What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-15 compared with 2023-11-09 · 380 added, 381 removed, 156 unchanged (83% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

discussion and analysis (“MD&A”) provides supplemental information, which sets forth the major factors that have affected

our financial condition and results of operations and should be read in conjunction with the Condensed Consolidated Financial Statements

and related notes.

The following information should provide a better understanding of the major factors and trends that affect our earnings

performance and financial condition, and how our performance during the first quarter of 2024 compares with prior-year periods.

this section, Biofrontera Inc., including its wholly owned subsidiary, Bio-FRI GmbH (“Bio-FRI” or “subsidiary”),

is referred to as “Company,” “we,” “us,” or “our.”

Forward-Looking

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

Certain statements

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

Such statements include estimates of our expenses, future revenue,

capital requirements, our need for additional financing, statements regarding the efficacy and intended use of our technologies under

development, the timelines and strategy for bringing licensed products to market, the timeline for regulatory review and approval of

our licensed products, and other statements that are not historical facts, including statements which may be preceded by the words “intends,”

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

“predicts,” “estimates,” “aims,” “believes,” “hopes,” “potential”

or similar words.

Forward-looking statements are not guaranties of future performance, are based on certain assumptions and are subject

to various known and unknown risks and uncertainties, many of which are beyond our control.

Actual results may differ materially from

the expectations contained in the forward-looking statements.

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

Such statements include estimates of our expenses,

future revenue, capital requirements, our need for additional financing, statements regarding the efficacy and intended use of our

technologies under development, the timelines and strategy for bringing licensed products to market, the timeline for regulatory

review and approval of our licensed products, and other statements that are not historical facts.

The words “intends,”

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

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

“hopes,” “potential ”, “target”, “goal”, “assume”,

“would”, “could” or similar words

are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

You should read this Form 10-Q and the documents that we have filed as exhibits completely and with the understanding that our

actual future results may be materially different from what we expect.

While we have based these forward-looking statements on our

current expectations and projections about future events, we may not actually achieve the plans, intentions or expectations

disclosed in or implied by our forward-looking statements, and you should not place undue reliance on our forward-looking

These forward-looking statements are subject to risks, uncertainties and assumptions about us and accordingly, actual

results or events could differ materially from the plans, intentions and expectations disclosed in or implied by the forward-looking

statements we make.

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

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success of our principal licensed product Ameluz ® ;

ability of Biofrontera Pharma, Biofrontera Bioscience and Ferrer Internacional S.A.

referred to collectively as our (“licensors”) to establish and maintain relationships with contract manufacturers that

are able to supply us with enough of the licensed products to meet our demand;

ability of Biofrontera Pharma GmbH (“Biofrontera Pharma”), Biofrontera Bioscience

GmbH (“Biofrontera Bioscience”) and Ferrer Internacional S.A.

(“Ferrer”) , referred to collectively as

our (“Licensors”) to establish and maintain relationships with contract manufacturers that are able to supply us with

enough of the licensed products to meet our demand;

ability of our Licensors or our Licensors’ manufacturing partners, as applicable, to supply Ameluz®, BF-RhodoLED® lamps,

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Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023

Item 1A of Part II of this Quarterly Report on Form 10-Q and any other filings with the SEC.

(as filed with the Securities and Exchange

Commission (“SEC”) on March 15, 2024, the “Form 10-K”) , 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

statements in this Quarterly Report on Form 10-Q, is set forth in our filings with the SEC, including our Annual Report on Form 10-K

for the fiscal year ended December 31, 2022.

statements in this Quarterly Report on Form 10-Q, is set forth in our filings with the SEC, including our Form 10-K.

We urge investors and security holders to read those documents free of charge at the SEC’s

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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

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

Company’s licensed products are used for the treatment of actinic keratoses, which are pre-cancerous skin lesions as well as

impetigo, a bacterial skin infection.

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

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

Our research and development

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

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

easier product demonstrations and evaluations.

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.

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.

information included in this section 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 discussed, unless otherwise stated.

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

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

The Company’s licensed products are

used for the treatment of actinic keratoses (“AKs”), which are pre-cancerous skin lesions, as well as impetigo, a bacterial

skin infection.

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

Biofrontera Pharma and Biofrontera Bioscience (together, the “Ameluz Licensor”), both of which are related parties as they

are wholly owned subsidiaries of Biofrontera AG.

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

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 indication in the U.S.

under an exclusive license and supply agreement, (the “Ameluz LSA”) with the Ameluz Licensor.

May 2023, we began research and development (“R&D”) activities to support PDT growth and will continue to opportunistically

invest in these activities going forward.

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.

February 19, 2024, we entered into the Second A&R Ameluz LSA with the Ameluz Licensor under which, with immediate effect, the

Transfer Price of Ameluz ® was reduced from 50% to 25% for all purchases through 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 AK 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.

addition, effective June 1, 2024, under the Second A&R Ameluz LSA, 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 trajectory.

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

quinolone that inhibits bacterial growth.

Currently, no antibiotic resistance against Xepi ® is known and it has been specifically

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

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 that we assumed on March 25, 2019 through

our acquisition of Cutanea Life Sciences, Inc.

(“Cutanea”) enables us to market and sell this product in the United States.

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

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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 minimally to moderately thick AKs 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;

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market through

the LSAs with our Licensors;

the license and supply agreements with our Licensors;

opportunistically

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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.

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

GAAP measure as defined below).

non-U.S GAAP measure as defined below).

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

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Our long-term financial objectives include consistent revenue growth and expanding operating margins.

we are focused on licensed product sales expansion to drive revenue growth and improve operating efficiencies, including effective resource

utilization, information technology leverage, and overhead cost management.

Accordingly, we are focused on licensed product sales expansion to drive revenue growth and improve operating efficiencies,

including effective resource utilization, information technology leverage, and overhead cost management.

factors affecting our performance

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factors impacting our results of operations.

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

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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 6 to 12 months.

Despite these delays, our total revenues will not be significantly impacted since the majority of our revenues

are from sales of Ameluz ® .

We continue to monitor the impacts of the supply chain on our business and are focused on ensuring

the stability of the supply chains for Ameluz ® and BF-RhodoLED ® .

As previously disclosed since 2021, the Xepi product has experienced manufacturing delays at Ferrer’s

third-party manufacturer, which have not yet been resolved.

We expect to receive commercial product in the fourth quarter of 2024.

addition, we are expecting to launch the RhodoLED ® XL in the second quarter of 2024 and have begun production activities

for that product.

However, we have historically experienced 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 expected vs.

sales) since the majority of our revenues are from sales of Ameluz ® and we have BF-RhodoLED ® 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 ® .

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 license and supply agreements with our Licensors .

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 RhodoLED ®

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

lamps and associated services for the clinical trials performed by Biofrontera Bioscience.

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

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

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

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

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

price we paid for inventory purchased through February 12, 2024, was based on the Ameluz LSA as amended on October 8, 2021, under which

the price paid per unit was based upon our sales history.

The purchase price we paid the Ameluz Licensor for Ameluz ® was

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.

February 12, 2024, the Second A&R Ameluz LSA, among other things, was amended to 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.

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

general and administrative expenses consist principally of costs associated with our sales force, commercial support personnel, personnel

in executive and other administrative functions, as well as medical affairs professionals.

in executive and other administrative functions, and medical affairs professionals.

Other selling, general and administrative

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Selling, general and administrative expenses also include the amortization

of our intangible asset and our legal settlement expenses.

of our intangible assets and our legal settlement expenses.

General and Administrative Expenses, Related Party

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

AG, for 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.

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 entered into on December 2021 (the “2021 Services

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 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.

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 (i) if they will be needed, and (ii) whether they can or should be obtained from other third-party providers.

As of March 31,

2024, we have migrated most of our significant information technology and investor relation 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.

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

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

date of March 25, 2019 and is re-measured at each reporting date, with changes in fair value presented in the consolidated statement

of operations, until the contingency is resolved.

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

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.

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,

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 along with gains and losses

on securities we sold during the period .

For the investments held in foreign currencies, the change

in fair value attributable to changes in foreign exchange rates is also included in gains

and losses in the consolidated statement of operations.

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

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

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

to our Loan and Security Agreement with MidCap Business Credit LLC, offset by interest income of

6% per annum for each day that any reimbursement is past due related to the Amended Settlement Allocation Agreement with Biofrontera

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

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.

expense, net, primarily consists of interest on our debt instruments, as well as amortization of the contract asset related to the start-up

cost financing from Maruho under a share purchase a greement, offset

by immaterial amounts of interest income earned on our financing of customer purchases of BF-RhodoLED ® lamps.

Income (Expense), net

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

income (expense), net primarily includes (i) gain (loss) on 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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of Operations

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)

Product revenues, net

Related party revenues

of the Three Months ended March 31, 2024 and 2023

following table summarizes our results of operations for the three months ended March 31, 2024 and 2023:

revenues, net

Operating expenses:

Cost of revenues, related party

Cost of revenues, other

Selling, general and administrative

Selling, general and administrative, related party

Research and development

Change in fair value of contingent consideration

Total operating expenses

Loss from operations

Change in fair value of warrant liabilities

Warrant inducement expense

Change in fair value of investment, related party

Interest expense, net

Other income (expense), net

Loss before income taxes

Income tax expenses

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.

party revenues

of revenues, related party

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 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

of revenues, other

general and administrative

general and administrative, related party

and development

in fair value of contingent consideration

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.

operating expenses

from operations

in fair value of warrant liabilities

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

change in fair value of investment, related party was a decrease of $2.2 million, driven by changes in the quoted

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

of the 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)

Product revenues, net

Related party revenues

Revenues, net

Operating expenses:

Cost of revenues, related party

Cost of revenues, other

Selling, general and administrative

Selling, general and administrative, related party

Research and Development

Change in fair value of contingent consideration

Total operating expenses

Loss from operations

Change in fair value of warrant liabilities

Warrant inducement expense

Change in fair value of investment, related party

Interest expense, net

Other income, net

Income (loss) before income taxes

Income tax expenses

Net Income (loss)

product revenue 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

on debt extinguishment

income (expense), net

before income taxes

product revenue for the three months ended March 31, 2024 decreased by $0.8 million, or 9.3% as compared to the three months ended

March 31, 2023.

This decrease was driven by a relatively lower volume of Ameluz revenue in the first quarter of 2024.

caused in part by the impact of the Change Healthcare cybersecurity attack that occurred in the first quarter of 2024, which caused

reimbursement delays for our customers which in turn delayed or reduced

orders in the short term.

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.

of revenues, related party for the three months ended March 31, 2024 decreased by $0.6 million, or 13.2% as compared to the three months

ended March 31, 2023.

This was driven by the decrease in Ameluz product revenue.

Cost of revenues, related party, is directly correlated

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General and Administrative Expenses

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 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 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.

general and administrative expenses for the three months ended March 31, 2024 decreased by $0.6 million, or 5.6% as compared to the

three months ended March 31, 2023.

The decrease was primarily driven by a $1.1 million decrease in non-recurring legal costs

due to the settlement with Biofrontera AG in April 2023, and a decrease of non-personnel sales and marketing expenses of $0.3 million.

The decrease was offset by a $0.4 million increase in

accounting and general business consulting expenses, a $0.3 million increase in personnel costs, and another $0.3 million increase in issuance costs.

in Fair Value of Warrant Liabilities

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.

change in fair value of warrant liabilities was $(3.4) million for three months ended March 31, 2024, as compared to $1.0 million

for the three months ended March 31, 2023.

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

the underlying value of the Company’s Common Stock.

in Fair Value of Investment, Related Party

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

non-operating items from our consolidated statements of operations as well as certain other items considered outside the normal course

of our operations specifically described below.

accordance with the Settlement Agreement and Mutual Release (the “Release”), dated December 27, 2023, by and between

Maruho and the Company, the Company transferred substantially all of its investment in Biofrontera AG to Maruho in exchange for the release of

certain obligations.

As a result, during the first quarter of 2024, the net balance of our investment in Biofrontera AG was minimal

as was the related change in fair value.

on Debt Extinguishment

as of January 4, 2024, we voluntarily terminated the Loan and Security Agreement (the “Loan Agreement”) with Midcap Business Credit

The Company recognized a $0.3 million loss on debt

extinguishment upon the early termination of the Loan Agreement related to prepayment fees and the write-off of deferred financing costs.

increase of interest expense of $1.4 million is driven by the interest and debt discount recognized on the loans issued on December

21, 2023, with two different lenders, for an aggregate principal balance of $4.0 million.

Each of the loans requires the Company to make weekly payments of principal and interest in the amount of approximately

$102,857 through July 5, 2024, the maturity date.

Interest expense is recognized using the

effective interest method, such that a constant effective interest rate is applied to the carrying amount of the debt at the

beginning of each period until maturity.

Income (Loss) to Adjusted EBITDA Reconciliation for the Three Months Ended March 31, 2024 and 2023

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

other non-operating items from our statements of operations as well as certain other items considered outside the normal course of

our operations specifically described below.

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

generally accepted

accounting principles (“U.S.

Our definition of adjusted EBITDA may vary from the use of similarly titled measures

by others in our industry due to the potential inconsistencies in the method of calculation and differences due to items subject to interpretation.

Adjusted EBITDA should not be considered as an alternative to net income or loss, operating income/(loss), cash flows from operating

activities or any other performance measures derived in accordance with U.S.

Our definition

of adjusted EBITDA may vary from the use of similarly-titled measures by others in our industry due to the potential inconsistencies

in the method of calculation and differences due to items subject to interpretation.

Adjusted EBITDA should not be considered as an

alternative to net income or loss, operating income/(loss), cash flows from operating activities or any other performance measures

derived in accordance with U.S.

GAAP as measures of operating performance or liquidity.

Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our

results as reported under U.S.

Adjusted EBITDA has limitations as an

analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under

on debt extinguishment:

Effective as of January 4, 2024, we voluntarily terminated the Loan Agreement .

The Company recognized

a $0.3 million loss on debt extinguishment upon the early termination of the Loan Agreement.

We exclude the impact of this loss as it

is attributed to the prepayment fee, which is considered non-recurring, and the write-off of deferred financing costs, which is considered

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 not currently payable and is a non-cash adjustment.

Pursuant to a share purchase agreement with Maruho, the profits from the sale of Cutanea

products 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 historical impact of the change

in fair value of contingent consideration as this is non-cash.

We were relieved of our obligations relating to the contingent consideration

under the Release.

As such, our Q1 2024 results of operations were not impacted by the change in fair value.

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 statements of operations.

We 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 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.

The warrants issued in conjunction with our private placement offerings and registered public

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, related party:

The Company accounts for its investment, related party in accordance with ASC 321, Investments

— Equity Securities (“ASC 321”).

— Equity Securities .

Equity securities, which are comprised of investments in common stock, are initially

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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.

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 gain as this is non-recurring and the unrealized change in fair value of investments

is excluded as this is non-cash.

settlement expenses :

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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.

Stock-Based Compensation :

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

the subjective assumptions and the 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:

To measure operating performance, we exclude the portion of issuance costs allocated to our warrant liabilities.

We do not expect to incur this type of expense on a recurring basis and believe the exclusion of these costs allows management and the

viewers of the financial statements to better understand our financial results.

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

5 unchanged sentences

our ongoing operating performance.

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

income (loss)

below table presents a reconciliation from net loss to Adjusted EBITDA for the three months ended March 31, 2024 and 2023:

Months Ended March 31,

and amortization

on debt extinguishment

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

based compensation

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.

EBITDA decreased from ($4.1) million for the three months ended March 31, 2023 to ($4.6) million for the three months ended March

The decrease was driven by a decrease in revenue of $0.8 million and an increase of $0.2 million in various sales, general

and administrative expenses, partially offset by a decrease in our cost of revenues of $0.5 million.

and Capital Resources

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

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

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 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.

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:

costs of our commercialization activities for Ameluz ® ;

extent to which we acquire or invest in licensed products, businesses and technologies;

extent to which we choose to establish collaboration, co-promotion, distribution or other similar agreements for our licensed products;

cost to fulfill our contractual obligations for various operating leases on vehicles and office space;

ability to liquidate our investment in equity securities on a timely basis;

requirement to pay back $7.3 million of start-up cost financing to Maruho and make any contingent profit- sharing payments to Maruho

in connection with the Cutanea acquisition.

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

appropriate adjustments to our operating plan.

We incurred net cash outflows from operations of $3.3 million

and $3.7 million for the three months ended March 31, 2024 and 2023, respectively.

The Company had an accumulated deficit as of March

31, 2024 of $110.1 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 three months ended March 31, 2024, we received net proceeds of $7.3 million from the

issuance of preferred stock and warrants, net of issuance costs (See Note 13.

Mezzanine Equity and Stockholders’ Equity in our

Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q (“Note 13”)) .

March 31, 2024, we had cash and cash equivalents of $3.8 million, compared to $1.3 million as of December 31, 2023.

These 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.

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 Form 10-Q 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 statement 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.

an effort to alleviate these conditions, management’s plans include adhering to the 2024 budget approved by the Board of Directors

(“Board”), which includes significant sales and marketing, medical affairs, and dermatology community outreach efforts

as we seek to expand the commercialization of Ameluz® in the United States while decreasing discretionary expenses by approximately

$5.5 million when compared to the year ended 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.

February 19, 2024, the Company entered into the Second Amended and Restated License and Supply Agreement (“Second A&R Ameluz

LSA”) with the Ameluz Licensor, effective as of February 13, 2024.

The terms of the Second A&R Ameluz LSA is expected to 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 increased R&D costs, resulting in expected net savings of $1.5 million through May 2025 and

continuing in subsequent years.

addition, on February 19, 2024, the Company entered into securities purchase agreements (collectively, the “Preferred Purchase

Agreement”) with healthcare-focused institutional investors resulting in net proceeds of $7.3 million, which the Company received

on February 22, 2024.

Under the Preferred Purchase 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.

As of May 15, 2024, all five investors have exercised the B-3 Preferred

Convertible Share Warrants and the Company received net proceeds of $7.4 million.

See Note 13 .

Mezzanine Equity and Stockholder’s

Equity for more details regarding the Preferred Purchase Agreement .

on management’s plans described above, combined with the impact of the Second A&R Ameluz LSA and Preferred Purchase

Agreement, the Company’s management believes that the Company will have sufficient liquidity and probable financing to meet

its funding requirements for at least one year from the date the financial statements in this Form 10-Q are issued.

However, this

will depend on several factors, including executing on its sales plan within the time period needed and controlling our operating

costs, as well as 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, as well as its business, financial condition, results of operations, growth prospects and financial

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:

Nine Months Ended September 30,

(in thousands)

Net cash used in operating activities

Net cash provided by (used) in investing activities

Net cash provided by financing activities

Net increase (decrease) in cash and restricted cash

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 $0.8 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

Months Ended March 31,

cash used in operating activities

cash provided by (used) in investing activities

cash provided by financing activities

increase (decrease) in cash and restricted cash

the three months ended March 31, 2024, operating activities used $3.3 million of cash, primarily resulting from our loss from

operations of $10.4 million, adjusted for the change in fair value of warrant liabilities of $3.4 million, non-cash expense of

stock-based compensation of $0.2 million, non-cash interest expense of $0.2 million, loss on debt extinguishment of $0.3 million,

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

of $2.6 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.

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

operations of $7.5 million, adjusted for change in fair value of investment, related party of $2.9 million, non-cash expense of

stock-based compensation of $0.4 million, non-cash interest expense of $0.1 million, depreciation and amortization in the

aggregate of $0.3 million, and net cash used by changes in our operating assets and liabilities of $1.4 million, offset by change in

fair value of warrants of $1.0 million and change in contingent consideration of $0.2 million.

the three months ended March 31, 2024, net cash provided by investing activities consisted of $0.1 million of proceeds from the sales

of equity investments, which was offset by the purchase of capitalized software.

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

of machinery & computer equipment.

the three months ended March 31, 2024, net cash from financing activities consisted of proceeds of $7.7 million, net of capitalized issuance

costs, from the issuance of preferred stock and warrants, offset by repayments of $1.5 million on our short-term loan, repayments of

$0.2 million on our line of credit and prepayment fees of $0.2 million to extinguish our line of credit.

See Note 13 .

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

Policies and Significant Judgments and Estimates

management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial

management’s discussion and analysis of our financial condition and results of operations are based on our financial

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

1 unchanged sentence

GAAP requires the use of estimates and assumptions by management

that affect the value of assets and liabilities, as well as contingent assets and liabilities, as reported on the balance sheet date,

and revenues and expenses arising during the reporting period.

The main areas in which assumptions, estimates and the exercising of a

degree of judgment are appropriate relate to fair value measurements of contingent consideration, warrant liabilities, and stock compensation.

Estimates are based on historical experience and other assumptions that are considered appropriate in the circumstances.

They are continuously

reviewed but may vary from the actual values.

that affect the value of assets and liabilities, as well as contingent assets and liabilities, as reported on the balance sheet

date, and revenues and expenses arising during the reporting period.

The main areas in which assumptions, estimates and the

exercising of a degree of judgment are appropriate relate to contingent consideration, fair value measurements, valuation of

intangible assets and impairment assessment, and stock compensation.

Estimates are based on historical experience and other

assumptions that are considered appropriate in the circumstances.

They are continuously reviewed but may vary from the actual

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

our 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.

our consolidated financial statements included in Item 8.

Financial Statements and Supplementary Data in our Form

Accounting Estimates

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.

summary of our critical accounting estimates is discussed in the section entitled “Critical Accounting Estimates” in Item 7.

Discussion and Analysis of Financial Condition and Results of Operations

in our Form 10-K.

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

2024 , except for the following:

The warrants for convertible preferred stock issued

in conjunction with our private placement offering conducted pursuant to the securities purchase agreements entered into on

February 19, 2024 with institutional investors 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 presented within the consolidated statement of operations.

Due to the uncertainty

of the how the convertible preferred warrants will ultimately settle, the Company used a probability-weighted approach along with a Black-Scholes-Merton

(“BSM”) model equation to estimate the fair value of the preferred warrants under different scenarios.

While we believe these

assumptions were reasonable, the manner or timeframe in which the warrants ultimately settle may differ.

The BSM model also 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 BSM pricing model may fluctuate in future periods based upon factors which are

outside of the Company’s control.

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.

Sheet Arrangements

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis