What changed in this filing

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Item 1. Financial Statements

2023-08-11 compared with 2023-05-12 · 504 added, 376 removed, 377 unchanged (70% of the section changed)

Financial Statements

BALANCE SHEETS

CONSOLIDATED BALANCE SHEETS

thousands, except par value and share amounts )

March 31, 2023

June 30, 2023

December 31, 2022

1 unchanged sentence

Cash and cash equivalents

Investment in equity securities

Investment, related party

Accounts receivable, net

Other receivables, related party

Inventories, net

Prepaid expenses and other current assets

11 unchanged sentences

Accrued expenses and other current liabilities

Line of credit

Total current liabilities

5 unchanged sentences

Total liabilities

Commitments and contingencies (see Note 21)

Commitments and contingencies (Note 18)

Stockholders’ equity:

Preferred Stock, $ 0.001 par value, 20,000,000 shares authorized, zero shares issued and outstanding as of March 31, 2023 and December 31, 2022

Preferred Stock, $ 0.001 par value, 20,000,000 shares authorized, zero shares issued and outstanding as of June 30, 2023 and December 31, 2022

Common Stock, $ 0.001 par value, 15,000,000 shares authorized;

26,699,002 shares issued and outstanding as of March 31, 2023 and December 31, 2022

1,367,628 and 1,359,040 shares issued and outstanding as of June 30, 2023 and December 31, 2022

Additional paid-in capital

2 unchanged sentences

Total liabilities and stockholders’ equity

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

STATEMENTS OF OPERATIONS

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

CONSOLIDATED STATEMENTS OF OPERATIONS

thousands, except per share amounts and number of shares )

Three Months Ended

Products revenues, net

Revenues, related party

Total revenues, net

months ended June 30,

revenues, net

related party

revenues, net

of revenues, related party

of revenues, other

general and administrative

general and administrative, related party

and development

in fair value of contingent consideration

operating expenses

Cost of revenues, related party

Cost of revenues, other

Selling, general and administrative

Selling, general and administrative, related party

Change in fair value of contingent consideration

Total operating expenses

Loss from operations

from operations

income (expense)

in fair value of warrants

in fair value of investment, related party

other income (expense)

Change in fair value of warrant liabilities

Change in fair value of investments

Interest expense, net

Other income (expense), net

Total other income (expense)

Income (loss) before income taxes

Income tax expense

Net income (loss)

Income (loss) per common share:

Weighted-average common shares outstanding:

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

STATEMENTS OF STOCKHOLDERS’ EQUITY

(loss) before income taxes

income (loss)

(loss) per common share:

Weighted-average

common shares outstanding:

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

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

thousands, except number of shares)

Months Ended March 31, 2023 and 2022

and Six Months Ended June 30, 2023

Additional Paid-

Balance, March 31, 2023

Issuance of shares for vested restricted stock units

Stock based compensation

Balance, June 30, 2023

Balance, December 31, 2022

Issuance of shares for vested restricted stock units

Stock based compensation

Net income (loss)

Balance, June 30, 2023

and Six Months Ended June 30, 2022

Additional Paid-

Balance March 31, 2022

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

Issuance of shares for vested restricted stock units

Stock based compensation

Balance, June 30, 2022

Balance, December 31, 2021

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

Issuance of shares for vested restricted stock units

Stock based compensation

Net income (loss)

Balance, March 31, 2022

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

STATEMENTS OF CASH FLOWS

Three Months Ended

Balance, June 30, 2022

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended

Cash flows from operating activities:

3 unchanged sentences

Amortization of acquired intangible assets

Change in fair value of investment in equity securities

Change in fair value of investment, related party

Change in fair value of contingent consideration

1 unchanged sentence

Stock-based compensation

Provision for inventory obsolescence

Provision for doubtful accounts

9 unchanged sentences

Cash flows from investing activities

Sales of equity investment, related party

Purchases of property and equipment

Cash flows used in investing activities

Net decrease in cash and cash equivalents

Cash flows provided by (used) in investing activities

Cash flows from financing activities

Proceeds from line of credit

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

Repayment of line of credit

Cash flows provided by financing activities

Net increase (decrease) in cash and cash equivalents

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

3 unchanged sentences

Income taxes paid, net

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

to Consolidated Financial Statements

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

to Condensed Consolidated Financial Statements

Business Overview

Biofrontera Inc (the “Company”).

U.S.-based biopharmaceutical company commercializing a portfolio of pharmaceutical products for the treatment of dermatological conditions

with a focus on photodynamic therapy (“PDT”) and topical antibiotics.

The Company’s licensed products are used for the

treatment of actinic keratoses, which are pre-cancerous skin lesions as well as impetigo, a bacterial skin infection.

Biofrontera Inc.

includes its wholly owned subsidiary

Bio-FRI GmbH, a limited liability company organized under the laws of Germany.

Our subsidiary, Bioi-FRI was formed on February 9, 2022,

as a German presence to facilitate our relationship with the Ameluz Licensor.

Inc (the “Company” or “Biofrontera”) is a U.S.-based biopharmaceutical company commercializing a portfolio

of pharmaceutical products for the treatment of dermatological conditions with a focus on photodynamic therapy (“PDT”)

and topical antibiotics.

The Company’s licensed products are used for the treatment of actinic keratoses, which are

pre-cancerous skin lesions as well as impetigo, a bacterial skin infection.

In May 2023, the Company began research and

development (“R&D”) activities to support PDT growth and will continue to opportunistically invest in these

activities going forward.

Our research and development program currently aims to improve the capabilities of our

BF-RhodoLED ® lamps to better fulfill the needs of dermatologists and improve the effectiveness of our commercial

team by letting sales representatives carry approved devices with them allowing for easier product demonstrations and

includes its wholly owned subsidiary Bio-FRI GmbH (“Bio-FRI”), a limited liability company organized under the laws of Germany.

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

principal licensed product is Ameluz ® , which is a prescription drug approved for use in combination with the RhodoLED ®

1 unchanged sentence

In the United States, the PDT treatment is

used for the lesion-directed and field-directed treatment of actinic keratoses (“AK”) of mild-to-moderate severity on the

face and scalp.

used for the lesion-directed and field-directed treatment of actinic keratoses of mild-to-moderate severity on the face and

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

under an exclusive license and supply

agreement (“Ameluz LSA”) between Biofrontera, Inc.

and the Ameluz Licensors.

Our second prescription drug licensed product in our portfolio is Xepi®

(ozenoxacin cream, 1%), a topical non-fluorinated quinolone that inhibits bacterial growth.

Currently, no antibiotic resistance against

Xepi® is known and it has been specifically approved by the FDA for the treatment of impetigo, a common skin infection, due to Staphylococcus

aureus or Streptococcus pyogenes.

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

We are currently

selling Xepi® for this indication in the United States.

under an exclusive license and supply agreement, as amended (“Xepi LSA”)

with Ferrer Internacional S.A.

(“Ferrer”) that was assumed by Biofrontera on March 25, 2019 through our acquisition of Cutanea

Life Sciences, Inc.(“Cutanea”).

under an exclusive license and supply agreement

(“Ameluz LSA”) with Biofrontera Pharma (“Pharma”) GmbH and Biofrontera Bioscience GmbH (together the “Ameluz Licensor”).

second prescription drug licensed 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, a common skin infection, due to Staphylococcus aureus or Streptococcus pyogenes.

It is approved for

use in the United States in adults and children 2 months and older.

We are currently selling Xepi® for this indication in the

United States under an exclusive license and supply agreement, as amended (“Xepi LSA”) with Ferrer Internacional S.A.

(“Ferrer”) that was assumed by Biofrontera on March 25, 2019 through our acquisition of Cutanea Life Sciences,

Inc.(“Cutanea”).

There has been limited revenue during the current reporting periods and recent developments with the

third-party manufacturer that was providing our supply of Xepi® have resulted in further delays of our commercialization of the

However, Ferrer is qualifying a new Contract manufacturer, Cambrex, which is expected to begin production early

Once the new third-party manufacturer is qualified, we expect the supply of Xepi® will meet future needs.

and Going Concern

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

flows from equity financing transactions received in 2022.

As of March 31, 2023, we had cash and cash equivalents of $ 13.5 million, compared

to $ 17.2 million as of December 31, 2022.

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

from the sale of our investment, related party, and cash flows from a revolving line of credit.

As of June 30, 2023, we had

cash and cash equivalents of $ 4.5

million and investment, related party of $ 5.9

million, compared to $ 17.2

million and $ 10.5

million as of December 31, 2022, respectively.

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

For the three months ended March 31, 2023 and 2022, we incurred

loss from operations of $ 5.5 million and $ 3.1 million, respectively .

We incurred net cash outflows

from operations of $ 3.7 million and $ 2.1 million, for the same periods, respectively.

We had an accumulated deficit as of March 31, 2023

of $ 87.0 million.

Company’s short-term material cash requirements include working capital needs and satisfaction of contractual commitments

including facility and auto leases (see Note 21.

For the six months ended June 30, 2023 and 2022, we incurred loss

from operations of $ 14.2 million and $ 9.3 million, respectively.

We incurred net cash outflows from operations of $ 14.0 million and $ 2.0

million, for the same periods, respectively.

We had an accumulated deficit as of June 30, 2023 of $ 96.8 million.

Company’s short-term material cash requirements include working capital needs and satisfaction of contractual commitments (see

Commitments and Contingencies ), Maruho start-up cost financing repayments of $ 7.3

million (see Note 3.

Acquisition Contract Liabilities ), and legal settlement expenses after reimbursement from Biofrontera AG

Long-term material cash requirements include potential milestone payments to Ferrer Internacional S.A, and contingent

consideration payments to Maruho connected with Xepi sales (see Note 21.

Commitments and Contingencies) .

Acquisition Contract

Liabilities ), and legal settlement expenses after reimbursement from Biofrontera AG of $ 2.4

Additionally,

we expect to continue to incur operating losses due to significant discretionary sales and marketing, medical affairs, and dermatology

community outreach efforts as we seek to expand the

commercialization of our licensed products in the United States.

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

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

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.

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 revolving line of credit and expected proceeds from the

sale of our investment in equity securities in addition to 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 additional debt financing to support our future long-term growth and to mitigate the risk of our operating

costs significantly exceeding the amounts currently estimated.

If our current operating plans or financial forecasts change, or we

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

marketing consulting and defer some hiring.

While we expect to continue being flexible in our spending over the next twelve months,

we do not consider there to be a need to significantly revise our operations currently.

community outreach efforts as we seek to expand the commercialization of our licensed products in the United States.

We also expect to

incur additional expenses to add and improve operational, financial and information systems and personnel, including personnel to support

our product commercialization efforts.

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.

connection with our assessment of going concern considerations under applicable accounting standards, the Company’s management

has determined that, based on our growth plans, upcoming inventory purchases, and a final settlement payment, substantial doubt

exists about our ability to continue as a going concern for at least one year from the date the unaudited condensed financial

statements were issued.

The future viability of the Company is dependent on its ability to continue to execute its growth

plan and raise additional capital or find alternative methods of financing to fund its operations until cash flow from operations is

Management believes that actions presently being taken to obtain additional funding and implement its strategic plans

provide the opportunity for the Company to continue as a going concern.

No assurance can be given that the Company will be

successful in these efforts.

Accordingly, management has concluded that substantial doubt exists about the company’s ability

to continue as a going concern for a period of at least 12 months from the date of issuance of these financial

The accompanying financial statements have been prepared on a going concern

basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business.

The financial

statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and

classification of liabilities that might result from the outcome of the uncertainties described above.

Summary of Significant Accounting Policies

for Preparation of the Financial Statements

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

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

Certain information and footnote disclosures

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

generally accepted accounting principles (“U.S.

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

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

Certain information

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

generally accepted

accounting principles (“U.S.

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

In the Company’s opinion, the unaudited consolidated

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

the Company’s financial position as of March 31, 2023, the Company’s operating results for the three months ended March 31,

2023 and 2022, and the Company’s cash flows for the three months ended March 31, 2023 and 2022.

The accompanying financial information

as of December 31, 2022 is derived from audited financial statements.

Interim results are not necessarily indicative of results for a

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

Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 13, 2023.

Company’s opinion, the unaudited condensed consolidated financial statements include all material adjustments, all of which

are of a normal and recurring nature, necessary to present fairly the Company’s financial position as of June 30, 2023, the

Company’s operating results for the three and six months ended June 30, 2023 and 2022, and the Company’s cash flows for

the six months ended June 30, 2023 and 2022.

The accompanying financial information as of December 31, 2022 is derived from audited

financial statements.

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

The information included in this

Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended

December 31, 2022, filed with the SEC on March 13, 2023.

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

2 unchanged sentences

the notes to financial statements for the year ended December 31, 2022, included in the Company’s Annual Report on Form 10-K.

have been no significant changes to these policies during the three months ended March 31, 2023.

have been no significant changes to these policies during the three and six months ended June 30, 2023 except for those noted below:

and Development Costs

and development costs are expensed as incurred.

Research and development costs include external costs of outside vendors engaged to conduct

research and development activities, and other operational costs related to the Company’s research and development activities.

July 3, 2023 Biofrontera Inc.

effected a 1-for-20

reverse stock split (the “Reverse Stock Split”) of the issued and outstanding shares of the Company’s common stock, $ 0.001

par value (the “Common Stock”).

The Common Stock began trading on the

Nasdaq Capital Market on a post-split basis on July 5, 2023.

information included in these consolidated financial statements has been adjusted, on a retrospective basis, to reflect the Reverse

Stock Split as if it had been effective from the beginning of the earliest period presented, unless otherwise stated.

All outstanding securities entitling their holders to purchase shares of Common Stock or

acquire shares of Common Stock, including stock options, restricted stock units, and warrants, were adjusted as a result of the

Reverse Stock Split, as required by the terms of those securities.

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

33 unchanged sentences

to the estimated profits from the sale of Cutanea products to be shared equally with Maruho (see Note 18.

Commitment and contingencies – Cutanea payments) .

Commitment and contingencies

– Cutanea payments) .

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

6 unchanged sentences

amount of contingent consideration that could be payable is not subject to a cap under the agreement.

The contingent consideration that could be payable was valued at $ 2.3 million with payments coming due May of 2028 through

The Company re-measures contingent

1 unchanged sentence

contract liabilities, net consist of the following:

Schedule of Acquisition Contract Liabilities

of Acquisition Contract Liabilities

(in thousands)

June 30, 2023

December 31, 2022

12 unchanged sentences

Fair Value Measurements

following table presents information about the Company’s assets that are measured at fair value on a recurring basis at March 31,

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

2023 and December 31, 2022 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair

1 unchanged sentence

(in thousands)

June 30, 2023

December 31, 2022

Investment in equity securities

Investment, related party

Contingent Consideration

2 unchanged sentences

Warrant liability

in equity securities

of March 31, 2023, the Company had an investment in shares of Biofrontera AG .

The fair value of

th is investment was determined with Level 1 inputs through references to quoted market prices.

Investment, related party

of June 30, 2023 and December 31, 2022, the Company had 6,280,396

and 6,446,946 ,

respectively of common shares of Biofrontera AG, a significant shareholder.

The fair value of this investment was determined with

Level 1 inputs through references to quoted market prices.

See Note 13 , “ Related Party Transactions ”.

Consideration

16 unchanged sentences

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

Schedule of Fair Value of Contingent Consideration

of Fair Value of Contingent Consideration

(in thousands)

1 unchanged sentence

Change in fair value of contingent consideration

Balance at March 31, 2022

Balance at June 30, 2023

Balance at December 31, 2021

Change in fair value of contingent consideration

Balance at March 31, 2023

liabilities, comprised of warrants to purchase one share of common stock issued in a private placement on May 16, 2022, expiring

five and one-half years after the issue date and with an exercise price of $ 2.77 per share (the “ Purchase Warrants”) and

warrants to purchase one share of

common stock issued on July 26, 2022, expiring on December 1, 2026 with an exercise price of $ 1.66 per share (the “ 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 statements of

Company utilizes a Black-Scholes option pricing model to estimate the fair value of the Purchase Warrants 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 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 statements

of operations.

fair value at March 31, 2023 was estimated using a Black-Scholes pricing model based on the following assumptions:

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

Balance at June 30, 2022

warrant liabilities are comprised of (i) a warrant to purchase 170,950

shares of common stock

issued in a private placement on May 16, 2022, expiring five and one-half years after the issue date and with an exercise price of $ 55.40

per share (the “Purchase

Warrants”) and (ii) a warrant to purchase 214,286

shares of common stock

issued on July 26, 2022, expiring on December 1, 2026 with an exercise price of $ 33.20

per share (the “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 statements of operations.

Company utilizes a Black-Scholes option pricing model to estimate the fair value of the Purchase Warrants 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 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 statements of operations.

fair value at June 30, 2023 was estimated using a Black-Scholes pricing model based on the following assumptions:

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

Expiration term (in years)

3 unchanged sentences

of Changes in Fair Value Warrant Liabilities

Three Months Ended March 31,

Six Months Ended June 30,

Fair value at beginning of period

Issuance of new derivative liabilities

Change in fair value of warrant liability

5 unchanged sentences

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

of Revenue Allowance and Accrual Activities

of Revenue Allowance and Accrual Activties

(in thousands):

5 unchanged sentences

Credit or payments made during the period

Balance at March 31, 2022

Balance at June 30, 2022

Balance at December 31, 2022

2 unchanged sentences

Credit or payments made during the period

Balance at March 31, 2023

Balance at June 30, 2023

Ending Balance

Investment, Related Party

of June 30, 2023 and December 31, 2022, our investment in equity securities consisted solely of 6,280,396

and 6,446,946 ,

respectively of common shares of Biofrontera AG, a significant shareholder.

See Note 13 .

Related Party Transactions .

these shares, 3,377,346

are not fully in our control to vote or dispose of as we see fit as they are not held in a brokerage account registered in our

name, however, we are currently engaged with advisors to transfer such shares to our brokerage account.

Equity securities

gains and losses include unrealized gains and losses from changes in fair values during the period on equity securities we still

own, as well as gains and losses on securities we sold during the period.

As reflected in the consolidated statements of cash flows,

we received proceeds from sales of equity securities of approximately $ 0.2

million during the six months ended June 30, 2023.

gains and losses on investment, related party are summarized as follows:

of Unrealized Gains and Losses on Investments in Equity Securities

(in thousands)

Three months ended

Six months ended

(in thousands)

Net losses recognized during the period on equity securities

Net losses recognized during the period on equity securities sold

Unrealized losses recognized during the reporting period on equity securities still held at the reporting date

Accounts Receivable, net

receivables 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.

receivables are mainly attributable to the sale of Ameluz ® .

It is expected that all trade receivables will be settled within

twelve months of the balance sheet date.

Trade accounts receivable are stated at their net realizable value.

The allowance for credit losses reflects our

best estimate of expected credit losses of the receivables determined on the basis of historical experience and current information.

developing the estimate for expected credit losses, trade accounts receivables are segmented into pools of assets depending primarily

on delinquency status, and fixed reserve percentages are established for each pool of trade accounts receivables.

allowance for credit losses was $ 0.1 million as of March 31, 2023 and December 31, 2022.

The allowance for credit

losses reflects our best estimate of expected credit losses of the receivables determined on the basis of historical experience and current

In developing the estimate for expected credit losses, trade accounts receivables are segmented into pools of assets depending

primarily on delinquency status, and fixed reserve percentages are established for each pool of trade accounts receivables.

allowance for credit losses was $ 0.2

million and $ 0.1

million as of June 30, 2023 and December 31, 2022, respectively.

Other Receivables, Related Party

of March 31, 2023 the Company has a receivable of $ 3.8

million due from the Biofrontera Group of which

million is due from Biofrontera AG for its 50 %

share of the balance of a legal settlement (see Note 21.

Commitments and Contingencies – Legal proceedings ) 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 (“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 Allocation Agreement, as amended, 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 March 31, 2023 or December 31, 2022.

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.

There was no provision for obsolescence recorded for the three months ended March 31, 2023 and 2022.

Prepaid Expenses and Other Current Assets

expenses and other current assets consist of the following:

Schedule of Prepaid Expenses and Other Current Assets

(in thousands)

December 31, 2022

Prepaid expenses

Prepaid insurance

Prepaid licenses

Security deposits

Property and Equipment, Net

and equipment, net consists of the following:

Schedule of Property and Equipment

(in thousands)

December 31, 2022

Computer equipment

Computer software

Furniture & fixtures

Leasehold improvement

Machinery & equipment

Property and equipment, gross

Accumulated depreciation

Property and equipment, net

expense for the three months ended March 31, 2023 and 2022 was negligible and was included in selling, general and administrative expense

in the consolidated statements of operations.

of June 30, 2023 the Company has a receivable of $ 4.0 million due from related parties of which $ 3.7 million is due from Biofrontera

AG for its 50 % share of the balance of a legal settlement (see Note 18.

Commitments and Contingencies – Legal proceedings )

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 (“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 Allocation Agreement, as amended, 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 ® ).

such , no reserve for the receivable was deemed necessary as of June 30, 2023 or December 31,

Intangible Asset, Net

2 unchanged sentences

(in thousands)

June 30, 2023

December 31, 2022

4 unchanged sentences

over the useful life of 11 years.

Amortization expense for the three months ended March 31, 2023 and 2022 was $ 0.1 million.

Amortization expense for the three months ended June 30, 2023 and 2022 was $ 0.1 million and $ 0.2 million

for the six months ended June 30, 2023 and 2022.

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.

Company did not recognize any impairment charges during the three months ended March 31, 2023 or 2022.

Statement of Cash Flows Reconciliation

In June 2023, upon receiving notification of complications with renewing the marketing authorization of the Xepi®

product linked to the bankruptcy of the former contract manufacturer, we deemed it necessary to assess the recoverability of our Xepi®

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 three and six months ended June 30, 2023 and 2022.

Cash Balances and Statement of Cash Flows Reconciliation

The Company maintains its cash balances at financial

institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”).

The FDIC provides coverage

of up to $ 250,000 per depositor, per financial institution.

At June 30, 2023, approximately $ 4.2 million of the Company’s cash balances

were in excess of FDIC limits.

The Company has not experienced any losses on these accounts and management does not believe

that the Company is exposed to any significant risks.

Restricted cash consists primarily

of deposits of cash collateral held in accordance with the terms of our corporate credit cards.

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

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(in thousands)

June 30, 2023

December 31, 2022

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(in thousands)

June 30, 2023

December 31, 2022

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Product revenue allowances and reserves

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

for the three-month periods ended March 31, 2023 and 2022.

Income tax expense incurred for the three months ended March 31, 2023 and

2022 relates to state income taxes.

At March 31, 2023 and December 31, 2022, the Company had no unrecognized tax benefits.

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

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

statements of operations.

As of March 31, 2023, and December 31, 2022, the Company has no accrued interest related to uncertain tax positions.

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

federal, state, and local income

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

Line of Credit

May 8, 2023, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with MidCap Business Credit

LLC, providing us with a revolving line of credit in the aggregate principal amount of up to $ 6.5

million, subject to a borrowing base and an availability block, with a maturity date of May 8, 2026.

The Loan Agreement is secured by a lien on substantially

all of the assets of the Company, subject to customary exceptions.

under the Loan Agreement bear interest at the 30-Day Adjusted Term Secured Overnight Financing Rate (“SOFR Rate”), set

monthly on the first day of the month based on 30-Day Term SOFR plus a spread adjustment of 15 basis points and subject to a floor

of 2.25%, plus 4.00% calculated and charged monthly in arrears.

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 Loan Agreement, amounts available for

advances would be subject to a borrowing base, which is a formula based on certain eligible receivables and inventory, and a block

on such availability in the amount of $ 650,000 .

Currently, our borrowing capacity is limited to our eligible receivables, pending consent from Biofrontera AG to allow Midcap to

obtain title to Biofrontera Inc.’s inventory in the event of bankruptcy.

The borrowing base is up to 85% of accounts

receivable, plus the least of (a) $ 3.3 million, (b) 50% of inventory, and (c) 85% of accounts receivable, less borrowing base

reserve, if any, as defined in the Loan Agreement.

The Loan Agreement also includes an Unused Line Fee Rate of 0.375 %

of the Credit Limit less all outstanding advances, which shall be paid on a monthly basis.

interest rate as of June 30, 2023 was 5.31 % and interest expense for the six months ended June 30, 2023 was negligible.

The Company recorded

approximately $ 0.2 million of costs related to the line of credit as an asset to be amortized on a straight-line basis over the term

of the line of credit.

The Company recognized minimal amortization expense in connection with this Line of Credit for the six months

ended June 30, 2023, which is recorded as interest expense on the accompanying consolidated statement of operations.

Related Party Transactions

and Supply Agreement

October 1, 2016, the Company executed an exclusive license and supply agreement with Biofrontera Pharma GmbH (“Pharma”),

which was amended in July 2019 to increase the Ameluz ® transfer price per unit from 35.0 % to 50.0 % of the anticipated

net selling price per unit as defined in the agreement.

It was further amended on October 8, 2021 so that the price we pay per unit will

be based upon our sales history, although the minimum number of units to purchase per year remains unchanged.

As a result of this amendment,

the purchase price we pay Biofrontera Pharma for Ameluz ® will range from 30 % to 50 % of the anticipated net price per unit

based on our level of annual revenue.

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 three months ended March 31, 2023 and 2022 were $ 4.6 million and $ 5.2 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 March 31, 2023 and December 31, 2022 were $ 0.9 million and $ 1.3 million, respectively,

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

On October 8, 2021, we entered into an amendment to

the Ameluz LSA under which the price we pay per unit will be based upon our sales history.

As a result of this amendment, the purchase

price we pay the Ameluz Licensor for Ameluz ® will be determined in the following manner:

fifty percent of the anticipated net price per unit until we generate $ 30 million in revenue from sales of the products we license from the Ameluz Licensor during a given Commercial Year (as defined in the Ameluz LSA);

forty percent of the anticipated net price per unit for all revenues we generate between $ 30 million and $ 50 million from sales of the products we license from the Ameluz Licensor;

thirty percent of the anticipated net price per unit for all revenues we generate above $ 50 million from sales of the products we license from the Ameluz Licensor.

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 three and six months ended June 30, 2023 were $ 10.4 million and $ 13.7 million, respectively, and

$ 6.2 million and $ 11.5 million, respectively for the three and six months ended June 30, 2022.

The purchases were 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 June 30, 2023 and December 31, 2022 were $ 4.7 million and $ 1.3 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

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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, and pharmacovigilance,

and are continuously assessing the other services historically provided to us by Biofrontera AG to determine 1) if they will be needed,

and 2) whether they can or should be obtained from other third-party providers.

As of March 31, 2023, we have migrated away from Biofrontera AG to third

party providers for most of our significant IT services .

Expenses related to the service agreement were negligible

for the three months ended March 31, 2023 and $ 0.1 million for the three months ended March 31, 2022, which were recorded in selling,

general and administrative, related party.

Amounts due to Biofrontera AG related to the service agreement as of March 31, 2023 and December

31, 2022 were $ 0.2 million and $ 0.2 million, respectively, which were offset against other receivables, related party in the consolidated

balance sheet.

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

assessing the other services historically provided to us by Biofrontera AG to determine 1) if they will be needed, and 2) whether they

can or should be obtained from other third-party providers.

As of June 30, 2023, we have migrated away from Biofrontera AG to third party

providers for most of our significant IT services.

Expenses related to the service agreement were $ 0.1 million for the three and six

months ended June 30, 2023 and $ 0.3 million and $ 0.4 million for the three and six months ended June 30, 2022, respectively.

These expenses

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

Amounts due to Biofrontera AG related to the service agreement as

of June 30, 2023 and December 31, 2022 were $ 0.2 million and $ 0.2 million, respectively, which were offset against other receivables,

related party in the consolidated balance sheet.

Lamp Lease Agreement

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lamps and associated services.

revenue related to the clinical lamp lease agreement was minimal for the three months ended March 31, 2023 and 2022, respectively and

was recorded as revenues, related party.

Amounts due from Bioscience for clinical lamp and other reimbursements were approximately $ 0.2

million and $ 0.1 as of March 31, 2023 and December 31, 2022, respectively, which were recorded as other receivables, related party in

the consolidated balance sheets.

Company has recorded a receivable of $ 3.7 million and $ 6.4 million as of March 31, 2023 and December 31, 2022, respectively, due from

revenue related to the clinical lamp lease agreement was minimal for the three and six months ended June 30, 2023 and 2022, and was recorded

as revenues, related party.

Amounts due from Bioscience for clinical lamp and other reimbursements were approximately $ 0.5 million and

$ 0.1 as of June 30, 2023 and December 31, 2022, respectively, which were recorded as other receivables, related party in the consolidated

balance sheets.

Company has recorded a receivable of $ 3.7 million and $ 6.4 million as of June 30, 2023 and December 31, 2022, respectively, due from

Biofrontera AG for its 50 % share of the balance of a legal settlement for which both parties are jointly and severally liable.

to Note 7, Other Receivables, Related Party .

There was no interest income recognized for the three months ended March 31, 2023 and

$ 0.1 million of interest income for the three months ended March 31, 2022, in connection with this receivable.

of March 31, 2023, our investment in equity securities is valued at $ 7.6

Other Receivables, Related Party .

There was no interest income recognized for the six months ended June 30, 2023 and $ 0.1

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

of June 30, 2023, our investment, related party is valued at $ 5.9

million and consists of 6,280,396

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shareholder of the Company.

Of these shares, 3,377,346 are not fully in our control to vote or dispose of as we see fit as they are not

held in a brokerage account registered in our name, however, we are currently engaged with advisors to transfer such shares to our brokerage

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 per share.

Subsequent Events for information and disclosures relating to adjustments related to the Reverse Stock Split.

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

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Under the 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 March 31, 2023, there were 2,946,988 shares available for future awards

under the amended 2021 Plan.

2021 Plan, 137,500

shares are reserved and authorized for awards

and the maximum contractual term is 10

years for stock options issued under the 2021 Plan.

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 129,490

As of June 30, 2023, there were 152,301

shares available for future awards under the

amended 2021 Plan.

Subsequent Events for information and disclosures relating to adjustments related to the Reverse

Non-qualified

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requisite service period.

The fair value of stock options is estimated at the time of grant using the Black-Scholes option pricing model,

which requires the use of inputs and assumptions such as the fair value of the underlying stock, exercise price of the option, expected

term, risk-free interest rate, expected volatility and dividend yield.

The Company elects to account for forfeitures as they occur.

The fair value of stock options is estimated at the time of grant using the Black-Scholes

(“BSM”) option pricing model, which requires the use of inputs and assumptions such as the fair value of the underlying

stock, exercise price of the option, expected term, risk-free interest rate, expected volatility and dividend yield.

elects to account for forfeitures as they occur.

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

Three Months Ended March 31,

Six Months Ended June 30,

Expected volatility

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Risk-free interest rate

3.5 % - 3.7 %

Expected dividend yield

compensation expense of approximately $ 0.2 million and $ 0.4 million was recorded in selling, general and administrative expenses on the

accompanying consolidated statement of operations for the three months ended March 31, 2023 and March 31, 2022, respectively.

outstanding and exercisable under the employee share option plan as of March 31, 2023 and a summary of option activity during the three

accompanying consolidated statement of operations for the three and six months ended June 30, 2023, respectively and $ 0.2 million and

$ 0.3 million for the three and six months ended June 30, 2022.

outstanding and exercisable under the employee share option plan as of June 30, 2023 and a summary of option activity during the six

months then ended is presented below.

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Canceled or forfeited

Outstanding at March 31, 2023

Exercisable at March 31, 2023

The 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 March 31, 2023.

of March 31, 2023, there was $ 2.0 million of unrecognized compensation cost related to unvested stock options, which is expected to be

Outstanding at June 30, 2023

Exercisable at June 30, 2023

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

of the common stock for the options that were in the money at June 30, 2023.

of June 30, 2023, there was $ 1.4 million of unrecognized compensation cost related to unvested stock options, which is expected to be

recognized over a weighted-average period of approximately 2.1 years.

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common stock on the grant date.

compensation expense of $ 0.1

million and $ 0.4 million for the RSUs was recorded in selling, general and administrative expenses in the accompanying consolidated

statements of operations for the three months ended March 31, 2023 and March 31, 2022, respectively.

of March 31, 2023, there was $ 0.5 million of unrecognized compensation cost related to unvested RSUs, which is expected to be recognized

over a weighted-average period of approximately 1.1 years.

compensation expense of $ 0.1 million and $ 0.2 million for the RSUs for the three and six months ended June 30, 2023,

respectively, and $ 0.4 million and $ 0.8 million for the three and six months ended June 30, 2022 and was recorded in selling, general

and administrative expenses in the accompanying consolidated statements of operations.

of Restricted Stock Units

Weighted Average Remaining Contractual Term

Aggregate Intrinsic

Weighted Average Grant Date Fair Value

Outstanding at December 31, 2022

Canceled or forfeited

Outstanding at March 31, 2023

Expected to vest at March 31, 2023

Average Remaining Contractual Term

Intrinsic Value

Average Grant Date Fair Value

at December 31, 2022

at June 30, 2023

of June 30, 2023, there was $ 0.2 million of unrecognized compensation cost related to unvested RSUs, which is expected to be recognized

over a weighted-average period of approximately 0.9 years.

Interest Expense, net

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Schedule of Interest Expense

Three Months Ended March 31,

For three months ended

For six months ended

(in thousands)

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Contract asset interest expense

Interest income

Interest income – related party

Interest income – other

Interest expense, net

Interest expense is comprised primarily of interest on our Loan and Security Agreement with MidCap Business Credit LLC.

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

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

Other Income (expense), net

income (expense), net primarily includes (i) gain (loss) on sale of leased assets and (ii) gain (loss) on foreign currency

transactions.

Net Earnings (Loss) per Share

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The diluted shares include the dilutive effect of stock-based awards based on the treasury stock

In periods where a net loss is recorded, no effect is given to potentially dilutive securities, since the effect

would be anti-dilutive.

In periods where a net loss is recorded, no effect is given to potentially dilutive securities, since the effect would be anti-dilutive.

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

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

Three Months Ended March 31,

Three Months Ended

Six Months Ended

Net income (loss)

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Net earnings (loss) per share:

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:

following table sets forth the weighted average of 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

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Unit Purchase Options

Anti-dilutive securities excluded from computation of earnings per share

Common stock warrants include Purchase Warrants, Inducement Warrants and warrants issued in the Initial Public Offering.

Anti-dilutive securities excluded

from computation of earnings per share

stock warrants include Purchase Warrants, Inducement Warrants and warrants issued in the Initial Public Offering.

Commitments and Contingencies

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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.

components of lease expense for the three months ended March 31, 2023 were as follows (in thousands except lease term and discount rate):

Based on historical retention experience of approximately three years, the vehicles have varying

expiration dates through September 2025.

components of lease expense for the three and six months ended June 30, 2023 were as follows (in thousands except lease term and discount

of Components of Lease Expense and Other Information

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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 March 31, 2023 were as follows (in thousands):

lease payments under non-cancelable leases as of June 30, 2023 were as follows (in thousands):

Schedule of Future Commitments and Sublease Income

Years ending December 31,

Future lease commitments

Total future minimum lease payments

Less imputed interest

Total lease liability

ending December 31,

lease commitments

future minimum lease payments

imputed interest

lease liability

of Operating Lease Liability

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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 withholding the repayment of the start-up

cost financing until a decision is reached through the arbitration process.

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.

contract manufacturer that were not disclosed at the time of the Share Purchase Agreement and therefore are withholding the

repayment of the start-up cost financing until a decision is reached through the arbitration process.

The arbitration notes that Maruho

breached the agreement with Cutanea due to 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.

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

Specifically, we must pay

Ferrer i) $ 2,000,000

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

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 have been made related to Xepi ® milestones.

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

on the outcome of the arbitration process 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

upon the first occasion annual net sales of Xepi ®

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

No Xepi ® milestones have been achieved as of the financial statement filing date.

Agreement with Biofrontera AG

Pursuant to the terms

of that certain Settlement Agreement , dated as of April

11, 2023, among the Company, Biofrontera AG and certain current and former directors of the Company (the “Settlement Agreement”),

the Company has committed, among other things, to take the following actions:

Company will appoint as a Class

I Director a director nominated by Biofrontera AG.

Subsequent Events – New Board

Member for details regarding the new appointment.

Company will begin a search, pursuant to the conditions set forth in the Settlement Agreement including a strike

right granted to the aforementioned director nominated by Biofrontera AG, for an additional director candidate,

who is fully independent from Biofrontera AG, Deutsche Balaton Aktiengesellschaft (“DB”) and any

of their respective affiliates, to be nominated for election as a Class II Director at the Company’s 2023

annual meeting of stockholders;

● the Board will increase its size to seven members, including the two directors appointed and elected pursuant to the Settlement Agreement.

addition, the Settlement Agreement contains provisions to maintain Biofrontera AG’s representation on the Board of Directors as long

as it holds at least 20% of the Company’s outstanding common stock and to limit further increases in the size of the Board

of Directors or changes to the Company’s stockholder rights plan.

Under the Settlement Agreement, Biofrontera AG also agrees, subject

to certain conditions, to vote in support of the directors nominated by, and the proposals recommended by, the Board of Directors.

Agreement with Optical Tools

December 2, 2022, the Company entered into the technology transfer agreement with Optical Tools LLC (“Optical Tools”), and

Stephen Tobin and Paul Sowyrda (the “Agreement”).

The Agreement allowed for the transfer of the assigned patents and trademarks,

and upon notification by the Company to Optical Tools, the research and development of certain prototypes.

The Company paid a licensing

fee of $ 0.2 million which was expensed during the year ended December 31, 2022.

May 28, 2023, the Company authorized Optical Tools to design, develop, manufacture, and deliver at least two portable photodynamic therapy

lamp prototypes (“PDT Device”) using the technology in the assigned patents.

The PDT Device provides illumination, based

on different light profiles, to the external skin surface of the human body.

The Company shall reimburse Optical Tools for all reasonable

out-of-pocket, material and labor costs per the agreement.

part of the Agreement, Optical Tools will be eligible to receive regulatory and sales milestone payments totaling up to $ 1.0 million,

and royalties of up to 3 % of net revenue of certain products developed under this Agreement.

Company did not make any milestone or royalty payments during the three or six months ended June 30, 2023 and 2022, respectively.

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

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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 March 31, 2023, we have reflected a legal settlement liability in the amount of $ 6.1 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

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

Pharmaceuticals Inc.

(“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.

or Biofrontera AG violates the terms of the settlement agreement, we or Biofrontera AG may be liable for a greater amount.

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 operations.

As of June 30, 2023, we have reflected

a legal settlement liability in the amount of $ 6.1

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 $ 3.7

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.

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.

Pursuant to the Settlement Agreement, if DUSA believes Biofrontera

has violated any terms of the settlement and release agreement, the parties must engage in certain alternative dispute resolution activities, including a meeting between

company representatives and non-binding mediation before a court action can be initiated.

Retirement Plan

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

the three months ended March 31, 2023 and 2022, matching contribution costs paid by the Company were $ 0.1 million.

contribution costs paid by the Company were $ 0.1 million and negligible for the three months ended June 30, 2023 and 2022, and $ 0.2 million

and $ 0.1 million for the six months ended June 30, 2023 and 2022, respectively.

Subsequent Events

have completed an evaluation of subsequent events after the balance sheet date of March 31, 2023 through the date this Quarterly Report

have completed an evaluation of subsequent events after the balance sheet date of June 30, 2023 through the date this Quarterly Report

on Form 10-Q was submitted to the SEC.

April 11, 2023, Biofrontera Inc.

and each member of its Board of Directors, in their individual capacities, entered into a settlement

agreement (the “Settlement Agreement”) with Biofrontera AG, a significant stockholder of the Company.

to the terms of the Settlement Agreement, the major provisions are as follows:

Company and a member of its Board of Directors withdrew their challenges to the resolutions

passed at the Biofrontera AG stockholder meeting on January 9, 2023

Company will increase the Board of Directors from five to six members and appoint as a Class

I Director a director nominated by Biofrontera AG to fill the vacancy, subject to certain

restrictions as described in the Settlement Agreement;

Company will begin a search for an additional director candidate, who is fully independent,

to be nominated for election as a Class II Director at the Company’s 2023 annual meeting

of stockholders;

at which point the Company will increase the size of the Board of Directors

to seven members;

Board established a Related Party Transactions Committee to approve all contracts and

transactions between the Company and Biofrontera AG, including any of its affiliates;

Company amended on April 26, 2023 that certain Stockholder Rights Agreement dated October 13, 2022, between

the Company and Computershare Trust Company, N.A., as Rights Agent to increase

the threshold of beneficial ownership before being deemed an Acquiring Person, solely with

respect to Biofrontera AG, from 20% to 29.96%.

Loan and Security Agreement

May 8, 2023, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with MidCap Business Credit

LLC, providing us with a revolving line of credit in the aggregate principal amount of up to $ 6.5 million,

subject to a borrowing base.

The Loan Agreement allows the Company to request advances thereunder and to use the proceeds of such

advances for working capital purposes until the maturity date of May 8, 2026.

The Loan Agreement is secured by a lien on

substantially all of the assets of the Company, subject to customary exceptions.

under the Loan Agreement shall bear interest at the 30-Day Adjusted Term SOFR Rate, set monthly on the first day of the month based on

30-Day Term SOFR plus a spread adjustment of 15 basis points and subject to a floor of 2.25 %,

calculated and charged monthly in arrears.

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 Loan Agreement, amounts available for advances would be subject

to a borrowing base, which is a formula based on certain eligible receivables and inventory.

The Loan Agreement also includes an Unused

Line Fee Rate of 0.375 % of the Credit Limit less all outstanding advances, which shall be paid on a monthly basis.

Currently, our borrowing

capacity is limited to our eligible receivables, pending consent from Biofrontera AG to allow Midcap to obtain title to Biofrontera Inc.’s

inventory in the event of bankruptcy.

June 28, 2023, the Company, filed a Certificate of Amendment to its Amended and Restated Certificate of Incorporation (the “Amendment”)

with the Secretary of State of the State of Delaware to (i) effect the Reverse Stock Split of the Company’s Common Stock,

and (ii) effect a related proportional reduction in the number of the Company’s authorized shares of Common Stock from 300,000,000

to 15,000,000

(the “Authorized Share Reduction”).

to the Amendment, the Reverse Stock Split and Authorized Share Reduction was effective at 11:59 p.m.

on July 3, 2023 (the “Split

Effective Time”), and the Common Stock began trading on the Nasdaq Capital Market on a post-split basis on July 5, 2023.

value and other terms of the Common Stock were not affected.

the Split Effective Time, every 20 shares of Biofrontera Inc.

common stock issued and outstanding were automatically combined

and reclassified into one share of common stock.

Outstanding equity-based awards, warrants and other equity rights were proportionately

adjusted pursuant to their terms and the number of shares authorized and reserved for issuance upon vesting of restricted stock units

or exercise of stock options and warrants were reduced proportionately.

No fractional shares were issued as a result of the reverse stock

Stockholders who would otherwise hold a fractional share as a result of the Reverse Stock Split received an additional share of

common stock.

the terms of the applicable warrant agreement, the number of shares of Common Stock issuable on exercise of each warrant will be proportionately

Specifically, following effectiveness of the Reverse Stock Split, every 20 shares of Common Stock that may be purchased pursuant

to the exercise of public warrants now represents one share of Common Stock that may be purchased pursuant to such warrants.

for the Company’s warrants trading under the symbol “BFRIW”, every 20 warrants will be exercisable for one share of

Common Stock at an exercise price of $ 100.00 per share of Common Stock.

Reverse Stock Split affected all stockholders uniformly and did not alter any stockholder’s percentage interest in the Company’s

equity (other than as a result of the rounding up of fractional shares).

July 7, 2023, in connection with the Biofrontera AG settlement agreement, the board of directors of the Company appointed Heikki

Lanckriet to the Board.

Lanckriet will serve as a Class I Director to hold office for a term expiring at the annual meeting of

the Company’s stockholders for fiscal year 2025.

Lanckriet’s term as director began upon his appointment at the July

7, 2023 meeting.

Lanckriet was appointed to the Board upon the nomination of Biofrontera AG, a significant stockholder of the Company, pursuant to a settlement

agreement dated as of April 11, 2023, between the Company, each member of its Board of Directors at that time and Biofrontera AG.

Note 18, “ Commitments and Contingencies ”.

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

What changed 10-Q

Item 1. Financial Statements