What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-11 compared with 2023-05-12 · 319 added, 258 removed, 200 unchanged (74% of the section changed)

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

our reliance on sales of

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

the success of our competitors

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

the success of our principal

licensed product Ameluz ® ;

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.

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;

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;

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

ability to retain and recruit key personnel;

other risks identified in Item 1A.

Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, Item 1A of Part II of this Quarterly Report on Form 10-Q

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.

Note About Reverse Stock Split

All information included in these consolidated financial statements has

been adjusted, on a retrospective basis, to reflect our 1-for-20 reverse stock split as if it had been effective from the beginning of

the earliest period presented, unless otherwise stated.

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.

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.

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.

In May 2023, the Company began research and development (“R&D”) activities to

support PDT growth and will continue to opportunistically invest in these activities going forward.

Our research and development

program currently aims to improve the capabilities of our BF-RhodoLED® lamps to better fulfill the needs of dermatologists and

improve the effectiveness of our commercial team by letting sales representatives carry approved devices with them allowing

for easier product demonstrations and evaluations.

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

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

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

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and the Ameluz Licensors.

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.

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

bacterial growth.

Currently, no antibiotic resistance against Xepi® is known and it has been specifically approved by the FDA

for the treatment of impetigo, a common skin infection, due to Staphylococcus aureus or Streptococcus pyogenes.

It is approved for

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

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

We are currently selling Xepi® for this indication in the

United States.

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”).

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

Inc.(“Cutanea”).

There has been limited revenue during the current reporting periods and recent developments with the

third-party manufacturer that was providing our supply of Xepi® have resulted in further delays of our commercialization of the

However, Ferrer is qualifying a new Contract manufacturer, Cambrex, which is expected to begin production early

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

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the following:

expanding our sales in

the United States of Ameluz ® in combination with the 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

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;

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.

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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.

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 margins.

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.

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.

COVID-19 global pandemic still affects our business and presents challenges particularly regarding our supply chain.

Although, we are optimistic that our business will

continue to thrive throughout 2023 and beyond, 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

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

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the next 6 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 ® .

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

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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.

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

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

the level of orders generated by our sales force;

the level of prescriptions and institutional demand

for our licensed products;

unit sales prices.

level of orders generated by our sales force;

level of prescriptions and institutional demand for our licensed products;

sales prices.

Party Revenues

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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.

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);

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;

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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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 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.

general and administrative expenses, related party, primarily relate to the services provided by our significant stockholder,

Biofrontera 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.

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

As of June 30, 2023, we have migrated most of our significant IT services from Biofrontera AG to third party

Research and Development

Our current research and development programs aim to improve the capabilities

of our BF-RhodoLED ® lamps to better fulfill the needs of dermatologists and improve the effectiveness of our commercial

in Fair Value of Contingent Consideration

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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.

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

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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.

in Fair Value of Investment, Related Party

investment is 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 along

with gains and losses on securities we sold during the period .

For the investments held in

foreign currencies, the change in fair value attributable to changes in foreign exchange rates is also 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 ®

Purchase and Transfer Agreement dated March 25, 2019 (as amended, the “Share Purchase Agreement”), and interest expense related

to our Loan and Security Agreement with MidCap Business Credit LLC, 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 ® lamps.

Income (Expense), net

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

transactions.

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

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of Operations

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:

of the Three Months ended June 30, 2023 and 2022

following table summarizes our results of operations for the three months ended June 30, 2023 and 2022:

( in thousands)

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Selling, general and administrative, related party

Research and development

Change in fair value of contingent consideration

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Change in fair value of warrant liabilities

Change in fair value of investments

Change in fair value of investment, related party

Interest expense, net

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Income tax expenses

Net income (loss)

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.

product revenue was $5.8 million and $4.4 million for the three months ended June 30, 2023 and 2022, respectively, an increase of $1.4

million, or 31.3%.

This increase is driven by a higher volume of Ameluz revenue in Q2 2023, caused in part by an expansion of our sales force in 2023, higher adoption of Ameluz by dermatologists, as well as the absence of a

buy-in impact due to a price increase.

Our price for Ameluz increased by 5% on April 1, 2022, causing dermatologists to accelerate their

purchases of Ameluz in Q1 2022 prior to the price increase, some of which would typically be purchased in Q2 2022.

We have not raised

the price of Ameluz in 2023, and thus revenues in Q2 2023 were not impacted by the effects of a price increase.

of Revenues, Related Party

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.

of revenues, related party was $2.8 million and $2.4 million for the three months ended June 30, 2023 and 2022, respectively, an increase

of $0.4 million, or 15.4%.

This was driven by the increase in Ameluz product revenue.

Cost of revenues, related party, is directly correlated

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General and Administrative Expenses

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

general and administrative expenses were $11.5 million and $9.7 million for the three months ended June 30, 2023 and 2022,

respectively, an increase of $1.8 million, or 18.5%.

The increase was primarily driven by $1.0 million of personnel costs, comprised

of $0.5 million of increased salary due to higher headcount and $0.5 million of severance due to a reduction in force.

These changes

reflect a realignment of our workforce strategy to reduce selling, general and administrative costs and deploy some of these costs to revenue generating

The increase was further driven by $1.0 million of non-recurring legal expenses.

These expenses were offset by a decrease of $0.2 million in business insurance.

in Fair Value of Contingent Consideration

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

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

change in fair value of contingent consideration was a decrease of $2.0 million for the three months ended June 30, 2023 compared to

the three months ended June 30, 2022.

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 $7.7 million for three months ended March 31, 2023.

change in fair value of warrant liabilities was a decrease of $5.0 million for three months ended June 30, 2023.

The change in fair value

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

in fair value of investment, related party

change in fair value of investment, related party was a decrease of $1.5 million, driven by changes in the quoted

market price of the common stock of Biofrontera AG and losses on such securities we sold during the period.

of the Six Months ended June 30, 2023 and 2022

following table summarizes our results of operations for the six months ended June 30, 2023 and 2022:

( 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

Research and Development

Change in fair value of contingent consideration

Total operating expenses

Loss from operations

Change in fair value of warrant liabilities

Change in fair value of investment, related party

Interest expense, net

Other income, net

Income (loss) before income taxes

Income tax expenses

Net Income (loss)

product revenue was $14.5 million and $14.2 million for the six months ended June 30, 2023 and 2022, respectively, an increase of $0.4

million, or 2.6%.

The increase was primarily driven by a higher volume of Ameluz sales in Q2 2023 due to the expansion of the

sales team of $0.1 million, a higher average Ameluz selling price in 2023 of $0.1 million, and a higher volume of RhodoLED ®

lamp sales of $0.1 million.

General and Administrative Expenses

general and administrative expenses were $21.3 million and $17.3 million for the six months ended June 30, 2023 and 2022,

respectively, an increase of $4.0 million, or 23.0%.

The increase was primarily driven by external legal expenses related to a legal

settlement of $1.2 million, other non-recurring legal costs of $0.8 million, personnel-related expenses of $1.7 million which

include expenses related to our expanded workforce offset by some non-customer facing roles, and sales travel related expenses of

$0.3 million.

General and Administrative Expenses, Related Party

general and administrative expenses, related party were $0.1 million and $0.4 million for the six months ended June 30, 2023 and

Related party expenses are based on statements of work issued under the Services Agreement with the Biofrontera Group.

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

relations services.

The decrease is driven by the Company utilizing fewer IT services from the Biofrontera Group in the current year

when compared to the prior year.

in Fair Value of Contingent Consideration

change in fair value of contingent consideration was a decrease of $1.8 million for the three months ended June 30, 2023 compared to

the three months ended June 30, 2022.

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, which has decreased from the prior year.

in Fair Value of Warrant Liabilities

change in fair value of warrant liabilities was a decrease of $12.7 million for the six months ended June 30, 2022.

The change in fair

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

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

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.

value of warrant liabilities was driven primarily by a decrease in the underlying value of our common stock.

in fair value of investment, related party

change in fair value of investment related party was a decrease of $4.4 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 and Six Months Ended June 30, 2023 and 2022

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 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

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 U.S.

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.

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, with changes in fair value presented within the consolidated statements

of operations.

We exclude the impact of the change in fair value of

contingent consideration as this is non-cash.

$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 contingent consideration as this is non-cash.

in fair value of warrant liabilities:

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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

in fair value of investment, related party:

The Company accounts for its investment, related party in accordance with

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

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

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,

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.

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 and six months ended

June 30, 2023 and 2022:

Three months ended

Six months ended

Net income (loss)

Interest expense, net

Income tax expenses

Income tax expense

Depreciation and amortization

1 unchanged sentence

Change in fair value of warrant liabilities

Change in fair value of investments

Change in fair value of investment, related party

Legal settlement expenses

Stock based compensation

Stock compensation expense

Adjusted EBITDA

Adjusted EBITDA margin

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.

EBITDA decreased from ($7.1) million during the three months ended June 30, 2022 to ($7.9) million for the three months ended June

The decrease in Adjusted EBITDA is primarily driven by an increase in our selling, general, and administrative costs of $1.9 million,

partially offset by increased revenues of $1.4 million, net of increased cost of revenues of $0.3 million.

Adjusted EBITDA decreased from ($9.5) million during the six months ended June 30, 2022 to ($11.9) million for the six months ended June

The decrease in Adjusted EBITDA is primarily driven by an increase in selling, general and administrative of $2.9 million, due

primarily to increased personnel costs related to increased headcount to expand key customer facing roles and severance agreements as

part of a reduction in force.

This is partially offset by an increase in our revenues of $0.4 million and a decrease in our cost of revenues

of $0.2 million.

We expect our revenues to continue to increase throughout the remainder of the year as our commercial team increases

productivity after an expansion earlier in the year.

and Capital Resources

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.

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

from the sale of our investment, related party, and cash flows from a revolving line of credit.

30, 2023, we had cash and cash equivalents of $4.5 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) .

For the six months ended June 30, 2023 and 2022, we incurred loss

from operations of $14.2 million and $9.3 million, respectively.

We incurred net cash outflows from operations of $14.0 million

and $2.0 million, for the same periods, respectively.

We had an accumulated deficit as of June 30, 2023 of $96.8 million.

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

facility and auto leases (see Note 18.

Commitments and Contingencies ), Maruho start-up cost financing repayments of $7.3 million

Acquisition Contract Liabilities ), and legal settlement expenses after reimbursement from Biofrontera AG of $2.4

Additionally,

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.

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 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.

community outreach 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 costs to continue to comply with corporate governance, regulatory

reporting and other requirements applicable to us as a public company in the U.S.

connection with our assessment of going concern considerations under applicable accounting standards, the Company’s management

has determined that based on our growth plans, upcoming inventory purchases, and a final settlement payment, substantial doubt

exists about our ability to continue as a going concern for at least one year from the date the unaudited

condensed financial statements were issued.

The future viability of the

Company is dependent on its ability to continue to execute its growth plan and raise additional capital or find alternative methods

of financing to fund its operations until cash flow from operations is sufficient.

Management believes that actions presently being taken to obtain additional funding and

implement its strategic plans provide the opportunity for the Company to continue as a going concern.

No assurance can be given that

the Company will be successful in these efforts.

Accordingly, management has concluded that substantial doubt exists about the

company’s ability to continue as a going concern for a period of at least 12 months from the date of issuance of these

financial statements.

accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction

of liabilities in the ordinary course of business.

The financial statements do not include any adjustments relating to the recoverability

and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the

uncertainties described above.

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;

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.

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;

the ability to liquidate our investment in equity

securities on a timely basis;

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.

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

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

Three Months Ended

Six Months Ended June 30,

(in thousands)

Net cash used in operating activities

Net cash used in investing activities

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

Net cash provided by (used) in investing activities

Net cash provided by financing activities

Net increase (decrease) in cash and restricted cash

During the six months ended June 30, 2023, operating activities used $14.0 million of cash, primarily resulting from our loss from operations

of $17.3 million, adjusted for non-cash expense of stock-based compensation of $0.6 million, non-cash interest expense of $0.2 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 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.

depreciation and amortization in the aggregate of $0.5 million, and the change in fair value of investment, related party of $4.4

million, offset by net cash used by changes in our operating assets and liabilities of $1.0 million, the change in fair value of contingent

consideration of $0.1 million and the change in fair value of warrant liabilities of $1.4 million.

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

$4.7 million, adjusted for non-cash expense of stock-based compensation of $1.1 million, $0.3 million depreciation and amortization, $0.2

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

of $14.1 million and the change in fair value of contingent consideration of $1.9 million.

During the six months ended June 30, 2023, net cash provided by investing activities consisted of the proceeds from the sales of equity

investments, partially offset by the purchase of machinery & computer equipment.

the six months ended June 30, 2022, net cash used in investing activities consisted of the purchase of computer equipment.

During the six months ended June 30, 2023, net cash from financing activities consisted of a net $1.1 million of proceeds from our line

During the six months ended June 30, 2022, net cash from financing activities consisted of $9.4 million of proceeds from the sale of common

stock and warrants in a private placement.

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 generally accepted accounting principles of the United States, or

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 generally accepted accounting principles of the United States, or 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, 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

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 values.

significant accounting policies are described in more detail in Note 2 – Summary of Significant Accounting Policies , to

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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 three months ended March 31, 2023.

There were no material changes to our critical accounting estimates for the three months ended June 30, 2023.

Sheet Arrangements

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

Other than those items reflected in Note 18.

Commitments and Contingencies 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

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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