What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-13 compared with 2021-11-30 · 370 added, 523 removed, 113 unchanged (89% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and

analysis of our financial condition and results of operations together with our financial statements and related notes included in Part

I, Item 1 of this Quarterly Report on Form 10-Q and our final prospectus for our initial public offering (“IPO”) filed

with the Securities and Exchange Commission (the “SEC”) pursuant to Rule 424(b)

under the Securities Act of 1933on November 1, 2021 (“Final Prospectus”) .

Some of the information contained

in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our

plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties.

As a result of many factors, including those factors set forth in the “Risk Factors” section in our Final Prospectus,

actual results may differ materially from our forward-looking statements.

Forward-Looking

1 unchanged sentence

Certain statements

in this Quarterly Report on Form 10-Q constitute “forward-looking statements”.

Such statements include statements regarding

the efficacy and intended use of our technologies under development, the timelines and strategy for bringing such products to market,

the timeline for regulatory review and approval of our products, the availability of funding sources for continued development of such

products, and other statements that are not historical facts, including statements which may be preceded by the words “intends,”

“may,” “will,” “plans,” “expects,” “anticipates,” “projects,”

“predicts,” “estimates,” “aims,” “believes,” “hopes,” “potential”

or similar words.

Forward-looking statements are not guaranties of future performance, are based on certain assumptions and are subject

to various known and unknown risks and uncertainties, many of which are beyond our control.

Actual results may differ materially from

the expectations contained in the forward-looking statements.

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

our sole source of revenue is from sales of products we license from other companies.

If we fail to comply with our obligations in

the agreements under which we license rights from such third parties, or if the license agreements are terminated for other reasons,

we could lose license rights that are important to our business.

important patents for our licensed product Ameluz® expired in 2019.

Although the process of developing generic topical dermatological

products for the first time presents specific challenges that may deter potential generic competitors, generic versions of Ameluz®

may enter the market following the recent expiration of these patents.

If this happens, we may need to reduce the price of Ameluz®

significantly and may lose significant market share.

business depends substantially on the success of our principal licensed product Ameluz®.

If the Biofrontera Group is unable to

successfully obtain and maintain regulatory approvals or reimbursement for Ameluz® for existing and additional indications, our

business may be materially harmed.

Biofrontera Group currently depends on a single unaffiliated contract manufacturer to manufacture Ameluz® and has recently contracted

with a second unaffiliated contract manufacturer to begin producing Ameluz®.

If the Biofrontera Group fails to maintain its relationships

with these manufacturers or if both of these manufacturers are unable to produce product for the Biofrontera Group, our business

could be materially harmed.

our licensors or our licensors’ manufacturing partners, as applicable, fail to manufacture Ameluz®, BF-RhodoLED® lamps,

Xepi® or other marketed products in sufficient quantities and at acceptable quality and cost levels, or to fully comply with

current good manufacturing practice, or cGMP, or other applicable manufacturing regulations, we may face a bar to, or delays in,

the commercialization of the products under license to us or we will be unable to meet market demand, and lose potential revenues.

Biofrontera Group is currently involved in lawsuits to defend or enforce patents related to our licensed products and they or another

licensor may become involved in similar suits in the future, which could be expensive, time-consuming and result in an adverse outcome.

COVID-19 global pandemic has negatively affected our sales and operations and may continue to do so.

are fully dependent on our collaboration with the Biofrontera Group for our supply of Ameluz® and BF-RhodoLED® lamps and

future development of the Ameluz® product line and on our collaboration with Ferrer for our supply of Xepi® and future development

of Xepi® and may depend on the Biofrontera Group, Ferrer or additional third parties for the supply, development and commercialization

of future licensed products or product candidates.

Although we have the authority under the Ameluz LSA with respect to the indications

that the Biofrontera Group is currently pursuing with the FDA (as well as certain other clinical studies identified in the Corrected

Amendment to the Ameluz LSA) to take over clinical development, regulatory work and manufacturing from the Biofrontera Group under

certain circumstances if they are unable or unwilling to perform these functions appropriately, the sourcing and manufacture of our

licensed products as well as the regulatory approvals and clinical trials related to our licensed products are currently controlled,

and will likely continue to be controlled for the foreseeable future, by our existing and future collaborators.

Our lack of control

over some of these functions could adversely affect our ability to implement our strategy for the commercialization of our licensed

are involved in significant litigation, along with the Biofrontera Group, which has consumed and may continue to consume significant

resources and management time, and adverse resolution of this litigation could require us to pay significant damages and possibly

prevent us from selling certain of our licensed products, which would severely and materially adversely impact our business, prospects,

financial condition or results of operations.

coverage and medical expense reimbursement may be limited or unavailable in certain market segments for our licensed products, which

could make it difficult for us to sell our licensed products.

legislative changes may have a material adverse effect on our business and results of operations.

face significant competition from other pharmaceutical and medical device companies and our operating results will suffer if we fail

to compete effectively.

We also must compete with existing treatments, such as simple curettage and cryotherapy, which do not involve

the use of a drug but have gained significant market acceptance.

have a history of operating losses and anticipate that we will continue to incur operating losses in the future and may never sustain

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 such licensed products to market, the timeline for regulatory review and approval

of our licensed products, and other statements that are not historical facts, including statements which may be preceded by the words

“intends,” “may,” “will,” “plans,” “expects,” “anticipates,”

“projects,” “predicts,” “estimates,” “aims,” “believes,” “hopes,”

“potential” or similar words.

Forward-looking statements are not guaranties of future performance, are based on certain assumptions

and are subject to various known and unknown risks and uncertainties, many of which are beyond our control.

Actual results may differ

materially from the expectations contained in the forward-looking statements.

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

our reliance on sales of

products we license from other companies as our sole source of revenue;

the success of our competitors

in developing generic topical dermatological products that successfully compete with our licensed products;

the success of our principal

licensed product Ameluz ® ;

ability of Biofrontera Pharma, Biofrontera Bioscience and Ferrer Internacional S.A.

referred to collectively as our (“licensors”) to establish and maintain relationships with contract manufacturers

that are able to supply us with enough of the licensed products to meet our demand;

the ability of our licensors

or our licensors’ manufacturing partners, as applicable, to supply Ameluz®, BF-RhodoLED® lamps, Xepi® or other

licensed products that we market in sufficient quantities and at acceptable quality and cost levels, and to fully comply with current

good manufacturing practice or other applicable manufacturing regulations;

the ability of our licensors

to successfully defend or enforce patents related to our licensed products;

the effect of the COVID-19

global pandemic, including mitigation efforts and economic effects;

the availability of insurance

coverage and medical expense reimbursement for our licensed products;

the impact of legislative

and regulatory changes;

competition from other

pharmaceutical and medical device companies and existing treatments, such as simple curettage and cryotherapy;

our success in achieving

profitability;

we fail to obtain additional financing, we may be unable to complete the commercialization of Xepi® and other products we may

Lübbert currently serves as Chairman of the management board and CEO of our parent and significant shareholder, Biofrontera

AG, and, as a result, has and may continue to have, statutory, fiduciary and other duties to Biofrontera AG causing conflicts of

interest with respect to his duties to us and his duties to Biofrontera AG and in determining how to devote himself to our affairs

and the affairs of Biofrontera AG.

have identified a material weakness in our internal control over financial reporting, resulting from a control deficiency related

to the oversight of third-party service providers.

If we are unable to remediate this material weakness, or if we identify additional

material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately

or timely report our financial condition or results of operations, which may adversely affect our business and stock price.

AG is our significant shareholder and is able to exert significant

control over matters subject to stockholder approval and its interests may conflict with ours or yours in the future.

continue to be a “controlled company” within the meaning

of Nasdaq listing standards, and as a controlled company we qualify for exemptions from certain corporate governance requirements.

our ability to obtain additional

financing as needed to implement our growth strategy.

our success in remediating

material weaknesses in our internal control over financial reporting and in establishing adequate internal controls over financial

our ability to retain and

recruit key personnel;

our success in making the

transition to operate as a public company;

other risks identified in Item 1A.

Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021

and any other filings with the SEC.

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 Final Prospectus.

urge investors and security holders to read those documents free of charge at the SEC’s web site at www.sec.gov.

We do not undertake

to publicly update or revise our forward-looking statements as a result of new information, future events or otherwise, except as required

statements in this Quarterly Report on Form 10-Q, is set forth in our filings with the SEC, including our Annual Report on Form 10-K

for the fiscal year ended December 31, 2021.

We urge investors and security holders to read those documents free of charge at the SEC’s

web site at www.sec.gov.

We do not undertake to publicly update or revise our forward-looking statements as a result of new information,

future events or otherwise, except as required by law.

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 result in sun damage to the skin.

Our licensed products

focus on the treatment of actinic keratoses, which are skin lesions that can sometimes lead to skin cancer.

We also market a topical

antibiotic for treatment of impetigo, a bacterial skin infection.

principal licensed product is Ameluz ® , which is a prescription drug approved for use in combination with our licensor’s

FDA approved medical device, the BF-RhodoLED ® lamp, for photodynamic therapy in the United States 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 the Ameluz LSA.

Under the Ameluz LSA, we hold the exclusive

license to sell Ameluz ® and the BF-RhodoLED ® lamp in the United States for all indications currently

approved by the FDA as well as all future FDA-approved indications that the Biofrontera Group may pursue.

We have the authority under

the Ameluz LSA in certain circumstances to take over clinical development, regulatory work and manufacturing from the Biofrontera Group,

with respect to the indications the Biofrontera Group is currently pursuing with the FDA (as well as certain other clinical studies identified

in the Corrected Amendment to the Ameluz LSA).

However, the Biofrontera Group does not have any obligation under the Ameluz LSA,

as amended, to perform or finance clinical trials to promote new indications beyond those they are currently pursuing with the FDA (as

well as certain other clinical studies identified in the Corrected Amendment to the Ameluz LSA).

Under the Ameluz LSA, further extensions

of the approved indications for Ameluz ® photodynamic therapy in the United States

are anticipated.

second prescription drug licensed product in our portfolio is Xepi ® (ozenoxacin cream, 1%), a topical non-fluorinated

quinolone that inhibits bacterial growth.

Currently, no antibiotic resistance against Xepi ® is known and it has been specifically

approved by the FDA for the treatment of impetigo, a common skin infection, due to Staphylococcus aureus or streptococcus pyogenes.

is approved for use in adults and children 2 months and older.

We are currently selling Xepi ® for this indication in the

under the Xepi LSA that was acquired by Biofrontera on March 25, 2019 through our acquisition of Cutanea Life Sciences, Inc.

Our principal licensed

product focuses on the treatment of actinic keratoses, which are skin lesions that can sometimes lead to skin cancer.

We also market

a topical antibiotic for treatment of impetigo, a bacterial skin infection.

principal licensed 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 in the United States for the lesion-directed and field-directed treatment of actinic keratoses of mild-to-moderate

severity on the face and scalp.

We are currently selling Ameluz® for this indication in the U.S.

under an exclusive license and supply

agreement (“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.

Under the Ameluz

LSA, we hold the exclusive license to sell Ameluz® and the BF-RhodoLED® lamp in the United States for all indications currently

approved by the FDA as well as all future FDA-approved indications that the Ameluz Licensor may pursue.

We are obliged to purchase

Ameluz® and the RhodoLED® devices exclusively from the Licensor.

Under the Ameluz LSA, the Licensor is obliged to manufacture,

perform regulatory work and sponsor certain clinical trials on its own expense.

In consideration, we are obligated to pay a transfer

price of 30-50% of our net sales of Ameluz®.

We have the authority under the Ameluz LSA in certain circumstances to i) take over

clinical development with respect to the indications the Ameluz Licensor is currently pursuing with the FDA (as well as certain other

clinical studies identified in the Ameluz LSA), ii) take over the regulatory and manufacturing responsibilities from the Ameluz

Licensor, and iii) to offset the costs of such operations by adjusting the transfer price for Ameluz® or to reduce the transfer

price at a fixed ratio.

The Ameluz Licensor does not have any obligation under the Ameluz LSA, as amended, to perform or finance

clinical trials to promote new indications beyond those they are currently pursuing with the FDA (as well as certain other clinical studies

identified in the Ameluz LSA).

Under the Ameluz LSA, further extensions of the approved indications for Ameluz® photodynamic therapy

in the United States are anticipated.

second prescription drug licensed product in our portfolio is Xepi® (ozenoxacin cream, 1%), a topical non-fluorinated quinolone that

inhibits bacterial growth.

Currently, no antibiotic resistance against Xepi® is known and it has been specifically approved by the

FDA for the treatment of impetigo, a common skin infection, due to Staphylococcus aureus or Streptococcus pyogenes.

It is approved for

use in 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 that was acquired by Biofrontera on March

25, 2019 through our acquisition of Cutanea Life Sciences, Inc.

principal objective is to increase the sales of our licensed products in the United States.

1 unchanged sentence

the following:

our sales in the United States of Ameluz ® in combination with the BF-RhodoLED ® lamp for the treatment

of minimally to moderately thick actinic keratosis of the face and scalp and positioning Ameluz ® to be a leading photodynamic

therapy product in the United States, by growing our dedicated sales and marketing infrastructure in the United States;

our sales of Xepi ® for treatment of impetigo by improving the market positioning of the licensed product;

the potential for future approvals and label extensions of our existing portfolio products that are in the pipeline for the U.S.

market through the LSAs with our licensors, Pharma, Bioscience and Ferrer.

expanding our sales in

the United States of Ameluz ® in combination with the RhodoLED ® lamp for the treatment of minimally

to moderately thick actinic keratoses of the face and scalp and positioning Ameluz ® to be a leading photodynamic therapy

product, by growing our dedicated sales and marketing infrastructure in the United States;

expanding our sales of

Xepi ® for treatment of impetigo by improving the market positioning of the licensed product;

leveraging the potential for future approvals and label

extensions of our portfolio products that are in the pipeline for the U.S.

market through the LSAs with our Licensors.

strategic objectives also include further expansion of our product and business portfolio through various methods to pursue selective

strategic investment and acquisition opportunities to expand and support our business growth, including but not limited to:

further products or product opportunities and developing them for the U.S.

products through asset acquisition from other healthcare companies;

products through share acquisition of some or all shares of other healthcare companies, including the possible acquisition of shares

of our current parent company, Biofrontera AG.

devote a substantial portion of our cash resources to the commercialization of our licensed products, Ameluz ® , the BF-RhodoLED ®

lamp and Xepi ® .

We have financed our operating and capital expenditures through cash proceeds generated from our

product sales and proceeds received in connection with the Intercompany Revolving Loan Agreement with Biofrontera AG.

On December 31,

2020, the outstanding principal balance on the intercompany loan was converted into shares of common stock.

On March 31, 2021, we entered

into the Second Intercompany Revolving Loan Agreement with Biofrontera AG for $20.0 million of committed sources of funds for a two-year

As of September 30, 2021, there was no loan principal balance outstanding under the Second Intercompany Revolving Loan.

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 our common stock, 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

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.

In connection with

the IPO, the Company also issued to the underwriters Unit Purchase Options to purchase, in the aggregate, (a) 108,000 Units and (b) an

additional 16,200 Warrants (relating to the underwriters’ exercise of the over-allotment option in full with respect to the Warrants).

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.

in-licensing further products

or product opportunities and developing them for the U.S.

procuring products through

asset acquisition from other healthcare companies;

procuring products through

share acquisition of some or all shares of other healthcare companies, including the possible acquisition of shares of our former

parent company and significant stockholder, Biofrontera AG.

devote a substantial portion of our cash resources to the commercialization of our licensed products, Ameluz ® , the RhodoLED ®

lamp series and Xepi ® .

We have financed our operating and capital expenditures through cash proceeds generated from

our product sales and proceeds received in equity financings.

believe that important measures of our results of operations include product revenue, operating income (loss) and adjusted EBITDA (a

15 unchanged sentences

our business operations have been directly affected.

In particular, there has been a significant decline in demand for the Biofrontera

Group’s products worldwide, and our licensed products in the United States, as a result of different priorities for medical treatments

emerging, thereby causing a delay of actinic keratosis treatment for most patients.

Our revenue was directly affected by the global COVID-19

pandemic starting in mid-March of 2020.

From that point on, rising infection rates and the resulting American Academy of Dermatology’s

official recommendation to care for patients through remote diagnosis and treatment (telehealth) led to significantly declining patient

numbers and widespread, albeit temporary, physician practice closures.

After negligible sales of our products in April 2020, we observed

a slow recovery of our business again in the summer of 2020 and later the first signs of stabilization in line with the usual seasonality.

Doctors’ offices reopened during the second half of 2020, at least in part, and patients showed increasing willingness to undergo

treatment for actinic keratosis.

In the fourth quarter of 2020, we again saw a seasonally strong increase in sales.

Revenue from product

sales was $14.9 million for the nine months ended September 30, 2021, as compared to $10.2 million for the nine months ended September

30, 2020, indicating our revenue is recovering from the global COVID-19 pandemic.

January and February revenues were still pre-pandemic

in 2020 and substantially lower in January and February 2021, while revenues recovered quickly since March 2021.

In order to mitigate

the risk from COVID-19, we have taken expedited measures to reduce operating expenses and preserve cash, including headcount reductions,

mandatory furloughs, freezing of hiring and discretionary spend, and voluntary salary reductions from the senior leadership.

COVID-19 pandemic, we have focused our sales strategy in the U.S.

market on our flagship product Ameluz ® and delayed the

targeted re-launch to improve the positioning of our licensed product Xepi ® .

To a minor extent, Xepi inventories were

written down as of December 31, 2020 due to an anticipated expiration of shelf life.

As the impact of the COVID-19 pandemic continues,

we may experience continued disruptions that could severely impact our business, operations, and sales and marketing.

We continue to

monitor trends related to COVID-19 and their impact on our business, results of operations and financial condition.

In particular, we experienced a significant decline in demand for our licensed products

as a result of different priorities for medical treatments emerging, thereby causing a delay of actinic keratosis treatment for most

Our revenue was directly affected by the global COVID-19 pandemic starting in mid-March of 2020.

From that point on, rising

infection rates and the resulting American Academy of Dermatology’s official recommendation to care for patients through remote

diagnosis and treatment (telehealth) led to significantly declining patient numbers and widespread, albeit temporary, physician practice

As COVID-19 vaccines started to roll-out to the general public in March 2021, we experienced an increase in patients willing

to undergo treatment for actinic keratosis.

In the fourth quarter of 2021 continuing through the first quarter of 2022, we again saw

a seasonally strong increase in sales, indicating a revenue recovery from the global COVID-19 pandemic.

However, due to the speed

and fluidity with which the COVID-19 pandemic continues to evolve, and the emergence of highly contagious variants, we do not yet know

the full extent of the impact of COVID-19 on our business operations.

The ultimate extent of the impact of any epidemic, pandemic, outbreak,

or other public health crisis on our business, financial condition and results of operations will depend on future developments, which

are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of such epidemic, pandemic,

outbreak, or other public health crisis and actions taken to contain or prevent the further spread, including the effectiveness of vaccination

and booster vaccination campaigns, among others.

Accordingly, we cannot predict the extent to which our business, financial condition

and results of operations will be affected.

We remain focused on maintaining a strong balance sheet, liquidity and financial flexibility

and continue to monitor developments as we deal with the disruptions and uncertainties from a business and financial perspective relating

to COVID-19 and variants thereof.

our Licensors take reasonable precautions to ensure the successful production of our commercially licensed products, their contract manufacturers

may experience a myriad of business difficulties (i.e.

workforce instability, supply chain issues, erosion of customer base, etc.) that

could impact their financial solvency.

In December 2021, we were notified by Ferrer of third-party manufacturing delays for the Xepi®

product and of their manufacturer’s (Teligent, Inc.) Chapter 11 bankruptcy filing on October 14, 2021 and in February 2022, Teligent

filed a motion to convert the proceedings into a Chapter 7 liquidation.

As Teligent, Inc, is no longer a viable manufacturing option,

Ferrer is evaluating options for a new contract manufacturer for Xepi ® , but the process of engaging one or more new contract

manufacturers to replace Teligent, Inc.

will require significant time, including the time it will take the new contract manufacturer(s)

to reach a level of production to meet our commercial needs.

Although we have inventory of Xepi ® on hand, we do not expect

it will be enough to complete the commercialization of Xepi ® in accordance with the originally planned timeline.

the uncertainty of supply chain, we expect a delay in shipments of Xepi ® for the next 18 months, however, the Company

expects Ferrer to perform its obligations under the Xepi LSA to use its commercially reasonable efforts to qualify an alternative supplier

during this period of time.

Despite these delays, our total revenues will not be significantly impacted since the majority of our revenues

are from sales of Ameluz ® .

After adjusting our forecast due to supply chain issues, we expect our net Xepi revenues impact

to be $0.5 million over the next twelve months.

We continue to monitor the impacts of the supply chain on our business and are focused

on ensuring the stability of the supply chains for Ameluz ® and RhodoLED ® .

of Our Results of Operations

generate product revenues through the third-party sales of our licensed products Ameluz ® , BF-RhodoLED ® lamps

and Xepi ® covered by our exclusive LSAs with our licensors Pharma, Bioscience and Ferrer .

Revenues from product sales are recorded net of discounts, rebates and other incentives, including

trade discounts and allowances, product returns, government rebates, and other incentives such as patient co-pay assistance.

from the sales of our BF-RhodoLED ® lamp and Xepi ® are relatively insignificant compared with revenues generated

through our sales of Ameluz ® .

generate product revenues through the third-party sales of our licensed products Ameluz ® , RhodoLED ® lamps

Revenues from product sales are recorded net of discounts, rebates

and other incentives, including trade discounts and allowances, product returns, government rebates, and other incentives such as patient

co-pay assistance.

Revenue from the sales of our RhodoLED ® lamp and Xepi ® are relatively insignificant

compared with revenues generated through our sales of Ameluz ® .

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

level of orders generated by our sales force;

level of prescriptions and institutional demand for our licensed products;

sales prices.

the level of orders generated by our sales force;

the level of prescriptions and institutional demand

for our licensed products;

unit sales prices.

Party Revenues

also generate insignificant related party revenue in connection with an agreement with Bioscience to provide BF-RhodoLED ®

lamps and associated services.

also generate 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.

of Revenues, Related Party

of revenues, related party, is comprised of purchase costs of our licensed products, Ameluz ® and BF-RhodoLED ®

lamps from Pharma.

of revenues, related party, is comprised of purchase costs of our licensed products, Ameluz ® and RhodoLED ® lamps

from Biofrontera Pharma GmbH.

of Revenues, Other

9 unchanged sentences

Selling, general and administrative expenses also include the amortization

of our intangible asset as well as our legal settlement expenses.

In connection with the acquisition of Cutanea, we recorded an

intangible asset related to the Xepi ® license, which is being amortized on a straight-line basis over an estimated useful

life of 11 years.

of our intangible asset and our legal settlement expenses.

General and Administrative Expenses, Related Party

general and administrative expenses, related party, primarily relate to the services provided by our parent, Biofrontera AG, for accounting

consolidation, IT support, and pharmacovigilance.

These expenses were charged to us based on costs incurred plus 6% in accordance with

general and administrative expenses, related party, primarily relate to the services provided by our significant stockholder, Biofrontera

AG, for accounting consolidation, IT support, and pharmacovigilance.

These expenses were previously charged to us based on costs incurred

plus 6% in accordance with the 2016 Services Agreement.

As of December 31, 2021, we entered into the Services Agreement which provides

for the execution of statements of work that supersedes the applicable provisions of the 2016 Services Agreement.

The Services Agreement

On July 2, 2021, we entered into a new intercompany services agreement (“2021 Services Agreement”)

which provides for the execution of statements of work that supersedes the applicable provisions of the 2016 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 IT and pharmacovigilance support.

We expect to execute a statement of work under the 2021 Services Agreement

related to expenses that is consistent with the 2016 Services Agreement based on costs incurred plus 6%.

Under the 2021 Services Agreement

we have agreed that the applicable provisions related to reimbursement and allocation of expenses in the 2016 Services Agreement will

remain in effect until we execute a statement of work under the 2021 Services Agreement that supersedes such provisions.

enables us to continue relying on Biofrontera AG and its subsidiaries for various services it has historically provided to us, including

IT and pharmacovigilance support.

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.

Restructuring

restructured the business of Cutanea and incurred restructuring costs, which were subsequently reimbursed by Maruho Co, Ltd.

Restructuring costs primarily relate to the winding down of Cutanea’s operations.

restructured the business of Cutanea and incurred restructuring costs, which were subsequently reimbursed by Maruho.

Restructuring costs

primarily relate to Aktipak ® discontinuation, personnel costs related to the termination of all Cutanea employees, and

the winding down of Cutanea’s operations.

in Fair Value of Contingent Consideration

2 unchanged sentences

The fair value of such contingent consideration was determined to be $6.5 million on the acquisition

date on March 25, 2019 and is re-measured at each reporting date until the contingency is resolved.

expense, net, primarily consists of interest expense incurred under our Revolving Loan Agreement with Biofrontera AG, amortization of

the contract asset related to the start-up cost financing from Maruho under the Share Purchase Agreement, and immaterial amounts of interest

income earned on our financing of customer purchases of BF-RhodoLED ® lamps.

income, net primarily includes (i) reimbursed SPA costs and (ii) gain (loss) on foreign currency transactions.

date of March 25, 2019 and is re-measured at each reporting date until the contingency is resolved.

in Fair Value of Warrant Liabilities

stock warrants to purchase up to 2,857,143 shares of our common stock at an exercise price of $5.25 per share were issued in conjunction

with the private placement which closed on December 2, 2021 and were accounted for as liabilities in accordance with ASC 815-40.

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.

expense, net, primarily consists of amortization of the contract asset related to the start-up cost financing from Maruho Co.

(“Maruho”) agreement (“Share Purchase Agreement”) to acquire 100% of the Shares of Cutanea Life Sciences, Inc.

(“Cutanea”), offset by interest income of 6% per annum for each day that any reimbursement is past due related to the Settlement

Allocation Agreement with Biofrontera AG and immaterial amounts of interest income earned on our financing of customer purchases of RhodoLED ®

income, net primarily includes (i) reimbursed Share Purchase Agreement costs, and (ii) gain (loss) on foreign currency transactions.

a result of the net losses we have incurred in each fiscal year since inception, we have recorded no provision for federal income taxes

2 unchanged sentences

of Operations

of the Three Months Ended September 30, 2021 and 2020

following table summarizes our results of operations for the three months ended September 30, 2021 and 2020:

Three Months Ended September 30,

of the Three Months ended March 31, 2022 and 2021

following table summarizes our results of operations for the three months ended March 31, 2022 and 2021:

( in thousands)

11 unchanged sentences

Loss from operations

Change in fair value of warrant liabilities

Interest expense, net

2 unchanged sentences

Income tax expenses

product revenue was $4.3 million and $3.2 million for the three months ended September 30, 2021 and 2020, respectively, an increase of

$1.1 million, or 33.5%.

The increase was primarily driven by:

(i) higher volume of Ameluz ® orders, which resulted in an

increase in Ameluz ® revenue of $1.0 million, and (ii) an increase in the price of Ameluz ® , which further

increased Ameluz ® revenue by $0.2 million.

product revenue was $9.8 million and $4.7 million for the first three months of 2022 and 2021, respectively, an increase of $5.0 million,

The increase was primarily driven by the higher volume of Ameluz ® orders, which resulted in an increase in

Ameluz ® revenue of $4.6 million, which was coupled with the impact of price related to Ameluz ® of $0.4

of Revenues, Related Party

of revenues, related party was $2.2 million and $0.6 million for the three months ended September 30, 2021 and 2020, respectively, an

increase of $1.7 million, or 296.6%.

$0.6 million of such increase was driven by the increase in Ameluz ® product revenue.

Cost of Ameluz is directly correlated to the selling price under the Ameluz LSA with Biofrontera Pharma GmbH.

In addition, we received

cost reimbursement from Pharma in 2020, which resulted in $1.1 million reduction in cost of revenues, related party during

the three months ended September 30, 2020.

of Revenues, Other

of revenues, other was $41,000 and $446,000 for the three months ended September 30, 2021 and 2020, respectively, a decrease of $0.4

of revenues, related party was $5.0 million and $2.4 million for the first three months of 2022 and 2021, respectively, an increase of

$2.6 million, or 106.6%.

The decrease was primarily driven by a $0.4 million provision for Xepi® inventory obsolescence due to product

expiry recorded during the three months ended September 30, 2020.

General and Administrative Expenses

general and administrative expenses were $17.1 million and $4.2 million for the three months ended September 30, 2021 and 2020,

respectively, an increase of $12.9 million, or 307.8%.

The increase was primarily driven by the legal settlement expense recorded as of September 30, 2021 in the amount of $11.25 million.

The increase was further driven by $0.6 million increase

in marketing expense as we launched various marketing campaigns for our licensed products.

Headcount costs also increased $0.5 million

as a result of (i) resumed hiring in 2021, (ii) higher commission expenses related to improved sales performance, and (iii)

the impact of cost reimbursement received from Biofrontera Pharma GmbH which resulted in $0.1 million cost reduction during the three

months ended September 30, 2020 .

In addition, sales force travel and in-person trainings expenses increased $0.5 million.

General and Administrative Expenses, Related Party

general and administrative expenses, related party were $0.2 million and $0.1 million for the three months ended September 30, 2021 and

2020, respectively.

Related party expense is based on costs incurred by Biofrontera AG plus 6% for services provided to us related to

accounting consolidation, IT support and pharmacovigilance.

Restructuring

costs were $0.2 million and $0.2 million for the three months ended September 30,2021 and 2020, respectively, both of which are related

to facility exit costs.

in Fair Value of Contingent Consideration

in fair value of contingent consideration was an increase of $0.7 million and $0.1 million for the three months ended September 30, 2021

and 2020, respectively.

Change in fair value of contingent consideration is driven by the estimated profit share the Company is required

to pay under the Share Purchase Agreement.

expense was $0.1 million and $0.7 million for the three months ended September 30, 2021 and 2020, respectively.

Interest expense during

the three months ended September 30, 2020 included $0.6 million incurred on the intercompany loan issued by Biofrontera AG.

The intercompany

loan was fully converted into common stock at the end of 2020.

In addition, interest expense from the straight-line amortization of the

contract asset related to start-up cost financing received from Maruho under the Cutanea acquisition purchase agreement was $0.1 million

during both of these periods.

income, net was $0.2 million and $0.2 million for the three months ended September 30, 2021 and 2020, respectively, both of which primarily

related to reimbursed costs under the Share Purchase Agreement with Maruho.

of the Nine Months Ended September 30, 2021 and 2020

following table summarizes our results of operations for the nine months ended September 30, 2021 and 2020:

Nine Months Ended September 30,

( in thousands)

Product revenues, net

Related party revenues

Revenues, net

Operating expenses:

which was driven by the increase in Ameluz ® product revenue.

Cost of revenues, related party

Cost of revenues, other

Selling, general and administrative

Selling, general and administrative, related party

Restructuring costs

Change in fair value of contingent consideration

Total operating expenses

Loss from operations

Interest expense, net

Other income, net

Loss before income taxes

Income tax expenses

product revenue was $14.9 million and $10.2 million for the nine months ended September 30, 2021 and 2020, respectively, an increase

of $4.7 million, or 45.6%.

The increase was primarily driven by (i) higher volume of Ameluz ® orders, which resulted in

an increase in Ameluz® revenue of $4.1 million, and (ii) an Ameluz® price increase effective in January 2021, which further increased

Ameluz® revenue by $0.7 million.

The overall increase in Ameluz revenue was partially offset by a $0.2 million decrease in Xepi®

of Revenues, Related Party

of revenues, related party was $7.6 million and $4.0 million for the nine months ended September 30, 2021 and 2020, respectively, an

increase of $3.6 million, or 89.6%.

$2.5 million of such increase was driven by the increase in Ameluz ® product revenue.

Cost of Ameluz ® is directly correlated to the selling price under the Ameluz LSA with Biofrontera Pharma GmbH.

we received cost reimbursement from Pharma in 2020, which resulted in $1.1 million reduction in cost of revenues, related

party during the nine months ended September 30, 2020.

is directly correlated to the selling price under the Ameluz LSA.

of Revenues, Other

of revenues, other was $0.3 million and $0.6 million for the nine months ended September 30, 2021 and 2020, respectively.

cost of revenue, other was mainly driven by a $0.4 million provision in 2020 for Xepi® inventory obsolescence due to product expiring.

of revenues, other was consistent at $0.2 million for both the first three months of 2022 and 2021

General and Administrative Expenses

general and administrative expenses were $26.9 million and $13.6 million for the nine months ended September 30, 2021 and 2020,

respectively, an increase of $13.4 million, or 98.7%.

The increase was primarily driven by the legal settlement expenses recorded as of September 30, 2021 in the amount of $11.25 million.

The increase was further driven by a $1.7 million increase

in headcount costs as a result of (i) resumed hiring in 2021 and (ii) higher commission expenses

related to improved sales performance, and (iii) the impact of cost reimbursement received from Biofrontera Pharma GmbH which resulted

in $0.1 million cost reduction during the nine months ended September 30, 2020 .

Marketing expense also increased by $1.2 million

as we launched various marketing campaign for our licensed products.

In addition, sales force travel

and in-person trainings increased by $0.2 million.

Such overall increase was partially offset by a decrease of $0.4 million in

professional service expenses.

general and administrative expenses were $7.6 million and $4.8 million for the first three months of 2022 and 2021, respectively, an

increase of $2.9 million, or 60.0%.

increase was primarily driven by legal expenses of $0.5 million and business insurance of $0.5 million.

Headcount costs also increased

$0.4 million as a result of (i) resumed hiring in 2022 and (ii) higher commission expenses related to improved sales performance.

increase was further driven by stock compensation expense of $0.5 million, resumed travel of $0.3 million as well as higher year over

year consulting expenses of $0.2 million.

General and Administrative Expenses, Related Party

general and administrative expenses, related party were $0.5 million and $0.4 million for the nine months ended September 30, 2021 and

2020, respectively.

Related party expense is based on costs incurred by Biofrontera AG plus 6% for services provided to us related to

accounting consolidation, IT support and pharmacovigilance.

general and administrative expenses, related party were $0.1 million and $0.2 million for the first three months of 2022 and 2021, respectively,

a decrease of $0.1 million or -42.1%.

Related party expense is based on statements of work issued under the Services Agreement with the

Biofrontera Group.

We currently have statements of work in place regarding IT, regulatory affairs, medical affairs, pharmacovigilance,

and Investor Relations services.

Prior period related party expense was based on costs incurred by Biofrontera AG plus 6% for services

provided to us related to accounting consolidation, IT support and pharmacovigilance.

Decrease of $0.1 million is mainly

related to IT development and quality assurance services.

Biofrontera AG provides IT development application services as well as any

network issues and hosts Biofrontera, Inc.’s servers.

Restructuring

costs were $0.7 million and $0.9 million for the nine months ended September 30, 2021 and 2020 respectively, both of which related to

facility exit costs.

costs were $0.0 million and $0.3 million for 2022 and 2021, respectively, a decrease of $0.3 million, or 100%, which was related to facility

in Fair Value of Contingent Consideration

in fair value of contingent consideration was an increase of $1.7 million and $0.2 million for the nine months ended September 30, 2021

and 2020, respectively.

Change in fair value of contingent consideration is driven by the estimated profit share the Company is required

to pay under the Share Purchase Agreement.

expense was $0.3 million and $2.1 million for the nine months ended September 30, 2021 and 2020, respectively.

Interest expense during

the nine months ended September 30, 2020 included $1.9 million incurred on the intercompany loan issued by Biofrontera AG.

The intercompany

loan was fully converted into shares of our common stock at the end of 2020.

In addition, interest expense from the straight-line amortization

of the contract asset related to start-up cost financing received from Maruho under the Share Purchase Agreement was $0.3 million during

both of these periods.

income, net was $0.4 million and $0.8 million for the nine months ended September 30, 2021 and 2020, respectively, both of which primarily

related to reimbursed Share Purchase Agreement costs.

Income to Adjusted EBITDA Reconciliation for the three months and nine months ended September 30, 2021 and 2020

define adjusted EBITDA as net income or loss from our statements of operations 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.

change in fair value of contingent consideration was $0 million and $0.5 million for the first three months of 2022 and 2021, respectively,

a decrease of $0.5 million or -100.0%.

The change in fair value of contingent consideration is driven by the estimated profit share the

Company is required to pay under the Share Purchase Agreement.

in Fair Value of Warrant Liabilities

change in fair value of warrant liabilities was a decrease of $8.7 million for 2022.

The change in fair value of warrant liabilities

was driven by changes in the underlying value of the common stock.

There were no warrant liabilities as of March 31, 2021.

expense, net was $33 thousand and $0.1 million for the first three months of 2022 and 2021, respectively.

The slight decrease

in interest expense was mainly driven by legal settlement interest income in 2022.

Interest expense from the straight-line

amortization of the contract asset related to start-up cost financing received from Maruho under the Cutanea acquisition purchase

agreement was $0.1 million during both periods.

income, net was $23 thousand and $79 thousand in the first three months of 2022 and 2021, respectively, a decrease of $56 thousand or

Decrease is primarily related to the decrease in reimbursed costs under the Share Purchase Agreement with Maruho.

Income (Loss) to Adjusted EBITDA Reconciliation for the Three Months Ended March 31, 2022 and 2021

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 GAAP.

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 GAAP as measures of operating performance or cash flows as measures of 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 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 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 GAAP.

in fair value of contingent consideration:

Pursuant to the Share Purchase Agreement, the profits from the sale of Cutanea products

will be shared equally between Maruho and Biofrontera until 2030 (“contingent consideration”).

The fair value of the contingent

consideration was determined to be $6.5 million on the acquisition date and is re-measured at each reporting date.

will be shared equally between Maruho and Biofrontera until 2030.

The fair value of the contingent consideration was determined to be

$6.5 million on the acquisition date and is re-measured at each reporting date.

We exclude the impact of the change in fair value of

contingent consideration as this is non-cash.

in fair value of warrant liabilities:

The Purchase and Pre-funded Warrants issued in conjunction with a private placement equity

financing were accounted for as liabilities in accordance with ASC 815-40.

The warrant liabilities were measured at fair value at inception

and are remeasured at each reporting date, with changes in fair value presented within the statement of operations.

We exclude the impact

of the change in fair value of contingent consideration as this is non-cash.

reimbursement from Biofrontera Pharma GmbH :

On August 27, 2020, we received $1.5 million cash consideration from Biofrontera Pharma

GmbH to support our marketing effort to grow the sales of the licensed products we purchase from Biofrontera Pharma GmbH, Ameluz®

and BF-RhodoLED® lamps.

Of the $1.5 million, $1.2 million was recorded as a reduction of costs incurred during the three months

ended September 30, 2021 and the remaining $0.3 million was recorded as a reduction to marketing expense incurred during the fourth

quarter of 2020.

This cash consideration is one-time and non-operating in nature.

We believe that adjustment for this item more closely

correlates with the reality of our operating performance.

settlement expenses :

To measure operating performance, we

exclude legal settlement expenses.

We do not expect to incur these types of legal expenses on a recurring basis and believe the

exclusion of such amounts allows management and the users of the financial statements to better understand our financial results

of the change in fair value of warrant liabilities as this is non-cash.

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

3 unchanged sentences

information is viewed with GAAP financial information, investors are provided with a more meaningful understanding of our ongoing operating

below table presents a reconciliation from net loss to Adjusted EBITDA for the three months and nine months ended September 30, 2021

Three months ended

September 30,

Nine months ended

September 30,

below table presents a reconciliation from net income (loss) to Adjusted EBITDA for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

Net income/(loss)

Interest expense, net

Income tax expense

Income tax expenses

Depreciation and amortization

Change in fair value of contingent consideration

Cost reimbursement from Biofrontera Pharma GmbH

Legal settlement expenses

Change in fair value of warrant liabilities

Adjusted EBITDA

Adjusted EBITDA margin

EBITDA decreased from ($3.1) million during the three months ended September 30, 2020 to ($3.8) million for the three months ended September

Our adjusted EBITDA margin improved from (96.2%) to (88.5%) during the same periods.

EBITDA decreased from ($9.1) million during the nine months ended September 30, 2020 to ($9.5) million for the nine months ended September

Our adjusted EBITDA margin improved from (89.0%) to (63.9%) during the same periods.

EBITDA decreased from ($2.8) million for the first three months of 2021 to ($3.0) million for the first three months of 2022.

EBITDA margin improved to (30.3%) for the first three months of 2022 from (59.3%) for the first three months of 2021.

and Capital Resources

devote a substantial portion of our cash resources to the commercialization of our licensed products, Ameluz ® , the BF-RhodoLED ®

lamp and Xepi ® .

We have historically financed our operating and capital expenditures through cash proceeds generated

from our product sales and proceeds received in connection with the Intercompany Revolving Loan Agreement with our parent, Biofrontera

On December 31, 2020, the Company agreed to convert the outstanding principal balance of the revolving debt in the amount of $47.0

million into an aggregate of 7,999,000 shares of our common stock at a price of $5.875 per share, which was based on our internal assessment

and agreement with Biofrontera AG, our then parent, for an aggregate gross capital contribution of $47.0 million.

31, 2021, we entered into the Second Intercompany Revolving Loan Agreement with Biofrontera AG for $20.0 million of committed sources

of funds for a two-year term.

As of September 30, 2021, there was no loan principal balance outstanding under the Second Intercompany

Revolving Loan.

inception, we have incurred losses and generated negative cash flows from operations.

As of September 30, 2021, we had an accumulated

deficit of $64.4 million, which is inclusive of a legal settlement liability of $11.25 million – see Legal Proceedings

section in Note 19 for further details, and cash and cash equivalents of $1.7 million.

November 2, 2021, we completed an IPO, and issued and sold 3,600,000 Units, each consisting of (i) one Share and (ii) one

Warrant 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 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.

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

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.

Company’s primary sources of liquidity are its existing cash balances and cash flows from equity financing transactions received

As of March 31, 2022, we had cash and cash equivalents of $22.4 million, compared to $24.5 million as of December 31, 2021.

we commenced operations in 2015, we have generated significant losses.

For the three months ended March 31, 2022 and 2021, we incurred

losses from operations of $3.1 million and $3.5 million, respectively.

We incurred net cash outflows from operations of $2.1 million

and $3.4 million, for the same periods, respectively.

We had an accumulated deficit as of March 31, 2022 of $73.3 million.

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.

Contract Liabilities ), and legal settlement expenses after reimbursement from Biofrontera AG a significant shareholder and 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 Ameluz ® and Xepi ® 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

In addition, we expect to incur significant 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.

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 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 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.

adequacy of our available funds to meet our future operating and capital requirements will depend on many factors, including the amounts

of future revenues generated by our products.

Due to numerous factors described in more detail under the caption Part I, Item 1A, “Risk

Factors” of this Form 10-K and our contractual obligations and commitments, we may require significant additional funds earlier

than we currently expect in order to continue to commercialize Ameluz®, BF-RhodoLED® lamp series, and Xepi® and to support

the operating, investing, and financing activities of the Company beyond the next twelve months.

future use of operating cash and capital requirements will depend on many forward-looking factors, including the following:

the costs of our commercialization

activities for Ameluz ® and Xepi ® ;

the extent to which we

acquire or invest in licensed products, businesses and technologies;

the extent to which we

choose to establish collaboration, co-promotion, distribution or other similar agreements for our licensed products;

the cost to fulfill our

contractual obligations for various operating leases on vehicles and office space;

the requirement to pay

back $7.3 million of start-up cost financing to Maruho and make any contingent profit- sharing payments to Maruho in connection with

the Cutanea acquisition.

the ability to collect

a receivable of $11.3 million from Biofrontera AG (in accordance with the Settlement Allocation Agreement) for reimbursement of legal

settlement payments made and to be made on their behalf for which both parties are jointly and severally liable.

will continue to assess our operating costs and expenses and our cash and cash equivalents and, if circumstances warrant, we will make

appropriate adjustments to our operating plan.

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

Nine Months Ended

September 30,

Three Months Ended March 31,

(in thousands)

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and restricted cash

the nine months ended September 30, 2021, operating activities used $5.7 million of cash, primarily resulting from our net loss of $23.2

million, adjusted for non-cash expense of $2.4 million as an offset and net cash provided by changes in our operating assets and

liabilities of $15.1 million.

The change in our operating assets and liabilities was primarily due to the legal settlement liability

recorded as of September 30, 2021 in the amount of $11.25 million.

the nine months ended September 30, 2020, operating activities used $11.7 million of cash, primarily resulting from our net loss of $10.8

Net cash provided by (used in) investing activities

Net decrease in cash and restricted cash

the first three months of 2022, operating activities used $2.1 million of cash, primarily resulting from our loss from operations of

$3.1 million, adjusted for non-cash expense of stock-based compensation of $0.5 million, non-cash interest expense of $0.1 million, and

depreciation and amortization in the aggregate of $0.1 million and net cash used by changes in our operating assets and liabilities of

$0.3 million.

the three months ended March 31, 2021, operating activities used $3.4 million of cash, primarily resulting from our net loss of $3.5

million, adjusted for non-cash expense of $0.8 million as an offset and net cash used by changes in our operating assets and liabilities

of $0.7 million.

the nine months ended September 30, 2021, net cash used in investing activities in the amount of $2,000 consisted of purchase of computer

the nine months ended September 30, 2021, cash used in financing activities was $0.6 million related to payments for deferred offering

the nine months ended September 30, 2020, cash provided by financing activities was $8.9 million, related to proceeds from the related

party indebtedness and start-up cost financing related to the Cutanea acquisition.

expect to continue to generate revenue from product sales.

We also expect to continue to incur operating losses due to significant sales

and marketing efforts as we seek to expand the commercialization of Ameluz ® and Xepi ® in the United States.

In addition, we 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 also expect to incur significant 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 do not expect

to incur significant costs related to capital expenditures.

future use of operating cash and capital requirements will depend on many forward-looking factors, including the following:

costs of our commercialization activities for Ameluz ® and Xepi ®:

extent to which we acquire or invest in licensed products, businesses and technologies;

extent to which we choose to establish collaboration, co-promotion, distribution or other similar agreements for our licensed products;

cost to fulfill our contractual obligations for various operating leases on vehicles and office space;

requirement to pay back $7.3 million of start-up cost financing to Maruho and make any contingent profit-sharing payments

to Maruho in connection with the Cutanea acquisition.

March 31, 2021, we entered into the Second Intercompany Revolving Loan Agreement with Biofrontera AG for $20.0 million of committed sources

of funds for a two-year term.

November 2, 2021, we completed an IPO, and issued and sold 3,600,000 Units,

each consisting of (i) one Share and (ii) one Warrant entitling the holder to purchase one Share at an exercise price of $5.00 per Share.

the underwriters exercised in full their option to purchase up to an additional 540,000 Warrants to cover over-allotments.

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.

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

November 29, 2021, we entered into a securities purchase agreement with a single institutional investor for the purchase of 2,857,143

shares of 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

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.

of becoming a standalone company

expect that our transition to operating as a standalone company will have a number of potentially significant effects on our results

of operations.

operating costs for becoming a standalone company — In the transition to becoming a public company and operating as a standalone

entity, we will incur additional operating expenses that could be significant as a percentage of our net revenues, including costs associated

with the financial reporting requirements of a standalone public company, such as salaries associated with building out our

accounting department, legal fees, accounting and valuation services costs associated with preparing U.S.

GAAP financial statements and

external audit fees.

In addition , we will incur additional operating expenses, including costs related to the build out of treasury

and investor relations functions, additional non-executive board expenses, shareholder administration and insurance costs.

term, we expect general and administrative expenses to increase (both in absolute terms and as a percentage of net revenues) as a result

of the costs associated with becoming a public company and operating as a standalone entity.

costs to further business development and expansion – As we seek to expand the commercialization of Ameluz ®

and Xepi ® , we expect to incur additional operating costs for significant sales and marketing efforts in the United

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.

Accounting Policies and Significant Judgments and Estimates

unaudited interim financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q are prepared in

accordance with GAAP.

The preparation of our financial statements requires us to make estimates and assumptions that affect the reported

amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue generated and expenses

incurred during the reporting periods, as well as related disclosures.

Our estimates are based on our historical experience and on various

other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about

the carrying value of assets and liabilities and the amounts of revenue and expenses that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions, and any such differences may be material.

have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates

as described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations —

Critical Accounting Policies and Significant Judgments and Estimates” in our Final Prospectus, except as noted in Note 2 –

Summary of Significant Accounting Policies of the notes to our unaudited interim financial statements included elsewhere in

this Quarterly Report on Form 10-Q.

issued accounting pronouncements

description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations

is disclosed in Note 2—Summary of Significant Accounting Policies of the notes to our financial statements included

in this Quarterly Report on Form 10-Q.

Obligations and Commitments

the three months ended September 30, 2021, there were no material changes to our contractual obligations and commitments from those described

under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contractual

Obligations and Commitments” in our Final Prospectus.

On November 29, 2021, the Company entered

into a settlement and release agreement with the respect to previously mentioned litigation in Legal Proceedings section in Note

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 $11.25 million of the aggregate settlement amount, plus interest

accrued at a rate equal to the weekly average 1-year constant maturity Treasury yield and agreed to pay in three installments, as

the 25th day following the entry into the settlement agreement, the Company will pay 50%

of the aggregate amount it owes;

the 365th day following the entry into the settlement agreement, the Company will pay 25%

of the aggregate amount it owes;

the 730th day following entry into the settlement, the Company will pay 25% of the aggregate

amount it owes.

As of September 30, 2021, we recorded a legal settlement liability in the amount of $11.25 million.

the first three months of 2022, net cash used in investing activities in the amount of $5,000 consisted of the purchase of computer equipment.

the first three months 2022 and 2021, there was no net cash provided by or used in financing activities.

Policies and Significant Judgments and Estimates

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 U.S.

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 fair value measurements of contingent

consideration and warrant liabilities 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.

significant accounting policies are described in more detail in Note 2 – Summary of Significant Accounting Policies , to

our financial statements included in our Annual Report on Form 10-K.

Accounting Estimates

of our critical accounting estimates is included in the Company’s Annual Report on Form 10-K for the year ended December 31,

There were no material changes to our critical accounting estimates for the three months ended March 31, 2022.

Sheet Arrangements

the contractual obligations and commitments as discussed above, 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.

the contractual obligations and commitments as discussed in the Liquidity and Capital Resources , 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.

Growth Company Status

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What changed 10-Q

Item 2. Management’s Discussion and Analysis