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 September 30, 2024

 

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 of incorporation or organization)		(IRS Employer Identification No.)
120 Presidential Way, Suite 330, Woburn, Massachusetts		01801
(Address of principal executive offices)		(Zip Code)

 

(781) 245-1325

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

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 Nasdaq Stock Market LLC
Warrants to purchase common stock		BFRIW		The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

As of November 12, 2024 there were 7,749,211 shares outstanding of the registrant’s common stock, par value $0.001 per share.

 

 

 

TABLE OF CONTENTS

 

	PART I. FINANCIAL INFORMATION
ITEM 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of September 30, 2024 (unaudited) and December 31, 2023	3
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2024 (unaudited) and 2023 (unaudited)	4
	Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2024 (unaudited) and 2023 (unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 (unaudited) and 2023 (unaudited)	6
	Notes to Condensed Consolidated Financial Statements	7
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	36
ITEM 4.	Controls and Procedures	36
	PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	37
ITEM 1A.	Risk Factors	37
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
ITEM 3.	Defaults Upon Senior Securities	37
ITEM 4.	Mine Safety Disclosures	37
ITEM 5.	Other Information	37
ITEM 6.	Exhibits	38
Signatures		39

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

BIOFRONTERA INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value and share amounts)

 

		September 30, 2024				December 31, 2023
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	2,873			$	1,343
Investment, related party			8				78
Accounts receivable, net			4,874				5,162
Inventories, net			6,526				10,908
Prepaid expenses and other current assets			350				425
Assets held for sale			2,300				-
Other assets, related party			-				5,159
Total current assets			16,931				23,075
Property and equipment, net			82				134
Operating lease right-of-use assets			1,081				1,612
Intangible asset, net			39				2,629
Other assets			383				482
Total assets		$	18,516			$	27,932
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable			2,027				3,308
Accounts payable, related parties			3,680				5,698
Accounts payable			3,680				5,698
Operating lease liabilities			670				691
Accrued expenses and other current liabilities			4,655				4,487
Short term debt			-				3,904
Total current liabilities			11,032				18,088
Long-term liabilities:
Warrant liabilities			1,601				4,210
Operating lease liabilities, non-current			324				804
Other liabilities			29				37
Total liabilities			12,986				23,139
Commitments and contingencies (Note 17)			-				-
Stockholders’ equity:
Series B Convertible Preferred stock, $0.001 par value, 20,000,000 shares authorized, no Series B-1, 4,695 Series B-2 and 7,093 Series B-3 shares issued and outstanding as of September 30, 2024 and no shares issued and outstanding as of December 31, 2023			-				-
Common stock, $0.001 par value, 35,000,000 shares authorized; 6,529,792 and 1,517,628 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively			7				2
Additional paid-in capital			121,536				104,441
Accumulated deficit			(116,013	)			(99,650	)
Total stockholders’ equity			5,530				4,793
Total liabilities and stockholders’ equity		$	18,516			$	27,932

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

BIOFRONTERA INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts and number of shares)

(Unaudited)

 

		2024				2023				2024				2023
		Three Months Ended September 30,								Nine Months Ended September 30,
		2024				2023				2024				2023
Product revenues, net		$	9,012			$	8,879			$	24,744			$	23,423
Revenues, related party			-				17				18				52
Total revenues, net			9,012				8,896				24,762				23,475
Operating expenses
Cost of revenues, related party			4,801				4,495				12,839				11,814
Cost of revenues, other			76				95				496				262
Cost of revenues			76				95				496				262
Selling, general and administrative			8,425				8,619				25,589				29,874
Selling, general and administrative, related party			1				74				30				193
Research and development			669				33				1,306				44
Change in fair value of contingent consideration			-				200				-				100
Total operating expenses			13,972				13,516				40,260				42,287
Loss from operations			(4,960	)			(4,620	)			(15,498	)			(18,812	)
Other income (expense)
Change in fair value of warrants			(680	)			598				1,329				2,001
Change in fair value of investment, related party			(2	)			(2,212	)			(12	)			(6,635	)
Loss on debt extinguishment			-				-				(316	)			-
Interest income (expense), net			8				(142	)			(1,995	)			(256	)
Other income (expense), net			(32	)			35				154				65
Total other expense			(706	)			(1,721	)			(840	)			(4,825	)
Loss before income taxes			(5,666	)			(6,341	)			(16,338	)			(23,637	)
Income tax expense			3				1				25				20
Net loss		$	(5,669	)		$	(6,342	)		$	(16,363	)		$	(23,657	)
Loss per common share:
Basic and diluted		$	(0.98	)		$	(4.64	)		$	(3.39	)		$	(17.57	)
Weighted-average common shares outstanding:
Basic and diluted			5,773,993				1,366,842				4,833,091				1,346,264

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

BIOFRONTERA INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except number of shares)

(Unaudited)

 

		Shares				Amount				Shares				Amount				Capital				Deficit				Total
		Three and Nine Months Ended September 30, 2024
		Preferred Stock								Common Stock								Additional Paid-in				Accumulated
		Shares				Amount				Shares				Amount				Capital				Deficit				Total
Balance, July 1, 2024			12,804			$	-				5,094,184			$	5			$	121,250			$	(110,344	)		$	10,911
Conversion of Series B Preferred into Common			(1,016	)			-				1,435,608				2				(2	)			-				-
Stock based compensation			-				-				-				-				288				-				288
Net loss			-				-				-				-				-				(5,669	)			(5,669	)
Balance, September 30, 2024			11,788			$	-				6,529,792			$	7				121,536			$	(116,013	)		$	5,530
Balance, January 1, 2024			-			$	-				1,517,628			$	2			$	104,441			$	(99,650	)		$	4,793
Exercise of pre-funded warrants			-				-				1,055,000				1				(1	)			-				-
Conversion of Series B-1 Preferred into Series B-2 Preferred and common stock			3,790				-				3,952,393				4				3,566				-				3,570
Issuance of Series B-3 upon exercise of warrants			7,998				-				-				-				12,810				-				12,810
Issuance of RSUs			-				-				4,771				-				-				-				-
Stock based compensation			-				-				-				-				720				-				720
Net Loss			-				-				-				-				-				(16,363	)			(16,363	)
Balance, September 30, 2024			11,788			$	-				6,529,792			$	7			$	121,536			$	(116,013	)		$	5,530

 

		Shares				Amount				Capital				Deficit				Total
		Three and Nine Months Ended September 30, 2023
		Common Stock								Additional Paid-In				Accumulated
		Shares				Amount				Capital				Deficit				Total
Balance, July 1, 2023			1,343,538			$	1			$	104,006			$	(96,834	)		$	7,173
Issuance of shares in reverse stock split (for fractional shares)			24,090				-				-				-				-
Stock based compensation			-				-				207				-				207
Net loss			-				-				-				(6,342	)			(6,342	)
Balance, September 30, 2023			1,367,628			$	1			$	104,213			$	(103,176	)		$	1,038
Balance, January 1, 2023			1,334,950			$	1			$	103,396			$	(79,519	)		$	23,878
Balance			1,334,950			$	1			$	103,396			$	(79,519	)		$	23,878
Issuance of shares for vested restricted stock units			8,588				-				-				-				-
Issuance of shares in reverse stock split (for fractional shares)			24,090				-				-				-				-
Stock based compensation			-				-				817				-				817
Net loss			-				-				-				(23,657	)			(23,657	)
Balance, September 30, 2023			1,367,628			$	1			$	104,213			$	(103,176	)		$	1,038
Balance			1,367,628			$	1			$	104,213			$	(103,176	)		$	1,038

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

BIOFRONTERA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

 

		2024				2023
		Nine Months Ended September 30,
		2024				2023
Cash flows from operating activities:
Net loss		$	(16,363	)		$	(23,657	)
Adjustments to reconcile net loss to cash flows used in operations:
Depreciation			62				65
Amortization of right-of-use assets			541				390
Amortization of acquired intangible assets			325				314
Realized/unrealized loss in investment, related party			12				6,635
Change in fair value of contingent consideration			-				100
Change in fair value of warrant liabilities			(1,329	)			(2,001	)
Stock-based compensation			720				817
Allowance for credit losses			111				158
Loss on debt extinguishment			316				-
Non-cash interest expense			248				296
Changes in operating assets and liabilities:
Accounts receivable			177				(204	)
Other receivables, related party			19				3,652
Prepaid expenses and other assets			34				347
Other assets, related party			5,159				-
Inventories			4,380				(8,900	)
Accounts payable and related party payables			(3,318	)			6,137
Operating lease liabilities			(511	)			(375	)
Accrued expenses and other liabilities			164				197
Cash flows used in operating activities			(9,253	)			(16,029	)
Cash flows from investing activities
Sales of equity investment, related party			57				560
Purchase of intangible assets			(50	)			-
Purchases of property and equipment			(9	)			(14	)
Cash flows provided by (used) in investing activities			(2	)			546
Cash flows from financing activities
Proceeds from issuance of series B-1 preferred stock and warrants to purchase series B-3 preferred stock, net of issuance costs			7,662				-
Proceeds from issuance of series B-3 from exercise of warrants			7,438				-
Proceeds from line of credit			-				13,546
Repayment of line of credit			(357	)			(11,849	)
Payment of principal short-term debt			(3,958	)			-
Cash flows provided by financing activities			10,785				1,697
Net increase (decrease) in cash and cash equivalents			1,530				(13,786	)
Cash, cash equivalents and restricted cash, at the beginning of the period			1,543				17,408
Cash, cash equivalents and restricted cash, at the end of the period		$	3,073			$	3,622
Supplemental disclosure of cash flow information
Interest paid		$	1,722			$	31
Interest paid, related party		$	-			$	22
Income taxes paid, net		$	25			$	21
Supplemental non-cash financing activities
Conversion of warrant liability to equity			5,372				-
Addition of right-of-use assets in exchange for operating lease liabilities		$	27			$	147

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

Biofrontera Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1. Organization and Business Overview

 

Biofrontera Inc., a Delaware Corporation (the “Company” or “Biofrontera”), is a U.S.-based biopharmaceutical company commercializing a portfolio of pharmaceutical products for the treatment of dermatological conditions with a focus on photodynamic therapy (“PDT”) and topical antibiotics. The Company’s licensed products are used for the treatment of actinic keratoses (“AKs”), which are pre-cancerous skin lesions as well as impetigo, a bacterial skin infection.

 

The Company includes its wholly owned subsidiary, Biofrontera Discovery GmbH (“Discovery”), formerly known as Bio-FRI GmbH, a limited liability company organized under the laws of Germany, formed on February 9, 2022, as a German presence that manages our clinical trial work and facilitates our relationship   with Biofrontera Pharma GmbH (“Biofrontera Pharma”) and Biofrontera Bioscience GmbH (“Biofrontera Bioscience,” and, together with Biofrontera Pharma, the “Ameluz Licensor”), both of which are related parties as they are wholly owned subsidiaries of Biofrontera AG, a company holding more than five percent of the Company’s common stock.

 

Our principal licensed product is Ameluz®, which is a prescription drug approved for use in combination with PDT (when used together, “Ameluz® PDT”) using the BF-RhodoLED® and the RhodoLED® XL lamps (the “RhodoLED® Lamps”). In the United States, the PDT treatment is used for the lesion-directed and field-directed treatment of actinic keratoses of mild-to-moderate severity on the face and scalp. We are currently selling Ameluz® for this indication in the U.S. under an exclusive license and supply agreement, the Second Amended and Restated License and Supply Agreement, effective February 13, 2024 (the “Second A&R Ameluz LSA”), with the Ameluz Licensor.

 

Our second prescription drug licensed product is Xepi® (ozenoxacin cream, 1%), a topical non-fluorinated quinolone that inhibits bacterial growth. Currently, no antibiotic resistance against Xepi® is known and it has been specifically approved by the Food and Drug Administration (the “FDA”) for the treatment of impetigo, a common skin infection, due to Staphylococcus aureus or Streptococcus pyogenes. It is approved for use in the United States in adults and children 2 months and older. Our exclusive license and supply agreement, as amended (“Xepi LSA”) with Ferrer Internacional S.A. (“Ferrer”), assumed by the Company on March 25, 2019 through our acquisition of Cutanea Life Sciences, Inc. (“Cutanea”), enables the Company to market and sell this product in the United States. The Company has generated limited revenue from sales of Xepi due to third-party manufacturing delays that have hampered our commercialization of the product. Ferrer is now in the process of qualifying a new contract manufacturer. If the new contract manufacturer is qualified, we believe that it will be able to supply enough of the Xepi® product line to meet market demand for as long as we maintain it.

 

However, in the third quarter of 2024, the Company reached the decision to divest its Xepi product line and determined that it met the held for sale accounting criteria. The Company has entered into a letter of intent and expects to complete the sale within the next six to twelve months. The related intangible asset is presented as held for sale under current assets in the Condensed Consolidated Balance Sheets. See Note 7. Assets Held for Sale, for additional information.

 

Liquidity and Going Concern

 

Pursuant to the requirements of the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) Topic 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date the consolidated financial statements are issued. This evaluation does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented or are not within control of the Company as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.

 

 

Since we commenced operations in 2015, we have generated significant losses. We incurred net cash outflows from operations of $9.3 million and $16.0 million for the nine months ended September 30, 2024 and 2023, respectively. The Company had an accumulated deficit as of September 30, 2024 of $116.0 million. The Company’s primary sources of liquidity are its cash collected from the sales of its products, and cash flows from financing transactions. As of September 30, 2024, we had cash and cash equivalents of $2.9 million, compared to $1.3 million as of December 31, 2023.

 

As a result of our losses and projected cash needs, the Company’s management has determined that substantial doubt exists about our ability to continue as a going concern for at least twelve months from the issuance date of these financial statements. The Company’s ability to continue as a going concern is contingent upon successful execution of management’s plans over the next twelve months to improve the Company’s liquidity and profitability, which includes without limitation:

 

	·	Expanding the commercialization of Ameluz® in the United States while decreasing discretionary expenses.
	·	Actively pursuing additional capital through the issuance of equity securities, debt or the sale of assets.
	·	Controlling expenses and limiting capital expenditures.
	·	Realizing the benefit of the reduced cost of inventory in line with the terms of the Second A&R Ameluz LSA.

 

Management believes that the implementation of such plans will provide the opportunity for the Company to continue as a going concern. However, no assurance can be given that the Company will be successful in these efforts and the substantial doubt will be alleviated.

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above.

 

 

2. Summary of Significant Accounting Policies

 

Basis for Preparation of the Financial Statements

 

The accompanying unaudited interim condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. In the Company’s opinion, the unaudited condensed consolidated financial statements include all material adjustments, all of which are of a normal and recurring nature, necessary to present fairly the Company’s financial position as of September 30, 2024, the Company’s operating results for the three and nine months ended September 30, 2024 and 2023, and the Company’s cash flows for the nine months ended September 30, 2024 and 2023. The accompanying financial information as of December 31, 2023 is derived from audited financial statements. Interim results are not necessarily indicative of results for a full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 15, 2024.

 

The Company has one reportable segment. All amounts shown in these financial statements and tables are in thousands and amounts in the notes are in millions, except percentages and per share and share amounts.

 

With the exception of the accounting policies below, there have been no new or material changes to the significant accounting policies discussed in the Company’s Form 10-K for the year ended December 31, 2023.

 

Assets Held for Sale

 

The Company generally considers assets to be held for sale when the following criteria are met: (i) management commits to a plan to sell the assets, (ii) the assets are available for sale immediately, (iii) management has initiated an active program to locate a buyer or buyers and other actions required to complete the plan to sell the assets, (iv) the sale of the assets within one year is considered probable, (v) the assets are actively being marketed for sale at a price that is reasonable in relation to their current fair value and (vi) significant changes to the plan to sell are not expected. Assets classified as held for sale are no longer depreciated and are reported at the lower of their carrying value or fair value less estimated costs to sell in accordance with ASC 360, Property, Plant and Equipment-Impairment or Disposal of Long-Lived Assets. See Note 7.

 

Research and Development Costs

 

Research and development expenses include costs directly attributable to the clinical development of Ameluz®, including personnel-related expenses, the cost of services provided by outside contractors, including services related to the Company’s clinical trials, facilities, depreciation, and other direct and allocated expenses. All costs associated with research and development are expensed as incurred.

 

Clinical trial costs are a significant component of our research and development expenses and include costs associated with third-party contractors. The Company outsources a substantial portion of its clinical trial activities, utilizing external entities such as Clinical Research Organizations, independent clinical investigators, and other third-party service providers to assist the Company with the execution of its clinical trials. We record accruals for estimated costs under these contracts. When evaluating the adequacy of the accrued liabilities, we analyze the progress of the studies or clinical trials, including the phase or completion of events, invoices received, contracted costs and purchase orders. Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period based on the facts and circumstances known at that time. Although we do not expect the estimates to be materially different from the amounts actually incurred, if the estimates of the status and timing of services performed differs from the actual status and timing of services performed, we may report amounts that are too high or too low in any particular period. Actual results could differ from our estimates. If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates and record any necessary adjustments in the period such variances become known. Payments made under these arrangements in advance of the receipt of the related services are recorded as prepaid expenses until the services are rendered.

 

 

Use of Estimates

 

The preparation of the financial statements in accordance with U.S. GAAP requires the use of estimates and assumptions by management that affect the reported amounts of assets and liabilities, as well as disclosure of contingent assets and liabilities, as reported on the balance sheet date, and the reported amounts of revenues and expenses arising during the reporting period. The main areas in which assumptions, estimates and the exercising of judgment are appropriate relate to, valuation allowances for receivables and inventory, and warrant liabilities, realization of intangible and other long-lived assets, product sales allowances and reserves, share-based payments, accrual of research and development expenses and income taxes including deferred tax assets and liabilities. Estimates are based on historical experience and other assumptions that are considered appropriate in the circumstances. They are continuously reviewed but may vary from the actual values.

 

Recently Issued Accounting Pronouncements

 

In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures. This standard update requires additional interim and annual disclosures about a reportable segment’s expenses, even for companies with only one reportable segment. The Company is required to adopt the guidance for its 2024 annual report filed on Form 10-K, though early adoption is permitted. The Company is currently evaluating the impact of these amendments on its disclosures, but this standard update will not impact the Company’s results of operations or financial position.

 

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) – Improvements to Income Tax Disclosures. The ASU requires that an entity disclose specific categories in the effective tax rate reconciliation as well as provide additional information for reconciling items that meet a quantitative threshold. Further, the ASU requires certain disclosures of state versus federal income tax expense and taxes paid. The amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2024. Early adoption is permitted and the amendments should be applied on a prospective basis. We are currently evaluating the effect of adopting the ASU on our disclosures.

 

3. Fair Value Measurements

 

The following table presents information about the Company’s assets that are measured at fair value on a recurring basis at September 30, 2024 and December 31, 2023 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:

Schedule of Fair Value Hierarchy Valuation Inputs 

(in thousands)		Level		September 30, 2024				December 31, 2023
Assets:
Investment, related party		1		$	8			$	78
Liabilities:
Warrant liability – 2022 Purchase Warrants		3		$	125			$	328
Warrant liability - 2022 Inducement Warrants		3		$	156			$	412
Warrant liability – 2023 Purchase Warrants		3		$	1,320			$	3,470
Warrant liability		3		$	1,320			$	3,470
Total Liabilities				$	1,601			$	4,210

 

 

Investment, related party

 

As of September 30, 2024 and December 31, 2023, the Company held as an investment, 3,019 (as adjusted for a reverse stock split on May 14, 2024) and 177,465, respectively, common shares of Biofrontera, AG, a company who holds a greater than five percent of our Common Stock and is traded on the Frankfurt Stock Exchange. The fair values of these investments were determined with Level 1 inputs through references to quoted market prices.

 

Warrant Liabilities

 

The warrant liabilities are comprised of (i) outstanding warrants to purchase 170,950 shares of Common Stock originally issued in a private placement on May 16, 2022, as amended on November 2, 2023 to extend the expiration date until November 2, 2028 and revise the exercise price to $3.55 per share (the “2022 Purchase Warrants”), (ii) warrants to purchase 214,286 shares of Common Stock issued on July 26, 2022, as amended on November 2, 2023 to extend the expiration date until November 2, 2028 and revise the exercise price to $3.55 per share (the “2022 Inducement Warrants”), and (iii) warrants to purchase 1,807,500 shares of Common Stock issued on November 2, 2023 expiring five years following the date of issuance and with an exercise price of $3.55 per share ( the “2023 Purchase Warrants”).

 

The 2022 Purchase Warrants, the 2022 Inducement Warrants and the 2023 Purchase Warrants were accounted for as liabilities as these warrants provide for a redemption right in the case of a fundamental transaction which fails the requirement of the indexation guidance under ASC 815-40. The warrant liabilities are re-measured at each balance sheet date until their exercise or expiration, and any change in fair value is recognized in the Company’s consolidated statement of operations.

 

The fair value for the Level 3 2022 Purchase Warrants, 2022 Inducement Warrants and the 2023 Purchase Warrants was estimated using a Black-Scholes-Merton (“BSM”) model. Certain inputs utilized in our BSM model may fluctuate in future periods based upon factors which are outside of the Company’s control. A significant change in one or more of these inputs used in the calculation of the fair value may cause a significant change to the fair value of our warrant liabilities which could also result in material non-cash gain or loss being reported in our consolidated statement of operations. The fair value of these warrants was determined using the BSM option pricing model based on the following assumptions for the three and nine months ended September 30, 2024: fair value of the underlying common stock of $0.90 to $1.54, expected volatility of 95% to 100%, risk free rate of 3.55% to 4.35%, remaining contractual term of 4.09 to 4.59 years and a dividend yield of 0%. The expected life of the warrants is assumed to be equivalent to their remaining contractual term.

 

The warrants to purchase 8,000 shares of Series B-3 Convertible Preferred Stock, par value $0.001 per share (the “2024 Preferred Warrants”), were also accounted for as liabilities, as they were redeemable in the event of a change in control, which was not solely within the control of the Company (see Note 12. Stockholders’ Equity). The 2024 Preferred Warrants were issued in the first quarter of 2024 and exercised prior to the end of the second quarter of 2024. The fair value for the Level 3 2024 Preferred Warrants was estimated utilizing a probability weighted average approach, which incorporated two scenarios. In scenario one, the warrant value was based on the underlying value of the convertible preferred stock, using an option-pricing model backsolve that solved for the value of our publicly traded equity on the valuation date to obtain the valuation date fair value of the Series B-3 Convertible Preferred Stock, then applied the Series B-3 Convertible Preferred Stock value into the BSM model equation to determine the value of the Series B-3 convertible warrants. In scenario two, the warrant value was based on the underlying value of the publicly traded common equity value. Scenario two assumes the preferred stock will be converted into Common Stock prior to a liquidity event. A simple BSM model was utilized to value the warrant under scenario two, using the closing price of our Common Stock as an input to the model.

 

The BSM model used the following range of inputs and assumptions for the 2024 Preferred Warrants at the issuance date of February 22, 2024, for the three months ended March 31, 2024 and at the exercise date of May 13, 2024: (i) expected stock price volatility of 79.3% to 105%; (ii) risk-free interest rate of 5.39%; to 5.54%; (iii) expected life of the warrants of 0.003 to 0.21 years; and (iv) dividend yield of 0.0%.

 

The following table presents the changes in the Level 3 warrant liabilities measured at fair value (in thousands):

Schedule of Changes in Fair Value Warrant Liabilities 

		2024				2023
		Nine Months Ended September 30,
		2024				2023
Fair value at beginning of period		$	4,210			$	2,843
Issuance of new warrants			4,092				-
Exercise of warrants			(5,372	)			-
Change in fair value of warrant liabilities			(1,329	)			(2,001	)
Fair value at end of period		$	1,601			$	842

 

 

4. Revenue

 

We generate revenue primarily through the sales of our licensed products Ameluz® and RhodoLED® Lamps. Revenue from the sales of our lamps are relatively insignificant compared with the revenues generated through our sales of Ameluz®.

 

Related party revenue relates to an agreement with Biofrontera Bioscience for BF-RhodoLED® leasing and installation service associated with the clinical lamps, which, due to the Second A&R Ameluz LSA is no longer effective as of September 30, 2024. Refer to Note 11, Related Party Transactions.

 

An analysis of the changes in product revenue allowances and reserves is summarized as follows:

Schedule of Revenue Allowance and Accrual Activities 

(in thousands):		Returns				Co-pay assistance program				Prompt pay discounts				Government and payor rebates				Total
Balance at December 31, 2022		$	48			$	9			$	5			$	20			$	82
Provision related to current period sales			4				156				3				266				429
Credit or payments made during the period			-				(145	)			(2	)			(231	)			(378	)
Balance at September 30, 2023		$	52			$	20			$	6			$	55			$	133
Balance at December 31, 2023		$	52			$	-			$	6			$	54			$	112
Balance		$	52			$	-			$	6			$	54			$	112
Provision related to current period sales			32				-				-				157				189
Credit or payments made during the period			(6	)			-				(6	)			(167	)			(179	)
Balance at September 30, 2024		$	78				-				-				44				122
Balance		$	78				-				-				44				122

 

5. Accounts Receivable, Net

 

Accounts receivables are mainly attributable to the sale of Ameluz®.   It is expected that all trade receivables will be settled within twelve months of the balance sheet date. Trade accounts receivable are stated at their net realizable value. The allowance for credit losses reflects our best estimate of expected credit losses of the receivables determined on the basis of historical experience and current information. In developing the estimate for expected credit losses, trade accounts receivable are segmented into pools of assets depending primarily on delinquency status, and fixed reserve percentages are established for each pool of trade accounts receivables.

 

In determining the reserve percentages for each pool of trade accounts receivable, we considered our historical experience with certain customers, regulatory and legal environments and other relevant current and future forecasted macroeconomic factors. If we become aware of any customer-specific factors that impact credit risk, specific allowances for these known troubled accounts are recorded.

 

The allowance for credit losses was $0.3 million and $0.2 million as of September 30, 2024 and December 31, 2023, respectively.

 

 

6. Inventories

 

Inventories are comprised of Ameluz® and RhodoLED® Lamps.

 

There was a negligible provision for obsolescence recorded for the three and nine months ended September 30, 2024 and 2023. As of December 31, 2023, in connection with the voluntary recall by the Ameluz Licensor, we recorded an inventory write-off of $5.2 million with a corresponding asset for the anticipated replacement from the licensor to other assets, related party, as the recalled lots of Ameluz® products were to be replaced by the Ameluz Licensor at no additional cost in accordance with the Ameluz License and Supply Agreement (the “Ameluz LSA”). As of July 23, 2024, we have received the full amount of the replacement inventory for the recalled Ameluz®.

 

7. Assets Held for Sale

 

Assets held for sale consists of the following:

 Schedule of Assets Held for Sale

(in thousands)		September 30, 2024				December 31, 2023
Xepi® license		$	4,600			$	-
Less: Accumulated amortization		$	(2,300	)		$	-
Assets held for sale		$	2,300			$	-

 

The Xepi® license intangible asset was recorded at acquisition-date fair value of $4.6 million and was amortized on a straight-line basis over the useful life of 11 years. Amortization expense was $0.1 million for each of the three-month periods ended September 30, 2024 and 2023 and $0.3 million for the nine months ended September 30, 2024 and 2023.

 

During the third quarter of 2024, the Company committed to a plan to sell its Xepi product line and determined that the intangible asset meets the criteria to be classified as held for sale in accordance with ASC 360-10-45-9. The Company has entered into a letter of intent and expects to complete the sale within the next six to twelve months and as such has classified the asset as held for sale under current assets in the Condensed Consolidated Balance Sheets. The carrying amount of the asset at the time of classification was $2.3 million, which was the lower of its carrying value or estimated fair value less cost to sell. No gain or loss was recognized in the Statement of Operations upon classification as an asset held for sale and the related revenue and expenses associated with the asset were de-minimus. This divestiture does not represent a strategic shift that will have a major effect on our consolidated results of operations and therefore is not being reported as discontinued operations.

 

8. Cash Balances and Statement of Cash Flows Reconciliation

 

The Company maintains its cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”). At September 30, 2024, approximately $2.5 million of the Company’s cash balances were in excess of FDIC limits. The Company has not experienced any losses on these accounts and management does not believe that the Company is exposed to any significant risks with respect to these accounts.

 

Restricted cash consists primarily of deposits of cash collateral held in accordance with the terms of our corporate credit cards. Long-term restricted cash was recorded in other assets in the consolidated balance sheet.

 

The following table provides a reconciliation of cash, cash equivalents, and restricted cash that sum to the total shown in the statements of cash flows:

 Schedule of Reconciliation of Cash, Cash Equivalents, and Restricted Cash

(in thousands)		September 30, 2024				December 31, 2023
Cash and cash equivalents		$	2,873			$	1,343
Long-term restricted cash			200				200
Total cash, cash equivalents, and restricted cash shown on the consolidated statements of cash flows		$	3,073			$	1,543

 

Long-term restricted cash was recorded in other assets in the consolidated balance sheet.

 

 

9. Accrued Expenses and Other Current Liabilities

 

Accrued expenses and other current liabilities consist of the following:

 Schedule of Accrued Expenses and Other Current Liabilities

(in thousands)		September 30, 2024				December 31, 2023
Employee compensation and benefits			2,571				2,185
Professional fees			679				1,064
Research and development			581				-
Product revenue reserves			122				149
Distribution and Storage			40				118
Legal settlement			-				403
Other			662				568
Total		$	4,655			$	4,487

 

10. Debt

 

Line of Credit

 

Effective as of January 4, 2024, we voluntarily terminated the Loan and Security Agreement with Midcap Business Credit LLC (the “Loan Agreement”), paying a total of approximately $0.4 million, consisting of (1) the outstanding principal of and interest balance due under the Loan Agreement, aggregating approximately $0.2 million, and (2) early termination fees of approximately $0.2 million.

 

As a result of the termination of the Loan Agreement, the Company recognized a $0.3 million loss related to prepayment fees and the write-off of deferred financing costs, in the accompanying consolidated statement of operations for the nine months ended September 30, 2024.

 

Loan Facilities

 

On December 21, 2023, we entered into credit facilities with two different lenders (the “Loans”), each pursuant to a Business Loan and Security Agreement providing for a term loan in the principal amount of $2,000,000. Each of the Loans was evidenced by a Secured Promissory Note, effective as of December 21, 2023 and required the Company to make weekly payments of principal and interest in the amount of approximately $102,857 through July 5, 2024, the maturity date. There were approximately $0.3 million related issuance costs, recognized as a debt discount (contra liability against the debt balance), that were amortized as interest expense over the life of the loan using the effective interest method. The Company recognized minimal discount amortization and interest expense during the three months ended September 30, 2024. During the nine months ended September 30, 2024, the Company recognized discount amortization and interest expense of $0.3 million and $1.7 million, respectively. As of September 30, 2024 the Company had repaid both Loans.

 

Interest expense was recognized using the effective interest method, such that a constant effective interest rate was applied to the carrying amount of the debt at the beginning of each period until maturity.

 

 

11. Related Party Transactions

 

License and Supply Agreement

 

Under the Ameluz LSA, the Company obtained an exclusive, non-transferable license to use Biofrontera Pharma’s technology to market and sell the licensed products, Ameluz® and RhodoLED® Lamps and must purchase the licensed products exclusively from Biofrontera Pharma. The Second A&R Ameluz LSA, among other things, amended the Ameluz LSA to:

 

(i) update the price we pay per unit, based on certain percentages of the anticipated net selling price, (the “Transfer Price”) that covers the cost of goods, royalties on sales, and services, including all regulatory efforts, agency fees, pharmacovigilance, and patent administration, as follows:

 

	●	Twenty-five percent of the anticipated net selling price per unit through 2025;
	●	Thirty percent of the anticipated net selling price per unit for 2026 to 2028;
	●	Thirty-two percent of the anticipated net selling price per unit for 2029 to 2031;
	●	Thirty-five percent of the anticipated net selling price per unit for 2032 and beyond, subject to a minimum dollar amount per unit; and
	●	The Transfer Price for sales related to acne, another indication currently in development, will remain at twenty-five percent of the anticipated net selling price per unit indefinitely.

 

(ii) provide for the transfer of responsibilities for clinical trials relating to Ameluz® in the US on or before June 1, 2024, including the Company assuming related contracts and transferring key personnel from the Ameluz Licensor to the Company.

 

Also, in connection with the Second A&R Ameluz LSA, the Company entered into a Release of Claims, with the Ameluz Licensor, dated February 13, 2024, pursuant to which the Company agreed to release the Ameluz Licensor from all claims and liabilities arising out of or relating to any failure by the Ameluz Licensor to perform certain obligations under the Second A&R Ameluz LSA with respect to clinical trials for which the Company assumed responsibility under the Second A&R Ameluz LSA.

 

Purchases of the licensed products during the three and nine months ended September 30, 2024 were $2.2 million and $3.3 million, respectively, and $5.1 million and $18.8 million for the three and nine months ended September 30, 2023, respectively. Amounts due and payable to Biofrontera Pharma as of September 30, 2024 and December 31, 2023 were $3.6 million and $8.5 million, respectively, which were recorded net in accounts payable, related parties in the consolidated balance sheets.

 

 

Others

 

The Company receives expense reimbursement from Biofrontera AG and Biofrontera Bioscience on a quarterly basis for costs incurred on behalf of these entities, which are netted against expenses incurred within selling, general and administrative expenses. Total expense reimbursements were negligible and $0.3 million for the three and nine months ended September 30, 2024 respectively. Total expense reimbursements for the three and nine months ended September 30, 2023 were $0.1 million and $0.2 million, respectively.

 

12. Stockholders’ Equity

 

Under the Company’s Certificate of Second Amendment to the Amended and Restated Certificate of Incorporation (“Certificate”), effective April 25, 2024, the Company is authorized to issue 35,000,000 shares of Common Stock and 20,000,000 shares of preferred stock, par value $.001 per share.

 

On February 19, 2024, the Company entered into the Preferred Purchase Agreement, pursuant to which the Company agreed to issue and sell, in a private placement (the “Offering”), (i) 6,586 shares of Series B-1 Convertible Preferred Stock, par value $0.001 per share (the “Series B-1 Preferred Stock”), and (ii) the 2024 Preferred Warrants to purchase 8,000 shares of Series B-3 Convertible Preferred Stock, par value $0.001 per share (the “Series B-3 Preferred Stock”) for an aggregate offering price of $8.0 million. Each share of Series B-1 Preferred Stock was sold for $1,000 per share and the consideration for each 2024 Preferred Warrant was $0.125 per share of common stock that each share of Series B-3 Preferred Stock may be converted into (or 11,309,019 common stock shares). The conversion price of Series B Preferred Stock is $0.7074 per share of Common Stock, such that each Series B share is convertible into 1,413.6 shares of the Common Stock. The net proceeds received were approximately $7.3 million, after deducting fees paid to the placement agent and other offering expenses payable by the Company.

 

On February 22, 2024, concurrent with the closing of the Offering, in exchange for the conversion of 1,780 shares of Series B-1 Preferred Stock, the Company issued 2,516,785 shares of common stock. Pursuant to the Certificate, upon the Company’s stockholders’ May 2024 approval of an increase in the authorized shares of Common Stock (“Stockholder Approval”), the remaining 4,806 shares of Series B-1 Preferred Stock automatically converted into Series B-2 Preferred Stock (as a conversion to common stock would have caused the holders to exceed their respective beneficial ownership limitations), with 6,793,893 shares of common stock issuable upon conversion of the Series B-2 Preferred Stock. Also, following the Stockholder Approval, upon any liquidation event, the assets of the Company available for distribution to its stockholders will be distributed among the holders of the shares of Series B Preferred Stock and Common Stock, pro rata, based on the number of shares held by each such holder, treating for this purpose, all shares of Series B Preferred Stock as if they had been converted to Common Stock. With the removal of the liquidation preference to Series B Preferred, the requirement for mezzanine classification was eliminated and the Series B Preferred Stock is classified as permanent equity as of September 30, 2024. (Note 13. Redeemable Preferred Stock.)

 

On May 13 and 14, 2024, of the 8,000 2024 Preferred Warrants, 7,998 were exercised to purchase shares of the Company’s Series B-3 Convertible Preferred stock, par value $0.001 per share, for net proceeds of $7.4 million, net of fees paid to the placement agent, while two warrants expired due to non-issuance of fractional shares. All 2024 Preferred Warrants issued in the Offering have now been exercised or expired, with 11,306,192 shares of common stock issuable upon conversion of the 7,998 shares of Series B-3 Convertible Preferred Stock. As of September 30, 2024 following the conversion of 111 shares of Series B-2 Preferred Stock and 905 shares of Series B-3 Preferred Stock into Common Stock, there were 11,788 shares of Series B Preferred issued and outstanding.

 

Pursuant to the Preferred Purchase Agreement, the Company is entitled to appoint two independent directors designated by Rosalind Advisors, Inc to the Company’s Board.

 

 

Amendment to Articles of Incorporation – Series B Preferred Stock

 

Pursuant to the terms of the Preferred Purchase Agreement, on February 20, 2024, the Company filed the Certificate of Designation with the Delaware Secretary of State designating 6,586 shares of its authorized and unissued preferred stock as Series B-1 Preferred Stock, 6,586 shares as Series B-2 Preferred Stock and 8,000 shares as Series B-3 Convertible Preferred Stock, with a par value of $0.001 per share (collectively the “Series B Preferred Stock”).

 

Series B Preferred Stock Rights:

 

Voting Rights. Subject to certain limitations described in the Certificate of Designation, the Series B Preferred Stock is voting stock. Holders of the Series B Preferred Stock are entitled to vote together with the Common Stock on an as-if-converted-to-Common-Stock basis. Holders of Common Stock are entitled to one vote for each share of Common Stock held on all matters submitted to a vote of stockholders. Accordingly, holders of Series B Preferred Stock will be entitled to one vote for each whole share of Common Stock into which their Series B Preferred Stock is then convertible on all matters submitted to a vote of stockholders.

 

Conversion. Subject to certain beneficial ownership limitations, at the option of the Holder, each share of Series B Preferred Stock is convertible into shares of Common Stock at the applicable Conversion Price, rounded down to the nearest whole share. The conversion price for the Series B Preferred Stock is $0.7074 per share of Common Stock, subject to adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization. Following the Stockholder Approval, each share of Series B-1 Preferred Stock was automatically converted into either Common Stock or, to the extent the conversion would cause a holder to exceed its beneficial ownership limitation, shares of Series B-2 Preferred Stock.

 

Liquidation. Following the Stockholder Approval, in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, including a change of control transaction, or Deemed Liquidation Event, as defined in the Certificate of Designation (any such event, a “Liquidation”), the assets of the Company available for distribution to its stockholders shall be distributed among the holders of the shares of Series B Preferred Stock and Common Stock, pro rata based on the number of shares held by each such holder, treating for this purpose all shares of Series B Preferred Stock as if they had been converted to Common Stock pursuant to the terms of the Certificate of Designation immediately prior to such Liquidation, without regard to any limitations on conversion set forth in the Certificate of Designation or otherwise.

 

Participation Right. For a period of one year following the closing of the Offering, the purchasers will have the right to participate as an investor in any securities offering consummated by the Company.

 

Common Stock:

 

The holders of Common Stock are entitled to one vote for each share held. Common Stockholders are not entitled to receive dividends, unless declared by the Board. The Company has not declared dividends since inception. In the event of liquidation of the Company, dissolution or winding up, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities. The Common Stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the Common Stock. The outstanding shares of Common Stock are fully paid and non-assessable. As of September 30, 2024, there were 6,529,792 shares of Common Stock outstanding.

 

Issuance of Common Stock Pursuant to the Exercise of 2023 Pre-Funded Warrants and Conversion of Series B-1 Preferred Stock

 

On January 8, 2024 and February 2, 2024, an investor exercised 167,000 and 888,000 pre-funded warrants to purchase the Company’s common stock, par value $0.001 per share (the “Pre-Funded Warrants”), respectively, and purchased a total of 1,055,000 shares of common stock at an exercise price of $.0001 per share, resulting in negligible net proceeds.

 

 

13. Redeemable Preferred Stock

 

Prior to the Stockholder Approval, Series B-1 Preferred Stock was redeemable at the option of the holder and Series B-2 and B-3 Preferred Stock were redeemable in the event of a change in control. ASC 480-10-S99-3A(2) of the SEC’s Accounting Series Release No. 268 (“ASR 268”) requires preferred securities that are redeemable for cash or other assets to be classified outside of permanent equity if they are redeemable (i) at a fixed or determinable price on a fixed or determinable date, (ii) at the option of the holder, or (iii) upon the occurrence of an event that is not solely within the control of the issuer. Preferred securities that are mandatorily redeemable are required to be classified by the issuer as liabilities whereas under ASR 268, an issuer should classify a preferred security whose redemption is contingent on an event not entirely in control of the issuer as mezzanine equity. The Series B-1 Preferred Stock was redeemable at the option of the holder, B-2 and B-3 were redeemable, upon a change in control that was not solely within control of the Company. Prior to the Stockholder Approval, the Series B Preferred Stock was considered senior to the Common Stock and all other series of the Company with respect to dividend rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. As such, the Company determined that mezzanine treatment was appropriate for the Series B Preferred Stock at issuance in February 2024 and as of March 31, 2024, and the Series B Preferred Stock was presented as such in our consolidated balance sheets and consolidated statements of changes in stockholders’ equity and mezzanine equity for periods prior to the Stockholder Approval. The Series B Preferred Stock was not considered mandatorily redeemable.

 

Upon the Stockholder Approval, each share of Series B-1 Preferred Stock automatically converted into either Common Stock or, to the extent the conversion would cause a holder to exceed its beneficial ownership limitation, shares of Series B-2 Preferred Stock, thereby removing the redemption feature at the option of the holder (which was only present for Series B-1) and eliminating one of the requirements for classification as mezzanine equity.

 

Following the Stockholder Approval, upon any liquidation, the assets of the Corporation available for distribution to its stockholders will be distributed among the holders of the shares of Series B Preferred Stock and Common Stock, pro rata based on the number of shares held by each such holder, treating for this purpose all shares of Series B Preferred Stock as if they had been converted to Common Stock pursuant to the terms of the Certificate of Designation filed on February 20, 2024. Accordingly, the Series B Preferred stock is classified as permanent equity on our consolidated balance sheets and consolidated statements of change in stockholders’ equity as of September 30, 2024, due to the limited exception under ASC 480-10-S99-3A(3)(f).

 

14. Equity Incentive Plans and Share-Based Payments

 

2021 Omnibus Incentive Plan

 

In 2021, our Board adopted, and our shareholders approved, the 2021 Omnibus Incentive Plan (“2021 Plan”), under which the maximum contractual term is 10 years for stock options issued. On June 12, 2024, the stockholders of the Company approved an amendment to the Biofrontera Inc. 2021 Omnibus Incentive Plan to increase the number of shares authorized for issuance by 3,483,010 shares, from 266,990 shares to 3,750,000 shares. As of September 30, 2024, there were 1,948,876 shares available for future awards under the amended 2021 Plan.

 

Non-qualified stock options

 

We maintain the 2021 Plan for the benefit of our officers, directors and employees. Employee stock options granted under the 2021 Plan generally vest in equal annual installments over three years and are exercisable for a period of up to ten years from the grant date. Non-employee director options vest in equal monthly installments following the date of grant and will be fully vested on the one-year anniversary of the date of grant. All stock options are exercisable at a price as set by the Company at the time of the grant but shall not be less than the market value of the common shares underlying the option on the grant date.

 

The Company recognizes the grant-date fair value of share-based awards granted as compensation expense on a straight-line basis over the requisite service period. The fair value of stock options is estimated at the time of grant using the BSM option pricing model, which requires the use of inputs and assumptions such as the fair value of the underlying stock, exercise price of the option, expected term, risk-free interest rate, expected volatility and dividend yield. The Company elects to account for forfeitures as they occur.

 

 

During the three months ended September 30, 2024, the Company granted 1,242,722 options. The fair value of each option was estimated on the grant date of July 12, 2024 using the BSM option pricing model with the following assumptions: fair value of the underlying unit of $1.06, expected volatility of 100.0%, risk free rate of 4.20%, term ranging from 5.24 years to 6 years, and a dividend yield of zero.

 

Share-based compensation expense for stock options for the three and nine months ended September 30, 2024 was approximately $0.2 million and $0.6 million, respectively, and was recorded in selling, general and administrative expenses, with a negligible amount recorded as research and development on the accompanying consolidated statement of operations. For the three and nine months ended September 30, 2023, share-based compensation expense of $0.1 million and $0.5 million, respectively, was recorded in selling, general and administrative expenses.

 

Options outstanding and exercisable under the employee share option plan as of September 30, 2024, and a summary of option activity during the nine months then ended is presented below.

Schedule of Stock Option Activity 

		Shares				Weighted Average Exercise Price				Weighted Average Remaining Contractual Term				Aggregate Intrinsic Value (1)
Outstanding at December 31, 2023			99,486			$	39.26
Granted			1,242,722			$	1.38
Exercised			-			$	-
Canceled or forfeited			(16,764	)		$	14.19
Outstanding at September 30, 2024			1,325,444			$	4.04				9.65			$	-
Exercisable at September 30, 2024			59,324			$	40.76				7.87			$	-

 

(1)	The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the fair value of the Common Stock for the options that were in the money at September 30, 2024.

 

As of September 30, 2024, there was $1.3 million of unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of approximately 2.63 years.

 

Share-Based Compensation (RSUs)

 

Restricted Stock Units (“RSUs”) will vest annually over two years, subject to the recipient’s continued service with the Company through the applicable vesting dates. The fair value of each RSU is determined based on the closing market price of the Company’s Common Stock on the grant date.

 

Share-based compensation expense for the RSUs was $0.1 million for the three and nine months ended September 30, 2024, and $0.1 million and $0.3 million for the three and nine months ended September 30, 2023, respectively, and was recorded in selling, general and administrative expenses in the accompanying consolidated statements of operations.

 Schedule of Restricted Stock Units

		Shares				Weighted Average Remaining Contractual Term				Weighted Average Grant Date Fair Value
Outstanding at December 31, 2023			4,771				-			$	52.20
Awarded			450,000				-			$	1.06
Vested			(4,771	)			-			$	52.20
Canceled or forfeited			-				-			$	-
Outstanding at September 30, 2024			450,000				1.28			$	1.06

 

As of September 30, 2024, there was $0.4 million unrecognized compensation cost related to RSUs, which is expected to be recognized over a weighted-average period of approximately 1.78 years.

 

 

15. Interest Expense, net

 

Interest expense, net consists of the following:

 

Schedule of Interest Expense, Net

		Three Months Ended September 30,								Nine Months Ended September 30,
(in thousands)		2024				2023				2024				2023
Interest expense		$	(9	)		$	(43	)		$	(2,051	)		$	(77	)
Interest expense, related party			-				(22	)			-				(22	)
Interest expense			-				(22	)			-				(22	)
Contract asset interest expense			-				(90	)			-				(268	)
Interest income			17				13				56				111
Interest income (expense), net		$	8			$	(142	)		$	(1,995	)		$	(256	)

 

Interest expense is comprised primarily of interest on our short-term loans and line of credit, including amortization of deferred costs.

 

Contract asset interest expense related to a $1.7 million contract asset in connection with a $7.3 million start-up cost financing received from Maruho Co., Ltd. (“Maruho”) under a share purchase agreement. The contract asset was amortized on a straight-line basis using a 6% interest rate over the financing arrangement contract term, which ended on December 31, 2023.

 

Interest income relates primarily to interest earned on funds deposited in our bank accounts.

 

16. Net Earnings (Loss) per Share

 

The Company uses the two-class method to calculate net income (loss) per share. No dividends were declared or paid for the three and nine months ended September 30, 2024 and 2023. Undistributed earnings for each period are allocated equally to common shareholders and participating securities based on the contractual participation rights of the security to share in the current earnings as if all current period earnings had been distributed. Under the two-class method, the undistributed losses will be allocated entirely to the common stock shareholders. Basic net earnings (loss) per common share are calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net earnings per common share are calculated by dividing net income (loss) by the diluted weighted average number of common shares outstanding during the period. The diluted shares include the dilutive effect of stock-based awards based on the treasury stock method.

 

In periods where a net loss is recorded, no effect is given to potentially dilutive securities, since the effect would be anti-dilutive.

 

The following table sets forth the computation of the Company’s basic and diluted net earnings (loss) per share attributable to common stockholders (in thousands, except share and per share data):

Schedule of Basic and Diluted Net Loss per Share Attributable to Common Stockholders 

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2024				2023				2024				2023
Net loss		$	(5,669	)		$	(6,342	)		$	(16,363	)		$	(23,657	)
Weighted average common shares outstanding, basic and diluted			5,773,993				1,366,842				4,833,091				1,346,264
Net loss per share, basic and diluted		$	(0.98	)		$	(4.64	)		$	(3.39	)		$	(17.57	)

 

 

The following table sets forth the securities that were anti-dilutive for diluted EPS for the periods presented but which could potentially dilute EPS in the future:

Schedule of Anti-dilutive Securities Excluded from Computation of Earnings per Share 

September 30,		2024				2023
Common stock warrants			2,269,356				459,856
Common stock options and RSUs			1,775,444				82,719
Unit Purchase Options			20,182				20,812
Shares related to Series B-2 convertible preferred stock			6,636,981				-
Shares related to Series B-3 convertible preferred stock			10,026,859				-
Total			20,728,822				563,387
Anti-dilutive securities			20,728,822				563,387

 

Common Stock warrants include Purchase Warrants, Inducement Warrants and warrants issued in the Company’s initial public offering.

 

17. Commitments and Contingencies

 

Leases

 

The Company leases its corporate headquarters under an operating lease that expires in August 2025. The Company has the option to extend the term of the lease for a five-year period upon written notice to the landlord. The extension period has not been included in the determination of the ROU asset or the lease liability as the Company concluded that it is not reasonably certain that it would exercise this option. The Company provided the landlord with a security deposit in the amount of $0.1 million, which was recorded as other assets in the consolidated balance sheets.

 

The Company has also entered into a master lease agreement for its vehicles. After an initial non-cancelable twelve-month period, each vehicle is leased on a month-to-month basis. Based on historical retention experience of approximately three years, the vehicles have varying expiration dates through October 2027.

 

During the nine months ended September 30, 2024, the Company recorded lease expense of $0.6 million under selling, general and administrative expenses in the consolidated statements of operations. Future lease payments under non-cancelable leases as of September 30, 2024 were as follows (in thousands):  

 Schedule of Future Commitments and Sublease Income

Years ending December 31,		Future lease commitments
Remainder of 2024		$	193
2025			590
2026			246
2027			37
Thereafter			-
Total future minimum lease payments		$	1,066
Less imputed interest			(72	)
Total lease liability		$	994

 

Schedule of Operating Lease Liability

Reported as:
Operating lease liability, current		$	670
Operating lease liability, non-current			324
Total		$	994

 

 

Ameluz LSA Sales Commitment

 

The term shall renew automatically for a period of five years, in perpetuity, so long as we have earned revenues from Ameluz product and lamps equal to or greater than $150 million over the preceding five years. If we fail to earn $150 million in revenues from Ameluz® and the RhodoLED® Lamps over the preceding five (5) year period prior to the Ameluz LSA’s termination date, Biofrontera Pharma has the right to terminate the Ameluz LSA by providing one (1) year written notice.

 

In addition, starting in 2025, under the Second A&R Ameluz LSA, we agree to purchase the higher of a minimum quantity of tubes of Ameluz® per year or at least a minimum 75% of the annual average of audited Ameluz® tubes sold during the preceding four (4) full calendar years (“Annual Minimum Sales”). If we fail to achieve the respective Annual Minimum Sales for any calendar year, such failure will constitute a termination event, unless waived by the Ameluz Licensor.

 

Ameluz® Minimum Research and Development Costs (“Minimum R&D Costs”)

 

During the years 2025 through 2030, we will be required to fund Minimum R&D Costs in an amount that is at least 85% of the difference between (i) the Transfer Price for product, effective February 13, 2024 and (ii) the Transfer Price for product as it would have been determined under the previous Ameluz LSA, dated October 8, 2021. If we fail to meet the minimum requirement, the difference shall be paid to Biofrontera Pharma on February 15, 2031, in either cash or our Common Stock, at our discretion.

 

Licensing Agreement with Optical Tools

 

On December 2, 2022, the Company entered into the technology transfer agreement with Optical Tools LLC (“Optical Tools”), Stephen Tobin and Paul Sowyrda (the “Agreement”). The Agreement allowed for the transfer of the assigned patents and trademarks, and upon notification by the Company to Optical Tools, the research and development of certain prototypes. The Company paid a licensing fee of $0.2 million which was expensed during the year ended December 31, 2022.

 

On May 28, 2023, the Company authorized Optical Tools to design, develop, manufacture, and deliver at least two portable photodynamic therapy lamp prototypes (“PDT Device”) using the technology in the assigned patents. The PDT Device provides illumination, based on different light profiles, to the external skin surface of the human body. The Company is to reimburse Optical Tools for all reasonable out-of-pocket, material and labor costs per the Agreement.

 

As part of the Agreement, Optical Tools will be eligible to receive regulatory and sales milestone payments totaling up to $1.0 million, and royalties of up to 3% of net revenue of certain products developed under this Agreement.

 

The Company did not make any milestone or royalty payments or accruals for such payments during the three and nine months ended September 30, 2024 or 2023.

 

Milestone payments with Ferrer Internacional S.A.

 

Under the Xepi LSA, we are obligated to make payments to Ferrer upon the occurrence of certain milestones. Specifically, we must pay Ferrer (i) $2,000,000 upon the first occasion when annual net sales of Xepi® under the Xepi LSA exceed $25,000,000, and (ii) $4,000,000 upon the first occasion annual net sales of Xepi® under the Xepi LSA exceed $50,000,000. No payments or accruals for such payments were made during the three and nine months ended September 30, 2024 or 2023 related to Xepi® milestones.

 

 

Legal proceedings

 

At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of FASB ASC Topic 450, Contingencies. The Company expenses as incurred the legal costs related to such legal proceedings.

 

Legal Claims 

 

On September 13, 2023, Biofrontera was served with a complaint filed by DUSA Pharmaceuticals, Inc., Sun Pharmaceutical Industries, Inc. (“Sun”), and Sun Pharmaceutical Industries LTD in which DUSA alleges i) breach of contract, ii) violation of the Lanham Act, and iii) unfair trade practices under Massachusetts law. All claims stem from allegations that Biofrontera has promoted its Ameluz® product in a manner that is inconsistent with its approved FDA labeling. Though this complaint was originally filed in the U.S. District Court for the District of Massachusetts, this matter has been transferred by agreement of the parties to the U.S. District Court for the District of New Jersey. In March of 2024, Biofrontera Company filed a partial motion to dismiss the Lanham Act and Massachusetts statutory claims, which was denied on October 15, 2024. Biofrontera subsequently answered Sun’s complaint and filed counterclaims alleging i) violation of the Lanham Act, ii) deceptive trade practices under Georgia law, and iii) trade libel/product disparagement.

 

Separately, on June 26, 2024 and June 27, 2024, Sun filed two complaints against Biofrontera, Biofrontera AG, Biofrontera Pharma, and Biofrontera Bioscience with the United States District Court for the District of Massachusetts and the International Trade Commission, respectively, both alleging infringement of two patents held by Sun. The complaint filed in the United States District Court for the District of Massachusetts has been held in abeyance pending the completion of the case before the International Trade Commission.

 

Discovery is ongoing in the above-referenced matters. The Company denies the claims brought by Sun and intends to defend them vigorously. Based on the Company’s assessment of the facts underlying the above claims, the uncertainty of litigation and the preliminary stage of the case, the Company cannot estimate the possibility of a material loss, nor the potential range of loss that may result from either action. If the final resolution of the matter is adverse to the Company, it could have a material impact on the Company’s financial position, results of operations, or cash flows.

 

18. Subsequent Events

 

We have completed an evaluation of subsequent events after the balance sheet date of September 30, 2024 through the date this Quarterly Report on Form 10-Q was submitted to the SEC, and determined that the following material subsequent event required disclosure.

 

In October 2024, the FDA approved the Company’s Supplemental New Drug Application to increase the maximally approved dosage of Ameluz® from one to three tubes per treatment. This approval allows for larger field treatment of AK on face and scalp with Ameluz®-PDT using the BF-RhodoLED® or the RhodoLED® XL lamp.

 

During November 2024, 863 shares of Series B Convertible Preferred were converted into 1,219,419 shares of common stock.

 

On November 11, 2024, the Company entered into an amended and restated employment agreement with Hermann Luebbert, its Chief Executive Officer and Chairman. The amended and restated agreement (a) requires that Mr. Luebbert deliver a waiver and release of claims in a form reasonably acceptable to the Company prior to Mr. Luebbert receiving any severance payment; and (b) increases the amount of severance payment payable to Mr. Luebbert if his employment is terminated within 3 months prior to or 12 months after a “Change in Control” (as defined therein).

 

The foregoing description of the amended and restated employment agreements does not purport to be complete and is qualified in its entirety by reference to the copy of the amended and restated employment agreement filed as Exhibit 10.1 to this report and incorporated herein by reference.

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Management’s discussion and analysis (“MD&A”) provides supplemental information, which sets forth the major factors that have affected our financial condition and results of operations and should be read in conjunction with the Condensed Consolidated Financial Statements and related notes. The following information should provide a better understanding of the major factors and trends that affect our earnings performance and financial condition, and how our performance during the first quarter of 2024 compares with prior-year periods. Throughout this section, Biofrontera Inc., including its wholly owned subsidiary, Biofrontera Discovery GmbH (“Discovery” or “subsidiary”), is referred to as “Company,” “we,” “us,” or “our.”

 

Forward-Looking Statements

 

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Certain statements in this Form 10-Q constitute “forward-looking statements”. Such statements include estimates of our expenses, future revenue, capital requirements, our need for additional financing, statements regarding the efficacy and intended use of our technologies under development, the timelines and strategy for bringing licensed products to market, the timeline for regulatory review and approval of our licensed products, and other statements that are not historical facts. The words “intends,” “may,” “will,” “plans,” “expects,” “anticipates,” “projects,” “predicts,” “estimates,” “aims,” “believes,” “hopes,” “potential”, “target”, “goal”, “assume”, “would”, “could” or similar words are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. You should read this Form 10-Q and the documents that we have filed as exhibits completely and with the understanding that our actual future results may be materially different from what we expect. While we have based these forward-looking statements on our current expectations and projections about future events, we may not actually achieve the plans, intentions or expectations disclosed in or implied by our forward-looking statements, and you should not place undue reliance on our forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions about us and accordingly, actual results or events could differ materially from the plans, intentions and expectations disclosed in or implied by the forward-looking statements we make.

 

Factors that may cause such differences include, but are not limited to:

 

	●	the success of our principal licensed product Ameluz®;
	●	our reliance on sales of products we license from other companies as our sole source of revenue;
	●	the ability of Biofrontera Pharma GmbH (“Biofrontera Pharma”), Biofrontera Bioscience GmbH (“Biofrontera Bioscience”) and Ferrer Internacional S.A. (“Ferrer”), referred to collectively as our (“Licensors”) to establish and maintain relationships with contract manufacturers that are able to supply us with enough of the licensed products to meet our demand;
	●	the ability of our Licensors or our Licensors’ manufacturing partners, as applicable, to supply Ameluz®, RhodoLED® Lamps, Xepi® or other licensed products that we market in sufficient quantities and at acceptable quality and cost levels, and to fully comply with current good manufacturing practice or other applicable manufacturing regulations;
	●	the ability of our Licensors to successfully defend or enforce patents related to our licensed products;
	●	the impact of legislative and regulatory changes;
	●	our ability to obtain additional financing as needed to implement our growth strategy;
	●	our success in achieving profitability;
	●	our ability to retain and recruit key personnel;
	●	our ability to effectively manage and control costs associated with our clinical trial operations
	●	the success of our competitors in developing generic topical dermatological products that successfully compete with our licensed products;
	●	the availability of insurance coverage and medical expense reimbursement for our licensed products;

 

 

	●	competition from other pharmaceutical and medical device companies and existing treatments, such as simple curettage and cryotherapy; and
	●	such other risks identified in Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (as filed with the Securities and Exchange Commission (“SEC”) on March 15, 2024, the “Form 10-K”), Item 1A of Part II of this Quarterly Report on Form 10-Q and any other filings with the SEC.

 

More detailed information about us and the risk factors that may affect the realization of forward-looking statements, including the forward-looking statements in this Quarterly Report on Form 10-Q, is set forth in our filings with the SEC, including our Form 10-K. We urge investors and security holders to read those documents free of charge at the SEC’s web site at www.sec.gov. We do not undertake to publicly update or revise our forward-looking statements as a result of new information, future events or otherwise, except as required by law.

 

Overview

 

We are a U.S.-based biopharmaceutical company commercializing a portfolio of pharmaceutical products for the treatment of dermatological conditions with a focus on photodynamic therapy (“PDT”) and topical antibiotics. The Company’s licensed products are used for the treatment of actinic keratoses (“AKs”), which are pre-cancerous skin lesions, as well as impetigo, a bacterial skin infection. Our subsidiary, Discovery, was formed on February 9, 2022, as a German presence that manages our clinical trial work and facilitates our relationship with Biofrontera Pharma and Biofrontera   Bioscience (together, the “Ameluz Licensor”), both of which are related parties as they are wholly owned subsidiaries of Biofrontera AG.

 

Our principal licensed product is Ameluz®, which is a prescription drug approved for use in combination with PDT (when used together, “Ameluz® PDT”) using the BF-RhodoLED® and the RhodoLED® XL lamps (the “RhodoLED® Lamps”). In the United States, the PDT treatment is used for the lesion-directed and field-directed treatment of AKs of mild-to-moderate severity on the face and scalp. AKs are premalignant lesions of the skin that can potentially develop into skin cancer (squamous cell carcinoma) if left untreated. International treatment guidelines list PDT as the “gold standard” for treating AK, especially multiple AKs and the surrounding photodamaged skin.1 We are currently selling Ameluz® for this indication in the U.S. under an exclusive license and supply agreement, the Second Amended and Restated License and Supply Agreement, effective as of February 13, 2024 with the Ameluz Licensor (the “Second A&R Ameluz LSA”).

 

Effective June 1, 2024, we assumed control of all clinical trials relating to Ameluz® in the United States, allowing for more effective cost management and direct oversight of trial efficiency. Our research and development (“R&D”) program is focused on label expansion for Ameluz® as well as supporting PDT growth by improving the capabilities of our RhodoLED® Lamps to better fulfill the needs of dermatologists. Our goal is to improve the effectiveness of our commercial team by allowing sales representatives to carry approved devices with them allowing for easier product demonstrations and evaluations.

 

In October 2024, the FDA approved the Company’s Supplemental New Drug Application to increase the maximally approved dosage of Ameluz® from one to three tubes per treatment. This approval allows healthcare professionals greater flexibility in addressing larger or multiple treatment areas for patients undergoing PDT for AK on the face and scalp, leading to greater convenience for both healthcare providers and their patients. In combination with the RhodoLED® XL Lamp, providers can now treat a patient’s face more efficiently. Additionally, the change to the label and the RhodoLED® XL are both foundational to support trunk and extremities which we expect to add to the label in the next couple years.

 

Also, in October 2024, the Company received results in its Phase III trial evaluating its drug-device therapy, Ameluz® with the BF-RhodoLED lamp, as a treatment for superficial basal cell carcinoma (“sBCC”). The primary endpoint was a composite of complete clinical and histological clearance of one preselected “main target” BCC lesion per patient 12 weeks after the start of the last PDT cycle. According to the phase III ALA-BCC-CT013 study, Ameluz®-PDT achieved 65.5% success, compared to 4.8% success achieved with placebo-PDT. Complete histological clearance was seen in 75.9% of these lesions in the Ameluz® arm, compared to 19.0% with placebo. Complete clinical clearance was achieved in 83.4% of patients treated with Ameluz® compared to 21.4% with placebo.

 

Effective with the Second A&R Ameluz LSA, the price we pay per unit, based on certain percentages of the anticipated net selling price, (the “Transfer Price”) of Ameluz® was reduced from 50% to 25% for all purchases through 2025. Starting on January 1, 2026, until 2032 there will be stepwise increases in the Transfer Price from 25% to 35% for sales related to AK and, if approved by the Food and Drug Administration (the “FDA”), basal cell carcinoma and squamous cell carcinoma. The Transfer Price for sales related to acne, another indication currently in development, will remain at 25% indefinitely. The Transfer Price covers the cost of goods, royalties on sales, and services including all regulatory efforts, agency fees, pharmacovigilance, and patent administration. The reduced LSA Transfer Price will allow the Company to finance the R&D activities assumed as of June 1, 2024, and continue our commercial growth trajectory.

 

Our second prescription drug licensed product in our portfolio is Xepi® (ozenoxacin cream, 1%), a topical non-fluorinated quinolone that inhibits bacterial growth. Currently, no antibiotic resistance against Xepi® is known and it has been specifically approved by the FDA for the treatment of impetigo, a common skin infection, due to Staphylococcus aureus or Streptococcus pyogenes. It is approved for use in the United States in adults and children 2 months and older. Our exclusive license and supply agreement, as amended (“Xepi LSA”), with Ferrer that we assumed on March 25, 2019 through our acquisition of Cutanea Life Sciences, Inc. (“Cutanea”) enables us to market and sell this product in the United States. The Company has generated limited revenue from sales of Xepi due to third-party manufacturing delays that have hampered our commercialization of the product. Ferrer is now in the process of qualifying a new contract manufacturer. If the new contract manufacturer is qualified, we believe that it will be able to supply enough of the Xepi® product line to meet market demand for as long as we maintain it.

 

However, in the third quarter of 2024, the Company reached the decision to divest its Xepi product line and determined that it met the held for sale accounting criteria. The Company has entered into a letter of intent and expects to complete the sale within the next six to twelve months. The related intangible asset is presented as held for sale under current assets in the Condensed Consolidated Balance Sheets. See Note 7. Assets Held for Sale, for additional information.

 

1Werner RN, Stockfleth E, Connolly SM, et al. Evidence- and consensus-based (S3) Guidelines for the Treatment of Actinic Keratosis - International League of Dermatological Societies in cooperation with the European Dermatology Forum - Short version. J Eur Acad Dermatol Venereol. 2015;29(11):2069-2079. doi:10.1111/jdv.13180.

 

 

Our principal objective is to increase the sales of our licensed products in the United States. The key elements of our strategy include the following:

 

●	expanding our sales in the United States of Ameluz® in combination with the RhodoLED® Lamps for the treatment of minimally to moderately thick AKs of the face and scalp and positioning Ameluz® to be the standard of care in the United States by growing our dedicated sales and marketing infrastructure in the United States;
●	leveraging the potential for future approvals and label extensions of our portfolio products that are in the pipeline for the U.S. market through the license and supply agreements with our Licensors; and
●	opportunistically adding complementary products or services to our portfolio by acquiring or licensing IP to further leverage our commercial infrastructure and customer relationships.

 

We devote a substantial portion of our cash resources to the commercialization of our licensed products, Ameluz® and the RhodoLED® Lamps. We have financed our operating and capital expenditures through cash proceeds generated from our product sales, our line of credit, short-term debt and proceeds received in equity financings.

 

We believe that important measures of our results of operations include product revenue, operating income (loss) and adjusted EBITDA (a non-U.S GAAP measure as defined below). Our sole source of product revenue is sales of products that we license from certain related and unrelated companies. Our long-term financial objectives include consistent revenue growth and expanding operating margins. Accordingly, we are focused on licensed product sales expansion to drive revenue growth and improve operating efficiencies, including effective resource utilization, information technology leverage, and overhead cost management.

 

Key factors affecting our performance

 

As a result of a number of factors, our historical results of operations may not be comparable to our results of operations in future periods, and our results of operations may not be directly comparable from period to period. Set forth below is a brief discussion of the key factors impacting our results of operations.

 

Seasonality

 

Because traditional photodynamic therapy treatments using a lamp are performed more frequently during the winter, our revenue is subject to some seasonality and has historically been higher during the first and fourth quarters than during the second and third quarters.

 

Supply Chain

 

While our Licensors take reasonable precautions to ensure the successful production of our commercially licensed products, their contract manufacturers may experience a myriad of business difficulties (i.e., workforce instability, supply chain issues, erosion of customer base, etc.) that could impact their financial solvency. We have historically experienced delays in delivery times of our RhodoLED® Lamps due to supply chain issues and there is a possibility that there may be additional supply chain challenges, or our orders are fulfilled at a slower rate than expected. Despite these historic and possible future delays, we expect total revenues will not be significantly impacted (i.e., we experience less growth than expected vs. declining sales) since the majority of our revenues are from sales of Ameluz® and we have RhodoLED® Lamps on hand and on order. We continue to monitor the impacts of the supply chain on our business and are focused on ensuring the stability of the supply chains for Ameluz® and RhodoLED® Lamps.

 

 

Components of Our Results of Operations

 

Product Revenue, net

 

We generate product revenues through the third-party sales of our licensed products Ameluz®, RhodoLED® Lamps and to a much lesser extent Xepi® covered by our exclusive license and supply agreements with our Licensors. Revenues from product sales are recorded net of discounts, rebates and other incentives, including trade discounts and allowances, product returns, government rebates, and other incentives such as patient co-pay assistance. Revenue from the sales of our RhodoLED® Lamps and Xepi® are relatively insignificant compared with revenues generated through our sales of Ameluz®.

 

The primary factors that determine our revenue derived from our licensed products are:

 

●	the level of orders generated by our sales force;
●	the level of prescriptions and institutional demand for our licensed products; and
●	unit sales prices.

 

Related Party Revenues

 

Prior to June 1, 2024, the date on which we took over clinical trials, we generated insignificant related party revenue in connection with an agreement with Biofrontera Bioscience to provide BF-RhodoLED® lamps and associated services for the clinical trials performed by Biofrontera Bioscience. In the future, we do not expect to receive related party revenue regarding lamps and associated services for clinical trials.

 

Cost of Revenues, Related Party

 

Cost of revenues, related party, is comprised of purchase costs of our licensed products, Ameluz® and RhodoLED® Lamps from Biofrontera Pharma and insignificant inventory adjustments due to scrapped, expiring and excess products.

 

The Transfer Price we paid for inventory purchased through February 12, 2024, was based on the Ameluz LSA as amended on October 8, 2021, under which the price paid per unit was based upon our sales history. The purchase price we paid the Ameluz Licensor for Ameluz® was determined in the following manner:

 

●	fifty percent of the anticipated net selling price per unit until we generate $30 million in revenue from sales of the products we license from the Ameluz Licensor during a given Commercial Year (as defined in the Ameluz LSA);
●	forty percent of the anticipated net selling price per unit for all revenues we generate between $30 million and $50 million from sales of the products we license from the Ameluz Licensor; and
●	thirty percent of the anticipated net selling price per unit for all revenues we generate above $50 million from sales of the products we license from the Ameluz Licensor.

 

Effective February 12, 2024, the Second A&R Ameluz LSA, among other things, was amended to change the Transfer Price to 25% of the anticipated net selling price per unit through 2025 and then increasing over time pursuant to the schedule set forth in the Second A&R Ameluz LSA to a maximum of 35% of the anticipated net selling price starting in 2032, subject to a minimum dollar amount per unit. We expect to see an impact from the change in the transfer pricing under the Second A&R Ameluz LSA in the fourth quarter as we receive product under the new pricing.

 

Cost of Revenues, Other

 

Cost of revenues, other, is comprised of purchase costs of our licensed product, Xepi®, third-party logistics and distribution costs including packaging, freight, transportation, shipping and handling costs, and inventory adjustment due to expiring Xepi® products.

 

 

Selling, General and Administrative Expense

 

Selling, general and administrative expenses consist principally of costs associated with our sales force, commercial support personnel, personnel in executive and other administrative functions, and medical affairs professionals. Other selling, general and administrative expenses include marketing, trade, and other commercial costs necessary to support the commercial operation of our licensed products and professional fees for legal, consulting and accounting services. Selling, general and administrative expenses also include the amortization of our intangible assets and our legal settlement expenses.

 

Selling, General and Administrative Expenses, Related Party

 

Selling, general and administrative expenses, related party, relate to the services provided by our significant stockholder, Biofrontera AG, primarily for regulatory support and pharmacovigilance. These expenses are charged to us based on costs incurred plus 6% in accordance with the Amended and Restated Master Contact Services Agreement entered into on December 2021 (the “2021 Services Agreement”). The 2021 Services Agreement enables us to continue relying on Biofrontera AG and its subsidiaries for various services it has historically provided to us, including regulatory and pharmacovigilance support for as long as we deem necessary. We currently have statements of work in place regarding regulatory affairs, medical affairs, pharmacovigilance, and investor relations services, and are continuously assessing the other services historically provided to us by Biofrontera AG to determine (i) if they will be needed, and (ii) whether they can or should be obtained from other third-party providers.

 

Research and Development

 

Effective June 1, 2024, we took control of all clinical trials for Ameluz® in the Unites States, allowing for more effective cost management and direct oversight of trial efficiency. Our R&D expenses include costs directly attributable to the clinical development of Ameluz®, including personnel-related expenses, the cost of services provided by outside contractors, including services related to the Company’s clinical trials, facilities, depreciation, and other direct and allocated expenses. Along with our Ameluz® clinical trials, our R&D program also aims to improve the capabilities of our RhodoLED® Lamps to better fulfill the needs of dermatologists and improve the effectiveness of our commercial team by letting sales representatives carry approved devices with them, allowing for easier product demonstrations and evaluations. All costs associated with research and development are expensed as incurred.

 

Change in Fair Value of Warrant Liabilities

 

For warrants that are classified as liabilities, the Company records the fair value of the warrants at each balance sheet date and records changes in the estimated fair value as a non-cash gain or loss in the consolidated statements of operations until the warrants are exercised, expire or other facts and circumstances lead the warrant liabilities to be reclassified to stockholders’ equity or deficit.

 

Change in Fair Value of Investment, Related Party

 

Our investments are comprised of equity securities in shares of Biofrontera AG, which are initially recorded at cost, plus transaction costs, and subsequently measured at fair value, based on quoted market prices, with the gains and losses reported in the Company’s consolidated statement of operations. For the investments held in foreign currencies, the change in fair value attributable to changes in foreign exchange rates is included in gains and losses in the consolidated statement of operations.

 

Loss on Debt Extinguishment

 

On May 8, 2023, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with MidCap Business Credit LLC, providing us with a revolving line of credit in the aggregate principal amount of up to $6.5 million. Effective as of January 4, 2024, we voluntarily terminated the Loan Agreement and recognized a $0.3 million loss on debt extinguishment upon the early termination related to prepayment fees and the write-off of deferred financing costs.

 

Interest Income (Expense), net

 

Interest expense, net, primarily consists of interest on our debt instruments, offset by immaterial amounts of interest income earned on our cash balances at financial institutions and financing of customer purchases of BF-RhodoLED® lamps.

 

 

Other Income (Expense), net

 

Other income (expense), net primarily includes (i) gain (loss) on return of leased assets and (ii) gain (loss) on foreign currency transactions.

 

Income Taxes

 

As a result of the net losses we have incurred in each fiscal year since inception, we have recorded no provision for federal income taxes during such periods. Income tax expense incurred relates to state income taxes.

 

Results of Operations

 

Comparison of the Three Months ended September 30, 2024 and 2023

 

The following table summarizes our results of operations for the three months ended September 30, 2024 and 2023:

 

(in thousands)		2024				2023				Change
Product revenues, net		$	9,012			$	8,879			$	133
Related party revenues			-				17				(17	)
Revenues, net		$	9,012			$	8,896			$	116
Operating expenses:
Cost of revenues, related party			4,801				4,495				306
Cost of revenues, other			76				95				(19	)
Selling, general and administrative			8,425				8,619				(194	)
Selling, general and administrative, related party			1				74				(73	)
Research and development			669				33				636
Change in fair value of contingent consideration			-				200				(200	)
Total operating expenses			13,972				13,516				456
Loss from operations			(4,960	)			(4,620	)			(340	)
Change in fair value of warrant liabilities			(680	)			598				(1,278	)
Change in fair value of investment, related party			(2	)			(2,212	)			2,210
Interest income (expense), net			8				(142	)			150
Other income (expense), net			(32	)			35				(67	)
Loss before income taxes			(5,666	)			(6,341	)			675
Income tax expenses			3				1				2
Net loss		$	(5,669	)		$	(6,342	)		$	673

 

Product Revenue, net

 

Net product revenue for the three months ended September 30, 2024 increased by $0.1 million, or 1.5% as compared to the three months ended September 30, 2023. This increase was driven by $0.6 million increase from sales of devices, specifically RhodoLED® XL Lamp, since its launch in June 2024, offset by net decrease in sales of Ameluz of $0.5 million. The decrease of Ameluz sales in units in the three months ended September 30, 2024 was impacted by the delayed shipment of about 4,600 units at the end of September 2024 due to Hurricane Milton, which forced office closures and shipping delays through the Southeast. All shipments were delivered, and revenue for these sales have been recognized in October 2024.

 

 

Operating Expenses

 

Cost of Revenues, Related Party

 

Cost of revenues, related party for the three months ended September 30, 2024 increased by $0.3 million, or 6.8% as compared to the three months ended September 30, 2023. This was driven by an increase of $0.5 million due to the increase in RhodoLED® XL product revenue, partially offset by a decrease of $0.2 million, due to decrease in sales of Ameluz®. We expect to see an impact from the change in the transfer pricing under the Second A&R Ameluz LSA in the fourth quarter as we are receiving product under the new pricing.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses for the three months ended September 30, 2024 decreased by $0.2 million, or 2.3% as compared to the three months ended September 30, 2023. The decrease was primarily driven by a $0.5 million decrease in general business administration expenses, as well as a decrease of non-personnel sales and marketing expenses of $0.2 million, and a $0.3 million decrease in personnel costs due to change in headcount and reduced severance, which was offset by a $0.8 million increase in legal expenses related to the complaints filed by DUSA Pharmaceuticals, Inc., Sun Pharmaceutical Industries, Inc., and Sun Pharmaceutical Industries LTD (collectively “SUN”) with the International Trade Commission (“ITC”) and the US District Court for the district of Massachusetts.

 

Research and Development Expenses

 

R&D expenses for the three months ended September 30, 2024 increased by $0.6 million as compared to the three months ended September 30, 2023. The increase was attributable to our assumption of all clinical trial activities for Ameluz® in the United States effective June 1, 2024, allowing for more effective cost management and direct oversight of trial efficiency. This increase to R&D expenses should be offset by a reduction in the Transfer Price of Ameluz® from 50% to 25% for all future purchases made in 2024 and 2025. No such inventory purchases were made as of September 30, 2024. The following table summarizes our research and development expenses:

 

		Three Months Ended September 30,
		2024				2023
Actinic keratosis		$	206			$	-
Moderate to severe acne			129				-
Superficial basal cell carcinoma			44				-
Portable devices			33				-
Personnel-related costs			203				-
Other research and development			54				33
		$	669			$	33

 

Change in Fair Value of Warrant Liabilities

 

The change in fair value of warrant liabilities was ($0.7) million for the three months ended September 30, 2024, as compared to $0.6 million for the three months ended September 30, 2023. The change in fair value of warrant liabilities was driven primarily by changes in the quoted market price of the common stock. From June 30, 2024 to September 30, 2024, the underlying value of the Company’s Common Stock increased, leading to a corresponding increase in the value of warrant liabilities and additional expense recognized on the statements of operations. From June 30, 2023 to September 30, 2023, the market price decreased, causing a decrease in the value of warrant liabilities, and a gain in in the statement of operations.

 

 

Change in Fair Value of Investment, Related Party

 

As of December 31, 2023, the Company had transferred substantially all of its investment in Biofrontera AG to Maruho in exchange for the release of certain obligations, in accordance with the Settlement Agreement and Mutual Release (the “Release”), dated December 27, 2023. As a result, during the third quarter of 2024, the net balance of our investment in Biofrontera AG was minimal as was the related change in fair value.

 

Comparison of the Nine Months ended September 30, 2024 and 2023

 

The following table summarizes our results of operations for the nine months ended September 30, 2024 and 2023:

 

(in thousands)		2024				2023				Change
Product revenues, net		$	24,744			$	23,423			$	1,321
Related party revenues			18				52				(34	)
Revenues, net		$	24,762			$	23,475			$	1,287
Operating expenses:
Cost of revenues, related party			12,839				11,814				1,025
Cost of revenues, other			496				262				234
Selling, general and administrative			25,589				29,874				(4,285	)
Selling, general and administrative, related party			30				193				(163	)
Research and development			1,306				44				1,262
Change in fair value of contingent consideration			-				100				(100	)
Total operating expenses			40,260				42,287				(2,027	)
Loss from operations			(15,498)				(18,812	)			3,314
Change in fair value of warrant liabilities			1,329				2,001				(672	)
Change in fair value of investment, related party			(12	)			(6,635	)			6,623
Loss on debt extinguishment			(316	)			-				(316	)
Interest expense, net			(1,995	)			(256	)			(1,739	)
Other income (expense), net			154				65				89
Loss before income taxes			(16,338	)			(23,637	)			7,299
Income tax expenses			25				20				5
Net loss		$	(16,363	)		$	(23,657	)		$	7,294

 

Product Revenue, net

 

Net product revenue for the nine months ended September 30, 2024 increased by $1.3 million, or 5.6% as compared to the nine months ended September 30, 2023. This increase was mainly driven by a $1.1 million increase in the average sale price of Ameluz for the nine months ended September 30, 2024, as well as an increase in device sales of $0.6 million due to the launch of the RhodoLED® XL Lamp in June 2024. This was offset by a sales volume decrease of approximately $0.5 million of Ameluz® driven by the office closures and shipping delays associated with Hurricane Milton. As mentioned above, these delayed shipments have been delivered and revenue recognized in the fourth quarter.

 

 

Operating Expenses

 

Cost of Revenues, Related Party

 

Cost of revenues, related party for the nine months ended September 30, 2024 increased by $1.0 million, or 8.7% as compared to the nine months ended September 30, 2023. This was driven by the increase in both Ameluz® and RhodoLED® XL Lamp product revenue.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses for the nine months ended September 30, 2024 decreased by $4.3 million, or 14.3% as compared to the nine months ended September 30, 2023. The decrease was primarily driven by a $1.7 million decrease in legal costs due to the settlement with Biofrontera AG in April 2023, a $1.3 million decrease of non-personnel sales and marketing expenses due to a lower level of marketing activities in general, a $0.6 million decrease in general business administration, and a net decrease of $0.6 million in personnel expenses, partially offset by costs relating to the complaints filed by SUN.

 

Research and Development Expenses

 

R&D expenses for the nine months ended September 30, 2024 increased by $1.3 million as compared to the nine months ended September 30, 2023. The increase was attributable to our assumption of all clinical trial activities for Ameluz® in the United States effective June 1, 2024. The following table summarizes our research and development expenses:

 

		Nine Months Ended September 30,
		2024				2023
Actinic keratosis		$	338			$	-
Moderate to severe acne			221				-
Superficial basal cell carcinoma			153				-
Portable devices			83				-
Personnel-related costs			435				-
Other research and development			76				44
		$	1,306			$	44

 

Change in Fair Value of Warrant Liabilities

 

The change in fair value of warrant liabilities was $1.3 million for nine months ended September 30, 2024, as compared to $2.0 million for the nine months ended September 30, 2023. The change in fair value of warrant liabilities was driven primarily by a decrease in the underlying value of the Company’s Common Stock paired with a higher population of warrants outstanding for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.

 

Change in Fair Value of Investment, Related Party

 

As of December 31, 2023, the Company had transferred substantially all of its investment in Biofrontera AG to Maruho in exchange for the release of certain obligations, in accordance with the Release. As a result, during the third quarter of 2024, the net balance of our investment in Biofrontera AG was minimal as was the related change in fair value.

 

Loss on Debt Extinguishment

 

Effective as of January 4, 2024, we voluntarily terminated the Loan Agreement with Midcap Business Credit LLC. The Company recognized a $0.3 million loss on debt extinguishment upon the early termination of the Loan Agreement related to prepayment fees and the write-off of deferred financing costs.

 

 

Interest income (expense), net

 

The increase of interest expense of $1.7 million was driven by the interest and debt discount recognized on the loans issued on December 21, 2023, for an aggregate principal balance of $4.0 million. The loans required the Company to make weekly payments of principal and interest in the amount of approximately $0.2 million through July 5, 2024, the maturity date. Interest expense was recognized using the effective interest method, such that a constant effective interest rate was applied to the carrying amount of the debt at the beginning of each period until maturity.

 

Net Loss to Adjusted EBITDA Reconciliation for the Three and Nine Months Ended September 30, 2024 and 2023

 

We define adjusted EBITDA as net income or loss before interest income and expense, income taxes, depreciation and amortization, and other non-operating items from our statements of operations as well as certain other items considered outside the normal course of our operations specifically described below. Adjusted EBITDA is not a presentation made in accordance with U.S. GAAP. Our definition of adjusted EBITDA may vary from the use of similarly-titled measures by others in our industry due to the potential inconsistencies in the method of calculation and differences due to items subject to interpretation. Adjusted EBITDA should not be considered as an alternative to net income or loss, operating income/(loss), cash flows from operating activities or any other performance measures derived in accordance with U.S. GAAP as measures of operating performance or liquidity. Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under U.S. GAAP.

 

Loss on debt extinguishment: Effective as of January 4, 2024, we voluntarily terminated the Loan Agreement and recognized a $0.3 million loss on debt extinguishment upon the early termination of the loan. We exclude the impact of this loss as it is attributed to the prepayment fee, which is considered non-recurring, and the write-off of deferred financing costs, which is considered non-cash.

 

Change in fair value of contingent consideration: Pursuant to a share purchase agreement with Maruho, the profits from the sale of Cutanea products were to be shared equally between Maruho and Biofrontera until 2030. The fair value of the contingent consideration was determined to be $6.5 million on the acquisition date and was re-measured at each reporting date. We exclude the historical impact of the change in fair value of contingent consideration as this is non-cash. We were relieved of our obligations relating to the contingent consideration under the Release. As such, our results of operations for the three and nine months ended September 30, 2024 were not impacted by the change in fair value.

 

Change in fair value of warrant liabilities: The warrants issued in conjunction with our private placement offerings and registered public offerings are accounted for as liabilities in accordance with ASC 815-40. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within the consolidated statement of operations. We exclude the impact of the change in fair value of warrant liabilities as this is non-cash.

 

Change in fair value of investment, related party: The Company accounts for its investment, related party in accordance with ASC 321, Investments — Equity Securities. Equity securities, which are comprised of investments in common stock, are initially recorded at cost, plus transaction costs, and subsequently measured at fair value, based on quoted market prices, with the gains and losses reported in the Company’s consolidated statement of operations. For the investments held in foreign currencies, the change in fair value attributable to changes in foreign exchange rates is included in gains and losses in the consolidated statement of operations. We exclude the impact of the realized gain as this is non-recurring and the unrealized change in fair value of investments is excluded as this is non-cash.

 

Legal settlement expenses: To measure operating performance, we exclude legal settlement expenses. We do not expect to incur these types of legal expenses on a recurring basis and believe the exclusion of such amounts allows management and the users of the financial statements to better understand our financial results.

 

Stock-Based Compensation: To measure operating performance, we exclude the impact of costs relating to share-based compensation. Due to the subjective assumptions and the variety of award types, we believe that the exclusion of share-based compensation expense, which is non-cash, allows for more meaningful comparisons of our operating results to peer companies. Share-based compensation expense can vary significantly based on the timing, size and nature of awards granted.

 

Expensed issuance costs: To measure operating performance, we exclude the portion of issuance costs allocated to our warrant liabilities. We do not expect to incur this type of expense on a recurring basis and believe the exclusion of these costs allows management and the viewers of the financial statements to better understand our financial results.

 

 

Adjusted EBITDA margin is adjusted EBITDA for a particular period expressed as a percentage of revenues for that period.

 

We use adjusted EBITDA to measure our performance from period to period and to compare our results to those of our competitors. In addition to adjusted EBITDA being a significant measure of performance for management purposes, we also believe that this presentation provides useful information to investors regarding financial and business trends related to our results of operations and that when non-U.S. GAAP financial information is viewed with U.S. GAAP financial information, investors are provided with a more meaningful understanding of our ongoing operating performance.

 

The table below presents a reconciliation from net loss to Adjusted EBITDA for the three and nine months ended September 30, 2024 and 2023:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2024				2023				2024				2023
Net loss		$	(5,669	)		$	(6,342	)		$	(16,363	)		$	(23,657	)
Interest expense, net			(8	)			142				1,995				256
Income tax expenses			3				1				25				20
Depreciation and amortization			129				251				387				769
EBITDA			(5,545	)			(5,948	)			(13,956	)			(22,612	)
Loss on debt extinguishment			-				-				316				-
Change in fair value of contingent consideration			-				200				-				100
Change in fair value of warrant liabilities			680				(598	)			(1,329	)			(2,001	)
Change in fair value of investment, related party			2				2,212				12				6,635
Legal settlement expenses			-				-				-				1,225
Stock based compensation			288				207				720				817
Expensed issuance costs			-				-				354				-
Adjusted EBITDA		$	(4,575	)		$	(3,927	)		$	(13,883	)		$	(15,836	)
Adjusted EBITDA margin			-50.8	%			-44.1	%			-56.1	%			-67.5	%

 

Adjusted EBITDA

 

Adjusted EBITDA decreased from ($3.9) million for the three months ended September 30, 2023 to ($4.6) million for the three months ended September 30, 2024. The decrease was primarily driven by an increase in R&D expenses of $0.6 million.

 

Adjusted EBITDA increased from ($15.8) million during the nine months ended September 30, 2023 to ($13.9) million for the nine months ended September 30, 2024. The increase in Adjusted EBITDA was primarily driven by a decrease in selling, general and administrative expenses of $3.2 million, due primarily to a decreased level of marketing activities and savings in legal expenses. This is partially offset by an increase in R&D expense of $1.3 million.

 

Liquidity and Capital Resources

 

Pursuant to the requirements of the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) Topic 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date the consolidated financial statements are issued. This evaluation does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented or are not within control of the Company as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.

 

Since we commenced operations in 2015, we have generated significant losses. We incurred net cash outflows from operations of $9.3 million and $16.0 million for the nine months ended September 30, 2024 and 2023, respectively. The Company had an accumulated deficit as of September 30, 2024 of $116.0 million. The Company’s primary sources of liquidity are its cash collected from the sales of its products, and cash flows from financing transactions. As of September 30, 2024, we had cash and cash equivalents of $2.9 million, compared to $1.3 million as of December 31, 2023.

 

 

As a result of our losses and projected cash needs, the Company’s management has determined that substantial doubt exists about our ability to continue as a going concern for at least twelve months from the issuance date of these financial statements. The Company’s ability to continue as a going concern is contingent upon successful execution of management’s intended plan over the next twelve months to improve the Company’s liquidity and profitability, which includes without limitation:

 

	●	Expanding the commercialization of Ameluz® in the United States while decreasing discretionary expenses.
	●	Actively pursuing additional capital through the issuance of equity securities, debt or the sale of assets.
	●	Controlling expenses and limiting capital expenditures.
	●	Realizing the benefit of the reduced cost of inventory in line with the terms of the Second A&R Ameluz LSA.

 

The company believes that the implementation of such plans will provide the opportunity for the Company to continue as a going concern. However, no assurance can be given that the Company will be successful in these efforts and will depend on several factors, including executing on its sales plan and planned cost reductions within the time period needed, as well as other possible challenges and unforeseen circumstances. A lack of execution or unforeseen circumstances may require the Company to raise additional capital or debt which may not be available on acceptable terms, or at all, which could result in a material adverse effect on the Company, as well as its business, financial condition, results of operations, growth prospects and financial statements.

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above.

 

Cash Flows

 

The following table summarizes our cash provided by and (used in) operating, investing and financing activities:

 

		Nine Months Ended September 30,
(in thousands)		2024				2023
Net cash used in operating activities		$	(9,253	)		$	(16,029	)
Net cash provided by (used) in investing activities			(2	)			546
Net cash provided by financing activities			10,785				1,697
Net increase (decrease) in cash and restricted cash		$	1,530			$	(13,786	)

 

Operating Activities

 

During the nine months ended September 30, 2024, operating activities used $9.3 million of cash, primarily resulting from our loss from operations of $16.4 million, adjusted for non-cash expense of stock-based compensation of $0.7 million, non-cash interest expense of $0.2 million, loss on debt extinguishment of $0.3 million, depreciation and amortization in the aggregate of $0.9 million, and net cash used by changes in our operating assets and liabilities of $6.1 million, offset by the change in fair value of warrant liabilities of $1.3 million,.

 

During the nine months ended September 30, 2023, operating activities used $16.0 million of cash, primarily resulting from our loss from operations of $23.7 million, adjusted for non-cash expense of stock-based compensation of $0.8 million, non-cash interest expense of $0.3 million, depreciation and amortization in the aggregate of $0.8 million, net cash used by changes in our operating assets and liabilities of $0.9 million, the change in fair value of contingent consideration of $0.1 million and the change in fair value of investment, related party of $6.6 million; partially offset by the change in fair value of warrant liabilities of $2.0 million.

 

Investing Activities

 

During the nine months ended September 30, 2024, net cash used in investing activities consisted of $0.1 million of capitalized software and computer purchases, which were partially offset by the proceeds from the sales of equity investments.

 

During the nine months ended September 30, 2023, net cash provided by investing activities of $0.5 million consisted of the proceeds from the sales of equity investments of $0.6 million, partially offset by the purchase of machinery and computer equipment.

 

Financing Activities

 

During the nine months ended September 30, 2024, net cash from financing activities consisted of proceeds of $7.7 million, net of capitalized issuance costs, from the issuance of preferred stock and warrants, and $7.4 million from the exercise of warrants for preferred stock, offset by repayments of $4.0 million on our short-term loan, repayments of $0.2 million on our line of credit and prepayment fees of $0.2 million to extinguish our line of credit. See Note 10 Debt.

 

During the nine months ended September 30, 2023, net cash from financing activities consisted of a net $1.7 million of proceeds from our line of credit.

 

 

Accounting Policies and Significant Judgments and Estimates

 

Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with generally accepted accounting principles of the United States, or U.S. GAAP. The preparation of the financial statements in accordance with U.S. GAAP requires the use of estimates and assumptions by management that affect the value of assets and liabilities, as well as contingent assets and liabilities, as reported on the balance sheet date, and revenues and expenses arising during the reporting period. The main areas in which assumptions, estimates and the exercising of a degree of judgment are appropriate relate to contingent consideration, fair value measurements, valuation of intangible assets and impairment assessment, and stock compensation. Estimates are based on historical experience and other assumptions that are considered appropriate in the circumstances. They are continuously reviewed but may vary from the actual values.

 

Our significant accounting policies are described in more detail in Note 2 – Summary of Significant Accounting Policies, to our consolidated financial statements included in Item 8. Financial Statements and Supplementary Data in our Form 10-K.

 

Critical Accounting Estimates

 

A summary of our critical accounting estimates is discussed in the section entitled “Critical Accounting Estimates” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K. There were no material changes to our critical accounting estimates for the nine months ended September 30, 2024, except for the following:

 

The warrants for convertible preferred stock issued in conjunction with our private placement offering conducted pursuant to the securities purchase agreements entered into on February 19, 2024 with institutional investors were accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities in the accompanying consolidated balance sheet. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within the consolidated statement of operations. Due to the uncertainty of the how the convertible preferred warrants would ultimately settle, the Company used a probability-weighted approach along with a Black-Scholes-Merton (“BSM”) model equation to estimate the fair value of the preferred warrants under different scenarios. While we believe these assumptions were reasonable, the manner or timeframe in which the warrants ultimately settle may differ. The BSM model also considers several variables and assumptions in estimating the fair value of financial instruments, including the per-share fair value of the underlying common stock, exercise price, expected term, risk-free interest rate, expected stock price volatility over the expected term, and expected annual dividend yield. Certain inputs utilized in our BSM pricing model may fluctuate in future periods based upon factors which are outside of the Company’s control. A significant change in one or more of these inputs used in the calculation of the fair value may have caused a significant change to the fair value of our warrant liability which could also have resulted in material non-cash gain or loss being reported in our consolidated statement of operations.

 

Off-balance Sheet Arrangements

 

Other than those items reflected in Note 17. Commitments and Contingencies we did not have during the periods presented, and we do not currently have, any other off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

 

Emerging Growth Company Status

 

The Jumpstart Our Business Startups Act of 2012 permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected to take advantage of such extended transition period, which means that when an accounting standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

As a “smaller reporting company,” we are not required to provide the information required by this Item.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2024, our disclosure controls and procedures were effective at the reasonable assurance level.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting during the most recent fiscal quarter ended September 30, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act).

 

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

For information regarding legal proceedings in which we are involved, (see Note 17. Commitments and Contingencies under the subsection titled “Legal Proceedings” in our Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q).

 

Item 1A. Risk Factors

 

As a smaller reporting company, we are not required to provide disclosure pursuant to this item in this Form 10-Q. However, as of the date of this Quarterly Report, other than as set forth below, there have been no material changes with respect to those risk factors previously disclosed under “Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as filed with the Securities and Exchange Commission on March 15, 2024 (the “Form 10-K”). The following should be carefully considered, together with other information in this Quarterly Report on Form 10-Q, our Form 10-K, and our other filings with the SEC before making investment decisions regarding our common stock.

 

There is substantial doubt about our ability to continue as a “going concern.”

 

In connection with our assessment of going concern considerations under applicable accounting standards, the Company’s management has determined that substantial doubt exists about our ability to continue as a going concern through approximately one year from the date the unaudited condensed financial statements included in Item 1. “Financial Statements” were issued. The future viability of the Company is dependent on its ability to continue to execute its growth plan and raise additional capital or find alternative methods of financing to fund its operations. There can be no guarantee that the actions presently being taken by the Company will be successful in raising additional capital or finding alternative methods of financing. If the Company is not successful in these endeavors, it would likely have a material adverse effect on the Company’s business, results of operations and financial condition.

 

For additional discussion of the risks and uncertainties that affect our business, see “Item 1A. Risk Factors” included in our Form 10-K.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not Applicable.

 

Item 5. Other Information

 

None.

 

 

Item 6. Exhibits

 

The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the SEC.

 

Exhibit No.
10.1*#		Second Amended and Restated Employment Agreement, dated as of November 12, 2024 by and between the Company and Hermann Luebbert
31.1*		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002
31.2*		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002
32.1*		Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002
32.2*		Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002
101.INS*		Inline XBRL Instance Document
101.SCH*		Inline XBRL Taxonomy Extension Schema Document
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101)

 

*	Filed herewith.
#	Indicates a management contract or compensatory plan or arrangement.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	BIOFRONTERA INC.
Date: November 14, 2024	By:	/s/ Hermann Luebbert
	Name:	Hermann Luebbert
	Title:	Chief Executive Officer & Chairman (Principal Executive Officer)
Date: November 14, 2024	By:	/s/ E. Fred Leffler III
	Name:	E. Fred Leffler, III
	Title:	Chief Financial Officer (Principal Financial Officer)