What changed in this filing

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Item 1. Financial Statements

2024-08-14 compared with 2024-05-15 · 722 added, 741 removed, 258 unchanged (85% of the section changed)

2 unchanged sentences

thousands, except par value and share amounts )

and cash equivalents

related party

receivable, net

receivables, related party

expenses and other current assets

assets, related party

Current assets:

and equipment, net

lease right-of-use assets

MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY

payable, related parties

lease liabilities

expenses and other current liabilities

Cash and cash equivalents

Investment, related party

Accounts receivable, net

Inventories, net

Prepaid expenses and other current assets

Other assets, related party

Total current assets

Property and equipment, net

Operating lease right-of-use assets

Intangible asset, net

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

lease liabilities, non-current

and contingencies (Note 17)

B-1 Convertible Preferred Stock, $ 0.001

par value, 6,586 share authorized, 4,806

shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively

Series B-2 Convertible Preferred Stock, $ 0.001 par value, 6,586 shares

authorized, zero shares issued and outstanding as of March 31, 2024 and December 31, 2023

Series B-3 Convertible Preferred Stock, $ 0.001 par value, 8,000 shares

authorized, zero shares issued and outstanding as of March 31, 2024 and December 31, 2023

Stockholders’

Stock, $ 0.001 par value, 19,978,828 shares authorized, zero shares issued and outstanding as of March 31, 2024 and December 31, 2023

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

5,089,413 and 1,517,628 shares issued and outstanding as of March 31, 2024

and December 31, 2023

paid-in capital

Accounts payable

Accounts payable, related parties

Operating lease liabilities

Accrued expenses and other current liabilities

Short term debt

Total current liabilities

Long-term liabilities:

Warrant liabilities

Operating lease liabilities, non-current

Other liabilities

Total liabilities

Commitments and contingencies (Note 18)

Stockholders’ equity:

liabilities, mezzanine equity and stockholders’ equity

Series B Convertible Preferred stock, $ 0.001 par value, 20,000,000 shares authorized, no Series B-1, 4,806 Series B-2 and 7,998 Series B-3 shares issued and outstanding as of June 30, 2024 and no shares issued and outstanding as of December 31, 2023

Common stock, $ 0.001 par value, 35,000,000 shares authorized;

5,094,184 and 1,517,628 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively

Additional paid-in capital

Accumulated deficit

Total stockholders’ equity

Total liabilities and stockholders’ equity

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

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thousands, except per share amounts and number of shares )

Months Ended March 31,

revenues, net

related party

revenues, net

of revenues, related party

of revenues, other

general and administrative

general and administrative, related party

and development

in fair value of contingent consideration

Three Months Ended

Six Months Ended

Product revenues, net

Revenues, related party

Total revenues, net

Operating expenses

from operations

income (expense)

in fair value of warrant liabilities

in fair value of investment, related party

on debt extinguishment

income (expense), net

Cost of revenues, related party

Cost of revenues, other

Cost of revenues

Selling, general and administrative

Selling, general and administrative, related party

Research and development

Change in fair value of contingent consideration

Total operating expenses

Loss from operations

Other income (expense)

before income taxes

per common share:

Change in fair value of warrants

Change in fair value of investment, related party

Loss on debt extinguishment

Interest expense, net

Other income, net

Total other income (expense)

Loss before income taxes

Income tax expense

Loss per common share:

Basic and diluted

Weighted-average

common shares outstanding:

Weighted-average common shares outstanding:

Basic and diluted

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

CONSOLIDATED STATEMENTS OF MEZZANINE AND STOCKHOLDERS’ EQUITY

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

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

thousands, except number of shares)

Months Ended March 31, 2024 and 2023

Stockholders’

B-1 Preferred Stock

January 1, 2024

of pre-funded warrants

of Series B Preferred Stock and Warrants

of Series B-1 Preferred into common stock

and Six Months Ended June 30, 2024

April 1, 2024

of Series B-1 Preferred into Series B-2 Preferred

of Series B-3 upon exercise of warrants

based compensation

March 31, 2024

June 30, 2024

Balance, January 1, 2024

Exercise of pre-funded warrants

Conversion of Series B-1 Preferred into Series B-2 Preferred and common stock

Issuance of Series B-3 upon exercise of warrants

Issuance of RSUs

Stock based compensation

Balance, June 30, 2024

$ ( 110,344 )

January 1, 2023

based compensation

of Series B-1 Preferred into common stock, shares

March 31, 2023

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

$ ( 110,344 )

Three and Six Months Ended June 30, 2023

Balance, April 1, 2023

Issuance of shares for vested restricted stock units

Stock based compensation

Balance, June 30, 2023

Balance, January 1, 2023

Issuance of shares for vested restricted stock units

Stock based compensation

Balance, June 30, 2023

The accompanying notes are an integral part of these condensed consolidated

financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Months Ended March 31,

flows from operating activities:

income (loss)

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

of right-of-use assets

of acquired intangible assets

Realized/unrealized

(gain)/ loss in investment, related party

in fair value of contingent consideration

in fair value of warrant liabilities

Six Months Ended June 30,

Cash flows from operating activities:

Adjustments to reconcile net loss to cash flows used in operations:

Amortization of right-of-use assets

Amortization of acquired intangible assets

Realized/unrealized (gain)/ loss in investment, related party

Change in fair value of contingent consideration

Change in fair value of warrant liabilities

Stock-based compensation

Allowance for credit losses

on debt extinguishment

interest expense

in operating assets and liabilities:

receivables, related party

expenses and other assets

payable and related party payables

lease liabilities

expenses and other liabilities

flows used in operating activities

flows from investing activities

of equity investment, related party

of property and equipment

flows provided by (used) in investing activities

flows from financing activities

from issuance of series B-1 preferred stock and warrants to purchase series B-3 preferred stock in a private placement, net of

issuance costs

of principal short-term debt

to extinguish line of credit

flows provided by financing activities

increase (decrease) in cash and cash equivalents

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

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

disclosure of cash flow information

taxes paid, net

Loss on debt extinguishment

Non-cash interest expense

Changes in operating assets and liabilities:

Accounts receivable

Other receivables, related party

Prepaid expenses and other assets

Accounts payable and related party payables

Operating lease liabilities

Accrued expenses and other liabilities

Cash flows used in operating activities

Cash flows from investing activities

Sales of equity investment, related party

Purchase of intangible assets

Purchases of property and equipment

Cash flows provided by (used) in investing activities

Cash flows from financing activities

Proceeds from issuance of series B-1 preferred stock and warrants to purchase series B-3 preferred stock, net of issuance costs

Proceeds from issuance of series B-3 from exercise of warrants

Proceeds from line of credit

Payment to extinguish line of credit

Payment of principal short-term debt

Cash flows provided by financing activities

Net increase (decrease) in cash and cash equivalents

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

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

Supplemental disclosure of cash flow information

Interest paid

Income taxes paid, net

Supplemental non-cash financing activities

Conversion of warrant liability to equity

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

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skin lesions as well as impetigo, a bacterial skin infection.

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 Biofrontera Pharma GmbH

(“Biofrontera Pharma”) and Biofrontera Bioscience GmbH (“Biofrontera Bioscience,” and, together with

Biofrontera Pharma, the “Ameluz Licensor”), both of which are related parties as they are wholly owned subsidiaries of Biofrontera AG, a company holding more than five percent of the Company’s common stock.

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 (the “Ameluz LSA”) with the Ameluz Licensor.

Company includes its wholly owned subsidiary, Biofrontera Discovery GmbH (“Discovery”), formerly known as Bio-FRI GmbH,

a limited liability company organized under the laws of Germany, formed on February 9, 2022, as a German presence to facilitate our

relationship with Biofrontera Pharma GmbH (“Biofrontera Pharma”) and Biofrontera Bioscience GmbH (“Biofrontera

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

they are wholly owned subsidiaries of Biofrontera AG, a company holding more than five percent of the Company’s common

principal licensed product is Ameluz ® , which is a prescription drug approved for use in combination with PDT (when used

together, “Ameluz ® PDT”) using the BF-RhodoLED ® and the RhodoLED ® XL lamps (the

“RhodoLED ® Lamps”).

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, the Second Amended and

Restated License and Supply Agreement, effective February 13, 2024 (the “Second A&R Ameluz LSA”), with the Ameluz Licensor.

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

bacterial growth.

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

for the treatment of impetigo, a common skin infection, due to Staphylococcus aureus or Streptococcus pyogenes.

It is approved for

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

Our exclusive license and supply agreement, as amended

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

(“Ferrer”), 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 in the process of qualifying a new contract manufacturer.

Once Cambrex is qualified, we expect the supply of Xepi® will meet the

future market demand.

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

the Food and Drug Administration (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”), 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.

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.

Ferrer is in the process of qualifying a new contract manufacturer.

Once the new contract manufacturer is qualified, we expect the supply of Xepi ®

will meet the future market demand.

and Going Concern

Since we commenced operations in

2015, we have generated significant losses.

We incurred net cash outflows from operations of $ 3.3

million and $ 3.7

million for the three months ended March 31, 2024 and 2023, respectively.

The Company had an accumulated deficit as of March 31,

2024 of $ 110.1 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 three months ended March 31, 2024, we received net proceeds of

million from the issuance of preferred stock and warrants, net of issuance costs (See Note 13.

Mezzanine Equity and

Stockholders’ Equity ).

As of March 31, 2024, we had cash and cash equivalents of $ 3.8

million, compared to $ 1.3

million as of December 31, 2023.

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.

to the requirements of the Financial Accounting Standards Board’s (the “FASB”) 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 Form 10-Q are issued.

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 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

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 statement 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.

an effort to alleviate these conditions, management’s plans include adhering to the 2024 budget approved by the Board of

Directors (the “Board”), which includes significant sales and marketing, medical affairs, and dermatology community

outreach efforts as we seek to expand the commercialization of Ameluz® in the United States while decreasing discretionary

expenses by approximately $ 5.5 million when compared to the year ended 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

February 19, 2024, the Company entered into the Second Amended and Restated License and Supply Agreement (“Second

A&R Ameluz LSA”) with the Ameluz Licensor, effective as of February 13, 2024.

The terms of the Second A&R Ameluz LSA is

expected to significantly reduce our cost of inventory in

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 increased R&D costs, resulting in expected net savings of $ 1.5 million through May 2025 and continuing in subsequent

In addition, on February 19, 2024, the Company entered into securities purchase agreements

(collectively, the “Preferred Purchase Agreement”) with healthcare-focused institutional investors resulting in net proceeds

million, which the Company received on February 22, 2024.

Under the Preferred Purchase Agreement, we also issued warrants to purchase

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

As of May 15, 2024 all five investors have exercised the B-3 Preferred Convertible Share Warrants and the Company received net

proceeds of $ 7.4 million.

Mezzanine Equity and Stockholder’s Equity for more details regarding the Preferred

Purchase Agreement .

on management’s plans described above, combined with the impact of the Second A&R Ameluz LSA and Preferred Purchase

Agreement, the Company’s management believes that the Company will have sufficient liquidity and probable financing to meet

its funding requirements for at least one year from the date the financial statements in this Form 10-Q are issued.

However, this

will depend on several factors, including executing on its sales plan within the time period needed and controlling our operating

costs, as well as 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, as well as its business, financial condition, results of operations, growth prospects and financial

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.

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

We incurred net cash outflows from operations of $ 8.0 million

and $ 14.0 million

for the six months ended June 30, 2024 and 2023, respectively.

The Company had an accumulated deficit as of June 30, 2024 of $ 110.3 million.

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

financing transactions.

As of June 30, 2024, we had cash and cash equivalents of $ 4.4 million,

compared to $ 1.3 million

as of December 31, 2023.

These conditions and current cash flow projections raise substantial doubt about our ability to continue as

a going concern for at least twelve months from the issuance date of this report.

However, management believes that its plan

alleviates the substantial doubt about the Company’s ability to continue as a going concern for at least one year from the

date these financial statements are issued.

plans include adhering to the 2024 budget approved by the Board of Directors (the “Board”), which includes significant sales

and marketing, medical affairs, and dermatology community outreach efforts as we seek to expand the commercialization of Ameluz ®

in the United States while decreasing discretionary expenses by approximately $ 5.5

million when compared to 2023.

In addition, the terms of the Second A&R

Ameluz LSA are expected to reduce our cost of inventory in the future (See Note 12 Related Party Transactions ),

with gross margins of its primary product, Ameluz®, anticipated to be approximately 75% as opposed to the current 50%, beginning

with inventory purchases after the execution date.

This should reduce our cash needs for inventory, which will be partially

offset by increased R&D costs, resulting in expected net savings of $ 2.7

million through August 2025.

The Company also has discretionary marketing, personnel,

software, and other expenses budgeted in fiscal year 2024, which the Company has the ability and intent, commencing in January 2025,

to reduce such spending and cash outflows by $ 5.8

million through August 31, 2025 without materially impacting planned revenues.

on the plans described above, management believes that the

Company will have sufficient liquidity to meet its funding requirements for at least one year from the date these financial statements are issued.

However, this will depend on several factors, including executing on its sales plan and planned cost reductions within

the time period needed, as well as other possible challenges and unforeseen circumstances.

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, as well as its business, financial

condition, results of operations, growth prospects and financial statements.

accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction

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unaudited condensed consolidated financial statements include all material adjustments, all of which are of a normal and recurring nature,

necessary to present fairly the Company’s financial position as of March 31, 2024, the Company’s operating results for the

three months ended March 31, 2024 and 2023, and the Company’s cash flows for the three months ended March 31, 2024 and 2023.

accompanying financial information as of December 31, 2023 is derived from audited financial statements.

Interim results are not necessarily

indicative of results for a full year.

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

the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 15, 2024.

necessary to present fairly the Company’s financial position as of June 30, 2024, the Company’s operating results for the

three and six months ended June 30, 2024 and 2023, and the Company’s cash flows for the six months ended June 30, 2024 and 2023.

The accompanying financial information as of December 31, 2023 is derived from audited financial statements.

Interim results are not

necessarily indicative of results for a full year.

The information included in this Quarterly Report on Form 10-Q should be read in conjunction

with the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 15, 2024.

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

and per share and share amounts.

Reverse Stock Split

July 3, 2023, the Company effected a 1-for-20 reverse stock split (the “Reverse Stock Split”) of the issued and outstanding

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in the Company’s Form 10-K for the year ended December 31, 2023.

ordinary or preferred shares are determined to be conditionally redeemable upon the occurrence of certain events that are not solely

within the control of the issuer, and upon such event, the shares would become redeemable at the option of the holders, they are classified

as ‘mezzanine equity’ (temporary equity).

The purpose of this classification is to convey that such a security may not be

permanently part of equity and could result in a demand for cash, securities or other assets of the entity in the future.

and Development Costs

and development expenses include costs directly attributable to the clinical development of Ameluz ® , including personnel-related expenses,

the cost of services provided by outside contractors, including services related to the Company’s clinical trials, facilities,

depreciation, and other direct and allocated expenses.

All costs associated with research and development are expensed as incurred.

trial costs are a significant component of our research and development expenses and include costs associated with third-party

The Company outsources a substantial portion of its clinical trial activities, utilizing external entities such as

Clinical Research Organizations (“CROs”), independent clinical investigators, and other third-party service providers to

assist the Company with the execution of its clinical trials.

We record accruals for estimated costs under these contracts.

evaluating the adequacy of the accrued liabilities, we analyze the progress of the studies or clinical trials, including the phase

or completion of events, invoices received, contracted costs and purchase orders.

Significant judgments and estimates are made in

determining the accrued balances at the end of any reporting period based on the facts and circumstances known at that time.

Although we do not expect the estimates to be materially different from the amounts actually incurred, if the estimates of the

status and timing of services performed differs from the actual status and timing of services performed, we may report amounts that

are too high or too low in any particular period.

Actual results could differ from our estimates.

If actual results in the future vary from the Company’s estimates,

the Company will adjust these estimates and record any necessary adjustments in the period such variances become known.

estimate clinical trial and research agreement related expenses based on the services performed, pursuant to contracts with the CROs,

independent clinical investigators, and other vendors that conduct clinical trials and research on our behalf.

In accruing clinical and

research related fees, we estimate the period over which services will be performed and activity expended in each period.

If the actual

timing of the performance of services or the level of effort varies from the estimate, we will adjust the accrual accordingly.

made under these arrangements in advance of the receipt of the related services are recorded as prepaid expenses until the services are

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

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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

reserves, share-based payments, accrual of research and development expenses 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.

Issued Accounting Pronouncements

August 2020, the FASB issued ASU 2020-06, Debt- Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and

Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40):

August 2020, the FASB issued ASU 2020-06, Debt- Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts

in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ,

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instruments and contracts on an entity’s own equity.

This ASU (1) simplifies the accounting for convertible debt instruments and convertible

preferred stock by removing the existing guidance in ASC 470-20, Debt:

This ASU (1) simplifies the accounting for convertible debt instruments and

convertible preferred stock by removing the existing guidance in ASC 470-20, Debt:

Debt with Conversion and Other Options, that requires

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criteria required for equity classification;

and (3) revises the guidance in ASC 260, Earnings Per Share, to require entities to

calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method.

In addition, entities must presume

share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares.

The guidance is effective

for the Company in the first quarter of fiscal year 2024.

The adoption of ASU 2020-06 did not have a material impact on our results of

operations or financial position .

and (3) revises the guidance in ASC 260, Earnings Per Share, to require entities to calculate

diluted earnings per share (EPS) for convertible instruments by using the if-converted method.

In addition, entities must presume share

settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares.

The guidance is effective for

the Company in the first quarter of fiscal year 2024.

The adoption of ASU 2020-06 did not have a material impact on our results of operations

or financial position.

November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures .

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Fair Value Measurements

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

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

2024 and December 31, 2023 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair

Schedule of Fair Value Hierarchy Valuation Inputs

related party

liability – 2022 Purchase Warrants

liability - 2022 Inducement Warrants

liability – 2023 Purchase Warrants

liability - 2024 Preferred Warrants

(in thousands)

Investment, related party

Warrant liability – 2022 Purchase Warrants

Warrant liability - 2022 Inducement Warrants

Warrant liability – 2023 Purchase Warrants

Warrant liability

Total Liabilities

related party

of March 31, 2024 and December 31, 2023, the Company held as an investment, 63,415

and 177,465 ,

respectively, common shares of Biofrontera, AG, a company who holds a greater than five

percent of our Common Stock and is traded on the Frankfurt Stock Exchange.

The fair values of these investments were

determined with Level 1 inputs through references to quoted market prices.

Related Party

Transactions.

of June 30, 2024 and December 31, 2023, the Company held as an investment, 3,019 (as adjusted for a reverse stock split on May 14, 2024)

and 177,465 , respectively, common shares of Biofrontera, AG, a company who holds a greater than five percent of our Common Stock and

is traded on the Frankfurt Stock Exchange.

The fair values of these investments were determined with Level 1 inputs through references

to quoted market prices.

Related Party Transactions.

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

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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”) , (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 Warrants”)

and (iv) warrants to purchase 8,000 shares of Series B-3 Convertible Preferred Stock, par value $ 0.001 per share (the “2024 Preferred

$ 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 Warrants”).

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

The 2024 Preferred Warrants are also accounted for as liabilities as they are redeemable

in the event of a change in control, which is not solely within the control of the Company.

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.

fair value for the Level 3 2024 Preferred Warrants was estimated utilizing a probability weighted average approach, which

incorporated two scenarios.

The 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.

fair value for the Level 3 2022 Purchase Warrants, 2022 Inducement Warrants and the 2023 Purchase Warrants was estimated using a Black-Scholes-Merton

(“BSM”) model.

Certain inputs utilized in our BSM 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.

The fair value of these warrants was determined

using the BSM option pricing model based on the following assumptions for the three and six months ended June 30, 2024:

fair value of

the underlying common stock of $ 0.90

expected volatility of 95 %

risk free rate of 4.20 %

remaining contractual term of 4.34

years and a dividend

yield of 0 %.

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

The warrants to purchase 8,000 shares

of Series B-3 Convertible Preferred Stock, par value $ 0.001 per

share (the “2024 Preferred Warrants”), were also accounted for as liabilities, as they were redeemable in the event of a

change in control, which was not solely within the control of the Company (see Note 13.

Stockholders’ Equity ).

Preferred Warrants were issued in the first quarter of 2024 and

exercised prior to the end of the second quarter of 2024.

The fair value for the Level 3 2024 Preferred Warrants was estimated utilizing

a probability weighted average approach, which incorporated two scenarios.

In scenario one, the warrant value was based on the underlying

value of the convertible preferred stock, using an option-pricing model backsolve that solved for the value of our publicly traded

equity on the valuation date to obtain the valuation date fair value of the Series B-3 Convertible Preferred Stock, then applied the

Series B-3 Convertible Preferred Stock value into the Black-Scholes-Merton (“BSM”) model equation to determine the value

of the Series B-3 convertible warrants.

In scenario two, the warrant value is based on

the underlying value of the publicly traded common equity value.

scenario two assumes the preferred stock will be converted into

Common Stock prior to a liquidity event.

A simple BSM model was utilized to value the warrant under scenario two, using the closing price of our Common Stock.

BSM model used the following inputs and assumptions (i) expected stock price volatility of 79.3% to 105%;

(ii) risk-free interest rate

to 5.41% (iii) expected life of the warrants of .21 to .11 years and (iv) dividend yield of 0.0%.

fair value for the Level 3 2022 Purchase Warrants, 2022 Inducement Warrants and the 2023 Purchase Warrants was estimated using a BSM

Certain inputs utilized in our BSM model may fluctuate in future periods based upon factors which are outside of the Company’s

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

The fair value of these warrants was determined using the BSM option pricing model based on the following assumptions

for the period indicated.

term (in years)

following table presents

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

of Changes in Fair Value Warrant Liabilities

Months Ended March 31,

value at beginning of period

of new warrants

in fair value of warrant liabilities

value at end of period

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

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

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

Refer to Note

12, Related Party Transactions .

value of the convertible preferred stock, using an option-pricing model backsolve that solved for the value of our publicly traded equity

on the valuation date to obtain the valuation date fair value of the Series B-3 Convertible Preferred Stock, then applied the Series

B-3 Convertible Preferred Stock value into the BSM model equation to determine the value of the Series B-3 convertible warrants.

two, the warrant value was based on the underlying value of the publicly traded common equity value.

Scenario two assumes the preferred

stock will be converted into Common Stock prior to a liquidity event.

A simple BSM model was utilized to value the warrant under scenario

two, using the closing price of our Common Stock as an input to the model.

BSM model used the following range of inputs and assumptions for the 2024 Preferred Warrants at the issuance date of February 22,

2024, for the three months ended March 31, 2024 and at the exercise date of May 13, 2024:

(i) expected stock price volatility of 79.3 %

(ii) risk-free interest rate of 5.39 %;

(iii) expected life of the warrants of 0.003

to 0.21 years;

and (iv) dividend yield of 0.0 %.

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

Schedule of Changes in Fair Value Warrant Liabilities

Six Months Ended

Fair value at beginning of period

Issuance of new warrants

Exercise of warrants

Change in fair value of warrant liabilities

Fair value at end of period

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

Revenue from the sales of our lamps and Xepi ® are relatively insignificant compared with the revenues generated through

our sales of Ameluz ® .

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

with the clinical lamps, which, due to the Second A&R Ameluz LSA is no longer effective as of June 30, 2024.

Refer to Note 12, Related

Party Transactions .

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

of Revenue Allowance and Accrual Activities

Schedule of Revenue Allowance and Accrual Activities

(in thousands):

assistance program

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and payor rebates

at December 31, 2022

related to current period sales

or payments made during the period

at March 31, 2023

at December 31, 2023

related to current period sales

or payments made during the period

at March 31, 2024

Balance at December 31, 2022

Provision related to current period sales

Credit or payments made during the period

Balance at June 30, 2023

Balance at December 31, 2023

Provision related to current period sales

Credit or payments made during the period

Balance at June 30, 2024

Investment, Related Party

of March 31, 2024 and December 31, 2023, our investments in equity securities consisted solely of 63,415 and 177,465 , respectively of

common shares of Biofrontera AG.

of June 30, 2024 and December 31, 2023, our investments in equity securities consisted solely of 3,019

shares (as adjusted for a 1 for 21 reverse stock split on May 14, 2024) and 177,465 shares,

respectively, of common shares of Biofrontera AG.

(See Note 12.

Related Party Transactions ).

Equity securities

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

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

As reflected in the consolidated statements of cash flows, we received

proceeds from sales of equity securities of approximately $ 0.1 million during the three months ended March 31, 2024.

Gain/(loss) on investment, related party, was comprised of the following:

Equity securities gains

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

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

As reflected in the consolidated statements of cash flows, we

received proceeds from sales of equity securities of approximately $ 0.1

million and $ 0.2

million during the six months ended June 30, 2024 and 2023, respectively.

on investment, related party, was comprised of the following:

Schedule of Unrealized Gains and Losses on Investments in Equity Securities

months ended March 31,

gain (loss) recognized during the period on equity securities

(in thousands)

Three Months Ended

Six Months Ended

(in thousands)

Net loss recognized during the period on equity securities

net realized loss on equity securities sold

gain/(loss) recognized during the reporting period on equity securities still held at the reporting date

Unrealized gain (loss) recognized during the reporting period on equity securities still held at the reporting date

Accounts Receivable, net

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

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

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.

1 unchanged sentence

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

allowance for credit losses was $ 0.3 million and $ 0.2 million as of March 31, 2024 and December 31, 2023, respectively.

are comprised of Ameluz ® , the BF-RhodoLED ® lamps and immaterial amounts of Xepi ® finished

provision for obsolescence recorded for the three

months ended March 31, 2024 and 2023.

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.

Related Party Transactions for further discussion

of the voluntary recall.

allowance for credit losses was $ 0.3 million and $ 0.2 million as of June 30, 2024 and December 31, 2023, respectively.

are comprised of Ameluz ® , RhodoLED ® Lamps, and immaterial amounts of Xepi ® finished products.

was no provision for obsolescence recorded for the three and six months ended June 30, 2024 and 2023.

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 were to be replaced by

the Ameluz Licensor at no additional cost in accordance with the Ameluz License and Supply Agreement (the “Ameluz LSA”).

Related Party Transactions

for further discussion of the voluntary recall.

As of July 23, 2024, we have received the full amount of the replacement inventory for the recalled Ameluz ® .

Subsequent Events.

Intangible Asset, Net

1 unchanged sentence

Schedule of Intangible Asset Net

(in thousands)

Capitalized software

Xepi ® license

Accumulated amortization

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

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

Amortization expense was $ 0.1

million for each of the three-month periods ended March 31, 2024 and 2023.

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.” Capitalized costs will be amortized on a straight-line

basis over the estimated useful life of the asset upon completion.

There was minimal amortization expense for the three months ended

March 31, 2024 and none for the three months ended March 31, 2023.

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 years.

Amortization expense was $ 0.1 million for each of the three-month periods ended June 30, 2024

and 2023 and $ 0.2 million for the six months ended June 30, 2024 and 2023.

Company capitalizes the application development phase costs of internal use software in accordance with ASC 350-40, “ Intangibles-Goodwill

and Other-Internal Use Software.” Capitalized costs will be amortized on a straight-line basis over the estimated useful life

of the asset upon completion.

There was minimal amortization expense for the three and six months ended June 30, 2024 and none for the

three and six months ended June 30, 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 March 31, 2024, approximately $ 3.7 million of the Company’s cash balances were in excess of FDIC limits.

At June 30, 2024, approximately $ 4.0 million of the Company’s cash balances were in excess of FDIC limits.

The Company has not

7 unchanged sentences

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

and cash equivalents

restricted cash

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

(in thousands)

Cash and cash equivalents

Long-term restricted cash

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

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

2 unchanged sentences

Schedule of Accrued Expenses and Other Current Liabilities

compensation and benefits

revenue allowances and reserves

as of January 4, 2024, we voluntarily terminated the Loan and Security Agreement with Midcap Business Credit LLC (the “Loan

Agreement”), paying a total of approximately $ 0.4 million,

consisting of (1) the outstanding principal of and interest balance due under the Loan Agreement, aggregating approximately $ 0.2 million,

and (2) early termination fees of approximately $ 0.2 million.

As a result of the termination of the Loan Agreement, the

Company recognized a $ 0.3 million loss related to prepayment

fees and the write-off of deferred financing costs, in the accompanying consolidated statement of operations for the three months ended

March 31, 2024.

December 21, 2023, we entered into credit facilities with two different lenders (the “Loans”), each pursuant to a

Business Loan and Security Agreement providing for a term loan in the principal amount of $ 2,000,000 .

Each of the Loans is evidenced by a Secured Promissory Note, effective as of December 21, 2023.

Each of the Loans requires the

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

5, 2024 , the maturity date.

There were approximately $ 0.3

million of related issuance costs, recognized as a debt discount (contra liability against the debt balance), that are being

amortized as interest expense over the life of the loan using the effective interest method.

During the three months ended March 31,

2024 the Company recognized interest expense and discount amortization of approximately $ 1.2

million and $ 0.2

million, respectively.

As of March 31, 2024 the aggregate amount of principal outstanding under the Loans was $ 2.5

million, which is shown net of the remaining unamortized issuance cost of $ 0.1

(in thousands)

Employee compensation and benefits

Professional fees

Research and development

Product revenue allowances and reserves

Distribution and Storage

Legal settlement

as of January 4, 2024, we voluntarily terminated the Loan and Security Agreement with Midcap Business Credit LLC (the “Loan Agreement”),

paying a total of approximately $ 0.4 million, consisting of (1) the outstanding principal of and interest balance due under the Loan

Agreement, aggregating approximately $ 0.2 million, and (2) early termination fees of approximately $ 0.2 million.

a result of the termination of the Loan Agreement, the Company recognized a $ 0.3 million loss related to prepayment fees and the write-off

of deferred financing costs, in the accompanying consolidated statement of operations for the six months ended June 30, 2024.

December 21, 2023, we entered into credit facilities with two different lenders (the “Loans”), each pursuant to a Business

Loan and Security Agreement providing for a term loan in the principal amount of $ 2,000,000 .

Each of the Loans is evidenced by a Secured

Promissory Note, effective as of December 21, 2023.

Each 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.

There were approximately $ 0.3 million of related issuance

costs, recognized as a debt discount (contra liability against the debt balance), that are being amortized as interest expense over the

life of the loan using the effective interest method.

During the three and six months ended June 30, 2024 the Company recognized interest

expense of approximately $ 0.2 million and $ 1.7 million, respectively and discount amortization of $ 0.1 million and $ 0.3 million, respectively.

As of June 30, 2024 the aggregate amount of principal outstanding under the Loans was $ 0.3 million, which is shown net of the remaining

unamortized issuance cost.

of the Loans is secured by a security interest in substantially all of the Company’s assets (the “Collateral”).

The Company will pay interest in the aggregate amount of $ 880,000 on each of the Loans, assuming all payments under the Loans are

made on a timely basis.

The stated interest rate is 44 %

and the default interest rate for each of the Loans is an additional 5.0 %.

Company will pay interest in the aggregate amount of $ 880,000

on each of the Loans, assuming all payments under

the Loans are made on a timely basis.

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

10 unchanged sentences

the Ameluz LSA, the Company obtained an exclusive, non-transferable license to use Biofrontera Pharma’s technology to market

and sell the licensed products, Ameluz® and BF-RhodoLED® and must purchase the licensed products exclusively from

Biofrontera Pharma.

On February 19, 2024, we entered into the Second A&R Ameluz LSA, effective as of February 13, 2024, which among other

things, amended the Ameluz LSA to:

update the price we pay per unit (the “Transfer Price”) that covers the cost of goods, royalties on sales, and services,

and sell the licensed products, Ameluz ® and RhodoLED ® Lamps and must purchase the licensed products

exclusively from Biofrontera Pharma.

A&R Ameluz LSA, among other things, amended the Ameluz LSA to:

update the price we pay per unit, based on certain percentages of the anticipated net selling price, (the “Transfer Price”) that covers the cost of goods, royalties on sales, and services,

including all regulatory efforts, agency fees, pharmacovigilance, and patent administration, as follows:

● Twenty-five percent through 2025;

percent for 2026 to 2028;

percent for 2029 to 2031;

● Thirty-five

percent for 2032 and beyond, subject to a minimum dollar amount per unit;

Transfer Price for sales related to acne, another indication currently in development, will

remain at 25 % indefinitely.

provide for the transfer of responsibilities for clinical trials relating to Ameluz ® in the US on or before June 1, 2024, including the Company

assuming related contracts and transferring key personnel from the Ameluz Licensor to the Company.

in connection with the Second A&R Ameluz LSA, the Company entered into a Release of Claims, with the Ameluz Licensor, dated

February 13, 2024, pursuant to which the Company agreed to release the Ameluz

Licensor from all claims and liabilities arising out of or relating to any failure by the Ameluz Licensor 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.

of the licensed products during the three months ended March 31, 2024 and 2023 were $ 0.3

million and $ 4.6

million, respectively.

Amounts due and payable

to Biofrontera Pharma as of March 31, 2024 and December 31, 2023 were $ 4.0

million and $ 8.5

million, respectively, which were recorded net

in accounts payable or accounts receivable, related parties in the consolidated balance sheets.

February 9, 2024, Biofrontera was notified that the 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 communications, the Ameluz Licensor confirmed that the recalled product is not likely to cause adverse health consequences.

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.

percent of the anticipated net selling price per unit through 2025;

percent of the anticipated net selling price per unit for 2026 to 2028;

percent of the anticipated net selling price per unit for 2029 to 2031;

percent of the anticipated net selling price per unit for 2032 and beyond, subject to a minimum dollar amount per unit;

Transfer Price for sales related to acne, another indication currently in development, will remain at twenty-five

percent of the anticipated net selling price per unit indefinitely.

provide for the transfer of responsibilities for clinical trials relating to Ameluz ® in the US on or before June 1, 2024,

including the Company assuming related contracts and transferring key personnel from the Ameluz Licensor to the Company.

in connection with the Second A&R Ameluz LSA, the Company entered into a Release of Claims, with the Ameluz Licensor, dated February

13, 2024, pursuant to which the Company agreed to release the Ameluz Licensor from all claims and liabilities arising out of or relating

to any failure by the Ameluz Licensor to perform certain obligations under the Second A&R Ameluz LSA with respect to clinical trials

for which the Company assumed responsibility under the Second A&R Ameluz LSA.

of the licensed products during the three and six months ended June 30, 2024 were $ 0.8 million and $ 1.1 million, respectively, and $ 10.4

million and $ 13.7 million for the three and six months ended June 30, 2023, respectively.

Amounts due and payable to Biofrontera Pharma

as of June 30, 2024 and December 31, 2023 were $ 2.2 million and $ 8.5 million, respectively, which were recorded net in accounts payable, related parties in the consolidated balance sheets.

February 9, 2024, Biofrontera was notified that the 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.

communications, the Ameluz Licensor confirmed that the recalled product is not likely to cause adverse health consequences.

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.

As of December 31, 2023, in connection with

the voluntary recall by the Ameluz Licensor, the Company 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.

December 2021, we entered into an Amended and Restated Master Contract Services Agreement (the “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 (i) if they will be needed, and

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

of March 31, 2024, 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 negligible for the three months ended March 31, 2024 and 2023,

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

Amounts due to Biofrontera AG related to the Services

Agreement were $ 0.1

million as of each of March 31, 2024 and December 31, 2023, which were recorded in accounts payable, related parties in the

consolidated balance sheets.

the voluntary recall by the Ameluz Licensor, the Company 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 of July 23, 2024, we received the full amount of the replacement inventory for the recalled Ameluz ® .

Subsequent Events.

December 2021, we entered into an Amended and Restated Master Contract Services Agreement (the “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, and investor relations services and are continuously

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

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

W e have migrated away from Biofrontera AG to third party providers for most of our significant information technology

Expenses related to the Services Agreement were negligible for the three and six months ended June 30, 2024 and $ 0.1

million for the three and six months ended June 30, 2023 , which were recorded in selling, general

and administrative, related party.

Amounts due to Biofrontera AG related to the Services Agreement were negligible and $ 0.1 million as

of June 30, 2024 and December 31, 2023, which were recorded in accounts payable, related parties in the consolidated balance sheets.

Lamp Lease Agreement

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 minimal for the three months ended March 31, 2024 and 2023, and was

recorded as revenues, related party.

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

approximately $ 0.2

million as of each of March 31, 2024 and December 31, 2023, which were recorded as other receivables, related party in the

consolidated balance sheets.

Company recorded a receivable of $ 2.8

million as of December 31, 2023, due from Biofrontera AG (presented net in accounts payable, related party) for its 50 %

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

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.

interest income recognized for the three months ended March 31, 2024 and 2023, in connection with this receivable and the $ 2.8

Due to the Second A&R Ameluz LSA, this agreement is no longer effective as of June 30, 2024.

revenue related to the clinical lamp lease agreement was minimal for the three and six months ended June 30, 2024 and 2023, and was recorded

as revenues, related party.

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

million as of June 30, 2024 and December 31, 2023, respectively, which were recorded as other receivables, related party in the consolidated

balance sheets.

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

of these entities, which are netted against expenses incurred within selling, general and administrative expenses.

Total expense reimbursements

were $ 0.2 million and $ 0.3 million for the three and six months ended June 30, 2024 respectively.

Total expense reimbursements for the

three and six months ended June 30, 2023 were $ 0.2 million and $ 0.4 million, respectively.

Company recorded a receivable of $ 2.8 million as of December 31, 2023, due from Biofrontera AG (presented net in accounts payable, related

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

Company had 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 June 30, 2022,

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

was no interest income recognized for the three and six months ended June 30, 2024 and 2023, in connection with this receivable and the

$ 2.8 million balance was net settled against payments for inventory in February 2024.

of March 31, 2024, our investment, related party was valued at a negligible amount and consisted of 63,415

common shares of Biofrontera AG.

As of December 31, 2023, our investment in equity securities

was valued at $ 0.1 million and consisted of 177,465 common shares of Biofrontera AG.

of June 30, 2024, our investment, related party was valued at a negligible amount and consisted of 3,019

common shares of Biofrontera AG ( as adjusted for a reverse stock split on May14, 2024) .

As of December 31, 2023, our investment in equity securities was valued at $ 0.1 million and consisted of 177,465 common shares of Biofrontera

Investment, Related Party.

Mezzanine Equity and Stockholders’ Equity

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

Company is authorized to issue 15,000,000 shares

of Common Stock and 20,000,000 shares

of preferred stock, par value $ .001 per

Subsequent Events for information relating to the increase in authorized shares of Common Stock

from 15,000,000

shares to 35,000,000

February 19, 2024, the Company entered into the Preferred Purchase Agreement, pursuant to which the Company agreed to issue and sell, in a private placement (the “Offering”), (i) 6,586 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 8,000 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 million.

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 (or 11,309,019 common stock shares).

The conversion price of Series B Preferred Stock

is $ 0.7074 per share of Common Stock, such that each Series B share is convertible into 1,413.6 shares of the Common Stock.

The net proceeds

received were approximately $ 7.3 million, after deducting fees paid to the placement agent and other estimated offering expenses payable

by the Company.

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 included as

Exhibit 4.14 to the Company’s Form 10-K for the year ended December 31, 2023) 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, excluding

revenue from related parties (including Biofrontera AG), for the period starting on January 1, 2024 and ending no earlier than April

30, 2024 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 that such targets have been completed ;

(B) the Stockholder Approval (as defined below) and

Stock underlying all shares of Series B-3 Preferred Stock and (ii) February 22, 2027.

Subsequent Events- Preferred Warrants Expedited Expiration Date for status of the Exercisabilty

to certain conditions, 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 Preferred Warrants will not become convertible until the Company’s

stockholders approve (i) an increase to the Company’s authorized share capital, and (ii) to the extent required under the

Nasdaq listing rules:

(a) the issuance of all Common Stock issuable upon conversion of the issued Series B-1 Preferred Stock and the

Series B-3 Preferred Stock or (b) the Series B-3 Preferred Stock upon exercise of the Preferred Warrants (collectively, the

“Stockholder Approval”).

to the Preferred Purchase Agreement and as soon as practicable following the date of the Stockholder Approval, the Company shall appoint

Stockholders’ Equity

the Company’s Certificate of Second Amendment to the Amended and Restated Certificate of Incorporation (“Certificate”),

effective April 25, 2024, the Company is authorized to issue 35,000,000 shares of Common Stock and 20,000,000 shares of preferred stock,

par value $ .001 per share.

February 19, 2024, the Company entered into the Preferred Purchase Agreement, pursuant to which the Company agreed to issue and

sell, in a private placement (the “Offering”), (i) 6,586

shares of Series B-1 Convertible Preferred Stock, par value $ 0.001

per share (the “Series B-1 Preferred Stock”), and (ii) the 2024 Preferred Warrants to purchase 8,000

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 2024 Preferred Warrant was $ 0.125

per share of common stock that each share of Series B-3 Preferred Stock may be converted into (or 11,309,019

common stock shares).

The conversion price of Series B Preferred Stock is $ 0.7074 per

share of Common Stock, such that each Series B share is convertible into 1,413.6

shares of the Common Stock.

The net proceeds received were approximately $ 7.3

million, after deducting fees paid to the placement agent and other offering expenses payable by the Company.

February 22, 2024, concurrent with the closing of the Offering, in exchange for the conversion of 1,780

shares of Series B-1 Preferred Stock, the Company issued 2,516,785

shares of common stock.

Pursuant to the Certificate, upon the Company’s stockholders’ May 2024 approval of an increase

in the authorized shares of Common Stock (“Stockholder Approval”), the remaining 4,806

shares of Series B-1 Preferred Stock automatically converted into Series B-2 Preferred Stock (as a conversion to common stock would

have caused the holders to exceed their respective beneficial ownership limitations), with 6,793,893

shares of common stock issuable upon conversion of the Series B-2 Preferred Stock.

Also, following the Stockholder Approval, upon

any liquidation event, the assets of the Company available for distribution to its stockholders will 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.

removal of the liquidation preference to Series B Preferred, the requirement for mezzanine classification was eliminated and the

Series B Preferred Stock is classified as permanent equity as of June 30, 2024.

(See Note 14.

Redeemable Preferred

May 13 and 14, 2024, of the 8,000

2024 Preferred Warrants, 7,998 were

exercised to purchase shares of the Company’s Series B-3 Convertible Preferred stock, par value $ 0.001 per

share, for net proceeds of $ 7.4 million,

net of fees paid to the placement agent, while two warrants expired due to non-issuance of fractional shares.

All 2024 Preferred

Warrants issued in the Offering have now been exercised or expired, with 11,306,192

shares of common stock issuable upon conversion of the 7,998 shares

of Series B-3 Convertible Preferred Stock.

to the Preferred Purchase Agreement, the Company is entitled to appoint

two independent directors designated by Rosalind Advisors, Inc to the Company’s Board.

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 number of shares equal to 9.99% of the

outstanding Common Stock (the “Cap”) 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 was 5,089,413

and the total number of the Company’s outstanding

shares of Series B-1 Convertible Preferred Stock was 4,806 ,

with 6,793,893

shares of common stock issuable upon conversion

of the Series B-1 Preferred Stock.

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.

Events for more details regarding the Stockholder Approval .

Classification

B-1 Preferred Stock is redeemable at the option of the holder and Series B-2 and B-3 Preferred Stock is redeemable in the event of a

change in control.

ASC 480-10-S99-3A(2) of the SEC’s Accounting Series Release No.

268 (“ASR 268”) requires preferred

securities that are redeemable for cash or other assets to be classified outside of permanent equity if they are redeemable (i) at a

fixed or determinable price on a fixed or determinable date, (ii) at the option of the holder, or (iii) upon the occurrence of an event

that is not solely within the control of the issuer.

Preferred securities that are mandatorily redeemable are required to be classified

by the issuer as liabilities whereas under ASR 268, an issuer should classify a preferred security whose redemption is contingent on

an event not entirely in control of the issuer as mezzanine equity.

The Series B-1 Preferred Stock is redeemable at the option of the

holder, B-2 and B-3 are redeemable, upon a change in control that is not solely within control of the Company, and accordingly, the Company

determined that mezzanine treatment is appropriate for the Series B Preferred Stock and has presented it as such in our consolidated

balance sheets and consolidated statements of changes in stockholders’ equity and mezzanine equity as of and for the period ending

March 31, 2024 and December 31, 2023.

Series B Preferred Stock is not considered mandatorily redeemable.

Amendment to Articles

of Incorporation – Series B Preferred Stock

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, with a par value of $ 0.001 per share.

to Articles of Incorporation – Series B Preferred Stock

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, with a par value of $ 0.001

per share (collectively the “Series B Preferred Stock”).

B Preferred Stock Rights:

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B Preferred Stock is then convertible on all matters submitted to a vote of stockholders.

to the Company’s stockholders (i) approving the issuance of all Common Stock issuable upon conversion to the Series B

Preferred Stock (if required by Nasdaq Rule 5635) and (ii) increasing the Company’s authorized share capital, 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.

Subsequent Events-Special Meeting of Stockholders.

to certain beneficial ownership limitations, at the option of the Holder, each share of Series B Preferred Stock is

convertible into shares of Common Stock at the applicable Conversion Price, rounded down to the nearest whole share.

The conversion

price for the Series B Preferred Stock is $ 0.7074 per share of Common Stock, subject to adjustment in the event of any stock dividend, stock split,

combination or other similar recapitalization.

Following the Stockholder Approval, each share of

Series B-1 Preferred Stock was automatically converted into either Common Stock or, to the extent the conversion

would cause a holder to exceed its 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 , as defined in the Certificate of Designation (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 of $1,000 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 such holder.

the Stockholder Approval, upon any Liquidation, the assets of the Company available for distribution to its stockholders shall be distributed

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, as defined in the Certificate of Designation

(any such event, a “ 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

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in the Certificate of Designation or otherwise.

Subsequent Events-Special Meeting of Stockholders.

In the event the Stockholder Approval is not obtained within one year following February 20, 2024, (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.

Subsequent Events-Special Meeting of Stockholders.

Participation

For a period of one year following the closing of the Offering, the purchasers will have the right to participate

as an investor in any securities offering consummated by the Company.

For a period of one year following the closing of the Offering, the purchasers will have the right to participate as an

investor in any securities offering consummated by the Company.

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

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The Company has not declared dividends since inception.

In the event of liquidation of the Company,

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

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

There are no redemption or sinking fund provisions

applicable to the Common Stock.

In the event of liquidation of the Company, dissolution

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

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

There are no redemption or sinking fund provisions applicable

to the Common Stock.

The outstanding shares of Common Stock are fully paid and non-assessable.

As of June 30, 2024, there were 5,094,184

shares of Common Stock outstanding.

of Common Stock Pursuant to the Exercise of 2023 Pre-Funded Warrants and Conversion of Series B-1 Preferred Stock

January 8, 2024 and February 2, 2024, an investor exercised 167,000

and 888,000 pre-funded

warrants to purchase the Company’s common stock, par value $ 0.001 per share (the “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.

February 22, 2024, concurrent with the closing of the Offering, 2,516,785

shares of common stock were issued upon conversion of 1,780

shares of Series B-1 Preferred Stock.

January 8, 2024 and February 2, 2024, an investor exercised 167,000 and 888,000 pre-funded warrants

to purchase the Company’s common stock, par value $ 0.001 per share (the “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.

Redeemable Preferred Stock

to the Stockholder Approval, Series B-1 Preferred Stock was redeemable at the option of the holder and Series B-2 and B-3 Preferred

Stock were redeemable in the event of a change in control.

ASC 480-10-S99-3A(2) of the SEC’s Accounting Series Release No.

(“ASR 268”) requires preferred securities that are redeemable for cash or other assets to be classified outside of

permanent equity if they are redeemable (i) at a fixed or determinable price on a fixed or determinable date, (ii) at the option of

the holder, or (iii) upon the occurrence of an event that is not solely within the control of the issuer.

Preferred securities that

are mandatorily redeemable are required to be classified by the issuer as liabilities whereas under ASR 268, an issuer should

classify a preferred security whose redemption is contingent on an event not entirely in control of the issuer as mezzanine equity.

The Series B-1 Preferred Stock was redeemable at the option of the holder, B-2 and B-3 were redeemable, upon a change in control

that was not solely within control of the Company.

Prior to the Stockholder Approval, the Series B Preferred Stock was considered

senior to the Common Stock and all other series of the Company with respect to dividend rights and rights on the distribution of

assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company.

As such, the Company

determined that mezzanine treatment was appropriate for the Series B Preferred Stock at issuance in February 2024 and as of March

31, 2024, and the Series B Preferred Stock was presented as such in our consolidated balance sheets and consolidated statements of

changes in stockholders’ equity and mezzanine equity for periods prior to the Stockholder Approval.

The Series B Preferred Stock was not considered mandatorily

the Stockholder Approval, each share of Series B-1 Preferred Stock automatically converted into either Common Stock or, to the extent

the conversion would cause a holder to exceed its beneficial ownership limitation, shares of Series B-2 Preferred Stock, thereby removing

the redemption feature at the option of the holder (which was only present for Series B-1) and eliminating one of the requirements for

classification as mezzanine equity.

Following the Stockholder Approval, upon any liquidation, the assets of the Corporation available for distribution to its stockholders

will 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 filed on February 20, 2024.

Accordingly, the Series B Preferred stock is classified as permanent equity on our consolidated balance sheets and

consolidated statements of change in stockholders’ equity as of June 30, 2024, due to the limited exception under ASC 480-10-S99-3A(3)(f).

Equity Incentive Plans and Share-Based Payments

Omnibus Incentive Plan

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

original 2021 Plan, 137,500 shares

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

for stock options issued under the 2021 Plan.

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 from 137,500 to 266,990 .

As of March 31, 2024, there were 151,900 shares

available for future awards under the amended 2021 Plan.

2021, our Board adopted, and our shareholders approved, the 2021 Omnibus Incentive Plan (“2021 Plan”), under which the maximum

contractual term is 10 years for stock options issued.

On June 12, 2024, the stockholders of the Company approved an

amendment to the Biofrontera Inc.

2021 Omnibus Incentive Plan to increase the number of shares authorized for issuance by 3,483,010 shares,

from 266,990 shares to 3,750,000 shares.

As of June 30, 2024, there were 3,636,788 shares available for future awards under the amended

Non-qualified

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requisite service period.

The fair value of stock options is estimated at the time of grant using the BSM option pricing model, which requires the use of inputs and assumptions such as the fair value of the underlying stock, exercise price

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

The Company elects to account for forfeitures

as they occur.

The fair value of stock options is estimated at the time of grant using the BSM option pricing model, which

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

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

The Company elects to account for forfeitures as they occur.

fair value of each option was estimated on the date of the grant using the BSM option pricing model.

There were no equity grants during

the three months ended March 31, 2024.

compensation expense related to stock options of approximately $ 0.1 million

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

the three months ended March 31, 2024 and 2023, respectively.

outstanding and exercisable under the employee share option plan as of March 31, 2024 and a summary of option activity during the nine

the three and six months ended June 30, 2024.

compensation expense related to stock options of approximately $ 0.2

million and $ 0.3

million was recorded in selling, general and

administrative expenses, with a negligible amount recorded as research and development on the accompanying consolidated statement of

operations for the three and six months ended June 30, 2024, respectively.

Share-based compensation expense of $ 0.2 million and $ 0.4

million related to stock options for the three and six months ended June 30, 2023,

respectively,

was recorded in selling, general and administrative expenses.

outstanding and exercisable under the employee share option plan as of June 30, 2024, and a summary of option activity during the six

months then ended is presented below.

Schedule of Stock Option Activity

at December 31, 2023

at March 31, 2024

of Stock Option Activity

Outstanding at December 31, 2023

Canceled or forfeited

Outstanding at June 30, 2024

Exercisable at June 30, 2024

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

of the Common Stock for the options that were in the money at March 31, 2024.

of March 31, 2024, there was $ 0.7 million of unrecognized compensation cost related to unvested stock options, which is expected to be

of the Common Stock for the options that were in the money at June 30, 2024.

of June 30, 2024, there was $ 0.6 million of unrecognized compensation cost related to unvested stock options, which is expected to be

recognized over a weighted-average period of approximately 1.51 years.

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Common Stock on the grant date.

compensation expense was $ 0.1

million for the RSUs for each of the three-month periods ended March 31, 2024 and 2023, and was recorded in selling, general and

compensation expense for the RSUs was negligible and $ 0.1 million for the three and six months ended June 30, 2024, respectively, and

$ 0.1 million and $ 0.2 million for the three and six months ended June 30, 2023 respectively, and was recorded in selling, general and

administrative expenses in the accompanying consolidated statements of operations.

Schedule of Restricted Stock Units

Average Remaining Contractual Term

Average Grant Date Fair Value

at December 31, 2023

at March 31, 2024

of March 31, 2024, there was minimal unrecognized compensation cost related to unvested RSUs, which is expected to be

recognized over a weighted-average period of approximately 0.14 years.

of Restricted Stock Units

Weighted Average Remaining Contractual Term

Weighted Average Grant Date Fair Value

Outstanding at December 31, 2023

Canceled or forfeited

Outstanding at June 30, 2024

of June 30, 2024, there was no unrecognized compensation cost related to RSUs.

Interest Expense, net

expense, net consists of the following:

Schedule of Interest Expense

Months Ended March 31,

asset interest expense

of Interest Expense

(in thousands)

Three Months Ended

Six Months Ended

(in thousands)

Interest expense

Contract asset interest expense

Interest income

Interest expense, net

expense is comprised primarily of interest on our short-term loans and line of credit, including amortization of deferred costs.

2 unchanged sentences

(“Maruho”) under a share purchase agreement.

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 .

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 relates primarily to interest earned on funds deposited in our bank accounts.

1 unchanged sentence

Company uses the two-class method to calculate net income (loss) per share.

No dividends were declared or paid for the three months

ended March 31, 2024 and 2023.

No dividends were declared or paid for the three and six

months ended June 30, 2024 and 2023.

Undistributed earnings for each period are allocated equally to common shareholders and participating

securities based on the contractual participation rights of the security to share in the current earnings as if all current period

earnings had been distributed.

Under the two-class method, the undistributed losses will be allocated entirely to the common stock

shareholders.

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

common shares outstanding during the period.

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

the diluted weighted average number of common shares outstanding during the period.

The diluted shares include the dilutive effect

of stock-based awards based on the treasury stock method.

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

effect would be anti-dilutive.

securities based on the contractual participation rights of the security to share in the current earnings as if all current period earnings

had been distributed.

Under the two-class method, the undistributed losses will be allocated entirely to the common stock shareholders.

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

during the period.

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

number of common shares outstanding during the period.

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

the treasury stock method.

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

Months Ended March 31,

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

average common shares outstanding, basic and diluted

2 unchanged sentences

dilute EPS in the future:

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

stock warrants

stock options and RSUs

Purchase Options

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

Common stock warrants

Common stock options and RSUs

Unit Purchase Options

Shares related to Series B-2 convertible preferred stock

Stock warrants include Purchase Warrants, Inducement Warrants and warrants issued in the Company’s initial

public offering.

The table does not include 11,309,019 shares of common stock underlying the Warrants for Series B-3 Preferred Stock,

as exercisability is contingent upon the Company increasing the number of authorized shares of Common Stock, which was not obtained as

of March 31, 2024.

Shares related to Series B-3 convertible preferred stock

Anti-dilutive securities

Stock warrants include Purchase Warrants, Inducement Warrants and warrants issued in the Company’s initial public offering.

Commitments and Contingencies

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expiration dates through March 2027.

lease payments under non-cancelable leases as of March 31, 2024 were as follows (in thousands):

Schedule of Future Commitments and Sublease Income

ending December 31,

lease commitments

future minimum lease payments

imputed interest

lease liability

lease payments under non-cancelable leases as of June 30, 2024 were as follows (in thousands):

of Future Commitments and Sublease Income

Years ending December 31,

Future lease commitments

Remainder of 2024

Total future minimum lease payments

Less imputed interest

Total lease liability

of Operating Lease Liability

lease liability, current

lease liability, non-current

Operating lease liability, current

Operating lease liability, non-current

LSA Sales Commitment

we fail to earn $ 150 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.

The term shall renew automatically for a

period of five years, in perpetuity, so long as we have earned revenues from Ameluz product and lamps equal to or greater than $ 150

million over the preceding five years.

If we fail to earn

million in revenues from Ameluz ® and t he

RhodoLED ® L amp s over

the preceding five (5) year period prior to the Ameluz LSA’s termination date, Biofrontera Pharma has the right to terminate the Ameluz LSA by providing one (1) year written

addition, starting in 2025, under the Second A&R Ameluz LSA, we agree to purchase the higher of a minimum quantity of tubes of Ameluz ®

per year or at least a minimum 75% of the annual average of audited Ameluz® tubes sold during the preceding four (4) full calendar

years (“Annual Minimum Sales”).

If we fail to achieve the respective Annual Minimum Sales for any calendar year, such failure

will constitute a termination event, unless waived by the Ameluz Licensor.

Ameluz Minimum Research and Development Costs (“Minimum

During the years 2025 through 2030, we will be

required to fund Minimum R&D Costs in an amount that is at least 85% of the difference between (i) the Transfer Price for

product, effective February 13, 2024 and (ii) the Transfer Price for product as it would have been determined under the previous

Ameluz LSA, dated October 8, 2021.

If we fail to meet the minimum requirement, the

difference shall be paid to Biofrontera Pharma on February 15, 2031, in either cash or our Common Stock, at our discretion.

per year or at least a minimum 75% of the annual average of audited Ameluz ® tubes sold during the preceding four

(4) full calendar years (“Annual Minimum Sales”).

If we fail to achieve the respective Annual Minimum Sales for any calendar

year, such failure will constitute a termination event, unless waived by the Ameluz Licensor.

Minimum Research and Development Costs (“Minimum R&D Costs”)

the years 2025 through 2030, we will be required to fund Minimum R&D Costs in an amount that is at least 85% of the difference between

(i) the Transfer Price for product, effective February 13, 2024 and (ii) the Transfer Price for product as it would have been determined

under the previous Ameluz LSA, dated October 8, 2021.

If we fail to meet the minimum requirement, the difference shall be paid to Biofrontera

Pharma on February 15, 2031, in either cash or our Common Stock, at our discretion.

Agreement with Optical Tools

December 2, 2022, the Company entered into the technology transfer agreement with Optical Tools LLC (“Optical Tools”), Stephen Tobin and Paul Sowyrda (the “Agreement”).

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

Tobin and Paul Sowyrda (the “Agreement”).

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

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

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

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

The PDT Device provides

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

The Company is to reimburse Optical

Tools for all reasonable out-of-pocket, material and labor costs per the Agreement.

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

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

The PDT Device provides illumination, based

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

The Company is to reimburse Optical Tools for all reasonable

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

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

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

Company did not make any milestone or royalty payments or accruals for such payments during the three months ended March 31, 2024 or

Milestone payments with Ferrer Internacional S.A.

Under the Xepi LSA, we are obligated to make payments

to Ferrer upon the occurrence of certain milestones.

Specifically, we must pay Ferrer i) $ 2,000,000 upon the first occasion when annual

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

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

No payments were made during the three months ended March 31, 2024 or 2023

related to Xepi ® milestones.

Company did not make any milestone or royalty payments or accruals for such payments during the three and six months ended June 30, 2024

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 ,

and (ii) $ 4,000,000

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

No payments or accruals for such payments were made during the three and six months ended June 30, 2024 or 2023 related to

Xepi ® milestones.

and Development Arrangements

the course of normal business operations, the Company enters into agreements with contract research organizations (“CROs”)

to assist in the performance of research and development activities.

Expenditures to CROs represent a significant cost in clinical development

for the Company.

The Company may be obligated to make future payments should certain developments be achieved.

Costs for certain research

and development activities are recognized based on the terms of the individual arrangements, which may differ from the timing of receipt

of invoices and payment of invoices and are reflected in the financial statements as a prepaid or accrued expense.

The Company could

also enter into additional contract research agreements in the future, which may require upfront payments and long-term commitments of

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

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to such legal proceedings.

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.

September 13, 2023, Biofrontera was served with a complaint filed by DUSA Pharmaceuticals, Inc., Sun Pharmaceutical Industries, Inc.

(“Sun”), and Sun Pharmaceutical Industries LTD in which DUSA alleges breach of contract, violation of the Lanham Act,

and unfair trade practices.

All claims stem from allegations that Biofrontera has promoted its Ameluz ® product in a

manner that is inconsistent with its approved FDA labeling.

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

District Court for the District of Massachusetts, this matter has been transferred

by agreement of the parties to the U.S.

District Court for the District of New Jersey.

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

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.

Biofrontera filed a partial motion to dismiss the Lanham Act and unfair trade practices claims on

April 8, 2024.

This motion remains pending, and fact discovery commenced on August 1, 2024.

On June 26, 2024 and June 27, 2024, Sun filed two additional complaints

against Biofrontera, Biofrontera AG, Biofrontera Pharma, and Biofrontera Bioscience with the United States District Court for the District of Massachusetts and the International Trade Commission,

respectively, both alleging infringement of two patents held by Sun.

Company denies these claims and intends to defend these matters vigorously.

Based on the Company’s assessment of

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Subsequent Events

have completed an evaluation of subsequent events after the balance sheet date of March 31, 2024 through the date this Quarterly Report

on Form 10-Q was submitted to the SEC.

Special Meeting of Stockholders

On April 24, 2024, the Company held

a Special Meeting of Stockholders, at which the stockholders approved an amendment to the Company’s Amended and Restated

Certificate of Incorporation to increase the number of authorized shares of Common Stock from 15,000,000 shares

to 35,000,000 shares (the “Authorized Share Increase”).

On April 25, 2024, the Company filed a Certificate of Second Amendment

to its Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware (the “Certificate”)

to increase the number of the Company’s authorized shares of Common Stock accordingly.

Pursuant to the Certificate, upon the increase

to the authorized shares of Common Stock, 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

Preferred Warrants Exercised

On May 2, 2024, the Board certified

and the Company publicly announced, that the Company has achieved certain milestones as described in the Preferred Warrants to

purchase shares of Series B-3 Preferred Stock.

Specifically, the Board certified that (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 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 (collectively, the “Milestones”).

(i) the Board has certified, and the Company has publicly announced the Company’s achievement of the Milestones, (ii) the Company

has completed the Authorized Share Increase on April 25, 2024, and (iii) the registration

statement registering the resale of such shares filed with the SEC on May 2, 2024, became effective on May 9, 2024 an expiration date

of May 14, 2024 has been triggered on with respect to the Preferred Warrants.

On May 13 and 14, 2024, the Preferred

Warrants were exercised (the “Exercise”) to purchase 7,998 shares of the Company’s Series B-3 Convertible Preferred

stock, par value $ 0.001 per share, for net proceeds of $ 7.4 million.

As a result of the Exercise, all Preferred Warrants issued in the

Offering have now been exercised.

Mezzanine Equity and Stockholder’s Equity for details of the Offering.

Agreement with Biofrontera AG

May 6, 2024, the Company (along with certain current directors) and Biofrontera AG entered into an amendment (the “Amendment”)

to a Settlement Agreement, dated as of April 11, 2023, by and among the Company, Hermann Luebbert, John J.

Borer, Loretta M.

Wedge, Beth J.

Hoffman, Kevin

Weber, and Biofrontera AG, as previously amended on October 12, 2023.

to the Amendment, the search for an additional independent Class III director to be mutually selected by the Company and Biofrontera

AG, which was to occur no earlier than January 1, 2024 and no later than September 1, 2024, will no longer be required.

foregoing description of the Amendment does not purport to be complete and is qualified in its entirety by reference to the Amendment,

a copy of which is filed herewith as Exhibit 10.1 and incorporated herein by reference.

Nasdaq Compliance

previously disclosed, the

Company received a notice from the Listing Qualifications Staff of The Nasdaq Stock Market (“Nasdaq”)

in November 2023 stating that, because the Company’s stockholders’ equity as reported in its Quarterly Report on Form 10-Q

for the period ended September 30, 2023 was $1,038,000, the Company was no longer in compliance with Nasdaq’s continued listing

requirement as set forth in Nasdaq Listing Rule 5550(b)(1), which requires that a listed company’s stockholders’ equity

be at least $2,500,000 (the “Stockholders’ Equity Requirement”).

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.

The Company submitted

a compliance plan to Nasdaq in January 2024 that detailed the Company’s plan to regain compliance with the Stockholders’

Equity Requirement.

Nasdaq accepted the plan and granted the Company an extension to evidence compliance.

The Company has executed components

of the plan by reducing costs and raising equity in 2024.

As of the date of this filing, the Company has stockholders’ equity

above the $ 2.5 million requirement.

to Executive Employment Contracts

May 10, 2024, the Company entered into amended and restated employment agreements with Fred Leffler, the Company’s Chief

Financial Officer, and Hermann Luebbert, its Chief Executive Officer and Chairman.

The amended and restated agreements (a) provide

for increases in the respective base salaries of Messrs.

Leffler and Luebbert;

and (b) permit future increases in their respective

base salaries, provided that such increases are approved by the Company’s Board and/or its Compensation Committee, as

In addition, a number of non-substantive revisions have been made to Mr.

Luebbert’s previous employment agreement

to conform to changes in his role with the Company.

foregoing description of the amended and restated employment agreements does not purport to be complete and is qualified in its entirety by reference to the copy of

the amended and restated employment agreements filed as Exhibits 10.2 and 10.3 to this report and incorporated herein by reference.

have completed an evaluation of subsequent events after the balance sheet date of June 30, 2024 through the date this Quarterly Report

on Form 10-Q was submitted to the SEC, and determined that the following material subsequent event required

As of July 23, 2024, we have received the full

amount of replacement inventory for the recalled Ameluz® (See Note 12 Related Party Transactions ).

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

What changed 10-Q

Item 1. Financial Statements