What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-12 compared with 2022-11-14 · 315 added, 357 removed, 143 unchanged (82% of the section changed)

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

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;

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.

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.

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 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;

the effect of the COVID-19

global pandemic, including mitigation efforts and economic effects;

our ability to retain and

recruit key personnel;

such other risks identified

Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and any other filings

with the SEC.

detailed information about us and the risk factors that may affect the realization of forward-looking statements, including the forward-looking

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future events or otherwise, except as required by law.

Biofrontera Inc.

(the “Company”) includes

its wholly owned subsidiary Bio-FRI GmbH (“Bio-FRI” or “subsidiary”).

subsidiary, Bio-FRI was formed on February 9, 2022, as a German presence to facilitate our relationship with our Ameluz Licensor.

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

We also market a topical antibiotic for treatment of impetigo, a bacterial skin infection.

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.

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.

Inc (the “Company”).

is a U.S.-based biopharmaceutical company commercializing a portfolio of pharmaceutical products for

the treatment of dermatological conditions with a focus on photodynamic therapy (“PDT”) and topical antibiotics.

The Company’s

licensed products are used for the treatment of actinic keratoses, which are pre-cancerous skin lesions as well as impetigo, a bacterial

skin infection.

includes its wholly owned subsidiary Bio-FRI GmbH, a limited liability company organized under the laws of Germany.

Our subsidiary,

Bioi-FRI was formed on February 9, 2022, as a German presence to facilitate our relationship with the Ameluz Licensor.

principal licensed product is Ameluz ® , which is a prescription drug approved for use in combination with the RhodoLED ®

lamp series, for PDT (when used together, “Ameluz ® PDT”).

In the United States, the PDT treatment is

used for the lesion-directed and field-directed treatment of actinic keratoses (“AK”) of mild-to-moderate severity on the

face and scalp.

AKs are premalignant lesions of the skin that can potentially develop into skin cancer (squamous cell carcinoma) if left

1 International treatment guidelines list photodynamic therapy as the “gold standard” for treating AK,

especially multiple AKs and the surrounding photodamaged skin.

2 We are currently selling Ameluz ® for this indication

under an exclusive license and supply agreement (“Ameluz LSA”) between Biofrontera, Inc.

and the Ameluz Licensors.

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

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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.

use in the United States in adults and children 2 months and older.

We are currently selling Xepi® for this indication in the United

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

that was assumed by Biofrontera on March 25, 2019 through our acquisition of Cutanea Life Sciences, Inc.(“Cutanea”).

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

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the following:

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;

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:

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 ®

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

proceeds received in equity financings.

expanding our sales in

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

to moderately thick actinic keratoses of the face and scalp and positioning Ameluz ® to be the standard of care in

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

expanding 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;

opportunistically adding

complementary products or services to our portfolio by acquiring or licensing IP to further leverage our commercial infrastructure

and customer relationships.

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

BF-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.

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

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.

GAAP measure as defined below).

Our sole source of product 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

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.

factors affecting our performance

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seasonality and has historically been higher during the first and fourth quarters than during the second and third quarters.

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

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

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.

COVID-19 global pandemic still affects our business and presents challenges.

However, we are optimistic that our business will

continue to thrive throughout 2023 as a result of the COVID-19 Public Health Emergency (PHE) sunsetting on May 11, 2023.

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 continue to 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.

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

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

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 ® .

Although we have inventory of Xepi ® on hand, we expect a delay in further shipments of Xepi ® for

the next 8 to 12 months .

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 BF-RhodoLED ® .

of Our Results of Operations

generate product revenues through the third-party sales of our licensed products Ameluz ® , RhodoLED ® lamps

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 ® .

generate product revenues through the third-party sales of our licensed products Ameluz ® , BF-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 BF-RhodoLED ® lamp and Xepi ® are relatively

insignificant compared with revenues generated through our sales of Ameluz ® .

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

level of orders generated by our sales force;

level of prescriptions and institutional demand for our licensed products;

sales prices.

the level of orders generated by our sales force;

the level of prescriptions and institutional demand

for our licensed products;

unit sales prices.

Party Revenues

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of Revenues, Related Party

of revenues, related party, is comprised of purchase costs of our licensed products, Ameluz ® and RhodoLED ® lamps

from Biofrontera Pharma GmbH.

of revenues, related party, is comprised of purchase costs of our licensed products, Ameluz ® and BF-RhodoLED ®

lamps from Biofrontera Pharma GmbH and insignificant inventory adjustments due to scrapped, expiring and excess products.

October 8, 2021, we entered into an amendment to the Ameluz LSA under which the price we pay per unit will be based upon our sales history.

As a result of this amendment, the purchase price we pay the Ameluz Licensor for Ameluz ® will be determined in the following

fifty percent of the anticipated

net price per unit until we generate $30 million in revenue from sales of the products we license from the Ameluz Licensor during

a given Commercial Year (as defined in the Ameluz LSA);

forty percent 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 the

Ameluz Licensor;

thirty percent of the anticipated

net price per unit for all revenues we generate above $50 million from sales of the products we license from the Ameluz Licensor.

of Revenues, Other

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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, accounting services and the amortization of our intangible asset.

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.

General and Administrative Expenses, Related Party

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

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.

AG, for IT support, and pharmacovigilance.

In December 2021, we entered into an Amended and Restated Master Contract Services Agreement,

or “Services Agreement”, which provides for the execution of statements of work that supersede 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 for as long as we deem necessary.

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.

As of March 31, 2023, we have migrated most of our significant

IT services from Biofrontera AG to third party providers.

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, with changes in fair value presented within the

consolidated statements of operations, 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 in the consolidated statement of

operations, until the contingency is resolved.

in Fair Value of Warrant Liabilities

stock warrants issued in conjunction with private placement financing transactions

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

consolidated statements of operations.

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 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.

stock warrants issued in conjunction with private placement financing transactions are accounted for as liabilities in accordance with

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.

in Fair Value of Investment in Equity Securities

investments are comprised of equity securities in shares of Biofrontera AG, which are initially recorded at cost, plus transaction costs, and subsequently

measured at fair value, based on quoted market prices, with the gains and losses reported in the Company’s consolidated

statement of operations.

For the investments held in foreign currencies, the change in fair value attributable to changes in foreign

exchange rates is included in gains and losses in the consolidated statement of operations.

Company may sell its equity securities in response to changes in interest rates, risk/reward characteristics, liquidity needs or other

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

Purchase and Transfer Agreement dated March 25, 2019 (as amended, the “Share Purchase Agreement”) 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 BF-RhodoLED ®

Income (Expense), net

income (expense), net primarily includes (i) gain (loss) on sale of leased assets and (ii) gain (loss) on foreign currency

transactions.

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

2 unchanged sentences

of Operations

of the Three Months ended September 30, 2022 and 2021

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

of the Three Months ended March 31, 2023 and 2022

following table summarizes our results of operations for the three months ended March 31, 2023 and 2022:

( in thousands)

7 unchanged sentences

Selling, general and administrative, related party

Restructuring costs

Change in fair value of contingent consideration

2 unchanged sentences

Change in fair value of warrant liabilities

Change in fair value of investments

Interest expense, net

Other income, net

Other income (expense), net

Loss before income taxes

Income tax expenses

General and Administrative Expenses

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%.

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

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.

in Fair Value of Contingent Consideration

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.

in Fair Value of Warrant Liabilities

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.

of the Nine Months ended September 30, 2022 and 2021

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

( in thousands)

Product revenues, net

Related party revenues

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

Income (loss) before income taxes

Income tax expenses

Net income (loss)

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.

Product Revenue, net

product revenue was $8.7 million and $9.8 million for the three months ended March 31, 2023 and 2022, respectively, a decrease of

$1.02 million, or 10.5%, This decrease is driven by a higher volume of Ameluz revenue in Q1 2022 caused by customer buy-in prior to

a price increase on April 1, 2022.

Unlike 2022, the Company did not increase the price of Ameluz in 2023, and therefore did not see

a similar buy-in effect from customers anticipating a price increase.

of Revenues, Related Party

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.

of revenues, related party was $4.5 million and $5.0 million for the three months ended March 31, 2023 and 2022, respectively, a decrease

of $0.4 million, or 8.6%, which was driven by the decrease in Ameluz product revenue.

Cost of revenues, related party, is directly correlated

to the selling price of Ameluz under the Ameluz LSA.

General and Administrative Expenses

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%.

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

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.

general and administrative expenses were $9.8 million and $7.6 million for the three months ended March 31, 2023 and 2022, respectively,

an increase of $2.2 million, or 28.7%.

The increase was primarily driven by $1.2 million of increased personnel cost due to increased

headcount primarily in the sales team as well as $1.0 million of increased legal expenses resulting primarily from a legal

in Fair Value of Contingent Consideration

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.

change in fair value of contingent consideration was a decrease of $0.2 million for the three months ended March 31, 2023 compared to

the three months ended March 31, 2022.

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

1 unchanged sentence

in Fair Value of Warrant Liabilities

change in fair value of warrant liabilities was a decrease of $15.3 million for the nine months ended September 30, 2022.

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.

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

change in fair value of warrant liabilities was a decrease of $7.7 million for three months ended March 31, 2023.

The change in fair

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

in fair value of investments in equity securities

change in fair value of investments in equity securities was a decrease of $2.9 million, driven by changes in the quoted

market price of the common stock of Biofrontera AG.

Income (Loss) to Adjusted EBITDA Reconciliation for the Three Months Ended March 31, 2023 and 2022

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

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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.

Adjusted EBITDA is not a presentation made in accordance with U.S.

generally accepted accounting principles (“U.S.

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 U.S.

in fair value of contingent consideration:

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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.

$6.5 million on the acquisition date and is re-measured at each reporting date, with changes in fair value presented within the consolidated statements

of operations.

We exclude the impact of the change in fair value of

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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.

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

The Warrants issued in conjunction with our private placement offerings were accounted for

as liabilities in accordance with ASC 815-40.

The warrant liabilities are measured at fair value at inception and on a recurring basis,

with changes in fair value presented within the consolidated statements of operations.

We exclude the impact of the change in fair value

of warrant liabilities as this is non-cash.

in fair value of investment in equity securities:

The Company accounts for its investments in equity securities in accordance with

ASC 321, Investments — Equity Securities (“ASC 321”).

Equity securities, which are comprised of investments

in common stock, are initially recorded at cost, plus transaction costs, and subsequently measured at fair value, based on quoted market

prices, with the gains and losses reported in the Company’s consolidated statement of operations.

For the investments held in foreign

currencies, the change in fair value attributable to changes in foreign exchange rates is included in gains and losses in the consolidated

statements of operations.

We exclude the impact of the change in fair value of investments as this is non-cash.

settlement expenses :

To measure operating performance, we exclude legal settlement expenses.

We do not expect to incur these types

of legal expenses on a recurring basis and believe the exclusion of such amounts allows management and the users of the financial statements

to better understand our financial results.

Based Compensation :

To measure operating performance, we exclude the impact of costs relating to share-based compensation.

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.

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.

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.

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

use adjusted EBITDA to measure our performance from period to period and to compare our results to those of our competitors.

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

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

Three months ended

September 30,

Nine months ended

September 30,

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-U.S.

GAAP financial information is viewed with U.S.

GAAP financial information, investors are provided with a more

meaningful understanding of our ongoing operating performance.

below table presents a reconciliation from net income (loss) to Adjusted EBITDA for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31,

Net income (loss)

Interest expense, net

Income tax expense

Income tax expenses

Depreciation and amortization

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Change in fair value of warrant liabilities

Change in fair value of investments

Legal settlement expenses

Stock based compensation

Expensed issuance costs

Adjusted EBITDA

Adjusted EBITDA margin

EBITDA decreased from ($3.8) million during the three months ended September 30, 2021 to ($5.00) million for the three months ended September

Our adjusted EBITDA margin decreased from (88.5%) to (115.9%) during the same periods.

EBITDA decreased from ($9.5) million during the nine months ended September 30, 2021 to ($14.11) million for the nine months ended September

Our adjusted EBITDA margin decreased from (63.9%) to (76.2%) during the same periods.

EBITDA decreased from ($2.4) million during the three months ended March 31, 2022 to ($4.0) million for the three months ended March

31, 2023 driven by an increase in personnel costs and lower revenues.

Our adjusted EBITDA margin decreased from (25%) to (45.7%) 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.

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.

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

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).

Company’s primary sources of liquidity are its existing cash balances, cash collected from the sales of its products, and cash

flows from equity financing transactions received in 2022.

As of March 31, 2023, we had cash and cash equivalents of $13.5 million, compared

to $17.2 million as of December 31, 2022.

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

For the three months ended March 31, 2023 and 2022, we incurred

loss from operations of $5.5 million and $3.1 million, respectively .

We incurred net cash outflows

from operations of $3.7 million and $2.1 million, for the same periods, respectively.

We had an accumulated deficit as of March 31, 2023

of $87.0 million.

Company’s short-term material cash requirements include working capital needs and satisfaction of contractual commitments

including facility and auto leases (see Note 21, Commitments and Contingencies ), Maruho start-up cost financing repayments of

$7.3 million (see Note 3.

Acquisition Contract Liabilities ), and legal settlement expenses after reimbursement from

Biofrontera AG of $2.5 million.

Long-term material cash requirements include potential milestone payments to Ferrer Internacional

S.A, and contingent consideration payments to Maruho connected with Xepi sales (See Note 21.

Commitments and Contingencies) .

Additionally,

we expect to continue to incur operating losses due to significant discretionary sales and marketing efforts as we seek to expand the

we expect to continue to incur operating losses due to significant discretionary sales and marketing, medical affairs, and dermatology

community outreach efforts as we seek to expand the

commercialization of our licensed products in the United States.

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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.

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.

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.

expect to incur costs to continue to comply with corporate governance, regulatory reporting and other requirements applicable to us as

a public company in the U.S.

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 revolving line of credit and expected proceeds from the

sale of our investment in Biofrontera AG in addition to 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 additional 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 or the proceeds from the sale of our holdings in Biofrontera AG is lower than expected or we are not able to complete

the sale within our planned timeline, 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.

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

costs of our commercialization activities for Ameluz ® ;

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.

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;

the ability to collect

a receivable of $3.7 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:

Nine Months Ended September 30,

Three Months Ended

(in thousands)

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Net cash used in investing activities

Net cash provided by (used) in financing activities

Net increase (decrease) in cash and restricted cash

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.

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

Net decrease in cash and restricted cash

the three months ended March 31, 2023, operating activities used $3.7 million of cash, primarily resulting from our loss from operations

of $5.5 million, adjusted for non-cash expense of stock-based compensation of $0.4 million, non-cash interest expense of $0.1 million,

and depreciation and amortization in the aggregate of $0.3 million, and net cash used by changes in our operating assets and liabilities

of $1.4 million, offset by change in fair value of contingent consideration of $0.2 million.

the three months ended March 31, 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 $0.3 million.

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.

the nine months ended September 30, 2021, investing activities used $2,000, resulting from the purchase of computer equipment.

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.

the three months ended March 31, 2023 net cash used in investing activities consisted of the purchase

of machinery & computer equipment.

the three months ended March 31, 2022, net cash used in investing activities consisted of the purchase of computer equipment.

the three months ended March 31, 2023 and 2022, there was no net cash provided by or used in financing activities.

Policies and Significant Judgments and Estimates

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.

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.

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.

financial statements, which have been prepared in accordance with generally accepted accounting principles of the United States, or

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, 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

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.

our consolidated financial statements included in Item 8, “Financial Statements and Supplementary Data ,” our Annual

Report on Form 10-K.

Accounting Estimates

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 nine months ended September 30, 2022.

There were no material changes to our critical accounting estimates for the three months ended March 31, 2023.

Sheet Arrangements

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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