What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-15 compared with 2023-03-13 · 1143 added, 683 removed, 708 unchanged (72% of the section changed)

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OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

of Directors and Stockholders

the Shareholders and Board of Directors of Biofrontera, Inc.

on the Financial Statements

have audited the accompanying consolidated balance sheets of Biofrontera, Inc.

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

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

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

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

(the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, stockholders’ equity and cash flows for each of the two years

in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”).

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

31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December

31, 2023, in conformity with accounting principles generally accepted in the United States of America.

in accounting principle

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

adoption of Financial Accounting Standards Board Accounting Standards Codification No.

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

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conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain

Those standards require that we plan and perform the audits to obtain

reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

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provide a reasonable basis for our opinion.

GRANT THORNTON LLP

have served as the Company’s auditor since 2023.

Massachusetts

Hanover, New Jersey

March 15, 2024

Consolidated Financial Statements as of and for the Years Ended December 31, 2023 and 2022

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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

Other assets, related party

Total current assets

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Accounts payable

Accounts payable, related parties

Accounts payable, related parties, net

Accounts payable

Acquisition contract liabilities, net

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Accrued expenses and other current liabilities

Short term debt

Total current liabilities

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Selling, general and administrative, related party

Restructuring costs

Research and development

Change in fair value of contingent consideration

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Change in fair value of warrant liabilities

Change in fair value of investments

Warrant inducement expense

Excess of warrant fair value over offering proceeds

Change in fair value of investment, related party

Gain on legal settlement

Interest expense, net

Other income, net

Other income (expense), net

Total other income (expense)

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thousands, except number of shares)

Additional Paid-

Balance at December 31, 2021

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

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

Exercise of common stock warrants

Exercise of pre-funded warrants

Stock-based compensation

Balance at December 31, 2021

Issuance of common stock in exchange for investments in equity securities

Issuance of common stock in exchange for investment, related party

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

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Stock-based compensation

Balance, December 31, 2022

Balance at December 31, 2022

Beginning balance

Issuance of shares for vested restricted stock units

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

Issuance of common stock and warrants, under registered public offering

Stock based compensation

Balance at December 31, 2023

Ending balance

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

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Adjustments to reconcile net loss to cash flows used in operations

Gain on legal settlement

Amortization of right-of-use assets

Amortization of acquired intangible assets

Change in fair value of investment in equity securities

Change in fair value of investment, related party

Change in fair value of contingent consideration

Change in fair value of warrant liabilities

Warrant inducement expense

Excess of warrant fair value over offering proceeds

Stock-based compensation

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Prepaid expenses and other assets

Other assets, related party

Accounts payable and related party payables

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Cash flows from investing activities

Purchases of investment in equity securities

Purchases of investment, related party

Sales of investment, related party

Purchases of property and equipment

Cash flows used in investing activities

Cash flows provided by (used in) investing activities

Cash flows from financing activities

Proceeds from issuance of common stock and warrants upon initial public offering, net of issuance costs

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

Proceeds from line of credit

Proceeds from short term debt

Principal payments short term debt, net

Proceeds from issuance of common stock and warrants

Proceeds from exercise of warrants

Cash flows provided by financing activities

Net (decrease) increase in cash and cash equivalents

Net decrease in cash and cash equivalents

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

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Interest paid

Interest paid, related party

Income tax paid, net

Supplemental non-cash investing and financing activities

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

Issuance of common shares in exchange for investments in equity securities

Release of start-up cost financing obligation as part of legal settlement

Release of contingent consideration obligation as part of legal settlement

Transfer of investment as part of legal settlement

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

Issuance costs included in accrued expenses and other liabilities

Non-cash purchase of fixed assets

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

Issuance of common shares in exchange for investment, related party

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

to the Audited Consolidated Financial Statements as of and for the Years Ended December 31, 2023 and 2022

Business Overview

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

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

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

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

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

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

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

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

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

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

under an exclusive license and supply agreement (“Ameluz

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

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

Refer to Note 17, Related Party Transactions ,

for further details.

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

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

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

The approved indication is impetigo, a common skin

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

We are currently selling Xepi ® for this indication

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

that was acquired by Biofrontera Inc.

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

Refer to Note 17, Related

Party Transactions , for further details.

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

Organization and Business Overview

Inc., a Delaware Corporation, (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.

The Company includes

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

on February 9, 2022, as a German presence to facilitate our relationship with the Ameluz Licensor.

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 scalp.

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

under an exclusive license and

supply agreement (“Ameluz LSA”) with Biofrontera Pharma (“Pharma”) GmbH and Biofrontera Bioscience GmbH

(“Biofrontera Bioscience,” and, together with Pharma, the “Ameluz Licensor”), both of which are related parties.

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.

Our exclusive license and supply agreement, as amended

(“Xepi LSA”) with Ferrer Internacional S.A.

(“Ferrer”) and assumed by the Company on March 25, 2019 through

our acquisition of Cutanea Life Sciences, Inc.

(“Cutanea”) enables the Company to market and sell this product in the

United States.

The Company has generated limited revenue from sales of Xepi 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 the second half of 2024.

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

meet our future market demand.

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 financing transactions.

During the year ended December 31, 2022, we received

proceeds of $ 9.4

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

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

we commenced operations in 2015, we have generated significant losses and have incurred net cash outflows from operations of $ 24.9 million

and $ 16.2 million

for the years ended December 31, 2023 and 2022, respectively .

The Company had an accumulated deficit as of December 31, 2023 of $ 99.7 million.

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

financing transactions.

During the year ended December 31, 2023, we received proceeds of $ 4.1 million

from the issuance of common stock and warrants, net of issuance costs (See Note 18.

Stockholders’ Equity ).

December 31, 2023, we had cash and cash equivalents of $ 1.3 million,

compared to $ 17.2 million

as of December 31, 2022.

we had cash and cash equivalents of $ 17.2

million, compared to $ 24.5

million as of December 31, 2021.

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

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

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

We incurred net cash outflows from operations

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

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

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

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

million (see Note 3.

Acquisition Contract

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

Long-term material cash requirements

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

Additionally,

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

commercialization of our licensed products in the United States.

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

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

In addition, we

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

a public company in the U.S.

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

Based on current operating plans and financial

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

under a working capital line of credit, will be sufficient

to fund our operations for at least the next twelve months from the date of issuance of our financial statements.

However, if our current

operating plans or financial forecasts change, or we are unable to obtain additional financing, we may need to reduce the discretionary

spend on promotional expenses, branding, marketing consulting and defer some hiring.

While we expect to continue being flexible in our

spending over the next twelve months, we do not consider there to be a need to significantly revise our operations currently.

These conditions raise substantial doubt about our ability to continue as a going concern for at least

twelve months from the issuance date of this report, which management believes has been alleviated through its plans to mitigate

these conditions and obtain additional liquidity.

Pursuant to the requirements of the Financial Accounting

Standards Board’s Accounting Standards Codification (“ASC”) Topic 205-40, Disclosure of Uncertainties about an Entity’s

Ability to Continue as a Going Concern, management must evaluate whether there are conditions or events, considered in the aggregate,

that raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date the consolidated

financial statements included in this Annual Report on Form 10-K are issued.

This evaluation does not take into consideration the potential

mitigating effect of management’s plans that have not been fully implemented or are not within control of the Company as of the

date the financial statements are issued.

When substantial doubt exists under this methodology, management evaluates whether the mitigating

effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern.

The mitigating

effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented

within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will

mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern

within one year after the date that the consolidated financial statements are issued.

In an effort to alleviate these conditions, management plans include execution

on the 2024 budget approved by the Board, which includes significant discretionary sales and marketing, medical affairs, and dermatology

community outreach efforts as we seek to expand the commercialization of Ameluz® in the United States, however, discretionary expenses

are about $ 5.5 million less than what was spent in 2023.

We have reduced spending at both the commercial and general and administrative

level but do not expect these reductions to impact our ability to grow and achieve our revenue targets.

We also expect to incur additional

expenses in support of our product commercialization efforts.

In addition, we expect to continue to incur significant costs to comply

with corporate governance, internal controls and similar requirements applicable to us as a public company in the U.S.

February 20, 2024, the Company entered into the 2024 LSA with Biofrontera AG which will significantly reduce our cost of inventory

in the future.

The Company will begin to see gross margins of its primary product, Ameluz®, of approximately 75% as opposed to the

prior 50% beginning with inventory purchases after the execution date.

This will reduce our cash needs for inventory which will be

partially offset by R&D costs, resulting in expected net savings of $ 0.7

million by March 2025 and continuing in subsequent years.

In addition, on February 19, 2024, the Company

entered into a securities and purchase agreement with healthcare-focused institutional investors resulting in net proceeds of $ 7.2

million, which were received on February 22, 2024.

Under the agreement, we also issued warrants to purchase 8,000 shares of Series

B-3 Convertible Preferred Stock at an exercise price of $ 1,000 per share.

If these warrants are exercised in full, we will receive additional

net proceeds of $ 7.2 million.

To encourage the investors to

exercise the warrants, they will expire within 21 days upon the satisfaction of certain conditions (but if such conditions are not met,

they will expire three years after issuance).

Even though we anticipate that we will satisfy the conditions to trigger the expiration

of the warrants and receive additional financing as a result of the exercise of the warrants, there can be no assurance that such conditions

will be met or that the investors will choose to exercise the warrants prior to expiration.

Subsequent Events-

Securities Purchase Agreement for Series B Convertible Preferred .

believes that, as a result of these plans, it has sufficient liquidity and probable financing to meet its funding requirements for

at least one year from the date the financial statements are issued.

However, the Company’s plans will depend on many factors,

including executing on our sales plan over one year from issuance, reaching at least 5% in year to date revenue growth over 2023 by

June 2024, receiving shareholder approval to increase the number of authorized shares to enable the warrant exercise, controlling

our selling, general and administrative costs, and the investors electing to exercise their warrants within the anticipated

timeframe, among other possible challenges and unforeseen circumstances.

A lack of execution or unforeseen circumstances may require

the Company to raise additional capital or debt which may not be available on acceptable terms, or at all which could result in a

material adverse effect on the Company and its financial statements.

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

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United States of America (“GAAP”).

These consolidated financial statements include the accounts of our wholly owned

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

All intercompany balances and transactions have been eliminated in consolidation.

The information presented reflects the

application of significant accounting policies described below.

The information presented reflects the application

of significant accounting policies described below.

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

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

operating decision-maker in deciding how to allocate resources and assess performance.

The Company’s chief operating decision maker

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

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

operating decision-makers in deciding how to allocate resources and assess performance.

The Company’s chief operating decision

makers (determined to be the Chief Executive Officer and the Chief Financial Officer) do not manage any part of the Company

separately, and the allocation of resources and assessment of performance are based on the Company’s operating results.

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

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as one reporting segment.

July 3, 2023, the Company 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 consolidated financial statements in accordance with U.S.

GAAP requires the use of estimates and assumptions by management

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

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

The main areas in which

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

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

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

Estimates are based on historical

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

They are continuously reviewed but may vary from

the actual values.

GAAP requires the use of estimates and assumptions by

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

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

main areas in which assumptions, estimates and the exercising of judgment are appropriate relate to realization and valuation of

receivables and inventory, valuation of contingent consideration and warrant liabilities, impairment assessment of

intangibles and other long-lived assets, share-based payments, income taxes including

deferred tax assets and liabilities and contingent liability recognition.

Estimates are based on historical experience and other assumptions that are considered

appropriate in the circumstances.

They are continuously reviewed but may vary from the actual values.

and Cash Equivalents

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be cash equivalents.

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

one deposit held for a sublease (see Note 13.

Statement of Cash Flows Reconciliation) .

in Equity Securities

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

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

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

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

As the fair value of the

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

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

receivables are reported at their net realizable value.

Company maintains its cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation

At December 31, 2023, approximately $ 1.0 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 with respect to these accounts.

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

Cash Balances and Statement of Cash Flows Reconciliation) .

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

consolidated balance sheet.

Related Party

Company accounts for its investment, related party in accordance with ASC 321, Investments — Equity Securities (“ASC

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

recorded at cost, plus transaction costs, and subsequently measured at fair value, based on quoted market prices, with the gains and

losses reported in the Company’s consolidated statement of operations.

As the fair value of the Company’s investments is

reported in a foreign currency, the change in fair value attributable to changes in foreign exchange rates is included in other income,

net in the consolidated statement of operations.

receivable are reported at their net realizable value.

Any value adjustments are booked directly against the relevant receivable.

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of its customers.

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

of the accounts receivable aging.

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

The allowance for estimated credit losses represents management’s best

estimate of probable credit losses.

The allowance is based upon a number of factors, including the length of time accounts receivable

are past due, the Company’s previous loss history, the specific customer’s ability to pay its obligation and any other forward-looking

data regarding customers’ ability to pay which may be available.

In addition, management considered other qualitative factors, particularly

in relation to the greater actinic keratosis and dermatological market.

Receivables are written off against the allowance when management

believes that the amount receivable will not be recovered.

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

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

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

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

The Company has a contractual right to

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

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

AG for its share.

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

March 31, 2022, which provides certain remedies to the Company, if Biofrontera AG fails to make timely reimbursements, which the

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

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

the Company (including amounts owed under the Company’s license and supply agreement for

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

The Company has a receivable due from Biofrontera AG for its 50% share of a legal settlement and related costs

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

The Company has a contractual right to repayment of

its share of the settlement payment from Biofrontera AG under the Settlement Allocation Agreement entered into on December 9, 2021, which

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

this receivable has credit risk, it is mitigated by the Settlement Allocation Agreement as amended on March 31, 2022, which

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

sole discretion, including the ability to charge interest at a rate of 6.0% per annum for each day that any reimbursement is past due

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

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

The Addendum to Amended and Restated License

and Supply Agreement, effective December 5, 2023, and as amended on January 29, 2024, allows for the Company to set off the amounts due to Biofrontera

AG and Ameluz Licensor, with the amounts due from Biofrontera AG and Ameluz Licensor.

As such, in accordance with ASC 210-20-45-1

the other receivables, related party have been offset against accounts payable, related parties for the year ended December 31, 2023.

are dependent on two licensors, Biofrontera Pharma and Ferrer, to supply drug products, including all underlying

components, for our commercial efforts.

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finished products.

These licensors may have risks associated with limited source suppliers and contract manufacturers.

If our licensors

fail to maintain relationships with these suppliers and manufacturers or they are unable to produce product, our business could be materially

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

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The Company adopted the standard effective January 1, 2022.

Using the optional transition method, prior period financial statements have

not been recast to reflect the new lease standard.

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

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circumstances present.

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

of lease payments over the expected lease term.

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

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

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

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

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

No adjustments to the right-of-use asset

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

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

the commencement date, 1).

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

value of lease payments over the expected lease term.

The interest rate implicit in lease contracts is typically not readily

determinable.

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

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

the twelve months ended December 31, 2023 was 9.5%.

Given the absence of an outstanding debt agreement for the twelve months ended December 31, 2022, a synthetic credit rating

analysis was used in estimating the Company’s IBR.

on a synthetic credit rating of Ba3 and a term of 3.33 to six years, the IBR was determined to be 6% for lease liabilities at

inception and 8.5% for 2022 lease liabilities.

No adjustments to the right-of-use asset were required for items such as

initial direct costs paid or incentives received.

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

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

Lease classification, or 3).

initial indirect costs for any existing leases.

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

component for certain asset classes, when applicable.

Operating leases are recognized on the balance sheet as operating lease

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

The Company also

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

right-of-use assets or lease liabilities.

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

Initial indirect costs for

any existing leases.

The Company has elected to combine lease and non-lease components as a single component for certain asset classes,

when applicable.

Operating leases are recognized on the balance sheet as operating lease right-of-use assets, operating lease liabilities

current and operating lease liabilities non-current.

The Company also elected to utilize the short-term lease recognition exemption and

for those leases that qualified, the Company did not recognize right-of-use assets or lease liabilities.

These leases are recognized

on a straight-line basis over the expected term.

of Long-Lived Assets

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

To the extent indicators or impairment exist, the determination

To the extent indicators of impairment exist, the determination

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

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

Refer to Note 12.

Intangible Asset,

Consideration

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The fair value

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

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

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

or credits in future reporting periods.

or credits in subsequent reporting periods.

Contingencies

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of probable loss.

Disclosure also is provided when it is reasonably possible that a loss will be incurred or when it is reasonably possible

Disclosure is also provided when it is reasonably possible that a loss will be incurred or when it is reasonably possible

that the amount of a loss will exceed the recorded provision.

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recorded as other income or expense.

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

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

Management estimates the fair value of these liabilities using the Black-Scholes-Merton model and assumptions that are based on the individual characteristics of the warrants or instruments on the valuation date, as well

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

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

Stockholders’ Equity) were

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

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

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

requirement of the indexation guidance under ASC 815-40.

The resulting warrant liabilities are

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

consolidated statement of operations.

Refer to Note 4.

Fair Value Measurements.

their issuance date on November 2, 2023, the Pre-Funded Warrants (“2023 Pre-Funded Warrants”) (see Note 18.

Stockholders’ Equity) were accounted for as equity as these instruments met all of the requirements for equity classification

under ASC 815-40.

Value Measurements

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Value of Financial Instruments

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

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

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

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

accounts payable and start-up cost financing included in acquisition contract liabilities approximate their fair values, due to their

short-term nature.

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

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or services we transfer to the customer is determined to be probable.

Company realizes its revenue primarily through the sale of its pharmaceutical products.

Sales of Ameluz ® are made directly

to physicians, hospitals or other qualified healthcare providers.

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

are transferred to the customer, which is generally upon delivery.

Sales deductions include expected trade discounts and allowances,

product returns, and government rebates.

These discounts and allowances are estimated at the time of sale based on the amounts incurred

or expected to be received for the related sales.

Company realizes its revenue primarily through the sale of its Ameluz ® product, which are made directly to physicians,

hospitals or other qualified healthcare providers.

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

to the customer, which is generally upon delivery.

Sales deductions include expected trade discounts and allowances, product returns,

and government rebates.

These discounts and allowances are estimated at the time of sale based on the amounts incurred or expected to

be received for the related sales.

is sold directly to specialty pharmacies.

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be received for the related sales.

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

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

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

co-pay assistance discounts, or other rebates.

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

or (ii) an evaluation period up to six-month for a fee, after which a customer can decide to purchase or return the lamp.

sales, revenue is recognized only after complete installation has taken place.

As directed by the instruction manual, the lamp may only

be used by the customer once it has been professionally installed.

A final decision to purchase the lamps that are within the evaluation

period does not need to be made until the end of the evaluation period.

Lamps that are not returned at the end of the evaluation period

are converted into sales in accordance with the contract terms.

The Company generates immaterial revenues from the monthly fees during

the evaluation period and from the sale of lamps at the end of the evaluation period.

(ii) rental agreements, or (iii) an evaluation period up to six-month for a fee, after which a customer can decide to purchase or return

For direct sales, revenue is recognized only after complete installation has taken place.

As directed by the instruction manual,

the lamp may only be used by the customer once it has been professionally installed.

A final decision to purchase the lamps that are

within the evaluation period does not need to be made until the end of the evaluation period.

Lamps that are not returned at the end

of the evaluation period are converted into sales in accordance with the contract terms.

The Company generates immaterial revenues from

the monthly fees during the evaluation or rental period and from the sale of lamps at the end of the evaluation period.

Consideration

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

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

patients with the cost of purchasing Xepi ® .

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

of revenue in the period the revenue is recognized.

The Company estimates amounts for co-pay assistance based upon the number of claims

and the cost per claim that the Company expects to receive associated with products sold to customers but remaining in the distribution

channel at the end of each reporting period.

Incentives – The Company has historically maintained a co-pay assistance program, which is intended to provide financial assistance

to qualified patients with the cost of purchasing Xepi ® .

The Company estimates and records accruals for these incentives

as a reduction of revenue in the period the revenue is recognized.

The Company estimates amounts for co-pay assistance based upon the

number of claims and the cost per claim that the Company expects to receive associated with products sold to customers but remaining

in the distribution channel at the end of each reporting period.

During 2023, due to the continued delays with the supply of Xepi ® ,

the co-pay assistance program was discontinued.

arrangements that include sales-based royalties, the Company recognizes royalty expense at the later of (i) when the related sales occur,

or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

Royalty expense is recognized as cost of revenues.

Product Warranty

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

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

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

expenses were $ 0.1 million and negligible for the years ended December 31, 2023 and 2022, respectively, and are recognized as selling, general and administrative

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

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

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

and distribution costs totaled $ 0.5 million for each of the years ended December 31, 2023 and 2022, respectively.

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

uses the Black-Scholes-Merton (“BSM”) option pricing model to calculate fair value of its stock option grants.

uses the Black-Scholes-Merton option pricing model to calculate the fair value of its stock option grants.

The compensation

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The Company accounts for forfeitures as they occur.

BSM option pricing model requires the input of subjective assumptions, including the risk-free interest rate, the expected volatility

Black-Scholes-Merton option pricing model requires the input of subjective assumptions, including the risk-free interest rate, the expected volatility

of the value of the Company’s common stock, and the expected term of the option.

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

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

weight and the warrant implied volatility with 20 % weight.

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

whose shares are publicly traded.

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

was much more heavily weighted.

The Company based the volatility assumption on a weighted average of the peer group re-levered equity volatility, the warrant

implied volatility and the historical equity volatility of the Company.

The peer group was developed based on companies in the biopharma

industry whose shares are publicly traded.

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

volatility was more heavily weighted.

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

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respectively.

R&D costs are expensed as incurred.

R&D costs include external costs of outside vendors engaged to conduct

R&D activities, and other operational costs related to the Company’s R&D activities.

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

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Loss per Share

and diluted net income (loss) per common share is computed by dividing net income (loss) attributable to common stockholders by the weighted

average number of common shares outstanding.

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

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

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

and warrants, using the treasury stock method.

and diluted net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number

of common shares outstanding.

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

net income attributable to common stockholders by the weighted average number of common shares outstanding and the impact of all dilutive

potential common shares outstanding during the period, including stock options, restricted stock units, and warrants, using the treasury

stock method.

Issued Accounting Pronouncements

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

September 2016, the FASB issued Accounting Standards Update (“ASU ”) 2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial

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as an allowance that reflects the entity’s current estimate of credit losses expected to be incurred.

The new standard will be

effective for us on January 1, 2023.

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

The new standard was effective

for us on January 1, 2023, and did not have a material effect on our consolidated financial statements.

In November 2023, FASB issued ASU 2023-07, Segment

Reporting (Topic 280), Improvements to Reportable Segment Disclosures to improve reportable segment disclosure requirements

through enhanced disclosures about significant segment expenses on an interim and annual basis.

All disclosure requirements of ASU 2023-07

are required for entities with a single reportable segment.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023,

and interim periods for the fiscal years beginning after December 15, 2024, and should be applied on a retrospective basis to all periods

Early adoption is permitted.

We are currently evaluating the effect of adopting the ASU on our disclosures.

In December 2023, the FASB issued ASU 2023-09, Income

Taxes (Topic 740) – Improvements to Income Tax Disclosures .

The ASU requires that an entity disclose specific categories

in the effective tax rate reconciliation as well as provide additional information for reconciling items that meet a quantitative threshold.

Further, the ASU requires certain disclosures of state versus federal income tax expense and taxes paid.

The amendments in this ASU are

required to be adopted for fiscal years beginning after December 15, 2024.

Early adoption is permitted and the amendments should be applied

on a prospective basis.

We are currently evaluating the effect of adopting the ASU on our disclosures.

Acquisition Contract Liabilities

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

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

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

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

Biofrontera AG is our former

parent, and currently a significant shareholder.

March 25, 2019, we entered into an agreement (as amended, the “Share Purchase Agreement” or “SPA”)

with Maruho Co, Ltd.

(“Maruho”) to acquire 100 %

of the shares of Cutanea Life Sciences, Inc.

As of the date of the acquisition, Maruho owned approximately 29.9 %

of Biofrontera AG through its wholly-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

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.

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.

These start-up costs were 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 was be shared equally between Maruho and Biofrontera

until 2030 (“contingent consideration”).

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

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

The Company re-measures contingent consideration and

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

contract liabilities, net consist of the following:

The Company re-measured contingent consideration and

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

December 29, 2023, we entered into a Confidential Settlement Agreement and Mutual Release (the “Release”), with Maruho, and

a Share Transfer Agreement (together with the Release, the “Settlement Agreement”).

The Settlement Agreement resolves the arbitration proceeding initiated by the Company against Maruho in the

International Chamber of Commerce (the “Arbitration”) in which the Company alleged certain claims against Maruho concerning

the Share Purchase Agreement.

In the Arbitration, the Company sought, in part, a declaration that it is not obligated to repay $ 7.3 million

of “start-up costs” to Maruho.

Settlement Agreement contains a mutual release whereby each of the Company and Maruho agreed to release and discharge the other party

from any and all claims, actions, causes of action, suits, debts, dues, sums of money, accounts, reckonings, bonds, bills, specialties,

covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, extents, executions, claims, and

demands whatsoever, in law, admiralty, equity, arbitration or otherwise, which against the other arising from or in connection with or

in any manner relating to the Share Purchase Agreement, including but not limited to any claims that were or could have been asserted

in the Arbitration.

the Settlement Agreement, the obligations of the Company to repay the $ 7.3

million of start-up costs to Maruho, and to make the contingent consideration payments, were released.

In exchange the Company agreed to transfer to Maruho 5,451,016

shares of Biofrontera AG.

The exchange of the shares of Biofrontera AG for the release of the liabilities mentioned above, both of

which were recorded at their respective fair values at the exchange date, resulted in a gain.

following table provides a summary of the transaction under the settlement Agreement:

Schedule of Acquisition Contract Liabilities

(in thousands)

Short-term acquisition contract liabilities:

Contingent consideration

Start-up cost financing

Contract asset

Acquisition contract liabilities, net

Long-term acquisition contract liabilities:

Contingent consideration

Start-up cost financing

Contract asset

Acquisition contract liabilities, net

Total acquisition contract liabilities:

Contingent consideration

Start-up cost financing

Contract asset

Total acquisition contract liabilities, net

Release of contingent consideration

Release of start-up cost financing

Transfer of Investment in Biofrontera AG

Gain on settlement

Fair Value Measurements

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

of Fair Value Hierarchy Valuation Inputs

Schedule of Fair Value Hierarchy Valuation Inputs

(in thousands)

December 31, 2022

December 31, 2021

Investment in equity securities

Investment, related party

Contingent Consideration

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Warrant liability

in equity securities

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

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

through references to quoted market prices.

related party

of December 31, 2023 and 2022, the Company has an investment in 177,465 and 6,466,946 , 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

Related Party Transactions .

Consideration

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

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

The fair value is based on significant

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

The valuation of the contingent

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

and an appropriate metric risk premium.

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

discount rate.

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

The scenario-based

method incorporates the following key assumptions:

(i) the forecasted product profit amounts, (ii) the remaining contractual term, (iii)

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

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

assumptions and estimates at each reporting period.

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

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

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

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

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

These payoffs are then discounted back from the payment date

to the valuation date using a payment discount rate.

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

contingent consideration.

The scenario-based method incorporates the following key assumptions:

(i) the forecasted product profit amounts,

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

The Company re-measures contingent

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

the Settlement Agreement (see Note 3), the obligations of the Company to make the profit-sharing payments related

to the products acquired by the Company pursuant to the Share Purchase Agreement were released.

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

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Change in fair value of contingent consideration

Release of contingent consideration

Balance at December 31, 2023

The decrease in fair value of the contingent consideration

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

in the statements of operations.

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

liabilities in the accompanying consolidated balance sheets.

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

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

Company utilizes a Black-Scholes option pricing model to estimate the fair value of the Purchase and Inducement Warrants which is

considered a Level 3 fair value measurement.

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

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

A significant change in one or more of these inputs

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

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

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

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

increase/(decrease) in fair value of the contingent consideration in the amount of $ 0.1 million and $ ( 3.8 ) million during the years ended

December 31, 2023 and 2022 was recorded in operating expenses in the statements of operations.

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

shares of Common Stock originally issued in a private placement on May 16, 2022, as amended on

November 2, 2023 to extend the expiration date until November 2, 2028 and revise the exercise price to $ 3.55 per share (the “2022

Purchase Warrants”) (ii) warrants to purchase 214,286 shares of Common Stock issued

on July 26, 2022, as amended on November 2, 2023 to extend the expiration date until November 2, 2028 and revise the exercise price to

$ 3.55 per share (the “2022 Inducement Warrants”) and (iii) warrants to purchase 1,807,500 shares of Common Stock issued on

November 2, 2023 expiring five years following the date of issuance and with an exercise price of $ 3.55 per share ( the “2023 Purchase

Stockholders’ Equity - Registered Public Offering and Warrant Amendment for additional

The 2022 Purchase

Warrants, the 2022 Inducement Warrants and the 2023 Purchase Warrants were accounted for as liabilities as these warrants provide for

a redemption right in the case of a fundamental transaction which fails the requirement of the indexation guidance under ASC

The resulting warrant liabilities are re-measured at each balance sheet date until their exercise or expiration, and any change

in fair value is recognized in the Company’s consolidated statement of operations.

The warrant liabilities are measured at fair

value at inception and on a recurring basis, with changes in fair value presented within the consolidated statement of operations.

Company utilizes a Black-Scholes option pricing model to estimate the fair value of the warrant liabilities which is considered a Level

3 fair value measurement.

Certain inputs utilized in our Black-Scholes pricing model may fluctuate in future periods based upon factors

which are outside of the Company’s control.

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

fair value may cause a significant change to the fair value of our warrant liabilities which could also result in material non-cash gain

or loss being reported in our consolidated statement of operations.

fair value at issuance for the Level 3 warrants was estimated using a Black-Scholes pricing model based on the following assumptions

at May 16, 2022 for the 2022 Purchase Warrants, July 26, 2022 for the 2022 Inducement Warrants, and November 2, 2023 for the 2023

Purchase Warrants:

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

2023 Purchase

Expiration term (in years)

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Dividend yield

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

fair value for the Level 3 warrants at December 31, 2023 was estimated using Black-Scholes pricing model based on the following assumptions:

2023 Purchase

2022 Purchase

2022 Inducement

Expiration term (in years)

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Dividend yield

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

Expiration term (in years)

Risk-free Rate

Dividend yield

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Change in fair value of warrant liability

Warrant inducement expense (See Note 18.

Stockholders’ Equity -

Exercise of 2021 Purchase Warrant and Issuance of 2022 Inducement Warrant)

Fair value at end of year

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

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

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

revenues generated through our sales of Ameluz ® .

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

and installation service.

Refer to Note 17, Related Party Transactions .

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

Related Party Transactions .

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

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Balance at December 31, 2022

Beginning balance

Provision related to current period sales

1 unchanged sentence

Balance at December 31, 2023

Investment in Equity Securities

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

common shares, nominal value € 1.00

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

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

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

There was no additional cost to exercise the AG Options.

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

shares of Biofrontera AG.

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

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

shares or approximately 10 %

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

Ending balance

Investment, Related Party

of December 31, 2023 and December 31, 2022, our investment in equity securities consisted solely of 177,465

and 6,466,946 ,

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

(See Note 17.

Related Party Transactions ).

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 or transferred during

As reflected in the consolidated statements of cash flows, we received proceeds from sales of equity securities of

approximately $ 0.6

million during the twelve months ended December 31, 2023.

There were no

proceeds from sales of equity securities during the twelve months ended December 31, 2022.

of Related Party Investments in Equity Securities

(in thousands):

Net losses recognized during the period on equity securities

Net realized losses on equity securities sold or transferred

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

Accounts Receivable, net

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

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

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

receivable 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.

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 receivable are

segmented into pools of assets depending primarily on delinquency status, and fixed reserve percentages are established for each

pool of trade accounts receivable.

determining the reserve percentages for each pool of trade accounts receivable, 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 will be recorded.

allowance for doubtful accounts was $ 0.2 million and $ 0.1 million as of December 31, 2023 and 2022, respectively.

Other Receivables, Related Party

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

million ($ 3.7

short term and $ 2.8

long-term) due from the Biofrontera Group of

million is due from Biofrontera AG for its 50 %

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

The Company has a contractual right

to repayment of its share of the settlement payments, plus interest and other miscellaneous settlement costs, from Biofrontera AG under

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

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

The March 31, 2022 Amended Settlement

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

of December 31, 2023 and 2022 the Company had a receivable, related party of $ 2.8 million

(presented net in accounts payable, related party) and $ 6.5 million ($ 3.7 million

short term and $ 2.8 million long term), respectively, primarily due from Biofrontera AG for its 50 %

share of the balance of a legal settlement (See Note 23.

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 ® ).

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

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

Related Party.

The Addendum to Amended

and Restated License and Supply Agreement, effective December 5, 2023, and as amended on January 29, 2024, allows for us to set off

the amounts due to Biofrontera AG and the Ameluz Licensor, with the amounts due from Biofrontera AG, and the Ameluz Licensor.

such, in accordance with ASC 210-20-45-1 the other receivables, related party have been offset against accounts payable, related

parties for the year ended December 31, 2023.

for the receivable was deemed necessary as of December 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.

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

million for the year ended December 31, 2022,

and negligible for the year ended December 31, 2021.

The provision for Xepi ® inventory obsolescence was negligible for

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

provision related to BF-RhodoLED ® devices was negligible and $ 0.1 million

for the years ended December 31, 2023 and 2022, respectively.

The provision for Xepi ® inventory obsolescence was

$ 0.1 million

and negligible for the years ended December 31, 2022 and 2023, respectively.

There was no provision

relating to Ameluz ® at December 31, 2022.

As of December 31, 2023, in connection with the voluntary recall by the

Ameluz Licensor, we recorded an inventory write-off of $ 5.2 million

with a corresponding asset for the anticipated replacement from the licensor to other assets, related party, as the recalled lots of

Ameluz products will be replaced by the Ameluz Licensor at no additional cost in accordance with the Ameluz LSA.

Subsequent Events , Voluntary Product Recall of Limited Lots of Ameluz® for further discussion of the voluntary

Prepaid Expenses and Other Current Assets

2 unchanged sentences

(in thousands)

Receivable for common stock warrants proceeds

Prepaid expenses

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(in thousands)

Capitalized software costs

Xepi ® license

1 unchanged sentence

Intangible asset, net

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

million and is amortized on a straight-line basis

over the useful life of 11

Amortization expense was $ 0.4

million for each the years ended December 31,

2022 and 2021.

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

carrying amount of the assets may not be fully recoverable.

In October 2022, upon receiving notification of third-party manufacturing

delays that impacted the timing of sales expansion and improved market positioning of the Xepi ® product, we deemed it

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

Future cash flows were estimated over the expected remaining

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

the asset group.

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

Statement of Cash Flows Reconciliation

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

basis over the useful life of 11 years.

Amortization expense was $ 0.4 million for each of the years ended December 31, 2023 and 2022.

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

the carrying amount of the asset group may not be fully recoverable.

The Company has generated limited revenue from the sales of

Xepi ® 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 the second half of 2024.

Company performed an impairment analysis because of this situation, coupled with the relief from the start-up cost and contingent consideration payment obligations under the Release, which significantly increased the carrying value of the asset group, and determined no impairment charges were deemed necessary during

the twelve months ended December 31, 2023.

Software Costs.

The Company capitalizes the application development phase costs of internal use software in accordance with ASC 350-40, “ Intangibles-Goodwill and Other-Internal Use Software”.

costs will be amortized on a straight-line basis over the estimated useful life of the asset upon completion.

There was no amortization

expense as of December 31, 2023.

Cash Balances and Statement of Cash Flows Reconciliation

Company maintains its cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”).

At December 31, 2023, approximately $ 1.0 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 with respect to these accounts.

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 statements

3 unchanged sentences

Cash and cash equivalents

Short-term restricted cash

Long-term restricted cash

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

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

restricted cash was recorded in other assets in the consolidated balance sheet.

Accrued Expenses and Other Current Liabilities

5 unchanged sentences

Professional fees

Distribution and Storage

Product revenue allowances and reserves

Other Long-Term Liabilities

long-term liabilities consist of the following:

Schedule of Other Long Term Liabilities

(in thousands)

Legal settlement – noncurrent (See Note 24)

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

10 unchanged sentences

Change in fair value of warrant liabilities

Gain on legal settlement

Federal R&D Credits

Change in valuation allowance

5 unchanged sentences

Net operating loss carryforwards

Credit Carryforward

Intangible assets

8 unchanged sentences

Net deferred taxes

Company has had no income tax expense due to operating losses incurred since inception.

The Company has evaluated the positive and negative

evidence bearing upon the realizability of its deferred tax assets.

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

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

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

loss carryforwards during the period.

Company has had no federal income tax expense due to operating losses incurred since inception.

The Company has evaluated the positive

and negative evidence bearing upon the realizability of its deferred tax assets.

Based on this, the Company has provided a valuation

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

likely than not.

During 2023, the valuation allowance increased by $ 6.4 million, primarily due to the increase in the Company’s

net operating loss carryforwards during the period.

of December 31, 2023, the Company had approximately $ 148.6 million and $ 111.5 million of Federal and state net operating loss carryforwards,

17 unchanged sentences

For the year ended December 31, 2023 no estimated interest or penalties were recognized on uncertain tax positions.

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

Net operating loss carryovers from earlier years are also subject to exam and adjustment.

Company’s tax returns for 2019 through 2023 remain open and subject to examination by the Internal Revenue Service and state

taxing authorities.

Under the provisions of the Internal Revenue Code, the net operating loss and tax credit carryforwards are

subject to review and possible adjustment by the Internal Revenue Service and state tax authorities.

Net operating loss and tax

credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest

of significant shareholders over a three-year period in excess of 50 percentage points, as defined under Sections 382 and 383 of the

Internal Revenue Code, respectively, as well as similar state provisions.

This could limit the amount of tax attributes that can be

utilized annually to offset future tax liabilities.

The amount of the annual limitation is determined based on the value of the

Company immediately prior to an ownership change.

Subsequent ownership changes may further affect the limitation in future years.

The Company has completed numerous financings since its inception, which may have resulted in a change in control as defined by

Sections 382 and 383 of the Internal Revenue Code.

As of December 31, 2023, we have not completed a formal Internal Revenue Code

Section 382 analysis of our equity changes.

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”), 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.

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 .

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

million borrowing capacity based on inventory.

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 December 31, 2023 was 5.5 % and interest expense for the twelve months ended December 31, 2023 was $ 0.1 million.

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 twelve months ended December 31, 2023, which is recorded as interest expense on the accompanying consolidated statement of operations.

The line of credit balance as of December 31, 2023 was $ 0.2 million.

of January 4, 2024, we voluntarily terminated the Loan Agreement and paid the outstanding principal balance on the revolving

line of credit of approximately $ 194,000 .

We also paid a termination fee of $ 150,000 in connection with the early termination of the revolving

line of credit.

December 21, 2023, we entered into credit facilities with two different lenders, each pursuant to a Business Loan and Security Agreement

for a term loan in the principal amount of $ 2,000,000 ,

evidenced by a Secured Promissory Note, effective as of December 21, 2023.

of the Loans requires the Company to make weekly payments of principal and interest in the amount of approximately $ 102,857 through July

5, 2024 , the maturity date.

Each of the Loans is secured by a security interest in substantially all of the Company’s assets (the

“Collateral”).

The default interest rate for each of the Loans is 5.0 %.

of the Business Loan and Security Agreements includes limitations on the Company’s ability to sell, lease, transfer, or otherwise

dispose of its assets outside the ordinary course of its business;

or to create, incur, allow or suffer to exist any lien on any of its

assets other than liens in favor of either lender and certain other permitted liens.

Each of the Business Loan and Security Agreements

also contains customary representations and warranties and customary events of default, upon the occurrence of which, after any applicable

grace period, the applicable lender would have the ability to accelerate its loan and exercise remedies with respect to the Collateral.

The interest rate as of December 31, 2023 was 44 % and interest expense for the twelve months ended December 31, 2023 was negligible.

The loan balance as of December 31, 2023 was $ 3.7 million.

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 %

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.

a result of this amendment, the purchase price we pay Biofrontera Pharma for Ameluz ® will range from 30 %

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 years ended December 31, 2022 and 2021 were $ 16.6 million and $ 9.4 million, respectively, and recorded

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

of operations.

Amounts due and payable to Pharma as of December 31, 2022 and 2021 were $ 1.3 million and $ 0.3 million, respectively, which

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

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

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

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

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

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

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

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

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

Expenses related to the service agreement

were $ 0.7 million and $ 0.7 million for the years ended December 31, 2022 and 2021, which were recorded in selling, general and administrative,

related party.

Amounts due to Biofrontera AG related to the service agreement were $ 0.2 million as of December

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

October 8, 2021, we entered into an amendment to the Ameluz LSA under which the price we pay per unit is based upon our sales history.

Under the Ameluz LSA , 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 such products exclusively

As 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 from Pharma, inclusive of estimated and actual purchase price adjustments during the years ended December 31, 2023 and 2022 were $ 23.4

million and $ 17.9

million, respectively, and recorded in inventories in the consolidated balance sheets, and, when sold, in cost of revenues, related

party in the consolidated statements of operations.

Amounts due and payable to Pharma as of December 31, 2023 and 2022 were $ 8.5

million and $ 1.3

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

December 12, 2023, we entered into an addendum (the “Addendum ”), effective as of

December 5, 2023, to the Ameluz LSA.

The Addendum provides, among other things, for a schedule of payments in relation to

various financial obligations among the Company, Biofrontera Pharma, Biofrontera

Bioscience, and Biofrontera AG, including updated terms relating to payments by the Company to Pharma for purchases of Licensed

Products (as that term is defined in the Amulez LSA) under the Amulez LSA through the

As of December 31, 2023 any receivable amounts from related parties were offset against accounts payable, related

parties in accordance with the Addendum.

February 19, 2024, we entered into the Second Amended and Restated License and Supply Agreement (the “Second A&R Amezuz LSA”), effective as of February 13, 2024, by and among the Company, Biofrontera

Pharma, and Biofrontera Bioscience.

Subsequent Events - Ameluz LSA Amendment, for new terms effective February 13, 2024.

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

which provides for the execution of statements of work, by and among the Company , Biofrontera AG, Biofrontera Pharma and Biofrontera

Bioscience, primarily for regulatory support and pharmacovigilance.

Services Agreement enables us to continue relying on Biofrontera AG and its subsidiaries for various services it has historically

provided to us for as long as we deem necessary.

We currently have statements of work in place

regarding pharmacovigilance, regulatory affairs, medical affairs, information technology, and investor relations services and are

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

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

of December 31, 2023, we have migrated away from Biofrontera AG to third party providers for most of our significant information

technology services.

Expenses related to the Services Agreement were $ 0.2

million and $ 0.7

million for the years ended December 31, 2023 and 2022, which were recorded in selling, general and administrative, related party.

Amounts due to Biofrontera AG related to the Services Agreement were $ 0.1

million and $ 0.2 million as of December 31, 2023 and 2022, respectively which were

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

of December 31, 2023, any receivable amounts from related parties were offset against accounts payable, related parties in accordance

with the Addendum.

Lamp Lease Agreement

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

lamps and associated services.

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

2021 and recorded as revenues, related party.

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

$ 0.1 million for each of the years ended December 31, 2022 and 2021, which were recorded as accounts receivable, related party in the

consolidated balance sheets.

Reimbursements

from Maruho Related to Cutanea Acquisition

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

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

as other income.

Refer to Note 3, Acquisition Contract Liabilities .

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

For the year ended December 31, 2021 the amounts

reimbursed relating to SPA costs were $ 0.5

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

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

The amounts due from Maruho, primarily relating to SPA cost

reimbursements, were $ 0.1

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

Company has recorded a receivable of $ 6.4

August 1, 2018, the Company executed a clinical lamp lease agreement with Biofrontera Bioscience to provide lamps and associated services.

revenue related to the clinical lamp lease agreement was approximately $ 0.1

million for each of the years ended December

31, 2023 and 2022 and recorded as revenues, related party.

Amounts due from Biofrontera Bioscience for clinical lamp and other reimbursements

were approximately $ 0.2

million for each of the years ended December

31, 2023 and 2022, which were offset against accounts payable, related parties in accordance with

the Addendum.

Company has recorded a receivable of $ 2.8 million and $ 6.4 million as of December 31, 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 .

The Company recognized $ 0 and $ 0.1 million of interest income in connection with this

receivable for the years ended December 31, 2023 and 2022, respectively.

of December 31, 2023 and December 31, 2022, our investment, related party consisted solely of 177,465

and 6,466,946 ,

respectively, of common shares of Biofrontera AG.

In accordance with a Share Purchase and Transfer Agreement dated, November 3, 2022,

the Company had purchased approximately 1,674,996 shares (of the total 6,466,946 shares) for $ 1.7 million from Maruho.

The total investment

was valued at $ 0.1

million and $ 10.5

million as of December 31, 2022 and December

31, 2021 due from Biofrontera AG for its 50 %

share of the balance of a legal settlement for which both parties are jointly and severally liable as of December 31, 2022.

Refer to Note 8, Other Receivables, Related Party .

The Company has recognized $ 0.1

million of interest income for the years ended

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

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

AG, a significant shareholder.

accordance with a Share Purchase and Transfer Agreement

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

Restructuring costs

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

Restructuring costs

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

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

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

million, as of December

31, 2023 and 2022, respectively.

Investment, Related Party .

In 2023, under the Release, the Company transferred 5,451,016

shares of our shares

in Biofrontera AG to Maruho in exchange for the extinguishment of the total acquisition costs due to Maruho.

of December 31, 2023, any receivable amounts for related party transactions among

the Company, Pharma, Bioscience and Biofrontera AG were offset against accounts payable, related parties in accordance

with the Addendum.

Stockholders’ Equity

the Company’s amended and restated certificate of incorporation, dated December 21, 2020, the Company is authorized to issue 300,000,000

shares of common stock, par value $ 0.001

per share and 20,000,000

shares of preferred stock, par value $ .001

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, par value $ 0.001 per share and 20,000,000 shares of preferred stock, par value

$ 0.001 per share.

Summary of Significant Accounting Policies for information relating to the Reverse Stock Split.

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

8 unchanged sentences

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

Public Offering.

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

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

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

The IPO Warrants are immediately exercisable upon issuance

for a period of five years after the issuance date.

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

be transferred separately immediately upon issuance.

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

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

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

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

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

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

to the Warrants).

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

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

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

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

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

model with the following assumptions:

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

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

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

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

fair value of the underlying unit of $ 1.29 ,

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

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

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

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

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

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

Each of the Purchase Warrant

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

(a) $ 5.25 per

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

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

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

and one common warrant was $ 5.24 .

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

per share of the Company’s common stock.

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

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

The PP-UPOs have

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

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

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

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

The Company estimated the fair value of the

unit purchase options to be approximately $ 0.3

million at December 1, 2021 of which $ 0.2

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

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

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

model with the following assumptions:

fair value of the underlying unit of $ 6.39 ,

expected volatility of 60.0 %,

risk free rate of 1.15 %,

remaining contractual term of 5 years

and a dividend yield of 0 %.

Public Offering - On October 30, 2023, the Company entered into a securities purchase agreement (“2023 Purchase

Agreement”) with an institutional investor for the purchase and sale, in a registered public offering (the “Public

Offering”) by the Company of:

(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 2, 2023.

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.

October 30, 2023, in connection with the 2023 Purchase Agreement, the Company entered into an amendment to amend the 2022 Purchase Warrant

and the 2022 Inducement Warrant (the “Existing Warrants Amendment”) 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.

a result of this amendment to the Existing Warrants, the Company recorded an inducement expense on modification of common stock warrants

in the amount of $ 1.0 million.

The loss represents the increase in fair value of the Existing Warrants, as amended.

The increase in fair

value was calculated as the difference in value immediately before and after modification using the Black-Scholes option pricing model.

The fair value of the Existing Warrants was determined to be $ 0.4 million immediately prior to the modification in accordance with the

following key assumptions:

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

2022 Purchase

2022 Inducement

Expiration term (in years)

Risk-free Rate

Dividend yield

fair value of the Existing Warrants was determined to be $ 1.4 million immediately after the modification in accordance with the following

key assumptions:

2022 Purchase

2022 Inducement

Expiration term (in years)

Risk-free Rate

Dividend yield

– The details of all outstanding warrants as of December 31, 2023 were as follows:

of Outstanding Warrants

Warrant Shares

Weighted Average

Exercise Price

Balance, December 31, 2021

Balance, December 31, 2022

Balance, December 31, 2023

Stock Split - On 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”).

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.

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

Reload Offer of Common Stock Purchase Warrants (the “Inducement Letter”) with the holder of the Company’s 2021 Purchase

Warrant (the “Investor”).

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

for the Company’s agreement to (i) lower the exercise price of the 2021 Purchase Warrant from $ 105.00

per share and (ii) issue the 2022 Inducement

Warrant to purchase up to 214,286

shares of common stock.

The Company received

proceeds of $ 4.6 million,

from the exercise of the 2021 Purchase Warrant and expensed the related issuance costs of $ 0.3

The 2021 Purchase Warrant modification

along with the fair value of the 2022 Inducement Warrant of $ 2.6

million was expensed as warrant modification

expense in the accompanying consolidated statement of operations for the year ended December 31, 2022.

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

In the May 2022

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

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

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

(i) 92,500 shares

of the common stock, (ii) a warrant to purchase up to 170,950 shares

of the common stock (“2022 Purchase Warrant”) and (iii) a warrant to purchase up to 78,450 shares

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

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

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

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

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

$ 2.77 per share.

The Pre-Funded Warrant is exercisable

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

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

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

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

shares of common stock at an exercise price of $ .001 per share, resulting in negligible net proceeds,

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

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

The 2021 Purchase Warrants were originally

issued on December 1, 2021 to purchase up to 2,857,143 shares of common stock, par value $ 0.001 per share.

The Investor agreed to exercise

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

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

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

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

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

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

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

equivalent) and a warrant to purchase one share of common stock was $ 55.00 .

In connection with the 2023 Purchase Agreement ,

the Company entered into the Amendment to Common Stock Purchase Warrants effective November 2, 2023, to (i) revise the exercise price

from $ 55.40 to $ 3.55 and (ii) extend the date which the warrant can be exercised from November 18, 2027 until November 2, 2028 for the

2022 Purchase Warrant.

Because the warrants are accounted for as liabilities, the May 2022 PIPE proceeds were allocated the first to the

warrants based on their fair value with the remaining proceeds allocated to common stock and additional paid in capital.

The 2022 Pre-Funded Warrant had a

term of exercise equal to five ( 5 ) years with a nominal exercise price of $ 0.02 per share and was exercised on July 14, 2022, for

a total of 78,450 shares of common stock, resulting in negligible net proceeds.

As of December 31,

2023, there were no 2022 Pre-Funded Warrants outstanding.

of a stockholder rights plan.

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

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

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

In addition, one Right will automatically attach to each share of Common Stock

issued between the record date of the distribution and the earlier of the distribution date and the expiration date of the Rights.

Right entitles the registered holder to purchase from the Company a unit consisting of one ten-thousandth of a share (a “Unit”)

of Series A Junior Participating Cumulative Preferred Stock, par value $ 0.001 per share, of the Company at a cash exercise price of $ 5.00

On October 13, 2022 the Company’s Board of Directors (“Board”) authorized and

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

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

In addition, one Right will automatically attach to

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

expiration date of the Rights.

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

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

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

per Unit, subject to adjustment, under certain conditions.

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

dated October 13, 2022, between the Company and Computershare Trust Company, N.A, as Rights agent.

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

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

Agreement, dated October 13, 2022, as amended by Amendment No.

1 to the Stockholder Rights Agreement, dated as of April 26, 2023,

between the Company and Computershare Trust Company, N.A, as Rights agent.

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

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

Rights Agreement, of 20% or more of the Company’s issued and outstanding common stock in a transaction not approved by the Company’s

Board of Directors.

The Rights Plan will expire on October 13, 2023.

Rights Agreement, of 20% or more of the Company’s issued and outstanding common stock in a transaction not approved by the Board.

The Rights Plan will expire on June 30, 2026.

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

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on October 13, 2022.

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

ordinary shares, nominal value € 1.00 per share, of Biofrontera AG, a German stock corporation, pursuant to which the parties agreed

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

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

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

for the year ended December 31, 2022:

Weighted Average Exercise Price

Balance, December 31, 2020

( 1,507,143 )

( 2,647,606 )

( 4,154,749 )

Balance, December 31, 2021

( 4,426,143 )

Balance, December 31, 2022

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

acquire ordinary shares, nominal value € 1.00

per share, of Biofrontera AG pursuant to which the parties agreed to a negotiated private exchange, and closed on a series of

private exchanges of 3,148,042

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

Equity Incentive Plans and Share-Based Payments

Omnibus Incentive Plan

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

original 2021 Plan, 2,750,000

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

years for stock options issued under the 2021 Plan .

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

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

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

shares available for future awards under the amended 2021 Plan.

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

12, 2022, the 2021 Plan was amended by our stockholders and the number of shares reserved and authorized for awards under the 2021 Plan

was increased from 137,500 shares to 266,990 shares.

The maximum contractual term for stock options issued under the 2021 Plan is ten

As of December 31, 2023, there were 141,824 shares available for future awards under the amended 2021 Plan.

Non-qualified

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of the date of grant.

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

on the grant date.

All stock options are exercisable at a price equal to the market value of

the common shares underlying the option on the grant date.

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

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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:

fair value of each option was estimated on the date of the grant using the Black-Scholes option pricing model with the following

Schedule of Stock Options Assumptions

Expected volatility

Expected term (in years)

Expected term

Risk-free interest rate

1.34 % - 4.10

Expected dividend yield

compensation expense of approximately $ 0.8

The weighted average grant-date fair value of options

granted during the years ended December 31, 2023 and 2022 was $ 6.40 and $ 29.28 , respectively.

compensation expense related to stock options of approximately $ 0.7

million and $ 0.8

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

the year ended December 31, 2022.

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

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

the years ended December 31, 2023 and 2022, respectively.

outstanding and exercisable under the employee share option plan as of December 31, 2023 and 2022, and a summary of option activity during

the year then ended is presented below.

9 unchanged sentences

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

(1) 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 December 31, 2023 and December 31, 2022.

of December 31, 2023, there was $ 0.9 million of unrecognized compensation cost related to unvested stock options held by employees and

5 unchanged sentences

common stock on the grant date.

compensation expense of $ 1.0 million

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

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

compensation expense related to RSUs of $ 0.3

million and $ 1.0

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

operations for the years ended December 31, 2023 and 2022.

of December 31, 2023, there was $ 0.1 million of unrecognized compensation cost related to unvested RSUs, which is expected to be recognized

over a weighted-average period of approximately 0.4 years.

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

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

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

4 unchanged sentences

Outstanding balance at December 31, 2023

Vested and expected to vest at December 31, 2022

Interest Expense, net

4 unchanged sentences

Interest expense

Interest expense, related party

Contract asset interest expense

2 unchanged sentences

Interest expense, net

expense is comprised primarily of interest on our Loan and Security Agreements.

Interest expense, related

party relates to interest incurred on late payments to the Biofrontera Group.

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 31, 2023 .

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

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

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

income - related party, 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.

income – other, relates primarily to interest earned on funds deposited in our bank accounts.

Other Income, net

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(in thousands)

Reimbursed SPA costs

Other income, net

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

Gain/Loss on termination of operating leases

Foreign currency transactions

Bank service charges

Interest expense, net

Net Loss per Share

and diluted net loss per share attributable to common stockholders is calculated as follows (in thousands, except share and per share

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

outstanding during the period.

As noted in ASC 260-10-45-13, shares issuable for little to no

consideration should be included in the number of outstanding shares used for basic EPS.

As such, the 2022 Pre-Funded Warrants are

included in the outstanding shares for EPS purposes.

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):

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

2 unchanged sentences

Net loss per share, basic and diluted

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

could potentially dilute EPS in the future:

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

EPS in the future:

Schedule of Anti-dilutive Securities Excluded from Computation of Earnings per Share

7 unchanged sentences

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

The extension period has not been included

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

would exercise this option.

The Company provided the landlord with a security deposit in the amount of $ 0.1

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

The extension period has not been included in

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

The Company provided the landlord with a security deposit in the amount of $ 0.1 million, which was recorded as other assets

in the consolidated balance sheets.

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

After an initial non-cancelable twelve-month period each

vehicle is leased on a month to month basis.

Based on historical retention experience of approximately three

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

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

original lease term and not the remaining lease term.

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

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

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

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

of Components of Lease Expense and Other Information

Lease expense

Operating Leases

After an initial non-cancelable twelve-month period, each vehicle

is leased on a month-to-month basis.

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

expiration dates through March 2027.

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

Schedule of Components of Lease Expense and Other Information

Operating Lease expense

December 31, 2023

December 31, 2022

Amortization of ROU assets (operating lease cost)

14 unchanged sentences

of Operating Lease Liability

December 31, 2023

Operating lease liability, current

Operating lease liability, non-current

Cutanea payments

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

million on December 31, 2022 and $ 3.7

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

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

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

million of start-up costs.

The arbitration notes

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

that we are not obligated to repay Maruho.

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

Refer to Note 3, Acquisition

Contract Liabilities .

Ameluz LSA Sales Commitment

If we fail to earn

million in revenues from Ameluz ®

and t he RhodoLED ® lamp

series over the preceding five (5) year period leading to the Ameluz LSA’s termination

date (either fifteen (15) years from the date of the Amended and Restated License and Supply Agreement, dated June 16, 2021 or any later

termination date following the automatic renewal of this Agreement), Biofrontera Pharma has the right to terminate the Ameluz LSA by

providing one (1) year written notice.

See Note 25, Subsequent Events, Amendments to the Ameluz LSA.

payments with Ferrer Internacional S.A.

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 .

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

No payments were made in 2023 or 2022 related to Xepi ® milestones.

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

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

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

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

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

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

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

The Company expenses as incurred the legal

costs related to such legal proceedings.

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

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

The Company expenses as incurred the legal costs related

to such legal proceedings.

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

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

certain trade secrets.

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

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

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

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

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

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

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

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

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

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

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

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

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

and then reimbursed by Biofrontera AG for its share.

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

misappropriated certain trade secrets.

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

payment of $ 22.5

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

13, 2023, we were served with a new complaint filed by DUSA Pharmaceuticals Inc.

See DUSA – 2023 Legal Claim section below for

of December 31, 2023, we have reflected a legal settlement liability in the amount of $ 0.4

million for the remaining payments due under the settlement for the estimated remaining cost of the forensic expert and a

related receivable from related party of $ 2.8

million (presented net in accounts payable, related party) 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.

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 “AG Settlement Agreement”), the Company has taken or committed, among other

things, to take the following actions:

On July 7, 2023, in connection with the AG Settlement

Agreement, Board 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.

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 AG 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 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.

The Board will increase its size to seven members, including

the two directors appointed and elected pursuant to the AG Settlement Agreement as noted above.

addition, the AG Settlement Agreement contains provisions to maintain Biofrontera AG’s representation on the Board 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 or

changes to the Company’s stockholder rights plan.

Under the AG 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.

With the closing

of the Securities Purchase Agreement, dated February 19, 2024 (see Note 25.

Subsequent Events), Biofrontera AG ceased to own

at least 20 % of our common stock outstanding.

Accordingly, if Biofrontera AG does not acquire sufficient shares of our common stock

to own at least 20% within 30 days from the date of notice, February 26, 2024, the Board representation provisions, and the

standstill/voting provisions noted above shall terminate.

Our Related Party Transaction Committee has elected to waive the

requirement that AG must cause its sitting non-independent director, Heikki Lanckriet, to resign from his position of

DUSA – 2023 Legal

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.

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 Jersey.

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.

each of the years ended December 31, 2022 and 2021, matching contribution costs paid by the Company were $ 0.2 million.

contribution costs paid by the Company were $ 0.3 million and $ 0.2 million for the years ended December 31, 2023 and 2022, respectively.

Subsequent Events

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

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

principal amount of up to $ 6.5 million.

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

subject to customary exceptions.

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

The Revolving Facility shall

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

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

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

on certain eligible receivables and reserves.

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

on Form 10- K was filed with the SEC.

of Loan Agreement

as of January 4, 2024, we voluntarily terminated the Loan Agreement (See Note 16.

We repaid the outstanding principal balance on the revolving line of credit of approximately $ 194,000

and paid a termination fee of $ 150,000

in connection with the early termination of the revolving line of credit.

Exercise of 2023 Pre-Funded Warrants

On January 8, 2024 and February 2, 2024, an investor exercised 167,000 and 888,000 the 2023 Pre-Funded Warrants,

respectively and purchased a total of 1,055,000 shares of common stock at an exercise price of $ .0001 per share, resulting in

negligible net proceeds,

November 22, 2023, we received a letter (the “Notice”) from the Listing Qualifications Staff of Nasdaq notifying

us that, because our stockholders’ equity as reported in our Quarterly Report on Form 10-Q for the period ended September 30, 2023

was $1,038,000, we are no longer in compliance with the continued listing requirement under Nasdaq Listing Rule 5550(b)(1), which requires

that a listed company’s stockholders’ equity be at least $2,500,000.

Additionally, as of the date of the Notice, the Company

did not meet either of the alternative requirements of maintaining a market value of listed securities of $35 million or achieving a

net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the last three most recently

completed fiscal years.

As a result, as of the date of this Form 10-K, we do not satisfy Nasdaq Marketplace Rule 5550(b) .

submitted a compliance plan to Nasdaq on January 8, 2024.

The compliance plan was accepted and we were granted 180 calendar days from

November 22, 2023 to evidence compliance.

to the Ameluz LSA

January 29, 2024, we entered into an amendment and restatement (the “Amendment”), effective January 26, 2024 , of the

The Amendment modifies a schedule of payments in relation to various financial obligations among the Company, Biofrontera

Pharma, Biofrontera Bioscience, and Biofrontera AG, including terms relating to payments by the Company to Biofrontera Pharma for purchases

of Licensed Products (as that term is defined in the Ameluz LSA) under the Ameluz LSA.

Among other things, the Addendum provides that

payment that was due from the Company on January 31, 2024 be deferred to February 29, 2024.

February 19, 2024, we entered into the Second A&R Ameluz LSA,

effective as of February 13, 2024, by and among the Company, Biofrontera Pharma, and Biofrontera Bioscience.

The Second A&R Ameluz LSA amends

and restates the Ameluz LSA, originally dated as of October 1, 2016 which was previously amended on July 1, 2019, June 16, 2021, October

8, 2021, December 5, 2023 and January 26, 2024.

other things, the Second A&R Ameluz LSA has been amended to (i)

change the Transfer Price (as defined in the Second A&R Ameluz LSA) to 25% through 2025 and then increasing over time pursuant

to the schedule set forth in the Second A&R Ameluz LSA to a maximum of 35% starting in 2032, subject to a minimum dollar amount

per unit, from the previous Transfer Price of 50% of annual revenue up to $30 million, and then decreasing on further sales until

reaching 30% of annual revenue at and above $50 million, (ii) provide for the transfer of responsibilities for Ongoing Trials (as

defined in the Second A&R Ameluz LSA) on or before June 1, 2024, including the Company assuming related contracts and

transferring key personnel from Pharma and Bioscience to the Company, and (iii) make the failure to achieve the applicable Annual

Minimum Sales (as defined in the Second A&R Ameluz LSA) a termination event in certain circumstances, unless waived by

Biofrontera Pharma and Biofrontera Bioscience.

The Second A&R Ameluz LSA also includes an Addendum to the Second A&R Ameluz

LSA which modifies a schedule of payments in relation to various financial obligations among the Company, Biofrontera Pharma,

Biofrontera Bioscience, and Biofrontera AG, including terms relating to payments by the Company to Biofrontera Pharma for purchases

of Licensed Products (as that term is defined in the Second A&R Ameluz LSA) under the Second A&R Ameluz

Based on the most current budget projections, we expect to order Ameluz

to be delivered in Q4 2024, and therefore, the positive effects of the Second A&R Ameluz LSA amendment will not be realized until

connection with the Second A&R Ameluz LSA, the Company entered into a Release of Claims, dated February 13, 2024, by and among

the Company, Biofrontera Pharma and Biofrontera Bioscience, pursuant to which the Company agreed to release Biofrontera Pharma and

Biofrontera Bioscience from all claims and liabilities arising out of or relating to any failure by Biofrontera Pharma and

Biofrontera Bioscience to perform certain obligations under the Second A&R Ameluz LSA with respect to clinical trials that the Company

will assume responsibility for under the Second A&R Ameluz LSA.

Product Recall of Limited Lots of Ameluz®

February 9, 2024, we were notified that our Ameluz Licensor, had initiated a voluntary recall of a limited number of lots of Ameluz®

due to a manufacturing defect in the impacted product’s packaging, which is provided by an unaffiliated supplier.

In its communication,

the Ameluz Licensor confirmed that the recalled product is not likely to cause adverse health consequences.

We have notified all impacted

physician customers of this recall and have arranged for the prompt replacement of the recalled products.

There were no sales of recalled

product for the year ended December 31, 2023.

Inventories for impact to inventory as of December 31, 2023.

to the Ameluz LSA, the Company will not bear any financial responsibility for the costs associated with this recall.

As such, the Company

does not anticipate a material financial impact on its business as a result of the recall.

Securities Purchase Agreement

for Series B Convertible Preferred

On February 19, 2024, we entered

into a securities purchase agreement (the “Preferred Purchase Agreement”) with certain accredited investors (the “ Preferred

Investors ”), pursuant to which the Company agreed to issue and sell, in a private placement (the “ Offering ”),

shares of Series B-1 Convertible Preferred Stock, par value $ 0.001

per share (the “ Series B-1 Preferred Stock ”), and (ii) warrants (the “ Preferred Warrants ”)

to purchase shares of Series B-3 Convertible Preferred Stock, par value $ 0.001

per share (the “ Series B-3 Preferred Stock ”) for an aggregate offering price of $ 8.0

Each share of Series B-1 Preferred Stock was sold for $ 1,000

per share and the consideration for each Preferred Warrant was $ 0.125

per share of common stock that each share of Series B-3 Preferred Stock may be converted into.

The net proceeds of the Offering were approximately $ 7.2 million, after deducting fees paid to the placement agent

and other estimated offering expenses payable by the Company.

The Company intends to use the net proceeds from the Offering for working

capital purposes and other general corporate purposes and ongoing activities related to expediting the development and approval of additional

indications for Ameluz®.

The aggregate exercise price of the Preferred

Warrants is approximately $ 8.0

million, exercisable for an aggregate of 8,000

shares of Series B-3 Preferred Stock commencing on the Exercisability Date (as defined in the Form of Preferred Warrant) until the

earlier of (i) 5 days following the date of completion of (A) the Company’s public

announcement of (I) at least 95% of the Company’s territory managers, medical science liaisons, and reimbursement

employees are using the Company’s customer relationship management system routinely or on a performance improvement plan and

(II) the Company’s revenue for the period starting on January 1, 2024 and ending no earlier than April 30, 2024 excluding

revenue from related parties (including Biofrontera AG) is at least 5% higher than the Company’s revenue excluding revenue

from related parties (including Biofrontera AG) for the corresponding period of the same length, starting on January 1,

2023, which announcement shall be made promptly after certification by the

Company’s board of directors that such targets have been completed, and (B) the Stockholder Approval (as defined below) and

Securities and Exchange Commission covering the resale of the Common

Stock underlying all shares of Series B-3 Preferred Stock (as defined below) and (ii) February 22, 2027.

Subject to the terms and limitations contained in the Certificate of Designation,

the shares of the Series B-1 Preferred Stock issued in the Offering are immediately convertible and the Series B-3 Preferred Stock issuable

upon exercise of the Warrants issued in the Offering will not become convertible until the Company’s stockholders approve (i) the

issuance of all Common Stock issuable upon conversion of the Issued Preferred Stock and the Series B-3 Preferred Stock or the Series B-3

Preferred Stock upon exercise of the Preferred Warrants to the extent required under the Nasdaq listing rules, (iii) an increase to the

Company’s authorized share capital (collectively, the “Stockholder Approval”).

Pursuant to the Preferred Purchase Agreement and as

soon as practicable following the date of the Stockholder Approval, the Company shall appoint two independent directors to the Company’s

Board who are designated by Rosalind Advisors, Inc.

On February 22, 2024, concurrent with the

closing of the Offering, each purchaser delivered a notice of initial conversion requesting that the Company convert the Series B-1

Preferred Stock they had acquired in the Offering up to the Cap (as defined in the Certificate of Designation) for each purchaser.

As a result of this conversion, the Company issued 2,516,785 shares of the Company’s common stock to the purchasers, and as of

February 22, 2024, the total number of the Company’s outstanding shares of common stock is 5,089,413 and the total number of

the Company’s outstanding shares of Series B-1 Convertible Preferred Stock is 4,806 , with 6,793,893 shares of common stock

issuable upon conversion of the Series B-1 Preferred.

Upon obtaining the Stockholder Approval, there will be 11,309,019 shares of common stock issuable upon conversion

of all of the Series B-3 Convertible Preferred Stock, that may be acquired upon exercise of the Warrants.

Amendment to Articles

of Incorporation - Series B Preferred Stock

Pursuant to the terms of the Preferred Purchase

Agreement, on February 20, 2024, the Company filed the Certificate of Designation with the Delaware Secretary of State designating 6,586

shares of its authorized and unissued preferred stock as Series B-1 Preferred Stock, 6,586

shares as Series B-2 Preferred Stock and 8,000

shares as Series B-3 Convertible Preferred Stock, each with a stated value of $ 1,000

The Certificate of Designation sets forth the rights, preferences and limitations of the shares of Series B Preferred

The company will need to increase the number of authorized shares from the current 15,000,000 in order to have enough

common shares available to allow for the conversion of the B-2 and B-3 Preferred Stock.

The Board of Directors has approved an increase

of authorized shares up to 35,000,000 on March 4, 2024, subject to shareholder approval.

following is a summary of the terms of the Series B Preferred Stock:

Subject to certain limitations described in the Certificate of Designation, the Series B Preferred Stock is voting

Holders of the Series B Preferred Stock are entitled to vote together with the Common Stock on an as-if-converted-to-Common-Stock

Holders of Common Stock are entitled to one vote for each share of Common Stock held on all matters submitted to a vote of stockholders.

Accordingly, holders of Series B Preferred Stock will be entitled to one vote for each whole share of Common Stock into which their Series

B Preferred Stock is then-convertible on all matters submitted to a vote of stockholders.

and until the Company has obtained the Stockholder Approval, the number of shares of Common Stock that shall be deemed issued upon conversion

of the Series B Preferred Stock (for purposes of calculating the number of aggregate votes that the holders of Series B Preferred Stock

are entitled to on an as-converted basis) will be equal to that number of shares equal to 9.9 % of the Company’s outstanding Common

Stock as of the Signing Date (excluding for purposes of the calculation, any securities issued on the Signing Date) (the “ Cap ”),

which each such holder being able to vote the number of shares of Series B Preferred Stock held by it relative to the total number of

shares of Series B Preferred Stock then outstanding multiplied by the Cap.

Notwithstanding the foregoing, the holders of the Series B

Preferred Stock are not entitled to vote together with the Common Stock on an as-if-converted-to-Common-Stock-basis with regard to the

approval of the issuance of units upon conversion of the Series B-1 Preferred Stock and the issuance of all Common Stock upon conversion

of the Series B Preferred Stock.

to the Stockholder Approval, the Series B Preferred Stock is not convertible in excess of the Cap.

Following the Stockholder Approval,

each share of Series B-1 Preferred Stock will automatically convert into either Common Stock or, to the extent the conversion would cause

a holder to exceed their beneficial ownership limitation, shares of Series B-2 Preferred Stock.

Liquidation .

Prior to the Stockholder Approval, in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company,

including a change of control transaction, or Deemed Liquidation Event (any such event, a “ Liquidation ”) the holders

of shares of Series B Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution

to its stockholders, and in the event of a Deemed Liquidation Event, the holders of shares of Series B Preferred Stock then outstanding

shall be entitled to be paid out of the consideration payable to stockholders in such Deemed Liquidation Event or the other proceeds

available for distribution to stockholders, before any payment shall be made to the holders of any other shares of capital stock of the

Company by reason of their ownership thereof, an amount per share equal to the greater of (i) three times the Original Per Share Price,

together with any dividends accrued but unpaid thereon (the “ Liquidation Preference ”) or (ii) such amount per share

as would have been payable had all shares of Series B Preferred Stock been converted into Common Stock (without regard to any limitations

on conversion set forth in the Certificate of Designation or otherwise) immediately prior to such Liquidation (the amount payable pursuant

to this sentence is hereinafter referred to as the “ Series B Liquidation Amount ”).

If upon any such Liquidation, the

assets of the Company available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series B Preferred

Stock the full Liquidation Preference, the holders of shares of Series B Preferred Stock shall share ratably in any distribution of the

assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held

by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

After the payment in full

of all Series B Liquidation Amount, the remaining assets of the Company available for distribution to its stockholders or, in the case

of a Deemed Liquidation Event, the consideration not payable to the holders of shares of Series B Preferred Stock pursuant to the Certificate

of Designation shall be distributed among the holders of shares of Common Stock, pro rata based on the number of shares held by each

the Stockholder Approval, upon any Liquidation, the assets of the Company available for distribution to its stockholders shall be distributed

among the holders of the shares of Series B Preferred Stock and Common Stock, pro rata based on the number of shares held by each such

holder, treating for this purpose all shares of Series B Preferred Stock as if they had been converted to Common Stock pursuant to the

terms of the Certificate of Designation immediately prior to such Liquidation, without regard to any limitations on conversion set forth

in the Certificate of Designation or otherwise.

Unless prohibited by Delaware law governing distributions to stockholders, in the event the Stockholder Approval is not obtained within

one year following the Issuance Date, shares of Series B-1 Preferred Stock shall be redeemed by the Company at a price equal to the then

Liquidation Preference at any time for up to three years following the Issuance Date commencing not more than 60 days after receipt by

the Company at any time on or after the one year anniversary of the Issuance Date of written notice from the holders of a majority of

the then outstanding shares of Series B-1 Preferred Stock, voting together as a single class (the “ Redemption Request ”)

requesting redemption of all shares of Series B-1 Preferred Stock (such date, the “ Redemption Date ”).

of a Redemption Request, the Company shall apply all of its assets to any such redemption, and to no other corporate purpose, except

to the extent prohibited by Delaware law governing distributions to stockholders.

On the Redemption Date, the Company shall redeem, on

a pro rata basis in accordance with the number of shares of Series B-1 Preferred Stock owned by each holder, the total number of shares

of Series B-1 Preferred Stock outstanding immediately prior to the Redemption Date;

provided, however, that Excluded Shares (as defined

in the Certificate of Designation) shall not be redeemed and shall be excluded from the calculations set forth in this sentence.

on the Redemption Date, Delaware law governing distributions to stockholders prevents the Company from redeeming all shares of Series

B-1 Preferred Stock to be redeemed, the Company shall ratably redeem the maximum number of shares that it may redeem consistent with

such law, and shall redeem the remaining shares as soon as it may lawfully do so under such law.

Participation

For a period of one year following closing of the transactions, the purchasers will have the right to participate

as an investor in any securities offering consummated by the Company.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data