Notes
to Consolidated Financial Statements
(Unaudited)
1.
Business Overview
Biofrontera Inc. (the “Company”) includes
its wholly owned subsidiary Bio-FRI GmbH (“Bio-FRI” or “subsidiary”).
Biofrontera
Inc. is a U.S.-based biopharmaceutical company specializing in the commercialization of pharmaceutical products for the treatment of
dermatological conditions, in particular, diseases caused primarily by exposure to sunlight that result in sun damage to the skin. Our
principal licensed products focus on the treatment of actinic keratoses, which are skin lesions that can sometimes lead to skin cancer.
We also market a licensed topical antibiotic for treatment of impetigo, a bacterial skin infection.
Our
principal product is Ameluz®, which is a prescription drug approved for use in combination with our licensor’s
FDA-approved medical devices, the BF-RhodoLED® lamp series, consisting of the BF-RhodoLED® and the RhodoLED® XL lamps,
for photodynamic therapy (“PDT”) (when used together, “Ameluz® PDT”) in the U.S. for the
lesion-directed and field-directed treatment of actinic keratosis 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 (“Ameluz
LSA”), by and among us and Biofrontera Pharma GmbH and Biofrontera Bioscience GmbH (collectively, the (“Ameluz
Licensor”) originally dated as of October 1, 2016, and as subsequently amended on October 8, 2021. Refer to Note 16,
Related Party Transactions, for further details.
Our
second prescription drug 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 FDA for the treatment of
impetigo due to staphylococcus aureus or streptococcus pyogenes. The approved indication is impetigo, a common skin infection. It is
approved for use in adults and children 2 months and older. We are currently selling Xepi® for this indication in the U.S. under
an exclusive license and supply agreement (“Xepi LSA”) with Ferrer Internacional S.A. (“Ferrer”) that was acquired
by Biofrontera Inc. on March 25, 2019 through our acquisition of Cutanea Life Sciences, Inc. Refer to Note 16, Related Party Transactions,
for further details.
Our
subsidiary, Bio-FRI was formed on February 9, 2022, as a German presence to facilitate our relationship with the Ameluz Licensor.
Liquidity
and Going Concern
The
Company’s primary sources of liquidity are its existing cash balances and cash flows from equity financing transactions. In July
of 2022, we received proceeds of $4.6 million from the exercise of common stock warrants (See Note 18 Stockholders’ Equity).
As of September 30, 2022, we had cash and cash equivalents of $27.5 million, compared to $24.5 million as of December 31, 2021.
Since
we commenced operations in 2015, we have generated significant losses. For the nine months ended September 30, 2022 and 2021, we incurred
losses from operations of $13.0 million and $23.3 million, respectively. We incurred net cash outflows from operations of $7.9 million
and $5.7 million for the same periods, respectively. We had an accumulated deficit as of September 30, 2022 of $76.7 million.
The
Company’s short-term material cash requirements include working capital needs and satisfaction of contractual commitments including
auto leases (see Note 23, Commitments and Contingencies), Maruho start-up payments of $7.3 million (see Note 3. Acquisition
Contract Liabilities), and legal settlement expenses after reimbursement from Biofrontera AG (“Biofrontera AG”), a significant shareholder and
our former parent company, of $5.6 million (see Note 13. Accrued Expenses and Other Current Liabilities). Long-term material cash
requirements include potential milestone payments to Ferrer Internacional S.A (see Note 23. Commitments and Contingencies) and
contingent consideration payments to Maruho (see Note 3. Acquisition Contract Liabilities).
Additionally,
we expect to continue to incur operating losses due to significant discretionary sales and marketing efforts as we seek to expand the
commercialization of our licensed products in the United States. We also expect to incur additional expenses to add and improve
operational, financial and information systems and personnel, including personnel to support our product commercialization efforts. In
addition, we expect to incur significant costs to continue to comply with corporate governance, regulatory reporting and other requirements
applicable to us as a public company in the U.S. We also intend to be opportunistic in our business plans which may include acquiring additional shares of Biofrontera
AG as a strategic measure.
Our
future growth is dependent on our ability to obtain additional equity financing. Based on current operating plans and financial forecasts,
we expect that our current cash and cash equivalents will be sufficient to fund our operations for at least the next twelve months from
the date of issuance of our financial statements. However, if our current operating plans or financial forecasts change, or we are unable
to obtain additional financing, we may need to reduce the discretionary spend on promotional expenses, branding, marketing consulting
and defer some hiring. While we expect to continue being flexible in our spending over the next twelve months, we do not consider there
to be a need to significantly revise our operations currently.
2.
Summary of Significant Accounting Policies
Basis
for Preparation of the Financial Statements
The
accompanying unaudited interim 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 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, 2022, the Company’s operating results for the three and nine months
ended September 30, 2022 and 2021, and the Company’s cash flows for the nine months ended September 30, 2022 and 2021. The accompanying
financial information as of December 31, 2021 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, 2021, filed with the SEC on April 11, 2022.
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.
The
Company’s significant accounting policies are discussed in Note 2—Summary of Significant Accounting Policies within
the notes to financial statements for the year ended December 31, 2021, included in the Company’s Annual Report on Form 10-K. There
have been no significant changes to these policies during the nine months ended September 30, 2022 other than the following.
Consolidation
The
accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the
United States of America (“GAAP”). These consolidated financial statements include the accounts of our wholly owned subsidiary.
All intercompany balances and transactions have been eliminated in consolidation.
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, valuation of
contingent consideration and warrant liabilities, realization of intangible and other long-lived assets, product sales allowances and reserves,
share-based payments 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
February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires organizations that lease assets to recognize
on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The new guidance requires
that a lessee recognize assets and liabilities for leases with lease terms of more than twelve months and recognition, presentation
and measurement in the financial statements will depend on the lease classification as a finance or operating lease. In addition,
the new guidance will require disclosures to help investors and other financial statement users better understand the amount, timing
and uncertainty of cash flows arising from leases. The JOBS ACT provides that an emerging growth company can take advantage of an
extended transition period for complying with new or revised accounting standards. This allows us to delay the adoption of this new
standard until it would otherwise apply to private companies. The new standard will be effective for us for fiscal years beginning
after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company is currently
evaluating the impact of adopting this guidance. Upon adoption of Topic 842, the Company expects to recognize a right-of-use asset and lease liability for all financing
and operating leases with terms greater than twelve months.
In
September 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments, which requires entities to record expected credit losses for certain financial instruments, including trade receivables,
as an allowance that reflects the entity’s current estimate of credit losses expected to be incurred. The new standard will be
effective for us on January 1, 2023. The Company is currently evaluating the impact of adopting this guidance.
3.
Acquisition Contract Liabilities
On
March 25, 2019, we entered into an agreement (as amended, the “Share Purchase Agreement”) with Maruho Co, Ltd. (“Maruho”)
to acquire 100% of the shares of Cutanea Life Sciences, Inc. (“Cutanea”). As of the date of the acquisition, Maruho Co, Ltd.
owned approximately 29.9% of Biofrontera AG through its fully owned subsidiary Maruho Deutschland GmbH. Biofrontera AG is our former
parent, and currently a significant shareholder.
Pursuant
to the Share Purchase Agreement, Maruho agreed to provide $7.3 million in start-up cost financing for Cutanea’s redesigned business
activities (“start-up costs”). These start-up costs are to be paid back to Maruho by the end of 2023 in accordance with contractual
obligations related to an earn-out arrangement. In addition, as part of the earn-out arrangement with Maruho, the product profit amount
from the sale of Cutanea products as defined in the share purchase agreement will be shared equally between Maruho and Biofrontera until
2030 (“contingent consideration”).
In
connection with this acquisition in 2019, we recorded the $7.3 million in start-up cost financing, a $1.7 million contract asset related
to the benefit associated with the non-interest-bearing start-up cost financing and $6.5 million of contingent consideration related
to the estimated profits from the sale of Cutanea products to be shared equally with Maruho.
The
contract asset related to the start-up cost financing is amortized on a straight-line basis using a 6.0% interest rate over the 57-month
term of the financing arrangement, which ends on December 31, 2023. The contract asset is shown net of the related start-up cost financing
within acquisition contract liabilities, net.
The
contingent consideration was recorded at acquisition-date fair value using a Monte Carlo simulation with an assumed discount rate of
approximately 6.0% over the applicable term. The contingent consideration is recorded within acquisition contract liabilities, net. The
amount of contingent consideration that could be payable is not subject to a cap under the agreement. The Company re-measures contingent
consideration and re-assesses the underlying assumptions and estimates at each reporting period utilizing a scenario-based method.
Acquisition
contract liabilities, net consist of the following:
Schedule
of Acquisition Contract Liabilities
(in thousands) | |
September 30, 2022 | | |
December 31, 2021 | |
Short-term acquisition contract liabilities: | |
| | | |
| | |
Contingent consideration | |
$ | - | | |
$ | - | |
Start-up cost financing | |
| 3,600 | | |
| 3,600 | |
Contract asset | |
| (358 | ) | |
| (358 | ) |
Acquisition contract liabilities, net | |
$ | 3,242 | | |
$ | 3,242 | |
| |
| | | |
| | |
Long-term acquisition contract liabilities: | |
| | | |
| | |
Contingent consideration | |
$ | 2,100 | | |
$ | 6,200 | |
Start-up cost financing | |
| 3,700 | | |
| 3,700 | |
Contract asset | |
| (89 | ) | |
| (358 | ) |
Acquisition contract liabilities, net | |
$ | 5,711 | | |
$ | 9,542 | |
| |
| | | |
| | |
Total acquisition contract liabilities: | |
| | | |
| | |
Contingent consideration | |
$ | 2,100 | | |
$ | 6,200 | |
Start-up cost financing | |
| 7,300 | | |
| 7,300 | |
Contract asset | |
| (447 | ) | |
| (716 | ) |
Total acquisition contract liabilities, net | |
$ | 8,953 | | |
$ | 12,784 | |
4.
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, 2022 and December 31, 2021 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, 2022 | | |
December 31, 2021 | |
| |
| | |
| | |
| |
Liabilities: | |
| | | |
| | | |
| | |
Contingent Consideration | |
| 3 | | |
$ | 2,100 | | |
$ | 6,200 | |
Warrant liability – 2021 Purchase Warrants | |
| 3 | | |
$ | - | | |
$ | 12,854 | |
Warrant liability - 2022 Purchase Warrants | |
| 3 | | |
$ | 1,607 | | |
$ | - | |
Warrant liability – 2022 Inducement Warrants | |
| 3 | | |
$ | 2,357 | | |
$ | - | |
Warrant liability | |
| 3 | | |
$ | 2,357 | | |
$ | - | |
Contingent
Consideration
Contingent
consideration, which relates to the estimated profits from the sale of Cutanea products to be shared equally with Maruho, is
reflected at fair value within acquisition contract liabilities, net on the consolidated balance sheets. The fair value is based on
significant inputs not observable in the market, which represent a Level 3 measurement within the fair value hierarchy. The
valuation of the contingent consideration utilizes a scenario-based method under which a set of payoffs are calculated using the
term of the earnout, projections, and an appropriate metric risk premium. These payoffs are then discounted back from the payment
date to the valuation date using a payment discount rate. Finally, the discounted payments are summed together to arrive at the
value of the contingent consideration. The scenario-based method incorporates the following key assumptions: (i) the forecasted
product profit amounts, (ii) the remaining contractual term, (iii) a metric risk premium, and (iv) a payment discount rate. The
Company re-measures contingent consideration and re-assesses the underlying assumptions and estimates at each reporting
period.
The
following table provides a roll forward of the fair value of the contingent consideration:
Schedule
of Fair Value of Contingent Consideration
(in thousands) | |
| | |
Balance at December 31, 2020 | |
$ | 7,602 | |
Change in fair value of contingent consideration | |
| 1,698 | |
Balance at September 30, 2021 | |
$ | 9,300 | |
| |
| | |
Balance at December 31, 2021 | |
$ | 6,200 | |
Change in fair value of contingent consideration | |
| (4,100 | ) |
Balance at September 30, 2022 | |
$ | 2,100 | |
Warrant
Liability
Exercise
of 2021 Purchase Warrant and Issuance of July 2022 Inducement Warrant. On July 26, 2022, the Company entered into an Inducement Letter
with the holder of the Company’s 2021 Purchase Warrants (the “Investor”). The 2021 Purchase Warrants were originally
issued on December 1, 2021 to purchase up to 2,857,143
shares of common stock, par value $0.001
per share. The Investor agreed to exercise for
cash, the 2021 Purchase Warrants, in exchange for the Company’s agreement to (i) lower
the exercise price of the 2021 Purchase Warrants from $5.25
to $1.62
per share and (ii) issue a new warrant (the “Inducement
Warrant”) to purchase up to 4,285,715
shares of common stock. The Company received
proceeds of $4.6
million from the exercise of the 2021 Purchase
Warrants and expensed $0.3 million of related financial advisory fees.
This
price modification triggered the requirement for modification accounting of these warrants. Based on the applicable guidance
for liability classified warrants, the warrants issued during the three months ended September 2022 in connection with the modification
and exercise of the 2021 Purchase Warrants were considered inducement warrants and their fair value of $3.9
million at issuance was considered part of the
modification transaction and included in the change in fair value and recognized in the consolidated statement of operations. The fair
value was determined using a Black-Scholes option pricing model with the following assumptions: fair value of the underlying common stock
of $1.64, expected volatility of 70%, risk free rate of 2.84%, remaining contractual term of 4.34 years and a dividend yield of 0%. The
expected life of the warrants is assumed to be equivalent to their remaining contractual term.
The
Inducement Warrant is exercisable on or after January 27, 2023 at a price per share of $1.66 and expires on December 1, 2026.
May
2022 Pre-Funded and Purchase Stock Warrants. Warrants issued on May 16, 2022 in conjunction with the private placement to an
institutional shareholder were accounted for as liabilities in accordance with ASC 815-40. Pre-funded common stock purchase warrants
to purchase up to 1,569,000
shares of our common stock at a nominal exercise price of $0.001
per share (the “2022 Pre-funded Warrants”) and common stock purchase warrants to purchase up to 3,419,000
shares of our common stock at an exercise price of $2.77
per share (the “2022 Purchase Warrants”) are presented within warrant liability in the accompanying consolidated balance
sheets. The warrant liability is measured at fair value at inception and on a recurring basis, with changes in fair value presented
within the consolidated statements of operations. On July 14, 2022, the 2022 Pre-funded Warrants were exercised resulting in net
proceeds of $2,000.
The estimated fair value of the May 2022 Purchase Warrant at September 30, 2022 was determined using the Black-Scholes Option
Pricing Model with the following assumptions: fair value of the underlying common stock of $1.05, expected volatility of 75%, risk
free rate of 4.01%, remaining contractual term of 5.13 years and a dividend yield of 0%. The expected life of the warrants is
assumed to be equivalent to their remaining contractual term.
The
Company utilized a Black-Scholes option pricing model to estimate the fair value of the Inducement Warrant at September 30, 2022 with the following
assumptions: fair value of the underlying common stock of $1.05, expected volatility of 80%, risk free rate of 4.10%, remaining contractual
term of 4.17 years and a dividend yield of 0%. The expected life of the warrants is assumed to be equivalent to their remaining contractual
term. Certain inputs utilized in our Black-Scholes 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 fair value may cause a significant change to the fair value of our warrant liability which could also result in
material non-cash gain or loss being reported in our consolidated statements of operations.
The
following table presents the changes in the warrant liability measured at fair value (in thousands):
Schedule
of Changes in Fair Value Warrant Liabilities
(in thousands) | |
| | |
Fair value at December 31, 2021 | |
$ | 12,854 | |
Issuance of new warrants | |
| 13,217 | |
Exercise of warrants | |
| (6,840 | ) |
Change in fair value of warrant liability | |
| (15,267 | ) |
Fair value at September 30, 2022 | |
$ | 3,964 | |
5.
Revenue
We
generate revenue primarily through the sales of our licensed products Ameluz®, BF-RhodoLED® lamps and Xepi®. Revenue from
the sales of our BF-RhodoLED® lamp and Xepi® are relatively insignificant compared with the revenues generated through our sales
of Ameluz®.
Related
party revenue relates to an agreement with Biofrontera Bioscience GmbH (“Bioscience”) for BF-RhodoLED® leasing and installation
service. Refer to Note 16, 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, 2020 | |
$ | 217 | | |
$ | 52 | | |
$ | 15 | | |
$ | 43 | | |
$ | 327 | |
Provision related to current period sales | |
| 2 | | |
| 211 | | |
| 6 | | |
| 119 | | |
| 338 | |
Credit or payments made during the period | |
| (142 | ) | |
| (263 | ) | |
| (5 | ) | |
| (113 | ) | |
| (523 | ) |
Balance at September 30, 2021 | |
$ | 77 | | |
$ | - | | |
$ | 16 | | |
$ | 49 | | |
$ | 142 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at December 31, 2021 | |
$ | 43 | | |
$ | 101 | | |
$ | 48 | | |
$ | 54 | | |
$ | 246 | |
Provision related to current period sales | |
| 8 | | |
| 503 | | |
| 16 | | |
| 164 | | |
| 691 | |
Credit or payments made during the period | |
| (5 | ) | |
| (400 | ) | |
| (23 | ) | |
| (149 | ) | |
| (577 | ) |
Balance at September 30, 2022 | |
$ | 46 | | |
$ | 204 | | |
$ | 41 | | |
$ | 69 | | |
$ | 360 | |
6.
Accounts Receivable, net
Accounts
receivables are mainly attributable to the sale of Ameluz®, the BF-RhodoLED® and Xepi®. It is expected
that all trade receivables will be settled within twelve months of the balance sheet date.
The
allowance for doubtful accounts was $0.1 million
and negligible as of September 30, 2022 and December 31, 2021, respectively.
7.
Other Receivables, Related Party
As
of September 30, 2022, the Company has a receivable of $6.3 million
($3.5 short
term and $2.8 long-term)
due from Biofrontera AG of which $6.1
million is due from Biofrontera AG for its 50% share
of the balance of a legal settlement for which both parties are jointly and severally liable. The Company has a contractual right to
repayment of its share of the settlement payment, plus other miscellaneous settlement costs, from Biofrontera AG under the
Settlement Allocation Agreement entered into on December 9, 2021 and as amended on March 31, 2022, which provided that the
settlement payments would first be made by the Company and then reimbursed by Biofrontera AG for its share. The March 31, 2022
Amended Settlement Allocation Agreement provides certain remedies to the Company, if
Biofrontera AG fails to make timely reimbursements, which the Company may implement in its sole discretion, including the ability to
charge interest at a rate of 6.0%
per annum for each day that any reimbursement is past due and the ability to offset any overdue reimbursement amounts against
payments owed to Biofrontera AG by the Company (including amounts owed under the Company’s license and supply agreement for
Ameluz®). As such, no
reserve for the receivable has been recorded as of September 30, 2022 or December 31, 2021.
The
remaining $0.2 million of other receivables, related party pertains to service agreements and chargebacks. See Note 16- Related Party
Transactions.
8.
Inventories
Inventories
are comprised of Ameluz®, Xepi® and the BF-RhodoLED® finished products.
In
assessing the consumption of inventories, the sequence of consumption is assumed to be based on the first-in-first-out (FIFO)
method. We recorded a provision of $0.1 million
related to BF-RhodoLED® devices for the nine months ended September 30, 2022. The provision for Xepi® inventory
obsolescence was negligible, for the three months ended September 30, 2022 and for the three and nine months ended September 30,
2021.
9.
Prepaid Expenses and Other Current Assets
Prepaid
expenses and other current assets consist of the following:
Schedule of Prepaid Expenses and Other Current Assets
(in thousands) | |
September 30, 2022 | | |
December 31, 2021 | |
Loan receivable, short term | |
$ | 3,017 | | |
$ | - | |
Receivable for common stock warrants proceeds | |
$ | - | | |
$ | 3,258 | |
Prepaid expenses | |
| 460 | | |
$ | 824 | |
Security deposits | |
| 85 | | |
| 149 | |
Other | |
| 261 | | |
| 756 | |
Total | |
$ | 3,823 | | |
$ | 4,987 | |
On September 23, 2022. the Company entered into a loan agreement with Quirin
PrivatBank AG in the amount of 3.1 million Euros. The
loan receivable bears interest at 1.0% from date of disbursement, is due on December 6, 2022 and is repayable at the option of the holder,
in cash or in shares of Biofrontera AG acquired with the funds disbursed from the loan.
10.
Property and Equipment, Net
Property
and equipment, net consists of the following:
Schedule of Property and Equipment
(in thousands) | |
September 30, 2022 | | |
December 31, 2021 | |
Computer equipment | |
$ | 88 | | |
$ | 85 | |
Computer software | |
| 27 | | |
| 27 | |
Furniture & fixtures | |
| 81 | | |
| 81 | |
Leasehold improvement | |
| 368 | | |
| 368 | |
Machinery & equipment | |
| 145 | | |
| 112 | |
Property and equipment, gross | |
| 709 | | |
| 673 | |
Less: Accumulated depreciation | |
| (485 | ) | |
| (406 | ) |
Property and equipment, net | |
$ | 224 | | |
$ | 267 | |
Depreciation
expense was $0.1,
for the nine months ended September 30, 2022 and 2021. which was included in selling, general and administrative
expense in the consolidated statements of operations. Depreciation expense for the three months ended September 30, 2022 and 2021 was negligible.
11.
Intangible Asset, Net
Intangible
asset, net consists of the following:
Schedule of Intangible Asset Net
(in thousands) | |
September 30, 2022 | | |
December 31, 2021 | |
Xepi® license | |
$ | 4,600 | | |
$ | 4,600 | |
Less: Accumulated amortization | |
| (1,464 | ) | |
| (1,150 | ) |
Intangible asset, net | |
$ | 3,136 | | |
$ | 3,450 | |
The
Xepi® license intangible asset was recorded at acquisition-date fair value of $4.6
million and is amortized on a straight-line basis over the useful life of 11
years. Amortization expense was $0.1
million and $0.3 million,
for the three and nine months ended September 30, 2022, respectively, and $0.1
million and $0.3 million
for the three and nine months ended September 30, 2021, respectively.
We
review the Xepi® license intangible asset for impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be fully recoverable. In October 2022, upon receiving notification of further
third-party manufacturing delays that impacted the timing of sales expansion and improved market positioning of the Xepi® product,
we deemed it necessary to assess the recoverability of our Xepi® asset group. Future cash flows were estimated over
the expected remaining useful life of the asset group, and we determined that, on an undiscounted basis, expected cash flows exceeded
the carrying amount of the asset group.
The Company did not recognize any impairment charges during the three or
nine months ended September 30, 2022 or 2021.
12.
Statement of Cash Flows Reconciliation
The
following table provides a reconciliation of cash, cash equivalents, and restricted cash that sum to the total shown in the
consolidated statements of cash flows:
Schedule of Reconciliation of Cash, Cash Equivalents, and Restricted Cash
(in thousands) | |
September 30, 2022 | | |
December 31, 2021 | |
Cash and cash equivalents | |
$ | 27,518 | | |
$ | 24,545 | |
Short-term restricted cash | |
| 47 | | |
| 47 | |
Long-term restricted cash | |
| 200 | | |
| 150 | |
Total cash, cash equivalent, and restricted cash shown on the consolidated
statements of cash flows | |
$ | 27,765 | | |
$ | 24,742 | |
13.
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, 2022 | | |
December 31, 2021 | |
Legal settlement (See note 23) | |
$ | 5,625 | | |
$ | 5,625 | |
Employee compensation and benefits | |
| 2,243 | | |
| 2,384 | |
Professional fees | |
| 676 | | |
| 570 | |
Product revenue allowances and reserves | |
| 360 | | |
| 246 | |
Other | |
| 538 | | |
| 829 | |
Total | |
$ | 9,442 | | |
$ | 9,654 | |
14.
Other Long-Term Liabilities
Other
long-term liabilities consist of the following:
Schedule of Other Long Term Liabilities
(in thousands) | |
September 30, 2022 | | |
December 31, 2021 | |
Legal settlement – noncurrent (See note 23) | |
$ | 5,625 | | |
$ | 5,625 | |
Other | |
| 21 | | |
| 24 | |
Total | |
$ | 5,646 | | |
$ | 5,649 | |
15.
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
for the three- or nine-month periods ended September 30, 2022 and 2021. Income tax expense incurred for the three and nine months ended
September 30, 2022 and 2021 relates to state income taxes. At September 30, 2022 and December 31, 2021, the Company had no unrecognized
tax benefits.
The
Company continues to be in a cumulative loss position and as such, is maintaining a full valuation allowance.
Interest
and penalty charges, if any, related to unrecognized tax benefits would be classified as income tax expense in the accompanying
consolidated statements of operations. As of September 30, 2022, and December 31, 2021, the Company has no accrued interest related
to uncertain tax positions. Since the Company is in a loss carryforward position, it is generally subject to examination by the U.S.
federal, state, and local income tax authorities for all tax years in which a loss carryforward is available.
16.
Related Party Transactions
License
and Supply Agreement
On
October 1, 2016, the Company executed an exclusive license and supply agreement with Biofrontera Pharma GmbH (“Pharma”),
which was amended in July 2019 to increase the Ameluz® transfer price per unit from 35.0% to 50.0% of the anticipated
net selling price per unit as defined in the agreement. It was further amended on October 8, 2021 so that the price we pay per unit will
be based upon our sales history, although the minimum number of units to purchase per year remains unchanged. As a result of this amendment,
the purchase price we pay Biofrontera Pharma for Ameluz® will range from 30% to 50% of the anticipated net price per unit
based on our level of annual revenue. Refer to Item I. Business - Commercial Partners and Agreements in our Annual Report on Form
10-K for the year ended December 31, 2021 for further details. Under the agreement, the Company obtained an exclusive, non-transferable
license to use the Pharma’s technology to market and sell the licensed products, Ameluz® and BF-RhodoLED®
and must purchase the licensed products exclusively from Pharma. There was no consideration paid for the transfer of the license.
Purchases
of the licensed products during the three and nine months ended September 30, 2022 were $5.2
million and $16.6
million, respectively, and $1.0
million and $5.7
million for the three and nine months ended September 30, 2021. These purchases are recorded in inventories in the consolidated
balance sheets, and, when sold, in cost of revenues, related party in the consolidated statements of operations. Amounts due and
payable to Pharma as of September 30, 2022 and December 31, 2021 were $4.2
million and $0.3
million, respectively, which were recorded in accounts payable, related parties in the consolidated balance sheets.
Service
Agreements
In
December 2021, we entered into an Amended and Restated Master Contract Services Agreement, or “Services Agreement”,
which provides for the execution of statements of work that will replace the applicable provisions of our previous intercompany
services agreement dated January 1, 2016, or 2016 Services Agreement, by and among us, Biofrontera AG, Biofrontera Pharma and
Biofrontera Bioscience, enabling us to continue to use the IT resources of Biofrontera AG and its wholly owned subsidiaries (the
“Biofrontera Group”) as well as providing access to the Biofrontera Group’s resources with respect to quality
management, regulatory affairs and medical affairs. We currently have statements of work in place regarding IT, 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 1) if they will be needed, and 2) whether they can or should be obtained from other
third-party providers. Expenses related to the service agreement were $0.2
million and $0.6
million for the three and nine months ended September 30, 2022, respectively and $0.2
million and $0.5
million for the three and nine months ended September 30, 2021. These expenses were recorded in selling, general and administrative,
related party. Amounts due to Biofrontera AG related to the service agreement as of September 30, 2022 and December 31, 2021 were
$0.2
million and $0.2
million, respectively, which were offset against other receivables, related party in the consolidated balance sheet.
Clinical
Lamp Lease Agreement
On
August 1, 2018, the Company executed a clinical lamp lease agreement with Biofrontera Bioscience GmbH (“Bioscience”) to provide
lamps and associated services.
Total
revenue related to the clinical lamp lease agreement was minimal for the three and nine months ended September 30, 2022, and
for the three and nine months ended September 30, 2021, and was recorded as revenues, related party. Amounts due from Bioscience for
clinical lamp and other reimbursements were approximately $0.2 million
and $0.1 as
of September 30, 2022 and December 31, 2021, respectively, which were recorded as other receivables, related party in the
consolidated balance sheets.
Reimbursements from
Maruho Related to Cutanea Acquisition
Pursuant
to the Cutanea acquisition share purchase agreement, we received start-up cost financing and reimbursements for certain costs. These
restructuring costs Maruho agreed to pay are referred to as “SPA costs” under the arrangement and are to be accounted for
as other income. Refer to Note 3, Acquisition Contract Liabilities.
There
were no
amounts reimbursed relating to SPA costs for
the three and nine months ended September 30, 2022. For the three and nine months ended September 30, 2021, the amounts reimbursed relating
to SPA costs were $0.2
million and $0.5
million and were recorded as other income in
the consolidated statements of operations as the related expenses were incurred. As of September 30, 2022 and December 31, 2021 amounts
due from Maruho, primarily relating to SPA cost reimbursements, were $0.1
for each of the periods and were recorded in
other receivables, related parties in the consolidated balance sheets.
Others
The
Company has recorded a receivable of $6.1
million and $11.3 million as of September 30, 2022 and December 31, 2021 due from Biofrontera AG for its 50%
share of the balance of a legal settlement for which both parties are jointly and severally liable. Refer to Note 7, Other
Receivables, Related Party. The Company has recognized $0.1
million of interest income for the nine months ended September 30, 2022 in connection with this receivable.
17.
Restructuring costs
We
restructured the business of Cutanea and incurred restructuring costs which were subsequently reimbursed by Maruho. Restructuring costs
primarily relate to the winding down of Cutanea’s operations. There were no restructuring costs for the three and nine months ended
September 30, 2022. For the three and nine months ended September 30, 2021, restructuring costs were incurred in the amount of $0.2 and
$0.7 million, respectively.
18.
Stockholders’ Equity
Under
the Company’s amended and restated certificate of incorporation, dated December 21, 2020, the Company is authorized to issue 300,000,000
shares of common stock, par value $0.001 per share and 20,000,000 shares of preferred stock, par value $0.001 per share.
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 of Directors. 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.
Private
Placement - On May 16, 2022, the Company entered into a Securities Purchase Agreement (“May 2022 PIPE”). In the May 2022
PIPE, the Company issued for the gross cash receipts of $9.4 million (i) 1,850,000 shares of the common stock, (ii) a warrant to purchase
up to 3,419,000 shares of the common stock (“2022 Purchase Warrant”) and (iii) a warrant to purchase up to 1,569,000 shares
of the common stock (“2022 Pre-Funded Warrant”). The purchase price for one share of common stock (or common stock equivalent)
and a warrant to purchase one share of common stock was $2.75. The 2022 Purchase Warrant will be exercisable nine months after the issue
date, expires five and one-half years after the issue date and has an exercise price of: $2.77 per share. The Pre-Funded Warrant is exercisable
immediately and has a term of exercise equal to five (5) years with a nominal exercise price of $0.001 per share.
Because
the warrants are accounted for as liabilities, the May 2022 PIPE proceeds were allocated between the fair value of the warrants with
the remaining proceeds allocated to common stock and additional paid in capital.
Exercise
of 2022 Pre-Funded Warrant - On July 14, 2022, an investor exercised the 2022 Pre-Funded Warrant and purchased a total of 1,569,000
shares of common stock at an exercise price of
$.001
per share, resulting in negligible net proceeds,
Exercise
of 2021 Purchase Warrant and Issuance of July 2022 Inducement Warrant - On July 26, 2022, the Company entered into the
Inducement Letter with the holder of the Company’s 2021 Purchase Warrants (the “Investor”). The 2021 Purchase
Warrants were originally issued on December 1, 2021 to purchase up to 2,857,143
shares of common stock, par value $0.001
per share. The Investor agreed to exercise for cash, the 2021 Purchase Warrants, in exchange
for the Company’s agreement to (i) lower the exercise price of the 2021 Purchase Warrants from $5.25
to $1.62
per share and (ii) issue a new warrant (the “Inducement Warrant”) to purchase up to 4,285,715
shares of common stock. The Company received proceeds of $4.6
million, from the exercise of the 2021 Purchase Warrants and expensed the related issuance costs of $0.3 million.
The
Inducement Warrant is exercisable on or after January 27, 2023 at a price per share of $1.66 and expires on December 1, 2026.
19.
Equity Incentive Plans and Share-Based Payments
2021
Omnibus Incentive Plan
In
2021, our Board of Directors adopted, and our shareholders approved the 2021 Omnibus Incentive Plan (“2021 Plan). Under the 2021
Plan, 2,750,000 shares are authorized for awards and the maximum contractual term is 10 years for stock options granted. A total of 2,579,932
shares remain eligible for issuance as of September 30, 2022 under the 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 equal to 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 Black-Scholes 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.
Share-based
compensation expense of approximately $0.3
million and $0.6
million was recorded in selling, general and administrative expenses on the accompanying consolidated statement of operations for
the three and nine months ended September 30, 2022. There was no
stock based compensation for the three and nine months ended September 30, 2021.
Options
outstanding and exercisable under the employee share option plan as of September 30, 2022 and a summary of option activity during the
nine months then ended is presented below.
Schedule of Stock Unit Activity
| |
Shares | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Contractual Term | | |
Aggregate Intrinsic Value (1) | |
Outstanding at December 31, 2021 | |
| 613,614 | | |
$ | 4.77 | | |
| | | |
| | |
Granted | |
| 1,290,489 | | |
$ | 2.41 | | |
| | | |
| | |
Exercised | |
| - | | |
$ | - | | |
| | | |
| | |
Canceled or forfeited | |
| (63,946 | ) | |
$ | 4.77 | | |
| | | |
| | |
Outstanding at September 30, 2022 | |
| 1,840,157 | | |
$ | 3.11 | | |
| 9.52 | | |
$ | 6 | |
Exercisable at September 30, 2022 | |
| 29,332 | | |
$ | 2.61 | | |
| 9.63 | | |
$ | - | |
(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, 2022. |
As
of September 30, 2022, there was $2.6 million of unrecognized compensation cost related to unvested stock options, which is expected
to be recognized over a weighted-average period of approximately 2.5 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 estimated based on the closing market price of the Company’s
common stock on the grant date.
Share-based
compensation expense of $0.1
million and $0.9
million for the RSUs was recorded in selling, general and administrative expenses in the accompanying consolidated statement of
operations for the three and nine months ended September 30, 2022. There was no
share-based compensation for the three and nine months ended September 30, 2021.
As
of September 30, 2022, there was $0.7 million of unrecognized compensation cost related to unvested RSUs, which is expected to be recognized
over a weighted-average period of approximately 1.6 years.
Schedule
of Restricted Stock Units
| |
Shares | | |
Weighted Average Remaining Contractual Term | | |
Aggregate Intrinsic Value | | |
Weighted Average Grant Date Fair Value | |
Outstanding at December 31, 2021 | |
| 170,068 | | |
| | | |
$ | | | |
$ | 4.77 | |
Awarded | |
| 343,512 | | |
| | | |
$ | | | |
$ | 2.61 | |
Vested | |
| (170,068 | ) | |
| | | |
$ | | | |
$ | 4.77 | |
Canceled or forfeited | |
| - | | |
| | | |
$ | | | |
$ | - | |
Outstanding at September 30, 2022 | |
| 343,512 | | |
| 1.13 | | |
$ | 361 | | |
$ | 2.61 | |
Expected to vest at September 30, 2022 | |
| 343,512 | | |
| 1.13 | | |
$ | 361 | | |
$ | 2.61 | |
20.
Interest Expense, net
Interest
expense, net consists of the following:
Schedule of Interest Expense
(in thousands) | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
For three months ended September 30, | | |
For nine months ended September 30, | |
(in thousands) | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
| | |
| | |
| | |
| |
Interest expense | |
$ | (3 | ) | |
$ | - | | |
$ | (10 | ) | |
$ | - | |
Contract asset interest expense | |
| (89 | ) | |
| (90 | ) | |
| (268 | ) | |
| (268 | ) |
Interest income – related party | |
| 1 | | |
| - | | |
| 110 | | |
| - | |
Interest income – other | |
| 2 | | |
| 4 | | |
| 8 | | |
| 13 | |
Interest expense, net | |
$ | (89 | ) | |
$ | (86 | ) | |
$ | (160 | ) | |
$ | (255 | ) |
Contract
asset interest expense relates to the $1.7 million contract asset in connection with the $7.3 million start-up cost financing received
from Maruho under the Cutanea acquisition share purchase agreement. The contract asset is amortized on a straight-line basis using a
6% interest rate over the financing arrangement contract term, which ends on December 31, 2023.
21.
Other Income (Expense), net
Other
income (expense), net consists of the following:
Schedule of Other Income, Net
(in thousands) | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
For three months ended September 30, | | |
For nine months ended September 30, | |
(in thousands) | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
| | |
| | |
| | |
| |
Reimbursed SPA costs | |
$ | - | | |
$ | 188 | | |
$ | - | | |
$ | 472 | |
Other, net | |
| (22 | ) | |
| (3 | ) | |
| 30 | | |
| (53 | ) |
Other income (expense), net | |
$ | (22 | ) | |
$ | 185 | | |
$ | 30 | | |
$ | 419 | |
Other,
net, primarily includes gain (loss) on foreign currency transactions and gain on termination of operating leases.
22.
Net Earnings per Share
Basic
net earnings 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 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.
The
following table sets forth the computation of the Company’s basic and diluted net 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
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
Three Months Ended | | |
Nine Months Ended | |
| |
September 30, | | |
September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Net income (loss) | |
$ | (2,566 | ) | |
$ | (16,012 | ) | |
$ | 2,145 | | |
$ | (23,208 | ) |
| |
| | | |
| | | |
| | | |
| | |
Shares: | |
| | | |
| | | |
| | | |
| | |
Basic weighted average common shares outstanding | |
| 22,725,821 | | |
| 8,000,000 | | |
| 19,560,351 | | |
| 8,000,000 | |
Add: Effect of dilutive securities | |
| | | |
| | | |
| | | |
| | |
Stock options and restricted stock units | |
| - | | |
| - | | |
| 44,663 | | |
| - | |
Diluted weighted average common shares outstanding | |
| 22,725,821 | | |
| 8,000,000 | | |
| 19,605,014 | | |
| 8,000,000 | |
| |
| | | |
| | | |
| | | |
| | |
Net earnings (loss) per share: | |
| | | |
| | | |
| | | |
| | |
Basic | |
$ | (0.11 | ) | |
$ | (2.00 | ) | |
$ | 0.11 | | |
$ | (2.90 | ) |
Diluted | |
$ | (0.11 | ) | |
$ | (2.00 | ) | |
$ | 0.11 | | |
$ | (2.90 | ) |
The
following table sets forth the potential common shares that were not included in the diluted per share calculations for the three
and nine months ended September 30, 2022 because they would be anti-dilutive:
Schedule of Anti-dilutive Securities Excluded From Computation of Earnings Per Share
Nine Months Ended September 30, |
|
Three Months Ended September 30, 2002 |
| |
Nine
Months Ended September 30, 2022 | |
Common stock warrants |
|
|
9,197,109 |
| |
| 9,197,109 | |
Common stock options and RSUs |
|
|
2,073,337 |
| |
| 1,112,395 | |
Unit Purchase Options |
|
|
403,628 |
| |
| 403,628 | |
Total anti-dilutive securities |
|
|
|
| |
| 403,628 | |
23.
Commitments and Contingencies
Facility
Leases
The
Company leases its corporate headquarters under an operating lease that expires in November 2025. 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.
Rent
expense is recorded on a straight-line basis through the end of the lease term. The Company incurred rent expense, in the amount of $0.1
million and $0.4 million for the three and nine months ended September 30, 2022 which was included in selling, general, and administrative
expenses. The rent expense, net of sublease income for the three and nine months ended September 30, 2021 was $0.2 million and $0.6 million.
Auto
Leases
The
Company also leases autos for its field sales force with a lease payment term of 40 months. The Company incurred auto lease expense of
$0.1 million and $0.3 million for the three and nine months ended September 30, 2022 and $0.1 million and $0.4 million for
the three and nine months ended September 30, 2021.
The
minimum aggregate payments of all future lease commitments as of September 30, 2022, are as follows:
(in
thousands)
Schedule of Future Commitments and Sublease Income
Years
ending December 31, |
|
Future
lease commitments |
|
Remainder
of 2022 |
|
$ |
164 |
|
2023 |
|
|
565 |
|
2024 |
|
|
541 |
|
2025 |
|
|
389 |
|
Thereafter |
|
|
- |
|
Total |
|
$ |
1,659 |
|
Cutanea
payments
We
are obligated to repay to Maruho $3.6 million on December 31, 2022 and $3.7 million on December 31, 2023 in start-up cost financing paid
to us in connection with the Cutanea acquisition.
We
are also obligated to share product profits with Maruho equally from January 1, 2020 through October 30, 2030. Refer to Note 3, Acquisition
Contract Liabilities.
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 when annual net sales of Xepi® under the Xepi LSA exceed $50,000,000. No payments were made for the three and
nine months ended September 30, 2022 or 2021 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 costs related to such
legal proceedings. We are not presently a party to any pending legal proceedings.
On
November 29, 2021, the Company entered into a settlement and release agreement with respect to a lawsuit filed March 23, 2018 in the
United States District Court for the District of Massachusetts in which we were alleged to have infringed on certain patents and misappropriated
certain trade secrets. In the settlement, the Company and Biofrontera AG together agreed to make an aggregate payment of $22.5 million
to settle the claims in the litigation. The Company will be responsible for $11.3 million of the aggregate settlement amount, plus interest
accrued at a rate equal to the weekly average one-year constant maturity Treasury yield and agreed to pay in three annual installments.
The first installment of $11.3 million (of which $5.6 million was Biofrontera AG’s portion) was paid in December 2021
by the Company.
While
Biofrontera AG has agreed to pay a portion of the settlement, both parties remain jointly and severally liable for the full settlement
amount, meaning that in the event Biofrontera AG does not pay all or a portion of the amount it owes under the agreement, the claimant
could compel the Company to pay Biofrontera AG’s share. If either the Company or Biofrontera AG violates the terms of the settlement
agreement, this could nullify the settlement and the Company may lose the benefits of the settlement and be liable for a greater amount.
As of September 30, 2022 we have reflected a legal settlement liability in the amount of $11.3 million for the remaining payments due
and a related receivable from related party of $5.6 million, in accordance with the Settlement Allocation Agreement entered into on December
9, 2021, which provided that the settlement payments would first be made by the Company and then reimbursed by Biofrontera AG for its
share.
24.
Retirement Plan
The
Company has a defined-contribution plan under Section 401(k) of Internal Revenue Code (the “401(k) Plan”). The 401(k) Plan
covers all employees who meet defined minimum age and service requirements and allows participants to defer a portion of their annual
compensation on a pre-tax basis. The Company matches 50% of employee contributions up to a maximum of 6% of employees’ salary.
For
the three and nine months ended September 30, 2022, matching contribution costs paid by the Company were $0.1 million and $0.2 million, respectively.
For the three and nine months ended September 30, 2021, matching contribution costs paid by the Company were $0.1 million and $0.2 million.
25.
Subsequent Events
We
have completed an evaluation of subsequent events after the balance sheet date of September 30, 2022 through the date this Quarterly
Report on Form 10-Q was submitted to the SEC.
Adoption
of a stockholder rights plan. On October 13, 2022 the Board of Directors (“Board”) authorized and declared a
dividend distribution of one Preferred Stock Purchase Right (a “Right”) for each outstanding share of common stock to
stockholders of record as of the close of business on October 24, 2022. In addition, one Right will automatically attach to each
share of Common Stock issued between the record date of the distribution and the earlier of the distribution date and the expiration
date of the Rights. Each Right entitles the registered holder to purchase from the Company a unit consisting of one ten-thousandth
of a share (a “Unit”) of Series A Junior Participating Cumulative Preferred Stock, par value $0.001
per share, of the Company at a cash exercise price of $5.00
per Unit, subject to adjustment, under certain conditions. The complete terms of the Rights are set forth in the Stockholder Rights
Agreement (“Rights Agreement”), dated October 13, 2022, between the Company and Computershare Trust Company, N.A, as
rights agent.
While
the stockholder rights plan described above (the “Rights Plan”) is effective immediately, the Rights would become
exercisable only if a person or group, or anyone acting in concert with such a person or group, acquires beneficial ownership, as
defined in the Rights Agreement, of 20%
or more of the Company’s issued and outstanding common stock in a transaction not approved by the Company’s Board of
Directors. The Rights Plan will expire on October 13, 2023.
Under
the Rights Plan, a person or group who beneficially owned 20% or more of the Company’s outstanding Common Stock prior to the first
public announcement of the Rights Plan on October 14, 2022 will not trigger the Rights so long as they do not
acquire beneficial ownership of any additional shares of Common Stock at a time when they still beneficially own 20% or more of such
Common Stock.
Full
details about the Rights Agreement are contained in a Form 8-K filed by the Company with the U.S. Securities and Exchange Commission
on October 14, 2022.
Series
A Junior Participating Cumulative Preferred Stock. In connection with the adoption of the Rights Plan, the Board approved a Certificate
of Designations of Series A Junior Participating Cumulative Preferred Stock which designates the rights, preferences and privileges of
5,000 shares of Preferred Stock. The Certificate of Designations was filed with the Secretary of State of Delaware and became effective
on October 13, 2022.
Acquisition
of Biofrontera AG Shares. On October 25, 2022. the Company entered into private exchange agreements with certain holders of options to
acquire ordinary shares, nominal value €1.00
per share (the “AG Options”), of Biofrontera AG, pursuant to which the parties agreed to a negotiated private exchange
of 3,148,042
shares of the Company’s common stock in exchange for the AG Options. The AG Options represent the right to acquire 2,623,365
ordinary shares of Biofrontera AG held by the shareholders, representing an exchange ratio of approximately 1 AG share to 1.2 shares
of the Company’s common stock. There was no additional cost to exercise the AG Options. As of November 8, 2022, the Company exercised the AG options in full to acquire 2,623,365 shares of Biofrontera AG.
Also, on November 8, 2022, the
Company entered into an amendment to the Loan Agreement with Convertible Repayment Obligation dated September 23,2022. In the
Amendment, Quirin PrivatBank AG assigned the acquired 1,601,318 shares of AG, including all associated rights, to the Company with
shares to be delivered promptly thereafter. The parties agreed to terminate the loan in part in exchange for noted shares.
As
a result of these transactions, the Company now owns a total of 4,224,683
shares, which is 7.45%
of Biofrontera AG’s outstanding ordinary shares as of November 8, 2022. These shares were acquired in accordance with the loan
receivable agreement (as amended on November 8, 2022) disclosed in Note 9- Prepaid Expenses and Other Current Assets and the Private
Exchange Agreement entered into October 25, 2022 as detailed above.