Biofrontera(BFRI) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The unaudited condensed consolidated financial statements for the period ended September 30, 2023, show a significant decrease in total assets from $50.9 million at the end of 2022 to $34.1 million, with total liabilities increasing and stockholders' equity substantially reducing, alongside a net loss of $23.7 million and a going concern warning Condensed Consolidated Balance Sheets As of September 30, 2023, the company's total assets decreased to $34.1 million from $50.9 million, while total liabilities increased to $33.1 million from $27.0 million, resulting in a sharp fall in stockholders' equity to $1.0 million from $23.9 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | Sep 30, 2023 (Unaudited) | Dec 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $3,422 | $17,208 | | Total current assets | $29,611 | $43,140 | | Total assets | $34,104 | $50,884 | | Total current liabilities | $29,124 | $20,894 | | Total liabilities | $33,066 | $27,006 | | Total stockholders' equity | $1,038 | $23,878 | Condensed Consolidated Statements of Operations For Q3 2023, total revenues more than doubled to $8.9 million, but operating expenses led to a higher loss from operations of $4.6 million, with the net loss widening to $6.3 million, and for the nine-month period, the company swung from a net income of $2.1 million to a net loss of $23.7 million Statement of Operations Summary (in thousands) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Total revenues, net | $8,896 | $4,322 | $23,475 | $18,530 | | Loss from operations | $(4,620) | $(3,639) | $(18,812) | $(12,961) | | Net income (loss) | $(6,342) | $(2,566) | $(23,657) | $2,145 | | Basic EPS | $(4.64) | $(2.26) | $(17.57) | $2.19 | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2023, net cash used in operating activities significantly increased to $16.0 million, leading to an overall decrease in cash, cash equivalents, and restricted cash by $13.8 million, ending at $3.6 million Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(16,029) | $(7,928) | | Net cash provided by (used in) investing activities | $546 | $(3,070) | | Net cash provided by financing activities | $1,697 | $14,021 | | Net increase (decrease) in cash | $(13,786) | $3,023 | | Cash at end of period | $3,622 | $27,765 | Notes to Condensed Consolidated Financial Statements The notes detail the company's focus on dermatological products like Ameluz, a 1-for-20 reverse stock split in July 2023, significant liquidity challenges leading to a going concern warning, and specifics on acquisition liabilities, fair value measurements, related-party transactions, and legal settlements - The company is a U.S.-based biopharmaceutical firm focused on commercializing products for dermatological conditions, primarily photodynamic therapy (PDT) with its main product, Ameluz[13][37] - A 1-for-20 reverse stock split was effective on July 3, 2023, and all share and per-share amounts in the financial statements have been retrospectively adjusted[15][38][320] - Management has determined that substantial doubt exists about the Company's ability to continue as a going concern due to significant losses, negative cash flows, and the need to raise additional capital to fund operations into 2024[17][41][322] - The company has an ongoing legal settlement with DUSA Pharmaceuticals Inc., with a remaining liability of $6.0 million as of September 30, 2023. Biofrontera AG is responsible for 50% of the settlement costs[136][157] - Subsequent to the quarter end, on October 30, 2023, the company entered into a securities purchase agreement for a registered public offering, raising gross proceeds of approximately $4.5 million[164] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting a 107% increase in product revenue for Q3 2023, but a widened net loss due to increased operating expenses and a $6.6 million unrealized loss on investment, with critical liquidity challenges leading to substantial doubt about its going concern ability, mitigated by a recent $4.1 million net capital raise Results of Operations For Q3 2023, product revenue surged 107% to $8.9 million year-over-year, primarily from increased Ameluz sales volume, though loss from operations grew to $4.6 million, and for the nine months, product revenue increased 26.8% to $23.4 million, resulting in a net loss of $23.7 million compared to a net income of $2.1 million in the prior year Comparison of Three Months Ended September 30 (in thousands) | Metric | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Product revenues, net | $8,879 | $4,290 | $4,589 (107.0%) | | Loss from operations | $(4,620) | $(3,639) | $(981) | | Net loss | $(6,342) | $(2,566) | $(3,776) | Comparison of Nine Months Ended September 30 (in thousands) | Metric | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Product revenues, net | $23,423 | $18,467 | $4,956 (26.8%) | | Loss from operations | $(18,812) | $(12,961) | $(5,851) | | Net Income (loss) | $(23,657) | $2,145 | $(25,802) | - The increase in SG&A expenses for the nine-month period was primarily driven by $2.9 million in personnel-related costs, $1.2 million in legal settlement expenses, and $1.2 million in other non-recurring legal costs[219] Liquidity and Capital Resources The company faces significant liquidity challenges with cash and equivalents at $3.4 million, leading management to conclude substantial doubt about its going concern ability, with primary liquidity sources including product sales and a revolving line of credit, and a recent $4.1 million net capital raise aimed at funding operations - The company has generated significant losses since inception, with a loss from operations of $18.8 million and net cash outflows from operations of $16.0 million for the nine months ended September 30, 2023[251] - Management has determined that substantial doubt exists about the company's ability to continue as a going concern[233] - Primary sources of liquidity are existing cash ($3.4M), an investment in a related party ($3.3M), and a revolving line of credit[271] - Management believes a recent net capital raise of $4.1 million and plans to improve working capital will provide the opportunity for the company to continue as a going concern, though no assurance can be given[272] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Biofrontera Inc. is not required to provide the information for this item - The company is not required to provide information for this item as it qualifies as a "smaller reporting company"[280] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2023, with no material changes in internal control over financial reporting during the quarter - Based on an evaluation as of the end of the period, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[281] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[282] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in legal proceedings, notably with DUSA Pharmaceuticals, Inc., with a remaining settlement liability of $6.0 million, and a new complaint filed in September 2023 alleging breach of contract and unfair trade practices related to Ameluz promotion, which the company denies and intends to defend vigorously - On September 13, 2023, DUSA Pharmaceuticals filed a new complaint against Biofrontera, alleging breach of contract and unfair trade practices related to the promotion of its Ameluz product[138] - The company denies the claims and intends to defend the matter vigorously, but cannot currently estimate the possibility or range of a material loss[159] Item 1A. Risk Factors There have been no material changes to the risk factors disclosed in the Annual Report on Form 10-K, except for highlighting specific risks including the uncertainty of research and development efforts and substantial doubt about the company's ability to continue as a going concern due to its financial condition and need for additional capital - A key risk factor is the substantial doubt about the company's ability to continue as a "going concern" due to its need to raise additional capital to fund its growth plans and operations[262][285] - The company notes that the results of its research and development efforts are uncertain and may not be technologically successful or achieve market acceptance[261][284][299] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds None - None[264] Item 3. Defaults Upon Senior Securities None - None[287] Item 4. Mine Safety Disclosures Not Applicable - Not Applicable[265] Item 5. Other Information None - None[266] Item 6. Exhibits This section lists the exhibits filed with the report, including various agreements related to a securities purchase, warrant amendments, and officer certifications as required by the Sarbanes-Oxley Act - Exhibits filed include the Securities Purchase Agreement, Placement Agency Agreement, and amendments to Common Stock Purchase Warrants, all dated October 30, 2023[293] - 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 as exhibits[268][300]