What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-15 compared with 2023-03-13 · 463 added, 301 removed, 220 unchanged (78% of the section changed)

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

Certain statements

in this Form 10-K constitute “forward-looking statements”.

Such statements include statements regarding the timeline for

regulatory review and approval of our products, the availability of funding sources for continued development of such products, and other

statements that are not historical facts, including statements which may be preceded by the words “intends,” “may,”

“will,” “plans,” “expects,” “anticipates,” “projects,” “predicts,”

“estimates,” “aims,” “believes,” “hopes,” “potential” or similar words.

Forward-looking

statements are not guaranties of future performance, are based on certain assumptions and are subject to various known and unknown risks

and uncertainties, many of which are beyond our control.

Actual results may differ materially from the expectations contained in the

forward-looking statements.

Part I, Item 1A, “Risk Factors” of this Form 10-K for list of factors that may cause such differences.

do not undertake to publicly update or revise our forward-looking statements as a result of new information, future events or otherwise,

except as required by law.

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

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

statements in this Form 10-K constitute “forward-looking statements”.

Such statements include statements regarding the

timeline for regulatory review and approval of our products, the availability of funding sources for continued development of such

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

“intends,” “may,” “will,” “plans,” “expects,” “anticipates,”

“projects,” “predicts,” “estimates,” “aims,” “believes,”

“hopes,” “potential” or similar words.

Forward-looking statements are not guarantees of future performance,

are based on certain assumptions and are subject to various known and unknown risks and uncertainties, many of which are beyond our

Actual results may differ materially from the expectations contained in the forward-looking statements.

Part I, Item 1A, “Risk Factors” of this Form 10-K for a discussion of the factors that could cause such

However, other factors besides those listed in Part I, Item 1A, “Risk Factors” or otherwise discussed in this Annual Report also could adversely affect our results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties.

forward-looking statements made by us or on our behalf speak only as of the date they are made.

We do not undertake to publicly

update or revise our forward-looking statements as a result of new information, future events or otherwise, except as required by

(the “Company” or “Biofrontera”) includes its wholly owned subsidiary Bio-FRI GmbH (“Bio-FRI”

or “subsidiary”).

Our subsidiary, Bio-FRI was formed on February 9, 2022, as a German presence to facilitate our relationship

with Biofrontera Pharma GmbH and Biofrontera Bioscience GmbH, our Ameluz Licensor and related parties.

are a U.S.-based biopharmaceutical company commercializing a portfolio of pharmaceutical products for the treatment of dermatological

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treatment of actinic keratoses, which are pre-cancerous skin lesions, as well as impetigo, a bacterial skin infection.

In May 2023, we began research and development

(“R&D”) activities to support PDT growth and will continue to opportunistically invest in these activities going

Our R&D program currently aims to improve the capabilities of our BF-RhodoLED® lamps to better fulfill the needs of

dermatologists.

Our goal is to improve the effectiveness of our commercial team by allowing sales representatives to carry approved

devices with them allowing for easier product demonstrations and evaluations.

On February 19, 2024, we entered into the Second Amended

and Restated License and Supply Agreement with the Ameluz Licensor under which, with immediate effect, the transfer price of Ameluz ®

will be reduced from 50% to 25% for all purchases in 2024 and 2025.

Starting on January 1, 2026, until 2032 there will be stepwise

increases in the transfer price from 25% to 35% for sales related to actinic keratosis and, if approved by the FDA, basal cell carcinoma

and squamous cell carcinoma.

The transfer price for sales related to acne, another indication currently in development, will remain at

25% indefinitely.

The transfer price covers the cost of goods, royalties on sales, and services including all regulatory efforts, agency

fees, pharmacovigilance, and patent administration.

Effective June 1, 2024, we will take control of all clinical trials

relating to Ameluz ® in the US, allowing for more effective cost management and direct oversight of trial efficiency.

The reduced LSA transfer price will allow the Company to finance such R&D activities and continue our commercial growth

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

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

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

In the United States,

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carcinoma) if left untreated.

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

AK, especially multiple AK and the surrounding photodamaged skin.

International treatment guidelines list PDT as the “gold standard” for treating

AK, especially multiple AKs and the surrounding photodamaged skin.

1 We are currently selling Ameluz ® for this

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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.

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 that was assumed by Biofrontera on March 25, 2019 through our acquisition of Cutanea Life

Sciences, Inc.

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.

Our 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”) enables us to market and sell this product in the United Sates.

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

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the following:

our sales in the United States of Ameluz ® in combination with the BF-RhodoLED ® lamp 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;

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

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.

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the LSAs with our Licensors;

o pportunistically

opportunistically

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

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

our product sales and proceeds received in equity financings.

believe that important measures of our results of operations include product revenue, operating income (loss) and adjusted EBITDA (a

non-GAAP measure as defined below).

our product sales, our line of credit, short term debt and proceeds received in equity financings.

believe that important measures of our results of operations include product revenue, operating income (loss) and adjusted EBITDA

(a non-GAAP measure as defined below).

Our sole source of product revenue is sales of products that we license from certain related and

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factors impacting our results of operations.

traditional photodynamic therapy treatments using a lamp are performed more frequently during the winter, our revenue is subject to some

RN, Stockfleth E, Connolly SM, et al.

Evidence- and consensus-based (S3) Guidelines for the Treatment of Actinic Keratosis - International

League of Dermatological Societies in cooperation with the European Dermatology Forum - Short version.

J Eur Acad Dermatol Venereol.

2015;29(11):2069-2079.

doi:10.1111/jdv.13180.

traditional PDT treatments using a lamp are performed more frequently during the winter, our revenue is subject to some

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

the beginning of 2020, COVID-19 has become a global pandemic.

As a result of the measures implemented by governments around the world,

our business operations have been directly affected.

In particular, we experienced a significant decline in demand for our licensed products

as a result of different priorities for medical treatments emerging, thereby causing a delay of actinic keratosis treatment for most

Our revenue was directly affected by the global COVID-19 pandemic starting in mid-March of 2020.

From that point on, rising

infection rates and the resulting American Academy of Dermatology’s official recommendation to care for patients through remote

diagnosis and treatment (telehealth) led to significantly declining patient numbers and widespread, albeit temporary, physician practice

As COVID-19 vaccines started to roll-out to the general public in March 2021, we experienced an increase in patients willing

to undergo treatment for actinic keratosis.

In the fourth quarter of 2021 continuing through 2022, we again saw a seasonally strong increase

in sales, indicating a revenue recovery from the global COVID-19 pandemic, despite some residual effects such as reduced capacity or

staffing shortages at physicians’ offices.

We are optimistic that our business will continue to thrive throughout 2023 as a result

of the COVID-19 PHE sunsetting on May 11, 2023.

However, 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 be affected.

We remain focused on maintaining a strong balance sheet, liquidity and financial

flexibility and continue to monitor developments as we deal with the disruptions and uncertainties from a business and financial perspective

relating to COVID-19 and variants thereof.

our Licensors take reasonable precautions to ensure the successful production of our commercially licensed products, their contract manufacturers

may experience a myriad of business difficulties (i.e., workforce instability, supply chain issues, erosion of customer base, etc.) that

could impact their financial solvency.

In December 2021, we were notified by Ferrer of third-party manufacturing delays for the Xepi ®

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

the next 9 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 ® .

While our Licensors take reasonable precautions to ensure the successful

production of our commercially licensed products, their contract manufacturers may experience a myriad of business difficulties (i.e.,

workforce instability, supply chain issues, erosion of customer base, etc.) that could impact their financial solvency.

As previously

disclosed in 2021, the Xepi product has experienced manufacturing delays at Ferrer’s third-party manufacturer, which have not yet

been resolved.

We expect a delay in further shipments for an additional five to eight months.

We are expecting to launch the RhodoLED ®

XL in the second quarter 2024 and have begun production activities.

However, there have been historical delays due to supply chain issues, and there is

a possibility that there are additional supply chain challenges, or our orders are fulfilled at a slower rate than expected.

Despite these

historic and possible future delays, we expect total revenues will not be significantly impacted (i.e., we experience less growth than

declining sales) since the majority of our revenues are from sales of Ameluz ® and we have RhodeLED lamps on

hand and on order.

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 ® lamp series.

of Our Results of Operations

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

lamps and Xepi ® covered by our exclusive LSAs with our Licensors as

described in the section “ Business — Commercial Partners and Agreements.” Revenues from product

sales are recorded net of discounts, rebates and other incentives, including trade discounts and allowances, product returns, government

rebates, and other incentives such as patient co-pay assistance.

Revenue from the sales of our BF-RhodoLED ® lamp and Xepi ®

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

lamps and to a much lesser extent Xepi ® covered by our exclusive LSAs with our Licensors .

Revenues from

product sales are recorded net of discounts, rebates and other incentives, including trade discounts and allowances, product

returns, government rebates, and other incentives such as patient co-pay assistance.

Revenue from the sales of our

BF-RhodoLED ® lamp and Xepi ® are relatively insignificant compared with revenues generated through our

sales of Ameluz ® .

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

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Party Revenues

also generate insignificant related party revenue in connection with an agreement with Biofrontera Bioscience to provide BF-RhodoLED ®

lamps, associated services for the clinical trials performed by Biofrontera Bioscience and accounting services provided to Biofrontera

also generate insignificant related party revenue in connection with an agreement with Biofrontera Bioscience GmbH to provide

BF-RhodoLED ® lamps and associated services for the clinical trials performed by Biofrontera Bioscience GmbH.

of Revenues, Related Party

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

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

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

Under the Ameluz LSA

the price we pay per unit will be based upon our sales history.

The purchase price we pay the Ameluz Licensor for Ameluz ®

will be determined in the following manner:

percent of the anticipated net price per unit until we generate $30 million in revenue from sales of the products we license from

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from the Ameluz Licensor.

On February 19, 2024, we entered into the Second

Amended and Restated License and Supply Agreement (the “Second A&R Ameluz LSA”), effective as of February 13, 2024,

by and among the Company, Pharma, and Bioscience.

Among other things, the Second A&R Ameluz

LSA has been amended to (i) change the Transfer Price to 25% through 2025 and then increasing over time pursuant to the schedule set

forth in the Second A&R Ameluz LSA to a maximum of 35% starting in 2032, subject to a minimum dollar amount per unit, from the previous

Transfer Price of 50% of annual revenue up to $30 million, and then decreasing on further sales until reaching 30% of annual revenue

at and above $50 million, (ii) provide for the transfer of responsibilities for Ongoing Trials (as defined in the Second A&R Ameluz LSA)

on or before June 1, 2024, including the Company assuming related contracts and transferring key personnel from Pharma and

Bioscience to the Company, and (iii) make the failure to achieve the applicable Annual Minimum Sales (as defined in the Second A&R Ameluz LSA) a termination event in certain circumstances, unless waived by Pharma and Bioscience.

In connection with the Second A&R Ameluz

LSA, we entered into a Release of Claims dated as of

February 13, 2024, by and among the Company, Biofrontera Pharma and Biofrontera Bioscience, pursuant to which the Company agreed to

release Biofrontera Pharma and Biofrontera Bioscience from all claims and liabilities arising out of or relating to any failure by

Biofrontera Pharma and Biofrontera Bioscience to perform certain obligations under the Second A&R Ameluz LSA with respect to clinical

trials that the Company will assume responsibility for under the Second A&R Ameluz LSA.

of Revenues, Other

of revenues, other, is comprised of purchase costs of our licensed product, Xepi ® , third-party logistics and distribution

costs including packaging, freight, transportation, shipping and handling costs, inventory adjustment due to expiring Xepi ®

products, as well as sales-based Xepi ® royalties.

costs including packaging, freight, transportation, shipping and handling costs, and inventory adjustment due to expiring Xepi ®

General and Administrative Expense

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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 accounting consolidation, IT support, and pharmacovigilance.

These expenses were charged to us based on costs incurred plus 6%

in accordance with the 2016 Services Agreement.

During 2021, we entered into the 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

During 2022, we hired additional IT personnel and developed our IT infrastructure, enabling us to commence work on our IT

separation from Biofrontera AG.

Restructuring

restructured the business of Cutanea and incurred restructuring costs through 2021, which were subsequently reimbursed by Maruho Co.,

Ltd, (“Maruho”).

Restructuring costs primarily relate to Aktipak ® discontinuation, personnel costs related

to the termination of all Cutanea employees, and the winding down of Cutanea’s operations.

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

primarily for regulatory support and pharmacovigilance.

These expenses are charged to us based on costs incurred plus 6% in

accordance with the Amended and Restated Master Contact Services Agreement, (the “2021 Services Agreement”), entered

into in December 2021.

The 2021 Services Agreement enables us to continue relying on Biofrontera AG and its subsidiaries for various

services it has historically provided to us, including regulatory and pharmacovigilance support for as long as we deem necessary.

currently have statements of work in place regarding information technology, 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 December

31, 2023, we have migrated most of our significant information technology services from Biofrontera AG to third-party

and Development

current R&D 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 by letting sales representatives carry approved devices with them allowing for easier product demonstrations and evaluations.

in Fair Value of Contingent Consideration

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

Cutanea products to be shared equally with Maruho.

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

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

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

products to be shared equally with Maruho.

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

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

Under the Release, our obligation relating to contingent consideration was relieved as of December 31, 2023.

in Fair Value of Warrant Liabilities

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

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

statements of operations.

in Fair Value of Investment in Equity Securities

investments are comprised of equity securities, 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

warrants that are classified as liabilities, the Company records the fair value of the warrants at each balance sheet date and records

changes in the estimated fair value as a non-cash gain or loss in the consolidated statements of operations until the warrants are exercised, expire or other facts and circumstances lead the warrant liabilities to be reclassified to stockholders’ equity or deficit.

Inducement Expense

connection with the Securities Purchase Agreement (“Purchase Agreement”), dated as of October 30, 2023, entered into with an

institutional investor, the Company entered into the Amendment to Common Stock Purchase Warrants, dated as of October 30, 2023 to amend the common stock purchase

warrant dated May 16, 2022 and the common stock purchase warrant dated July 26, 2022 (“Existing Warrants”) to (i) revise

the exercise price to $3.55 and (ii) extend the date until which the warrants can be exercised until November 2, 2028.

result of the amendment to the existing warrants, the Company recognized inducement expense which was determined using the

Black-Scholes option pricing model before and after the warrant amendment (see Note 18 Stockholders’ Equity within our consolidated

financial statements for details).

2022 warrant inducement expense represents the accounting fair value of consideration issued to induce conversion of the common

stock purchase warrant dated December 1, 2021 (“2021 Purchase Warrant”).

On July 26, 2022, the Company entered into a

warrant exercise inducement offer letter (the “Inducement Letter”), in which the Company agreed to lower the exercise

price of the 2021 Purchase Warrant and issue a new warrant (the “2022 Inducement Warrant”) to purchase up to 4,285,715

shares of common stock in exchange for $4.6 million in proceeds (see Note 18 Stockholders’ Equity within our

consolidated financial statements for details).

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 2022 Inducement Warrant issued.

of Warrant Fair Value Over Offering Proceeds

November 2, 2023, the Company issued common shares and warrants for common shares for net proceeds of $4.1 million (see Note 18 Stockholders’

Equity within our consolidated financial statements for details).

The excess of the fair value of the warrants at the issuance date

over the proceeds received was recognized as a loss on the statement of operations.

in Fair Value of Investment, Related Party

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.

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

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

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

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

by interest income of 6% per annum for each day that any reimbursement is past due related to the Amended Settlement Allocation Agreement

with Biofrontera AG , and immaterial amounts of interest income earned on our financing of customer purchases of BF-RhodoLED ®

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

the Release, the Company agreed to transfer 5,451,016 shares of Biofrontera AG to Maruho in exchange for the release of our

obligations relating to the Cutanea acquisition.

Gain on Legal Settlement

Under a Confidential Settlement Agreement and Mutual Release (the “Release”) dated as of December 27,

2023, entered into with Maruho, the Company was released from its obligations to 1) repay $7.3 million in start-up cost financing to Maruho

for Cutanea’s redesigned business activities (“start-up cost financing”), and 2) make certain profit-sharing payments

pursuant to the Share Purchase and Transfer Agreement dated March 25, 2019 entered into with Maruho (as amended, the “Share Purchase

Agreement” or “SPA”).

In exchange, the Company agreed to transfer 5,451,016 shares of Biofrontera AG to Maruho.

exchange of the shares of Biofrontera AG for the release of the obligations mentioned above, resulted in a gain.

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

Share Purchase Agreement, as well as interest on our debt instruments, 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, net primarily includes (i) gain on return 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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Selling, general and administrative, related party

Restructuring costs

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

Warrant inducement expense

Excess of warrant fair value over offering proceeds

Change in fair value of investment, related party

Gain on legal settlement

Interest expense, net

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Income tax expenses

net revenue was $28.7 million and $24.1 million 2022 and 2021, respectively, an increase of $4.6 million, or 19.0%.

Net product revenue

was $28.5 million and $24.0 million for 2022 and 2021, respectively, an increase of $4.5 million, or 18.7%.

The increase was primarily

(i) higher volume of Ameluz ® orders, which resulted in an increase in Ameluz ® revenue of $3.7

million, and (ii) an increase in the price of Ameluz ® , which further increased Ameluz ® revenue by $0.6

product revenue for 2023 increased $5.5 million, or 19.1% compared to 2022.

The increase was primarily driven by the expansion of our

salesforce in 2023, which resulted in a higher volume of Ameluz ® orders and, therefore, an increase in Ameluz ®

revenue of $5.2 million.

The remaining increase was attributed to an increase in the price of Ameluz ® .

of Revenues, Related Party

of revenues, related party was $14.6 million and $12.2 million for 2022 and 2021, respectively, an increase of $2.4 million, or 19.6%.

The increase was primarily driven by the increase in Ameluz ® product revenue.

Cost of Ameluz ® is directly

correlated to the selling price under the Ameluz LSA.

of revenues, related party increased $2.2 million, or 14.9% compared to 2022.

The increase was primarily driven by the increase in

Ameluz ® product revenue.

For the revenues in 2023 exceeding $30 million, the related cost of revenues decreased from

50% to 40% of net selling price tier pursuant to the Ameluz LSA, which offset the increase of cost due to the increase of sales

General and Administrative Expenses

general and administrative expenses were $35.1 million and $36.5 million for 2022 and 2021, respectively, a decrease of $1.4 million,

This decrease was driven by the one-time legal settlement expense of $11.3 million recognized in 2021.

This decrease was offset

by an increase in headcount costs as a result of resumed hiring in 2022 and a broad increase in the costs

to comply with corporate governance, regulatory reporting, risk management and other requirements applicable to us as a public company.

Restructuring

were no restructuring costs for the twelve months ended December 31, 2022.

Restructuring costs were $0.8 million for the twelve months

ended December 31, 2021, all of which related to facility exit costs.

general and administrative expenses for 2023 increased $3.8 million, or 10.9% compared to 2022.

This increase was primarily driven

by an increase in personnel-related expenses of $2.4 million, reflecting a realignment of our workforce strategy to reduce general

and administrative costs and deploy some of these costs to revenue generating related functions.

The increase was further driven by

sales-related travel of $0.3 million, auto lease expense of $0.2 million, clinical grant expenses of $0.5 million, franchise fee and

sales tax of $0.2 million and external legal

expenses related to a legal settlement of $1.2 million and other legal costs of $0.8 million related to a variety of non-routine

matters including legal claims as disclosed in Note 23.

and Contingencies – Legal Proceedings .

These increases are partially offset by a decrease in issuance costs of $0.6 million related to liability classified equity financings, a decrease of $0.5 million in business insurance, and a decrease in stock compensation

of $0.8 million in 2023 due to a decline in the Company’s award of executive’s restricted stock units.

on Legal Settlement

Under the Release, the Company was released from its obligations to repay $7.3 million in start-up cost financing

to Maruho for Cutanea’s redesigned business activities and released from having to make certain profit-sharing payments pursuant

In exchange, the Company agreed to transfer 5,451,016 shares of Biofrontera AG to Maruho.

exchange pursuant to the Release resulted in a gain of $7.4 million, recorded in December 2023.

in Fair Value of Contingent Consideration

change in fair value of contingent consideration was a decrease of $3.8 million and a decrease of $1.4 million for 2022 and 2021, respectively.

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

Share Purchase Agreement.

During 2022, the estimated profit share was reduced in response to supply chain delays experienced by the supplier.

in Fair Value of Warrant Liabilities

change in fair value of warrant liabilities was a decrease of $29.2 million and an increase of $12.8 million for 2022 and 2021,

change in fair value of contingent consideration was an increase of $0.1 million and a decrease of $3.8 million for 2023 and 2022,

respectively.

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

The change in 2022 was also driven by the modification and exercise

of the 2021 Purchase Warrant.

in fair value of investments in equity securities

change in fair value of investments in equity securities of $1.7 million was driven by changes in the quoted

market price of the common stock.

income, net was negligible and $0.7 million in 2022 and 2021, respectively, a decrease of $0.7 million or 95.2%.

The decrease is

primarily related to the decrease in reimbursed costs under the Share Purchase Agreement with Maruho of $0.5 million.

The change in contingent consideration was driven by the estimated profit share the Company is required to pay under

the Share Purchase Agreement.

There weren’t any material changes in 2023.

However, during 2022, the estimated profit share was

reduced by approximately $3.8 million after receiving

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 $12.6 million from 2022, driven primarily by changes in the underlying

value of the Company’s common stock.

Inducement Expense

warrant inducement expense was $1.0 million and $2.6 million for the years ended December 31, 2023 and 2022, respectively.

inducement expense was driven by a lower exercise price and extended term to exercise for the 2022 Purchase Warrant and 2022

Inducement Warrant, pursuant to the Amendment to Common Stock Purchase Warrants entered into on October 30, 2023.

The 2022 inducement expense was driven by changes in fair value due to the repricing of the 2021 Purchase Warrant,

pursuant to the Inducement Letter.

of Warrant Fair Value Over Offering Proceeds

excess of the fair value of the November 2023 warrants at the issuance date over the proceeds received was recognized as a loss on the

statement of operations.

in Fair Value of Investment, Related Party

change in fair value of investment, related party was a decrease of $7.4million and an increase of $1.7 million for the years ended

December31, 2023 and 2022, driven by changes in the quoted market price of the common stock of Biofrontera AG and losses on securities we sold during the period.

Income to Adjusted EBITDA Reconciliation for years ended December 31, 2023 and 2022

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

will be shared equally between Maruho and Biofrontera until 2030.

The fair value of the contingent consideration was determined to be

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

We exclude the impact of the change in fair value of

contingent consideration as this is non-cash.

were to 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 was re-measured at each reporting date.

We exclude the impact of the change in fair value

of contingent consideration as this is non-cash.

Further, we were relieved of our obligations relating to the contingent consideration

under the Release.

As such, our future results of operations will not be impacted by the change in fair value.

on legal settlement :

Under the Release, we were relieved of our obligations relating to the start-up cost financing and profit

sharing under the Share Purchase Agreement in exchange for 5,451,016 shares of Biofrontera AG.

The exchange of the shares of Biofrontera AG for the release of the liabilities mentioned above, both of which were recorded at their

respective fair values at the exchange date, resulted in a gain.

We exclude the impact of the gain on legal

settlement as this is non-cash and non-recurring.

in fair value of warrant liabilities:

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

as liabilities in accordance with ASC 815-40.

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

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

We exclude the impact of the change in

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

in fair value of investment in equity securities:

T he Company accounts for its investments in equity securities in

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

Equity securities, which are

comprised of investments in common stock, are initially recorded at cost, plus transaction costs, and subsequently measured at fair

value, based on quoted market prices, with the gains and losses reported in the Company’s consolidated statement of

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.

We exclude the impact of the change in

fair value of investments as this is non-cash.

The Warrants issued in conjunction with our private placement offerings and registered

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

The warrant liabilities are measured at fair value

at inception and on a recurring basis, with changes in fair value presented within the consolidated statement of operations.

exclude the impact of the change in fair value 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 applicable warrants prior to, and immediately after, the reduction in the exercise price

on the date of repricing and is presented within the statement of operations.

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

warrant inducement expense as this is non-cash.

of warrant fair value over offering proceeds :

The excess of warrant fair value over offering proceeds was determined by the difference

between the fair value of the warrants upon issuance on November 2, 2023 and the proceeds received.

We exclude the impact of the variance

between the warrant fair value and the proceeds 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 statement of operations.

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

settlement expenses :

To measure operating performance, we exclude legal settlement expenses.

We do not expect to incur these types

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

to better understand our financial results.

We do not expect to incur

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

statements to better understand our financial results.

Based Compensation :

To measure operating performance, we exclude the impact of costs relating

to share-based compensation.

Due to the subjective assumptions and a variety of award types, we believe that the exclusion of share-based

compensation expense, which is typically non-cash, allows for more meaningful comparisons of our operating results to peer companies.

Share-based compensation expense can vary significantly based on the timing, size and nature of awards granted.

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

the subjective assumptions and a variety of award types, we believe that the exclusion of share-based compensation expense, which is non-cash, allows for more meaningful comparisons of our operating results to peer companies.

Share-based compensation expense

can vary significantly based on the timing, size and nature of awards granted.

issuance costs:

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Depreciation and amortization

Gain on legal settlement

Change in fair value of contingent consideration

Change in fair value of warrant liabilities

Change in fair value of investments

Warrant inducement expense

Excess of warrant fair value over offering proceeds

Change in fair value of investment, related party

Legal settlement expenses

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EBITDA decreased from ($18.1) million for the year ended December 31, 2022 to ($19.5) million for the year ended December 31, 2023.

The decrease was primarily driven by an increase in Selling, general, and administrative

expenses (excluding legal settlement expenses) due to increased headcount and compliance costs.

Our adjusted EBITDA margin decreased

from (52.8%) for the year ended December 31, 2021 to (63.0%) for the year ended December 31, 2022, as the decline in our Adjusted EBITDA outpaced our increase in revenues.

The decrease was primarily driven by an increase in selling, general, and administrative expenses (excluding legal settlement

expenses) (“SG&A expenses”) due to increased headcount.

Our Adjusted EBITDA margin increased from (63.0%) for the

year ended December 31, 2022 to (57.1%) for the year ended December 31, 2023, as the increase in revenue outpaced the decline in our

Adjusted EBITDA.

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 financing transactions.

During the year ended December 31, 2022, we received

proceeds of $9.4 million from the issuance of common stock and warrants in private placement, net of issuance costs, and $4.6

million from the exercise of common stock warrants (See Note 19.

we commenced operations in 2015, we have generated significant losses and have incurred net cash outflows from operations of $24.9

million and $16.2 million for the years ended December 31, 2023 and 2022, respectively.

The Company had an accumulated deficit as of

December 31, 2023 of $99.7 million.

The Company’s primary sources of liquidity are its cash collected from the sales of its

products, and cash flows from financing transactions.

During the year ended December 31, 2023, we received proceeds of $4.1 million

from the issuance of common stock and warrants, net of issuance costs (See Note 18.

Stockholders’ Equity ).

As of December 31, 2022,

we had cash and cash equivalents of $17.2 million, compared to $24.5 million as of December 31, 2021.

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

For the years ended December 31, 2022 and 2021, we incurred net

losses of $0.6 million and $37.7 million, respectively .

We incurred net cash outflows from operations

of $16.2 million and $26.7 million, for the same periods, respectively.

We had an accumulated deficit as of December 31, 2022 of $79.5

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

including facility and auto leases (see Note 24, Commitments and Contingencies ), Maruho start-up payments of $7.3 million

Acquisition Contract Liabilities ), and legal settlement expenses after reimbursement from Biofrontera AG of $2.5

Long-term material cash requirements include potential milestone payments to Ferrer Internacional S.A and contingent

consideration payments to Maruho connected with Xepi sales.

Additionally,

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

commercialization of our licensed products in the United States.

We also expect to incur additional expenses to add and improve operational,

financial and information systems and personnel, including personnel to support our product commercialization efforts.

In addition, we

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

a public company in the U.S.

future growth is dependent on our ability to obtain additional equity or debt financing.

Based on current operating plans and financial

forecasts, we expect that our current capital resources, including investments in equity securities which we intend to liquidate within the next twelve months, and availability under a working capital line of credit, will be sufficient to fund

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

However, if our current operating

plans or financial forecasts change, or we are unable to obtain additional financing, we may need to reduce the discretionary spend on

promotional expenses, branding, marketing consulting and defer some hiring.

While we expect to continue being flexible in our spending

over the next twelve months, we do not consider there to be a need to significantly revise our operations currently.

December 31, 2023, we had cash and cash equivalents of $1.3 million, compared to $17.2 million as of December 31, 2022.

conditions raise substantial doubt about our ability to continue as a going concern for at least twelve months from the issuance

date of this report, which management believes has been alleviated through its plans to mitigate these conditions and obtain

additional liquidity.

Pursuant to the requirements of the Financial Accounting

Standards Board’s Accounting Standards Codification (“ASC”) Topic 205-40, Disclosure of Uncertainties about an Entity’s

Ability to Continue as a Going Concern, management must evaluate whether there are conditions or events, considered in the aggregate,

that raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date the consolidated

financial statements included in this Annual Report on Form 10-K are issued.

This evaluation does not take into consideration the potential

mitigating effect of management’s plans that have not been fully implemented or are not within control of the Company as of the

date the financial statements are issued.

When substantial doubt exists under this methodology, management evaluates whether the mitigating

effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern.

The mitigating

effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented

within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will

mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern

within one year after the date that the consolidated financial statements are issued.

In an effort to alleviate these conditions, management

plans include execution on the 2024 budget approved by the Board, which includes significant discretionary sales and marketing, medical

affairs, and dermatology community outreach efforts as we seek to expand the commercialization of Ameluz® in the United States, however,

discretionary expenses are about $5.5 million less than what was spent in 2023.

We have reduced spending at both the commercial and general

and administrative level but do not expect these reductions to impact our ability to grow and achieve our revenue targets.

We also expect

to incur additional expenses in support of our product commercialization efforts.

In addition, we expect to continue to incur significant

costs to comply with corporate governance, internal controls and similar requirements applicable to us as a public company in the U.S.

Also, on February 20, 2024, the Company entered into

the 2024 LSA with Biofrontera AG which will significantly reduce our cost of inventory in the future.

The Company will begin to see gross

margins of its primary product, Ameluz®, of approximately 75% as opposed to the prior 50% beginning with inventory purchases after

the execution date.

This will reduce our cash needs for inventory which will be partially offset by R&D costs, resulting in expected

net savings of $0.7 million by March 2025 and continuing in subsequent years.

In addition, on February 19, 2024, the Company

entered into a securities and purchase agreement with healthcare-focused institutional investors resulting in net proceeds of $7.2

million, which were received on February 22, 2024.

Under the agreement, we also issued warrants to purchase 8,000 shares of Series

B-3 Convertible Preferred Stock at an exercise price of $1,000 per share.

If these warrants are exercised in full, we will receive

additional net proceeds of $7.2 million.

To encourage the investors to exercise the warrants, they will expire within 21 days upon

the satisfaction of certain conditions (but if such conditions are not met, they will expire three years after issuance).

though we anticipate that we will satisfy the conditions to trigger the expiration of the warrants and receive additional financing

as a result of the exercise of the warrants, there can be no assurance that such conditions will be met or that the investors will choose to exercise the warrants prior to expiration.

Subsequent Events- Securities Purchase

Agreement for Series B Convertible Preferred .

believes that, as a result of these plans, it has sufficient liquidity and probable financing to meet its funding requirements for

at least one year from the date the financial statements are issued.

However, the Company’s plans will depend on many factors,

including executing on our sales plan over one year from issuance, reaching at least 5% in year to date revenue growth over 2023 by

June 2024, receiving shareholder approval to increase the number of authorized shares to enable the warrant exercise, controlling

our selling, general and administrative costs , and the

investors electing to exercise their warrants within the anticipated timeframe, among other possible challenges and unforeseen

circumstances.

A lack of execution or unforeseen circumstances may require the Company to raise additional capital or debt which may

not be available on acceptable terms, or at all which could result in a material adverse effect on the Company and its financial

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.

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

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Net cash used in operating activities

Net cash used in investing activities

Net cash provided by (used in) investing activities

Net cash provided by financing activities

Net increase in cash and restricted cash

Net increase (decrease) in cash and restricted cash

the year ended December 31, 2023, operating activities used $24.9 million of cash, primarily resulting from our net loss of $20.1

million, adjusted for the add back of non-cash income of $18.3 million and offset by net

cash provided by changes in our operating assets and liabilities of $2.7 million .

Non-cash items include stock-based

compensation of $1.9 million, non-cash interest expense of $0.4 million, and depreciation and amortization in the aggregate of $1.2

million, netted against a change in fair value of investment of warrant liabilities of $16.4 million, change in fair value of

contingent consideration of $3.8 million, and change in fair value of equity securities of $1.7 million.

the year ended December 31, 2022, investing activities used $5.2 million, primarily resulting from the purchase of shares

of Biofrontera AG (See Note 4.

million, adjusted for the add back of non-cash income of $0.4 million and offset by net cash used by changes in our operating

assets and liabilities of $4.4 million.

Non-cash income includes a gain on legal settlement of $7.4 million and a change in fair

value of warrant liabilities of $6.5 million offset by a change in fair value of equity securities of $7.4 million, loss on warrant

fair value over offering proceeds of $2.3 million, warrant inducement expense of $1.1 million, stock-based compensation of $1.1

million, non-cash interest expense of $0.4 million, change in fair value of contingent consideration of $0.1 million, provision for

doubtful accounts of $0.1 million and depreciation and amortization in the aggregate of $1.1 million.

the year ended December 31, 2022, operating activities used $16.2 million of cash, primarily resulting from our net loss of $0.6 million,

adjusted for the add back of non-cash income of $18.3 million and offset by net cash provided by changes in our operating assets and

liabilities of $2.7 million.

Non-cash items include stock-based compensation of $1.9 million, non-cash interest expense of $0.4 million,

and depreciation and amortization in the aggregate of $1.2 million, netted against a change in fair value of investment of warrant liabilities

of $19.0 million, change in fair value of contingent consideration of $3.8 million, and change in fair value of equity securities of

$1.7 million.

the year ended December 31, 2023, investing activities provided $0.6 million, primarily resulting from the sale of shares of Biofrontera

the year ended December 31, 2022, investing activities used $5.2 million, primarily resulting from the purchase of shares of Biofrontera

AG (See Note 4.

Fair Value Measurements and Note 6.

Investment in Equity Securities)

the years ended December 31, 2022 and 2021, net cash provided by financing activities was $14.0 million and $43.2 million, respectively.

Financing activities during year ended December 31, 2022 consisted of proceeds of $9.4 million

from the issuance of common stock and warrants in private placement, net of issuance costs, and $4.6 million from the exercise of common

stock warrants .

Financing activities during year ended December 31, 2021 consisted of proceeds

from the issuance of common stock upon an initial public offering of $14.9 million, issuance of common stock in private placement of

$15.0 million, and the exercise of warrants of $13.2 million .

March 9, 2023, we entered into the Commitment Letter with MidCap, in respect of MidCap’s commitment to provide us with the Revolving

Facility, subject to the borrowing base formula, minimum excess availability and other terms and conditions thereof, in the aggregate

principal amount of up to $6.5 million.

The Revolving Facility shall be secured by a lien on substantially all of the assets of the Company,

subject to customary exceptions and, if drawn upon, the proceeds of the Revolving Facility will be used for working capital.

For additional

details regarding the Revolving Facility see Item 9.B.

Other Information in this Form 10-K.

into the Revolving Facility will be subject to customary closing conditions, including the execution and delivery of appropriate definitive

documentation related to the Revolving Facility, to include customary representations, warranties, covenants, events of default and other

terms and conditions.

Investment, related party within our consolidated financial statements )

the year ended December 31, 2023, net cash provided by financing activities was $8.4 million which consisted of net proceeds

received from our loan and line of credit of $3.9 million and net proceeds of $4.5 million from the issuance of common stock and

warrants in a public offering.

the year ended December 31, 2022, net cash provided by financing activities was $14.0 million which consisted of proceeds of $9.4

million from the issuance of common stock and warrants in private placement, net of issuance costs, and $4.6 million from the

exercise of common stock 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 ,” of this Form 10-K.

our consolidated financial statements.

Accounting Estimates

believe that the following accounting policies are those that are most critical to the judgments and estimates used in the preparation

of our financial statements.

believe that the following are the most critical estimates which required significant judgments in the

preparation of our financial statements.

Consideration

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Each reporting period

thereafter, we revalue the remaining obligations and record increases or decreases in their fair value as an adjustment to contingent

consideration expense in our statements of operations.

thereafter and until settlement, we revalue the remaining obligations and record increases or decreases in their fair value as an adjustment

to operating expense in our statements of operations.

We considered a number of factors, including information provided by an outside

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to the audited financial statements as of and for the years ended December 31, 2023 and 2022 as included in this Form 10-K.

The fair value of the contingent consideration is remeasured each reporting period, with changes in the fair value included

in current operations.

These fair value measurements represent Level 3 measurements as they are based on significant inputs not observable

in the market.

fair value measurements represent Level 3 measurements as they are based on significant inputs not observable in the market.

judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period.

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Assets and Impairment Assessment

Company regularly reviews the carrying amount of its long-lived assets to determine whether indicators of impairment may exist, which

warrant adjustments to carrying values or estimated useful lives.

In connection with this review, assets are grouped at the lowest level

at which identifiable cash flows are largely independent of other asset groupings.

If indications of impairment exist, projected future

undiscounted cash flows associated with the asset grouping are compared to the carrying amount to determine whether the asset’s

value is recoverable.

An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the

use of an asset group are less than its carrying amount.

The impairment loss would be based on the excess of the carrying value of the

impaired asset group over its fair value, determined based on discounted cash flows.

Company regularly reviews the carrying amount of its long-lived assets to determine whether indicators of impairment may exist,

which warrant adjustments to carrying values or estimated useful lives.

In connection with this review, assets are grouped at the

lowest level at which identifiable cash flows are largely independent of other asset groupings.

If indications of impairment exist,

projected future undiscounted cash flows associated with the asset grouping are compared to the carrying amount to determine whether

the asset’s value is recoverable.

An impairment loss would be recognized when estimated undiscounted future cash flows

expected to result from the use of an asset group are less than its carrying amount and if the carrying value is also determined to be greater than its fair value.

The impairment loss would be based on the

excess of the carrying value of the impaired asset group over its fair value, determined based on discounted cash flows.

determining future cash flows, we take various factors into account, including the remaining useful life of each asset group, forecasted

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perform an impairment assessment in accordance with FASB ASC Topic 360-10-S99, Impairment or Disposal of Long-Lived Assets .

review for the presence of indicators of impairment include events or changes in circumstances that indicate the carrying amount of an

asset may not be recoverable.

In October 2022, upon receiving notification of further third-party manufacturing delays that impacted

the timing of sales expansion and improved market positioning of the Xepi ® product, we deemed it necessary to assess the

recoverability of our Xepi ® asset group.

As of the date of notification, future undiscounted cash flows were estimated

over the expected remaining useful life using revenue and operating expense growth rates.

Also, the expected cash flows were based on

the assumption that sales levels would grow considerably for the first two years after resolution of the manufacturing delays as a result

of expanding the sales force and marketing efforts related to the asset group.

While we believe these assumptions were reasonable, the

level of future sales may vary significantly from the levels assumed.

Management’s review for the presence of indicators of impairment include events or changes in circumstances that indicate the

carrying amount of an asset may not be recoverable.

In October 2022, upon receiving notification of further third-party

manufacturing delays that impacted the timing of sales expansion and improved market positioning of the Xepi ®

product, and again in December 2023, when we implemented a marketing hold in response to continued manufacturing delays experienced

by our Licensor and also entered the Release, relieving us of obligations that had previously reduced the carrying value of the

asset group, we deemed it necessary to assess the recoverability of our Xepi ® asset group.

As of the date of

notification in 2022 and the Release in 2023, future undiscounted cash flows were estimated over the expected remaining useful life

using revenue and operating expense growth rates.

The expected cash flows were based on the assumption that sales levels would grow

considerably after resolution of the manufacturing delays as a result of expanding the sales force and marketing efforts related to

relaunching the asset group.

Further, in 2023, due to the uncertainty relating to the timing of resolution of the previously

identified supply chain issues, the Company used a probability-weighted approach to estimate the future cash flows under several

While we believe these assumptions were reasonable, the level of future sales may vary significantly from the levels

Also, the timeframe over which activity levels grow is highly uncertain.

Potential events that could affect our assumptions are affected by factors such as those described in “ Risks Related to Our

Business and Strategy ”.

After the assessment we performed, we determined that, on an undiscounted basis, expected cash flows

exceeded the carrying amount of the asset group.

Potential events that could affect our assumptions

are affected by factors such as those described in “ Risks Related to Our Business and Strategy ”.

assessment we performed in 2023, we determined that, on an undiscounted basis, expected cash flows did not exceed the carrying

amount of the asset group, which had increased significantly as a result of the relief of obligations under the Release agreement.

As such, we determined that the carrying value was not recoverable as of December 29, 2023 and proceeded to determine whether the

carrying value exceeded the asset group’s fair value, indicating an impairment loss.

The valuation of the asset group required

that management use valuation techniques such as the income approach.

The income approach includes the use of a discounted cash flow

model, which includes discounted cash flow scenarios and requires significant estimates such as future expected revenue,

expenses and other costs, and discount rates.

The fair value calculated was in excess of the carrying value, indicating that

no impairment loss had been incurred.

For additional information on our impairment assessment, refer Note 12 , “Intangible

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Value – Warrant Liability

Warrants issued in conjunction with our private placement offerings were accounted for as liabilities in accordance with ASC 815-40

and are presented within warrant liabilities in the accompanying consolidated balance

Warrants issued in conjunction with our private placement offerings including warrants issued to induce conversion were accounted

for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities in the accompanying consolidated

balance sheet.

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

2 unchanged sentences

value measurement.

The Black-Scholes option-pricing

model considers several variables and assumptions in estimating the fair value of financial instruments, including the per-share

fair value of the underlying common stock, exercise price, expected term, risk-free interest rate, expected stock price volatility

over the expected term, and expected annual dividend yield.

Certain inputs utilized in our

Black-Scholes pricing model may fluctuate in future periods based upon factors which are outside of the Company’s control.

significant change in one or more of these inputs used in the calculation of the fair value may cause a significant change to the

fair value of our warrant liability which could also result in material non-cash gain or loss being reported in our consolidated

statement of operations.

The Black-Scholes option-pricing model considers several variables and assumptions in estimating the fair value

of financial instruments, including the per-share fair value of the underlying common stock, exercise price, expected term,

risk-free interest rate, expected stock price volatility over the expected term, and expected annual dividend yield.

Certain inputs

utilized in our Black-Scholes pricing model may fluctuate in future periods based upon factors which are outside of the

Company’s control.

Due to the relatively limited period during which our stock has been publicly traded, volatility is

based on a weighted average of our historical volatility and of a selected peer group of publicly traded companies within a similar

A significant change in one or more of these inputs used in the calculation of the fair value may cause a significant

change to the fair value of our warrant liability which could also result in material non-cash gain or loss being reported in our

consolidated statement of operations.

Contingencies and Litigation

In the ordinary course of our business, we are subject to various legal proceedings, claims and other regulatory

matters, the outcomes of which are subject to significant uncertainty.

In determining whether a loss should be accrued, we evaluate, among

other factors, the probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss.

As additional

information becomes available, we reassess the potential liability related to our pending litigation and other contingencies and revise

our estimates as applicable.

Revisions of our estimates of the potential liability could materially impact our results of operations.

Additionally, if the final outcome of such litigation and contingencies differs adversely from that currently expected, it would result

in a charge to operating results when determined.

Going Concern Estimates

We assume that the Company will continue as a

going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal

course of business.

This estimate requires us to consider various factors such as historical performance, expected performance, liquidity, debt

obligations, and potential sources of additional funding.

A different outcome in any of these assumptions could adversely affect our

financial condition and liquidity over the next twelve months.

issued accounting pronouncements

description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations

is disclosed in Note 2, Summary of Significant Accounting Policies—Recently Issued Accounting Pronouncements Not Yet Effective .

is disclosed in Note 2, Summary of Significant Accounting Policies—Recently Issued Accounting Pronouncements .

Sheet Arrangements

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

What changed 10-K

Item 7. Management’s Discussion and Analysis