Biofrontera(BFRI) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the company's unaudited condensed consolidated financial statements and management's discussion, highlighting going concern issues and a recent reverse stock split - Management has determined that substantial doubt exists about the Company's ability to continue as a going concern for at least one year from the financial statement issuance date, based on growth plans, inventory purchases, and a final settlement payment[166][90][109] - On July 3, 2023, the Company effected a 1-for-20 reverse stock split, with all financial statement information retrospectively adjusted to reflect this split[183][194][127] Item 1. Financial Statements This section presents Biofrontera Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, and cash flows, with a key disclosure on going concern uncertainty Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | June 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $4,453 | $17,208 | | Inventories, net | $14,785 | $7,168 | | Total Assets | $36,905 | $50,884 | | Total Liabilities | $29,732 | $27,006 | | Total Stockholders' Equity | $7,173 | $23,878 | Condensed Consolidated Statements of Operations This section outlines the company's financial performance over specific periods, detailing revenues, expenses, and net income or loss Statement of Operations Summary (in thousands) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Total revenues, net | $5,848 | $4,457 | $14,580 | $14,208 | | Loss from operations | $(8,699) | $(6,212) | $(14,190) | $(9,322) | | Net income (loss) | $(9,837) | $(850) | $(17,315) | $4,711 | Condensed Consolidated Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities over specific periods Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(14,025) | $(1,987) | | Net cash provided by (used) in investing activities | $164 | $(36) | | Net cash provided by financing activities | $1,106 | $9,391 | | Net decrease in cash | $(12,755) | $7,368 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the condensed consolidated financial statements - The Company's principal licensed product is Ameluz, used for photodynamic therapy (PDT) treatment of actinic keratoses, while its second product, Xepi, has seen limited revenue and commercialization delays due to third-party manufacturing issues[178][179] - As of June 30, 2023, the Company holds a receivable of $3.7 million from its significant shareholder, Biofrontera AG, for its 50% share of a legal settlement for which both parties are jointly and severally liable[219][239] - The Company has a legal settlement liability of $6.1 million as of June 30, 2023, related to a lawsuit with DUSA Pharmaceuticals Inc., with Biofrontera AG agreeing to pay 50% of the settlement costs[10][268] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the financial results for Q2 and H1 2023, highlighting increased revenue, widened operating losses due to higher SG&A, and decreased liquidity, reinforcing going concern uncertainty Overview and Strategy This section outlines the company's business focus, strategic objectives, and factors influencing its revenue patterns - The company is a U.S.-based biopharmaceutical firm focused on commercializing products for dermatological conditions, primarily photodynamic therapy (PDT) and topical antibiotics[18] - Key strategic elements include expanding U.S. sales of Ameluz, leveraging potential future approvals for portfolio products, and opportunistically adding complementary products to its portfolio[42][315] - The company's revenue is subject to seasonality, with sales historically higher in the first and fourth quarters[21] Results of Operations This section provides a detailed analysis of the company's financial performance, comparing revenues, expenses, and profitability across periods Comparison of Three Months Ended June 30, 2023 and 2022 (in thousands) | Line Item | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Revenues, net | $5,848 | $4,457 | $1,391 | | Total operating expenses | $14,547 | $10,669 | $3,878 | | Loss from operations | $(8,699) | $(6,212) | $(2,487) | | Net loss | $(9,837) | $(850) | $(8,987) | Comparison of Six Months Ended June 30, 2023 and 2022 (in thousands) | Line Item | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Revenues, net | $14,580 | $14,208 | $372 | | Total operating expenses | $28,770 | $23,530 | $5,240 | | Loss from operations | $(14,190) | $(9,322) | $(4,868) | | Net Income (loss) | $(17,315) | $4,711 | $(22,026) | - Q2 2023 net product revenue increased by $1.4 million (31.3%) year-over-year, driven by higher Ameluz sales volume from an expanded sales force and the absence of a prior-year buy-in effect from a price increase[53] - Q2 2023 SG&A expenses increased by $1.8 million (18.5%) year-over-year, primarily due to $1.0 million in increased personnel costs (higher headcount and severance) and $1.0 million in non-recurring legal expenses[33] Liquidity and Capital Resources This section assesses the company's ability to meet its short-term and long-term financial obligations and fund its operations - As of June 30, 2023, the company had cash and cash equivalents of $4.5 million, a significant decrease from $17.2 million as of December 31, 2022[66] - The company has generated significant losses since inception, with an accumulated deficit of $96.8 million as of June 30, 2023, and net cash used in operations was $14.0 million for the first six months of 2023[89][163] - Management has concluded that substantial doubt exists about the company's ability to continue as a going concern due to its growth plans, inventory purchases, and a final settlement payment[90][76] Non-GAAP Financial Measures (Adjusted EBITDA) This section provides a reconciliation and discussion of Adjusted EBITDA, a non-GAAP financial measure, to offer additional insights into operational performance Adjusted EBITDA Reconciliation (in thousands) | Period | Net Income (Loss) | Adjusted EBITDA | | :--- | :--- | :--- | | Three Months Ended June 30, 2023 | $(9,837) | $(7,918) | | Three Months Ended June 30, 2022 | $(850) | $(7,139) | | Six Months Ended June 30, 2023 | $(17,315) | $(11,907) | | Six Months Ended June 30, 2022 | $4,711 | $(9,526) | - Adjusted EBITDA decreased to ($7.9) million in Q2 2023 from ($7.1) million in Q2 2022, primarily driven by a $1.9 million increase in SG&A costs, partially offset by a $1.4 million increase in revenues[65] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company, as a "smaller reporting company," is not required to provide the information for this item - As a "smaller reporting company," Biofrontera Inc. is not required to provide the information required by this Item[120] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of June 30, 2023, the company's disclosure controls and procedures were effective at a reasonable assurance level[99] - There were no changes in internal control over financial reporting during the quarter ended June 30, 2023, that materially affected, or are reasonably likely to materially affect, internal controls[100] PART II. OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings This section refers the reader to Note 18, "Commitments and Contingencies," in the Notes to Consolidated Financial Statements for information regarding the company's legal proceedings - Information regarding legal proceedings is available in Note 18 - Commitments and Contingencies in Part I, Item 1 of this report[71] Item 1A. Risk Factors The company states there have been no material changes to the risk factors disclosed in its Annual Report on Form 10-K, but specifically highlights two risks: the uncertainty of its research and development efforts and the substantial doubt about its ability to continue as a "going concern" - The results of the company's research and development efforts are uncertain and may not be technologically successful or achieve market acceptance[73][75] - A substantial doubt exists about the company's ability to continue as a "going concern" due to its growth plans, upcoming inventory purchases, and a final settlement payment to DUSA Pharmaceuticals, Inc., with future viability depending on its ability to execute its growth plan and raise additional capital[76] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[79] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the Certificate of Amendment for the reverse stock split and various officer certifications required by the Sarbanes-Oxley Act - Exhibits filed with this report include the Certificate of Amendment for the reverse stock split, a confidential settlement agreement, and officer certifications pursuant to the Sarbanes-Oxley Act[83][132]