Biofrontera Inc.: Form 10-Q for the period ended Jun 30, 2025

Management’s discussion and analysis (“MD&A”) provides supplemental information, which sets forth the major factors that have affected our financial condition and results of operations and should be read in conjunction with the Condensed Consolidated Financial Statements and related notes. The following information should provide a better understanding of the major factors and trends that affect our earnings performance and financial condition, and how our performance during the first and second quarters of 2025 compare with prior-year periods. Throughout this section, Biofrontera Inc., including its wholly owned subsidiary, Biofrontera Discovery GmbH (“Discovery” or “subsidiary”), is referred to as “Company,” “we,” “us,” or “our.” References to “Licensors” refer collectively to Biofrontera Pharma, Biofrontera Bioscience and Ferrer. References to “Ameluz Licensor” refer collectively to Biofrontera Pharma and Biofrontera Bioscience.

Forward-Looking Statements

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

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

• our ability to achieve and sustain profitability;
• our ability to compete effectively in selling our licensed products;
• our ability to expand, manage and maintain our direct sales and marketing organizations, including our ability to obtain the financing to develop our marketing strategy, if needed;
• changes in our relationship with our Licensors;
• our Licensors’ ability to manufacture our licensed products;
• our Licensors’ ability to adequately protect their intellectual property and operate their business without infringing upon the intellectual property rights of others;
• our estimates regarding anticipated operating losses, future revenues, capital requirements and our needs for additional financing;
• market risks regarding consolidation and group purchasing organizations in the healthcare industry;
• the willingness of healthcare providers to purchase our licensed products if coverage, reimbursement and pricing from third-party payors for our products, or procedures using our products significantly declines;
• our ability to market, commercialize, achieve market acceptance for and sell our licensed products;
• any product quality issues, product defects, or product liability claims;
• our ability to comply with The Nasdaq Stock Market, LLC (“Nasdaq”) continued listing standards (discussed in more detail below);
• our ability to comply with the requirements of being a public company;
• the progress, timing and completion of research, development and preclinical studies and clinical trials for our licensed products;
• our Licensors’ ability to obtain and maintain the regulatory approvals necessary for the marketing of our licensed products in the United States, and;
• such other risks identified in Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 (as filed with the Securities and Exchange Commission (“SEC”) on March 20, 2025, the “Form 10-K”), Item 1A of Part II of this Quarterly Report on Form 10-Q and any other filings with the SEC.

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

Overview

Biofrontera Inc. (the “Company” or “Biofrontera”) is a United States based biopharmaceutical company commercializing a portfolio of pharmaceutical products for the treatment of dermatological conditions with a focus on photodynamic therapy (“PDT”). The Company’s primary licensed products, which include Ameluz® as well as the BF-RhodoLED® and RhodoLED®XL lamps (the “RhodoLED® Lamps”), are used for the treatment of actinic keratoses, which are pre-cancerous skin lesions. With our national commercial team, we generate revenue by selling our licensed products directly to dermatology offices and groups.

We are currently selling Ameluz® in the United States under an exclusive license and supply agreement, the Second Amended and Restated License and Supply Agreement, effective as of February 13, 2024 with the Ameluz Licensor (the “Second A&R Ameluz LSA”). The Second A&R Ameluz LSA reduced the price we pay per unit, based on certain percentages of the anticipated net selling price (“Transfer Price”) of Ameluz® from 50% to 25% which covers the cost of goods, royalties on sales, and services including all regulatory efforts, agency fees, pharmacovigilance and patent administration for all purchases in 2024 and 2025. Starting on January 1, 2026, until 2032 there will be stepwise increases in the Transfer Price from 25% to 35% for sales related to actinic keratosis and, if approved by the FDA, basal cell carcinoma and squamous cell carcinoma. The Transfer Price for sales related to acne, another indication currently in development, will remain at 25% indefinitely.

Effective June 1, 2024, we assumed control of all clinical trials relating to Ameluz® in the United States, allowing for more effective cost management and direct oversight of trial efficiency. Our research and development (“R&D”) program is focused on label expansion for Ameluz® as well as supporting PDT growth by improving the capabilities of our RhodoLED® Lamps to better fulfill the needs of dermatologists. The reduced Transfer Price is expected to allow the Company to finance such R&D activities and continue our commercial growth trajectory.

In the third quarter of 2024, the Company reached the decision to divest its Xepi product line and the related intangible asset is currently held for sale. Xepi® (ozenoxacin cream, 1%), is a topical non-fluorinated quinolone that inhibits bacterial growth. Currently, no antibiotic resistance against Xepi® is known and it has been specifically approved by the FDA for the treatment of impetigo, a common skin infection, due to Staphylococcus aureus or Streptococcus pyogenes. Our exclusive license and supply agreement with Ferrer Internacional S.A. (“Ferrer”) enables us to market and sell this product in the United Sates. However, the Company has not had sales of Xepi since 2023 due to third-party manufacturing delays that have impacted our commercialization of the product. Ferrer is now in the process of qualifying a new contract manufacturer. If the new contract manufacturer is qualified, we believe that it will be able to supply enough of the Xepi® product line to meet market demand for as long as we maintain it. Nevertheless, the Company is working with a potential purchaser and expects to complete a sale of the asset within the next three months. The related intangible asset is presented as held for sale under current assets in the consolidated balance sheets. See Note 8. Asset Held for Sale, for additional information.

Our Strategy

Our principal objective is to improve patient outcomes through adoption and use of our licensed products in the United States. The key elements of our strategy include the following:

• expanding our sales in the United States of Ameluz® in combination with the RhodoLED® Lamps for the treatment of minimally to moderately thick actinic keratoses of the face and scalp and positioning Ameluz® to be the standard of care in the United States by focusing on acquisition of new customers and growth of the therapy in our current customer base;
• leveraging the potential for future approvals and label extensions of our licensed portfolio products that are in the pipeline for the United States market with respect to Ameluz® and furthering the clinical development of this product after taking over responsibility for certain ongoing clinical trials since June 1, 2024, pursuant to the Second A&R Ameluz LSA; and
• strategically managing our licensed portfolio, including opportunistically adding complementary products or services to our portfolio by acquiring or licensing IP to further leverage our commercial infrastructure and customer relationships.

By executing these strategic objectives, we will fuel company growth, deepen our trusted relationships in the dermatology community, and above all, help patients live healthier, more fulfilling lives.

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

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

Recent Key Developments

Compliance with Nasdaq Listing Standards

On May 8, 2025, the Company received a letter from Nasdaq notifying the Company that the listing of the Common Stock was not in compliance with Nasdaq Listing Rule 5550(a)(2) as the closing bid price of the Common Stock was less than $1.00 per share for the previous 33 consecutive business days.

The notice has no present impact on the listing or trading of the Company’s securities on The Nasdaq Capital Market. Under Nasdaq Listing Rule 5810(c)(3)(A), the Company has a period of 180 calendar days, or until November 5, 2025, to regain compliance with the rule referred to in this paragraph. To regain compliance, during this 180-day compliance period, the closing bid price of the Company’s common stock must be at least $1.00 per share for a minimum of 10 consecutive business days.

In the event that the Company does not regain compliance with the Nasdaq Listing Rules prior to the expiration of the 180-day compliance period ending on November 5, 2025, the Company may be eligible for additional time to regain compliance pursuant to Nasdaq Listing Rule 5810(c)(3)(A)(ii) by meeting the continued listing requirement for market value of publicly held shares and all other applicable standards for initial listing on The Nasdaq Capital Market, with the exception of the minimum bid price requirement, and providing written notice to Nasdaq of its intention to cure the deficiency during the second compliance period, by effecting a reverse stock split, if necessary. Should the Nasdaq staff conclude that the Company will not be able to cure the deficiency, or if the Company does not meet other listing standards, Nasdaq could provide notice that the Company’s securities will be subject to delisting. At such time, the Company may appeal the delisting determination to a Hearings Panel.

The Company intends to actively monitor the closing bid price of its common stock and, as appropriate, will consider available options to resolve the deficiency and regain compliance with the Nasdaq Listing Rules. There can be no assurance that the Company will be able to regain compliance with Rule 5550(a)(2) or maintain compliance with the other listing requirements of the Nasdaq Capital Market.

On May 21, 2025, the Company received a letter (the “Notice”) from Nasdaq notifying the Company that, because the Company’s stockholders’ equity as reported in its Quarterly Report on Form 10-Q for the period ended March 31, 2025 was $0.5 million, the Company is no longer in compliance with the continued listing requirement under Nasdaq Listing Rule 5550(b)(1), which requires that a listed company’s stockholders’ equity be at least $2.5 million. Additionally, as of the date of the Notice or as of June 30, 2025, the Company did not meet either of the alternative requirements of maintaining a market value of listed securities of $35 million or achieving a net income from continuing operations of $0.5 million in the most recently completed fiscal year or in two of the last three most recently completed fiscal years. As a result, as of the date of this Report, the Company does not satisfy Nasdaq Marketplace Rule 5550(b).

The Notice has no immediate effect on the listing or trading of the Company’s securities on the Nasdaq Capital Market. The Company submitted a plan to regain compliance with the Nasdaq Listing Rule 5550(b)(1) to Nasdaq and on July 24, 2025 was granted an extension of time to regain compliance with this rule on or before October 10, 2025.

If, for any reason, Nasdaq should delist our common stock from trading on its exchange and we are unable to obtain listing on another reputable national securities exchange, a reduction in some or all of the following may occur, each of which could materially adversely affect our stockholders:

• the liquidity and marketability of our common stock and/or publicly-traded warrants;
• the market price of our common stock;
• our ability to obtain financing for the continuation of our operations;
• the number of institutional and general investors that will consider investing in our common stock;
• the number of market makers in our common stock;
• the availability of information concerning the trading prices and volume of our common stock; and
• the number of broker-dealers willing to execute trades in shares of our common stock.

In addition, if we fail to regain compliance to be eligible to trade on Nasdaq or obtain listing on another reputable national securities exchange, we may have to pursue trading on a less recognized or accepted market, such as the over the counter markets, our stock may be traded as a “penny stock” which would make transactions in our stock more difficult and cumbersome, and we may be unable to access capital on favorable terms or at all, as companies trading on alternative markets may be viewed as less attractive investments with higher associated risks, such that existing or prospective institutional investors may be less interested in, or prohibited from, investing in our common stock. This may also cause the market price of our common stock to further decline.

Strategic Transaction with Biofrontera AG

On June 30, 2025, the Company signed a binding agreement (the “Term Sheet”) with its former parent company Biofrontera AG, Biofrontera Pharma, and Biofrontera Bioscience (together, the “Biofrontera Group”) pursuant to which the Company will acquire all rights in the United States (the “U.S. Rights”) to Ameluz® and RhodoLED® (the “Strategic Transaction”). In connection with the Strategic Transaction, additional agreements are to be executed, and the transfer of the U.S. Rights is expected to be completed by September 30, 2025. Under the Term Sheet, and continuing once the U.S. Rights are transferred, the Company will pay a royalty of 12% (and 15% in years where Ameluz® revenue in the United States exceeds $65.0 million). The royalty will replace the transfer pricing model under the Company’s Second A&R Ameluz LSA effective as of February 13, 2024 by and among the Company, and the Biofrontera Group. See Note 12. Related Party Transactions for additional information.

In exchange for the U.S. Rights, in addition to the aforementioned royalty and an agreement to transfer all costs associated with the U.S. business, Biofrontera AG will receive 3,019 shares of Series D Convertible Preferred Stock, par value $0.001 per share. See Note 12. Related Party Transactions, Note 18. Commitments and Contingencies and Note 20. Subsequent Events for additional information.

Pursuant to the Certificate of Designation of Preferences, Rights and Limitations of the Series D Convertible Preferred Stock (the “Series D Certificate of Designation”), each share of Series D Convertible Preferred Stock is, subject to certain limitations specified in the Series D Certification of Designation, immediately convertible at the option of the holders thereof into shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) and has voting rights on an as-converted basis. There were no shares of Series D Convertible Preferred Stock issued as of June 30, 2025. See Note 18. Subsequent Events for additional information.

Private Placement of Series C Preferred Stock

On June 27, 2025, as a condition to the Strategic Transaction, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain accredited investors to issue and sell, in a private placement, up to 11,000 shares of Series C Convertible Preferred Stock, par value $0.001 per share (the “Series C Preferred Stock”) at a price of $1,000 per share for an aggregate offering price of $11.0 million. The Series C Preferred Stock offering consisted of two tranches with the first tranche closing on July 1, 2025. Gross proceeds of $8.5 million from the first tranche were received on June 30, 2025, in advance of the first tranche closing (before deducting estimated offering expenses payable by the Company). The second tranche is expected to close after the Company enters into definitive documentation to consummate the Strategic Transaction, which is expected to occur on or before September 30, 2025. The gross proceeds from the second tranche are expected to be $2.5 million, before deducting estimated offering expenses payable by the Company. The Company intends to use the net proceeds from the Series C Preferred Stock offering to fund the acquisition and transfer costs associated with the Strategic Transaction and other general corporate purposes. See Note 9. Advance from Stockholders for additional information.

Geopolitical Uncertainty and Tariffs

Recent actions by the U.S., including the imposition of significant tariffs on imports from certain countries, have heightened uncertainty in the global trade environment. These tariffs, along with potential retaliatory measures by other countries, may increase inflationary pressure and raise the costs of our products, which are exclusively imported from Europe. While several tariff announcements have been followed by announcements of limited exemptions and temporary pauses, these actions have caused substantial uncertainty and volatility in financial markets, and may result in further retaliatory measures. We may be unable to fully offset the impacts of tariffs by adjusting the pricing of our products.

Key factor affecting our performance

Our historical results of operations may not be comparable to our results of operations in future periods, and our results of operations may not be directly comparable from period to period due to seasonality.

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

Components of Our Results of Operations

Product Revenues, Net

We generate product revenues through the third-party sales of our licensed products, Ameluz® and RhodoLED® Lamps. Revenues from product sales are recorded net of trade discounts and allowances and government rebates.

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

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

Revenues, Related Party

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

Cost of Revenues, Related Party

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

Cost of Revenues, Other

Cost of revenues, other, is comprised of third-party logistics and distribution costs including packaging, freight, transportation, shipping and handling costs.

Selling, General and Administrative Expense

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

Selling, General and Administrative Expenses, Related Party

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

Research and Development

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

Change in Fair Value of Warrant Liabilities

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

Change in Fair Value of Investment, Related Party

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

Loss on Debt Extinguishment

Effective January 4, 2024, we voluntarily terminated the Loan and Security Agreement with MidCap Business Credit LLC, for our revolving line of credit and recognized a $0.3 million loss on debt extinguishment upon the early termination related to prepayment fees and the write-off of deferred financing costs.

Interest Expense, Net

Interest expense, net, primarily consists of interest on our convertible notes and short-term debt, including amortization of deferred costs.

Other Income (Expense), Net

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

Income Taxes

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

Results of Operations

Comparison of the Three Months ended June 30, 2025 and 2024

The following table summarizes our results of operations for the three months ended June 30:

(in thousands)

Product Revenue, net

Net product revenue for the three months ended June 30, 2025 increased by $1.2 million, or 15.3% as compared to the three months ended June 30, 2024. This increase was driven by both a 5% higher unit sale price and 9.5% increase in sales volume of Ameluz® in the second quarter of 2025. The higher sales volume of Ameluz® was due to improvements in direct sales team efficiency.

Operating Expenses

Cost of Revenues, Related Party

Cost of revenues, related party for the three months ended June 30, 2025 decreased by $1.7 million, or 41.8% as compared to the three months ended June 30, 2024. This was primarily due to the reduced cost structure under the Second A&R Ameluz LSA. See Note 12. Related Party Transactions.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended June 30, 2025 increased by $2.6 million, or 33.0% as compared to the three months ended June 30, 2024. The increase was primarily driven by a $3.4 million increase in legal costs due to patent claims, which was partially offset by $0.5 million in personnel savings within both the direct sales team and general and administrative staff due to headcount fluctuation, and $0.3 million decrease in miscellaneous general and administrative expenses.

Research and Development Expenses

R&D expenses for the three months ended June 30, 2025 increased by $0.2 million as compared to the three months ended June 30, 2024. The increase was attributable to our assumption of all clinical trial activities for Ameluz® in the United States effective June 1, 2024, allowing for more effective cost management and direct oversight of trial efficiency. The following table summarizes our R&D expenses by indication:

Change in Fair Value of Warrant Liabilities

The change in fair value of warrant liabilities was $0.2 million for the three months ended June 30, 2025, as compared to $5.4 million for the three months ended June 30, 2024. The change in fair value of warrant liabilities was driven primarily by a mix of a decreased population of outstanding warrant liabilities due to exercise of warrants for preferred shares in May 2024 (of the 2024 change, $4.3 million was attributable to the warrants for preferred stock), coupled with a drop in the underlying value of the Company’s Common Stock during the second quarter of 2025 as compared to the second quarter of 2024.

Interest expense, net

Interest expense decreased by $0.5 million due to the lower interest rate applicable to the outstanding convertible notes of $4.2 million issued by the Company in November 2024, as compared to the interest rate applicable to the Company’s $4.0 million term loan that matured on July 5, 2024.

Comparison of the Six Months ended June 30, 2025 and 2024

The following table summarizes our results of operations for the six months ended June 30:

(in thousands)

Product Revenues, Net

Net product revenue for the six months ended June 30, 2025 increased by $1.9 million, or 12.0% as compared to the six months ended June 30, 2024. This increase was driven by a higher unit sales price contributing $0.6 million and increased sales volume of Ameluz® contributing $1.0 million, as well as a $0.3 million increase in sales of the RhodoLED® Lamps. The higher sales volume of Ameluz® was due to improvements in direct sales team efficiency.

Operating Expenses

Cost of Revenues, Related Party

Cost of revenues, related party for the six months ended June 30, 2025 decreased by $2.6 million, or 32.1% as compared to the six months ended June 30, 2024. This was driven by the reduced cost structure under the Second A&R Ameluz LSA.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the six months ended June 30, 2025 increased by $2.0 million, or 11.8% as compared to the six months ended June 30, 2024. The increase was primarily attributable to a $4.4 million increase in legal expenses driven by patent claim related legal costs. The increased legal expenses were partially offset by savings in personnel expenses of $0.9 million due to headcount fluctuations in our direct sales and administrative teams, as well as a decrease of $0.5 million in expenses relating to sales support functions and a decrease of $0.4 million in issuance costs.

Research and Development Expenses

R&D expenses for the six months ended June 30, 2025 increased by $1.4 million as compared to the six months ended June 30, 2024. The increase was attributable to our assumption of all clinical trial activities for Ameluz® in the United States effective June 1, 2024. The following table summarizes our research and development expenses by indication:

Change in Fair Value of Warrant Liabilities

The change in fair value of warrant liabilities was $0.7 million for the six months ended June 30, 2025, as compared to $2.0 million for the six months ended June 30, 2024. The change in fair value of warrant liabilities was driven by a decrease in the underlying value of the Company’s Common Stock for each of the six months ended June 30, 2025 and June 30, 2024.

Interest expense, net

Interest expense decreased by $1.8 million due to the decrease in the interest rate applicable to the outstanding convertible notes of $4.2 million issued in November of 2024, compared to the $4.0 million term loan that matured on July 5, 2024 .

Net Loss to Adjusted EBITDA Reconciliation for the Three and Six Months Ended June 30, 2025 and 2024

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

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

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

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

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

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

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

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

The below table presents a reconciliation from net loss to Adjusted EBITDA for the three and six months ended June 30, 2025 and 2024:

Adjusted EBITDA

Adjusted EBITDA decreased $0.4 million from ($4.7) million for the three months ended June 30, 2024 to ($5.1) million for the three months ended June 30, 2025. This is the result of the increases in selling, general and administrative expenses and research and development expenses, which were partially offset by the increase in gross profit.

Adjusted EBITDA for the six months ended June 30, 2025 decreased $0.2 million from ($9.3) million for the six months ended June 30, 2024 to ($9.5) million for the six months ended June 30, 2025. This decrease is mainly due to the increase in legal expense, partially offset by savings in other selling, general and administrative expenses and the increase in gross profit, including the sales revenue increase of $1.9 million and cost of revenue decrease of $2.6 million.

Liquidity and Capital Resources

These consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) assuming the Company will continue as a going concern. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

Since we commenced operations in 2015, we have generated significant losses. The Company incurred net cash outflows from operations of $7.2 million and $8.0 million for the six months ended June 30, 2025 and 2024, respectively. The Company had an accumulated deficit as of June 30, 2025 of $126.9 million. The Company’s primary sources of liquidity are its cash collected from the sales of its products, and cash flows from financing transactions, including $8.5 million received in a private placement of Series C Preferred Stock, with a second tranche to be received on or before September 30, 2025. As of June 30, 2025, we had cash and cash equivalents of $7.2 million, compared to $5.9 million as of December 31, 2024. However, substantial doubt exists about the Company’s ability to continue as a going concern for a period of at least twelve months from the issuance date of this report.

The Company plans to address the conditions that raise substantial doubt regarding its ability to continue as a going concern by, among other things, utilizing external financing options, including a short-term line of credit, as well as finalizing the sale of its Xepi product line within the next one to three months. However, there can be no assurance that the Company will be successful in obtaining sufficient funding on acceptable terms, if at all, or close the Xepi disposition as intended. If the Company is unable to raise additional capital when needed, it will not have sufficient cash resources and liquidity to fund its business operations and may be forced to delay or reduce continued commercialization efforts or R&D programs, which could have a material adverse effect on the Company and its financial statements.

The consolidated financial statements do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if the Company were unable to continue as a going concern.

Cash Flows

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

(in thousands)

Operating Activities

During the six months ended June 30, 2025, operating activities used $7.2 million of cash, primarily resulting from our loss from operations of $9.5 million, adjusted for non-cash expense of stock-based compensation of $0.4 million, depreciation and amortization in the aggregate of $0.4 million, non-cash interest expense of $0.2 million, and net cash used by changes in our operating assets and liabilities of $2.0 million, partially offset by the change in fair value of warrant liabilities of $0.7 million.

During the six months ended June 30, 2024, operating activities used $8.0 million of cash, primarily resulting from our loss from operations of $10.7 million, adjusted for non-cash expense of stock-based compensation of $0.4 million, non-cash interest expense of $0.2 million, loss on debt extinguishment of $0.3 million, depreciation and amortization in the aggregate of $0.6 million, and net cash used by changes in our operating assets and liabilities of $3.0 million, partially offset by the change in fair value of warrant liabilities of $2.0 million.

Investing Activities

During the six months ended June 30, 2025, net cash used in investing activities consisted of negligible fixed asset purchases.

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

Financing Activities

During the six months ended June 30, 2025, net cash from financing activities consisted of an advance from certain stockholders in accordance with a securities purchase agreement dated June 27, 2025, for the issuance of Series C Preferred Stock, which was not issued until July 1, 2025. On July 1, 2025, upon issuance of the Series C Preferred Stock, the advance from stockholders was settled and reclassed to mezzanine equity. See Note 13. Stockholders’ Equity, for additional details.

During the six months ended June 30, 2024, net cash from financing activities consisted of proceeds of $7.7 million, net of capitalized issuance costs, from the issuance of preferred stock and warrants, and $7.4 million from the exercise of warrants for preferred stock, partially offset by repayments of $3.7 million on our short-term loan, repayments of $0.2 million on our line of credit and prepayment fees of $0.2 million to extinguish our line of credit. See Note 11 Debt.

Accounting Policies and Significant Judgments and Estimates

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

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

Critical Accounting Estimates

A summary of our critical accounting estimates is discussed in the section entitled “Critical Accounting Estimates” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K. There were no material changes to our critical accounting estimates for the six months ended June 30, 2025.

Off-balance Sheet Arrangements

Other than those items reflected in Note 18. Commitments and Contingencies we did not have during the periods presented, and we do not currently have, any other off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Emerging Growth Company Status

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

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2025, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the most recent fiscal quarter ended June 30, 2025 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act).