What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-13 compared with 2022-04-11 · 812 added, 860 removed, 579 unchanged (74% of the section changed)

Financial Statements

and Supplementary Data

Financial Statements and Supplementary Data

TO FINANCIAL STATEMENTS

Financial Statements as of and for the Years Ended December 31, 2022 and 2021

of Independent Registered Public Accounting Firm (PCAOB ID No.

Balance Sheets as of December 31, 2021 and 2020

Statements of Operations for the years ended December 31, 2021 and 2020

of Stockholders’ Equity for the years ended December 31, 2021 and 2020

Statements of Cash Flows for the years ended December 31, 2021 and 2020

Notes to the Financial Statements

Report of Independent Registered Public Accounting Firm (PCAOB ID No.

Consolidated Balance Sheets as of December 31, 2022 and 2021

Consolidated Statements of Operations for the years ended December 31, 2022 and 2021

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2022 and 2021

Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021

Notes to the Consolidated Financial Statements

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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on the financial statements

have audited the accompanying balance sheets of Biofrontera Inc.

(a Delaware corporation) (the “Company”) as of December

31, 2021 and 2020, the related statements of operations, stockholders’ equity, and cash flows for each of the two years in the

period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”).

In our opinion,

the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and

2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity

with accounting principles generally accepted in the United States of America.

have audited the accompanying consolidated balance sheets of Biofrontera Inc.

(a Delaware corporation) and subsidiary (the “Company”)

as of December 31, 2022 and 2021, the related consolidated statements of operations, stockholders’ equity, and cash flows for each

of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December

31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022,

in conformity with accounting principles generally accepted in the United States of America.

in accounting principle

discussed in Note 2 to the financial statements, the Company changed its method of accounting for leases as of January 1, 2022, due to

adoption of Financial Accounting Standards Board Accounting Standards Codification No.

financial statements are the responsibility of the Company’s management.

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Massachusetts

Financial Statements as of and for the Years Ended December 31, 2021 and 2020

Consolidated Financial Statements as of and for the Years Ended December 31, 2022 and 2021

BALANCE SHEETS

thousands, except par value and share amounts )

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Cash and cash equivalents

Investment in equity securities

Accounts receivable, net

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Property and equipment, net

Operating lease right-of-use assets

Intangible asset, net

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Acquisition contract liabilities, net

Operating lease liabilities

Accrued expenses and other current liabilities

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Warrant liabilities

Operating lease liabilities, non-current

Other liabilities

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Stockholders’ equity:

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

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

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Total liabilities and stockholders’ equity

accompanying notes are an integral part of these financial statements.

Financial Statements as of and for the Years Ended December 31, 2021 and 2020

OF OPERATIONS

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

Consolidated Financial Statements as of and for the Years Ended December 31, 2022 and 2021

STATEMENTS OF OPERATIONS

thousands, except per share amounts and number of shares )

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Other income (expense)

in fair value of warrant liabilities

Change in fair value of warrant liabilities

Change in fair value of investments

Interest expense, net

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Basic and diluted

accompanying notes are an integral part of these financial statements.

Financial Statements as of and for the Years Ended December 31, 2021 and 2020

OF STOCKHOLDERS’ EQUITY

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

Consolidated Financial Statements as of and for the Years Ended December 31, 2022 and 2021

STATEMENTS OF STOCKHOLDERS’ EQUITY

thousands, except number of shares)

Additional Paid-

Balance at January 1, 2020

Conversion of debt to equity

Balance at December 31, 2020

Issuance of common stock and warrants under IPO, net of issuance costs of $ 3.1 million

Issuance of common stock and warrants under private placement offering, net of issuance costs of $ 0.3

Issuance of common stock and warrants under private placement offering, net of issuance costs of $ 0.3 million

Exercise of common stock warrants

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Balance at December 31, 2021

accompanying notes are an integral part of these financial statements.

Financial Statements as of and for the Years Ended December 31, 2021 and 2020

OF CASH FLOWS

Issuance of common stock in exchange for investments in equity securities

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

Exercise of pre-funded warrants

Exercise of PIPE warrants

Issuance of shares for vested restricted stock units

Stock based compensation

Balance, December 31, 2022

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

Consolidated Financial Statements as of and for the Years Ended December 31, 2022 and 2021

STATEMENTS OF CASH FLOWS

Years ended December 31,

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Adjustments to reconcile net loss to cash flows used in operations

Amortization of right-of-use assets

Amortization of acquired intangible assets

Change in fair value of investment in equity securities

Change in fair value of contingent consideration

Change in fair value of

warrant liabilities

Change in fair value of warrant liabilities

Stock-based compensation

Provision for inventory obsolescence

Provision for (recovery of) doubtful accounts

Provision for doubtful accounts

Non-cash interest expense

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Accounts payable and related party payables

Operating lease liabilities

Accrued expenses and other liabilities

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Cash flows from investing activities

Purchases of investment in equity securities

Purchases of property and equipment

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Proceeds from exercise of warrants

Proceeds from related party indebtedness

Proceeds from start-up cost financing

Cash flows provided by financing activities

Net increase 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

Net (decrease) increase in cash and cash equivalents

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

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

Supplemental disclosure of cash flow information

Interest paid – related party

Interest paid

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Supplemental non-cash investing and financing activities

Issuance of 7,999,000 shares of common stock for conversion of debt

Conversion of warrant liability to equity in connection with exercise of warrants

Issuance of common shares in exchange for investments in equity securities

Addition of right-of-use assets in exchange for operating lease liabilities

Issuance costs included in accrued expenses and other liabilities

Non-cash purchase of fixed assets

Conversion of warrant liability to equity

accompanying notes are an integral part of these financial statements.

to the Audited Financial Statements as of and for the Years Ended December 31, 2021 and 2020

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

to the Audited Consolidated Financial Statements as of and for the Years Ended December 31, 2022 and 2021

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 results in sun damage to the skin.

Our principal licensed

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

We also market a

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

(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 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”) with Biofrontera Pharma GmbH dated as of October 1, 2016, as subsequently amended.

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

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

impetigo due to staphylococcus aureus or streptococcus pyogenes.

The approved indication is impetigo, a common skin infection.

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

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

an exclusive license and supply agreement (“Xepi LSA”) with Ferrer Internacional S.A.

medical devices, the BF-RhodoLED ® lamp series, consisting of the BF-RhodoLED ® and the RhodoLED ®

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

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

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 17, Related Party Transactions ,

for further details.

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

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

the treatment of impetigo due to staphylococcus aureus or streptococcus pyogenes.

The approved indication is impetigo, a common skin

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

We are currently selling Xepi ® for this indication

under an exclusive license and supply agreement (“Xepi LSA”) with Ferrer Internacional S.A.

that was acquired by Biofrontera Inc.

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

Refer to Note 16, Related Party Transactions , for further

Refer to Note 17, Related

Party Transactions , 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.

the year ended December 31, 2021, we received aggregate proceeds of $ 43.2 million, including $ 14.9 million from the sale of common stock

in our IPO, $ 15.0 million from a private placement, and $ 13.3 million from warrants exercised for our common stock (See Note 18.

Company’s primary sources of liquidity are its existing cash balances, cash collected from the sales of its products, and cash

flows from financing transactions.

During the year ended December 31, 2022, we received

proceeds of $ 9.4

million from the issuance of common stock and warrants in a private placement, net of issuance costs, and $ 4.6

million from the exercise of common stock warrants (See Note 19.

Stockholders’ Equity ).

As of December 31, 2021, we had cash and cash equivalents of $ 24.5 million, compared to $ 8.1 million as of December 31, 2020.

Since we commenced operations in 2015, we

have generated significant losses.

For the years ended December 31, 2021 and 2020, we incurred net losses of $ 37.7

million and $ 11.0

million, respectively.

We incurred net cash outflows from operations of $ 26.7

million and $ 12.4

million, for the same periods, respectively.

As of December 31, 2022,

we had cash and cash equivalents of $ 17.2

million, compared to $ 24.5

million as of December 31, 2021.

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

For the years ended December 31, 2022 and 2021, we incurred net

losses of $ 0.6 million and $ 37.7 million, respectively .

We incurred net cash outflows from operations

of $ 16.2 million and $ 26.7 million, for the same periods, respectively.

We had an accumulated deficit as of December 31, 2022 of $ 79.5

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 of $ 5.6 million (see Note 13.

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

Acquisition Contract Liabilities).

facility and auto leases (see Note 24, Commitments and Contingencies ), Maruho start-up payments of $ 7.3

million (see Note 3.

Acquisition Contract

Liabilities ), and legal settlement expenses after reimbursement from Biofrontera AG of $ 2.5

Long-term material cash requirements

include potential milestone payments to Ferrer Internacional S.A, and contingent consideration payments to Maruho connected with Xepi

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 in the near term 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.

COVID-19 Related Risks and Uncertainties

Since the beginning

of 2020, COVID-19 has become a global pandemic.

As a result of the measures implemented by governments around the world, our business

operations have been directly affected.

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 patients.

In order to mitigate the risk from COVID-19, we took expedited measures to reduce operating expenses and preserve cash, including

headcount reduction, mandatory furlough, freezing hiring and discretionary spend, and voluntary salary reductions from the senior leadership.

Due to the above management initiatives, lifting of some of the government restrictions and reopening of our customers’ businesses,

our revenue recovered quickly since March 2021 .

were granted a one-time employee retention credit (“ERC”) under CARES Act in the amount of $ 0.3 million, which was recorded

as other income during the year ended December 31, 2020.

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.

commercialization of our licensed products in the United States.

We also expect to incur additional expenses to add and improve operational,

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

In addition, we

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

a public company in the U.S.

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

Based on current operating plans and financial

forecasts, we expect that our current capital resources, including investments in equity securities, which we intend to liquidate within the next twelve months, and availability

under a working capital line of credit, 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 financial statements have been prepared in accordance with accounting principles generally accepted in the United States

of America (“GAAP”).

The information presented reflects the application of significant accounting policies described below.

financial statements are presented in U.S.

dollars (“USD”).

for Preparation of the Consolidated Financial Statements

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

United States of America (“GAAP”).

These consolidated financial statements include the accounts of our wholly owned

All intercompany balances and transactions have been eliminated in consolidation.

The information presented reflects the

application of significant accounting policies described below.

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.

segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief

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The Company’s chief operating decision maker

(determined to be the Chief Executive Officer) does not manage any part of the Company separately, and the allocation of resources

and assessment of performance are based on the Company’s operating results.

(determined to be the Chief Executive Officer) does not manage any part of the Company separately, and the allocation of resources and

assessment of performance are based on the Company’s operating results.

operate in a single reporting segment, the commercialization of pharmaceutical products for the treatment of dermatological conditions

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as one reporting segment.

The preparation of the financial statements in accordance

with GAAP requires the use of estimates and assumptions by management that affect the reported amounts of assets and liabilities, as

well as disclosure of contingent assets and liabilities, as reported on the balance sheet date, and the reported amounts of revenues

and expenses arising during the reporting period.

The main areas in which assumptions, estimates and the exercising of judgment are appropriate

relate to, valuation allowances for receivables and inventory, contingent consideration, valuation of intangible and other

long-lived assets, product sales allowances and reserves, share-based payments and income taxes including deferred tax assets and liabilities.

Estimates are based on historical experience and other assumptions that are considered appropriate in the circumstances.

They are continuously

reviewed but may vary from the actual values.

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

GAAP requires the use of estimates and assumptions by management

that affect the reported amounts of assets and liabilities, as well as disclosure of contingent assets and liabilities, as reported on

the balance sheet date, and the reported amounts of revenues and expenses arising during the reporting period.

The main areas in which

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

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

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

Estimates are based on historical

experience and other assumptions that are considered appropriate in the circumstances.

They are continuously reviewed but may vary from

the actual values.

and Cash Equivalents

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cash consists primarily of deposits of cash collateral held in accordance with the terms of our corporate credit cards, in addition to

one deposit held for a sublease.

one deposit held for a sublease (see Note 13.

Statement of Cash Flows Reconciliation) .

in Equity Securities

Company accounts for its investments in equity securities in accordance with ASC 321, Investments — Equity Securities

Equity securities, which are comprised of investments in common stock with a readily determinable fair

value, are initially recorded at cost, plus transaction costs, and subsequently measured at fair value, based on quoted market

prices, with the gains and losses reported in the Company’s consolidated statement of operations.

As the fair value of the

Company’s investments is reported in a foreign currency, the change in fair value attributable to changes in foreign

exchange rates is included in other income, net in the consolidated statement of operations.

receivables are reported at their net realizable value.

Any value adjustments are booked directly against the relevant receivable.

We have standard payment terms that generally require payment within approximately 30 to 90 days.

Management performs ongoing credit

evaluations of its customers.

An allowance for potentially uncollectible accounts is provided based on history, economic conditions,

and composition of the accounts receivable aging.

In some cases, the Company makes allowances for specific customers based on these and

other factors.

Provisions for the allowance for doubtful accounts are recorded in selling, general and administrative expenses in the

accompanying statements of operations.

have standard payment terms that generally require payment within approximately 30 to 90 days.

Management performs ongoing credit evaluations

of its customers.

An allowance for potentially uncollectible accounts is provided based on history, economic conditions, and composition

of the accounts receivable aging.

In some cases, the Company makes allowances for specific customers based on these and other factors.

Provisions for the allowance for doubtful accounts are recorded in selling, general and administrative expenses in the accompanying statements

of operations.

Concentration

of Credit Risk and Off-Balance Sheet Risk

Financial instruments that potentially expose the

Company to concentrations of credit risk consist primarily of cash, cash equivalents, accounts receivable and other receivables,

related party.

The Company maintains all of its cash and cash equivalents at a single accredited financial institution, in amounts

that exceed federally insured limits.

The Company has no significant off-balance sheet risk such as foreign exchange contracts, option

contracts, or other foreign hedging arrangements.

instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents, accounts

receivable and other receivables, related party.

The Company maintains all of its cash and cash equivalents at a single accredited financial

institution, in amounts that exceed federally insured limits.

The Company has no significant off-balance sheet risk such as foreign exchange

contracts, option contracts, or other foreign hedging arrangements.

Concentrations

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We continue to monitor these conditions and assess their possible impact on our business.

Other receivables,

related party consists of a receivable due from Biofrontera AG for its 50 % share of a legal settlement for which they are jointly and

severally liable for the total settlement amount.

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, which provided that the settlement payments

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

Although this receivable has credit risk, it

is mitigated by an executed Pledge Agreement which grants us a security interest in shares of stock for which we will have the right

to sell upon an event of default.

receivables, related party consists of a receivable due from Biofrontera AG for its 50% share of a legal settlement and related

costs for which they are jointly and severally liable for the total settlement amount.

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, which provided that the settlement payments would first be made by the Company and then reimbursed by Biofrontera

AG for its share.

Although this receivable has credit risk, it is mitigated by the Settlement Allocation Agreement as amended on

March 31, 2022, which 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

are dependent on two suppliers, Biofrontera Pharma GmbH and Ferrer Internacional S.A., to supply drug products, including all underlying

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goods consist of pharmaceutical products purchased for resale and are stated at the lower of cost or net realizable value.

Cost is calculated by applying the first-in-first-out method (FIFO).

Inventory costs include the purchase

price of finished goods and freight-in costs.

The Company regularly reviews inventory quantities on hand and writes down to its net realizable

value any inventory that it believes to be impaired.

Management considers forecast demand in relation to the inventory on hand, competitiveness

of product offerings, market conditions and product life cycles when determining excess and obsolescence and net realizable value adjustments.

Once inventory is written down and a new cost basis is established, it is not written back up if demand increases.

Plant and Equipment

plant and equipment are recorded at cost less accumulated depreciation.

Cost is calculated

by applying the first-in-first-out method (FIFO).

Inventory costs include the purchase price of finished goods and freight-in costs.

The Company regularly reviews inventory quantities on hand and writes down to its net realizable value any inventory that it believes

to be impaired.

Management considers forecast demand in relation to the inventory on hand, competitiveness of product offerings, market

conditions and product life cycles when determining excess and obsolescence and net realizable value adjustments.

Once inventory is written

down and a new cost basis is established, it is not written back up if demand increases.

and Equipment

and equipment are recorded at cost less accumulated depreciation.

Depreciation is generally applied straight-line over the estimated

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Leasehold improvements are amortized over the shorter of the asset’s estimated useful life or the lease

The estimated useful lives of property, plant and equipment are:

The estimated useful lives of property and equipment are:

of Estimated Useful Lives of Property, Plant and Equipment

Useful Life in Years

of estimated useful lives or the term of the lease

Estimated Useful Life in Years

Computer equipment

Computer software

Furniture and fixtures

Leasehold improvements

Shorter of estimated useful lives or the term of the lease

Machinery & equipment

cost and accumulated depreciation of assets retired or sold are removed from the respective asset category, and any gain or loss is recognized

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Intangible assets with indefinite lives are not amortized.

assets with finite lives and other long-lived assets are reviewed for impairment when events or changes in circumstances indicate that

the carrying amount of an asset may not be recoverable.

Recoverability of intangible assets with finite lives and other long-lived assets

is measured by a comparison of the carrying amount of an asset or asset group to future net undiscounted cash flows expected to be generated

by the asset or asset group.

If these comparisons indicate that an asset is not recoverable, the Company will recognize an impairment

loss for the amount by which the carrying value of the asset or asset group exceeds the related estimated fair value.

Estimated fair

value is based on either discounted future operating cash flows or appraised values, depending on the nature of the asset.

February 2016, the Financial Accounting Standards Board (“ FASB”) issued ASU

2016-02, Leases (Topic 842), to enhance the transparency and comparability of financial reporting related to leasing arrangements.

The Company adopted the standard effective January 1, 2022.

Using the optional transition method, prior period financial statements have

not been recast to reflect the new lease standard.

The adoption of the new lease standard resulted in the addition of an operating lease

right-of-use asset and an operating lease liability in the amount of $ 1.8 million to the consolidated balance sheet as of January 1,

the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and

circumstances present.

Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value

of lease payments over the expected lease term.

The interest rate implicit in lease contracts is typically not readily determinable.

As such, the Company utilizes its incremental borrowing rate (“IBR”), which is the rate incurred to borrow on a collateralized

basis over a similar term an amount equal to the lease payments in a similar economic environment.

the absence of an outstanding debt agreement, a synthetic credit rating analysis was used in estimating the Company’s IBR.

Based on a synthetic credit rating of Ba3 and a term of 3.33 to six years, the IBR was determined to be 6% for leased liabilities at inception and 8.5% for 2022 leased liabilities.

No adjustments to the right-of-use asset

were required for items such as initial direct costs paid or incentives received.

Company has elected to adopt the practical expedient provided in ASC 842 and not reassess, for leases that existed prior to

the commencement date, 1).

whether any expired or existing contracts are or contain leases, 2).

lease classification, or 3).

initial indirect costs for any existing leases.

The Company has elected to combine lease and non-lease components as a single

component for certain asset classes, when applicable.

Operating leases are recognized on the balance sheet as operating lease

right-of-use assets, operating lease liabilities current and operating lease liabilities non-current.

The Company also

elected to utilize the short-term lease recognition exemption and for those leases that qualified, the Company did not recognize

right-of-use assets or lease liabilities.

These leases are recognized on a straight-line basis over the expected term.

of Long-Lived Assets

Company considers whether events or changes in facts and circumstances, both internally and externally, may indicate that an impairment

of long-lived assets held for use, including right-of-use assets, are present.

To the extent indicators or impairment exist, the determination

of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition.

In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the asset, the assets are written

down to their estimated fair values and the loss is recognized in the statements of operations.

Consideration

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The fair value

of contingent consideration liabilities are remeasured each reporting period, with changes in the fair value included in current

The remeasured liability amount could be significantly different from the amount at the acquisition date, resulting in material

charges or credits in future reporting periods.

of contingent consideration liabilities are remeasured each reporting period, with changes in the fair value included in current operations.

The remeasured liability amount could be significantly different from the amount at the acquisition date, resulting in material charges

or credits in future reporting periods.

Contingencies

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Company accounts for common stock warrants as either equity-classified or liability-classified instruments based on an assessment of

the specific terms of the warrants and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”)

Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC

815, Derivatives and Hedging (“ASC 815”).

The assessment considers whether the warrants are freestanding financial instruments

pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and meet all of the requirements for equity classification

under ASC 815, including whether the warrants are indexed to the Company’s own stock and whether the holders of the warrants could

potentially require net cash settlement in a circumstance outside of the Company’s control, among other conditions for equity classification.

This assessment, which requires the use of professional

judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

their issuance date and as of December 31, 2021,

the IPO Warrants (see Note 18) were accounted for as equity as these instruments meet all of the requirements for equity classification

under ASC 815-40.

Purchase Warrant and Pre-funded Warrant issued in connection with the private placement offering completed on December 1 , 2021

were accounted for as liabilities as these warrants provide for a cashless settlement provision which fails the requirement of the indexation

guidance under ASC 815-40.

The resulting warrant liabilities are re-measured at each balance sheet

date until their exercise or expiration, and any change in fair value is recognized in the Company’s statement of operations.

fair values of the Purchase Warrant and Pre-funded Warrant as of December 1, 2021, the issuance date, were $ 5.7 million and $ 6.5 million,

respectively.

Given the nominal strike price of $ 0.0001 , the fair value of the Pre-funded Warrant was deemed to be equal to the market

price of the underlying common stock.

The fair value of the Purchase Warrant was estimated using Black-Scholes pricing model based on

the following assumptions:

of Fair value Warrant by Using Black-Scholes Pricing Model Assumptions

At Issuance Date

Expiration term (in years)

Risk-free Rate

Dividend yield

private placement offering costs of $ 1.7 million were allocated between warrants and the common stock based on the allocated proceeds.

The offering costs allocated to the Purchase and Pre-funded Warrants of $ 1.4 million were immediately expensed and recorded as selling, general and administrative

expense in the statement of operations for the year ended December 31, 2021.

December 28, 2021, the warrant holder exercised the Pre-funded Warrant.

The Company revalued the Pre-funded Warrant at

fair value of $ 12.2 million at the exercise date and reclassified the warrant liability balance into equity.

The change in the fair value

of $ 5.7 million of the Pre-funded Warrant between the issuance date and the exercise date was recognized in the statement of operations.

fair value of the Purchase Warrant that remained outstanding at December 31, 2021 was $ 12.9

The change in the fair value

of $ 7.1 million of the Purchase Warrant between the issuance date and December 31, 2021 was recognized in the statement of operations.

The fair value was estimated using Black-Scholes

pricing model based on the following assumption:

December 31, 2021

Expiration term (in years)

Risk-free Rate

Dividend yield

the specific terms of the warrants and applicable authoritative guidance in FASB Accounting Standards Codification (“ASC”)

480, Distinguishing Liabilities from Equity (“ASC 480”) and Derivatives and Hedging (“ASC 815”).

classified as equity are recorded at fair value as of the date of issuance on the Company’s consolidated balance sheets and no

further adjustments to their valuation are made.

Warrants classified as derivative liabilities that require separate accounting as liabilities

are recorded on the Company’s consolidated balance sheets at their fair value on the date of issuance and are revalued on each

subsequent balance sheet date until such instruments are exercised or expire, with any changes in the fair value between reporting periods

recorded as other income or expense.

Management estimates the fair value of these liabilities using the Black-Scholes-Merton (“BSM”)

model and assumptions that are based on the individual characteristics of the warrants or instruments on the valuation date, as well

as assumptions for future financings, expected volatility, expected life, yield, and risk-free interest rate.

their issuance date in October 2021, the IPO Warrants (see Note 19.

Stockholders’ Equity) were

accounted for as equity as these instruments meet all of the requirements for equity classification under ASC 815-40.

Purchase Warrants issued in connection with the private placement offerings completed on December 1 , 2021 and May 16, 2022 as well as the Inducement Warrants

issued on July 26, 2022 were accounted for as liabilities as these warrants provide for a cashless settlement provision which fails the

requirement of the indexation guidance under ASC 815-40.

The resulting warrant liabilities are

re-measured at each balance sheet date until their exercise or expiration, and any change in fair value is recognized in the Company’s

consolidated statement of operations.

Refer to Note 4.

Fair Value Measurements.

Value Measurements

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used in determining the reported fair values.

ASC 820, Fair Value Measurements and Disclosures , or ASC 820, establishes

a hierarchy of inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable

inputs by requiring that the observable inputs be used when available.

Observable inputs are those that market participants would use

in pricing the asset or liability based on market data obtained from sources independent of the Company.

Unobservable inputs reflect

the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed

based on the best information available in the circumstances.

ASC 820, Fair Value Measurements and Disclosures , or ASC 820, establishes a hierarchy

of inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring

that the observable inputs be used when available.

Observable inputs are those that market participants would use in pricing the asset

or liability based on market data obtained from sources independent of the Company.

Unobservable inputs reflect the Company’s assumptions

about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information

available in the circumstances.

The three levels of the fair value hierarchy are described below:

1 – Quoted prices in active markets for identical assets or liabilities.

2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly

or indirectly.

2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or

3 – Unobservable inputs using estimates or assumptions developed by the Company, which reflect those that a market participant

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Value of Financial Instruments

carrying amounts reflected in the balance sheets for cash and cash equivalents, accounts receivable, other receivables, prepaid

expenses and other current assets, accounts payable and accrued expenses and other current liabilities approximate their fair values,

due to their short-term nature.

Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts

with Customers .

Under ASC Topic 606, revenue is recognized when a customer obtains control of promised goods or services in an amount

that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.

We recognize revenue

when the customer obtains control of our product, which occurs at a point in time, typically upon delivery to the customer.

carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents, accounts receivable, other receivables,

accounts payable and start-up cost financing included in acquisition contract liabilities

approximate their fair values, due to their short-term nature.

Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers .

Under ASC Topic 606, revenue

is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the

Company expects to be entitled in exchange for those goods or services.

We recognize revenue when the customer obtains control of our

product, which occurs at a point in time, typically upon delivery to the customer.

determine revenue recognition, we perform the following five steps:

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is sold directly to specialty pharmacies.

Sales are recognized net of sales deductions when ownership and control are transferred to

the customer, which is generally upon delivery.

Sales are recognized net of sales deductions when ownership and control are transferred

to the customer, which is generally upon delivery.

Sales deductions include expected returns, discounts and incentives such as payments

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be received for the related sales.

payment terms for sales of our pharmaceutical products are generally short-term payment terms with the possibility of volume-based discounts,co-pay

assistance discounts, or other rebates.

payment terms for sales of our pharmaceutical products are generally short-term payment terms with the possibility of volume-based

discounts, co-pay assistance discounts, or other rebates.

RhodoLED ® is also sold directly to physicians, hospitals or other qualified healthcare providers through (i) direct sales

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Consideration

Revenues from product

sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which sales

reserves are established and which result from discounts, rebates and other incentives that are offered within contracts between

from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which

sales reserves are established and which result from discounts, rebates and other incentives that are offered within contracts between

the Company and its customers.

Components of variable

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

Variable consideration is recorded on the balance sheet as either a reduction of accounts receivable, if expected to be

claimed by a customer, or as a current liability, if expected to be payable to a third party other than a customer.

appropriate, these estimates take into consideration relevant factors such as the Company’s historical experience, current contractual

and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns.

These reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of

the contract.

Actual amounts of consideration ultimately received may differ from the Company’s estimates.

If actual results in

the future vary from the Company’s estimates, the Company will adjust these estimates, and record any necessary adjustments in

the period such variances become known.

Components of variable consideration include trade discounts and allowances, product returns, government

rebates, and other incentives such as patient co-pay assistance.

Variable consideration is recorded on the balance sheet as either a

reduction of accounts receivable, if expected to be claimed by a customer, or as a current liability, if expected to be payable to a

third party other than a customer.

Where appropriate, these estimates take into consideration relevant factors such as the Company’s

historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted

customer buying and payment patterns.

These reserves reflect the Company’s best estimates of the amount of consideration to which

it is entitled based on the terms of the contract.

Actual amounts of consideration ultimately received may differ from the Company’s

If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates, and record

any necessary adjustments in the period such variances become known.

Discounts and Allowances – The Company provides customers with trade discounts, rebates, allowances and/or other incentives.

The Company records estimates for these items as a reduction of revenue in the same period the revenue is recognized.

and Payor Rebates – The Company contracts with, or is subject to arrangements with, certain third-party payors, including

pharmacy benefit managers and government agencies, for the payment of rebates with respect to utilization of its commercial products.

The Company is also subject to discount and rebate obligations under state and federal Medicaid programs and Medicare.

The Company records

estimates for these discounts and rebates as a reduction of revenue in the same period the revenue is recognized.

Incentives – The Company maintains a co-pay assistance program which is intended to provide financial assistance to

qualified patients with the cost of purchasing Xepi®.

and Payor Rebates – The Company contracts with, or is subject to arrangements with, certain third-party payors, including pharmacy

benefit managers and government agencies, for the payment of rebates with respect to utilization of its commercial products.

is also subject to discount and rebate obligations under state and federal Medicaid programs and Medicare.

The Company records estimates

for these discounts and rebates as a reduction of revenue in the same period the revenue is recognized.

Incentives – The Company maintains a co-pay assistance program which is intended to provide financial assistance to qualified

patients with the cost of purchasing Xepi ® .

The Company estimates and records accruals for these incentives as a reduction

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Royalty expense is recognized as cost of revenues.

Company generally provides a 36-month warranty for sales of BF-RhodoLED ® for which estimated contractual warranty

obligations are recorded as an expense at the time of installation.

Customers do not have the option to purchase the warranty

separately and the warranty does not provide the customer with a service beyond the assurance that BF-RhodoLED ® complies

with agreed-upon specifications.

Company generally provides a 36-month warranty for sales of BF-RhodoLED ® for which estimated contractual warranty obligations

are recorded as an expense at the time of installation.

Customers do not have the option to purchase the warranty separately and the

warranty does not provide the customer with a service beyond the assurance that BF-RhodoLED ® complies with agreed-upon

specifications.

Therefore, the warranty is not considered to be a performance obligation.

The lamps are subject to

regulatory and quality standards.

Future warranty costs are estimated based on historical product performance rates and related

costs to repair given products.

The accounting estimate related to product warranty expense involves judgment in determining future

estimated warranty costs.

Should actual performance rates or repair costs differ from estimates, revisions to the estimated warranty

liability would be required.

Warranty expense incurred in 2021 and 2020 were $( 20,000 )

and $ 73,000 ,

respectively and are recognized as selling, general and administrative expenses.

costs of obtaining a contract with a customer may

be recorded as an asset if the costs are expected to be recovered.

As a practical expedient, we recognize the incremental costs of

obtaining a contract as an expense when incurred if the amortization period of the asset that we otherwise would have recognized is one

year or less.

Sales commissions earned by the Company’s sales force are considered incremental costs of obtaining a contract.

date, we have expensed sales commissions as these costs are generally attributed to periods shorter than one year.

Sales commissions

are included in selling, general and administrative expenses.

The lamps are subject to regulatory and quality

Future warranty costs are estimated based on historical product performance rates and related costs to repair given products.

The accounting estimate related to product warranty expense involves judgment in determining future estimated warranty costs.

actual performance rates or repair costs differ from estimates, revisions to the estimated warranty liability would be required.

expenses incurred in 2022 and 2021 were negligible and are recognized as selling, general and administrative expenses.

costs of obtaining a contract with a customer may be recorded as an asset if the costs are expected to be recovered.

As a practical expedient,

we recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that we

otherwise would have recognized is one year or less.

Sales commissions earned by the Company’s sales force are considered incremental

costs of obtaining a contract.

To date, we have expensed sales commissions as these costs are generally attributed to periods shorter

than one year.

Sales commissions are included in selling, general and administrative expenses.

of revenues is comprised of purchase costs of our products, third party logistics and distribution costs including packaging, freight,

transportation, shipping and handling costs, and inventory adjustment due to expiring products, as well as sales-based royalties.

and distribution costs totaled $ 0.4 million and $ 0.3 million for the years ended December 31, 2021 and 2020.

and distribution costs totaled $ 0.5 million and $ 0.4 million for the years ended December 31, 2022 and 2021, respectively.

Company measures and recognizes share-based compensation expense for equity awards based on fair value at the grant date.

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grant for a period that is commensurate with the assumed expected term.

Expected Volatility.

The Company based the volatility assumption on a weighted average of the peer group re-levered equity volatility with 80 % weight and

the warrant implied volatility with 20 % weight.

group was developed based on companies in the biotechnology industry whose shares are publicly traded.

Due to our limited historical

data and the long-term nature of the awards, the peer group volatility was much more heavily weighted.

The Company based the volatility assumption on a weighted average of the peer group re-levered equity volatility with 80 %

weight and the warrant implied volatility with 20 % weight.

The peer group was developed based on companies in the biotechnology industry

whose shares are publicly traded.

Due to our limited historical data and the long-term nature of the awards, the peer group volatility

was much more heavily weighted.

The expected term represents the period of time that options are expected to be outstanding.

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realized in currencies other than USD are reported using the exchange rate on the date of the transaction.

Selling, General and Administrative Expense

Selling, general and administrative expenses

are primarily comprised of compensation and benefits associated with our sales force, commercial support personnel, personnel in executive

and other administrative functions, as well as medical affairs professionals.

Other selling, general and administrative expenses include

marketing, advertising, and other commercial costs to support the commercial operation of our product and professional fees for legal,

consulting, and other general and administrative costs.

Advertising costs are expensed as incurred.

For the years ended December 31, 2021 and 2020, advertising costs totaled $ 0.5 million and $ 0.3 million, respectively.

General and Administrative Expense

general and administrative expenses are primarily comprised of compensation and benefits associated with our sales force, commercial

support personnel, personnel in executive and other administrative functions, as well as medical affairs professionals.

Other selling,

general and administrative expenses include marketing, advertising, and other commercial costs to support the commercial operation of

our product and professional fees for legal, consulting, and other general and administrative costs.

costs are expensed as incurred.

For the years ended December 31, 2022 and 2021, advertising costs totaled $ 0.1 million and $ 0.5 million,

respectively.

Company accounts for income taxes using the asset and liability method in accordance with ASC 740, Income Taxes , which requires

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When the effects are not anti-dilutive, diluted earnings per share is computed by dividing

the Company’s net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding

the Company’s net income attributable to common stockholders by the weighted average number of common shares outstanding

and the impact of all dilutive potential common shares outstanding during the period, including stock options, restricted stock units,

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Issued Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12,

Income Taxes (Topic 740) , amending accounting guidance to simplify the accounting for income taxes, as part of its initiative

to reduce complexity in the accounting standards.

The amendments eliminate certain exceptions related to the approach for intraperiod

tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for

outside basis differences.

The amendments also clarify and simplify other aspects of the accounting for income taxes.

The new standard

is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020, with early adoption

This standard became effective for us on January 1, 2021 and did not have a material impact on our financial statements and

related disclosures.

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 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):

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

Measurement of Credit Losses on Financial

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effective for us on January 1, 2023.

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

The Company does not believe this will have a material effect on its consolidated financial statements.

Acquisition Contract Liabilities

March 25, 2019, we entered into an agreement (as amended, the “Share Purchase Agreement”) with Maruho Co, Ltd.

to acquire 100 %

of the shares of Cutanea Life Sciences, Inc.

to acquire 100 % of the shares of Cutanea Life Sciences, Inc.

As of the date of the acquisition, Maruho Co, Ltd.

owned approximately

29.9 % of Biofrontera AG through its fully owned subsidiary Maruho Deutschland GmbH.

Biofrontera AG is our former parent, and currently

a significant shareholder.

owned approximately 29.9 % of Biofrontera AG through its fully owned subsidiary Maruho Deutschland GmbH.

Biofrontera AG is our former

parent, and currently a significant shareholder.

to the Share Purchase Agreement, Maruho agreed to provide $ 7.3 million in start-up cost financing for Cutanea’s redesigned business

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2030 (“contingent consideration”).

connection with this acquisition in 2019, we recorded the $ 7.3 million in start-up cost financing, a $ 1.7 million contract asset

related to the benefit associated with the non-interest bearing start-up cost financing and $ 6.5 million of contingent consideration

related to the estimated profits from the sale of Cutanea products to be shared equally with Maruho.

connection with this acquisition in 2019, we recorded the $ 7.3 million in start-up cost financing, a $ 1.7 million contract asset related

to the benefit associated with the non-interest bearing start-up cost financing and $ 6.5 million of contingent consideration related

to the estimated profits from the sale of Cutanea products to be shared equally with Maruho.

contract asset related to the start-up cost financing is amortized on a straight-line basis using a 6.0 % interest rate over the 57 -month

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(in thousands)

December 31, 2021

December 31, 2020

Short-term acquisition contract liabilities:

Contingent consideration

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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 December 31,

2021 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:

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

the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:

of Fair Value Hierarchy Valuation Inputs

(in thousands)

December 31, 2022

December 31, 2021

Investment in equity securities

Contingent Consideration

Warrant liability – Purchase warrant

Warrant liability – 2021 Purchase Warrants

Warrant liability - 2022 Purchase Warrants

Warrant liability - Purchase Warrants

Warrant liability – 2022 Inducement Warrants

Warrant liability

in equity securities

of December 31, 2022, the Company had investments in common stock.

The fair value of these investments was determined with Level 1 inputs

through references to quoted market prices.

Consideration

Contingent consideration, which relates to the

estimated profits from the sale of Cutanea products to be shared equally with Maruho, is reflected at fair value within acquisition

contract liabilities, net on the balance sheets.

The fair value is based on significant inputs not observable in the market, which

represent a Level 3 measurement within the fair value hierarchy.

The valuation of the contingent consideration utilizes a

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

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

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

The fair value is based on significant

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

The valuation of the contingent

consideration utilizes a scenario-based method under which a set of payoffs are calculated using the term of the earnout, projections,

and an appropriate metric risk premium.

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

discount rate.

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

scenario-based method incorporates the following key assumptions:

(i) the forecasted product profit amounts, (ii) the remaining

contractual term, (iii) a metric risk premium, and (iv) a payment discount rate.

The Company re-measures contingent

consideration and re-assesses the underlying assumptions and estimates at each reporting period.

The 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.

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

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Balance at December 31, 2022

increase (decrease) in fair value of the contingent consideration in the amount of $( 1.4 ) million and $ 0.1 million during the years

ended December 31, 2021 and 2020 was recorded in operating expenses in the statements of operations.

Purchase and Pre-funded Warrants were accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities

in the accompanying balance sheet.

The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes

in fair value presented within the statement of operations.

Company utilizes a Black-Scholes option pricing model to estimate the fair value of the Purchase Warrant 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 control.

A significant change in one or more of these inputs used in

the calculation of the 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 statement of operations.

estimated fair value of the Pre-funded Warrant was deemed a Level 2 measurement as of December 31, 2021, as all the significant

inputs to the valuation model used to estimate the fair value of these warrants were directly observable from the listed common stock

The decrease in fair value of the contingent consideration

in the amount of $ ( 3.8 ) million and $ ( 1.4 ) million during the years ended December 31, 2022 and 2021 was recorded in operating expenses

in the statements of operations.

Purchase and Inducement Warrants were accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant

liabilities in the accompanying consolidated balance sheets.

The warrant liabilities are measured at fair value at inception and on a

recurring basis, with changes in fair value presented within the consolidated statement of operations.

Company utilizes a Black-Scholes option pricing model to estimate the fair value of the Purchase and Inducement 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 control.

A significant change in one or more of these inputs

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

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

fair value at issuance was estimated using a Black-Scholes pricing model based on the following assumptions at May 16, 2022 for the

Purchase Warrants and July 26, 2022 for the Inducement Warrants:

Schedule of Fair value Warrant by Using Black-Scholes Pricing Model Assumptions

Expiration term (in years)

Risk-free Rate

Dividend yield

fair value was estimated using Black-Scholes pricing model based on the following assumptions as of December 31, 2022 (outstanding warrants were all issued during 2022):

Expiration term (in years)

Risk-free Rate

Dividend yield

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

of Changes in Fair Value Warrant Liabilities

Purchase Warrant

Pre-funded Warrant

Total Warrant Liability

Fair value at January 1, 2021

Fair value of warrants at December 1, 2021, date of issuance

Fair value at beginning of year

Issuance of new warrants

Exercise of warrants

Change in fair value of warrant liability

Exercise of prefunded warrants

Fair value at December 31, 2021

Fair value at end of year

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

Revenue from the sales

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

Schedule of Revenue Sales

generated $ 23.6

million of Ameluz® revenue, minimal Xepi®

revenue, and $ 0.4

million of BF-RhodoLED® lamps revenue during

the year ended December 31, 2021.

We generated $ 18.1

million of Ameluz® revenue, $ 0.3

million of Xepi® revenue, and $ 0.4

million of BF-RhodoLED® lamps revenue during

the year ended December 31, 2020.

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

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

revenues generated through our sales of Ameluz ® .

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

and installation service.

Refer to Note 17, Related Party Transactions .

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(in thousands):

at January 1, 2020

Balance at December 31, 2020

Provision related to current period sales

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Balance at December 31, 2022

Investment in Equity Securities

October 25, 2022, the Company entered into private exchange agreements with certain holders of options to acquire

common shares, nominal value € 1.00

per share, of Biofrontera AG (“AG Options), a German stock corporation and significant shareholder of the Company, pursuant to which the

parties agreed to a negotiated private exchange of 3,148,042

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

There was no additional cost to exercise the AG Options.

On November 8, 2022, the Company exercised the AG options in full to acquire 2,623,365

shares of Biofrontera AG.

In addition, the Company purchased an additional 3,843,581

common shares of Biofrontera AG for a total of 6,446,946

shares or approximately 10 %

of Biofrontera AG’s outstanding common shares as of December 31, 2022.

Accounts Receivable, net

receivable are mainly attributable to the sale of Ameluz ® , the BF-RhodoLED ® and Xepi ® .

It is expected

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

allowance for doubtful accounts was $ 18,000 and $ 40,000 as of December 31, 2021 and 2020, respectively.

Other Receivables, Related

Company has recorded a receivable of $ 11.3

million due from Biofrontera AG for its 50% share of a legal

settlement for which they are jointly and severally liable for the total settlement amount of $ 22.5

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, which provided that the settlement payments would first be made by the Company and then reimbursed

by Biofrontera AG for its share.

Of the total receivable of $ 11.3 million, $ 8.3 million is short-term and $ 2.8 million is a long-term

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

allowance for doubtful accounts was $ 0.1 million and negligible as of December 31, 2022 and 2021, respectively.

Other Receivables, Related Party

of December 31, 2022, the Company has a receivable of $ 6.5

million ($ 3.7

short term and $ 2.8

long-term) due from the Biofrontera Group of

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 payments, plus interest and 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 provides that the settlement

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

The March 31, 2022 Amended Settlement

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

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

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

owed to Biofrontera AG by the Company (including amounts owed under the Company’s license and supply agreement for Ameluz ® ).

no reserve for the receivable has been recorded as of December 31, 2022 or December 31, 2021.

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.

During the year ended December 31, 2021 and 2020, we recorded a provision of $ 33,000

million, respectively for Xepi® inventory

obsolescence due to product expiring.

During the year ended December 31, 2021, we recorded a provision of $ 27,000

for potential damage to certain BF-RhodoLED ®

The provision related to BF-RhodoLED ® devices was $ 0.1

million for the year ended December 31, 2022,

and negligible for the year ended December 31, 2021.

The provision for Xepi ® inventory obsolescence was negligible for

the years ended December 31, 2022 and December 31, 2021.

Prepaid Expenses and Other Current Assets

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(in thousands)

December 31, 2021

December 31, 2020

Receivable for common stock warrants proceeds

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(in thousands)

December 31, 2021

December 31, 2020

Computer equipment

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expense was $ 0.1 million for each of the years ended December 31, 2022, and 2021, respectively, which was included in selling, general

and administrative expense on the statements of operations.

and administrative expense on the consolidated statements of operations.

Intangible Asset, Net

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(in thousands)

December 31, 2021

December 31, 2020

Xepi ® license

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over the useful life of 11

Amortization expense incurred during the years ended

December 31, 2021 and 2020 was $ 0.4

million and $ 0.4

million, respectively.

We review the Xepi ®

license intangible asset for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets

may not be fully recoverable.

In December 2021, upon receiving notification of 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.

Amortization expense was $ 0.4

million for each the years ended December 31,

2022 and 2021.

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 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.

Company did not recognize any impairment charges during the years ended December 31, 2022 or 2021.

Statement of Cash Flows Reconciliation

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(in thousands)

December 31, 2021

December 31, 2020

Cash and cash equivalents

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Legal settlement – noncurrent (See Note 24)

part of Congress’s response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”),

was signed into United States law on March 27, 2020 and modifies certain provisions of the Tax Cuts and Jobs Act, enacted in 2017, with

respect to net operating losses.

Under the CARES Act, the limitation on the deduction of net operating losses to 80 % of annual taxable

income is suspended for taxable years beginning before January 1, 2021.

The CARES Act did not have a material impact on the financial

statements due to our full valuation allowance position.

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

taxes during such periods.

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 years ended December 31, 2022 and December 31, 2021.

Income tax expense incurred in 2022 and 2021 relates to state income taxes.

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

reconciliation of the expected income tax (benefit) computed using the federal statutory income tax rate to the Company’s effective

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(in thousands)

December 31, 2021

December 31, 2020

Deferred tax assets (liabilities):

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Accrued expenses and reserves

Stock based compensation

Lease liability

Investment revaluation

Total deferred tax assets

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evidence bearing upon the realizability of its deferred tax assets.

Based on this, the Company has provided a valuation allowance

for the full amount of the net deferred tax assets as the realization of the deferred tax assets is not determined to be more likely

During 2021, the valuation allowance increased by $ 6.4

million, primarily due to the increase in

the Company’s net operating loss carryforwards during the period.

As of December 31,

2021, the Company had approximately $ 99.4 million and $ 64.2 million of Federal and state net operating loss carryforwards,

Based on this, the Company has provided a valuation allowance for

the full amount of the net deferred tax assets as the realization of the deferred tax assets is not determined to be more likely than

During 2022, the valuation allowance increased by $ 5.1 million, primarily due to the increase in the Company’s net operating

loss carryforwards during the period.

of December 31, 2022, the Company had approximately $ 123.4 million and $ 89.2 million of Federal and state net operating loss carryforwards,

respectively.

$ 113.8 million of the federal NOLs are not subject to expiration and the remaining NOLs begin to expire in 2036.

These loss carryforwards are available to reduce future federal taxable income, if any.

These loss carryforwards are subject to review

and possible adjustment by the appropriate taxing authorities.

loss carryforwards are available to reduce future federal taxable income, if any.

These loss carryforwards are subject to review and

possible adjustment by the appropriate taxing authorities.

The amount of loss carryforwards that may be utilized in any future period

may be limited based upon changes in the ownership of the Company’s shareholders.

The Company follows the provisions of ASC 740-10,

“Accounting for Uncertainty in Income Taxes,” which specifies how tax benefits for uncertain tax positions are to be recognized,

measured, and recorded in financial statements;

requires certain disclosures of uncertain tax matters;

specifies how reserves for uncertain

tax positions should be classified on the balance sheet;

and provides transition and interim period guidance, among other provisions.

As of December 31, 2021, the Company has not recorded any amounts for uncertain tax positions.

The Company’s policy is to

recognize interest and penalties accrued on any uncertain tax positions as a component of income tax expense, if any, in its statements

of operations.

Company follows the provisions of ASC 740-10, “Accounting for Uncertainty in Income Taxes,” which specifies how tax benefits

for uncertain tax positions are to be recognized, measured, and recorded in financial statements;

requires certain disclosures of uncertain

specifies how reserves for uncertain tax positions should be classified on the balance sheet;

and provides transition and

interim period guidance, among other provisions.

As of December 31, 2022, the Company has not recorded any amounts for uncertain tax

The Company’s policy is to recognize interest and penalties accrued on any uncertain tax positions as a component of

income tax expense, if any, in its statements of operations.

As of December 31, 2022 the Company had no reserves for uncertain tax positions.

For the year ended December 31, 2022 no estimated interest or penalties were recognized on uncertain tax positions.

Company’s tax returns 2019 through 2022 remain open and subject to examination by the Internal Revenue Service and state taxing

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of the anticipated net price per unit based on our level of annual revenue.

Refer to Item I.

Business - Commercial Partners and Agreements

for further details.

Under the agreement, the

Company obtained an exclusive, non-transferable license to use the Pharma’s technology to market and sell the licensed products,

Ameluz ® and BF-RhodoLED and must purchase the licensed products exclusively from Pharma.

consideration paid for the transfer of the license.

of the licensed products during the years ended December 31, 2021 and 2020 were $ 9.4 million and $ 5.6 million, respectively,

and 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 December 31, 2021 and 2020 were $ 0.3 million and $ 1.3 million, respectively, which were recorded

in accounts payable, related parties in the balance sheets.

June 19, 2015, the Company entered into a 6 % interest bearing revolving loan agreement with Biofrontera AG, a significant shareholder

of the Company.

Interest was accrued and paid quarterly over the life of the loan.

At December 31, 2021 and 2020, there was no loan principal

balance outstanding.

There was no interest expense related to the loan for the year ended December 31, 2021.

Interest expense related

to the loan was $ 2.5 million for the year ended December 31 2020.

December 31, 2020, the Company agreed to convert the outstanding principal balance of the revolving debt of $ 47.0 million into an aggregate

of 7,999,000 shares of common stock at a purchase price of $ 5.875 per share, for an aggregate gross capital contribution of $ 47.0 million.

March 31, 2021, the Company entered into the Second Intercompany Revolving Loan Agreement with Biofrontera AG for $ 20.0

million of committed sources of funds.

The revolving

loan bears an annual interest rate of 6.0 %

and will terminate on the second anniversary of the date of this loan agreement, March 31, 2023 (the “termination date”).

The outstanding principal and interest balance of all advances shall be due and payable on the termination date.

As of December

31, 2021, the Company had not drawn upon the Second Intercompany Revolving Loan Agreement and due to the completion of our initial

public offering, the loan was effectively terminated.

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 Biofrontera Group’s IT resources 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.

Under the agreement, the Company obtained an exclusive, non-transferable

license to use Pharma’s technology to market and sell the licensed products, Ameluz ® and BF-RhodoLED ® and

must purchase the licensed products exclusively from Pharma.

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

of the licensed products during the years ended December 31, 2022 and 2021 were $ 16.6 million and $ 9.4 million, respectively, and 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 December 31, 2022 and 2021 were $ 1.3 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

2 unchanged sentences

Expenses related to the service agreement

million and $ 0.4

million for the years ended December 31, 2021

and 2020, which were recorded in selling, general and administrative, related party.

Management asserts that these expenses represent

a reasonable allocation from Biofrontera AG.

Amounts due to Biofrontera AG related to the service agreement were $ 0.2

million as of both December 31, 2021 and

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

were $ 0.7 million and $ 0.7 million for the years ended December 31, 2022 and 2021, which 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 December

31, 2022 and 2021, which were recorded in accounts payable, related parties in the consolidated balance sheets.

Lamp Lease Agreement

1 unchanged sentence

lamps and associated services.

revenue related to the clinical lamp lease agreements was approximately $ 57,000

for the years ended December 31, 2021 and 2020,

respectively and recorded as revenues, related party.

Amounts due from Bioscience for clinical lamp and other reimbursements were

approximately $ 92,000

as of December 31, 2021 and 2020, respectively,

which were recorded as accounts receivable, related party in the balance sheets.

revenue related to the clinical lamp lease agreements was approximately $ 0.1 million for each of the years ended December 31, 2022 and

2021 and recorded as revenues, related party.

Amounts due from Bioscience for clinical lamp and other reimbursements were approximately

$ 0.1 million for each of the years ended December 31, 2022 and 2021, which were recorded as accounts receivable, 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 SPA costs.

to Note 3, Acquisition Contract Liabilities .

the year ended December 31, 2020, the Company received start-up cost financing from Maruho in the amount of $4.4 million, which was recorded

as acquisition contract liabilities, net in the balance sheets.

There was no start-up cost financing

received during the year ended December 31, 2021.

amounts reimbursed relating to SPA costs of $ 0.5

million in 2021 and $ 1.2

million in 2020 were recorded as other income

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

Amounts due from Maruho, primarily relating to SPA cost

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

restructuring costs Maruho agreed to pay are referred to as “SPA costs” under the arrangement and are to be accounted for

as other income.

Refer to Note 3, Acquisition Contract Liabilities .

amounts reimbursed relating to SPA costs for the year ended December 31, 2022.

For the year ended December 31, 2021 the amounts

reimbursed relating to SPA costs were $ 0.5

million and were recorded as other income in the consolidated statements of operations as the related expenses were incurred.

were no amounts due from Maruho for the year ended December 31, 2022.

The amounts due from Maruho, primarily relating to SPA cost

reimbursements, were $ 0.1

as of December 31, 2021 and were recorded in

accounts receivable, related parties in the balance sheets.

There were no

amounts due from Maruho at December 31,

Company receives expense reimbursement from Biofrontera AG and Biofrontera Bioscience on a quarterly basis for costs incurred on behalf

of these entities.

Total expense reimbursements were $ 0.3 million for each of the years ended December 31, 2021 and 2020, which were

netted against expenses incurred within selling, general and administrative expenses.

August 27, 2020, the Company received $ 1.5 million from Biofrontera Pharma GmbH to support the Company’s marketing efforts.

amount received was non-recurring, and was recorded as reduction of cost of revenues, related party and selling, general and administrative

in the statements of operations for $ 1.1 million and $ 0.4 million, respectively.

The Company has recorded a receivable of $ 11.3

million due from Biofrontera AG for its 50% share of a legal settlement for which they are jointly and severally liable for the total

settlement amount of $ 22.5 million.

The Company has a contractual right to repayment of its share of the settlement payment from Biofrontera

AG under the Settlement Allocation Agreement entered into on December 9, 2021, which provided that the settlement payments would first

be made by the Company and then reimbursed by Biofrontera AG for its share.

Of the total receivable of $ 11.3 million, $ 8.3 million is

short-term and $ 2.8 million is a long-term receivable

million as of December 31, 2021 and were recorded in other receivables, related parties in the consolidated balance

Company has recorded a receivable of $ 6.4

million and $ 11.3

million as of December 31, 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 as of December 31, 2022.

Refer to Note 8, Other Receivables, Related Party .

The Company has recognized $ 0.1

million of interest income for the years ended

December 31, 2022 and 2021, respectively in connection with this receivable.

of December 31, 2022, our investment in equity securities valued at $ 10.5 million consists of 6,466,949 common shares of Biofrontera

AG, a significant shareholder.

accordance with a Share Purchase and Transfer Agreement

dated, November 3, 2022, the Company purchased approximately 1,674,996 shares (of the total 6,466,949 shares) for $ 1.7 million from Maruho.

Restructuring costs

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

For the years ended December 31, 2021 and 2020, restructuring costs

were incurred in the amount of $ 0.8

million and $ 1.1

million, respectively.

There were no restructuring costs for the year ended December 31,

For the year ended December 31, 2021, restructuring costs were incurred in the amount of $ 0.8 million.

Stockholders’ Equity

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shares of common stock, par value $ 0.001

per share and 20,000,000

shares of preferred stock, par value $ .001

holders of common stock are entitled to one vote for each share held.

8 unchanged sentences

The outstanding shares of common stock are fully paid and non-assessable.

2015, the Company has had an Intercompany Revolving Loan Agreement with Biofrontera AG.

Refer to Note 16, Related party transactions .

On December 31, 2020, the Board of Directors of the Company approved a Debt Conversion Agreement with Biofrontera AG, effectively converting

all outstanding principal balances under the Intercompany Revolving Loan Agreement to common stock shares.

The conversion price

for this transaction was $ 5.875

In connection with the Debt Conversion

Agreement, the Company issued 7,999,000

shares of common stock to Biofrontera AG.

Public Offering.

On November 2, 2021, the Company completed its initial public offering (“IPO”) of 3,600,000

units (“Units”) each consisting of

(i) one share of common stock of the Company, par value $ 0.001

per share and (ii) one warrant (the “IPO

Warrants”) to purchase one common stock share at an exercise price of $ 5.00

The IPO Warrants are

immediately exercisable upon issuance for a period of five

years after the issuance date.

The common stock

shares and Warrants were issued separately in the offering and may be transferred separately immediately upon issuance.

were sold at a price of $ 5.00

per Unit, with gross proceeds from the IPO of

approximately $ 18

million, offset by $ 3.1

million in offering costs.

the IPO date, the underwriters also exercised

in full their option to purchase up to an additional 540,000

Warrants at the purchase price of $ 0.01

per Warrant to cover over-allotments.

connection with the IPO, the Company also issued to the underwriters Unit Purchase Options (“UPO”) to purchase, in

the aggregate, (a) 108,000

Units and (b) 16,200

Warrants (relating to the underwriters’

exercise of the over-allotment option in full, with respect to the Warrants).

The UPOs have an exercise price of $ 6.25

if exercisable for Units and $ 0.0125

if exercisable for Warrants.

The UPOs are exercisable

at any time from October 28, 2021 (“Effective Date”) through the 5 th anniversary of the Effective Date.

On November 2, 2021, the Company completed its initial public offering (“IPO”) of 3,600,000 units (“Units”)

each consisting of (i) one share of common stock of the Company, par value $ 0.001 per share and (ii) one warrant (the “IPO Warrants”)

to purchase one common stock share at an exercise price of $ 5.00 per share.

The IPO Warrants are immediately exercisable upon issuance

for a period of five years after the issuance date.

The common stock shares and Warrants were issued separately in the offering and may

be transferred separately immediately upon issuance.

The Units were sold at a price of $ 5.00 per Unit, with gross proceeds from the IPO

of approximately $ 18 million, offset by $ 3.1 million in offering costs.

the IPO date, the underwriters also exercised in full their option to purchase up to an additional 540,000 IPO Warrants at the purchase

price of $ 0.01 per Warrant to cover over-allotments.

connection with the IPO, the Company also issued to the underwriters Unit Purchase Options (“UPO”) to purchase, in the aggregate,

(a) 108,000 Units and (b) 16,200 Warrants (relating to the underwriters’ exercise of the over-allotment option in full, with respect

to the Warrants).

The UPOs have an exercise price of $ 6.25 if exercisable for Units and $ 0.0125 if exercisable for Warrants.

are exercisable at any time from October 28, 2021 (“Effective Date”) through the 5 th anniversary of the Effective

UPOs issued to the underwriters were accounted for as equity under ASC 718, Compensation -Stock Compensation (“ASC 718”).

The fair value of the UPOs, which were fully vested at the issuance date, was recognized as an offering cost against the proceeds from

The estimated fair value of the UPO Units of $ 0.3

million at the IPO date was determined

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

fair value of the underlying unit of $ 4.95 ,

expected volatility of 60.0 %,

risk free rate of 1.15 %,

remaining contractual term of 5

years and a dividend yield of 0 %.

The estimated fair value of the UPO Warrants of $ 21,000

at the IPO date was determined using a

Black-Scholes option pricing model with the following assumptions:

The estimated fair value of the UPO Units of $ 0.3 million at the IPO date was determined using a Black-Scholes option pricing

model with the following assumptions:

fair value of the underlying unit of $ 4.95 , expected volatility of 60.0 %, risk free rate of 1.15 %,

remaining contractual term of 5 years and a dividend yield of 0 %.

The estimated fair value of the UPO Warrants of $ 21,000 at the IPO

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

fair value of the underlying unit of $ 1.29 ,

expected volatility of 60.0 %,

risk free rate of 1.15 %,

remaining contractual term of 5

years and a dividend yield of 0 %.

Placement - On December 1, 2021, the Company settled the private placement in connection with a securities purchase agreement

dated November 29, 2021 (“December 2021 PIPE”).

In the December 2021 PIPE, the Company issued for the gross cash

receipts of $ 15,000,000

(i) 1,350,000

shares of the common stock, (ii) a

warrant to purchase up to 2,857,143

shares of the common stock (“Purchase

Warrant”) and (iii) a warrant to purchase up to 1,507,143

shares of the common stock (“Pre-Funded

Each of the Purchase Warrant and the Pre-Funded Warrant is exercisable immediately and has an

exercise term of five years and an exercise price of:

per share with respect to the Purchase Warrant

and (b) a nominal exercise price of $ 0.0001

per share with respect to the Pre-Funded Warrant.

expected volatility of 60.0 %, risk free rate of 1.15 %, remaining contractual term of 5 years and a dividend yield of 0 %.

Placement - On December 1, 2021, the Company settled the private placement in connection with a securities purchase agreement dated

November 29, 2021 (“December 2021 PIPE”).

In the December 2021 PIPE, the Company issued for the gross cash receipts of $ 15,000,000

(i) 1,350,000 shares of the common stock, (ii) a warrant to purchase up to 2,857,143 shares of the common stock (“Purchase Warrant”)

and (iii) a warrant to purchase up to 1,507,143 shares of the common stock (“Pre-Funded Warrant”).

Each of the Purchase Warrant

and the Pre-Funded Warrant is exercisable immediately and has an exercise term of five years and an exercise price of:

(a) $ 5.25 per

share with respect to the Purchase Warrant and (b) a nominal exercise price of $ 0.0001 per share with respect to the Pre-Funded Warrant.

The shares of common stock and the accompanying warrants were issued separately and were immediately separable upon issuance.

The combined purchase price for one share of common stock and one Purchase Warrant was $ 5.25

and the combined purchase price for one Pre-Funded

Warrant and one common warrant was $ 5.24 .

On December 28, 2021, 1,507,143

common stock shares were issued from the

exercise of the Pre-Funded Warrant at an exercise price of $ 0.0001

purchase price for one share of common stock and one Purchase Warrant was $ 5.25 and the combined purchase price for one Pre-Funded Warrant

and one common warrant was $ 5.24 .

December 28, 2021, 1,507,143 common stock shares were issued from the exercise of the Pre-Funded Warrant at an exercise price of $ 0.0001

per share of the Company’s common stock.

connection with the December 2021 PIPE, the Company, issued Unit Purchase Options (“PP-UPO”) to the placement agents

to purchase, in the aggregate, (a) 85,714

Units, consisting of one share of common stock

and one warrant to purchase common stock.

The PP-UPOs have an exercise price of $ 6.56

and are exercisable at any time for the period

The PP-UPOs issued to the underwriters were

accounted for under ASC 718, Compensation -Stock Compensation (“ASC 718”).

The fair value of the PP-UPOs, which were

fully vested at the issuance date, was recognized as an offering cost of the December 2021 PIPE and allocated between warrants and

common stock, based on the allocated proceeds.

The Company estimated the fair value of the unit purchase options to be approximately

million at December 1, 2021 of which $ 0.2 million was allocated to the warrants and immediately expensed in the statement of

operations and $ 0.1 million was allocated to the common stock and charged to equity.

The fair value was determined using a

Black-Scholes option pricing model with the following assumptions:

connection with the December 2021 PIPE, the Company, issued Unit Purchase Options (“PP-UPO”) to the placement agents to purchase,

in the aggregate, (a) 85,714 Units, consisting of one share of common stock and one warrant to purchase common stock.

The PP-UPOs have

an exercise price of $ 6.56 and are exercisable at any time for the period of 5 years.

PP-UPOs issued to the underwriters were accounted for under ASC 718, Compensation -Stock Compensation (“ASC 718”).

fair value of the PP-UPOs, which were fully vested at the issuance date, was recognized as an offering cost of the December 2021

PIPE and allocated between warrants and common stock, based on the allocated proceeds.

The Company estimated the fair value of the

unit purchase options to be approximately $ 0.3

million at December 1, 2021 of which $ 0.2

million was allocated to the warrants and immediately expensed in the consolidated statement of operations and $ 0.1

million was allocated to the common stock and charged to equity.

The fair value was determined using a Black-Scholes option pricing

model with the following assumptions:

fair value of the underlying unit of $ 6.39 ,

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risk free rate of 1.15 %,

1.15 %, remaining contractual term of 5

years and a dividend yield of 0 %.

– The following table summarizes information with regard to the IPO Warrants, Purchase

Warrants and Pre-Funded Warrants (together, the “ Warrants”) activity for the year ended December 31, 2021:

remaining contractual term of 5 years

and a dividend yield of 0 %.

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

In the May 2022

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

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

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

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

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

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

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

$ 2.77 per share.

The Pre-Funded Warrant is exercisable

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

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 $ .001 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 per share.

The Investor agreed to exercise

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

lower the exercise price of the 2021 Purchase Warrants from $ 5.25 to $ 1.62 per share and (ii) issue a new warrant (the “Inducement

Warrant”) to purchase up to 4,285,715 shares of common stock.

The Company received proceeds of $ 4.6 million, from the exercise

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

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

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.

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,

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 Directors.

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.

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.

Agreement – 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, of Biofrontera AG, a German stock corporation, pursuant to which the parties agreed

to a negotiated private exchange of 3,148,042 shares of the Company’s common stock in exchange for the AG Options.

The following table summarizes information with regard to the IPO Warrants, and the PIPE

Warrants, which includes the Inducement and 2022 Pre-Funded Warrants (together, the “ Warrants”) share activity

for the year ended December 31, 2022:

Weighted Average Exercise Price

Balance, December 31, 2020

( 1,507,143 )

( 2,647,606 )

( 4,154,749 )

Balance, December 31, 2021

( 4,426,143 )

Balance, December 31, 2022

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).

Under the 2021

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

the 2021 Plan.

original 2021 Plan, 2,750,000

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

years for stock options issued under the 2021 Plan .

On December 12, 2022, the 2021 Plan was amended by our stockholders and

the number of shares authorized for awards under the 2021 Plan was increased by 2,589,800 to 5,339,800 .

As of December 31, 2022, there were 3,088,876

shares available for future awards under the amended 2021 Plan.

Non-qualified

stock options

the year ended December 31, 2021, the Company granted non-qualified stock options to certain employees to purchase 617,696

shares of common stock under the 2021 Omnibus

Incentive Plan.

The options were granted to employees on December 9, 2021 with an exercise price of $ 4.77

and a contractual term of ten

These stock options had a grant-date fair

value of $ 1.5

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.

fair value of each option grant was estimated on the date of the grant using the BSM option pricing model with the following assumptions:

fair value of each option was estimated on the date of the grant using the BSM option pricing model with the following assumptions:

Schedule of Stock Options Assumptions

2 unchanged sentences

Risk-free interest rate

1.34 % - 4.10

Expected dividend yield

compensation expense of approximately $ 30,000 was recorded in selling, general and administrative expenses on the accompanying statement

of operations for the year ended December 31, 2021.

There was no stock based compensation for the year ended December 31, 2020.

outstanding and exercisable under the employee share

option plan as of December 31, 2021, and a summary of option activity during the year then ended is presented below.

compensation expense of approximately $ 0.8

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

the year ended December 31, 2022.

There was negligible share-based compensation expense for the year ended December 31,

outstanding and exercisable under the employee share option plan as of December 31, 2022 and December 2021, and a summary of option activity during

the year then ended is presented below.

Schedule of Stock Option Activity

5 unchanged sentences

Outstanding at December 31, 2021

Exercisable at December 31, 2021

Canceled or forfeited

Outstanding at December 31, 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 December 31, 2021.

of December 31, 2021, there was $ 1.5 million of unrecognized compensation cost related to unvested stock options, which is expected to

be recognized over a weighted-average period of approximately 2.94 years.

Exercisable at December 31, 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 December 31, 2022 and December 31, 2021.

of December 31, 2022, there was $ 2.2 million of unrecognized compensation cost related to unvested stock options held by employees and

directors, which is expected to be recognized over a weighted-average period of approximately 2.3 years.

Compensation (RSUs)

the year ended December 31, 2021, the Company granted to certain members of management 170,068

restricted stock units, or RSUs.

The fair value

of each RSU is estimated based on the closing market price of the Company’s common stock on the grant date.

There were no

RSU’s granted during the year ended December 31, 2020.

RSUs had a grant-date fair value of $ 0.8 million and will be fully vested on June 9, 2022, six months after the grant date,

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

compensation expense of $ 0.1

million for the RSUs was recorded in selling,

general and administrative expenses in the accompanying statement of operations for the year ended December 31, 2021.

share-based compensation for the year ended December

following table summarizes the activity for RSUs during the year ended December 31, 2021:

Schedule of Restricted Stock Unit Activity

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 $ 1.0 million

and $ 0.1 million for the RSUs was recorded in selling, general and administrative expenses in the accompanying consolidated

statement of operations for the years ended December 31, 2022 and 2021.

of December 31, 2022, there was $ 0.6 million of unrecognized compensation cost related to unvested RSUs, which is expected to be recognized

over a weighted-average period of approximately 1.4 years.

The total fair value of shares vested during the years ended December 31,

2022 and 2021 was $ 0.8 million and $ 0.0 million, respectively.

following table summarizes the activity for RSUs during the year ended December 31, 2022 and December 31, 2021:

of Restricted Stock Units

Weighted Average Grant Date Fair Value

Unvested balance at December 31, 2020

Unvested balance at December 31, 2021

of December 31, 2021, 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 0.44

Outstanding balance at December 31, 2020

Outstanding balance at December 31, 2021

Outstanding balance at December 31, 2022

Vested and expected to vest at December 31, 2022

Interest Expense, net

1 unchanged sentence

Schedule of Interest Expense

years ended December 31,

party interest expense

asset interest expense

party interest expense consists of interest expense incurred under our Revolving Loan Agreement with Biofrontera AG.

For years ended December 31,

(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 .

party interest income relates to the recorded receivable of $ 6.1 million from Biofrontera AG for its 50 % share of the balance of a legal

Other Income, net

income, net consists of the following:

of Other Income, Net

(in thousands)

Schedule of Other Income, Net

For years ended December 31,

1 unchanged sentence

Reimbursed SPA costs

Employee retention credit (“ERC”)

Other income, net

6 unchanged sentences

Net loss per share, basic and diluted

following table sets forth the potential common shares that were not included in the diluted per share calculations because they would be anti-dilutive:

of Antidilutive Securities Excluded From Computation of Earnings Per Share

The following table sets forth securities that were anti-dilutive for diluted EPS for the periods presented but which

could potentially dilute EPS in the future:

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

Common stock warrants

Common stock options

Restricted Stock Units

Total anti-dilutive securities

Common stock options and RSUs

Unit Purchase Options

Anti-dilutive securities excluded from computation of earnings per share

Commitments and Contingencies

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.

connection with the acquisition of Cutanea Life Sciences, Inc., the Company assumed various property leases in Pennsylvania, which

were non-cancellable.

All Cutanea property leases are operating leases and ended in 2021.

A security deposit in the amount of $ 0.1

million was recorded within prepaid expenses

and other current assets at December 31, 2021 and December 31, 2020.

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

Certain Cutanea office space was subleased to other

The Company incurred rent expense, net of sublease income, in the amount of $ 0.8

million and $ 1.0

million for the years ended December 31, 2021 and 2020, respectively, which was included in selling, general, and administrative

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

The Company incurred auto lease expense of

$ 0.5 million for each of the years ended December 31, 2021 and 2020, respectively.

minimum aggregate payments of all future lease commitments at December 31, 2021, are as follows:

(in thousands)

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

The Company has the option to extend

the term of the lease for one five (5) year period upon written notice to the landlord.

The extension period has not been included

in the determination of the ROU asset or the lease liability as the Company concluded that it is not reasonably certain that it

would exercise this option.

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.

Company has also entered into a master lease agreement for its vehicles.

After an initial non-cancelable twelve-month period each

vehicle is leased on a month to month basis.

Based on historical retention experience of approximately three

years, the vehicles have expiration dates ranging from February 2023 through September 2025.

calculating the present value of the lease payments, the Company has elected to utilize its incremental borrowing rate based on the

original lease term and not the remaining lease term.

Given the absence of an outstanding debt agreement, a synthetic credit

rating analysis was used in estimating the Company’s IBR.

Based on a synthetic credit rating of Ba3 and a term of 3.33 to six years, the IBR was determined to be 6% for leased liabilities at inception and 8.5% for 2022 leased liabilities.

components of lease expense for the year ended December 31, 2022 was as follows (in thousands except lease term and discount rate):

of Components of Lease Expense and Other Information

Lease expense

Operating Leases

Amortization of ROU assets (operating lease cost)

Interest on lease liabilities

Total lease expense

Other Information

Operational cash flow used for operating leases

ROU assets obtained in exchange for lease liabilities

Weighted -average remaining lease term (in years)

Weighted -average discount rate

lease payments under non-cancelable leases as of December 31, 2022 were as follows (in thousands):

Schedule of Future Commitments and Sublease Income

1 unchanged sentence

Future lease commitments

earnout 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

to us in connection with the Cutanea acquisition.

Total future minimum lease payments

Less imputed interest

Total lease liability

of Operating Lease Liability

Operating lease liability, current

Operating lease liability, non-current

Cutanea payments

have a contract in which we agreed to repay to Maruho $ 3.6

million on December 31, 2022 and $ 3.7

million on December 31, 2023 in start-up cost financing paid to us in connection with the Cutanea acquisition.

have filed for arbitration against Maruho with the International Chamber of Commerce (“ICC”) regarding issues

with Maruho’s contract manufacturer that were not disclosed at the time of the Agreement and therefore are evaluating the repayment

million of start-up costs.

The arbitration notes

that Maruho breached the agreement with Cutanea due to the undisclosed manufacturing issues and seeks damages as well as a declaration

that we are not obligated to repay Maruho.

are also obligated to share product profits with Maruho equally from January 1, 2020 through October 30, 2030.

4 unchanged sentences

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

No payments were made in 2021 or 2020 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

estimable under the provisions of FASB ASC Topic 450, Contingencies .

The Company expenses as incurred the costs related to such

legal proceedings.

November 29, 2021, the Company

entered into a settlement and release agreement with respect to a lawsuit filed March 23, 2018 in

the United States District Court for the District of Massachusetts in which we were alleged to have infringed on certain patents and

misappropriated certain trade secrets.

In the settlement, the Company and Biofrontera AG together agreed to make an aggregate payment

of $ 22.5 million

to settle the claims in the litigation.

The Company will be responsible for $ 11.25

million of the aggregate

settlement amount, plus interest accrued at a rate equal to the weekly average one-year constant maturity Treasury yield, and

agreed to pay in three annual installments .

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

Biofrontera AG has agreed to pay a portion of the settlement, the Company remains jointly and severally liable for the full settlement

amount, meaning that in the event Biofrontera AG does not pay all or a portion of the amount it owes under the agreement, the claimant

could compel the Company to pay Biofrontera AG’s share.

If either the Company or Biofrontera AG violates the terms of the settlement

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

As of December 31, 2021, we have recorded a legal settlement liability in the amount of $ 11.3

million for the

remaining payments due and a related receivable from related party of $ 11.3

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

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 annual net sales of Xepi ®

under the Xepi LSA exceed $ 50,000,000 .

No payments were made in 2022 or 2021 related to Xepi ® milestones.

liability related to shares of Biofrontera AG acquired from Maruho through subscription rights

on the outcome of legal proceedings between Biofrontera AG and Maruho, the Company may be liable for an additional payout of $ 0.9 million

in relation to the shares of Biofrontera AG acquired from Maruho through a subscription rights agreement.

In accordance with ASC 450-20-50-3,

Contingencies, we have not accrued any liability associated with the subscription rights purchase, as the liability is not considered

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

reasonably estimable under the provisions of FASB ASC Topic 450, Contingencies .

The Company expenses as incurred the legal

costs related to such legal proceedings.

November 29, 2021, the Company entered into a settlement and release agreement with respect to a lawsuit filed March 23, 2018 in the

United States District Court for the District of Massachusetts in which we were alleged to have infringed on certain patents and misappropriated

certain trade secrets.

In the settlement, the Company and Biofrontera AG together agreed to make an aggregate payment of $ 22.5 million

and engage a forensic expert to destroy data at issue in the litigation to settle the claims in the litigation.

Biofrontera AG has agreed to pay fifty percent of the settlement costs, we remain jointly and severally liable to DUSA for the full cash

settlement amount, meaning that in the event Biofrontera AG does not pay all or a portion of the amount it owes under the Agreement,

DUSA could compel us to pay Biofrontera AG’s share.

If either we or Biofrontera AG violates the terms of the settlement agreement,

we or Biofrontera AG may be liable for a greater amount.

If we become liable for more than our agreed share of the aggregate settlement

amount, either of these events could have a material adverse effect on our business, prospects, financial condition and/or results of

As of December 31, 2022, we have reflected a legal settlement liability in the amount of $ 6.2 million for

the remaining payments due under the settlement, including the estimated remaining cost of the forensic expert and a related receivable

from related party of $ 6.4 million for the remaining legal settlement costs to be reimbursed in accordance with the Settlement Allocation

Agreement, which provided that the settlement payments, including the cost of the forensic expert, would first be made by the Company

and then reimbursed by Biofrontera AG for its share.

As of April 8, Biofrontera AG has not paid

the first reimbursement amount to the Company.

We determined that the potential of Biofrontera AG to default on its obligation was less than probable.

This is supported by the March

31, 2022 Amended Settlement Allocation Agreement between the Company and Biofrontera AG.

The Amended Allocation Agreement provides certain

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

including the ability to charge interest at a rate of 6.0 %

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

owed to Biofrontera AG by the Company (including amounts owed under the Company’s license and supply agreement for Ameluz ® ).

A s such , no reserve for the receivable has

been recorded as of December 31, 2021.

If needed, Biofrontera

AG should also be able to monetize some or all of the 8,000,000

common stock shares in the Company in the open market Considering the lowest stock

price since the IPO of $ 2.28 ,

Biofrontera AG can procure up to a little over $ 18 m

from the stock sale to settle its current obligation as well as the amounts due in 2022 and 2023.

The lock-up period will expire on May

2, 2021 allowing the shares to be freely traded after that point.

Retirement Plan

6 unchanged sentences

Subsequent Events

Election of New Director

March 2, 2022, the board of directors of Biofrontera Inc.

voted to increase the size of the Board from four directors to five directors

and appointed Kevin D.

Weber to fill the vacancy resulting from such increase.

Weber will serve as a Class II Director to hold office

for a term expiring at the annual meeting of the Company’s stockholders for fiscal year 2023.

Weber’s term as director

began upon his appointment at the March 2, 2022 meeting.

Weber does not currently serve on any committees of the Board.

Amendment to Lübbert Employment Agreement

On March 2, 2022, Hermann Lübbert and the

Company entered into an amendment to his employee agreement.

The amendment is effective as of December 15, 2021 and the key terms of

the Amendment are summarized below:

Effective Date.

employment agreement was amended to remove the conditions for its effectiveness and replaced them with an effective date of December

The employment agreement was amended

such that Prof.

Lübbert agrees to devote 100 % of his working capacity to his duties as the Company’s Executive Chairman.

Compensation.

Under the Amendment, Prof.

base salary will be $ 468,500 and he will be eligible to receive a cash bonus of up to 65 % of his base salary upon the attainment of performance

goals set in advance by the Board.

The actual amount of any bonus shall depend upon the level of achievement of set targets, however

no bonus shall be paid if the level of target achievement is below 70%.

to Settlement Allocation Agreement

March 31, 2022, Biofrontera Inc.

entered into an Amended Settlement Allocation Agreement (the “Allocation Agreement”) between

the Company and Biofrontera AG in connection with the previously disclosed settlement on November 29, 2021 of the lawsuit brought against

Biofrontera AG and its subsidiaries, including the Company, in March 2018 by DUSA Pharmaceuticals, Inc.

(“DUSA”) and certain

of its affiliates.

Under the settlement agreement with DUSA, the Company and Biofrontera AG are jointly and severally liable for an aggregate

payment of $ 22.5 million to DUSA, payable in three installments, to settle the claims of the lawsuit.

The Company and Biofrontera AG

had agreed at the time they entered into the settlement agreement that they would each be responsible for $ 11.25 million of the aggregate

settlement amount.

Biofrontera AG is a significant shareholder of the Company, its former parent and the licensor of the Company’s

principal licensed product, Ameluz®.

the terms of the Allocation Agreement, the Company and Biofrontera AG agreed that the Company will pay the full amount of each installment

under the settlement agreement to DUSA when such installment is due.

Biofrontera AG agrees to reimburse the Company for half of each

such installment no later than January 31st of the year following such installment.

The Company paid the full amount of first installment

under the settlement agreement in December 2021 and, thus, the first reimbursement was due on January 31st, 2022.

As of April 7, 2022, Biofrontera AG has not paid the first reimbursement amount to the Company.

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

may implement in its sole discretion, including the ability to charge interest at a rate of 6.0 % per annum for each day that any reimbursement

is past due and the ability to offset any overdue reimbursement amounts against payments owed to Biofrontera AG by the Company (including

amounts owed under the Company’s license and supply agreement for Ameluz®).

to Monaco Employment Agreement

April 1, 2022, Erica Monaco and the Company entered into an amendment to her employee agreement.

The Amendment is effective as of April

1, 2022 and amends her compensation as follows:

Monaco’s annual base salary will be increased to $ 450,000 from $ 300,000 .

Monaco will now be eligible to receive a cash bonus of up to 60% of her base salary upon the attainment of performance goals

set in advance by the Board;

whereas she had been previously eligible to receive a cash bonus of up to 30% of her base salary.

amount of any bonus shall depend upon the level of achievement of set targets;

however, no bonus shall be paid if the level of target

achievement is below 70%.

remainder of Ms.

Monaco’s Amended Employment Agreement remains in full force and effect.

March 9, 2023, we entered into the Commitment Letter with MidCap, in respect of MidCap’s commitment to provide us with the Revolving

Facility, subject to the borrowing base formula, minimum excess availability and other terms and conditions thereof, in the aggregate

principal amount of up to $ 6.5 million.

The Revolving Facility shall be secured by a lien on substantially all of the assets of the Company,

subject to customary exceptions.

proceeds of the loans under the Revolving Facility shall be used by the Company to provide working capital.

The Revolving Facility shall

bear interest at the 30-Day Adjusted Term SOFR Rate, set monthly on the first day of the month and subject to a floor of 2.25 %, plus

In the event of a called event of default, a default interest rate of 3.00 % percent shall be added to the aforementioned rate.

Under the terms of the Revolving Facility, amounts available for advances would be subject to a borrowing base, which is a formula based

on certain eligible receivables and reserves.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

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-K

Item 8. Financial Statements and Supplementary Data