Biofrontera Inc. (NASDAQ:BFRI) Q1 2023 Earnings Conference Call May 12, 2023 8:30 AM ET Company Participants Tirth Patel - Investor Relations Hermann Luebbert - Executive Chairman and Founder Fred Leffler - Chief Financial Officer Conference Call Participants Bruce Jackson - Benchmark Company Operator Welcome to the Biofrontera Inc. First Quarter 2023 Financial Results and Business Update Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conferen ...

Financial Performance - Product revenues for Q1 2023 were $8.7 million, a decrease of $1.02 million or 10.5% compared to $9.8 million in Q1 2022, attributed to a lack of customer buy-in prior to a price increase [234]. - The company reported a net loss of $7.478 million for Q1 2023, compared to a net income of $5.561 million in Q1 2022, representing a change of $13.039 million [209]. - Adjusted EBITDA for Q1 2023 was $(3.990) million, a decrease from $(2.439) million in Q1 2022, with the adjusted EBITDA margin dropping from -25.0% to -45.7% [218]. - Operating expenses for Q1 2023 totaled $14.225 million, an increase of $1.364 million or 10.6% from $12.861 million in Q1 2022 [209]. - For the three months ended March 31, 2023, the company incurred a loss from operations of $5.5 million, compared to a loss of $3.1 million for the same period in 2022 [243]. - The company experienced net cash outflows from operations of $3.7 million for the three months ended March 31, 2023, compared to $2.1 million for the same period in 2022 [243]. - The company reported net cash used in operating activities of $3.7 million for the three months ended March 31, 2023, compared to $2.1 million for the same period in 2022 [249]. - As of March 31, 2023, the company had an accumulated deficit of $87.0 million [243]. Cash and Financing - Cash and cash equivalents as of March 31, 2023, were $13.5 million, down from $17.2 million as of December 31, 2022 [219]. - The company anticipates needing additional equity or debt financing to support long-term growth and mitigate operational cost risks [221]. - The company is expecting to collect a receivable of $3.7 million from Biofrontera AG for reimbursement of legal settlement payments [246]. Cost Management - The cost of revenues related to products was $4.547 million in Q1 2023, down 8.6% from $4.975 million in Q1 2022, driven by decreased Ameluz product revenue [211]. - The company expects to continue incurring operating losses due to significant discretionary sales and marketing efforts as it seeks to expand the commercialization of its licensed products in the U.S. [244]. - The company anticipates additional expenses to improve operational, financial, and information systems, as well as to support product commercialization efforts [244]. Market and Operational Outlook - The company plans to expand sales of Ameluz in the U.S. and aims to position it as the standard of care for treating actinic keratoses [199]. - The company continues to monitor the impact of the COVID-19 pandemic on its operations, with optimism for recovery following the end of the Public Health Emergency on May 11, 2023 [200]. Fair Value Adjustments - The fair value of contingent consideration related to the acquisition of Cutanea products was determined to be $6.5 million at acquisition and is re-measured at each reporting date [213]. - The change in fair value of warrant liabilities decreased by $7.7 million for the three months ended March 31, 2023, driven by changes in the underlying value of the common stock [236]. - The change in fair value of investments in equity securities decreased by $2.9 million, influenced by changes in the quoted market price of Biofrontera AG's common stock [237]. Definitions - The adjusted EBITDA margin is defined as adjusted EBITDA expressed as a percentage of revenues for the period [242].

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR COMMISSION FILE NUMBER 001-40943 120 Presidential Way, Suite 330 Woburn, Massachusetts 01801 (Address of principal executive offices) (Zip code) Title of Each Class: Trading symbol(s) Name of Each Exchange on Which Registered: Common Stock, par value $0.001 per share BFRI The Nasdaq Stock Market LLC Preferred Stock Purchase Rights The Nas ...

Financial Data and Key Metrics Changes - Total revenues for 2022 were $28.7 million, an increase of 19% from $24.1 million in 2021, marking record annual revenues for the company [17][99] - Adjusted EBITDA for 2022 was negative $18.1 million, compared to negative $12.6 million in 2021, primarily due to higher selling, general, and administrative expenses [18][96] - Cash and cash equivalents at year-end 2022 were $17.2 million, with investments totaling $10.5 million [6] Business Line Data and Key Metrics Changes - Cost of revenue was $15.2 million in 2022, up 19% from 2021, with expectations that costs will decrease as revenues grow [3] - The average revenue per sales rep in 2022 was approximately $900,000, with projections to reach cash flow positive at around $1.1 million to $1.2 million in sales per rep [12][57] - The company plans to expand its sales force to between 50 and 55 reps over the next two years, with a focus on optimizing the current team and adding new members [13][27] Market Data and Key Metrics Changes - The treatment of actinic keratosis (AK) represents a $4 billion market, with the company's target market for photodynamic therapy (PDT) for AKs estimated at $440 million [28] - The company holds approximately 30% of the PDT market and has grown its share in the target market by about 12% [29] - The company is addressing sales territory challenges and has seen strong order and shipping volumes in early 2023, indicating ongoing customer demand [22] Company Strategy and Development Direction - The company is focused on expanding its commercial infrastructure, including the addition of an inside sales function and stronger data analytics tools [8][25] - Investments are being made in the sales force, with plans to add a new regional team in 2023 [9][27] - The company aims to achieve cash flow positive status within approximately two years, driven by the growth of its Ameluz PDT therapy [4][57] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for 2023, citing a strong foundation for growth and increased education initiatives to drive demand for PDT therapy [8][23] - The company is committed to maintaining a balance between growth and financing costs to protect shareholder value [6][36] - Management noted that future label expansions or new indications are not necessary to achieve growth targets for the next couple of years [52] Other Important Information - The company completed its first full year as a publicly traded entity in 2022, achieving record revenues and increasing market share without expanding its sales force [35] - The company is working on label expansion opportunities for its products, including clinical trials for additional treatment areas [30][33] Q&A Session Summary Question: How many doctors using Ameluz are using three tubes with the Excel lamp? - The Excel lamp has not yet been launched in the U.S. due to supply chain challenges, and it is unclear how many doctors have it [38] Question: What are the biggest headwinds to hiring or maintaining salespeople? - The company experiences a turnover rate of 25% to 30%, which is better than the industry average, and is focused on making the workplace attractive [61] Question: What was the share count at the end of the fourth quarter? - There are approximately 26.7 million shares outstanding [79]

Biofrontera, Inc. (NASDAQ:BFRI) Q3 2022 Earnings Conference Call November 14, 2022 11:00 AM ET Company Participants Tirth Patel - LHA Investor Relations Fred Leffler - CFO Erica Monaco - CEO, COO, Treasurer & Secretary Conference Call Participants Jonathan Aschoff - ROTH Capital Partners Bruce Jackson - The Benchmark Company Operator Good day, and welcome to the Biofrontera Inc. Third Quarter Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to tu ...

PART I. FINANCIAL INFORMATION This section provides Biofrontera Inc.'s unaudited consolidated financial statements for the period ended September 30, 2022, detailing financial position, performance, and cash flows [ITEM 1. Financial Statements](index=4&type=section&id=ITEM%201.%20Financial%20Statements) This section presents Biofrontera Inc.'s unaudited consolidated financial statements, including balance sheets, statements of operations, equity, and cash flows, with explanatory notes [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) This section presents the company's financial position, detailing assets, liabilities, and stockholders' equity as of September 30, 2022, and December 31, 2021 Metric (in thousands) | Metric (in thousands) | Sep 30, 2022 (Unaudited) | Dec 31, 2021 | | :-------------------- | :----------------------- | :----------- | | Total Assets | $55,059 | $53,219 | | Total Liabilities | $32,464 | $41,881 | | Total Stockholders' Equity | $22,595 | $11,338 | - Cash and cash equivalents increased to **$27.5 million** as of September 30, 2022, from **$24.5 million** as of December 31, 2021[6](index=6&type=chunk) - Inventories significantly increased to **$12.1 million** as of September 30, 2022, from **$4.5 million** as of December 31, 2021[6](index=6&type=chunk) - Warrant liability decreased substantially to **$3.96 million** as of September 30, 2022, from **$12.85 million** as of December 31, 2021[6](index=6&type=chunk) [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) This section outlines the company's financial performance, including revenues, operating expenses, and net income or loss for the three and nine months ended September 30, 2022 and 2021 Metric (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Revenues, net | $4,322 | $4,334 | $18,530 | $14,932 | | Loss from operations | $(3,639) | $(16,105) | $(12,961) | $(23,321) | | Net income (loss) | $(2,566) | $(16,012) | $2,145 | $(23,208) | | Basic EPS | $(0.11) | $(2.00) | $0.11 | $(2.90) | | Diluted EPS | $(0.11) | $(2.00) | $0.11 | $(2.90) | - For the nine months ended September 30, 2022, the company reported a net income of **$2.145 million**, a significant improvement from a net loss of **$23.208 million** in the prior year period[7](index=7&type=chunk) - Loss from operations decreased for both the three-month and nine-month periods ended September 30, 2022, compared to the prior year, indicating improved operational efficiency[7](index=7&type=chunk) [Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) This section details changes in stockholders' equity, including common shares, additional paid-in capital, and accumulated deficit, for the nine months ended September 30, 2022 Metric (in thousands) | Metric (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :-------------------- | :----------- | :----------- | | Common Shares Outstanding | 23,550,960 | 17,104,749 | | Common Stock Amount | $23 | $17 | | Additional Paid-In Capital | $99,306 | $90,200 | | Accumulated Deficit | $(76,734) | $(78,879) | | Total Stockholders' Equity | $22,595 | $11,338 | - Total stockholders' equity increased to **$22.595 million** as of September 30, 2022, from **$11.338 million** as of December 31, 2021, primarily due to increases in common stock and additional paid-in capital from warrant exercises and private placements[9](index=9&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section presents the company's cash inflows and outflows from operating, investing, and financing activities for the nine months ended September 30, 2022 and 2021 Metric (in thousands) | Metric (in thousands) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(7,928) | $(5,725) | | Net cash used in investing activities | $(3,070) | $(2) | | Net cash provided by (used) in financing activities | $14,021 | $(638) | | Net increase (decrease) in cash and cash equivalents | $3,023 | $(6,365) | - Net cash provided by financing activities significantly increased to **$14.021 million** for the nine months ended September 30, 2022, compared to cash used of **$0.638 million** in the prior year, driven by proceeds from common stock and warrant issuances[12](index=12&type=chunk) - Operating activities used more cash in the nine months ended September 30, 2022 (**$7.928 million**) compared to the same period in 2021 (**$5.725 million**)[12](index=12&type=chunk) [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the consolidated financial statements, covering business operations, accounting policies, and specific financial line items [1. Business Overview](index=8&type=section&id=1.%20Business%20Overview) Biofrontera Inc. is a U.S.-based biopharmaceutical company focused on commercializing dermatological products, primarily Ameluz® for actinic keratoses and Xepi® for impetigo. The company has incurred significant operating losses and an accumulated deficit, but expects current cash to fund operations for at least the next twelve months, with future growth dependent on additional equity financing - Biofrontera Inc. specializes in dermatological products, with Ameluz® (for actinic keratoses) and Xepi® (for impetigo) as its principal licensed products[14](index=14&type=chunk)[15](index=15&type=chunk)[16](index=16&type=chunk) Metric (in millions) | Metric (in millions) | Sep 30, 2022 | Dec 31, 2021 | | :------------------- | :----------- | :----------- | | Cash and cash equivalents | $27.5 | $24.5 |\n| Accumulated Deficit | $(76.7) | N/A |\n| Losses from operations (9 months) | $(13.0) | $(23.3) |\n| Net cash outflows from operations (9 months) | $(7.9) | $(5.7) | - The company expects its current cash and cash equivalents to be sufficient to fund operations for at least the next twelve months, but future growth relies on obtaining additional equity financing[22](index=22&type=chunk) [2. Summary of Significant Accounting Policies](index=10&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) The financial statements are prepared in accordance with U.S. GAAP, using estimates for areas like receivables, inventory, contingent consideration, and warrant liabilities. The company, as an emerging growth company, has elected to use the extended transition period for new accounting standards, including ASU 2016-02 (Leases) and ASU 2016-13 (Credit Losses), which are currently being evaluated for impact - Financial statements are prepared under U.S. GAAP, with key estimates in valuation allowances, contingent consideration, and warrant liabilities[23](index=23&type=chunk)[26](index=26&type=chunk) - The company is evaluating the impact of adopting ASU 2016-02 (Leases), effective for fiscal years beginning after December 15, 2021, and ASU 2016-13 (Credit Losses), effective January 1, 2023[27](index=27&type=chunk)[28](index=28&type=chunk) [3. Acquisition Contract Liabilities](index=11&type=section&id=3.%20Acquisition%20Contract%20Liabilities) Acquisition contract liabilities stem from the 2019 acquisition of Cutanea, including $7.3 million in start-up cost financing repayable by end of 2023 and contingent consideration for profit sharing with Maruho until 2030. The contingent consideration is re-measured at each reporting period using a scenario-based method - The company has **$7.3 million** in start-up cost financing from Maruho, repayable by the end of 2023, and an obligation to share product profits equally with Maruho until 2030[30](index=30&type=chunk)[31](index=31&type=chunk) (in thousands) | (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :------------- | :----------- | :----------- | | Short-term acquisition contract liabilities, net | $3,242 | $3,242 | | Long-term acquisition contract liabilities, net | $5,711 | $9,542 | | Total acquisition contract liabilities, net | $8,953 | $12,784 | - Long-term contingent consideration decreased from **$6.2 million** at December 31, 2021, to **$2.1 million** at September 30, 2022[34](index=34&type=chunk) [4. Fair Value Measurements](index=13&type=section&id=4.%20Fair%20Value%20Measurements) This section details the fair value measurements for contingent consideration and warrant liabilities, both classified as Level 3. Contingent consideration decreased by $4.1 million for the nine months ended September 30, 2022, while warrant liability decreased by $15.267 million due to changes in common stock value and warrant modifications (in thousands) | (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :------------- | :----------- | :----------- | | Contingent Consideration | $2,100 | $6,200 | | Warrant liability – 2021 Purchase Warrants | $- | $12,854 | | Warrant liability - 2022 Purchase Warrants | $1,607 | $- | | Warrant liability – 2022 Inducement Warrants | $2,357 | $- | - The fair value of contingent consideration decreased by **$4.1 million** for the nine months ended September 30, 2022, to **$2.1 million**[37](index=37&type=chunk) - The warrant liability decreased by **$15.267 million** for the nine months ended September 30, 2022, to **$3.964 million**, influenced by changes in common stock value and the modification of 2021 Purchase Warrants[43](index=43&type=chunk) [5. Revenue](index=16&type=section&id=5.%20Revenue) Revenue is primarily generated from sales of Ameluz®, BF-RhodoLED® lamps, and Xepi®, with Ameluz® being the most significant contributor. The company also reports related party revenue from BF-RhodoLED® leasing and installation services. Product revenue allowances and reserves increased to $360 thousand as of September 30, 2022 - Primary revenue sources are Ameluz®, BF-RhodoLED® lamps, and Xepi®, with Ameluz® sales being the most significant[44](index=44&type=chunk) (in thousands) | (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :------------- | :----------- | :----------- | | Product revenue allowances and reserves | $360 | $246 | [6. Accounts Receivable, net](index=16&type=section&id=6.%20Accounts%20Receivable,%20net) Accounts receivables primarily arise from sales of Ameluz, BF-RhodoLED, and Xepi, with all expected to be settled within twelve months. The allowance for doubtful accounts was $0.1 million as of September 30, 2022 - Accounts receivables are mainly from sales of Ameluz, BF-RhodoLED, and Xepi, with an allowance for doubtful accounts of **$0.1 million** as of September 30, 2022[46](index=46&type=chunk) [7. Other Receivables, Related Party](index=16&type=section&id=7.%20Other%20Receivables,%20Related%20Party) The company has a $6.3 million receivable from Biofrontera AG as of September 30, 2022, primarily for its 50% share of a legal settlement. This receivable is split into $3.5 million short-term and $2.8 million long-term, with no reserve recorded due to contractual repayment rights - As of September 30, 2022, Biofrontera Inc. has a **$6.3 million** receivable from Biofrontera AG, of which **$6.1 million** is for Biofrontera AG's share of a legal settlement[47](index=47&type=chunk) - The receivable is secured by a contractual right to repayment, including interest at **6.0% per annum** for overdue amounts and the ability to offset against payments owed to Biofrontera AG[47](index=47&type=chunk) [8. Inventories](index=17&type=section&id=8.%20Inventories) Inventories consist of Ameluz, Xepi®, and BF-RhodoLED finished products, valued using the FIFO method. A provision of $0.1 million for BF-RhodoLED device obsolescence was recorded for the nine months ended September 30, 2022 - Inventories include Ameluz, Xepi®, and BF-RhodoLED finished products, with a **$0.1 million** provision for BF-RhodoLED obsolescence for the nine months ended September 30, 2022[50](index=50&type=chunk)[51](index=51&type=chunk) [9. Prepaid Expenses and Other Current Assets](index=17&type=section&id=9.%20Prepaid%20Expenses%20and%20Other%20Current%20Assets) Prepaid expenses and other current assets totaled $3.823 million as of September 30, 2022. This includes a new short-term loan receivable of $3.017 million from Quirin PrivatBank AG, bearing 1.0% interest and due December 6, 2022, repayable in cash or Biofrontera AG shares (in thousands) | (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :------------- | :----------- | :----------- | | Loan receivable, short term | $3,017 | $- | | Receivable for common stock warrants proceeds | $- | $3,258 | | Prepaid expenses | $460 | $824 | | Total | $3,823 | $4,987 | - A new short-term loan receivable of **$3.017 million** from Quirin PrivatBank AG was recorded, bearing **1.0%** interest and due December 6, 2022, with repayment optional in cash or Biofrontera AG shares[52](index=52&type=chunk) [10. Property and Equipment, Net](index=17&type=section&id=10.%20Property%20and%20Equipment,%20Net) Net property and equipment totaled $224 thousand as of September 30, 2022, primarily comprising computer equipment, software, furniture, leasehold improvements, and machinery. Depreciation expense for the nine months ended September 30, 2022, was $0.1 million (in thousands) | (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :------------- | :----------- | :----------- | | Property and equipment, gross | $709 | $673 | | Less: Accumulated depreciation | $(485) | $(406) | | Property and equipment, net | $224 | $267 | - Depreciation expense was **$0.1 million** for the nine months ended September 30, 2022, included in selling, general and administrative expense[53](index=53&type=chunk) [11. Intangible Asset, Net](index=17&type=section&id=11.%20Intangible%20Asset,%20Net) The Xepi® license, recorded at an acquisition-date fair value of $4.6 million, is amortized over 11 years. Amortization expense was $0.3 million for the nine months ended September 30, 2022. An impairment assessment was conducted in October 2022 due to manufacturing delays, but no impairment charges were recognized (in thousands) | (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :------------- | :----------- | :----------- | | Xepi® license | $4,600 | $4,600 | | Less: Accumulated amortization | $(1,464) | $(1,150) | | Intangible asset, net | $3,136 | $3,450 | - Amortization expense for the Xepi® license was **$0.3 million** for the nine months ended September 30, 2022[55](index=55&type=chunk) - Despite third-party manufacturing delays impacting Xepi® sales, no impairment charges were recognized for the Xepi® license during the three or nine months ended September 30, 2022[56](index=56&type=chunk)[57](index=57&type=chunk) [12. Statement of Cash Flows Reconciliation](index=18&type=section&id=12.%20Statement%20of%20Cash%20Flows%20Reconciliation) This section reconciles cash, cash equivalents, and restricted cash, showing a total of $27.765 million as of September 30, 2022, an increase from $24.742 million at December 31, 2021 (in thousands) | (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :------------- | :----------- | :----------- | | Cash and cash equivalents | $27,518 | $24,545 | | Short-term restricted cash | $47 | $47 | | Long-term restricted cash | $200 | $150 | | Total cash, cash equivalents, and restricted cash | $27,765 | $24,742 | [13. Accrued Expenses and Other Current Liabilities](index=18&type=section&id=13.%20Accrued%20Expenses%20and%20Other%20Current%20Liabilities) Accrued expenses and other current liabilities totaled $9.442 million as of September 30, 2022, slightly down from $9.654 million at December 31, 2021. Key components include a legal settlement liability of $5.625 million and employee compensation and benefits of $2.243 million (in thousands) | (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :------------- | :----------- | :----------- | | Legal settlement | $5,625 | $5,625 | | Employee compensation and benefits | $2,243 | $2,384 | | Professional fees | $676 | $570 | | Product revenue allowances and reserves | $360 | $246 | | Total | $9,442 | $9,654 | [14. Other Long-Term Liabilities](index=18&type=section&id=14.%20Other%20Long-Term%20Liabilities) Other long-term liabilities remained stable at $5.646 million as of September 30, 2022, primarily consisting of a non-current legal settlement liability of $5.625 million (in thousands) | (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :------------- | :----------- | :----------- | | Legal settlement – noncurrent | $5,625 | $5,625 | | Other | $21 | $24 | | Total | $5,646 | $5,649 | [15. Income Taxes](index=18&type=section&id=15.%20Income%20Taxes) Due to cumulative net losses since inception, Biofrontera Inc. has recorded no federal income tax provision for the periods presented, maintaining a full valuation allowance. Income tax expense relates solely to state income taxes - No federal income tax provision was recorded for the three or nine months ended September 30, 2022 and 2021, due to net losses[61](index=61&type=chunk) - The company maintains a full valuation allowance due to its cumulative loss position[62](index=62&type=chunk) [16. Related Party Transactions](index=19&type=section&id=16.%20Related%20Party%20Transactions) Related party transactions include an exclusive license and supply agreement for Ameluz® with Biofrontera Pharma GmbH, service agreements with Biofrontera AG for IT and pharmacovigilance, and reimbursements from Maruho related to the Cutanea acquisition. The company also has a significant receivable from Biofrontera AG for a legal settlement - Purchases of licensed products (Ameluz and RhodoLED lamps) from Biofrontera Pharma GmbH were **$16.6 million** for the nine months ended September 30, 2022, up from **$5.7 million** in the prior year[65](index=65&type=chunk) - Expenses for services from Biofrontera AG (IT, regulatory, medical, pharmacovigilance, investor relations) were **$0.6 million** for the nine months ended September 30, 2022[66](index=66&type=chunk) - The company has a **$6.1 million** receivable from Biofrontera AG as of September 30, 2022, for its **50%** share of a legal settlement, on which **$0.1 million** interest income was recognized[72](index=72&type=chunk) [17. Restructuring costs](index=20&type=section&id=17.%20Restructuring%20costs) No restructuring costs were incurred for the three and nine months ended September 30, 2022. In the prior year, restructuring costs of $0.2 million and $0.7 million were incurred for the three and nine months ended September 30, 2021, respectively, related to winding down Cutanea's operations - No restructuring costs were incurred for the three and nine months ended September 30, 2022[73](index=73&type=chunk) - Restructuring costs of **$0.2 million** (three months) and **$0.7 million** (nine months) were incurred in 2021, primarily for winding down Cutanea's operations[73](index=73&type=chunk) [18. Stockholders' Equity](index=20&type=section&id=18.%20Stockholders'%20Equity) The company is authorized to issue 300 million common shares and 20 million preferred shares. Key equity activities in 2022 include a May private placement raising $9.4 million and the exercise of 2022 Pre-Funded Warrants and 2021 Purchase Warrants, generating $4.6 million in proceeds - The company is authorized to issue **300,000,000 shares** of common stock and **20,000,000 shares** of preferred stock[74](index=74&type=chunk) - A May 2022 private placement generated **$9.4 million** in gross cash receipts from the issuance of common stock and warrants[76](index=76&type=chunk) - In July 2022, the exercise of 2021 Purchase Warrants, following a price reduction and issuance of Inducement Warrants, generated **$4.6 million** in proceeds[77](index=77&type=chunk) [19. Equity Incentive Plans and Share-Based Payments](index=21&type=section&id=19.%20Equity%20Incentive%20Plans%20and%20Share-Based%20Payments) The 2021 Omnibus Incentive Plan authorizes 2.75 million shares for awards, with 2.58 million remaining eligible. Share-based compensation expense for stock options and RSUs totaled $0.3 million and $0.1 million, respectively, for the three months ended September 30, 2022, and $0.6 million and $0.9 million for the nine months ended September 30, 2022 - The 2021 Omnibus Incentive Plan has **2,750,000 shares** authorized for awards, with **2,579,932 shares** remaining eligible as of September 30, 2022[79](index=79&type=chunk) Metric (in millions) | Metric (in millions) | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2022 | | :------------------- | :-------------------------- | :-------------------------- | | Stock option compensation expense | $0.3 | $0.6 | | RSU compensation expense | $0.1 | $0.9 | - As of September 30, 2022, unrecognized compensation cost for unvested stock options was **$2.6 million** (expected over 2.5 years) and for unvested RSUs was **$0.7 million** (expected over 1.6 years)[84](index=84&type=chunk)[87](index=87&type=chunk) [20. Interest Expense, net](index=22&type=section&id=20.%20Interest%20Expense,%20net) Net interest expense for the nine months ended September 30, 2022, was $(160) thousand, primarily driven by contract asset interest expense related to the Cutanea acquisition financing, partially offset by interest income from a related party (in thousands) | (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Interest expense | $(3) | $- | $(10) | $- | | Contract asset interest expense | $(89) | $(90) | $(268) | $(268) | | Interest income – related party | $1 | $- | $110 | $- | | Interest expense, net | $(89) | $(86) | $(160) | $(255) | - Interest income from a related party was **$110 thousand** for the nine months ended September 30, 2022, compared to none in the prior year[88](index=88&type=chunk) [21. Other Income (Expense), net](index=22&type=section&id=21.%20Other%20Income%20(Expense),%20net) Other income (expense), net, for the nine months ended September 30, 2022, was $30 thousand, a decrease from $419 thousand in the prior year. This change is primarily due to the absence of reimbursed SPA costs in 2022, which were $472 thousand in 2021 (in thousands) | (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Reimbursed SPA costs | $- | $188 | $- | $472 | | Other, net | $(22) | $(3) | $30 | $(53) | | Other income (expense), net | $(22) | $185 | $30 | $419 | - Reimbursed SPA costs, which contributed **$472 thousand** to other income in the nine months ended September 30, 2021, were zero in the same period of 2022[89](index=89&type=chunk) [22. Net Earnings per Share](index=22&type=section&id=22.%20Net%20Earnings%20per%20Share) Basic and diluted net earnings per share are calculated based on net income and weighted-average common shares outstanding. For the nine months ended September 30, 2022, basic and diluted EPS were $0.11, a significant improvement from a loss of $(2.90) in the prior year. The company also identified potential common shares that were anti-dilutive Metric | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Basic EPS | $(0.11) | $(2.00) | $0.11 | $(2.90) | | Diluted EPS | $(0.11) | $(2.00) | $0.11 | $(2.90) | | Basic weighted average common shares outstanding | 22,725,821 | 8,000,000 | 19,560,351 | 8,000,000 | | Diluted weighted average common shares outstanding | 22,725,821 | 8,000,000 | 19,605,014 | 8,000,000 | - Potential common shares that were anti-dilutive for the nine months ended September 30, 2022, included **9,197,109 common stock warrants** and **1,112,395 common stock options and RSUs**[93](index=93&type=chunk) [23. Commitments and Contingencies](index=24&type=section&id=23.%20Commitments%20and%20Contingencies) The company has various commitments, including facility and auto leases totaling $1.659 million in future payments, obligations to Maruho for Cutanea acquisition financing ($7.3 million) and profit sharing, and potential milestone payments to Ferrer for Xepi® sales. A legal settlement liability of $11.3 million remains, with Biofrontera AG responsible for $5.6 million. The company also maintains a 401(k) plan with matching contributions (in thousands) | (in thousands) | Future lease commitments | | :------------- | :----------------------- | | Remainder of 2022 | $164 | | 2023 | $565 | | 2024 | $541 | | 2025 | $389 | | Total | $1,659 | - The company is obligated to repay Maruho **$3.6 million** by December 31, 2022, and **$3.7 million** by December 31, 2023, for start-up cost financing related to the Cutanea acquisition[97](index=97&type=chunk) - A legal settlement liability of **$11.3 million** remains, with Biofrontera AG responsible for **$5.6 million**, though both parties are jointly and severally liable[102](index=102&type=chunk) [24. Retirement Plan](index=25&type=section&id=24.%20Retirement%20Plan) The company offers a 401(k) Plan to all eligible employees, matching 50% of employee contributions up to 6% of their salary. Matching contribution costs were $0.1 million for the three months and $0.2 million for the nine months ended September 30, 2022 - The company matches **50% of employee 401(k) contributions** up to a maximum of **6% of their salary**[103](index=103&type=chunk) (in millions) | (in millions) | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2022 | | :------------ | :-------------------------- | :-------------------------- | | Matching contribution costs | $0.1 | $0.2 | [25. Subsequent Events](index=25&type=section&id=25.%20Subsequent%20Events) Subsequent events after September 30, 2022, include the adoption of a stockholder rights plan on October 13, 2022, to prevent hostile takeovers, and the acquisition of 4,224,683 shares (7.45%) of Biofrontera AG's outstanding ordinary shares through private exchange agreements and a loan amendment - On October 13, 2022, the Board adopted a Stockholder Rights Plan, effective immediately, to protect against beneficial ownership of **20% or more** of common stock without Board approval[106](index=106&type=chunk)[107](index=107&type=chunk) - As of November 8, 2022, the company acquired a total of **4,224,683 shares**, representing **7.45% of Biofrontera AG's outstanding ordinary shares**, through private exchange agreements and a loan amendment[111](index=111&type=chunk)[112](index=112&type=chunk)[113](index=113&type=chunk) [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=ITEM%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, condition, and future outlook, discussing key factors affecting operations, detailed results for the three and nine months ended September 30, 2022, liquidity, capital resources, and critical accounting estimates [Forward-Looking Statements](index=27&type=section&id=Forward-Looking%20Statements) This section highlights inherent uncertainties and risks associated with forward-looking statements regarding future financial performance, product development, and regulatory outcomes - The report contains forward-looking statements regarding expenses, future revenue, capital requirements, product efficacy, market timelines, and regulatory approvals, which are subject to various known and unknown risks[115](index=115&type=chunk) - Key risk factors include reliance on licensed product sales, competitor success, supply chain issues, COVID-19 impact, insurance coverage, regulatory changes, competition, profitability, financing needs, and internal control weaknesses[116](index=116&type=chunk) [Overview](index=28&type=section&id=Overview) Biofrontera Inc. is a U.S.-based biopharmaceutical company focused on commercializing dermatological products, with strategic objectives for sales expansion and portfolio growth - Biofrontera Inc. is a U.S.-based biopharmaceutical company commercializing dermatological products, primarily Ameluz® for actinic keratoses and Xepi® for impetigo[120](index=120&type=chunk)[121](index=121&type=chunk)[122](index=122&type=chunk) - Strategic objectives include expanding Ameluz® and Xepi® sales in the U.S., leveraging future approvals, and expanding the product portfolio through in-licensing, asset acquisition, or share acquisition, including potentially acquiring shares of former parent Biofrontera AG[123](index=123&type=chunk)[124](index=124&type=chunk) - The company's long-term financial objectives are consistent revenue growth and expanding operating margins, driven by licensed product sales expansion and improved operating efficiencies[126](index=126&type=chunk) [Key factors affecting our performance](index=29&type=section&id=Key%20factors%20affecting%20our%20performance) Key factors influencing performance include seasonality, the lingering impact of COVID-19 on demand, and supply chain disruptions, particularly for Xepi® - Revenue is subject to seasonality, historically higher in the first and fourth quarters due to traditional photodynamic therapy treatments[127](index=127&type=chunk) - COVID-19 significantly impacted demand for licensed products, causing declines in 2020, with a revenue recovery observed in late 2021 and early 2022, though the full extent of future impact remains uncertain[128](index=128&type=chunk) - Supply chain issues, particularly third-party manufacturing delays for Xepi® due to a manufacturer's bankruptcy, are expected to delay Xepi® shipments for the next 15 months, though Ameluz® sales are expected to mitigate the impact on total revenues[130](index=130&type=chunk) [Components of Our Results of Operations](index=30&type=section&id=Components%20of%20Our%20Results%20of%20Operations) This section details the components of the company's financial results, including product revenue, operating expenses, and non-operating items like fair value adjustments - Product revenue is generated from sales of Ameluz, RhodoLED lamps, and Xepi, net of discounts, rebates, and other incentives, with Ameluz being the primary contributor[131](index=131&type=chunk) - Operating expenses include cost of revenues (related party for Ameluz/RhodoLED, other for Xepi), selling, general and administrative expenses (including sales force, marketing, professional fees, and intangible asset amortization), and related party SG&A for services from Biofrontera AG[134](index=134&type=chunk)[135](index=135&type=chunk)[136](index=136&type=chunk) - Non-operating items affecting results include changes in fair value of contingent consideration (from Cutanea acquisition) and warrant liabilities (from private placement financings), as well as interest expense and other income[138](index=138&type=chunk)[139](index=139&type=chunk)[140](index=140&type=chunk)[141](index=141&type=chunk) [Results of Operations](index=32&type=section&id=Results%20of%20Operations) This section provides a detailed comparison of the company's financial performance for the three and nine months ended September 30, 2022 and 2021 Comparison of Three Months Ended September 30, 2022 and 2021 (in thousands) | Metric | 2022 | 2021 | Change | | :----- | :--- | :--- | :----- | | Revenues, net | $4,322 | $4,334 | $(12) | | Total operating expenses | $7,961 | $20,439 | $(12,478) | | Loss from operations | $(3,639) | $(16,105) | $12,466 | | Net loss | $(2,566) | $(16,012) | $13,446 | - Selling, general and administrative expenses decreased by **$9.3 million** (**54.6%**) for the three months ended September 30, 2022, primarily due to a **$11.3 million** legal settlement expense incurred in 2021[144](index=144&type=chunk)[145](index=145&type=chunk) Comparison of Nine Months Ended September 30, 2022 and 2021 (in thousands) | Metric | 2022 | 2021 | Change | | :----- | :--- | :--- | :----- | | Product revenues, net | $18,467 | $14,890 | $3,577 | | Revenues, net | $18,530 | $14,932 | $3,598 | | Total operating expenses | $31,491 | $38,253 | $(6,762) | | Loss from operations | $(12,961) | $(23,321) | $10,360 | | Net income (loss) | $2,145 | $(23,208) | $25,353 | - Net product revenue increased by **$3.6 million** (**24.0%**) for the nine months ended September 30, 2022, driven by higher Ameluz orders and a price increase[151](index=151&type=chunk) [Net Income (Loss) to Adjusted EBITDA Reconciliation](index=36&type=section&id=Net%20Income%20(Loss)%20to%20Adjusted%20EBITDA%20Reconciliation) This section reconciles net income (loss) to Adjusted EBITDA, a non-GAAP measure, providing insights into operational performance excluding certain non-cash and non-operating items - Adjusted EBITDA is a non-GAAP measure that excludes interest, taxes, depreciation, amortization, and certain non-operating items like changes in fair value of contingent consideration and warrant liabilities, stock-based compensation, and expensed issuance costs[158](index=158&type=chunk)[159](index=159&type=chunk)[160](index=160&type=chunk)[161](index=161&type=chunk)[162](index=162&type=chunk) Adjusted EBITDA Reconciliation (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income (loss) | $(2,566) | $(16,012) | $2,145 | $(23,208) | | EBITDA | $(2,346) | $(15,786) | $2,730 | $(22,493) | | Adjusted EBITDA | $(5,011) | $(3,836) | $(14,123) | $(9,545) | | Adjusted EBITDA margin | -115.9% | -88.5% | -76.2% | -63.9% | - Adjusted EBITDA decreased for both the three-month and nine-month periods ended September 30, 2022, compared to the prior year, with margins also decreasing[165](index=165&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's sources and uses of cash, current liquidity position, and future capital requirements for operations and strategic initiatives - Primary liquidity sources are existing cash balances and equity financing transactions; cash and cash equivalents were **$27.5 million** as of September 30, 2022[166](index=166&type=chunk) - The company incurred operating losses of **$13.0 million** and net cash outflows from operations of **$7.9 million** for the nine months ended September 30, 2022, with an accumulated deficit of **$76.7 million**[167](index=167&type=chunk) - Short-term cash requirements include working capital, auto leases, Maruho start-up payments (**$7.3 million**), and legal settlement expenses (**$5.6 million** after reimbursement)[168](index=168&type=chunk) Cash Flow Summary (in thousands) | Activity | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------- | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(7,928) | $(5,725) | | Net cash used in investing activities | $(3,070) | $(2) | | Net cash provided by (used) in financing activities | $14,021 | $(638) | | Net increase (decrease) in cash and restricted cash | $3,023 | $(6,365) | [Accounting Policies and Significant Judgments and Estimates](index=39&type=section&id=Accounting%20Policies%20and%20Significant%20Judgments%20and%20Estimates) This section outlines the critical accounting policies and significant management judgments and estimates used in preparing the financial statements - The preparation of financial statements requires management to use estimates and assumptions, particularly in fair value measurements of contingent consideration and warrant liabilities, and stock compensation[180](index=180&type=chunk) [Off-balance Sheet Arrangements](index=39&type=section&id=Off-balance%20Sheet%20Arrangements) This section confirms the absence of any off-balance sheet arrangements during the reporting periods - The company did not have any off-balance sheet arrangements during the periods presented[183](index=183&type=chunk) [Emerging Growth Company Status](index=39&type=section&id=Emerging%20Growth%20Company%20Status) This section notes the company's status as an 'emerging growth company' and its election to use an extended transition period for new accounting standards - As an 'emerging growth company,' Biofrontera Inc. has elected to take advantage of the extended transition period for complying with new or revised accounting standards[184](index=184&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Biofrontera Inc. is not required to provide quantitative and qualitative disclosures about market risk in this Form 10-Q - The company is not required to provide market risk disclosures as it qualifies as a 'smaller reporting company'[185](index=185&type=chunk) [ITEM 4. Controls and Procedures](index=39&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were not effective as of September 30, 2022, due to an un-remediated material weakness in the oversight of work performed by third-party service providers, specifically regarding valuation errors for the Xepi intangible asset - Disclosure controls and procedures were not effective as of September 30, 2022, due to a material weakness[185](index=185&type=chunk) - The material weakness relates to insufficient management review control over information produced by third-party service providers, leading to computational and information errors in the valuation of the Xepi intangible asset[187](index=187&type=chunk) - Remediation efforts, including formalized reviews and additional steps for engaging specialists, are in process but not yet fully remediated as of September 30, 2022[188](index=188&type=chunk)[189](index=189&type=chunk) PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, safety disclosures, other information, and exhibits for the reporting period [ITEM 1. Legal Proceedings](index=41&type=section&id=ITEM%201.%20Legal%20Proceedings) Information regarding legal proceedings is incorporated by reference from Note 23 – Commitments and Contingencies in Part I, Item 1 of this report - Legal proceedings information is detailed in Note 23 – Commitments and Contingencies[193](index=193&type=chunk) [ITEM 1A. Risk Factors](index=41&type=section&id=ITEM%201A.%20Risk%20Factors) As a smaller reporting company, Biofrontera Inc. is not required to provide risk factor disclosures in this Form 10-Q, but refers readers to its Annual Report on Form 10-K for a comprehensive discussion - The company, as a smaller reporting company, is not required to provide risk factor disclosure in this Form 10-Q[194](index=194&type=chunk) - Readers are directed to the Annual Report on Form 10-K for the fiscal year ended December 31, 2021, for a discussion of important risk factors[194](index=194&type=chunk) [ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=41&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) All proceeds from the company's Initial Public Offering (IPO), which became effective on October 28, 2021, have been used for working capital and general corporate purposes as of September 30, 2022, with no material change in the planned use of proceeds - All IPO proceeds have been used for working capital and general corporate purposes as of September 30, 2022[196](index=196&type=chunk) - There was no material change in the planned use of proceeds from the IPO[196](index=196&type=chunk) [ITEM 3. Defaults Upon Senior Securities](index=41&type=section&id=ITEM%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities - No defaults upon senior securities were reported[196](index=196&type=chunk) [ITEM 4. Mine Safety Disclosures](index=41&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Mine Safety Disclosures are not applicable[196](index=196&type=chunk) [ITEM 5. Other Information](index=41&type=section&id=ITEM%205.%20Other%20Information) No other information is reported under this item - No other information is reported[196](index=196&type=chunk) [ITEM 6. Exhibits](index=42&type=section&id=ITEM%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including certifications, XBRL documents, and other agreements, some of which are incorporated by reference - Exhibits include certifications (Sections 302 and 906 of Sarbanes Oxley Act), Inline XBRL documents, and forms related to inducement warrants[198](index=198&type=chunk)[199](index=199&type=chunk) [Signatures](index=42&type=section&id=Signatures) The report is duly signed on November 14, 2022, by Erica Monaco, Chief Executive Officer, and Fred Leffler, Chief Financial Officer, certifying its contents - The report was signed by Erica Monaco, Chief Executive Officer, and Fred Leffler, Chief Financial Officer, on November 14, 2022[201](index=201&type=chunk)

Financial Data and Key Metrics Changes - Total revenues for the first half of 2022 were $14.2 million, an increase of 34% compared to $10.6 million in the same period last year, primarily driven by a $3.5 million increase in Ameluz revenue [13][14] - Total operating expenses for the first half of 2022 were $23.5 million, up from $17.8 million in the first half of 2021, with selling, general and administrative expenses increasing by 66% [14] - Net income for the first half of 2022 was $4.7 million or $0.26 per diluted share, compared to a net loss of $7.2 million or a loss of $0.90 per share for the first half of 2021 [14] - Adjusted EBITDA was negative $11.3 million for the first half of 2022, compared to negative $5.7 million for the same period in 2021 [15] Business Line Data and Key Metrics Changes - In Q2 2022, total revenues were $4.5 million, a decrease of 24% from $5.9 million a year ago, attributed to advanced purchasing of Ameluz in Q1 prior to a price increase [17] - Cost of revenues declined by 18% in Q2 2022, primarily due to lower Ameluz sales [17] - The net loss for Q2 2022 was $0.9 million, compared to a net loss of $3.7 million in Q2 2021 [18] Market Data and Key Metrics Changes - Biofrontera's revenue for the first half of 2022 was the highest ever, up more than 102% compared to 2020 and up more than 22% versus the pre-COVID year 2019 [19] - The company has increased headcount by approximately 20% since Q2 2021, positioning for greater market penetration [21] Company Strategy and Development Direction - The company aims to achieve deeper sales penetration among current customer accounts and plans to expand the salesforce in 2023 [22][23] - Biofrontera's commercial strategy focuses on educating the industry on the importance of field therapy and raising awareness of product efficacy [24][25] - The company is committed to strengthening its intellectual property and has received patents for PDT and Ameluz, enhancing its competitive position [32][35] Management's Comments on Operating Environment and Future Outlook - Management reaffirmed financial guidance for 2022, expecting total revenues to increase by at least 30% compared to 2021 [22] - The management highlighted the importance of recent changes in CPT codes for PDT, which have improved reimbursement for practitioners [78] - The company believes that the growing therapeutic value and recognition among dermatologists will drive market share growth [51] Other Important Information - Biofrontera's new Ameluz marketing campaign received a Gold Award of Excellence from The Communicator Awards [27] - The company has initiated support for patient advocacy and awareness events to address solar damage and non-melanoma skin cancer [26] Q&A Session Summary Question: Can you help us with the likely magnitude of pre-price hike buy-in in the first quarter? - Management acknowledged a dip in Q2 due to advanced purchasing in Q1 but did not specify an exact amount [53] Question: Is the current quarterly SG&A rate a good go-forward rate for the quarters and the second half? - Management indicated that some expenses in SG&A were related to financing transactions and legal expenses, which are not part of a normal run rate [54] Question: Can we have a trial by trial update of ongoing trials and any changes to the timing of the expectation of data release? - Management provided updates on various clinical trials, including a Phase 3 study for superficial basal cell carcinoma and a Phase 2 study for moderate to severe acne, with expectations for readouts in 2023 [56][61] Question: Have you been generating any revenue from Xepi? - Management confirmed that they have not focused on Xepi recently due to manufacturing issues but are managing inventory while supporting sales [64] Question: Looking forward, what can we expect regarding sales and marketing expenses? - Management indicated that while there won't be massive financial expansion, there will be development in sales and marketing, with benefits expected to pick up in Q3 and Q4 [66] Question: What is the IP position in the United States regarding the novel illumination protocol? - Management confirmed that a patent has been filed in the U.S. and they are confident in its approval, which would further protect Ameluz [70] Question: Is Biofrontera considering M&A as an additional lever for growth? - Management stated they are open to evaluating various ways to expand the business, including potential M&A opportunities [74][75] Question: Why do you believe that revenue growth is going to accelerate compared to earlier years? - Management cited investments in commercial infrastructure and changes in reimbursement as key factors for expected revenue acceleration [78][80]

Filing Information This section provides details on Biofrontera Inc.'s Form 10-Q filing, including its registration status and filer classifications [Form 10-Q Details](index=1&type=section&id=Form%2010-Q%20Details) This document is a Quarterly Report on Form 10-Q for Biofrontera Inc. for the period ended June 30, 2022. The company is registered on The Nasdaq Stock Market LLC under the trading symbol BFRI and is classified as a non-accelerated filer and an emerging growth company - Biofrontera Inc., a Delaware corporation, filed a Quarterly Report on Form 10-Q for the period ended June 30, 2022[1](index=1&type=chunk) Securities Information | Securities Information | | :--------------------- | | Trading Symbol | BFRI | | Exchange | The Nasdaq Stock Market LLC | Filer Status | Filer Status | | :-------------------- | | Large accelerated filer | ☐ | | Accelerated filer | ☐ | | Non-accelerated filer | ☒ | | Smaller reporting company | ☒ | | Emerging growth company | ☒ | - As of August 11, 2022, there were **23,550,960 shares of common stock** outstanding[4](index=4&type=chunk) PART I. FINANCIAL INFORMATION This part presents the company's unaudited interim financial statements, including balance sheets, statements of operations, cash flows, and comprehensive notes, along with management's discussion and analysis [ITEM 1. Financial Statements](index=4&type=section&id=ITEM%201.%20Financial%20Statements) This section presents the unaudited interim financial statements of Biofrontera Inc., including the Balance Sheets, Statements of Operations, Statements of Stockholders' Equity, and Statements of Cash Flows, along with comprehensive notes detailing the company's accounting policies, financial instruments, revenue, and various assets and liabilities [Balance Sheets](index=4&type=section&id=Balance%20Sheets) This section details the company's financial position, showing assets, liabilities, and stockholders' equity at specific points in time Balance Sheet Summary | (In thousands) | June 30, 2022 (Unaudited) | December 31, 2021 | | :----------------------------------- | :-------------------------- | :------------------ | | **ASSETS** | | | | Cash and cash equivalents | $31,913 | $24,545 | | Total current assets | 46,981 | 46,421 | | Total assets | $53,626 | $53,219 | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Total current liabilities | 14,876 | 13,836 | | Warrant liability | 8,046 | 12,854 | | Total liabilities | $36,393 | $41,881 | | Total stockholders' equity | 17,233 | 11,338 | | Total liabilities and stockholders' equity | $53,626 | $53,219 | - Cash and cash equivalents **increased by $7.368 million** from December 31, 2021, to June 30, 2022[6](index=6&type=chunk)[11](index=11&type=chunk) - Total stockholders' equity **increased from $11.338 million to $17.233 million** from December 31, 2021, to June 30, 2022[6](index=6&type=chunk) [Statements of Operations](index=5&type=section&id=Statements%20of%20Operations) This section outlines the company's revenues, expenses, and net income or loss over specific reporting periods Statements of Operations Summary | (In thousands, except per share amounts) | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues, net | $4,457 | $5,855 | $14,208 | $10,599 | | Total operating expenses | 10,669 | 9,542 | 23,530 | 17,814 | | Loss from operations | (6,212) | (3,687) | (9,322) | (7,215) | | Change in fair value of warrants | 5,371 | - | 14,082 | - | | Net income (loss) | $(850) | $(3,661) | $4,711 | $(7,195) | | Basic EPS | $(0.05) | $(0.46) | $0.26 | $(0.90) | | Diluted EPS | $(0.05) | $(0.46) | $0.26 | $(0.90) | - Net income for the six months ended June 30, 2022, was **$4.711 million**, a significant improvement from a net loss of $7.195 million in the prior year, primarily due to a **$14.082 million gain** from the change in fair value of warrants[7](index=7&type=chunk) - Total revenues for the six months ended June 30, 2022, **increased by 34.1% to $14.208 million** compared to $10.599 million in the same period of 2021[7](index=7&type=chunk) [Statements of Stockholders' Equity](index=6&type=section&id=Statements%20of%20Stockholders'%20Equity) This section presents changes in the company's equity, including common stock, additional paid-in capital, and accumulated deficit Statements of Stockholders' Equity Summary | (In thousands, except number of shares) | Common Shares | Common Stock Amount | Additional Paid-In Capital | Accumulated Deficit | Total Stockholders' Equity | | :-------------------------------------- | :------------ | :------------------ | :------------------------- | :------------------ | :------------------------- | | Balance, December 31, 2021 | 17,104,749 | $17 | $90,200 | $(78,879) | $11,338 | | Issuance of common stock and warrants under private placement, net of issuance costs | 1,850,000 | 2 | 114 | - | 116 | | Stock based compensation | - | - | 1,068 | - | 1,068 | | Net income | - | - | - | 4,711 | 4,711 | | Balance, June 30, 2022 | 19,011,438 | $19 | $91,382 | $(74,168) | $17,233 | - Total stockholders' equity **increased from $11.338 million to $17.233 million** from December 31, 2021, to June 30, 2022, driven by net income and proceeds from private placement[8](index=8&type=chunk) - Common shares outstanding **increased by 1,906,689 shares** from December 31, 2021, to June 30, 2022, primarily due to a private placement[8](index=8&type=chunk) [Statements of Cash Flows](index=7&type=section&id=Statements%20of%20Cash%20Flows) This section reports the cash generated and used by the company across its operating, investing, and financing activities Statements of Cash Flows Summary | (In Thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net income (loss) | $4,711 | $(7,195) | | Cash flows used in operating activities | $(1,987) | $(4,508) | | Cash flows used in investing activities | $(36) | $(3) | | Cash flows provided by (used) in financing activities | $9,391 | $(517) | | Net increase (decrease) in cash and cash equivalents | $7,368 | $(5,028) | | Cash, cash equivalents and restricted cash, at the end of the period | $32,110 | $3,249 | - Net cash used in operating activities **used $2.0 million of cash in H1 2022**, a decrease from $4.5 million used in H1 2021[11](index=11&type=chunk) - Financing activities **provided $9.391 million in cash** during H1 2022, primarily from the issuance of common stock and warrants in a private placement[11](index=11&type=chunk) [Notes to Financial Statements](index=8&type=section&id=Notes%20to%20Financial%20Statements) This section provides detailed explanations and additional information regarding the figures presented in the financial statements [Note 1. Business Overview](index=8&type=section&id=Note%201.%20Business%20Overview) Biofrontera Inc. is a biopharmaceutical company focused on dermatological products, primarily Ameluz® for actinic keratoses and Xepi® for impetigo. The company reported significant losses since 2015 but expects current cash and recent warrant exercise proceeds to fund operations for at least the next twelve months - The company specializes in commercializing pharmaceutical products for dermatological conditions, with principal licensed products **Ameluz® for actinic keratoses** and **Xepi® for impetigo**[13](index=13&type=chunk)[14](index=14&type=chunk)[15](index=15&type=chunk) - As of June 30, 2022, cash and cash equivalents were **$31.9 million**, up from $24.5 million at December 31, 2021, bolstered by **$9.4 million** from a May 2022 private placement[16](index=16&type=chunk) - The company incurred operating losses of **$9.3 million** and **$7.2 million** for the six months ended June 30, 2022 and 2021, respectively, with an accumulated deficit of **$74.2 million** as of June 30, 2022[17](index=17&type=chunk) - Expected cash requirements include working capital, Maruho start-up payments (**$7.3 million**), and legal settlement expenses (**$5.6 million** after reimbursement)[18](index=18&type=chunk) - Subsequent to June 30, 2022, an investor exercised warrants for **$4.6 million gross proceeds**, which, combined with existing cash, is expected to fund operations for at least the next twelve months[20](index=20&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=10&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) The unaudited interim financial statements are prepared in accordance with SEC rules and U.S. GAAP, using estimates and assumptions for various financial items. The company is evaluating the impact of recently issued accounting pronouncements, ASU 2016-02 (Leases) and ASU 2016-13 (Credit Losses), which will be effective for the company in fiscal years beginning after December 15, 2022, and January 1, 2023, respectively - The financial statements are prepared under **U.S. GAAP**, with certain information condensed or omitted per SEC interim reporting rules[21](index=21&type=chunk) - Key estimates and assumptions are made for valuation allowances, contingent consideration, warrant liabilities, intangible assets, product sales allowances, share-based payments, and income taxes[23](index=23&type=chunk) - The company is evaluating the impact of **ASU 2016-02 (Leases)**, effective for fiscal years beginning after December 15, 2022, and **ASU 2016-13 (Credit Losses)**, effective January 1, 2023[24](index=24&type=chunk)[25](index=25&type=chunk) [Note 3. Acquisition Contract Liabilities](index=10&type=section&id=Note%203.%20Acquisition%20Contract%20Liabilities) Acquisition contract liabilities primarily stem from the 2019 acquisition of Cutanea Life Sciences, Inc. from Maruho, including $7.3 million in start-up cost financing repayable by the end of 2023 and contingent consideration for profit sharing until 2030. The contingent consideration's fair value decreased from $6.2 million at December 31, 2021, to $4.3 million at June 30, 2022 - The company acquired Cutanea Life Sciences, Inc. from Maruho in 2019, which included **$7.3 million in start-up cost financing** repayable by the end of 2023[26](index=26&type=chunk)[27](index=27&type=chunk) - An earn-out arrangement requires equal sharing of product profit from Cutanea products with Maruho until 2030, recorded as contingent consideration[27](index=27&type=chunk) Acquisition Contract Liabilities Summary | (in thousands) | June 30, 2022 | December 31, 2021 | | :------------------------------------ | :------------ | :---------------- | | Contingent consideration (total) | $4,300 | $6,200 | | Start-up cost financing (total) | 7,300 | 7,300 | | Contract asset (total) | (537) | (716) | | Total acquisition contract liabilities, net | $11,063 | $12,784 | [Note 4. Fair Value Measurements](index=11&type=section&id=Note%204.%20Fair%20Value%20Measurements) The company measures contingent consideration and warrant liabilities at fair value on a recurring basis. Contingent consideration, related to Cutanea product profits, is a Level 3 measurement, valued using a scenario-based method. Warrant liabilities, including 2021 and 2022 Purchase Warrants, are also Level 3, valued using a Black-Scholes model, while 2022 Pre-funded Warrants are Level 2 Fair Value Measurements Summary | (in thousands) | Level | June 30, 2022 | December 31, 2021 | | :------------------------------------ | :---- | :------------ | :---------------- | | Contingent Consideration | 3 | $4,300 | $6,200 | | Warrant liability – 2021 Common warrant | 3 | $1,743 | $12,854 | | Warrant liability - 2022 Common warrant | 3 | $3,385 | $ - | | Warrant liability- 2022 Common warrant (Pre-funded) | 2 | $2,918 | $ - | - Contingent consideration **decreased by $1.9 million** from December 31, 2021, to June 30, 2022, reflecting changes in estimated product profits[34](index=34&type=chunk) - Warrant liability **decreased from $12.854 million to $8.046 million** from December 31, 2021, to June 30, 2022, despite the issuance of new liabilities, due to a **$14.082 million change in fair value**[38](index=38&type=chunk) [Note 5. Revenue](index=13&type=section&id=Note%205.%20Revenue) Revenue is primarily generated from sales of Ameluz®, BF-RhodoLED® lamps, and Xepi®, with Ameluz® being the most significant contributor. Related party revenue is minimal and comes from a clinical lamp lease agreement. Product revenue allowances and reserves increased to $331,000 at June 30, 2022, from $246,000 at December 31, 2021 - Primary revenue sources are **Ameluz®, BF-RhodoLED® lamps, and Xepi®**, with Ameluz® sales being the most significant[40](index=40&type=chunk) - Related party revenue is generated from an agreement with Biofrontera Bioscience GmbH for BF-RhodoLED® leasing and installation services[40](index=40&type=chunk) Product Revenue Allowances and Reserves | (in thousands) | Balance at December 31, 2021 | Provision related to current period sales | Credit or payments made during the period | Balance at June 30, 2022 | | :------------------------------------ | :--------------------------- | :---------------------------------------- | :---------------------------------------- | :----------------------- | | Returns | $43 | $5 | $(5) | $43 | | Co-pay assistance program | $101 | $380 | $(300) | $181 | | Prompt pay discounts | $48 | $11 | $(20) | $39 | | Government payor rebates | $54 | $129 | $(115) | $68 | | Total | $246 | $517 | $(440) | $331 | [Note 6. Accounts Receivable, net](index=13&type=section&id=Note%206.%20Accounts%20Receivable%2C%20net) Accounts receivables primarily arise from sales of Ameluz, BF-RhodoLED, and Xepi, with all expected to be settled within twelve months. The allowance for doubtful accounts increased significantly to $126,000 as of June 30, 2022, from $18,000 at December 31, 2021 - Accounts receivables are mainly from sales of **Ameluz, BF-RhodoLED, and Xepi**, with expected settlement within twelve months[42](index=42&type=chunk) Allowance for Doubtful Accounts | Date | Amount (USD) | | :------------------------------ | :------------------------------ | | June 30, 2022 | $126,000 | | December 31, 2021 | $18,000 | [Note 7. Other Receivables, Related Party](index=13&type=section&id=Note%207.%20Other%20Receivables%2C%20Related%20Party) The company holds a $5.6 million receivable from Biofrontera AG for its share of a legal settlement, with a contractual right to repayment and remedies for late payments. An additional $0.3 million in related party receivables pertains to service agreements and chargebacks - A **$5.6 million receivable** is due from Biofrontera AG for its 50% share of a legal settlement, with repayment rights and remedies for late payments[43](index=43&type=chunk) - The remaining **$0.3 million in other receivables** from related parties relates to service agreements and chargebacks[45](index=45&type=chunk) [Note 8. Inventories](index=14&type=section&id=Note%208.%20Inventories) Inventories consist of Ameluz, Xepi®, and BF-RhodoLED finished products, valued using the FIFO method. A provision for inventory obsolescence of $0.1 million was recorded for BF-RhodoLED devices for the three and six months ended June 30, 2022 - Inventories include **Ameluz, Xepi®, and BF-RhodoLED finished products**, with consumption assumed by the FIFO method[46](index=46&type=chunk) - A **$0.1 million provision for BF-RhodoLED device obsolescence** was recorded for the three and six months ended June 30, 2022[46](index=46&type=chunk) [Note 9. Prepaid Expenses and Other Current Assets](index=14&type=section&id=Note%209.%20Prepaid%20Expenses%20and%20Other%20Current%20Assets) Prepaid expenses and other current assets decreased significantly from $4.987 million at December 31, 2021, to $1.214 million at June 30, 2022, primarily due to the absence of a receivable for common stock warrants proceeds Prepaid Expenses and Other Current Assets Summary | (in thousands) | June 30, 2022 | December 31, 2021 | | :------------------------------------ | :------------ | :---------------- | | Receivable for common stock warrants proceeds | $ - | $3,258 | | Prepaid expenses | 599 | $824 | | Security deposits | 128 | 149 | | Other | 487 | 756 | | Total | $1,214 | $4,987 | [Note 10. Property and Equipment, Net](index=14&type=section&id=Note%2010.%20Property%20and%20Equipment%2C%20Net) Property and equipment, net, decreased slightly from $267,000 at December 31, 2021, to $248,000 at June 30, 2022. Depreciation expense for the six months ended June 30, 2022, was $54,000 Property and Equipment, Net Summary | (in thousands) | June 30, 2022 | December 31, 2021 | | :------------------------------------ | :------------ | :---------------- | | Property and equipment, gross | $708 | $673 | | Less: Accumulated depreciation | (460) | (406) | | Property and equipment, net | $248 | $267 | - Depreciation expense for the six months ended June 30, 2022, was **$54,000**, included in selling, general and administrative expense[48](index=48&type=chunk) [Note 11. Intangible Asset, Net](index=14&type=section&id=Note%2011.%20Intangible%20Asset%2C%20Net) The Xepi® license, recorded at an acquisition-date fair value of $4.6 million, is amortized over 11 years. The net intangible asset decreased to $3.241 million at June 30, 2022, from $3.450 million at December 31, 2021, due to amortization. No impairment charges were recognized Intangible Asset, Net Summary | (in thousands) | June 30, 2022 | December 31, 2021 | | :------------------------------------ | :------------ | :---------------- | | Xepi® license | $4,600 | $4,600 | | Less: Accumulated amortization | (1,359) | (1,150) | | Intangible asset, net | $3,241 | $3,450 | - Amortization expense for the six months ended June 30, 2022, was **$0.2 million**[50](index=50&type=chunk) - No impairment charges were recognized for the Xepi® license during the three or six months ended June 30, 2022 or 2021[51](index=51&type=chunk) [Note 12. Statement of Cash Flows Reconciliation](index=15&type=section&id=Note%2012.%20Statement%20of%20Cash%20Flows%20Reconciliation) The total cash, cash equivalents, and restricted cash increased to $32.110 million at June 30, 2022, from $24.742 million at December 31, 2021, with restricted cash remaining stable Cash, Cash Equivalents, and Restricted Cash Reconciliation | (in thousands) | June 30, 2022 | December 31, 2021 | | :----------------------------------------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $31,913 | $24,545 | | Short-term restricted cash | 47 | 47 | | Long-term restricted cash | 150 | 150 | | Total cash, cash equivalent, and restricted cash shown on the statements of cash flows | $32,110 | $24,742 | [Note 13. Accrued Expenses and Other Current Liabilities](index=15&type=section&id=Note%2013.%20Accrued%20Expenses%20and%20Other%20Current%20Liabilities) Accrued expenses and other current liabilities slightly decreased to $9.413 million at June 30, 2022, from $9.654 million at December 31, 2021. The largest component remains the legal settlement liability of $5.625 million Accrued Expenses and Other Current Liabilities Summary | (in thousands) | June 30, 2022 | December 31, 2021 | | :------------------------------------ | :------------ | :---------------- | | Legal settlement | $5,625 | $5,625 | | Employee compensation and benefits | 2,302 | 2,384 | | Professional fees | 659 | 570 | | Product revenue allowances and reserves | 331 | 246 | | Other | 496 | 829 | | Total | $9,413 | $9,654 | [Note 14. Other Long-Term Liabilities](index=15&type=section&id=Note%2014.%20Other%20Long-Term%20Liabilities) Other long-term liabilities remained stable at $5.650 million at June 30, 2022, primarily consisting of the noncurrent portion of the legal settlement liability Other Long-Term Liabilities Summary | (in thousands) | June 30, 2022 | December 31, 2021 | | :------------------------------------ | :------------ | :---------------- | | Legal settlement – noncurrent | $5,625 | $5,625 | | Other | 25 | 24 | | Total | $5,650 | $5,649 | [Note 15. Income Taxes](index=15&type=section&id=Note%2015.%20Income%20Taxes) Due to cumulative net losses since inception, Biofrontera Inc. has recorded no federal income tax provision. The company maintains a full valuation allowance and has no unrecognized tax benefits or accrued interest related to uncertain tax positions - **No federal income tax provision** has been recorded due to net losses incurred since inception[55](index=55&type=chunk) - The company maintains a full valuation allowance due to its cumulative loss position[56](index=56&type=chunk) - Income tax expense for the periods ended June 30, 2022 and 2021, relates solely to state income taxes[55](index=55&type=chunk) [Note 16. Related Party Transactions](index=16&type=section&id=Note%2016.%20Related%20Party%20Transactions) Related party transactions include an exclusive license and supply agreement for Ameluz® with Biofrontera Pharma GmbH, service agreements with Biofrontera AG for IT and other support, and a clinical lamp lease agreement with Biofrontera Bioscience GmbH. The company also has a $5.6 million receivable from Biofrontera AG for a legal settlement - Purchases of licensed products (Ameluz and RhodoLED lamps) from Biofrontera Pharma GmbH were **$11.5 million** for the six months ended June 30, 2022, up from $3.9 million in the prior year[59](index=59&type=chunk) - Expenses for services from Biofrontera AG (IT, regulatory, medical affairs, pharmacovigilance, investor relations) were **$0.4 million** for the six months ended June 30, 2022[60](index=60&type=chunk) - The company recognized **$0.1 million in interest income** for the six months ended June 30, 2022, related to the $5.6 million receivable from Biofrontera AG for a legal settlement[66](index=66&type=chunk) [Note 17. Restructuring costs](index=17&type=section&id=Note%2017.%20Restructuring%20costs) No restructuring costs were incurred for the three and six months ended June 30, 2022. In contrast, $0.5 million in restructuring costs were incurred for the six months ended June 30, 2021, primarily related to winding down Cutanea's operations, which were subsequently reimbursed by Maruho - **No restructuring costs** were incurred for the three and six months ended June 30, 2022[67](index=67&type=chunk) - Restructuring costs of **$0.5 million** were incurred for the six months ended June 30, 2021, related to winding down Cutanea's operations and were reimbursed by Maruho[67](index=67&type=chunk) [Note 18. Stockholders' Equity](index=17&type=section&id=Note%2018.%20Stockholders'%20Equity) The company is authorized to issue 300 million common shares and 20 million preferred shares. In May 2022, a private placement generated $9.4 million gross proceeds from the issuance of 1,850,000 common shares and associated warrants. Common stockholders are not entitled to dividends and have no preemptive or conversion rights - The company is authorized to issue **300,000,000 shares of common stock** and **20,000,000 shares of preferred stock**[68](index=68&type=chunk) - In May 2022, a private placement generated **$9.4 million gross cash receipts** from the issuance of **1,850,000 common shares and warrants**[70](index=70&type=chunk) - Common stockholders are entitled to one vote per share, not entitled to dividends, and have no preemptive or conversion rights[69](index=69&type=chunk) [Note 19. Equity Incentive Plans and Share-Based Payments](index=17&type=section&id=Note%2019.%20Equity%20Incentive%20Plans%20and%20Share-Based%20Payments) The 2021 Omnibus Incentive Plan authorizes 2,750,000 shares for awards. During H1 2022, the company granted 1,081,812 non-qualified stock options and 343,512 Restricted Stock Units (RSUs), resulting in $1.1 million in share-based compensation expense for the six months ended June 30, 2022. Unrecognized compensation cost for options and RSUs totals $3.5 million - The 2021 Omnibus Incentive Plan authorizes **2,750,000 shares for awards**, with **2,693,311 shares** remaining eligible as of June 30, 2022[71](index=71&type=chunk) - During H1 2022, **1,081,812 non-qualified stock options** were granted with a weighted average exercise price of **$2.62**[79](index=79&type=chunk) - **343,512 Restricted Stock Units (RSUs)** were awarded in Q2 2022 with a grant-date fair value of **$0.9 million**[77](index=77&type=chunk)[81](index=81&type=chunk) - Share-based compensation expense for the six months ended June 30, 2022, was **$1.1 million** ($0.3 million for options, $0.8 million for RSUs)[75](index=75&type=chunk)[78](index=78&type=chunk) [Note 20. Interest Expense, net](index=20&type=section&id=Note%2020.%20Interest%20Expense%2C%20net) Net interest expense for the six months ended June 30, 2022, was $(71,000), a decrease from $(169,000) in the prior year. This includes contract asset interest expense related to the Cutanea acquisition and interest income from a related party receivable Interest Expense, Net Data | (in thousands) | For three months ended June 30, 2022 | For three months ended June 30, 2021 | For six months ended June 30, 2022 | For six months ended June 30, 2021 | | :------------------------------------ | :----------------------------------- | :----------------------------------- | :--------------------------------- | :--------------------------------- | | Interest expense | $(3) | $ - | $(7) | $ - | | Contract asset interest expense | $(89) | $(89) | $(179) | $(179) | | Interest income – related party | 53 | - | 110 | - | | Interest income – other | 1 | 4 | 5 | 10 | | Interest expense, net | $(38) | $(85) | $(71) | $(169) | - Contract asset interest expense of **$179,000** for the six months ended June 30, 2022, relates to the **$1.7 million contract asset** from Maruho's start-up cost financing[82](index=82&type=chunk) - Interest income from a related party was **$110,000** for the six months ended June 30, 2022[82](index=82&type=chunk) [Note 21. Other Income, net](index=20&type=section&id=Note%2021.%20Other%20Income%2C%20net) Other income, net, for the six months ended June 30, 2022, was $52,000, a decrease from $234,000 in the prior year. This change is primarily due to no reimbursed Share Purchase Agreement (SPA) costs in 2022, compared to $284,000 in 2021 Other Income, Net Data | (in thousands) | For three months ended June 30, 2022 | For three months ended June 30, 2021 | For six months ended June 30, 2022 | For six months ended June 30, 2021 | | :------------------------------------ | :----------------------------------- | :----------------------------------- | :--------------------------------- | :--------------------------------- | | Reimbursed SPA costs | $ - | $185 | $ - | $284 | | Other, net | 29 | (30) | 52 | (50) | | Other income, net | $29 | $155 | $52 | $234 | - Other, net, primarily includes gain (loss) on foreign currency transactions and gain on termination of operating leases[83](index=83&type=chunk) [Note 22. Net Earnings per Share](index=20&type=section&id=Note%2022.%20Net%20Earnings%20per%20Share) Basic and diluted net earnings per share for the six months ended June 30, 2022, were $0.26, a significant improvement from a loss of $(0.90) in the prior year. This was based on weighted-average common shares outstanding of 17,968,870 (basic) and 18,044,174 (diluted) Net Earnings Per Share Data | (in thousands, except share and per share data) | Three Months June 30, 2022 | Three Months June 30, 2021 | Six Months June 30, 2022 | Six Months June 30, 2021 | | :---------------------------------------------- | :------------------------- | :------------------------- | :----------------------- | :----------------------- | | Net income (loss) | $(850) | $(3,661) | $4,711 | $(7,195) | | Basic weighted average common shares outstanding | 18,823,497 | 8,000,000 | 17,968,870 | 8,000,000 | | Diluted weighted average common shares outstanding | 18,823,497 | 8,000,000 | 18,044,174 | 8,000,000 | | Basic EPS | $(0.05) | $(0.46) | $0.26 | $(0.90) | | Diluted EPS | $(0.05) | $(0.46) | $0.26 | $(0.90) | - Common stock warrants (**7,768,537**) and common stock options (**848,550**) were anti-dilutive for the six months ended June 30, 2022, and thus excluded from diluted EPS calculation[87](index=87&type=chunk) [Note 23. Commitments and Contingencies](index=22&type=section&id=Note%2023.%20Commitments%20and%20Contingencies) The company has lease commitments totaling $1.849 million through 2025 for its corporate headquarters and field sales force autos. It is obligated to repay $7.3 million in start-up cost financing to Maruho by December 31, 2023, and share product profits until 2030. Potential milestone payments to Ferrer for Xepi® could reach $6 million. A legal settlement liability of $11.3 million remains, with $5.6 million due from Biofrontera AG Future Lease Commitments | (in thousands) | Future lease commitments | | :------------------------------------ | :----------------------- | | Remainder of 2022 | $414 | | 2023 | 609 | | 2024 | 474 | | 2025 | 352 | | Total | $1,849 | - The company is obligated to repay Maruho **$3.6 million by December 31, 2022**, and **$3.7 million by December 31, 2023**, for start-up cost financing[91](index=91&type=chunk) - Potential milestone payments to Ferrer for Xepi® could total **$6 million** if annual net sales exceed $25 million and $50 million, respectively[93](index=93&type=chunk) - A legal settlement liability of **$11.3 million** remains, with **$5.6 million** reflected as a receivable from Biofrontera AG, though both parties are jointly and severally liable[96](index=96&type=chunk) [Note 24. Retirement Plan](index=23&type=section&id=Note%2024.%20Retirement%20Plan) The company offers a 401(k) Plan with a 50% matching contribution up to 6% of employees' salary. Matching contribution costs for the six months ended June 30, 2022, were $0.1 million - The company's 401(k) Plan includes a **50% matching contribution** on employee contributions, up to a maximum of **6% of salary**[97](index=97&type=chunk) - Matching contribution costs for the six months ended June 30, 2022, were **$0.1 million**[98](index=98&type=chunk) [Note 25. Subsequent Events](index=23&type=section&id=Note%2025.%20Subsequent%20Events) Subsequent to June 30, 2022, the company received $1,569 from the exercise of 2022 Pre-funded warrants on July 14, 2022. On July 26, 2022, an investor exercised 2021 Purchase Warrants for approximately $4.3 million net proceeds, in exchange for a reduced exercise price and the issuance of new Inducement Warrants to purchase up to 4,285,715 shares - On July 14, 2022, 2022 Pre-funded warrants were exercised, generating **$1,569 in net proceeds**[99](index=99&type=chunk) - On July 26, 2022, an investor exercised 2021 Purchase Warrants for approximately **$4.3 million net proceeds**, after the exercise price was lowered from $5.25 to $1.62 per share[100](index=100&type=chunk) - In connection with the warrant exercise, the company issued new Inducement Warrants to purchase up to **4,285,715 shares of common stock**, exercisable from January 27, 2023, at **$1.66 per share**[100](index=100&type=chunk)[101](index=101&type=chunk) [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=ITEM%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Biofrontera Inc.'s financial condition and results of operations, including forward-looking statements, business overview, key performance factors, detailed analysis of revenue and expenses, reconciliation to Adjusted EBITDA, and discussion of liquidity and capital resources [Forward-Looking Statements](index=24&type=section&id=Forward-Looking%20Statements) This section highlights statements about future expectations and events, along with factors that could cause actual results to differ materially - The report contains forward-looking statements regarding expenses, future revenue, capital requirements, financing needs, product efficacy, market timelines, and regulatory approvals[102](index=102&type=chunk) - Factors that may cause actual results to differ include reliance on licensed product sales, competitor success, supply chain issues, COVID-19 impact, insurance coverage, regulatory changes, competition, profitability, and ability to obtain additional financing[103](index=103&type=chunk) [Overview](index=26&type=section&id=Overview) This section provides a general description of Biofrontera Inc.'s business, its strategic objectives, and key performance measures - Biofrontera Inc. is a U.S.-based biopharmaceutical company commercializing dermatological products, primarily **Ameluz® for actinic keratoses** and **Xepi® for impetigo**[107](index=107&type=chunk)[108](index=108&type=chunk)[109](index=109&type=chunk) - Strategic objectives include expanding sales of Ameluz and Xepi in the U.S., leveraging future approvals, and pursuing strategic investments or acquisitions to grow the product and business portfolio[110](index=110&type=chunk)[112](index=112&type=chunk) - Key performance measures include product revenue, operating income (loss), and adjusted EBITDA, with long-term objectives of consistent revenue growth and expanding operating margins[114](index=114&type=chunk) [Key factors affecting our performance](index=27&type=section&id=Key%20factors%20affecting%20our%20performance) This section discusses significant internal and external factors influencing the company's financial results, including seasonality, market conditions, and supply chain issues - Revenue is subject to seasonality, historically higher in the first and fourth quarters due to traditional photodynamic therapy treatments being more frequent in winter[115](index=115&type=chunk) - The COVID-19 pandemic caused a significant decline in demand for licensed products, though sales showed a recovery in Q4 2021 and Q1 2022[116](index=116&type=chunk) - Supply chain issues, particularly manufacturing delays for Xepi® due to a supplier's bankruptcy, are expected to delay Xepi shipments for **18 months**, though the impact on total revenues is not expected to be significant as Ameluz sales are the majority[117](index=117&type=chunk) [Components of Our Results of Operations](index=28&type=section&id=Components%20of%20Our%20Results%20of%20Operations) This section describes the primary categories of revenue and expenses that constitute the company's financial performance - Product revenue, net, is generated from third-party sales of **Ameluz, RhodoLED lamps, and Xepi**, recorded net of discounts, rebates, and other incentives[118](index=118&type=chunk) - Cost of revenues, related party, includes purchase costs of Ameluz and RhodoLED lamps from Biofrontera Pharma GmbH[121](index=121&type=chunk) - Selling, general and administrative expenses include sales force costs, commercial support, marketing, professional fees, and amortization of intangible assets[122](index=122&type=chunk) - Changes in fair value of contingent consideration (related to Cutanea acquisition) and warrant liabilities (from private placements) are non-cash items presented in the statements of operations[125](index=125&type=chunk)[126](index=126&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations) This section provides a comparative analysis of the company's financial performance for the reported periods, detailing changes in revenues, expenses, and net income or loss [Comparison of the Three Months ended June 30, 2022 and 2021](index=30&type=section&id=Comparison%20of%20the%20Three%20Months%20ended%20June%2030%2C%202022%20and%202021) This section compares the company's financial performance for the three-month periods ended June 30, 2022, and 2021, highlighting key changes in revenue and expenses Three Months Ended June 30 Comparative Data | (in thousands) | 2022 | 2021 | Change | | :--------------------------------------- | :--- | :--- | :----- | | Product revenues, net | $4,441 | $5,840 | $(1,399) | | Revenues, net | $4,457 | $5,855 | $(1,398) | | Total operating expenses | 10,699 | 9,542 | 1,127 | | Loss from operations | $(6,212) | $(3,687) | $(2,525) | | Change in fair value of warrant liabilities | 5,371 | - | 5,371 | | Net loss | $(850) | $(3,661) | $2,811 | - Net product revenue **decreased by $1.4 million (23.9%)** due to lower Ameluz orders, partially offset by a price increase[132](index=132&type=chunk) - Selling, general and administrative expenses **increased by $4.1 million (74.2%)** due to higher legal expenses, private placement issuance costs, business insurance, headcount costs, stock compensation, consulting, and travel[134](index=134&type=chunk)[135](index=135&type=chunk) - A **$5.4 million decrease in the fair value of warrant liabilities** contributed to a reduced net loss compared to the prior year[138](index=138&type=chunk) [Comparison of the Six Months ended June 30, 2022 and 2021](index=31&type=section&id=Comparison%20of%20the%20Six%20Months%20ended%20June%2030%2C%202022%20and%202021) This section compares the company's financial performance for the six-month periods ended June 30, 2022, and 2021, detailing significant shifts in revenue and profitability Six Months Ended June 30 Comparative Data | (in thousands) | 2022 | 2021 | Change | | :--------------------------------------- | :--- | :--- | :----- | | Product revenues, net | $14,177 | $10,571 | $3,606 | | Revenues, net | $14,208 | $10,599 | $3,609 | | Total operating expenses | 23,530 | 17,814 | 5,716 | | Loss from operations | $(9,322) | $(7,215) | $(2,107) | | Change in fair value of warrant liabilities | 14,082 | - | 14,082 | | Net loss | $4,711 | $(7,195) | $11,906 | - Net product revenue **increased by $3.6 million (34.1%)** due to higher Ameluz order volume and a price increase[139](index=139&type=chunk) - Selling, general and administrative expenses **increased by $7.0 million (67.7%)** driven by legal expenses, business insurance, headcount costs, stock compensation, private placement issuance costs, consulting, and travel[143](index=143&type=chunk)[144](index=144&type=chunk) - A **$14.1 million decrease in the fair value of warrant liabilities** resulted in a net income of **$4.711 million** for H1 2022, compared to a net loss of $7.195 million in H1 2021[148](index=148&type=chunk) [Net Income (Loss) to Adjusted EBITDA Reconciliation](index=34&type=section&id=Net%20Income%20(Loss)%20to%20Adjusted%20EBITDA%20Reconciliation) This section reconciles net income or loss to Adjusted EBITDA, a non-GAAP measure, providing insights into operational performance excluding certain non-cash and non-recurring items - Adjusted EBITDA is a non-GAAP measure used to assess performance, excluding interest, taxes, depreciation, amortization, and non-operating items like changes in fair value of contingent consideration and warrant liabilities[150](index=150&type=chunk)[151](index=151&type=chunk)[152](index=152&type=chunk)[154](index=154&type=chunk) Adjusted EBITDA Reconciliation | (in thousands) | Three Months June 30, 2022 | Three Months June 30, 2021 | Six Months June 30, 2022 | Six Months June 30, 2021 | | :--------------------------------------- | :------------------------- | :------------------------- | :----------------------- | :----------------------- | | Net income (loss) | $(850) | $(3,661) | $4,711 | $(7,195) | | EBITDA | $(680) | $(3,394) | $5,075 | $(6,706) | | Change in fair value of contingent consideration | $(1,900) | 500 | $(1,900) | 998 | | Change in fair value of warrant liabilities | $(5,371) | - | $(14,082) | - | | Adjusted EBITDA | $(7,951) | $(2,894) | $(11,257) | $(5,708) | | Adjusted EBITDA margin | -178.4% | -49.4% | -78.6% | -53.9% | - Adjusted EBITDA **decreased significantly** for both the three and six months ended June 30, 2022, primarily due to the negative impact of changes in fair value of contingent consideration and warrant liabilities[156](index=156&type=chunk) [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's ability to meet its short-term and long-term financial obligations, including sources and uses of cash - Primary liquidity sources are existing cash balances and equity financing, with cash and cash equivalents at **$31.9 million** at June 30, 2022, up from $24.5 million at December 31, 2021[157](index=157&type=chunk) - The company has generated significant losses since 2015, with an accumulated deficit of **$74.2 million** as of June 30, 2022[158](index=158&type=chunk) - Current cash and proceeds from a July 2022 warrant exercise (**$4.6 million gross**) are expected to fund operations for at least the next twelve months[161](index=161&type=chunk) - Future cash requirements include working capital, contractual commitments (auto leases, **Maruho start-up payments of $7.3 million**, **legal settlement expenses of $5.6 million**), and potential milestone payments to Ferrer[159](index=159&type=chunk)[164](index=164&type=chunk)[165](index=165&type=chunk) [Cash Flows](index=36&type=section&id=Cash%20Flows) This section analyzes the company's cash inflows and outflows from operating, investing, and financing activities for the reported periods Cash Flows Summary | (In Thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(1,987) | $(4,508) | | Net cash used in investing activities | $(36) | $(3) | | Net cash provided by (used) in financing activities | $9,391 | $(517) | | Net increase (decrease) in cash and restricted cash | $7,368 | $(5,028) | - Operating activities **used $2.0 million of cash in H1 2022**, a decrease from $4.5 million used in H1 2021[166](index=166&type=chunk)[167](index=167&type=chunk) - Financing activities **provided $9.4 million in cash** during H1 2022, primarily from the sale of common stock and warrants in a private placement[168](index=168&type=chunk) [Accounting Policies and Significant Judgments and Estimates](index=37&type=section&id=Accounting%20Policies%20and%20Significant%20Judgments%20and%20Estimates) This section outlines the critical accounting policies and significant management judgments and estimates used in preparing the financial statements - Financial statements are prepared in accordance with **U.S. GAAP**, requiring management to use estimates and assumptions for assets, liabilities, revenues, and expenses[172](index=172&type=chunk) - Critical accounting estimates include fair value measurements of contingent consideration, warrant liabilities, and stock compensation[172](index=172&type=chunk) - No material changes to critical accounting estimates were made for the six months ended June 30, 2022[174](index=174&type=chunk) [Off-balance Sheet Arrangements](index=38&type=section&id=Off-balance%20Sheet%20Arrangements) This section discloses any material off-balance sheet arrangements that could impact the company's financial condition or results of operations - The company did not have any off-balance sheet arrangements during the periods presented[176](index=176&type=chunk) [Emerging Growth Company Status](index=38&type=section&id=Emerging%20Growth%20Company%20Status) This section explains the company's status as an emerging growth company and its implications for regulatory compliance and accounting standards - As an 'emerging growth company,' Biofrontera Inc. has elected to use the extended transition period for complying with new or revised accounting standards[177](index=177&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Biofrontera Inc. is not required to provide quantitative and qualitative disclosures about market risk in this Form 10-Q - The company is not required to provide disclosures about market risk as it is a 'smaller reporting company'[178](index=178&type=chunk) [ITEM 4. Controls and Procedures](index=38&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were not effective as of June 30, 2022, due to an un-remediated material weakness in internal control over financial reporting. This weakness pertains to insufficient management review over work performed by third-party service providers, specifically regarding valuation errors for an intangible asset - Disclosure controls and procedures were deemed **not effective** at the reasonable assurance level as of June 30, 2022[178](index=178&type=chunk) - A **material weakness in internal control over financial reporting** was identified, related to insufficient management review control over information produced by third-party service providers, specifically computational and information errors in the valuation of the Xepi intangible asset[180](index=180&type=chunk) - Remediation efforts, including formalized reviews and additional steps for engaging specialists, are in process but the material weakness was not fully remediated as of June 30, 2022[181](index=181&type=chunk)[182](index=182&type=chunk)[184](index=184&type=chunk) PART II. OTHER INFORMATION This part includes disclosures on legal proceedings, risk factors, equity sales, and other miscellaneous information not covered in the financial statements [ITEM 1. Legal Proceedings](index=39&type=section&id=ITEM%201.%20Legal%20Proceedings) Information regarding legal proceedings is incorporated by reference from Note 23, 'Commitments and Contingencies,' in the Notes to Financial Statements - Information on legal proceedings is detailed in **Note 23 - Commitments and Contingencies**[186](index=186&type=chunk) [ITEM 1A. Risk Factors](index=39&type=section&id=ITEM%201A.%20Risk%20Factors) As a smaller reporting company, Biofrontera Inc. is not required to provide risk factor disclosures in this Form 10-Q, but directs readers to the 'Risk Factors' section in its Annual Report on Form 10-K for the fiscal year ended December 31, 2021 - As a smaller reporting company, the registrant is not required to provide risk factor disclosure in this Form 10-Q[187](index=187&type=chunk) - Readers are advised to refer to the 'Risk Factors' in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021[187](index=187&type=chunk) [ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=39&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Proceeds from the company's Initial Public Offering (IPO) on October 28, 2021, were used for working capital and general corporate purposes, with no material change in the planned use of proceeds - Proceeds from the IPO on October 28, 2021, were used for working capital and general corporate purposes[188](index=188&type=chunk) - There has been no material change in the planned use of IPO proceeds[188](index=188&type=chunk) [ITEM 3. Defaults Upon Senior Securities](index=39&type=section&id=ITEM%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities - There are no defaults upon senior securities[188](index=188&type=chunk) [ITEM 4. Mine Safety Disclosures](index=39&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Biofrontera Inc - Mine Safety Disclosures are not applicable to the registrant[189](index=189&type=chunk) [ITEM 5. Other Information](index=39&type=section&id=ITEM%205.%20Other%20Information) The company reported no other information for this period - No other information is reported[189](index=189&type=chunk) [ITEM 6. Exhibits](index=39&type=section&id=ITEM%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including various warrant forms, an employment agreement amendment, a securities purchase agreement, a registration rights agreement, and certifications - The exhibits include forms of Common Stock Purchase Warrant and Pre-Funded Common Stock Purchase Warrant issued in connection with the May 2022 PIPE[190](index=190&type=chunk) - An Amendment to Employment Agreement for Erica Monaco, a Form of Securities Purchase Agreement, and a Form of Registration Rights Agreement for May 2022 PIPE are also filed[190](index=190&type=chunk) - Certifications of the Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are included[190](index=190&type=chunk) SIGNATURES This section contains the official signatures certifying the accuracy and completeness of the quarterly report [Signature of Authorized Officer](index=41&type=section&id=Signature%20of%20Authorized%20Officer) The report is duly signed on August 12, 2022, by Erica Monaco, Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) of Biofrontera Inc - The report was signed on **August 12, 2022**[193](index=193&type=chunk) - Erica Monaco, Chief Executive Officer (Principal Executive Officer and Principal Financial Officer), signed on behalf of Biofrontera Inc[193](index=193&type=chunk)

Biofrontera, Inc. (NASDAQ:BFRI) Q1 2022 Results Conference Call May 13, 2022 11:00 AM ET Company Participants Tirth Patel - LHA IR Hermann Lubbert - Executive Chairman Erica Monaco - CEO Operator Good morning and welcome to the Biofrontera Inc’s First Quarter 2022 Financial Results Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Tirth Patel with LHA Investor Relations. ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-40943 Biofrontera Inc. (Exact name of registrant as specified in its charter) Delaware 47-3765675 (State or other jurisdiction o ...