What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-08-14 compared with 2024-05-15 · 458 added, 363 removed, 173 unchanged (83% of the section changed)

5 unchanged sentences

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”),

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

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

1 unchanged sentence

Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for 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.

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.

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

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

4 unchanged sentences

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

(“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,

Xepi® or other licensed products that we market in sufficient quantities and at acceptable quality and cost levels, and to fully

comply with current good manufacturing practice or other applicable manufacturing regulations;

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

Lamps, Xepi ® or other licensed products that we market in sufficient quantities and at acceptable quality and

cost levels, and to fully comply with current good manufacturing practice or other applicable manufacturing regulations;

ability of our Licensors to successfully defend or enforce patents related to our licensed products;

8 unchanged sentences

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

(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.

(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 Form 10-K.

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

web site at www.sec.gov.

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 law.

We urge investors

and security holders to read those documents free of charge at the SEC’s web site at www.sec.gov.

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 law.

About Reverse Stock Split

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.

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, Discovery, 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

principal licensed product is Ameluz ® , which is a prescription drug approved for use in combination with PDT (when used

together, “Ameluz ® PDT”) using the BF-RhodoLED ® and the RhodoLED ® XL lamps (the

“RhodoLED ® Lamps”).

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 Second Amended and Restated License and Supply Agreement, effective as of February 13, 2024 with the Ameluz

Licensor (the “Second A&R Ameluz LSA”).

June 1, 2024, we assumed control of all clinical trials relating to Ameluz ® in the United States, allowing for more effective

cost management and direct oversight of trial efficiency.

Our research and development (“R&D”) program is focused on

label expansion for Ameluz ® as well as supporting PDT growth by improving the capabilities of our 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.

Effective with the Second A&R Ameluz LSA, the

price we pay per unit, based on certain percentages of the anticipated net selling price, (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 Food and Drug Administration (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.

The reduced LSA Transfer Price will allow the Company to finance the R&D activities assumed as of June 1, 2024, and continue our

commercial growth trajectory.

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

4 unchanged sentences

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.

(“Xepi LSA”), with Ferrer that we assumed on March 25, 2019 through our acquisition of Cutanea Life Sciences, Inc.

enables us to market and sell this product in the United States.

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.

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

1 unchanged sentence

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 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;

our sales in the United States of Ameluz ® in combination with the RhodoLED ® Lamps for the treatment

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;

the potential for future approvals and label extensions of our portfolio products that are in the pipeline for the U.S.

4 unchanged sentences

and customer relationships.

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

BF-RhodoLED ® lamp series.

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

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

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

the RhodoLED ® Lamps.

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

from 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

3 unchanged sentences

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

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

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

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

3 unchanged sentences

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

5 unchanged sentences

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.

We expect to receive commercial product in the second or third quarter of

In addition, we launched the commercial distribution of the RhodoLED ® XL on June 10, 2024.

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.

declining sales) since the majority of our revenues are from

sales of Ameluz ® and we have 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 RhodoLED ®

of Our Results of Operations

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

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

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 ® .

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

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

Revenue from the sales of our RhodoLED ®

Lamps 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:

3 unchanged sentences

Party Revenues

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.

to June 1, 2024, the date on which we took over clinical trials, we generated 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.

In the future, we do not expect to receive related party revenue regarding lamps and

associated services for clinical trials.

of Revenues, Related Party

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

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

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

Transfer 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.

1 unchanged sentence

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

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

percent of the anticipated net price per unit for all revenues we generate between $30 million and $50 million from sales of the

products we license from the Ameluz Licensor;

percent of the anticipated net price per unit for all revenues we generate above $50 million from sales of the products we license

from the Ameluz Licensor.

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.

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

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

percent of the anticipated net selling price per unit for all revenues we generate between $30 million and $50 million from sales of

the products we license from the Ameluz Licensor;

percent of the anticipated net selling price per unit for all revenues we generate above $50 million from sales of the products we

license 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% of the

anticipated net selling price per unit 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% of the anticipated net selling price starting in 2032, subject to a minimum dollar amount per

of Revenues, Other

4 unchanged sentences

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

Other selling, general and administrative

expenses include marketing, trade, and other commercial costs necessary to support the commercial operation of our licensed products

and professional fees for legal, consulting and accounting services.

Selling, general and administrative expenses also include the amortization

of our intangible assets and our legal settlement expenses.

Other selling, general and administrative expenses

include marketing, trade, and other commercial costs necessary to support the commercial operation of our licensed products and professional

fees for legal, consulting and accounting services.

Selling, general and administrative expenses also include the amortization of our

intangible assets and our legal settlement expenses.

General and Administrative Expenses, Related Party

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 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.

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 Agreement”).

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.

We currently have statements of

work in place regarding, 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 June 30, 2024, we have eliminated the need for

information technology services from Biofrontera AG.

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.

June 1, 2024, we took control of all clinical trials for Ameluz ® in the Unites States, allowing for more effective cost management and

direct oversight of trial efficiency.

Our R&D expenses include costs directly attributable to the clinical development of Ameluz ® ,

including personnel-related expenses, the cost of services provided by outside contractors, including services related to the Company’s

clinical trials, facilities, depreciation, and other direct and allocated expenses.

Along with our Ameluz ® clinical trials, our R&D

program also aims to improve the capabilities of our 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.

All costs associated with research and development are expensed

in Fair Value of Contingent Consideration

14 unchanged sentences

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.

cost financing from Maruho under a share purchase agreement, offset by immaterial amounts of interest income earned on our financing

of customer purchases of BF-RhodoLED ® lamps.

Income (Expense), net

4 unchanged sentences

of Operations

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:

of the Three Months ended June 30, 2024 and 2023

following table summarizes our results of operations for the three months ended June 30, 2024 and 2023:

( in thousands)

Product revenues, net

Related party revenues

Revenues, net

party revenues

of revenues, related party

of revenues, other

general and administrative

general and administrative, related party

and development

in fair value of contingent consideration

Operating expenses:

from operations

in fair value of warrant liabilities

in fair value of investment, related party

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.

Cost of revenues, related party

Cost of revenues, other

Selling, general and administrative

Selling, general and administrative, related party

Research and development

Change in fair value of contingent consideration

Total operating expenses

Loss from operations

Change in fair value of warrant liabilities

Change in fair value of investment, related party

Interest expense, net

Other income (expense), net

Loss before income taxes

Income tax expenses

product revenue for the three months ended June 30, 2024 increased by $2.0 million, or 34.3% as compared to the three months ended

June 30, 2023.

This increase was driven by both a 5% higher unit sale price and a higher volume of Ameluz ® revenue in

the second quarter of 2024.

The higher sales volume was primarily caused by (i) the impact of the Change Healthcare cybersecurity

attack that occurred in the first quarter of 2024 causing reimbursement delays for our customers, which in turn shifted sales from

the first quarter of 2024 to the second quarter of 2024;

and (ii) more promotions and corresponding discounts offered in the second quarter

of 2024, compared to the same period in 2023.

of Revenues, Related Party

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.

of revenues, related party for the three months ended June 30, 2024 increased by $1.3 million, or 47.6% as compared to the three months

ended June 30, 2023.

This was driven by the increase in Ameluz ® product revenue.

Cost of revenues, related party, is directly correlated

to the selling price of Ameluz ® under the Ameluz LSA.

There has been no impact from the change in the transfer pricing under the Second A&R Ameluz LSA, as we have yet

to purchase inventory under the new terms.

General and Administrative Expenses

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.

general and administrative expenses for the three months ended June 30, 2024 decreased by $3.5 million, or 30.9% as compared to the three

months ended June 30, 2023.

The decrease was primarily driven by a $1.5 million

decrease in legal costs, due to lower legal activity

level, especially since the settlement with Biofrontera AG in April 2023, as well as a decrease of non-personnel sales and marketing

expenses of $0.8 million,

and a decrease in general business consulting expense of $0.4 million.

The decrease was further attributable to a $0.8 million decrease

in personnel costs due to change in headcount and reduced severance, which was offset by a $0.2 million increase in accrued bonus compared

to the three months ended June 30, 2023 due to the use of a higher performance factor for the calculation.

and Development Expenses

R&D expenses for the three months ended

June 30, 2024 increased by $0.6 million as compared to the three months ended June 30, 2023.

The increase was attributable to our

assumption of all clinical trial activities for Ameluz ® in the United States effective June 1, 2024, allowing for

more effective cost management and direct oversight of trial efficiency.

This increase to R&D expenses should be offset by a reduction in

the Transfer Price of Ameluz ® from 50% to 25% for all future purchases made in 2024 and 2025.

No such inventory

purchases were made as of June 30, 2024.

The following table summarizes our research and development expenses:

Three Months Ended June 30,

Superficial basal cell carcinoma

Actinic keratosis

Moderate to severe acne

Personnel-related costs

Other research and development

in Fair Value of Warrant Liabilities

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.

change in fair value of warrant liabilities was $5.4 million for the three months ended June 30, 2024, as compared to $0.4 million

for the three months ended June 30, 2023.

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

increased population of outstanding warrant liabilities coupled with a drop in the underlying value of the Company’s Common

Stock during the second quarter of 2024 as compared to the second quarter of 2023.

The change was primarily due to the drop in fair

value of $4.3 million related to warrants for preferred stock acquired in 2024 and an additional $1.0 million drop in fair value for

warrants acquired in November of 2023.

in Fair Value of Investment, Related Party

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.

of December 31, 2023, the Company had transferred substantially all of its investment in Biofrontera AG to Maruho in exchange for the

release of certain obligations, in accordance with the Settlement Agreement and Mutual Release (the “Release”), dated December

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

related change in fair value.

increase of interest expense of $0.5 million was driven by the interest and debt discount recognized on the loans issued on December 21,

2023, for an aggregate principal balance of $4.0 million.

The loans required the Company to make weekly payments of principal and interest

in the amount of approximately $0.2 million 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.

of the Six Months ended June 30, 2024 and 2023

following table summarizes our results of operations for the six months ended June 30, 2024 and 2023:

( in thousands)

Product revenues, net

Related party revenues

Revenues, net

Operating expenses:

Cost of revenues, related party

Cost of revenues, other

Selling, general and administrative

Selling, general and administrative, related party

Research and development

Change in fair value of contingent consideration

Total operating expenses

Loss from operations

Change in fair value of warrant liabilities

Change in fair value of investment, related party

Loss on debt extinguishment

Interest expense, net

Other income (expense), net

Loss before income taxes

Income tax expenses

product revenue for the six months ended June 30, 2024 increased by $1.2 million, or 8.2% as compared to the six months ended June

This increase was driven by both a higher unit sale price and higher sales volume of Ameluz ® revenue in the first half of 2024.

The higher sales volume of Ameluz ® was due to more promotions and corresponding discounts that were offered to customers, which extended

into April 2024.

of Revenues, Related Party

of revenues, related party for the six months ended June 30, 2024 increased by $0.7 million, or 9.8% as compared to the six months ended

June 30, 2023.

This was driven by the increase in Ameluz ® product revenue.

Cost of revenues, related party, is directly correlated to

the selling price of Ameluz ® under the Ameluz ® LSA.

General and Administrative Expenses

general and administrative expenses for the six months ended June 30, 2024 decreased by $4.1 million, or 19.2% as compared to the six

months ended June 30, 2023.

The decrease was primarily driven by a $2.5 million decrease in non-recurring legal costs due to the settlement

with Biofrontera AG in April 2023, a decrease of non-personnel sales and marketing expenses of $1.1 million, and a net decrease of $0.3

million in personnel expenses.

and Development Expenses

expenses for the six months ended June 30, 2024 increased by $0.6 million as compared to the six months ended June 30, 2023.

was attributable to our assumption of all clinical trial activities for Ameluz ® in the United States effective June 1,

The following table summarizes our research and development expenses:

Six Months Ended June 30,

Superficial basal cell carcinoma

Actinic keratosis

Moderate to severe acne

Personnel-related costs

Other research and development

in Fair Value of Warrant Liabilities

change in fair value of warrant liabilities was $2.0 million for six months ended June 30, 2024, as compared to $1.4 million for the

six months ended June 30, 2023.

The change in fair value of warrant liabilities was driven primarily by a decrease in the underlying

value of the Company’s Common Stock paired with a higher population of warrants outstanding for the six months ended

June 30, 2024 as compared to the six months ended June 30, 2023.

in Fair Value of Investment, Related Party

As of December 31, 2023, the Company had transferred substantially all of

its investment in Biofrontera AG to Maruho in exchange for the release of certain obligations, in accordance with the Release.

during the second 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.

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

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

increase of interest expense of $1.9 million was driven by the interest and debt discount recognized on the loans issued on December 21,

2023, for an aggregate principal balance of $4.0 million.

The loans required the Company to make weekly payments of principal and interest

in the amount of approximately $0.2 million 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.

Loss to Adjusted EBITDA Reconciliation for the Three and Six Months Ended June 30, 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.

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

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.

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.

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

Effective as of January 4, 2024, we voluntarily terminated the Loan Agreement and recognized a $0.3 million

loss on debt extinguishment upon the early termination of the loan.

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 non-cash.

in fair value of contingent consideration:

7 unchanged sentences

under the Release.

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

As such, our results of operations for the three and six months ended June 30, 2024 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 and registered public

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

offerings are accounted for as liabilities in accordance with ASC 815-40.

The warrant liabilities are measured at fair value at inception

5 unchanged sentences

— Equity Securities .

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

is excluded as this is non-cash.

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

settlement expenses :

3 unchanged sentences

to better understand our financial results.

Stock-Based Compensation :

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.

Due to 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:

9 unchanged sentences

our ongoing operating performance.

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

in fair value of investment, related party

settlement expenses

based compensation

issuance costs

EBITDA margin

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.

below table presents a reconciliation from net loss to Adjusted EBITDA for the three and six months ended June 30, 2024 and 2023:

Three Months Ended

Six Months Ended

Interest expense, net

Income tax expenses

Depreciation and amortization

Loss on debt extinguishment

Change in fair value of contingent consideration

Change in fair value of warrant liabilities

Change in fair value of investment, related party

Legal settlement expenses

Stock based compensation

Expensed issuance costs

Adjusted EBITDA

Adjusted EBITDA margin

EBITDA increased from ($7.9) million for the three months ended June 30, 2023 to ($4.7) million for the three months ended June 30, 2024.

The increase was driven by an increase in revenue of $2.0 million and a decrease of $3.0 million in various sales, general and administrative

expenses, partially offset by an increase in our cost of revenues of $1.5 million.

EBITDA increased from ($11.9) million during the six months ended June 30, 2023 to ($9.3) million for the six months ended June 30, 2024.

The increase in Adjusted EBITDA was primarily driven by an increase in revenue of $1.2 million and a decrease in selling, general and

administrative expenses of $3.0 million, due primarily to decreased level of marketing activities and savings in legal expenses.

is partially offset by an increase in our cost of revenues of $1.0 million and an increase in R&D expenses of $0.6 million.

and Capital Resources

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 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.

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

We incurred net cash outflows from operations of $8.0 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

and $14.0 million for the six months ended June 30, 2024 and 2023, respectively.

The Company had an accumulated deficit as of June

30, 2024 of $110.3 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.

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

and cash flows from financing transactions.

As of June 30, 2024, we had cash and cash equivalents of $4.4 million, compared to $1.3

million as of December 31, 2023.

These conditions and current cash flow projections raise substantial doubt about our ability to

continue as a going concern for at least twelve months from the issuance date of this report .

However, management believes

that its plan alleviates the substantial doubt about the Company’s ability to continue as a going concern for at least one

year from the date these financial statements are issued.

Management’s plans include adhering to the 2024 budget approved by the Board

of Directors, 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 2023.

In addition, the terms of the

Second A&R Ameluz LSA are expected to reduce our cost of inventory in the future (See Note 12 Related Party Transactions ), with gross margins of its primary product, Ameluz®, anticipated to be approximately 75% as opposed to the current 50% beginning

with inventory purchases after the execution date.

This should reduce our cash needs for inventory which will be partially offset by increased

R&D costs, resulting in expected net savings of $2.7 million through August 2025.

The Company also has discretionary marketing,

personnel, software, and other expenses budgeted in fiscal year 2024, which the Company has the ability and intent, commencing in

January 2025 to reduce such spending and cash outflows by $5.8 million through August 31, 2025 without materially impacting planned

Based on the plans described

above, management believes that the Company will have sufficient liquidity

to meet its funding requirements for at least one year from the date these financial statements are issued.

this will depend on several factors, including executing on its sales plan and planned cost reductions within the time period needed, 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 statements.

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:

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.

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.

Six Months Ended June 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 six months ended June 30, 2024, operating activities used $8.0 million of cash, primarily resulting from our loss from operations

of $10.7 million, adjusted for non-cash expense of stock-based compensation of $0.4 million, non-cash interest expense of $0.2 million,

loss on debt extinguishment of $0.3 million, depreciation and amortization in the aggregate of $0.6 million, and net cash used by changes

in our operating assets and liabilities of $3.0 million, offset by the change in fair value of warrant liabilities of $2.0 million,.

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

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

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

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

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

the six months ended June 30, 2024, net cash used in investing activities consisted of $0.1 million of capitalized software

and computer purchases, which were partially offset by the proceeds from the sales of equity investments.

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

partially offset by the purchase of machinery & computer equipment.

the six months ended June 30, 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, and $7.4 million from the exercise of warrants for preferred stock, offset

by repayments of $3.7 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 11 Debt.

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

Policies and Significant Judgments and Estimates

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.

The preparation of the financial statements in accordance with U.S.

GAAP requires the use of estimates and assumptions by management

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

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

The main areas in which assumptions, estimates and the

exercising of a degree of judgment are appropriate relate to 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

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.

The preparation

of the financial statements in accordance with U.S.

GAAP requires the use of estimates and assumptions by management that affect the

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

expenses arising during the reporting period.

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

are appropriate relate to 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 values.

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 in our Form

Financial Statements and Supplementary Data in our Form 10-K.

Accounting Estimates

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

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.

Management’s 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 six months ended June 30, 2024, except for the following:

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 would 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

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 have caused a significant change to the fair value of our warrant liability which could

also have resulted in material non-cash gain or loss being reported in our consolidated statement of operations.

Sheet Arrangements

13 unchanged sentences

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