UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

FORM 10-Q

(Mark One)

For the quarterly period ended September 30,March 31, 20212022

OR

For the transition period from to

Commission file number 001-40943

Biofrontera Inc.

(Exact name of registrant as specified in its charter)

(781(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:

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 ☒ 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.

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 No ☒

As of November 28, 2021,May 12, 2022, there were 11,600,00017,104,749, 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

BIOFRONTERA INC.

BALANCE SHEETS

(In thousands, except par value and share amountamounts))

(Unaudited)

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

BIOFRONTERA INC.

STATEMENTS OF OPERATIONS

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

(Unaudited)

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

BIOFRONTERA INC.

STATEMENTS OF STOCKHOLDER’SSTOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except number of shares)

(Unaudited)

Three Months Ended March 31, 2022 and 2021

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

BIOFRONTERA INC.

STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

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

Biofrontera Inc.

Notes to the Financial Statements

(Unaudited)

1. Business Overview

We are 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 results 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^®Ameluz®, which is a prescription drug approved for use in combination with our licensor’s FDA-approved medical device, which has been approved by the U.S. Food and Drug Administration (“FDA”), the BF-RhodoLED^®BF-RhodoLED® lamp series, 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^®Ameluz® for this indication in the U.S. under an exclusive license and supply agreement (“Ameluz LSA”) with, by and among us and Biofrontera Pharma GmbH and Biofrontera Bioscience GmbH (collectively, the (“Pharma”Ameluz Licensor”) originally dated as of October 1, 2016, and as subsequently amended on June 16, 2021 and further amended on October 8, 2021. Under the Ameluz LSA, we hold the exclusive licenseRefer to sell Ameluz^® and BF-RhodoLED^® Note 16, Related Party Transactions, for all indications currently approved by the FDA as well as all future FDA-approved indications.

further details.

Our second prescription drug product is Xepi^®Xepi® (ozenoxacin cream, 1%), a topical non-fluorinated quinolone that inhibits bacterial growth. Currently, no antibiotic resistance against Xepi^®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^®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. (“Cutanea”). Refer to Note 14,16, Related Party Transactions, for further details.

Liquidity and Going Concern

We devote a substantial portionThe Company’s primary sources of ourliquidity are its existing cash resources to the commercialization of our licensed products, Ameluz®, BF-RhodoLED®balances and Xepi®. We have historically financed our operating and capital expenditures through cash proceeds generatedflows from our product sales and proceedsequity financing transactions received in connection with the Intercompany Revolving Loan Agreement with our parent, Biofrontera AG. On2021. As of March 31, 2022, we had cash and cash equivalents of $22.4 million, compared to $24.5 million as of December 31, 2020,2021.

Since we commenced operations in 2015, we have generated significant losses. For the Company agreed to convert the outstanding principal balance of the revolving debt in the amountthree months ended March 31, 2022 and 2021, we incurred losses from operations of $47.03.1 million into an aggregate of and $7,999,0003.5 shares of common stock at a purchase pricemillion, respectively. We incurred net cash outflows from operations of $5.8752.1 per share, which was based on our internal assessmentmillion and agreement with our parent,$3.4 million, for the same periods, respectively. We had an aggregate gross capital contributionaccumulated deficit as of March 31, 2022 of $47.073.3 million.

Since inception, we have incurred lossesThe Company’s short-term material cash requirements include working capital needs and generated negative cash flows from operations. Assatisfaction of December 31, 2020, we had an accumulated deficitcontractual commitments including auto leases (see Note 23, Commitments and Contingencies), Maruho start-up payments of $41.27.3 million (see Note 3. Acquisition Contract Liabilities), and legal settlement expenses after reimbursement from 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 cash equivalents of $8.1 million. As of September 30, 2021, we had an accumulated deficit of $64.4million, which is inclusive of a legal settlement liability of $11.25 million – seeContingencies) and contingent consideration payments to Maruho (see Legal Proceedings section in Note 193. Acquisition Contract Liabilities). for further details, and cash and cash equivalents of $1.7 million.

We expect to continue to generate revenue from product sales. We alsoAdditionally, we expect to continue to incur operating losses fromdue to significant discretionary sales and marketing efforts in the U.S as we seek to expand the commercialization of Ameluz®Ameluz^® and Xepi^®. In addition, we 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. We alsoIn addition, we expect to incur additionalsignificant costs to continue to comply with corporate governance, internal controls and similar requirements applicable to us as a public company in the U.S. We expect capital expenditures to increase in 2022 to support the increase in our business needs including an ERP system.

Our future growth is dependent onThese factors raise doubt about our ability to continue as a going concern, which we have determined are mitigated by the following plans. 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, we expect to have to obtain either equity or debt financing. On March 31, 2021,financing to support our future long-term growth and to mitigate the risk of our operating costs significantly exceeding the amounts currently estimated. If our current operating plans or financial forecasts change, or we entered intoare unable to obtain additional financing, we may need to reduce the Second Intercompany Revolving Loan Agreement with Biofrontera AG for $20.0 million of committed sources of funds fordiscretionary 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 two-year term.need to significantly revise our operations currently.

On November 2, 2021, we completed an initial public offering (“IPO”) and issued and sold 3,600,000 units (“Units”), each consisting of (i) one share of common stock of the Company, par value $0.001 per share (the “Shares”) and (ii) one warrant of the Company (the “Warrants”) entitling the holder to purchase one Share at an exercise price of $5.00 per Share. In addition, the underwriters exercised in full their option to purchase up to an additional 540,000 Warrants to cover over-allotments. The Units were sold at a price of $5.00 per Unit, and the Company estimates the net proceeds from the IPO to be $15.4 million, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by the Company.

On November 24 and November 26, 2021, investors exercised their warrants to purchase a total of 854,000 shares of common stock at an exercise price of $5.00 per share, resulting in estimated net proceeds of $3.9 million after deducting underwriting discounts and commission.

On November 29, 2021, we entered into a securities purchase agreement with a single institutional investor for the purchase of 2,857,143 shares of our common stock (or common stock equivalents in lieu thereof) and warrants to purchase up to an aggregate of 2,857,143 shares of common stock, in a private placement. The combined purchase price for one share of common stock (or common stock equivalent) and a warrant to purchase one share of common stock is $5.25. The warrants have an exercise price of $5.25 per share, will be immediately exercisable, and will expire five years from the issuance date. The gross proceeds from the private placement offering are expected to be approximately $15.0 million. The private offering is expected to close on or about December 1, 2021, subject to the satisfaction of customary closing conditions.

With the funds available under the Second Intercompany Revolving Loan Agreement, the net proceeds from the IPO, and the proceeds from the private placement offering, we will have sufficient funds to support the operating, investing, and financing activities of the Company through at least twelve months from the date of the issuance of the interim financial statements.

2. Summary of Significant Accounting Policies

Basis for Preparation of the Financial Statements

The accompanying unaudited interim 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 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 March 31, 2022, the Company’s operating results for interimthe three months ended March 31, 2022 and 2021, and the Company’s cash flows for the three months ended March 31, 2022 and 2021. The accompanying financial information and with the instructions to Form 10-Q and Article 8 and Article 10 of Regulation S-X. The balance sheet as of December 31, 2020 was2021 is derived from the Company’s audited financial statements. These unaudited condensed financial statementsInterim 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 audited financial statements and notes theretoCompany’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, included in the Company’s final prospectus for the Company’s initial public offering, as2021, filed with the Securities and Exchange Commission (the “SEC”) pursuant to Rule 424(b) under the Securities Act of 1933,SEC on November 1, 2021 (“Final Prospectus”). In the opinion of management, the interim unaudited condensed financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the Company’s financial position for the periods presented. The results for the interim periods presented are not necessarily indicative of future results.April 11, 2022.

TheAll amounts shown in these financial statements and accompanying notes are presented in U.S. dollars (“USD”) or thousands, of USD.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, 2020,2021, included in the Company’s Final Prospectus.Annual Report on Form 10-K. There have been no significant changes to these policies during the ninethree months ended September 30, 2021, except as noted below.March 31, 2022.

Recently Issued Accounting PronouncementsUse of Estimates

In December 2019,The preparation of the FASB issued ASU 2019-12, Income Taxes (Topic 740), amending accounting guidancefinancial 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, simplify the accountingvaluation allowances for receivables and inventory, valuation of contingent consideration and warrant liabilities, valuation of intangible and other long-lived assets, product sales allowances and reserves, share-based payments and income taxes as part of its initiative to reduce complexityincluding deferred tax assets and liabilities. Estimates are based on historical experience and other assumptions that are considered appropriate in the accounting standards. The amendments eliminate certain exceptions related tocircumstances. They are continuously reviewed but may vary from the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The amendments also clarify and simplify other aspects of the accounting for income taxes. The Company adopted ASU 2019-12 on January 1, 2021. The adoption did not have a material impact on the Company’s financial statements and disclosures for the nine months ended September 30, 2021.actual values.

Recently Issued Accounting Pronouncements Not Yet Effective

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.

In June 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 our parent, Biofrontera AG through its fully owned subsidiary Maruho Deutschland GmbH.

The acquisition of Cutanea has enabled us to market Xepi^®, an FDA-approved drug that had been introduced in the US market in November 2018.

Biofrontera AG is our former parent, and currently a significant shareholder.

After the date of acquisition, we were entitled to restructure the business of Cutanea and be reimbursed by Maruho for these restructuring 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 in the period the amounts are determined in accordance with ASC 810. Refer to Note 15, Restructuring costs, for further detail.

Pursuant to the Share Purchase Agreement, Maruho agreed to provide $7.3million 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: (i) arecorded the $4.67.3 million intangible asset related to the Xepi^® license refer, (Refer to Note 9, Intangible Asset, net, for further detail) (ii)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 (iii)and $6.5 million of contingent consideration related to the estimated profits from the sale of Cutanea products to be shared equally with Maruho, (iv) a bargain purchase gain of $5.7 million due to the excess fair value of the net assets acquired over the cash consideration transferred, as well as (v) a favorable lease asset of $69,000 related to the leased properties. The total fair value of the consideration expected to be transferred from the Company to Maruho was the one US dollar purchase price and $6.5 million of contingent consideration related to the earn-out.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 start-up cost financing was determined to represent interest free financing arranged for the benefit of the Company and, as such, was excluded from the purchase consideration. 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.period utilizing a scenario-based method.

Acquisition contract liabilities, net consist of the following:

 Schedule of Acquisition ContactContract Liabilities

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 March 31, 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

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 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 Monte Carlo simulation model,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 and estimates:assumptions: (i) the forecasted product profit amount to be shared equally with Maruho,amounts, (ii) the remaining contractual term, (iii) a metric risk discount rate,premium, and (iv) a payment discount rate of 6.0%.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

Warrant Liability

Warrants issued in conjunction with the private placement to an institutional shareholder which closed on December 2, 2021 were accounted for as liabilities in accordance with ASC 815-40. Pre-funded common stock purchase warrants to purchase up to 1,507,143 shares of our common stock at a nominal exercise price (the “Pre-funded Warrants”) were exercised in 2021 and the common stock purchase warrants to purchase up to 2,857,143 shares of our common stock at an exercise price of $5.25 per share (the Purchase Warrants”) are presented within warrant liability in the accompanying 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 statements of operations.

The change inCompany utilizes a Black-Scholes option pricing model to estimate the fair value of the contingent considerationPurchase Warrants which is recordedconsidered a Level 3 fair value measurement. Certain inputs utilized in operating expensesour 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 statementscalculation of operations. Thefair 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 statements of operations.

The following table presents the contingent consideration increased $0.7 million and $1.7 million forchanges in the three and nine months ended September 30, 2021, respectively. Thewarrant liability measured at fair value (in thousands):

Schedule of the contingent consideration increased $0.1Changes in Fair Value Warrant Liabilities million and $0.2 million for the three and nine months ended September 30, 2020, respectively.

4. 5.Revenue

We generate revenue primarily through the sales of our licensed products Ameluz^®Ameluz®, BF-RhodoLED^®BF-RhodoLED® lamps and Xepi^®Xepi®. Revenue from the sales of our BF-RhodoLED^®BF-RhodoLED® lamp and Xepi^®Xepi® are relatively insignificant compared with the revenues generated through our sales of Ameluz^®Ameluz®.

Schedule of Revenue Sales of Products

We generated $4.3 million and $14.69.6 million of Ameluz^®Ameluz® revenue, de minimus amounts of Xepi^®$0.1 million Xepi® revenue, and $73,000 and $0.30.1 million of BF-RhodoLED^®BF-RhodoLED® lamps revenue during the three and nine months ended September 30, 2021, respectively.

During the three and nine months ended September 30, 2020, weMarch 31, 2022. We generated $3.1 million and $9.74.5 million of Ameluz^® Ameluz® revenue, $54,000minimal Xepi® revenue, and $0.2 million of Xepi^®BF-RhodoLED® lamps revenue and $86,000 and $0.3 million of BF-RhodoLED^® lamps.during the three months ended March 31, 2021.

Related party revenue relates to an agreement with Biofrontera Bioscience GmbH (“Bioscience”) for BF-RhodoLED^®BF-RhodoLED® leasing and installation service. Refer to Note 14,16, Related Party Transactions.

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

Schedule of Tabular Disclosure of Revenue Allowance and Accrual Activities

5.6. Accounts Receivable, net

Accounts receivable are mainly attributable to the sale of Ameluz^®, the BF-RhodoLED^® and Xepi^®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 $9,00060,000 and $40,00018,000 as of September 30,2021March 31, 2022 and December 31, 2020,2021, respectively.

6.7. Other Receivables, Related Party

The Company has recorded a receivable of $11.3 million due from Biofrontera AG for its 50% share of a legal settlement for which both parties are jointly and severally liable for the total settlement amount of $22.5 million. The Company has a contractual right to repayment of its share of the settlement payment from Biofrontera AG under the Settlement Allocation Agreement entered into on December 9, 2021 and 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. Of the total receivable $8.4 million is short-term and $2.8 million is long-term. As of May 11, Biofrontera AG has not paid the first reimbursement amount to the Company. We determined that the potential of Biofrontera AG to default on its obligation was less than probable. This is supported by the March 31, 2022 Amended Settlement Allocation Agreement between the Company and Biofrontera AG. The Amended 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 March 31, 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^®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. DuringThere was no provision for obsolescence recorded for the three and nine months ended September 30, 2021, weMarch 31, 2022. We recorded a provision of $(3,000)35,000 and $31,000 provision, respectively, for Xepi^® Xepi® inventory obsolescence. Duringobsolescence, for the three and nine months ended September 30, 2020, we recorded a $0.4 million and $0.4 million provision, respectively, for Xepi^® inventory obsolescence due to product expiring.March 31, 2021.

7. 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

8.10. Property and Equipment, Net

Property and equipment, net consists of the following:

Schedule of Property and Equipment

Depreciation expense iswas $26,000 and $33,000, for the three months ended March 31, 2022, and 2021, respectively, which was included in selling, general and administrative expense on the statements of operations. Depreciation expense was $29,000 and $95,000 for the three and nine months ended September 30, 2021, respectively. Depreciation expense was $36,000 and $109,000 for the three and nine months ended September 30, 2020, respectively.

9.11. Intangible Asset, Net

Intangible asset, net consists of the following:

Schedule of Intangible Asset Net

The Xepi^®Xepi® license intangible asset was recorded at acquisition-date fair value of $4.6million and is amortized on a straight-line basis over the useful life of 11years. Amortization expense is included in selling, general and administrative expense on the statements of operations. Amortization expense for the three and nine months ended September 30,March 31, 2022 and 2021 was $0.1 million and $0.3 million, respectively. Amortization expense for the three and nine months ended September 30, 2020 was $0.1 million and $0.3 million, respectively. The expected annual amortization expense for the next five years from 2021 to 2025 is $0.4 million each year.million.

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. As of March 31, 2020, given the impact to the global economy, as well as the Company’s operations, from the COVID-19 pandemic, the Company determined an interim impairment analysis was warranted for the Xepi^® license acquired in the Cutanea business combination. The Company evaluated the Xepi^® license for impairment using an undiscounted cash flow analysis and determined no impairment charge was necessary.

The Company did not recognize any intangible asset impairment charges during the three and nine months ended September 30, 2021March 31, 2022 or 2020.March 31, 2021.

10.12. 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 statements of cash flows:

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

11.13. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

Schedule of Accrued Expenses and Other Current Liabilities

12.14. Other Long-Term Liabilities

Other long-term liabilities consist of the following:

Schedule of Other Long Term Liabilities

13. Income Taxes

As part of Congress’s response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), was signed into United States law on March 27, 2020 and modifies certain provisions of the Tax Cuts and Jobs Act, enacted in 2017, with respect to net operating losses. Under the CARES Act, the limitation on the deduction of net operating losses to 15.80 Income Taxes% of annual taxable income is suspended for taxable years beginning before January 1, 2021. The CARES Act did not have a material impact on the financial statements due to our full valuation allowance position.

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.for the three-month periods ended March 31, 2022 and 2021. Income tax expense incurred for the three and nine months ended September 30,March 31, 2022 and 2021 and 2020 relates to state income taxes. At March 31, 2022 and December 31, 2021, the Company had no unrecognized tax benefits.

At September 30, 2021The Company continues to be in a cumulative loss position and December 31, 2020, the Company had 0 unrecognized tax benefits.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 statements of operations. As of September 30,2021,March 31, 2022, and December 31, 2020,2021, the Company has 0no 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.

14. 16. Related Party Transactions

License and Supply Agreement

On July 15,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. Refer to Note 21 Subsequent Events, for amendment to license and supply agreement dated October 8, 2021.

Purchases of the licensed products during the three and nine months ended September 30,March 31, 2022 and 2021 were $1.0 5.2million and $5.7 3.0million, respectively, and recorded in inventories in the balance sheets, and, when sold, in cost of revenues, related party in the statements of operations. Purchases of the licensed products during the three and nine months ended September 30, 2020 were $0.3 million and $5.6 million. Amounts due and payable to Pharma as of September 30, 2021March 31, 2022 and December 31, 20202021 were $1.3 0.3 million and $0.3million, respectively, which were recorded in accounts payable, related parties in the balance sheets.

Loan Agreement

On June 19, 2015, the Company entered into a 6% interest bearing revolving loan agreement with Biofrontera AG, the Company’s parent. Interest was accrued and paid quarterly over the life of the loan. As of September 30, 2021 and December 31,2020, there was 0 loan principal balance outstanding. There was 0 interest expense recognized for the three or nine months ended September 30, 2021. Interest expense for the three and nine months ended September 30, 2020 was $0.7 million and $1.9 million, respectively.

On December 31, 2020, the Company agreed to convert the outstanding principal balance of the revolving debt of $47.0 million into an aggregate of 7,999,000 shares of common stock at a price of $5.875 per share, for an aggregate gross capital contribution of $47.0 million.

On March 31, 2021, the Company entered into the Second Intercompany Revolving Loan Agreement with Biofrontera AG for $20.0 million of committed sources of funds. The revolving loan bears an annual interest rate of 6.0% and will terminate on the second anniversary of the date of this loan agreement, March 31, 2023 (the “termination date”). The outstanding principal and interest balance of all advances shall be due and payable on the termination date. In the event of a change in control of the Company at any point prior to the termination date, Biofrontera AG’s obligation to make advances to the Company shall be discharged immediately upon the effective date of the change of control; and all outstanding obligations of the Company must be paid back in full within twelve months of the effective date of the change of control. Biofrontera AG may require the Company to pay all outstanding obligations at any time on or after the date that is ten calendar days following the closing of a transaction that reduces the voting rights of the Company in Biofrontera AG to less than 100%. As of September 30, 2021, the Company has not drawn upon the Second Intercompany Revolving Loan Agreement.

Service Agreements

On January 1, 2016, the Company executed an intercompany service agreement with Biofrontera AG. Under the agreement, the Company receives services which include accounting consolidation, information technology support, and pharmacovigilance services.

On July 2,In December 2021, we entered into a new intercompany services agreement (“2021an Amended and Restated Master Contract Services Agreement”)Agreement, or Services Agreement, which provides for the execution of statements of work that will supersedereplace the applicable provisions of theour previous intercompany services agreement dated January 1, 2016, or 2016 Services Agreement. The 2021 Services Agreement, enablesby and among us, Biofrontera AG, Biofrontera Pharma and Biofrontera Bioscience, enabling us to continue relying onto use the IT resources of Biofrontera AG and its wholly owned subsidiaries for various services it has historically provided(the “Biofrontera Group”) as well as providing access to us, including information technologythe Biofrontera Group’s resources with respect to quality management, regulatory affairs and pharmacovigilance support. Under the 2021 Services Agreementmedical affairs. If we have agreeddeem that the applicable provisions relatedBiofrontera Group should continue to reimbursement and allocation of expenses in the 2016 Services Agreementprovide these services, we will remain in effect until we execute a statement of work under the 2021 Services Agreement that supersedeswith respect to such provisions.services. 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 0.1 millionmillion and $0.50.2 million for the three and nine months ended September 30,March 31, 2022 and 2021, respectively, and $0.1 million and $0.4 million for the three and nine months ended September 30, 2020, respectively which were recorded in selling, general and administrative, related party. Management asserts that these expenses represent a reasonable allocation fromThere were no amounts due to Biofrontera AG.AG related to the service agreement as of March 31, 2022. Amounts due to Biofrontera AG related to the service agreement were $0.30.2 million and $0.3million as of September 30, 2021 and December 31, 2020, respectively,2021 which were recorded in accounts payable, related parties in the balance sheets.

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 agreementsagreement was approximately $15,000and $16,000 13,000for the three months ended September 30,March 31, 2022 and 2021, and 2020, respectively and recorded as revenues, related party. Total revenue related to the clinical lamp lease agreements was approximately $42,000 and $47,000 for the nine months ended September 30, 2021 and 2020, respectively. Amounts due from Bioscience for clinical lamp and reimbursementother reimbursements were approximately $37,000 99,000and $73,000 92,000as of September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively, which were recorded as accounts receivable,other receivables, related partiesparty in the balance sheets.