What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-11-09 compared with 2023-08-11 · 247 added, 229 removed, 290 unchanged (62% of the section changed)

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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.

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”).

About Reverse Stock Split

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

Inc (the “Company” or “Biofrontera”).

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

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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

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

easier product demonstrations and evaluations.

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

Our 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 ®

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 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 States.

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

(“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

lamp series, for 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.

We are currently selling Ameluz ® for

this indication in the U.S.

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

the Ameluz Licensors.

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

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

of impetigo, 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 States.

under an exclusive

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

(“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 product.

However, Ferrer is qualifying a new Contract manufacturer,

Cambrex, which is expected to begin production early 2024.

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

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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 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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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.

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

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 September 30, 2023, we have migrated most of our

significant IT services from Biofrontera AG to third party providers.

and Development

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 team.

in Fair Value of Contingent Consideration

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in Fair Value of Warrant Liabilities

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

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.

Inducement Expense

warrant inducement expense represents the accounting fair value of consideration issued to induce conversion of the 2021 Purchase Warrant.

On July 26, 2022, the Company entered into the Inducement Letter, in which the Company agreed to lower the exercise price of the 2021

Purchase Warrant and issue a new warrant (the “Inducement Warrant”) in exchange for $4.6 million in proceeds.

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.

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

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of Operations

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:

of the Three Months ended September 30, 2023 and 2022

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

( in thousands)

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Change in fair value of warrant liabilities

Warrant inducement expense

Change in fair value of investment, related party

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Income tax expenses

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.

product revenue for the three months ended September 30, 2023 increased by $4.6 million, or 107.0% as compared to the three months ended September 30, 2022.

This increase was driven by a

higher volume of Ameluz revenue in Q3 2023, caused in part by an expansion of our sales force in 2023, higher adoption of Ameluz by

dermatologists, as well as the buy-in impact due to a price increase.

Our price for Ameluz increased by 5% on October 1, 2023,

causing some dermatologists to accelerate their purchases of Ameluz in Q3 2023.

We increased our price on April 1, 2022, and thus

revenues in Q3 2022 were not impacted by the effects of the previous increase.

of Revenues, Related Party

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

to the selling price of Ameluz under the Ameluz LSA.

of revenues, related party for the three months ended September 30, 2023 increased by $2.4 million, or 111.3% as compared to the three months ended September 30, 2022.

driven by the increase 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 $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.

general and administrative expenses for the three months ended September 30, 2023 increased by $0.9 million, or 11.0% as compared to the three months ended September 30, 2022.

was primarily driven by $0.8 million of personnel costs, due to higher sales and medical headcount.

This increase reflects a

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

generating functions.

The increase was further driven by $0.4 million of legal expenses and $0.1 million of increase sales and

marketing expense.

These expenses were offset by a decrease of $0.3 million in non-recurring issuance costs, related to our liability classified warrants incurred in Q3

in Fair Value of Contingent Consideration

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.

change in fair value of contingent consideration was an increase of $0.2 million for the three months ended September 30, 2023 compared

to a decrease of $2.2 million for the three months ended September 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.

The estimated profit share was

reduced in Q3 2022 after r eceiving notification of third-party manufacturing delays that impacted

the timing of sales expansion and improved market positioning of the Xepi ® product.

in Fair Value of Warrant Liabilities

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.

change in fair value of warrant liabilities was $0.6 million for three months ended September 30, 2023 compared to $3.8 million for the three months ended September 30, 2022.

The change in fair value of warrant liabilities was driven primarily

by changes in the underlying value of the Common Stock.

Inducement Expense

warrant inducement expense was $2.6 million for the three months ended September 30, 2022.

The change was driven by changes in the underlying

value of the Common Stock, related to the modification and exercise of the 2021 Purchase Warrant in Q3 2022.

in fair value of investment, related party

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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:

of the nine months ended September 30, 2023 and 2022

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

( in thousands)

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Change in fair value of warrant liabilities

Warrant inducement expense

Change in fair value of investment, related party

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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.

product revenue for the nine months ended September 30, 2023 increased by $4.9 million, or 26.8% as compared to the nine months ended September 30, 2022.

The increase was primarily driven

by a higher volume of Ameluz sales in Q3 2023 due to the expansion of the sales team and higher adoption

of Ameluz by dermatologists of $4.8 million and the impact of a higher average Ameluz selling price in 2023 of $0.1

of Revenues, Related Party

of revenues, related party for the nine months ended September 30, 2023 increased by $2.3 million, or 24.3% as compared to the nine months

ended September 30, 2022.

This was driven by the increase 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 $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 for the nine months ended September 30, 2023 increased by $4.8 million, or 19.3% as compared to

the nine months ended September 30, 2022.

The increase was primarily driven by personnel-related expenses of $2.9 million,

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

costs to revenue generating functions.

The increase is further driven by sales related travel and medical education expenses of $0.7

million, external legal expenses related to a legal settlement of $1.2 million and other non-recurring legal costs of $1.2 million;

partially offset by issuance costs related to liability classified warrants of $1.0 million incurred in 2022 and a decrease of $0.6

million in business insurance .

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.

general and administrative expenses for the nine months ended September 30, 2023 decreased by $0.4 million, or 68.5% as compared to the nine months ended September 30, 2022.

Related party

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

We currently have

statements of work in place regarding IT, regulatory affairs, medical affairs, pharmacovigilance, and investor relations services.

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.

change in fair value of contingent consideration was an increase of $0.1 million for the nine months ended September 30, 2023, compared

to a decrease of $4.1 million for the nine months ended September 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.

The estimated profit share was reduced

in Q3 2022 after r eceiving notification of third-party manufacturing delays that impacted the timing

of sales expansion and improved market positioning of the Xepi ® product.

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 primarily by a decrease in the underlying value of our common stock.

change in fair value of warrant liabilities was a decrease of $2.0 million for the nine months ended September 31, 2023 and a decrease

of $17.9 million for the nine months ended September 30, 2022.

The change in fair value of warrant liabilities was driven primarily by

a decrease in the underlying value of our Common Stock.

Inducement Expense

warrant inducement expense was $2.6 million for the nine months ended September 30, 2022.

The change was driven by changes in the underlying

value of the Common Stock, related to the modification and exercise of the 2021 Purchase Warrant in July 2022.

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

change in fair value of investment, related party was a decrease of $6.6 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.

Income (Loss) to Adjusted EBITDA Reconciliation for the Three and Nine Months Ended September 30, 2023 and 2022

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

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in fair value of contingent consideration:

Pursuant to the Share Purchase Agreement, the profits from the sale of Cutanea products

will be shared equally between Maruho and Biofrontera until 2030.

The fair value of the contingent consideration was determined to be

$6.5 million on the acquisition date and is re-measured at each reporting date, 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.

Pursuant to the Share Purchase Agreement, the profits from the sale of Cutanea

products will be shared equally between Maruho and Biofrontera until 2030.

The fair value of the contingent consideration was

determined to be $6.5 million on the acquisition date and is re-measured at each reporting date, 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 not currently payable and is a non-cash adjustment.

in fair value of warrant liabilities:

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of warrant liabilities as this is non-cash.

inducement expense :

The warrant inducement expense was determined using the Black-Scholes option pricing model and was calculated

as the difference between the fair value of the 2021 Purchase Warrant prior to, and immediately after, the reduction in the exercise

price on the date of repricing in addition to the fair value of the Inducement Warrant issued and is presented within the statement of

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

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”).

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.

The Company accounts for its investment, related party 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.

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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 expense

Depreciation and amortization

Change in fair value of contingent consideration

Change in fair value of warrant liabilities

Change in fair value of investment, related party

Legal settlement expenses

Stock compensation expense

Adjusted EBITDA

Adjusted EBITDA margin

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.

below table presents a reconciliation from net income (loss) to Adjusted EBITDA for the three and nine months ended September 30, 2023

income (loss)

and amortization

in fair value of contingent consideration

in fair value of warrant liabilities

inducement expense

in fair value of investment, related party

settlement expenses

compensation expense

issuance costs

EBITDA margin

EBITDA increased from ($5.0) million during the three months ended September 30, 2022 to ($3.9) million for the three months ended September

The increase in Adjusted EBITDA is primarily driven by higher revenues of $4.6 million, net of increased cost of revenues of

$2.4 million;

partially offset by an increase in our selling, general, and administrative costs of $1.2 million.

EBITDA decreased from ($14.1) million during the nine months ended September 30, 2022 to ($15.8) million for the nine months ended September

The decrease in Adjusted EBITDA is primarily driven by an increase in selling, general and administrative costs of $4.5 million,

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

relating to the realignment of our workforce strategy.

This is partially offset by an increase in our revenues of $4.9 million, net of

increased cost of revenues of $2.1 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

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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.

As of September 30, 2023, we had cash

and cash equivalents of $3.4 million and investment, related party of $3.3 million, compared to $17.2 million and $10.5 million as of

December 31, 2022, respectively.

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

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.

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

For the nine months ended September 30, 2023 and 2022, we

incurred loss from operations of $18.8 million and $13.0 million, respectively.

We incurred net cash outflows from operations of

$16.0 million and $7.9 million, for the same periods, respectively.

We had an accumulated deficit as of September 30, 2023 of $103.2

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.

In connection with our assessment of going concern

considerations under applicable accounting standards, the Company’s management has determined that substantial doubt exists about

our ability to continue as a going concern for at least one year from the date the unaudited condensed consolidated financial statements

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 during the first half of 2024, and until cash flow from operations is sufficient, if ever.

We have implemented plans to improve

our working capital position, particularly around inventory levels.

We have not placed any orders nor plan to place any orders for 2024

deliveries in 2023.

We expect to need a delivery sometime in Q3 2024, depending on sales between now and then, and will place the appropriate

orders in early 2024.

Management believes that the anticipated implementation of such plans, together with the recent net capital raise

of $4.1 million will provide the opportunity for the Company to continue as a going concern.

However, 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.

The 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.

There could be

a material adverse effect on the Company and its financial statements if management’s plans are not achieved on a timely basis.

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

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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;

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

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

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

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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

the nine months ended September 30, 2023, operating activities used $16.0 million of cash, primarily resulting from our loss from operations

of $23.7 million, adjusted for non-cash expense of stock-based compensation of $0.8 million, non-cash interest expense of $0.3 million,

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.

depreciation and amortization in the aggregate of $0.8 million, net cash used by changes in our operating assets and liabilities of $0.9

million, the change in fair value of contingent consideration of $0.1 million and the change in fair value of investment, related party

of $6.6 million;

partially offset by the change in fair value of warrant liabilities of $2.0 million.

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, 2023, net cash provided by investing activities of $0.5 million consisted of the proceeds from

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

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 was 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, 2023, net cash from financing activities consisted of a net $1.7 million of proceeds from our line

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, as well as the exercise of warrants.

Policies and Significant Judgments and Estimates

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

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

Report on Form 10-K.

our consolidated financial statements included in our reaudited consolidated financial statements for the fiscal years ended

December 31, 2022 and 2021 (“reaudited Consolidated Financial Statements”), filed in a Current Report on From 8-K with

the SEC on October 3, 2023.

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 three months ended June 30, 2023.

summary of our critical accounting estimates is included in the Company’s revised Management’s Discussion and Analysis

of Financial Condition and Results of Operations for the fiscal years ended December 31, 2022 and December 31, 2021 (“revised

MD&A”), filed in a Current Report on From 8-K with the SEC on October 3, 2023 for the year ended December 31, 2022.

were no material changes to our critical accounting estimates for the nine months ended September 30, 2023.

Sheet Arrangements

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

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 of the SEC.

Growth Company Status

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis