Biofrontera Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Management’s 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 three quarters of 2025 compare with prior-year periods. Throughout this section, Biofrontera Inc., including its wholly owned subsidiary, Biofrontera Discovery GmbH (“Discovery” or “subsidiary”), is referred to as “Company,” “we,” “us,” or “our.” References to “ Licensors ” refer collectively to Biofrontera Pharma, Biofrontera Bioscience and Ferrer. References to “ Ameluz Licensor” refer collectively to Biofrontera Pharma and Biofrontera Bioscience. Forward-Looking Statements The 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. 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 statements. 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. Factors that may cause such differences include, but are not limited to: ● our ability to achieve and sustain profitability; ● our ability to compete effectively in selling our licensed products; ● our ability to expand, manage and maintain our direct sales and marketing organizations, including our ability to obtain the financing to develop our marketing strategy, if needed; ● changes in our relationship with our Licensors; ● our Licensors’ ability to manufacture our licensed products; ● our Licensors’ ability to adequately protect their intellectual property and operate their business without infringing upon the intellectual property rights of others; ● our estimates regarding anticipated operating losses, future revenues, capital requirements and our needs for additional financing; ● market risks regarding consolidation and group purchasing organizations in the healthcare industry; ● the willingness of healthcare providers to purchase our licensed products if coverage, reimbursement and pricing from third-party payors for our products, or procedures using our products significantly declines; ● our ability to market, commercialize, achieve market acceptance for and sell our licensed products; ● any product quality issues, product defects, or product liability claims; ● our ability to comply with Nasdaq continued listing standards (discussed in more detail below); ● our ability to comply with the requirements of being a public company; ● the progress, timing and completion of research, development and preclinical studies and clinical trials for our licensed products; ● our Licensors’ ability to obtain and maintain the regulatory approvals necessary for the marketing of our licensed products in the United States, and; ● such other risks identified in Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 (as filed with the Securities and Exchange Commission (“SEC”) on March 20, 2025, the “Form 10-K”), Item 1A of Part II of this Quarterly Report on Form 10-Q and any other filings with the SEC. 22 More 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. Overview Biofrontera Inc. (the “Company” or “Biofrontera”) is a United States based biopharmaceutical company commercializing a portfolio of pharmaceutical products for the treatment of dermatological conditions with a focus on photodynamic therapy (“PDT”). The Company’s primary licensed products, which include Ameluz ® as well as the BF-RhodoLED ® and RhodoLED ® XL lamps (the “RhodoLED ® Lamps”), are used for the treatment of actinic keratoses, which are pre-cancerous skin lesions. With our national commercial team, we generate revenue by selling our licensed products directly to dermatology offices and groups. Prior to the closing of the Strategic Transaction on October 20, 2025, we were selling Ameluz ® in the United States 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”). The Second A&R Ameluz LSA reduced the price we pay per unit, based on certain percentages of the anticipated net selling price (“Transfer Price”) of Ameluz ® from 50% to 25% which covers the cost of goods, royalties on sales, and services including all regulatory efforts, agency fees, pharmacovigilance and patent administration for all purchases in 2024 and 2025. Effective 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. The reduced Transfer Price is expected to allow the Company to finance such R&D activities and continue our commercial growth trajectory. Recent Key Developments Strategic Transaction with Biofrontera AG On June 30, 2025, the Company signed a binding agreement (the “Term Sheet”) with its former parent company Biofrontera AG and its subsidiaries, Biofrontera Pharma and Biofrontera Bioscience (together, the “Biofrontera Group”) pursuant to which the Company agreed to acquire all rights in the United States (the “U.S. Rights”) to Ameluz ® and RhodoLED ® (the “Strategic Transaction”). In connection with the Strategic Transaction, additional agreements were executed, and the transfer of the U.S. Rights was completed on October 20, 2025. As a result of these actions, the Company will pay a monthly earnout of 12% in years where Ameluz ® revenue in the United States is at or below $65.0 million and 15% in years where Ameluz ® revenue in the United States exceeds $65.0 million. The earnout replaces the transfer pricing model under the Company’s Second A&R Ameluz LSA effective as of February 13, 2024 by and among the Company, and the Biofrontera Group. The new structure reduces overall cost for the Company and is expected to accelerate the Company’s timeframe to reach break-even. With the completion of this agreement, the Company now assumes full responsibility for manufacturing, regulatory, quality management, pharmacovigilance, and commercialization of Ameluz® and the RhodoLED® portfolio in the U.S. The Company expects the full transfer of assets and personnel to be completed by late fourth quarter of 2025 or early in the first quarter of 2026. In exchange for the U.S. Rights, in addition to the aforementioned earnout and an agreement to transfer all costs associated with the U.S. business, Biofrontera AG received 3,019 shares of Series D Convertible Preferred Stock, par value $0.001 per share (the “Series D Preferred Stock”). The transaction was funded through an $11 million investment by existing investors, $8.5 million of which was funded at the time the Term Sheet was executed and the remaining $2.5 million was funded on October 24, 2025 following the closing of the Strategic Transaction. 23 Xepi - Closing of Asset Purchase Agreement On November 6, 2025 (the “Closing Date”), the Company entered into an Asset Purchase Agreement (the “ APA ”) with Pelthos Therapeutics Inc., an unaffiliated party, providing for the sale of all of the assets relating to the Company’s product, Xepi® (ozenoxacin) cream. The purchase price for the acquired assets is a maximum of $10.0 million, payable as follows: 1) $3.0 million in cash, paid on the Closing Date; 2) Subject to availability of certain commercial quantities of Xepi® and other terms and conditions of the APA, $1.0 million within thirty (30) days following the availability of such commercial quantities; 3) The right to receive certain earnout consideration upon the achievement of the milestone events, as further described below: a) $3.0 million upon the initial achievement of $10.0 million in annual net sales of Xepi®; and b) $3.0 million upon the initial achievement of $15.0 million in annual net sales of Xepi® Compliance with Nasdaq Listing Standards As described further below, on each of November 4, 2025 and November 6, 2025, the Company received a notice (the “November 4 Notice” and the “November 6 Notice,” respectively) from Nasdaq notifying the Company that it has regained compliance with the continued listing requirements under Nasdaq Listing Rule 5550(b)(1) and Nasdaq Listing Rule 5550(a)(2). Nasdaq Listing Rule 5550(b)(2) On May 8, 2025, the Company received a letter from Nasdaq notifying the Company that the listing of the Common Stock was not in compliance with Nasdaq Listing Rule 5550(a)(2) as the closing bid price of the Common Stock was less than $1.00 per share for the previous 33 consecutive business days. The notice had no present impact on the listing or trading of the Company’s securities on Nasdaq. Under Nasdaq Listing Rule 5810(c)(3)(A), the Company had a period of 180 calendar days, or until November 5, 2025, to regain compliance with the rule referred to in this paragraph. In the November 6 Notice, Nasdaq notified the Company that, because the closing bid price of the Company’s common stock was $1.00 per share or greater for the preceding 11 consecutive business days, the Company has regained compliance with Listing Rule 5550(a)(2), and that this matter is now closed. Nasdaq Listing Rule 5550(b)(1) On May 21, 2025, the Company received a notice from Nasdaq notifying the Company that, because the Company’s stockholders’ equity as reported in its Quarterly Report on Form 10-Q for the period ended March 31, 2025 was $0.5 million, the Company was no longer in compliance with the continued listing requirement under Nasdaq Listing Rule 5550(b)(1), which requires that a listed company’s stockholders’ equity be at least $2.5 million. Additionally, as of the date of the notice and as of September 30, 2025, the Company did not meet either of the alternative requirements of maintaining a market value of listed securities of $35 million or achieving a net income from continuing operations of $0.5 million in the most recently completed fiscal year or in two of the last three most recently completed fiscal years. As a result of the Strategic Transaction and the Subsequent Closing, as of October 24, 2025, the Company believes its stockholders’ equity exceeds $5 million which exceeds the minimum amount required for continued listing on Nasdaq under Nasdaq Listing Rule 5550(b)(1). In the November 4 Notice, Nasdaq notified the Company that, based on certain disclosures in the Current Report on Form 8-K filed by the Company on October 24, the Company is in compliance with the continued listing requirement under Nasdaq Listing Rule 5550(b)(1). Nasdaq will continue to monitor the Company’s ongoing compliance with the stockholders’ equity requirement and, if at the time of its next periodic report the Company does not evidence compliance, it may be subject to delisting. If, for any reason, Nasdaq should delist our common stock from trading on its exchange and we are unable to obtain listing on another reputable national securities exchange, a reduction in some or all of the following may occur, each of which could materially adversely affect our stockholders: ● the liquidity and marketability of our common stock and/or publicly-traded warrants; ● the market price of our common stock; ● our ability to obtain financing for the continuation of our operations; ● the number of institutional and general investors that will consider investing in our common stock; ● the number of market makers in our common stock; ● the availability of information concerning the trading prices and volume of our common stock; and ● the number of broker-dealers willing to execute trades in shares of our common stock. In addition, if we fail to regain compliance to be eligible to trade on Nasdaq or obtain listing on another reputable national securities exchange, we may have to pursue trading on a less recognized or accepted market, such as the over the counter markets, our stock may be traded as a “penny stock” which would make transactions in our stock more difficult and cumbersome, and we may be unable to access capital on favorable terms or at all, as companies trading on alternative markets may be viewed as less attractive investments with higher associated risks, such that existing or prospective institutional investors may be less interested in, or prohibited from, investing in our common stock. This may also cause the market price of our common stock to further decline. Geopolitical Uncertainty and Tariffs Recent actions by the U.S., including the imposition of significant tariffs on imports from certain countries, have heightened uncertainty in the global trade environment. These tariffs, along with potential retaliatory measures by other countries, may increase inflationary pressure and raise the costs of our products, which are exclusively imported from Europe. While several tariff announcements have been followed by announcements of limited exemptions and temporary pauses, these actions have caused substantial uncertainty and volatility in financial markets, and may result in further retaliatory measures. We may be unable to fully offset the impacts of tariffs by adjusting the pricing of our products. 24 Seasonality Our historical results of operations may not be comparable to our results of operations in future periods, and our results of operations may not be directly comparable from period to period due to seasonality. Traditional photodynamic therapy treatments using a lamp are performed more frequently during the winter, as a result our revenue is subject to some seasonality and has historically been higher during the first and fourth quarters than during the second and third quarters. Our Strategy Our principal objective is to improve patient outcomes through adoption and use of our licensed products in the United States. The key elements of our strategy include the following: ● expanding our sales in the United States of Ameluz ® in combination with the RhodoLED ® Lamps for the treatment of minimally to moderately thick actinic keratoses of the face and scalp and positioning Ameluz ® to be the standard of care in the United States by focusing on acquisition of new customers and growth of the therapy in our current customer base; ● leveraging the potential for future approvals and label extensions of our licensed portfolio products that are in the pipeline for the United States market with respect to Ameluz ® and furthering the clinical development of this product after taking over responsibility for certain ongoing clinical trials since June 1, 2024, pursuant to the Second A&R Ameluz LSA; and ● strategically managing our licensed portfolio, including opportunistically adding complementary products or services to our portfolio by acquiring or licensing IP to further leverage our commercial infrastructure and customer relationships. By executing these strategic objectives, we expect to fuel company growth, deepen our trusted relationships in the dermatology community, and above all, help patients live healthier, more fulfilling lives. We devote a substantial portion of our cash resources to the commercialization of our licensed products, Ameluz ® and the BF-RhodoLED ® Lamps. We have financed our operating and capital expenditures through cash proceeds generated from our product sales, short-term debt and proceeds received from convertible notes and equity financings. We believe that important measures of our results of operations include product revenue, operating income (loss) and adjusted EBITDA (a non-U.S. GAAP measure as defined below). Our sole source of product revenue is sales of products that we license from certain related and unrelated companies. Our long-term financial objectives include consistent revenue growth and expanding operating 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. Components of Our Results of Operations Product Revenues, Net We generate product revenues through the third-party sales of our licensed products, Ameluz ® and RhodoLED ® Lamps . Revenues from product sales are recorded net of trade discounts and allowances and government rebates. The primary factors that determine our revenue derived from our licensed products are: ● the level of orders generated by our sales force; ● the level of prescriptions and institutional demand for our licensed products; and ● unit sales prices. 25 Revenues, Related Party Prior to our taking over clinical trials on June 1, 2024, we generated insignificant related party revenue in connection with an agreement with Biofrontera Bioscience to provide 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 RhodoLED ® Lamps and associated services for clinical trials. Cost of Revenues, Related Party Cost of revenues, related party, is comprised of purchase costs of our licensed products, Ameluz ® and RhodoLED ® Lamps from Biofrontera Pharma GmbH and insignificant inventory adjustments due to scrapped, expiring and excess products. Cost of Revenues, Other Cost of revenues, other, is comprised of third-party logistics and distribution costs including packaging, freight, transportation, shipping and handling costs. Selling, General and Administrative Expense Selling, general and administrative expenses consist principally of costs associated with our sales force, commercial support personnel, personnel 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. Selling, General and Administrative Expenses, Related Party Selling, general and administrative expenses, related party, relate to the services provided by 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 in December 2021 (the “2021 Services Agreement”). 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. We currently have statements of work in place regarding regulatory affairs, medical affairs, and pharmacovigilance, 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. Research and Development 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 as incurred. Change in Fair Value of Warrant Liabilities For 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. 26 Change in Fair Value of Investment, Related Party Our investments are comprised of equity securities in shares of Biofrontera AG, which are initially recorded at cost, plus transaction costs, and subsequently measured at fair value, based on quoted market prices, with the gains and losses reported in the Company’s consolidated statement of operations. For the investments held in foreign currencies, the change in fair value attributable to changes in foreign exchange rates is included in gains and losses in the consolidated statement of operations. Loss on Debt Extinguishment Effective January 4, 2024, we voluntarily terminated the Loan and Security Agreement with MidCap Business Credit LLC, for our revolving line of credit and recognized a $0.3 million loss on debt extinguishment upon the early termination related to prepayment fees and the write-off of deferred financing costs. Interest Expense, Net Interest expense, net, primarily consists of interest on our convertible notes and short-term debt, including amortization of deferred costs. Other Income (Expense), Net Other income (expense), net primarily includes (i) gain (loss) on return of leased assets and (ii) gain (loss) on foreign currency transactions. Income Taxes As a result of the net losses we have incurred in each fiscal year since inception, we have recorded no provision for federal income taxes during such periods. Income tax expense incurred relates to state income taxes. Results of Operations Comparison of the Three Months ended September 30, 2025 and 2024 The following table summarizes our results of operations for the three months ended September 30: ( in thousands) 2025 2024 Change Product Revenues, net $ 6,988 $ 9,012 $ (2,024 ) Operating expenses: Cost of revenues, related party 1,922 4,801 (2,879 ) Cost of revenues, other 123 76 47 Selling, general and administrative 10,047 8,425 1,622 Selling, general and administrative, related party 320 1 319 Research and development 854 669 185 Total operating expenses 13,266 13,972 (706 ) Loss from operations (6,278 ) (4,960 ) (1,318 ) Change in fair value of warrant liabilities (285 ) (680 ) 395 Change in fair value of investment, related party 1 (2 ) 3 Interest income (expense), net (111 ) 8 (119 ) Other income, net 30 (32 ) 62 Total other expense (365 ) (706 ) 341 Loss before income taxes (6,643 ) (5,666 ) (977 ) Income tax expenses 6 3 3 Net loss $ (6,649 ) $ (5,669 ) $ (980 ) 27 Product Revenue, net Net product revenue for the three months ended September 30, 2025 decreased by $2.0 million, or 22.5% as compared to the three months ended September 30, 2024. This decrease was primarily driven by a decrease in sales volume of Ameluz ® in the third quarter of 2025. The lower sales volume of Ameluz ® in the third quarter of 2025 as compared to the same period of 2024 was due to customer buy-in before the increase in the price of Ameluz ® in October 2024. Operating Expenses Cost of Revenues, Related Party Cost of revenues, related party for the three months ended September 30, 2025 decreased by $2.9 million, or 60.0% as compared to the three months ended September 30, 2024. This was primarily due to the reduced cost structure under the Second A&R Ameluz LSA. See N ote 11. Related Party Transactions. Selling, General and Administrative Expenses Selling, general and administrative expenses for the three months ended September 30, 2025 increased by $1.6 million, or 19.3% as compared to the three months ended September 30, 2024. The increase was primarily driven by increase in legal costs due to patent claims. See Note 15. Commitments and Contingencies – Legal Proceedings . Research and Development Expenses R&D expenses for the three months ended September 30, 2025 increased by $0.2 million, or 27.7% as compared to the three months ended September 30, 2024. The increase was attributable to higher external investigator fees and clinical site setup costs, reflecting the progress of trials in 2025. The following table summarizes our R&D expenses by indication: Three Months Ended September 30, 2025 2024 Superficial basal cell carcinoma $ 42 $ 44 Actinic keratosis 310 206 Moderate to severe acne 53 129 Personnel-related costs 428 203 Other research and development 21 87 $ 854 $ 669 Change in Fair Value of Warrant Liabilities The change in fair value of warrant liabilities was $0.3 million for the three months ended September 30, 2025, as compared to $0.7 million for the three months ended September 30, 2024. The change in fair value of warrant liabilities was driven primarily by a drop in the underlying value of the Company’s Common Stock during the third quarter of 2025 as compared to the third quarter of 2024. 28 Interest expense, net Interest expense increased by $0.1 million due to the issuance of Senior Secured Convertible Notes of $4.2 million pursuant to a securities purchase agreement entered into on November 21, 2024 with its principal stockholders. Such Notes bear interest at 10.0% per annum, payable in-kind through the issuance of additional principal on a quarterly basis. See N ote 10. Debt. Comparison of the Nine Months ended September 30, 2025 and 2024 The following table summarizes our results of operations for the nine months ended September 30: ( in thousands) 2025 2024 Change Product revenues, net $ 24,605 $ 24,744 $ (139 ) Related party revenues - 18 (18 ) Revenues, net $ 24,605 $ 24,762 $ (157 ) Operating expenses: Cost of revenues, related party 7,377 12,839 (5,462 ) Cost of revenues, other 578 496 82 Selling, general and administrative 29,229 25,589 3,640 Selling, general and administrative, related party 396 30 366 Research and development 2,932 1,306 1,626 Total operating expenses 40,512 40,260 252 Loss from operations (15,907 ) (15,498 ) (409 ) Change in fair value of warrant liabilities 417 1,329 (912 ) Change in fair value of investment, related party 3 (12 ) 15 Loss on debt extinguishment - (316 ) 316 Interest expense, net (331 ) (1,995 ) 1,664 Other income (expense), net (333 ) 154 (487 ) Total other income (expense) (244 ) (840 ) 596 Loss before income taxes (16,151 ) (16,338 ) 187 Income tax expenses 25 25 - Net loss $ (16,176 ) $ (16,363 ) $ 187 Product Revenues, Net Net product revenue for the nine months ended September 30, 2025 decreased by $0.1 million, or 0.6% as compared to the nine months ended September 30, 2024. This decrease was driven by a decreased sales volume of Ameluz ® contributing a decrease of $1.4 million, offset by an increase of $1.6 million due to a higher unit sales price. 29 Operating Expenses Cost of Revenues, Related Party Cost of revenues, related party for the nine months ended September 30, 2025 decreased by $5.5 million, or 42.5% as compared to the nine months ended September 30, 2024. This was driven by the reduced cost structure under the Second A&R Ameluz LSA. Selling, General and Administrative Expenses Selling, general and administrative expenses for the nine months ended September 30, 2025 increased by $3.6 million, or 14.2% as compared to the nine months ended September 30, 2024. The increase was primarily attributable to a $6.2 million increase in legal expenses driven by patent claims. The increased legal expenses were partially offset by savings in personnel expenses of $1.1 million, mainly due to headcount fluctuations in our direct sales and administrative teams, as well decreases of $0.4 million in expenses relating to sales support functions and $0.6 million in insurance and finance expenses, and savings of $0.5 million in other general and administrative expenses. Research and Development Expenses R&D expenses for the nine months ended September 30, 2025 increased by $1.6 million as compared to the nine months ended September 30, 2024. The increase was attributable to our assumption of all clinical trial activities for Ameluz ® in the United States effective June 1, 2024. The following table summarizes our research and development expenses by indication: Nine Months Ended September 30, 2025 2024 Superficial basal cell carcinoma $ 260 $ 153 Actinic keratosis 1,143 338 Moderate to severe acne 284 221 Personnel-related costs 1,209 435 Other research and development 36 159 $ 2,932 $ 1,306 Change in Fair Value of Warrant Liabilities The change in fair value of warrant liabilities was $0.4 million for the nine months ended September 30, 2025, as compared to $1.3 million for the nine months ended September 30, 2024. The change in fair value of warrant liabilities was driven by a mix of a decreased population of outstanding warrant liabilities due to the exercise of warrants for preferred shares in May 2024, coupled with a drop in the underlying value of the Company’s Common Stock for each of the nine months ended September 30, 2025 and September 30, 2024. 30 Interest expense, net Interest expense decreased by $1.7 million due a lower interest rate applicable to the outstanding convertible notes of $4.2 million issued in November of 2024, compared to the interest rate on the $4.0 million term loan that matured on July 5, 2024 . Net Loss to Adjusted EBITDA Reconciliation for the Three and Nine Months Ended September 30, 2025 and 2024 We 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. GAAP. 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. GAAP. Loss on debt extinguishment: Effective as of January 4, 2024, we voluntarily terminated the Loan and Security Agreement with Midcap Business Credit LLC 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. Change in fair value of warrant liabilities: The warrants issued in conjunction with our private placement offerings and registered public offerings are 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. Change in fair value of investment, related party: The Company accounts for its investment, related party in accordance with ASC 321, Investments — 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. Stock-Based Compensation : To measure operating performance, we exclude the impact of costs relating to share-based compensation. 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. Expensed 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. 31 Adjusted EBITDA margin is adjusted EBITDA for a particular period expressed as a percentage of revenues for that period. We use adjusted EBITDA to measure our performance from period to period and to compare our results to those of our competitors. In addition to adjusted EBITDA being a significant measure of performance for management purposes, we also believe that this presentation provides useful information to investors regarding financial and business trends related to our results of operations and that when non-U.S. GAAP financial information is viewed with U.S. GAAP financial information, investors are provided with a more meaningful understanding of our ongoing operating performance. The below table presents a reconciliation from net loss to Adjusted EBITDA for the three and nine months ended September 30, 2025 and 2024: Three Months Ended September 30, Nine Months Ended September 30, 2025 2024 2025 2024 Net loss $ (6,649 ) $ (5,669 ) $ (16,176 ) $ (16,363 ) Interest (income) expense, net 111 (8 ) 331 1,995 Income tax expenses 6 3 25 25 Depreciation and amortization 25 129 76 387 EBITDA (6,507 ) (5,545 ) (15,744 ) (13,956 ) Loss on debt extinguishment - - - 316 Change in fair value of warrant liabilities 285 680 (417 ) (1,329 ) Change in fair value of investment, related party (1 ) 2 (3 ) 12 Stock based compensation 236 288 426 720 Expensed issuance costs - - - 354 Adjusted EBITDA $ (5,987 ) $ (4,575 ) $ (15,738 ) $ (13,883 ) Adjusted EBITDA margin -85.7 % -50.8 % -64.0 % -56.1 % Adjusted EBITDA Adjusted EBITDA decreased $1.4 million from ($4.6) million for the three months ended September 30, 2024 to ($6.0) million for the three months ended September 30, 2025. This is the result of the increases in selling, general and administrative expenses and research and development expenses, which were partially offset by the increase in gross profit. Adjusted EBITDA for the nine months ended September 30, 2025 decreased $1.9 million from ($9.3) million for the nine months ended September 30, 2024 to ($13.9) million for the nine months ended September 30, 2025. This decrease is mainly due to the increase in legal expenses, partially offset by savings in other selling, general and administrative expenses and the increase in gross profit of $5.2 million. 32 Liquidity and Capital Resources These consolidated financial statements have been prepared in accordance with U,S. generally accepted accounting principles (“U.S. GAAP”) assuming the Company will continue as a going concern. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Since we commenced operations in 2015, we have generated significant losses. The Company incurred net cash outflows from operations of $11.0 million and $9.3 million for the nine months ended September 30, 2025 and 2024, respectively. The Company had an accumulated deficit as of September 30, 2025 of $133.6 million. The Company’s primary sources of liquidity are its cash collected from the sales of its products, and cash flows from financing transactions, including $11.0 million received in a private placement of Series C Preferred Stock, (received in two separate tranches of $8.5 million in July 2025 and $2.5 million in October 2025).) As of September 30, 2025, we had cash and cash equivalents of $3.4 million, compared to $5.9 million as of December 31, 2024. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of at least twelve months from the issuance date of this report. The Company plans to address the conditions that raise substantial doubt regarding its ability to continue as a going concern by, among other things, utilizing external financing options, including a short-term line of credit, as well as finalizing the sale of its Xepi product line on November 6, 2025. However, there can be no assurance that the Company will be successful in obtaining sufficient funding on acceptable terms, if at all. If the Company is unable to raise additional capital when needed, it will not have sufficient cash resources and liquidity to fund its business operations and may be forced to delay or reduce continued commercialization efforts or R&D programs which could have a material adverse effect on the Company and its financial statements. The consolidated financial statements do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if the Company were unable to continue as a going concern. Cash Flows The following table summarizes our cash provided by and (used in) operating, investing and financing activities: Nine Months Ended September 30, (in thousands) 2025 2024 Net cash used in operating activities $ (10,985 ) (9,253 ) Net cash provided by (used) in investing activities (3 ) (2 ) Net cash provided by financing activities 8,500 10,785 Net increase (decrease) in cash and restricted cash $ (2,488 ) 1,530 Operating Activities During the nine months ended September 30, 2025, operating activities used $11.0 million of cash, primarily resulting from our loss from operations of $16.2 million, adjusted for non-cash expense of stock-based compensation of $0.7 million, depreciation and amortization in the aggregate of $0.6 million, non-cash interest expense of $0.4 million, and net cash used by changes in our operating assets and liabilities of $4.0 million, partially offset by the change in fair value of warrant liabilities of $0.4 million. During the nine months ended September 30, 2024, operating activities used $9.3 million of cash, primarily resulting from our loss from operations of $16.4 million, adjusted for non-cash expense of stock-based compensation of $0.7 million, non-cash interest expense of $0.2 million, loss on debt extinguishment of $0.3 million, depreciation and amortization in the aggregate of $0.9 million, and net cash used by changes in our operating assets and liabilities of $6.1 million, offset by the change in fair value of warrant liabilities of $1.3 million Investing Activities During the nine months ended September 30, 2025, net cash used in investing activities consisted of negligible fixed asset purchases. During the nine months ended September 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. Financing Activities During the nine months ended September 30, 2025, net cash from financing activities consisted of proceeds received in June 2025 in accordance with a securities purchase agreement dated June 27, 2025, for the issuance of Series C Preferred Stock, and initially recorded as an advance from certain stockholders as the stock was not issued until July 1, 2025. On July 1, 2025, upon issuance of the Series C Preferred Stock, the advance from stockholders was settled and reclassed to equity. See Note 12. Stockholders’ Equity , for additional details. During the nine months ended September 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 $4.0 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. 33 Accounting Policies and Significant Judgments and Estimates Our 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 U.S. GAAP. The preparation of the financial statements in accordance with U.S. GAAP requires the use of estimates and assumptions by management that affect the value of assets and liabilities, as well as contingent assets and liabilities, as reported on the balance sheet date, and revenues and expenses arising during the reporting period. The main areas in which assumptions, estimates and the exercising of a degree of judgment are appropriate relate to fair value measurements, 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. Our 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 10-K. Critical Accounting Estimates A summary of our critical accounting estimates is discussed in the section entitled “Critical Accounting Estimates” in Item 7. 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 nine months ended September 30, 2025. Off-balance Sheet Arrangements Other than those items reflected in Note 18. Commitments and Contingencies we did not have during the periods presented, and we do not currently have, any other off-balance sheet arrangements, as defined in the rules and regulations of the SEC. Emerging Growth Company Status The Jumpstart Our Business Startups Act of 2012 permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected to take advantage of such extended transition period, which means that when an accounting standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company. Item 3. Quantitative and Qualitative Disclosures About Market Risk As a “smaller reporting company,” we are not required to provide the information required by this Item.