What changed in this filing

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Item 1. Financial Statements

2022-11-14 compared with 2022-08-12 · 672 added, 482 removed, 258 unchanged (82% of the section changed)

Financial Statements

BALANCE SHEETS

thousands, except par value and share amounts )

and cash equivalents

receivable, net

receivables, related party

expenses and other current assets

September 30, 2022

December 31, 2021

Current assets:

receivables long term, related party

and equipment, net

AND STOCKHOLDERS’ EQUITY

payable, related parties

contract liabilities, net

expenses and other current liabilities

Cash and cash equivalents

Accounts receivable, net

Other receivables, related party

Prepaid expenses and other current assets

Total current assets

Other receivables long term, related party

Property and equipment, net

Intangible asset, net

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

contract liabilities, net

and contingencies (see Note 23)

Stockholders’

Preferred Stock,

$ 0.001 par value, 20,000,000 shares authorized, zero shares issued and outstanding as of June 30, 2022 and December 31, 2021

Common Stock, $ 0.001

par value, 300,000,000 shares authorized;

19,011,438 and 17,104,749 shares issued and outstanding as of June 30, 2022 and December

paid-in capital

Accounts payable

Accounts payable, related parties

Acquisition contract liabilities, net

Accrued expenses and other current liabilities

Total current liabilities

Long-term liabilities:

Acquisition contract liabilities, net

Warrant liability

Other liabilities

Total liabilities

Commitments and contingencies (see Note 23)

Stockholders’ equity:

liabilities and stockholders’ equity

accompanying notes are an integral part of these financial statements.

OF OPERATIONS

Preferred Stock, $ 0.001 par value, 20,000,000 shares authorized, zero shares issued and outstanding as of September 30, 2022 and December 31, 2021

Common Stock, $ 0.001 par value, 300,000,000 shares

23,550,960 and 17,104,749 shares

issued and outstanding as of September 30, 2022 and December 31, 2021

Additional paid-in capital

Accumulated deficit

Total stockholders’ equity

Total liabilities and stockholders’ equity

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

STATEMENTS OF OPERATIONS

thousands, except per share amounts and number of shares )

months ended June 30,

revenues, net

related party

revenues, net

of revenues, related party

of revenues, other

general and administrative

general and administrative, related party

Restructuring

in fair value of contingent consideration

Three months ended

September 30,

Nine months ended

September 30,

Products revenues, net

Revenues, related party

Total revenues, net

Operating expenses

from operations

income (expense)

in fair value of warrants

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

Other income (expense)

(loss) before income taxes

income (loss)

(loss) per common share:

Weighted-average

common shares outstanding:

accompanying notes are an integral part of these financial statements.

OF STOCKHOLDERS’ EQUITY

Change in fair value of warrants

Interest expense, net

Other income (expense), net

Total other income (expense)

Income (loss) before income taxes

Income tax expense

Net income (loss)

Income (loss) per common share:

Weighted-average common shares outstanding:

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

STATEMENTS OF STOCKHOLDERS’ EQUITY

thousands, except number of shares)

and Six Months Ended June 30, 2022

Additional Paid-

Balance March 31, 2022

Issuance of common stock and warrants under private placement, net of issuance costs

Issuance of shares for vested restricted stock units

Stock based compensation

and Nine Months Ended September 30, 2022

Balance June 30, 2022

Exercise of pre-funded warrants

Exercise of PIPE warrants

Issuance of shares for vested

restricted stock units

Stock based compensation

Balance, September 30,

Balance, December 31, 2021

Issuance of common stock and warrants under private placement, net of issuance costs

Issuance of shares for vested restricted stock units

Issuance of common stock and

warrants under private placement, net of issuance costs

Exercise of pre-funded warrants

Exercise of PIPE warrants

Issuance of shares for vested

restricted stock units

Stock based compensation

Balance, September 30, 2022

and Nine Months Ended September 30, 2021

Additional Paid-

Balance June 30, 2021

and Six Months Ended June 30, 2021

March 31, 2021

June 30, 2021

Balance, September 30, 2021

Balance, December 31, 2020

June 30, 2021

accompanying notes are an integral part of these financial statements.

OF CASH FLOWS

Months Ended June 30,

flows from operating activities:

income (loss)

to reconcile net income (loss) to cash flows used in operations

of acquired intangible assets

in fair value of contingent consideration

in fair value of warrant liabilities

for inventory obsolescence

for doubtful accounts

interest expense

in operating assets and liabilities:

receivables, related party

expenses and other assets

payable and related party payables

expenses and other liabilities

flows used in operating activities

flows from investing activities

of property and equipment

flows used in investing activities

flows from financing activities:

of deferred offering costs

from issuance of common stock and warrants in private placement, net of issuance costs

flows provided by (used) in financing activities

increase (decrease) in cash and cash equivalents

cash equivalents and restricted cash, at the beginning of the period

cash equivalents and restricted cash, at the end of the period

disclosure of cash flow information

taxes paid, net

accompanying notes are an integral part of these financial statements.

to Financial Statements

Balance, September 30, 2021

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

STATEMENTS OF CASH FLOWS

Nine Months Ended

September 30,

Cash flows from operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to cash flows used in operations

Amortization of acquired intangible assets

Change in fair value of contingent consideration

Change in fair value of warrant liabilities

Stock-based compensation

Provision for inventory obsolescence

Provision for doubtful accounts

Non-cash interest expense

Changes in operating assets and liabilities:

Accounts receivable

Other receivables, related party

Prepaid expenses and other assets

Accounts payable and related party payables

Accrued expenses and other liabilities

Cash flows used in operating activities

Cash flows from investing activities

Disbursement for loan receivable

Purchases of property and equipment

Cash flows used in investing activities

Cash flows from financing activities:

Payment of deferred offering costs

Proceeds from issuance of common stock and warrants in private placement, net of issuance costs

Proceeds from exercise of warrants

Cash flows provided by (used) in financing activities

Net increase (decrease) in cash and cash equivalents

Cash, cash equivalents and restricted cash, at the beginning of the period

Cash, cash equivalents and restricted cash, at the end of the period

Supplemental disclosure of cash flow information

Interest paid

Income taxes paid, net

Supplemental non-cash investing and financing activities

Deferred offering costs included in accrued expenses and other liabilities

Non-cash purchase of fixed assets included in accounts payable and related party payable

Conversion of warrant liability to equity

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

to Consolidated Financial Statements

Business Overview

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 principal licensed

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

We also market a

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

principal 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 series, for photodynamic therapy (“PDT”) (when used together, “Ameluz ®

PDT”) in the U.S.

for the lesion-directed and field-directed treatment of actinic keratosis of mild-to-moderate severity

on the face and scalp.

We are currently selling Ameluz® 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

Biofrontera Inc.

(the “Company”) includes

its wholly owned subsidiary Bio-FRI GmbH (“Bio-FRI” or “subsidiary”).

is a U.S.-based biopharmaceutical company specializing in the commercialization of pharmaceutical products for the treatment of

dermatological conditions, in particular, diseases caused primarily by exposure to sunlight that result in sun damage to the skin.

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

We also market a licensed topical antibiotic for treatment of impetigo, a bacterial skin infection.

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

FDA-approved medical devices, the BF-RhodoLED® lamp series, consisting of the BF-RhodoLED® and the RhodoLED® XL lamps,

for photodynamic therapy (“PDT”) (when used together, “Ameluz ® PDT”) in the U.S.

lesion-directed and field-directed treatment of actinic keratosis of mild-to-moderate severity on the face and scalp.

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

under an exclusive license and supply agreement (“Ameluz

LSA”), by and among us and Biofrontera Pharma GmbH and Biofrontera Bioscience GmbH (collectively, the (“Ameluz

Licensor”) originally dated as of October 1, 2016, and as subsequently amended on October 8, 2021.

Refer to Note 16, Related

Party Transactions , for further details.

Refer to Note 16,

Related Party Transactions , for further details.

second prescription drug product is Xepi® (ozenoxacin cream, 1%), a topical non-fluorinated quinolone that inhibits bacterial growth.

10 unchanged sentences

for further details.

subsidiary, Bio-FRI was formed on February 9, 2022, as a German presence to facilitate our relationship with the Ameluz Licensor.

and Going Concern

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

of 2022, we received aggregate proceeds of $ 9.4 million from the sale of common stock and warrants in a private placement (See Note

18 Stockholders’ Equity) .

As of June 30, 2022, we had cash and cash equivalents of $ 31.9 million, compared to $ 24.5 million

as of December 31, 2021.

of 2022, we received proceeds of $ 4.6 million from the exercise of common stock warrants (See Note 18 Stockholders’ Equity) .

As of September 30, 2022, we had cash and cash equivalents of $ 27.5 million, compared to $ 24.5 million as of December 31, 2021.

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

For the six months ended June 30, 2022 and 2021, we incurred losses

from operations of $ 9.3 million and $ 7.2 million, respectively.

We incurred net cash outflows from operations of $ 2.0 million and $ 4.5

million, for the same periods, respectively.

We had an accumulated deficit as of June 30, 2022 of $ 74.2 million.

For the nine months ended September 30, 2022 and 2021, we incurred

losses from operations of $ 13.0 million and $ 23.3 million, respectively.

We incurred net cash outflows from operations of $ 7.9 million

and $ 5.7 million for the same periods, respectively.

We had an accumulated deficit as of September 30, 2022 of $ 76.7 million.

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 our former

parent company, of $ 5.6 million (see Note 13.

Contract Liabilities ), and legal settlement expenses after reimbursement from Biofrontera AG (“Biofrontera AG”), a significant shareholder and

our former parent company, of $ 5.6 million (see Note 13.

Accrued Expenses and Other Current Liabilities ).

Long-term material cash requirements

include potential milestone payments to Ferrer Internacional S.A (see Note 23.

Commitments and Contingencies ) and contingent consideration

payments to Maruho (see Note 3.

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 efforts.

In addition, we

expect to incur significant costs to continue to comply with corporate governance, regulatory reporting and other requirements applicable

to us as a public company in the U.S.

We expect capital expenditures to increase in 2022 to support the increase in our business needs

including an ERP system.

Our future growth is

dependent on our ability to obtain additional equity financing.

On July 26, 2022, pursuant to a warrant exercise inducement offer letter

(the “Inducement Letter”), an investor exercised certain of its existing warrants, issued in a private placement on December

1, 2021, to purchase 2,857,143

shares of common stock, at a price of $ 1.62

per share, resulting in gross proceeds of $ 4.6

million ( See Note 25 Subsequent Events) .

Based on current operating plans and financial

forecasts, we expect that our current cash and cash equivalents, along with the proceeds received from the exercise of such warrants

in accordance with the Inducement Letter will be sufficient to fund our operations for at least the next twelve months from the date

of issuance of our financial statements.

However, if our current operating plans or financial forecasts change, or we are unable to

obtain additional financing, we may need to reduce the discretionary spend on promotional expenses, branding, marketing consulting and

defer some hiring.

While we expect to continue being flexible in our spending over the next twelve months, we do not consider there to

be a need to significantly revise our operations currently.

Additionally,

we expect to continue to incur operating losses due to significant discretionary sales and marketing efforts as we seek to expand the

commercialization of our licensed products in the United States.

We also expect to incur additional expenses to add and improve

operational, financial and information systems and personnel, including personnel to support our product commercialization efforts.

addition, we expect to incur significant costs to continue to comply with corporate governance, regulatory reporting and other requirements

applicable to us as a public company in the U.S.

We also intend to be opportunistic in our business plans which may include acquiring additional shares of Biofrontera

AG as a strategic measure.

future growth is dependent on our ability to obtain additional equity financing.

Based on current operating plans and financial forecasts,

we expect that our current cash and cash equivalents will be sufficient to fund our operations for at least the next twelve months from

the date of issuance of our financial statements.

However, if our current operating plans or financial forecasts change, or we are unable

to obtain additional financing, we may need to reduce the discretionary spend on promotional expenses, branding, marketing consulting

and defer some hiring.

While we expect to continue being flexible in our spending over the next twelve months, we do not consider there

to be a need to significantly revise our operations currently.

Summary of Significant Accounting Policies

for Preparation of the Financial Statements

accompanying unaudited interim financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities

and Exchange Commission (“SEC”) for interim financial reporting.

Certain information and footnote disclosures normally included

in the annual financial statements prepared in accordance with U.S.

accompanying unaudited interim consolidated financial statements of the Company have been prepared pursuant to the rules and regulations

of the Securities and Exchange Commission (“SEC”) for interim financial reporting.

Certain information and footnote disclosures

normally included in the annual financial statements prepared in accordance with U.S.

generally accepted accounting principles (“U.S.

have been condensed or omitted pursuant to such rules and regulations.

In the Company’s opinion, the unaudited financial statements

include all material adjustments, all of which are of a normal and recurring nature, necessary to present fairly the Company’s

financial position as of June 30, 2022, the Company’s operating results for the three and six months ended June 30, 2022 and 2021,

and the Company’s cash flows for the six months ended June 30, 2022 and 2021.

The accompanying financial information as of December

31, 2021 is derived from audited financial statements.

Interim results are not necessarily indicative of results for a full year.

information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form

10-K for the year ended December 31, 2021, filed with the SEC on April 11, 2022.

amounts shown in these financial statements and accompanying notes are in thousands, except percentages and per share and share amounts.

GAAP”) have been condensed or omitted pursuant to such rules and regulations.

In the Company’s opinion, the unaudited consolidated

financial statements include all material adjustments, all of which are of a normal and recurring nature, necessary to present fairly

the Company’s financial position as of September 30, 2022, the Company’s operating results for the three and nine months

ended September 30, 2022 and 2021, and the Company’s cash flows for the nine months ended September 30, 2022 and 2021.

The accompanying

financial information as of December 31, 2021 is derived from audited financial statements.

Interim results are not necessarily indicative

of results for a full year.

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s

Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on April 11, 2022.

All amounts shown in

these financial statements and tables are in thousands and amounts in the notes are in millions, except percentages and per share and

share amounts.

Company’s significant accounting policies are discussed in Note 2—Summary of Significant Accounting Policies within

the notes to financial statements for the year ended December 31, 2021, included in the Company’s Annual Report on Form 10-K.

have been no significant changes to these policies during the six months ended June 30, 2022.

have been no significant changes to these policies during the nine months ended September 30, 2022 other than the following.

Consolidation

accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the

United States of America (“GAAP”).

These consolidated financial statements include the accounts of our wholly owned subsidiary.

All intercompany balances and transactions have been eliminated in consolidation.

preparation of the financial statements in accordance with U.S.

4 unchanged sentences

estimates and the exercising of judgment are appropriate relate to, valuation allowances for receivables and inventory, valuation of

contingent consideration and warrant liabilities, valuation of intangible and other long-lived assets, product sales allowances and reserves,

contingent consideration and warrant liabilities, realization of intangible and other long-lived assets, product sales allowances and reserves,

share-based payments and income taxes including deferred tax assets and liabilities.

3 unchanged sentences

Issued Accounting Pronouncements

February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , which requires organizations that lease assets to recognize on

the balance sheet the assets and liabilities for the rights and obligations created by those leases.

The new guidance requires that a

lessee recognize assets and liabilities for leases with lease terms of more than twelve months and recognition, presentation and measurement

in the financial statements will depend on the lease classification as a finance or operating lease.

In addition, the new guidance will

require disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash

flows arising from leases.

The JOBS ACT provides that an emerging growth company can take advantage of an extended transition period

for complying with new or revised accounting standards.

This allows us to delay the adoption of this new standard until it would otherwise

apply to private companies.

The new standard will be effective for us for fiscal years beginning after December 15, 2021, and interim

periods within fiscal years beginning after December 15, 2022.

The Company is currently evaluating the impact of adopting this guidance.

June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , which requires organizations that lease assets to recognize

on the balance sheet the assets and liabilities for the rights and obligations created by those leases.

The new guidance requires

that a lessee recognize assets and liabilities for leases with lease terms of more than twelve months and recognition, presentation

and measurement in the financial statements will depend on the lease classification as a finance or operating lease.

the new guidance will require disclosures to help investors and other financial statement users better understand the amount, timing

and uncertainty of cash flows arising from leases.

The JOBS ACT provides that an emerging growth company can take advantage of an

extended transition period for complying with new or revised accounting standards.

This allows us to delay the adoption of this new

standard until it would otherwise apply to private companies.

The new standard will be effective for us for fiscal years beginning

after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022.

The Company is currently

evaluating the impact of adopting this guidance.

Upon adoption of Topic 842, the Company expects to recognize a right-of-use asset and lease liability for all financing

and operating leases with terms greater than twelve months.

September 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial

33 unchanged sentences

of Acquisition Contract Liabilities

acquisition contract liabilities:

consideration

cost financing

contract liabilities, net

acquisition contract liabilities:

consideration

cost financing

contract liabilities, net

acquisition contract liabilities:

consideration

cost financing

(in thousands)

September 30, 2022

December 31, 2021

Short-term acquisition contract liabilities:

Contingent consideration

Start-up cost financing

Contract asset

Acquisition contract liabilities, net

Long-term acquisition contract liabilities:

Contingent consideration

Start-up cost financing

Contract asset

Acquisition contract liabilities, net

Total acquisition contract liabilities:

Contingent consideration

Start-up cost financing

Contract asset

Total acquisition contract liabilities, net

Fair Value Measurements

following table presents information about the Company’s assets that are measured at fair value on a recurring basis at June 30,

2022 and December 31, 2021 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair

following table presents information about the Company’s assets that are measured at fair value on a recurring basis at September

30, 2022 and December 31, 2021 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such

of Fair Value Hierarchy Valuation Inputs

Consideration

liability – 2021 Common warrant

liability - 2022 Common warrant

liability- 2022 Common warrant (Pre-funded)

(in thousands)

September 30, 2022

December 31, 2021

Contingent Consideration

Warrant liability – 2021 Purchase Warrants

Warrant liability - 2022 Purchase Warrants

Warrant liability – 2022 Inducement Warrants

Warrant liability

Consideration

consideration, which relates to the estimated profits from the sale of Cutanea products to be shared equally with Maruho, is reflected

at fair value within acquisition contract liabilities, net on the balance sheets.

The fair value is based on significant inputs not observable

in the market, which represent a Level 3 measurement within the fair value hierarchy.

The valuation of the contingent consideration utilizes

a scenario-based method under which a set of payoffs are calculated using the term of the earnout, projections, and an appropriate metric

risk premium.

These payoffs are then discounted back from the payment date to the valuation date using a payment discount rate.

the discounted payments are summed together to arrive at the value of the contingent consideration.

The scenario-based method incorporates

the following key assumptions:

(i) the forecasted product profit amounts, (ii) the remaining contractual term, (iii) a metric risk premium,

and (iv) a payment discount rate.

The Company re-measures contingent consideration and re-assesses the underlying assumptions and estimates

at each reporting period.

consideration, which relates to the estimated profits from the sale of Cutanea products to be shared equally with Maruho, is

reflected at fair value within acquisition contract liabilities, net on the consolidated balance sheets.

The fair value is based on

significant inputs not observable in the market, which represent a Level 3 measurement within the fair value hierarchy.

valuation of the contingent consideration utilizes a scenario-based method under which a set of payoffs are calculated using the

term of the earnout, projections, and an appropriate metric risk premium.

These payoffs are then discounted back from the payment

date to the valuation date using a payment discount rate.

Finally, the discounted payments are summed together to arrive at the

value of the contingent consideration.

The scenario-based method incorporates the following key assumptions:

(i) the forecasted

product profit amounts, (ii) the remaining contractual term, (iii) a metric risk premium, and (iv) a payment discount rate.

Company re-measures contingent consideration and re-assesses the underlying assumptions and estimates at each reporting

following table provides a roll forward of the fair value of the contingent consideration:

of Fair Value of Contingent Consideration

at December 31, 2020

in fair value of contingent consideration

Balance at June 30, 2021

at December 31, 2021

in fair value of contingent consideration

at June 30, 2022

issued on May 16, 2022 in conjunction with the private placement to an institutional shareholder were accounted for as liabilities in

accordance with ASC 815-40.

Pre-funded common stock purchase warrants to purchase up to 1,569,000 shares of our common stock at a nominal

exercise price of $ 0.001 per share (the “2022 Pre-funded Warrants”) and common stock purchase warrants to purchase up to

3,419,000 shares of our common stock at an exercise price of $ 2.77 per share (the “2022 Purchase Warrants”) are presented

within warrant liability in the accompanying balance sheets.

The warrant liability is measured at fair value at inception and on a recurring

basis, with changes in fair value presented within the statements of operations .

issued in conjunction with the private placement to an institutional shareholder which closed on December 2, 2021 were accounted for

as liabilities in accordance with ASC 815-40.

Pre-funded common stock purchase warrants to purchase up to 1,507,143 shares

of our common stock at a nominal exercise price (the “2021 Pre-funded Warrants”) were exercised in 2021 and the common

stock purchase warrants to purchase up to 2,857,143 shares

of our common stock at an exercise price of $ 5.25 per

share (the “2021 Purchase Warrants”) are presented within warrant

liability in the accompanying balance sheets.

The warrant liability is measured at fair value at inception and on a recurring basis,

with changes in fair value presented within the statements of operations.

Company utilizes a Black-Scholes option pricing model to estimate the fair value of the 2022

Purchase Warrants and 2021 Purchase Warrants which is considered a Level 3 fair value measurement.

Certain inputs utilized

in our Black-Scholes pricing model may fluctuate in future periods based upon factors which are outside of the Company’s

A significant change in one or more of these inputs used in the calculation of fair value may cause a significant change to

the fair value of our warrant liability which could also result in material non-cash gain or loss being reported in our statements

of operations.

The value of the

2022 Pre-funded Warrants is assumed to be equal to the per share value of the underlying common stock, given that the strike price is

nominal, and is therefore classified as Level 2.

(in thousands)

Balance at December 31, 2020

Change in fair value of contingent consideration

Balance at September 30, 2021

Balance at December 31, 2021

Change in fair value of contingent consideration

Balance at September 30, 2022

of 2021 Purchase Warrant and Issuance of July 2022 Inducement Warrant .

On July 26, 2022, the Company entered into an Inducement Letter

with the holder of the Company’s 2021 Purchase Warrants (the “Investor”).

The 2021 Purchase Warrants were originally

issued on December 1, 2021 to purchase up to 2,857,143

shares of common stock, par value $ 0.001

The Investor agreed to exercise for

cash, the 2021 Purchase Warrants, in exchange for the Company’s agreement to (i) lower

the exercise price of the 2021 Purchase Warrants from $ 5.25

per share and (ii) issue a new warrant (the “Inducement

Warrant”) to purchase up to 4,285,715

shares of common stock.

The Company received

proceeds of $ 4.6

million from the exercise of the 2021 Purchase

Warrants and expensed $ 0.3 million of related financial advisory fees.

price modification triggered the requirement for modification accounting of these warrants.

Based on the applicable guidance

for liability classified warrants, the warrants issued during the three months ended September 2022 in connection with the modification

and exercise of the 2021 Purchase Warrants were considered inducement warrants and their fair value of $ 3.9

million at issuance was considered part of the

modification transaction and included in the change in fair value and recognized in the consolidated statement of operations.

value was determined using a Black-Scholes option pricing model with the following assumptions:

fair value of the underlying common stock

of $1.64, expected volatility of 70%, risk free rate of 2.84%, remaining contractual term of 4.34 years and a dividend yield of 0%.

expected life of the warrants is assumed to be equivalent to their remaining contractual term.

Inducement Warrant is exercisable on or after January 27, 2023 at a price per share of $ 1.66 and expires on December 1, 2026 .

2022 Pre-Funded and Purchase Stock Warrants.

Warrants issued on May 16, 2022 in conjunction with the private placement to an

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

Pre-funded common stock purchase warrants

to purchase up to 1,569,000

shares of our common stock at a nominal exercise price of $ 0.001

per share (the “2022 Pre-funded Warrants”) and common stock purchase warrants to purchase up to 3,419,000

shares of our common stock at an exercise price of $ 2.77

per share (the “2022 Purchase Warrants”) are presented within warrant liability in the accompanying consolidated balance

The warrant liability is measured at fair value at inception and on a recurring basis, with changes in fair value presented

within the consolidated statements of operations.

On July 14, 2022, the 2022 Pre-funded Warrants were exercised resulting in net

proceeds of $ 2 ,000.

The estimated fair value of the May 2022 Purchase Warrant at September 30, 2022 was determined using the Black-Scholes Option

Pricing Model with the following assumptions:

fair value of the underlying common stock of $ 1.05 , expected volatility of 75 %, risk

free rate of 4.01 %, remaining contractual term of 5.13 years and a dividend yield of 0 %.

The expected life of the warrants is

assumed to be equivalent to their remaining contractual term.

Company utilize d a Black-Scholes option pricing model to estimate the fair value of the Inducement Warrant at September 30, 2022 with the following

fair value of the underlying common stock of $ 1.05 , expected volatility of 80 %, risk free rate of 4.10 %, remaining contractual

term of 4.17 years and a dividend yield of 0 %.

The expected life of the warrants is assumed to be equivalent to their remaining contractual

Certain inputs utilized in our Black-Scholes pricing model may fluctuate in future

periods based upon factors which are outside of the Company’s control.

A significant change in one or more of these inputs used

in the calculation of fair value may cause a significant change to the fair value of our warrant liability which could also result in

material non-cash gain or loss being reported in our consolidated statements of operations.

following table presents the changes in the warrant liability measured at fair value (in thousands):

of Changes in Fair Value Warrant Liabilities

value at December 31, 2021

of new derivative liabilities

in fair value of warrant liability

value at June 30, 2022

(in thousands)

Fair value at December 31, 2021

Issuance of new warrants

Exercise of warrants

Change in fair value of warrant liability

Fair value at September 30, 2022

generate revenue primarily through the sales of our licensed products Ameluz®, BF-RhodoLED® lamps and Xepi®.

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

our sales of Ameluz®.

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

party revenue relates to an agreement with Biofrontera Bioscience GmbH (“Bioscience”) for BF-RhodoLED® leasing and installation

2 unchanged sentences

of Revenue Allowance and Accrual Activities

assistance program

pay discounts

and payor rebates

at December 31, 2020

related to current period sales

or payments made during the period

Balance at June 30, 2021

at December 31, 2021

related to current period sales

or payments made during the period

at June 30, 2022

(in thousands):

Co-pay assistance program

Prompt pay discounts

Government and payor rebates

Balance at December 31, 2020

Provision related to current period sales

Credit or payments made during the period

Balance at September 30, 2021

Balance at December 31, 2021

Provision related to current period sales

Credit or payments made during the period

Balance at September 30, 2022

Accounts Receivable, net

2 unchanged sentences

that all trade receivables will be settled within twelve months of the balance sheet date.

allowance for doubtful accounts was $ 126,000 and $ 18,000 as of June 30, 2022 and December 31, 2021, respectively.

allowance for doubtful accounts was $ 0.1 million

and negligible as of September 30, 2022 and December 31, 2021, respectively.

Other Receivables, Related Party

of June 30, 2022, the Company has a receivable of $ 5.6 million

of September 30, 2022, the Company has a receivable of $ 6.3 million

term and $ 2.8 long-term)

due from Biofrontera AG for its 50 %

share of the balance of a legal settlement for which both parties are jointly and severally liable.

The Company has a contractual

right to repayment of its share of the settlement payment from Biofrontera AG under the Settlement Allocation Agreement entered into

on December 9, 2021 and as amended on March 31, 2022, which provided that the settlement payments would first be made by the Company

and then reimbursed by Biofrontera AG for its share The March 31, 2022 Amended Settlement

Allocation Agreement provides certain remedies to the Company, if Biofrontera AG fails to make timely reimbursements, which the

Company may implement in its sole discretion, including the ability to charge interest at a rate of 6.0 %

due from Biofrontera AG of which $ 6.1

million is due from Biofrontera AG for its 50 % share

of the balance of a legal settlement for which both parties are jointly and severally liable.

The Company has a contractual right to

repayment of its share of the settlement payment, plus other miscellaneous settlement costs, from Biofrontera AG under the

Settlement Allocation Agreement entered into on December 9, 2021 and as amended on March 31, 2022, which provided that the

settlement payments would first be made by the Company and then reimbursed by Biofrontera AG for its share.

The March 31, 2022

Amended Settlement Allocation Agreement provides certain remedies to the Company, if

Biofrontera AG fails to make timely reimbursements, which the Company may implement in its sole discretion, including the ability to

charge interest at a rate of 6.0 %

per annum for each day that any reimbursement is past due and the ability to offset any overdue reimbursement amounts against

payments owed to Biofrontera AG by the Company (including amounts owed under the Company’s license and supply agreement for

such , no reserve for the receivable has been recorded as of June 30, 2022 or December

A s such , no

reserve for the receivable has been recorded as of September 30, 2022 or December 31, 2021.

remaining $ 0.2 million of other receivables, related party pertains to service agreements and chargebacks.

2 unchanged sentences

are comprised of Ameluz ® , Xepi® and the BF-RhodoLED ® finished products.

assessing the consumption of inventories, the sequence of consumption is assumed to be based on the first-in-first-out (FIFO) method.

We recorded a provision of $ 0.1

million related to BF-RhodoLED ®

devices for the three and six months ended June 30, 2022.

We recorded a provision of $ 34 k

for Xepi® inventory obsolescence, for the six months ended June 30, 2021.

assessing the consumption of inventories, the sequence of consumption is assumed to be based on the first-in-first-out (FIFO)

We recorded a provision of $ 0.1 million

related to BF-RhodoLED ® devices for the nine months ended September 30, 2022.

The provision for Xepi® inventory

obsolescence was negligible, for the three months ended September 30, 2022 and for the three and nine months ended September 30,

Prepaid Expenses and Other Current Assets

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Schedule of Prepaid Expenses and Other Current Assets

for common stock warrants proceeds

(in thousands)

September 30, 2022

December 31, 2021

Loan receivable, short term

Receivable for common stock warrants proceeds

Prepaid expenses

Security deposits

On September 23, 2022.

the Company entered into a loan agreement with Quirin

PrivatBank AG in the amount of 3.1 million Euros.

loan receivable bears interest at 1.0 % from date of disbursement, is due on December 6, 2022 and is repayable at the option of the holder,

in cash or in shares of Biofrontera AG acquired with the funds disbursed from the loan.

Property and Equipment, Net

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Schedule of Property and Equipment

and equipment, gross

(in thousands)

September 30, 2022

December 31, 2021

Computer equipment

Computer software

Furniture & fixtures

Leasehold improvement

Machinery & equipment

Property and equipment, gross

Accumulated depreciation

and equipment, net

Property and equipment, net

expense was $ 0.1 ,

and $ 33,000 , for the

three months ended June 30, 2022, and 2021, respectively, and $ 54,000

and $ 66,000 for

the six months ended June 30, 2022 and 2021, respectively, which was included in selling, general and administrative expense in the

statements of operations.

for the nine months ended September 30, 2022 and 2021.

which was included in selling, general and administrative

expense in the consolidated statements of operations.

Depreciation expense for the three months ended September 30, 2022 and 2021 was negligible.

Intangible Asset, Net

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Schedule of Intangible Asset Net

(in thousands)

September 30, 2022

December 31, 2021

Xepi® license

Accumulated amortization

Xepi® license intangible asset was recorded at acquisition-date fair value of $ 4.6 million and is amortized on a straight-line basis

over the useful life of 11 years.

Amortization expense for the three months ended June 30, 2022 and 2021 was $ 0.1 million and $ 0.2 million

for the six months ended June 30, 2022 and 2021.

Intangible asset, net

Xepi® license intangible asset was recorded at acquisition-date fair value of $ 4.6

million and is amortized on a straight-line basis over the useful life of 11

Amortization expense was $ 0.1

million and $ 0.3 million,

for the three and nine months ended September 30, 2022, respectively, and $ 0.1

million and $ 0.3 million

for the three and nine months ended September 30, 2021, respectively.

review the Xepi ® license intangible asset for impairment whenever events or changes in circumstances indicate that the

carrying amount of the assets may not be fully recoverable.

In October 2022, upon receiving notification of further

third-party manufacturing delays that impacted the timing of sales expansion and improved market positioning of the Xepi ® product,

we deemed it necessary to assess the recoverability of our Xepi ® asset group.

Future cash flows were estimated over

the expected remaining useful life of the asset group, and we determined that, on an undiscounted basis, expected cash flows exceeded

the carrying amount of the asset group.

The Company did not recognize any impairment charges during the three or

six months ended June 30, 2022 or 2021.

nine months ended September 30, 2022 or 2021.

Statement of Cash Flows Reconciliation

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

of cash flows:

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

consolidated statements of cash flows:

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

and cash equivalents

restricted cash

cash, cash equivalent, and restricted cash shown on the statements of cash flows

(in thousands)

September 30, 2022

December 31, 2021

Cash and cash equivalents

Short-term restricted cash

Long-term restricted cash

Total cash, cash equivalent, and restricted cash shown on the consolidated

statements of cash flows

Accrued Expenses and Other Current Liabilities

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Schedule of Accrued Expenses and Other Current Liabilities

settlement (See note 23)

compensation and benefits

revenue allowances and reserves

(in thousands)

September 30, 2022

December 31, 2021

Legal settlement (See note 23)

Employee compensation and benefits

Professional fees

Product revenue allowances and reserves

Other Long-Term Liabilities

1 unchanged sentence

Schedule of Other Long Term Liabilities

settlement – noncurrent (See note 23)

(in thousands)

September 30, 2022

December 31, 2021

Legal settlement – noncurrent (See note 23)

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

for the three- or six-month periods ended June 30, 2022 and 2021.

Income tax expense incurred for the three and six months ended June

30, 2022 and 2021 relates to state income taxes.

At June 30, 2022 and December 31, 2021, the Company had no unrecognized tax benefits.

for the three- or nine-month periods ended September 30, 2022 and 2021.

Income tax expense incurred for the three and nine months ended

September 30, 2022 and 2021 relates to state income taxes.

At September 30, 2022 and December 31, 2021, the Company had no unrecognized

tax benefits.

Company continues to be in a cumulative loss position and as such, is maintaining a full valuation allowance.

and penalty charges, if any, related to unrecognized tax benefits would be classified as income tax expense in the accompanying statements

of operations.

As of June 30, 2022, and December 31, 2021, the Company has no accrued interest related to uncertain tax positions.

the Company is in a loss carryforward position, it is generally subject to examination by the U.S.

federal, state, and local income tax

authorities for all tax years in which a loss carryforward is available.

and penalty charges, if any, related to unrecognized tax benefits would be classified as income tax expense in the accompanying

consolidated statements of operations.

As of September 30, 2022, and December 31, 2021, the Company has no accrued interest related

to uncertain tax positions.

Since the Company is in a loss carryforward position, it is generally subject to examination by the U.S.

federal, state, and local income tax authorities for all tax years in which a loss carryforward is available.

Related Party Transactions

15 unchanged sentences

There was no consideration paid for the transfer of the license.

of the licensed products during the three and six months ended June 30, 2022 were $ 6.2 million and $ 11.5 million, respectively, and $ 1.2

million and $ 3.9 million for the three and six months ended June 30, 2021.

These purchases are recorded in inventories in

the balance sheets, and, when sold, in cost of revenues, related party in the statements of operations.

Amounts due and payable to Pharma

as of June 30, 2022 and December 31, 2021 were $ 1.1 million and $ 0.3 million, respectively, which were recorded in accounts payable,

related parties in the balance sheets.

December 2021, we entered into an Amended and Restated Master Contract Services Agreement, or Services Agreement, which provides for

the execution of statements of work that will replace the applicable provisions of our previous intercompany services agreement dated

January 1, 2016, or 2016 Services Agreement, by and among us, Biofrontera AG, Biofrontera Pharma and Biofrontera Bioscience, enabling

us to continue to use the IT resources of Biofrontera AG and its wholly owned subsidiaries (the “Biofrontera Group”) as well

as providing access to the Biofrontera Group’s resources with respect to quality management, regulatory affairs and medical affairs.

If we deem that the Biofrontera Group should continue to provide these services, we will execute a statement of work under the Services

Agreement with respect to such services.

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

pharmacovigilance, and investor relations services, and are continuously assessing the other services historically provided to us by

Biofrontera AG to determine 1) if they will be needed, and 2) whether they can or should be obtained from other third-party providers.

Expenses related to the service agreement were $ 0.3 million and $ 0.4 million for the three and six months ended June 30, 2022, respectively

and $ 0.2 million and $ 0.4 million for the three and six months ended June 30, 2021.

These expenses were recorded in selling, general

and administrative, related party.

Amounts due to Biofrontera AG related to the service agreement were $ 0.2 million as of June 30, 2022

and December 31, 2021 which were recorded in accounts payable, related parties in the balance sheets.

of the licensed products during the three and nine months ended September 30, 2022 were $ 5.2

million and $ 16.6

million, respectively, and $ 1.0

million and $ 5.7

million for the three and nine months ended September 30, 2021.

These purchases are recorded in inventories in the consolidated

balance sheets, and, when sold, in cost of revenues, related party in the consolidated statements of operations.

Amounts due and

payable to Pharma as of September 30, 2022 and December 31, 2021 were $ 4.2

million and $ 0.3

million, respectively, which were recorded in accounts payable, related parties in the consolidated balance sheets.

December 2021, we entered into an Amended and Restated Master Contract Services Agreement, or “Services Agreement”,

which provides for the execution of statements of work that will replace the applicable provisions of our previous intercompany

services agreement dated January 1, 2016, or 2016 Services Agreement, by and among us, Biofrontera AG, Biofrontera Pharma and

Biofrontera Bioscience, enabling us to continue to use the IT resources of Biofrontera AG and its wholly owned subsidiaries (the

“Biofrontera Group”) as well as providing access to the Biofrontera Group’s resources with respect to quality

management, regulatory affairs and medical affairs.

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

medical affairs, pharmacovigilance, and investor relations services, and are continuously assessing the other services historically

provided to us by Biofrontera AG to determine 1) if they will be needed, and 2) whether they can or should be obtained from other

third-party providers.

Expenses related to the service agreement were $ 0.2

million and $ 0.6

million for the three and nine months ended September 30, 2022, respectively and $ 0.2

million and $ 0.5

million for the three and nine months ended September 30, 2021.

These expenses were recorded in selling, general and administrative,

related party.

Amounts due to Biofrontera AG related to the service agreement as of September 30, 2022 and December 31, 2021 were

million and $ 0.2

million, respectively, which were offset against other receivables, related party in the consolidated balance sheet.

Lamp Lease Agreement

1 unchanged sentence

lamps and associated services.

revenue related to the clinical lamp lease agreement was approximately $ 16,000 and $ 31,000 for the three and six months ended June 30,

2022, respectively and $ 15,000 and $ 28,000 for the three and six months ended June 30, 2021, and were recorded as revenues, related party.

Amounts due from Bioscience for clinical lamp and other reimbursements were approximately $ 0.2 million and $ 92,000 as of June 30, 2022

and December 31, 2021, respectively, which were recorded as other receivables, related party in the balance sheets.

Reimbursements

from Maruho Related to Cutanea Acquisition

revenue related to the clinical lamp lease agreement was minimal for the three and nine months ended September 30, 2022, and

for the three and nine months ended September 30, 2021, and was recorded as revenues, related party.

Amounts due from Bioscience for

clinical lamp and other reimbursements were approximately $ 0.2 million

of September 30, 2022 and December 31, 2021, respectively, which were recorded as other receivables, related party in the

consolidated balance sheets.

Reimbursements from

Maruho Related to Cutanea Acquisition

to the Cutanea acquisition share purchase agreement, we received start-up cost financing and reimbursements for certain costs.

2 unchanged sentences

Refer to Note 3, Acquisition Contract Liabilities .

were no amounts reimbursed relating to SPA costs for the three and six months ended June 30, 2022.

For the three and six months ended

June 30, 2021, the amounts reimbursed relating to SPA costs were nil and $ 0.5 million and were recorded as other income in the statements

of operations as the related expenses were incurred.

As of June 30, 2022 and December 31, 2021 amounts due from Maruho, primarily relating

to SPA cost reimbursements, were $ 67,000 and $ 56,000 for each of the periods and were recorded in other receivables, related parties

in the balance sheets.

Company has recorded a receivable of $ 5.6 million

due from Biofrontera AG for its 50 %

amounts reimbursed relating to SPA costs for

the three and nine months ended September 30, 2022.

For the three and nine months ended September 30, 2021, the amounts reimbursed relating

to SPA costs were $ 0.2

million and $ 0.5

million and were recorded as other income in

the consolidated statements of operations as the related expenses were incurred.

As of September 30, 2022 and December 31, 2021 amounts

due from Maruho, primarily relating to SPA cost reimbursements, were $ 0.1

for each of the periods and were recorded in

other receivables, related parties in the consolidated balance sheets.

Company has recorded a receivable of $ 6.1

million and $11.3 million as of September 30, 2022 and December 31, 2021 due from Biofrontera AG for its 50 %

share of the balance of a legal settlement for which both parties are jointly and severally liable.

1 unchanged sentence

Receivables, Related Party .

The Company has recognized $ 0.1 million

of interest income for the six months ended June 30, 2022 in connection with this receivable.

The Company has recognized $ 0.1

million of interest income for the nine months ended September 30, 2022 in connection with this receivable.

Restructuring costs

2 unchanged sentences

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

There were no restructuring costs for the three and six months ended

June 30, 2022.

For the three and six months ended June 30, 2021, restructuring costs were incurred in the amount of $ 0.5 million.

There were no restructuring costs for the three and nine months ended

September 30, 2022.

For the three and nine months ended September 30, 2021, restructuring costs were incurred in the amount of $ 0.2 and

$ 0.7 million, respectively.

Stockholders’ Equity

12 unchanged sentences

Placement - On May 16, 2022, the Company entered into a Securities Purchase Agreement (“May 2022 PIPE”).

2022 PIPE, the Company issued for the gross cash receipts of $ 9.4

million (i) 1,850,000

shares of the common stock, (ii) a warrant to purchase up to 3,419,000

shares of the common stock (“ 2022 Purchase Warrant”) and (iii) a warrant

to purchase up to 1,569,000

shares of the common stock (“ 2022 Pre-Funded Warrant”).

purchase price for one share of common stock (or common stock equivalent) and a warrant to purchase one share of common stock was

The 2022 Purchase Warrant will be exercisable six months after the issue date, expires five and one-half years after the issue date

and has an exercise price of:

The Pre-Funded Warrant is exercisable immediately and has a term of exercise equal to five (5) years with a nominal

exercise price of $ 0.001

Because the warrants are accounted

for as liabilities, the May 2022 PIPE proceeds were allocated between the fair value of the warrants with the remaining proceeds allocated

to common stock and additional paid in capital.

In the May 2022

PIPE, the Company issued for the gross cash receipts of $ 9.4 million (i) 1,850,000 shares of the common stock, (ii) a warrant to purchase

up to 3,419,000 shares of the common stock (“2022 Purchase Warrant”) and (iii) a warrant to purchase up to 1,569,000 shares

of the common stock (“2022 Pre-Funded Warrant”).

The purchase price for one share of common stock (or common stock equivalent)

and a warrant to purchase one share of common stock was $ 2.75 .

The 2022 Purchase Warrant will be exercisable nine months after the issue

date, expires five and one-half years after the issue date and has an exercise price of:

$ 2.77 per share.

The Pre-Funded Warrant is exercisable

immediately and has a term of exercise equal to five ( 5 ) years with a nominal exercise price of $ 0.001 per share.

the warrants are accounted for as liabilities, the May 2022 PIPE proceeds were allocated between the fair value of the warrants with

the remaining proceeds allocated to common stock and additional paid in capital.

of 2022 Pre-Funded Warrant - On July 14, 2022, an investor exercised the 2022 Pre-Funded Warrant and purchased a total of 1,569,000

shares of common stock at an exercise price of

per share, resulting in negligible net proceeds,

of 2021 Purchase Warrant and Issuance of July 2022 Inducement Warrant - On July 26, 2022, the Company entered into the

Inducement Letter with the holder of the Company’s 2021 Purchase Warrants (the “Investor”).

The 2021 Purchase

Warrants were originally issued on December 1, 2021 to purchase up to 2,857,143

shares of common stock, par value $ 0.001

The Investor agreed to exercise for cash, the 2021 Purchase Warrants, in exchange

for the Company’s agreement to (i) lower the exercise price of the 2021 Purchase Warrants from $ 5.25

per share and (ii) issue a new warrant (the “Inducement Warrant”) to purchase up to 4,285,715

shares of common stock.

The Company received proceeds of $ 4.6

million, from the exercise of the 2021 Purchase Warrants and expensed the related issuance costs of $ 0.3 million.

Inducement Warrant is exercisable on or after January 27, 2023 at a price per share of $ 1.66 and expires on December 1, 2026 .

Equity Incentive Plans and Share-Based Payments

1 unchanged sentence

2021, our Board of Directors adopted, and our shareholders approved the 2021 Omnibus Incentive Plan (“2021 Plan).

2021 Plan, 2,750,000

shares are authorized for awards and the maximum contractual term is 10

years for stock options granted.

A total of 2,693,311 shares remain eligible for issuance as of June 30,

2022 under the 2021 Plan.

Under the 2021

Plan, 2,750,000 shares are authorized for awards and the maximum contractual term is 10 years for stock options granted .

A total of 2,579,932

shares remain eligible for issuance as of September 30, 2022 under the 2021 Plan.

Non-qualified

stock options

the quarter ended June 30, 2022, the Company granted non-qualified stock options to certain employees and non-employee directors.

were granted on May 18, 2022 with an exercise price of $ 2.61 , a contractual term of ten years and a grant-date fair value of $ 1.7 million.

Of the total 1,053,434 options granted, 88,000 options were awarded to non-employee directors.

The non-employee director options vest

in equal monthly installments following the date of grant and will be fully vested on the one-year anniversary of the date of grant.

The employee options vest annually over a three-year period, subject to the recipient’s continued service with the Company through

the applicable vesting dates.

the quarter ended March 31, 2022, the Company granted non-qualified stock options to certain employees to purchase 28,378 shares of common

stock under the 2021 Omnibus Incentive Plan.

The options were granted to employees on March 2, 2022 with an exercise price of $ 2.96 and

a contractual term of ten years .

These stock options had a grant-date fair value of $ 44,000 and vest annually over a three-year period,

subject to the recipient’s continued service with the Company through the applicable vesting dates.

maintain the 2021 Plan for the benefit of our officers, directors and employees.

Employee stock options granted under the 2021 Plan generally

vest in equal annual installments over three years and are exercisable for a period of up to ten years from the grant date.

director options vest in equal monthly installments following the date of grant and will be fully vested on the one-year anniversary

of the date of grant.

All stock options are exercisable at a price equal to the market value of the common shares underlying the option

on the grant date.

Company recognizes the grant-date fair value of share-based awards granted as compensation expense on a straight-line basis over the

4 unchanged sentences

The Company elects to account for forfeitures as they occur.

compensation expense of approximately $ 0.2 million and $ 0.3 million was recorded in selling, general and administrative expenses on the

accompanying statement of operations for the three and six months ended June 30, 2022.

There was no stock based compensation for the

three and six months ended June 30, 2021.

outstanding and exercisable under the employee share option plan as of June 30, 2022 and a summary of option activity during the six

months then ended is presented below.

compensation expense of approximately $ 0.3

million and $ 0.6

million was recorded in selling, general and administrative expenses on the accompanying consolidated statement of operations for

the three and nine months ended September 30, 2022.

stock based compensation for the three and nine months ended September 30, 2021.

outstanding and exercisable under the employee share option plan as of September 30, 2022 and a summary of option activity during the

nine months then ended is presented below.

Schedule of Stock Unit Activity

at December 31, 2021

Outstanding at June

Exercisable at June

Outstanding at December 31, 2021

Canceled or forfeited

Outstanding at September 30, 2022

Exercisable at September 30, 2022

aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the fair value

of the common stock for the options that were in the money at June 30, 2022.

of June 30, 2022, there was $ 2.7 million of unrecognized compensation cost related to unvested stock options, which is expected to be

recognized over a weighted-average period of approximately 2.6 years.

of the common stock for the options that were in the money at September 30, 2022.

of September 30, 2022, there was $ 2.6 million of unrecognized compensation cost related to unvested stock options, which is expected

to be recognized over a weighted-average period of approximately 2.5 years.

Compensation (RSUs)

the quarter ended June 30, 2022, the Company awarded 343,512 Restricted Stock Units (RSUs) to certain members of management.

no RSU’s granted during the three months ended March 31, 2022.

The fair value of each RSU is estimated based on the closing market

price of the Company’s common stock on the grant date.

RSUs had a grant-date fair value of $ 0.9 million and will vest annually over two years, subject to the recipient’s continued service

with the Company through the applicable vesting dates.

Share-based compensation expense of $ 0.4 million and $ 0.8 million for the RSUs

was recorded in selling, general and administrative expenses in the accompanying statement of operations for the three and six months

ended June 30, 2022.

There was no share-based compensation for the three and six months ended June 30, 2021.

of June 30, 2022, there was $ 0.8 million of unrecognized compensation cost related to unvested RSUs, which is expected to be recognized

Stock Units (“RSUs”) will vest annually over two years, subject to the recipient’s continued service with the Company

through the applicable vesting dates.

The fair value of each RSU is estimated based on the closing market price of the Company’s

common stock on the grant date.

compensation expense of $ 0.1

million and $ 0.9

million for the RSUs was recorded in selling, general and administrative expenses in the accompanying consolidated statement of

operations for the three and nine months ended September 30, 2022.

share-based compensation for the three and nine months ended September 30, 2021.

of September 30, 2022, there was $ 0.7 million of unrecognized compensation cost related to unvested RSUs, which is expected to be recognized

over a weighted-average period of approximately 1.6 years.

Schedule of Restricted Stock Units

Average Remaining Contractual Term

Average Grant Date Fair Value

at December 31, 2021

Outstanding at June

Expected to vest at June 30, 2022

of Restricted Stock Units

Weighted Average Remaining Contractual Term

Aggregate Intrinsic

Weighted Average Grant Date Fair Value

Outstanding at December 31, 2021

Canceled or forfeited

Outstanding at September 30, 2022

Expected to vest at September 30, 2022

Interest Expense, net

1 unchanged sentence

Schedule of Interest Expense

three months ended

six months ended

asset interest expense

income – related party

(in thousands)

For three months ended

September 30,

For nine months ended

September 30,

(in thousands)

Interest expense

Contract asset interest expense

Interest income – related party

Interest income – other

Interest expense, net

asset interest expense relates to the $ 1.7 million contract asset in connection with the $ 7.3 million start-up cost financing received

2 unchanged sentences

6 % interest rate over the financing arrangement contract term, which ends on December 31, 2023 .

Other Income, net

income, net consists of the following:

Other Income (Expense), net

income (expense), net consists of the following:

Schedule of Other Income, Net

three months ended

six months ended

(in thousands)

For three months ended

September 30,

For nine months ended

September 30,

(in thousands)

Reimbursed SPA costs

Other income (expense), net

net, primarily includes gain (loss) on foreign currency transactions and gain on termination of operating leases.

5 unchanged sentences

following table sets forth the computation of the Company’s basic and diluted net loss per share attributable to common stockholders.

(in thousands, except share and per share

(in thousands, except share and per share data):

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

income (loss)

weighted average common shares outstanding

Three Months Ended

Nine Months Ended

September 30,

Net income (loss)

Basic weighted average common shares outstanding

Effect of dilutive securities

options and restricted stock units

weighted average common shares outstanding

earnings (loss) per share:

following table sets forth the potential common shares that were not included in the diluted per share calculations for the six months

ended June 30, 2022 because they would be anti-dilutive:

Stock options and restricted stock units

Diluted weighted average common shares outstanding

Net earnings (loss) per share:

following table sets forth the potential common shares that were not included in the diluted per share calculations for the three

and nine months ended September 30, 2022 because they would be anti-dilutive:

Schedule of Anti-dilutive Securities Excluded From Computation of Earnings Per Share

Months Ended June 30,

stock warrants

Common stock options

Nine Months Ended September 30,

Three Months Ended

September 30, 2002

Months Ended September 30, 2022

Common stock warrants

Common stock options and RSUs

Unit Purchase Options

2 unchanged sentences

Company leases its corporate headquarters under an operating lease that expires in November 2025.

The Company provided the landlord with

a security deposit in the amount of $ 0.1 million, which was recorded as other assets in the balance sheets.

The Company provided the landlord

with a security deposit in the amount of $ 0.1

million, which was recorded as other assets in the consolidated balance sheets.

expense is recorded on a straight-line basis through the end of the lease term.

The Company incurred rent expense, in the amount of $ 0.1

million and $ 0.2 million for the three months ended June 30, 2022 and 2021, and $ 0.2 million and $ 0.4 million for the six months ended

June 30, 2022 and 2021, which was included in selling, general, and administrative expenses.

million and $ 0.4 million for the three and nine months ended September 30, 2022 which was included in selling, general, and administrative

The rent expense, net of sublease income for the three and nine months ended September 30, 2021 was $ 0.2 million and $ 0.6 million.

Company also leases autos for its field sales force with a lease payment term of 40 months.

The Company incurred auto lease expense of

$ 0.1 million for the three months ended June 30, 2022 and 2021 and $ 0.3 million and $ 0.2 million for the six months ended June 30, 2022

minimum aggregate payments of all future lease commitments as of June 30, 2022, are as follows:

$ 0.1 million and $ 0.3 million for the three and nine months ended September 30, 2022 and $ 0.1 million and $ 0.4 million for

the three and nine months ended September 30, 2021.

minimum aggregate payments of all future lease commitments as of September 30, 2022, are as follows:

Schedule of Future Commitments and Sublease Income

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lease commitments

Cutanea payments

are obligated to repay to Maruho $ 3.6 million on December 31, 2022 and $ 3.7 million on December 31, 2023 in start-up cost financing paid

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the Xepi LSA, we are obligated to make payments to Ferrer upon the occurrence of certain milestones.

Specifically, we must pay

Ferrer i) $ 2,000,000

upon the first occasion when annual net sales of Xepi® under the Xepi LSA exceed $ 25,000,000 ,

and ii) $ 4,000,000

upon the first occasion when annual net sales of Xepi® under the Xepi LSA exceed $ 50,000,000 .

No payments were made for the three and six months ended June 30, 2022 or 2021 related to Xepi®

Specifically, we must pay Ferrer

i) $ 2,000,000 upon the first occasion when annual net sales of Xepi® under the Xepi LSA exceed $ 25,000,000 , and ii) $ 4,000,000 upon

the first occasion when annual net sales of Xepi® under the Xepi LSA exceed $ 50,000,000 .

No payments were made for the three and

nine months ended September 30, 2022 or 2021 related to Xepi® milestones.

each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably

10 unchanged sentences

accrued at a rate equal to the weekly average one-year constant maturity Treasury yield and agreed to pay in three annual installments .

The first installment of $ 11.3 million (of which $ 5.6 million was Biofrontera AG’s portion) was paid in December 2021 by the Company.

The first installment of $ 11.3 million (of which $ 5.6 million was Biofrontera AG’s portion) was paid in December 2021

by the Company.

Biofrontera AG has agreed to pay a portion of the settlement, both parties remain jointly and severally liable for the full settlement

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agreement, this could nullify the settlement and the Company may lose the benefits of the settlement and be liable for a greater amount.

As of June 30, 2022 we have reflected a legal settlement liability in the amount of $ 11.3

million for the remaining

payments due and a related receivable from related party of $ 5.6

million, in accordance with the Settlement Allocation

Agreement entered into on December 9, 2021, which provided that the settlement payments would first be made by the Company and then reimbursed

by Biofrontera AG for its share.

As of September 30, 2022 we have reflected a legal settlement liability in the amount of $ 11.3 million for the remaining payments due

and a related receivable from related party of $ 5.6 million, in accordance with the Settlement Allocation Agreement entered into on December

9, 2021, which provided that the settlement payments would first be made by the Company and then reimbursed by Biofrontera AG for its

Retirement Plan

4 unchanged sentences

The Company matches 50% of employee contributions up to a maximum of 6% of employees’ salary .

the three months ended June 30, 2022 and 2021, matching contribution costs paid by the Company were $ 47,000 and $ 67,000 , respectively.

For the six months ended June 30, 2022 and 2021, matching contribution costs paid by the Company were $ 0.1 million.

the three and nine months ended September 30, 2022, matching contribution costs paid by the Company were $ 0.1 million and $ 0.2 million, respectively.

For the three and nine months ended September 30, 2021, matching contribution costs paid by the Company were $ 0.1 million and $ 0.2 million.

Subsequent Events

have completed an evaluation of subsequent events after the balance sheet date of June 30, 2022 through the date this Quarterly Report

on Form 10-Q was submitted to the SEC.

July 14, 2022, an investor exercised the 2022 Pre-funded warrants and purchased a total of 1,569,000

shares of common stock at an exercise price of $ .001

per share, resulting in net proceeds of $ 1,569 .

July 26, 2022, the Company entered into the Inducement Letter with the holder (the “Investor”) of the

Company’s 2021 Purchase Warrants.

The 2021 Purchase Warrants were originally issued on December 1, 2021 to purchase up to 2,857,143 shares

of common stock, par value $ 0.001 per

The Investor agreed to exercise for cash, the 2021 Purchase Warrants, in exchange for

the Company’s agreement to (i) lower the exercise price of the 2021 Purchase Warrants from $5.25 to $ 1.62

per share and (ii) issue a new warrant (the “Inducement Warrant”) to

purchase up to 4,285,715 shares

of common stock.

The Company received net proceeds of approximately $ 4.3 million,

after deducting the financial advisory fees, from the exercise of the 2021 Purchase Warrants by the Investor.

The Inducement Warrant is exercisable on or after January 27, 2023 at a

price per share of $ 1.66 and expires on December 1, 2026 .

The Investor has contractually agreed

to restrict its ability to exercise the Inducement Warrant such that the number of shares of the Company’s common stock held by

the Investor and its affiliates after such exercise does not exceed either 4.99% of the then issued and outstanding shares of the Company’s

have completed an evaluation of subsequent events after the balance sheet date of September 30, 2022 through the date this Quarterly

Report on Form 10-Q was submitted to the SEC.

of a stockholder rights plan .

On October 13, 2022 the Board of Directors (“Board”) authorized and declared a

dividend distribution of one Preferred Stock Purchase Right (a “Right”) for each outstanding share of common stock to

stockholders of record as of the close of business on October 24, 2022.

In addition, one Right will automatically attach to each

share of Common Stock issued between the record date of the distribution and the earlier of the distribution date and the expiration

date of the Rights.

Each Right entitles the registered holder to purchase from the Company a unit consisting of one ten-thousandth

of a share (a “Unit”) of Series A Junior Participating Cumulative Preferred Stock, par value $ 0.001

per share, of the Company at a cash exercise price of $ 5.00

per Unit, subject to adjustment, under certain conditions.

The complete terms of the Rights are set forth in the Stockholder Rights

Agreement (“Rights Agreement”), dated October 13, 2022, between the Company and Computershare Trust Company, N.A, as

rights agent.

the stockholder rights plan described above (the “Rights Plan”) is effective immediately, the Rights would become

exercisable only if a person or group, or anyone acting in concert with such a person or group, acquires beneficial ownership, as

defined in the Rights Agreement, of 20 %

or more of the Company’s issued and outstanding common stock in a transaction not approved by the Company’s Board of

The Rights Plan will expire on October 13, 2023.

the Rights Plan, a person or group who beneficially owned 20 % or more of the Company’s outstanding Common Stock prior to the first

public announcement of the Rights Plan on October 14, 2022 will not trigger the Rights so long as they do not

acquire beneficial ownership of any additional shares of Common Stock at a time when they still beneficially own 20 % or more of such

Common Stock.

The Investor may increase or decrease these limitations upon notice to the Company, but in no event will any such limitation

exceed 9.99%.

The Company has agreed, as soon as practicable (but in no event later than 30 days after the date of the Inducement

Letter) to file a registration statement on Form S-1 to register the resale of the shares of Common Stock underlying the Inducement Warrant

and to have such registration statement declared effective within 90 days of its initial filing.

details about the Rights Agreement are contained in a Form 8-K filed by the Company with the U.S.

Securities and Exchange Commission

on October 14, 2022.

A Junior Participating Cumulative Preferred Stock.

In connection with the adoption of the Rights Plan, the Board approved a Certificate

of Designations of Series A Junior Participating Cumulative Preferred Stock which designates the rights, preferences and privileges of

5,000 shares of Preferred Stock.

The Certificate of Designations was filed with the Secretary of State of Delaware and became effective

on October 13, 2022.

of Biofrontera AG Shares.

On October 25, 2022.

the Company entered into private exchange agreements with certain holders of options to

acquire ordinary shares, nominal value € 1.00

per share (the “AG Options”), of Biofrontera AG, pursuant to which the parties agreed to a negotiated private exchange

shares of the Company’s common stock in exchange for the AG Options.

The AG Options represent the right to acquire 2,623,365

ordinary shares of Biofrontera AG held by the shareholders, representing an exchange ratio of approximately 1 AG share to 1.2 shares

of the Company’s common stock.

There was no additional cost to exercise the AG Options.

As of November 8, 2022, the Company exercised the AG options in full to acquire 2,623,365 shares of Biofrontera AG.

Also, on November 8, 2022, the

Company entered into an amendment to the Loan Agreement with Convertible Repayment Obligation dated September 23,2022.

Amendment, Quirin PrivatBank AG assigned the acquired 1,601,318 shares of AG, including all associated rights, to the Company with

shares to be delivered promptly thereafter.

The parties agreed to terminate the loan in part in exchange for noted shares.

a result of these transactions, the Company now owns a total of 4,224,683

shares, which is 7.45 %

of Biofrontera AG’s outstanding ordinary shares as of November 8, 2022.

These shares were acquired in accordance with the loan

receivable agreement (as amended on November 8, 2022) disclosed in Note 9- Prepaid Expenses and Other Current Assets and the Private

Exchange Agreement entered into October 25, 2022 as detailed above.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements