What changed in this filing

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Item 1. Financial Statements

2023-11-09 compared with 2023-08-11 · 531 added, 482 removed, 399 unchanged (72% of the section changed)

2 unchanged sentences

thousands, except par value and share amounts )

June 30, 2023

December 31, 2022

September 30,

Current assets:

14 unchanged sentences

Accounts payable, related parties

Accounts payable

Acquisition contract liabilities, net

11 unchanged sentences

Stockholders’ equity:

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

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

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

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

1,367,628 and 1,334,950 shares issued and outstanding as of September 30, 2023 and December 31, 2022

Additional paid-in capital

5 unchanged sentences

thousands, except per share amounts and number of shares )

months ended June 30,

revenues, net

related party

revenues, net

of revenues, related party

of revenues, other

general and administrative

general and administrative, related party

and development

in fair value of contingent consideration

Three months ended September 30,

Nine months ended September 30,

Product revenues, net

Revenues, related party

Total revenues, net

Operating expenses

from operations

income (expense)

in fair value of warrants

in fair value of investment, related party

Cost of revenues, related party

Cost of revenues, other

Selling, general and administrative

Selling, general and administrative, related party

Research and development

Change in fair value of contingent consideration

Total operating expenses

Loss from operations

Other income (expense)

(loss) before income taxes

income (loss)

(loss) per common share:

Weighted-average

common shares outstanding:

Change in fair value of warrant liabilities

Warrant inducement expense

Realized/Unrealized losses in investment, related party

Interest expense, net

Other income, 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 condensed consolidated financial statements.

1 unchanged sentence

thousands, except number of shares)

and Six Months Ended June 30, 2023

and Nine Months Ended September 30, 2023

Additional Paid-

Balance, March 31, 2023

Issuance of shares for vested restricted stock units

Stock based compensation

Balance, June 30, 2023

Issuance of shares in reverse stock split (for fractional shares)

Stock based compensation

Balance, September 30, 2023

$ ( 103,176 )

Balance, December 31, 2022

Issuance of shares for vested restricted stock units

Issuance of shares in reverse stock split (for fractional shares)

Stock based compensation

Net income (loss)

Balance, June 30, 2023

and Six Months Ended June 30, 2022

Balance, September 30, 2023

$ ( 103,176 )

and Nine Months Ended September 30, 2022

Additional Paid-

Balance March 31, 2022

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

Balance, June 30, 2022

Exercise of pre-funded warrants

Exercise of PIPE warrants

Issuance of shares for vested restricted stock units

Stock based compensation

Balance, June 30, 2022

Balance, September 30, 2022

Balance, December 31, 2021

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

Exercise of pre-funded warrants

Exercise of PIPE warrants

Issuance of shares for vested restricted stock units

1 unchanged sentence

Net income (loss)

Balance, June 30, 2022

Balance, September 30, 2022

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended

Nine Months Ended

September 30,

Cash flows from operating activities:

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Amortization of acquired intangible assets

Change in fair value of investment, related party

Realized/Unrealized losses in investment, related party

Change in fair value of contingent consideration

Change in fair value of warrant liabilities

Warrant inducement expense

Stock-based compensation

11 unchanged sentences

Cash flows from investing activities

Disbursement for loan receivable

Sales of equity investment, related party

4 unchanged sentences

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

Proceeds from exercise of warrants

Repayment of line of credit

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Interest paid

Interest paid, related party

Income taxes paid, net

Supplemental non-cash investing and financing activities

Conversion of warrant liability to equity

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

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

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Business Overview

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

(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

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 evaluations.

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

Our 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 ®

lamp series, for PDT (when used together, “Ameluz ® PDT”).

In the United States, the PDT treatment is

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”) 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.

lamp series, for PDT.

In the United States, the PDT treatment is used for the lesion-directed and field-directed treatment of actinic

keratoses of mild-to-moderate severity on the face and scalp.

We are currently selling Ameluz ® for this indication in

under an exclusive license and supply agreement (“Ameluz LSA”) with Biofrontera Pharma (“Pharma”) GmbH

and Biofrontera Bioscience GmbH (“Bioscience” and together, the “Ameluz Licensor”).

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

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 product.

However, Ferrer is qualifying a new Contract manufacturer,

Cambrex, which is expected to begin production in 2024.

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 a 1-for-20 reverse stock split (the

“Reverse Stock Split”) of the Company’s common stock, par value $ 0.001 per share (the “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 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 Split.

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).

All 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.

and Going Concern

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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.

As of September 30, 2023, we had cash

and cash equivalents of $ 3.4 million and investment, related party of $ 3.3 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 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

For the nine months ended September 30, 2023 and 2022, we incurred

loss from operations of $ 18.8

million and $ 13.0

million, respectively.

We incurred net cash outflows

from operations of $ 16.0

million and $ 7.9

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 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.

We had an accumulated deficit as of September 30, 2023 of $ 103.2

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.

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.

has determined that substantial doubt exists about our ability to continue as a going concern for at least one year from the date

the unaudited condensed consolidated financial statements were issued.

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 during the first half of 2024, and until cash flow from operations is

sufficient, if ever.

We have implemented plans to improve our working capital position, particularly around inventory levels, and do

not expect to need a delivery until sometime in Q3 2024, depending on actual sales until then.

Management believes that the anticipated implementation of such plans, together with the recent

net capital raise of $ 4.1

million (See Note 21, Subsequent Events ) will provide the opportunity for the Company to continue as a going concern.

However, no assurance can be given that the Company will be successful in these efforts.

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.

There could be a material adverse effect on the Company and its financial statements if management’s plans

are not achieved on a timely basis.

Summary of Significant Accounting Policies

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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.

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

the Company’s operating results for the three and nine months ended September 30, 2023 and 2022, and the Company’s cash

flows for the nine months ended September 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.

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

consolidated financial statements for the fiscal years ended December 31, 2022 and 2021 (“reaudited Consolidated Financial

Statements”), and the revised Management’s Discussion and Analysis of Financial Condition and Results of Operations for

the fiscal years ended December 31, 2022 and December 31, 2021 (“revised MD&A”), filed in a Current Report on From

8-K with the SEC on October 3, 2023.

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

and per share and share amounts.

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

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

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

With the exception of the accounting policies below, there have been no new or material changes to the significant

accounting policies discussed in the Company’s reaudited Consolidated Financial Statements.:

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.

and Development Costs

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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.

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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.

As of the date of the acquisition, Maruho 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

activities (“start-up costs”).

These start-up costs are to be paid back to Maruho by the end of 2023 in accordance with contractual

obligations related to an earn-out arrangement.

In addition, as part of the earn-out arrangement with Maruho, the product profit amount

from the sale of Cutanea products as defined in the share purchase agreement will be shared equally between Maruho and Biofrontera until

to the Share Purchase Agreement, Maruho provided $ 7.3

million in start-up cost financing for Cutanea’s redesigned business activities (“start-up costs”).

These start-up

costs are to be paid back to Maruho by the end of 2023 in accordance with contractual obligations related to an earn-out

In addition, as part of the earn-out arrangement with Maruho, the product profit amount from the sale of Cutanea

products as defined in the Share Purchase Agreement will be shared equally between Maruho and Biofrontera until 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 (see Note 18.

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

term of the financing arrangement, which ends on December 31, 2023 .

The contract asset is shown net of the related start-up cost financing

within acquisition contract liabilities, net.

contingent consideration was recorded at acquisition-date fair value using a Monte Carlo simulation with an assumed discount rate of

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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

consideration and re-assesses the underlying assumptions and estimates at each reporting period utilizing a scenario-based method.

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

assumptions and estimates at each reporting period utilizing a scenario-based method.

The contingent consideration liability was valued at $ 2.5 million with payments coming due May of 2028 through May 2031.

contract liabilities, net consist of the following:

of Acquisition Contract Liabilities

Schedule of Acquisition Contract Liabilities

(in thousands)

June 30, 2023

December 31, 2022

September 30,

Short-term acquisition contract liabilities:

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Fair Value Measurements

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

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

of Fair Value Hierarchy Valuation Inputs

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

30, 2023 and December 31, 2022 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such

Schedule of Fair Value Hierarchy Valuation Inputs

(in thousands)

June 30, 2023

September 30, 2023

December 31, 2022

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Warrant liability

Investment, related party

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

related party

of September 30, 2023 and December 31, 2022, the Company has an investment in 5,745,678

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 ”.

respectively of common shares of Biofrontera AG, a company traded on the Frankfurt Stock Exchange and a

significant shareholder of Biofrontera.

The fair value of this investment was determined with Level 1 inputs through references to

quoted market prices.

Investment Related Party and Note 13.

Related Party Transactions.

Consideration

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discount rate.

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

The scenario-based

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

of Fair Value of Contingent Consideration

Schedule of Fair Value of Contingent Consideration

(in thousands)

1 unchanged sentence

Change in fair value of contingent consideration

Balance at June 30, 2023

Balance at September 30, 2023

Balance at December 31, 2021

Change in fair value of contingent consideration

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.

Balance at September 30, 2022

warrant liabilities are comprised of (i) currently outstanding warrants to purchase 170,950

shares of Common Stock originally 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”) and 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

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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

fair value for the Level 3 warrants at September 30, 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

Expiration term (in years)

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Dividend yield

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

of Changes in Fair Value Warrant Liabilities

Six Months Ended June 30,

fair value for the Level 3 warrants at December 31, 2022 was estimated using a Black-Scholes pricing model based on the following assumptions:

Expiration term (in years)

Risk-free Rate

Dividend yield

following table presents the changes in the Level 3 warrant liabilities measured at fair value (in thousands):

Schedule of Changes in Level 3 Warrant Liabilities

Nine Months Ended September 30,

Fair value at beginning of period

Issuance of new derivative liabilities

Change in fair value of warrant liability

Issuance of new warrants

Exercise of warrants

Change in fair value of warrant liabilities

Fair value at end of period

1 unchanged sentence

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

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

party revenue relates to an agreement with Bioscience for BF-RhodoLED® leasing and installation

Refer to Note 13, Related Party Transactions .

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

of Revenue Allowance and Accrual Activties

Schedule of Revenue Allowance and Accrual Activties

(in thousands):

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Credit or payments made during the period

Balance at June 30, 2022

Balance at September 30, 2022

Balance at December 31, 2022

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Credit or payments made during the period

Balance at June 30, 2023

Balance at September 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.

of September 30, 2023 and December 31, 2022, our investment in equity securities consisted solely of 5,745,678 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

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 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 $ 0.6 million during the nine months ended September 30, 2023.

losses on investment, related party were $ 1.9 million and $ 6.2 million, respectively, for the three and nine months ended September 30, 2023.

no unrealized gains and losses for the three and nine months ended September 30, 2022.

Schedule of Unrealized Gains and Losses on Investments in Equity Securities

(in thousands)

Three months ended

Six months ended

September 30,

Nine months ended

September 30,

(in thousands)

Net losses recognized during the period on equity securities

Net losses recognized during the period on equity securities sold

Net realized losses on equity securities

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

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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.

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

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.

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.

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.

determining the reserve percentages for each pool of trade accounts receivables, we considered our historical experience with certain

customers, regulatory and legal environments and other relevant current and future forecasted macroeconomic factors.

If we become aware

of any customer-specific factors that impact credit risk, specific allowances for these known troubled accounts are recorded.

allowance for credit losses was $ 0.2 million and $ 0.1 million as of September 30, 2023 and December 31, 2022, respectively.

Other Receivables, Related Party

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,

of September 30, 2023 the Company has a receivable, related party of $ 2.7 million primarily 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 September 30, 2023 or December

Intangible Asset, Net

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(in thousands)

June 30, 2023

December 31, 2022

September 30,

Xepi® license

3 unchanged sentences

over the useful life of 11 years.

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.

Amortization expense for the three months ended September 30, 2023 and 2022 was $ 0.1 million and $ 0.3

million for the nine months ended September 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.

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.

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 constraints on the commercialization of the product.

However, Ferrer is qualifying a new Contract manufacturer, Cambrex, which is expected to begin production in 2024.

Company performed an impairment analysis because of this situation and determined no impairment charges were deemed necessary during

the three and nine months ended September 30, 2023.

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.

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 September 30, 2023, approximately $ 3.0 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.

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

Long-term restricted cash was recorded in other assets in the consolidated

balance sheet.

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

September 30,

Cash and cash equivalents

Long-term restricted cash

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

Total cash, cash equivalents, and restricted cash shown on the consolidated statements of cash flows

Accrued Expenses and Other Current Liabilities

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(in thousands)

June 30, 2023

December 31, 2022

September 30,

Legal settlement (See note 18)

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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.

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 based on our eligible receivables with an additional $ 1.0 million borrowing capacity

based on inventory.

The borrowing base is up to 85% of accounts receivable, plus the least of (a) $ 1.0 million for inventory

and (b) 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 September 30, 2023 was 5.48 % and interest expense for the nine months ended September 30, 2023 was negligible.

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

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

Related Party Transactions

and Supply Agreement

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.

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

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.

a result of this amendment, the purchase price we pay the Ameluz Licensor for Ameluz ® will be determined in the

following manner:

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);

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;

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.

of the licensed products during the three and nine months ended September 30, 2023 were $ 5.1 million and $ 18.8 million, respectively,

and $ 5.2 million and $ 16.6 million, respectively for the three and nine months ended September 30, 2022.

Amounts due and payable to Pharma as of September 30, 2023 and December 31, 2022 were $ 7.0 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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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.

As of September 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 and $ 0.2 million

for the three and nine months ended September 30, 2023 and $ 0.2 million and $ 0.6 million for the three and nine months ended September

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 September 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

August 1, 2018, the Company executed a clinical lamp lease agreement with Biofrontera Bioscience GmbH (“Bioscience”) to provide

August 1, 2018, the Company executed a clinical lamp lease agreement with Bioscience to provide

lamps and associated services.

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.

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

common shares of Biofrontera AG, a significant

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

revenue related to the clinical lamp lease agreement was minimal and $ 0.1 million for the three and nine months ended September 30, 2023,

respectively and minimal for the three and nine months ended September 30, 2022, and was recorded as revenues, related party.

due from Bioscience for clinical lamp and other reimbursements were approximately $ 0.1 million as of September 30, 2023 and December

31, 2022, which were recorded as other receivables, related party in the consolidated balance sheets.

Company has recorded a receivable of $ 2.8

million and $ 6.4

million as of September 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.

Other Receivables,

Related Party ) .

interest income recognized for the nine months

ended September 30, 2023 and $ 0.1

million of interest income for the nine months

ended September 30, 2022, in connection with this receivable.

of September 30, 2023, our investment, related party is valued at $ 3.3 million and consists of 5,745,678

common shares of Biofrontera AG, a significant shareholder of the Company.

Investment, Related Party.

Stockholders’ Equity

the Company’s amended and restated certificate of incorporation, dated December 21, 2020, the Company is authorized to issue 15,000,000

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.

the Company’s Certificate of Amendment to the Amended and Restated Certificate of incorporation, effective July 3, 2023, the Company

is authorized to issue 15,000,000 shares

of Common Stock and 20,000,000 shares

of preferred stock, par value $ .001

Reverse Stock Split for information

and disclosures relating to adjustments for the 1-for-20

Reverse Stock Split.

holders of Common Stock are entitled to one vote for each share held.

Common stockholders are not entitled to receive dividends, unless

declared by the Board of Directors.

Common Stockholders are not entitled to receive dividends,

unless declared by the Board of Directors.

The Company has not declared dividends since inception.

In the event of liquidation of the Company,

dissolution or winding up, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities.

In the event of liquidation of

the Company, dissolution or winding up, the holders of Common Stock are entitled to share ratably in all assets remaining after

payment of liabilities.

The Common Stock has no preemptive or conversion rights or other subscription rights.

There are no redemption or sinking fund provisions

applicable to the common stock.

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

redemption or sinking fund provisions applicable to the Common Stock.

The outstanding shares of Common Stock are fully paid and

non-assessable.

Equity Incentive Plans and Share-Based Payments

2 unchanged sentences

Under the original

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

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.

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 129,490 to 266,990 .

As of September 30, 2023, there were 163,362 shares available for future awards

under the amended 2021 Plan.

Non-qualified

9 unchanged sentences

requisite service period.

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.

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.

The Company 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

Six Months Ended June 30,

Nine Months Ended September 30,

Expected volatility

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Risk-free interest rate

3.5 % - 3.9 %

1.34 % - 4.10 %

Expected dividend yield

compensation expense of approximately $ 0.1 million and $ 0.5 million was recorded in selling, general and administrative expenses on the

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.

accompanying consolidated statement of operations for the three and nine months ended September 30, 2023, respectively and $ 0.3 million

and $ 0.6 million for the three and nine months ended September 30, 2022.

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

nine months then ended is presented below.

Schedule of Stock Option Activity

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Canceled or forfeited

Outstanding at June 30, 2023

Exercisable at June 30, 2023

Outstanding at September 30, 2023

Exercisable at September 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.

of the Common Stock for the options that were in the money at September 30, 2023.

of September 30, 2023, there was $ 1.0 million of unrecognized compensation cost related to unvested stock options, which is expected

to be recognized over a weighted-average period of approximately 1.8 years.

Compensation (RSUs)

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Common Stock on the grant date.

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

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

compensation expense of $ 0.1 million and $ 0.3 million for the RSUs for the three and nine months ended September 30, 2023, respectively,

and $ 0.1 million and $ 0.9 million for the three and nine months ended September 30, 2022 and was recorded in selling, general and administrative

expenses in the accompanying consolidated statements of operations.

Schedule of Restricted Stock Units

Weighted Average Remaining Contractual Term

Weighted Average Grant Date Fair Value

Outstanding at December 31, 2022

Canceled or forfeited

Outstanding at September 30, 2023

of September 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 0.6 years.

2 unchanged sentences

Schedule of Interest Expense

(in thousands)

For three months ended

For six months ended

September 30,

For nine months ended

September 30,

(in thousands)

Interest expense

Interest expense, related party

Contract asset interest expense

2 unchanged sentences

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

from Maruho under the Cutanea acquisition share purchase agreement.

The contract asset is amortized on a straight-line basis using a

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 from Maruho under the Cutanea acquisition Share Purchase Agreement.

The contract asset is

amortized on a straight-line basis using a 6 %

interest rate over the financing arrangement contract term, which ends on December

income - related party interest income relates to default interest on the recorded receivable of $ 6.1 million as of September 30, 2022

from Biofrontera AG for its 50 % share of the balance of a legal settlement.

Net Earnings (Loss) per Share

net earnings per common share are calculated by dividing net income by the weighted average number of common shares outstanding during

Diluted net earnings per common share are calculated by dividing net income by the diluted weighted average number of common

shares outstanding during the period.

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.

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

net earnings (loss) per common share are calculated by dividing net income by the weighted average number of common shares

outstanding during the period.

Diluted net earnings per common share are calculated by dividing net income (loss) by the diluted

weighted average number of common shares outstanding during the period.

The diluted shares include the dilutive effect of

stock-based awards based on the treasury stock method.

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 earnings (loss) per share attributable to common stockholders

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

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Net income (loss)

4 unchanged sentences

Net earnings (loss) per share:

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:

following table sets forth the 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

Nine Months Ended September 30,

Common stock warrants

1 unchanged sentence

Unit Purchase Options

Anti-dilutive securities excluded

from computation of earnings per share

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.

11 unchanged sentences

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

expiration dates through January 2027.

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

discount rate):

Schedule of Components of Lease Expense and Other Information

Lease expense

7 unchanged sentences

Weighted -average discount rate

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

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

Schedule of Future Commitments and Sublease Income

ending December 31,

lease commitments

future minimum lease payments

imputed interest

lease liability

of Operating Lease Liability

Years ending December 31,

Future lease commitments

Total future minimum lease payments

Less imputed interest

Total lease liability

Schedule of Operating Lease Liability

Operating lease liability, current

2 unchanged sentences

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 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.

have filed for arbitration against Maruho with the International Chamber of Commerce regarding issues with Maruho’s

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.

As such, the required contractual payments noted above have not been made as of the financial statement filing date.

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 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.

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 Xepi ® milestones

have been achieved as of the financial statement filing date.

Agreement with Optical Tools

13 unchanged sentences

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.

Company did not make any milestone or royalty payments during the three or nine months ended September 30, 2023.

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

2 unchanged sentences

to such legal proceedings.

Agreement with DUSA Pharmaceuticals Inc.

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

3 unchanged sentences

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

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.

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

(“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 settlement agreement, DUSA could compel us to pay Biofrontera AG’s share.

As of September 30, 2023, we have reflected a legal settlement liability in the amount

of $ 6.0 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 $ 2.8 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.

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.

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.

Agreement with Biofrontera AG

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 taken or committed, among other

things, to take the following actions:

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.

The 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 2024 annual meeting of stockholders.

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

as noted above.

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.

September 13, 2023, Biofrontera was served with a complaint filed in United Stated District Court for the District of Massachusetts

by DUSA Pharmaceuticals, Inc., Sun Pharmaceutical Industries, Inc., and Sun Pharmaceutical Industries LTD (collectively

“DUSA” or “Plaintiffs”) in which DUSA alleges breach of contract, violation of the Lanham Act, and unfair

trade practices.

All claims stem from allegations that Biofrontera has promoted its Ameluz product in a manner that is inconsistent

with its approved FDA labeling.

Though this complaint was originally filed in the U.S.

District Court for the District of

Massachusetts, this matter has been transferred by agreement of the parties to the U.S.

District Court for the District of New

Company denies the Plaintiffs’ claims and intends to defend these matters vigorously.

Based on the Company’s assessment of

the facts underlying the above claims, the uncertainty of litigation and the preliminary stage of the case, the Company cannot estimate

the possibility of a material loss, nor the potential range of loss that may result from this action.

If the final resolution of the

matter is adverse to the Company, it could have a material impact on the Company’s financial position, results of operations, or

Retirement Plan

4 unchanged sentences

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

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.

contribution costs paid by the Company for the three and nine months ended September 30, 2023 were $ 0.1 million and $ 0.2 million,

respectively and $ 0.1 million

and $ 0.2 million

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

Reclassification of Prior Year Presentation

Certain prior year amounts have been reclassified

to their own line items within the Consolidated Statement of Operations and Consolidated Statements of Cash Flow.

Specifically, warrant

inducement expense of $ 2.6 million was reclassed from change in fair value of warrant liabilities for prior year presentation.

These reclassifications

had no effect on the reported results of operations.

Subsequent Events

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.

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 ”.

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

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

October 30, 2023, the Company entered into a securities purchase agreement (“Purchase Agreement”) with an institutional investor

for the purchase and sale, in a registered public offering by the Company (the “Public Offering”) of an aggregate of 1,205,000

shares of the Company’s Common Stock,

or pre-funded warrants to purchase Common Stock in lieu thereof, each of which is coupled with a warrant to purchase one and one-half

shares of Common Stock.

Specifically, the

Company agreed to issue and sell to the institutional investor:

(i) 150,000 shares of Common Stock at a combined offering price of $3.74, (ii) 1,055,000 pre-funded warrants to purchase up to 1,055,000 shares of Common Stock (the “Pre-Funded Warrants”)

at a combined offering price of $3.7399 and (iii) 1,205,000 warrants to purchase up to 1,807,500 shares of Common

Stock (the “Common Warrants”), resulting in gross proceeds of approximately $4.5 million.

The Public Offering closed on November

Common Warrants are exercisable upon issuance, will expire five years following the date of issuance and have an exercise price of $ 3.55

The Pre-Funded Warrants are exercisable upon issuance, will expire five years following the date of issuance and have an exercise

price of $ 0.0001 per share.

previously reported in a Current Report on Form 8-K filed with the SEC on May 20, 2022, the Company issued (i) a common stock

purchase warrant, dated May 16, 2022 and exercisable until November 18, 2027 , to purchase up to 170,950 shares of Common Stock, at an

exercise price of $ 55.40 and (ii) a common stock purchase warrant, dated July 26, 2022 and exercisable until December 1, 2026 , to purchase

up to 214,286 shares of Common Stock at an exercise price of $ 33.20 (collectively, the “Existing Warrants”) to an institutional

October 30, 2023, in connection with the Purchase Agreement, the Company entered into an amendment to the Existing Warrants pursuant

to which the Company agreed, effective November 2, 2023, to (i) revise the exercise price of the Existing Warrants to $ 3.55 and (ii)

extend the date until which the Existing Warrants can be exercised until November 2, 2028.

No other terms of the Existing Warrants were

revised or changed.

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