changes. During the nine months ended September 30, 2021, operating activities used $5.7 million of cash, primarily resulting from our net loss of $23.2 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. Investing Activities During the nine months ended September 30, 2022 investing activities used $3.1 million, primarily resulting from the distribution of a short-term loan of $3.1 million, which is repayable at the option of the holder, Quirin PrivatbankAG, in cash or in shares of Biofrontera AG acquired with the funds from the loan. During the nine months ended September 30, 2021, investing activities used $2,000, resulting from the purchase of computer equipment. Financing Activities During the nine months ended September 30, 2022, net cash from financing activities was $14 million driven entirely by proceeds from the sale of common stock and warrants in a private placement (See Note 18 Stockholders’ Equity) as well as the exercise of warrants . During the nine months ended September 30, 2021, cash used in financing activities was $0.65 million related to payments of deferred offering costs. 31 Accounting Policies and Significant Judgments and Estimates Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of the financial statements in accordance with U.S. GAAP requires the use of estimates and assumptions by management that affect the value of assets and liabilities, as well as contingent assets and liabilities, as reported on the balance sheet date, and revenues and expenses arising during the reporting period. The main areas in which assumptions, estimates and the exercising of a degree of judgment are appropriate relate to fair value measurements of contingent consideration and warrant liabilities and stock compensation. 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. Our significant accounting policies are described in more detail in Note 2 – Summary of Significant Accounting Policies , to our financial statements included in our Annual Report on Form 10-K. Critical Accounting Estimates A summary of our critical accounting estimates is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. There were no material changes to our critical accounting estimates for the nine months ended September 30, 2022. Off-balance Sheet Arrangements Besides 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. Emerging Growth Company Status The Jumpstart Our Business Startups Act of 2012 permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected to take advantage of such extended transition period, which means that when an accounting standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company. Item 3. Quantitative and Qualitative Disclosures About Market Risk As a “smaller reporting company,” we are not required to provide the information required by this Item.