Biofrontera(BFRI) - 2022 Q3 - Quarterly Report

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 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 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] - Inventories significantly increased to $12.1 million as of September 30, 2022, from $4.5 million as of December 31, 2021[6] - Warrant liability decreased substantially to $3.96 million as of September 30, 2022, from $12.85 million as of December 31, 2021[6] Consolidated Statements of Operations 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] - 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] Consolidated Statements of Stockholders' Equity 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] Consolidated Statements of Cash Flows 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] - 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] Notes to Consolidated Financial Statements 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 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][15][16] 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] 2. Summary of Significant Accounting Policies 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][26] - 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][28] 3. Acquisition Contract Liabilities 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][31] (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] 4. Fair Value Measurements 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] - 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] 5. Revenue 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] (in thousands) | (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :------------- | :----------- | :----------- | | Product revenue allowances and reserves | $360 | $246 | 6. Accounts Receivable, net 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] 7. Other Receivables, Related Party 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] - 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] 8. Inventories 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][51] 9. Prepaid Expenses and Other Current Assets 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] 10. Property and Equipment, Net 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] 11. Intangible Asset, Net 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] - 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][57] 12. Statement of Cash Flows Reconciliation 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 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 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 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] - The company maintains a full valuation allowance due to its cumulative loss position[62] 16. Related Party Transactions 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] - 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] - 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] 17. Restructuring costs 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] - 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] 18. Stockholders' Equity 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] - A May 2022 private placement generated $9.4 million in gross cash receipts from the issuance of common stock and warrants[76] - 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] 19. Equity Incentive Plans and Share-Based Payments 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] 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][87] 20. Interest Expense, net 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] 21. Other Income (Expense), net 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] 22. Net Earnings per Share 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] 23. Commitments and Contingencies 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] - 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] 24. Retirement Plan 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] (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 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][107] - 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][112][113] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - 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] 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][121][122] - 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][124] - 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] Key factors affecting our performance 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] - 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] - 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] Components of Our Results of Operations 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] - 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][135][136] - 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][139][140][141] Results of Operations 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][145] 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] Net Income (Loss) to Adjusted EBITDA Reconciliation 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][159][160][161][162] 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] Liquidity and Capital Resources 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] - 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] - 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] 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 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] Off-balance Sheet Arrangements 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] Emerging Growth Company Status 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] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 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] ITEM 4. Controls and Procedures 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] - 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] - 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][189] 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 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] ITEM 1A. Risk Factors 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] - 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] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] - There was no material change in the planned use of proceeds from the IPO[196] ITEM 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - No defaults upon senior securities were reported[196] ITEM 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable[196] ITEM 5. Other Information No other information is reported under this item - No other information is reported[196] ITEM 6. Exhibits 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][199] 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]