What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-20 compared with 2024-03-15 · 399 added, 491 removed, 192 unchanged (82% of the section changed)

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Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements.

statements in this Form 10-K constitute “forward-looking statements”.

Such statements include statements regarding the

timeline for regulatory review and approval of our products, the availability of funding sources for continued development of such

products, and other statements that are not historical facts, including statements which may be preceded by the words

“intends,” “may,” “will,” “plans,” “expects,” “anticipates,”

“projects,” “predicts,” “estimates,” “aims,” “believes,”

“hopes,” “potential” or similar words.

Forward-looking statements are not guarantees of future performance,

are based on certain assumptions and are subject to various known and unknown risks and uncertainties, many of which are beyond our

Actual results may differ materially from the expectations contained in the forward-looking statements.

Part I, Item 1A, “Risk Factors” of this Form 10-K for a discussion of the factors that could cause such

However, other factors besides those listed in Part I, Item 1A, “Risk Factors” or otherwise discussed in this Annual Report also could adversely affect our results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties.

Certain statements

in this Form 10-K constitute “forward-looking statements”.

Such statements include statements regarding the timeline for

regulatory review and approval of our products, the availability of funding sources for continued development of such products, and other

statements that are not historical facts, including statements which may be preceded by the words “intends,” “may,”

“will,” “plans,” “expects,” “anticipates,” “projects,” “predicts,”

“estimates,” “aims,” “believes,” “hopes,” “potential” or similar words.

Forward-looking

statements are not guarantees of future performance, are based on certain assumptions and are subject to various known and unknown risks

and uncertainties, many of which are beyond our control.

Actual results may differ materially from the expectations contained in the

forward-looking statements.

Part I, Item 1A, “Risk Factors” of this Form 10-K for a discussion of the factors that could cause such differences.

other factors besides those listed in Part I, Item 1A, “Risk Factors” or otherwise discussed in this Annual Report also could

adversely affect our results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties.

forward-looking statements made by us or on our behalf speak only as of the date they are made.

We do not undertake to publicly

update or revise our forward-looking statements as a result of new information, future events or otherwise, except as required by

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

or “subsidiary”).

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

with Biofrontera Pharma GmbH and Biofrontera Bioscience GmbH, our Ameluz Licensor and related parties.

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

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

The Company’s licensed products are used for the

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

In May 2023, we began research and development

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

Our R&D program currently aims to improve the capabilities of our BF-RhodoLED® lamps to better fulfill the needs of

dermatologists.

Our goal is to improve the effectiveness of our commercial team by allowing sales representatives to carry approved

devices with them allowing for easier product demonstrations and evaluations.

On February 19, 2024, we entered into the Second Amended

and Restated License and Supply Agreement with the Ameluz Licensor under which, with immediate effect, the transfer price of Ameluz ®

will be reduced from 50% to 25% for all purchases in 2024 and 2025.

Starting on January 1, 2026, until 2032 there will be stepwise

increases in the transfer price from 25% to 35% for sales related to actinic keratosis and, if approved by the FDA, basal cell carcinoma

and squamous cell carcinoma.

The transfer price for sales related to acne, another indication currently in development, will remain at

25% indefinitely.

The transfer price covers the cost of goods, royalties on sales, and services including all regulatory efforts, agency

fees, pharmacovigilance, and patent administration.

Effective June 1, 2024, we will take control of all clinical trials

relating to Ameluz ® in the US, allowing for more effective cost management and direct oversight of trial efficiency.

The reduced LSA transfer price will allow the Company to finance such R&D activities and continue our commercial growth

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

lamp series, for PDT, or 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 (“AK”) of mild-to-moderate

severity on the face and scalp.

AKs are premalignant lesions of the skin that can potentially develop into skin cancer (squamous cell

carcinoma) if left untreated.

International treatment guidelines list PDT as the “gold standard” for treating

AK, especially multiple AKs and the surrounding photodamaged skin.

1 We are currently selling Ameluz ® for this

indication in the U.S.

under the Ameluz LSA.

second prescription drug licensed product in our portfolio is Xepi ® (ozenoxacin cream, 1%), a topical non-fluorinated

quinolone that inhibits bacterial growth.

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

specifically approved by the FDA for the treatment of impetigo, a common skin infection, due to Staphylococcus aureus or

Streptococcus pyogenes.

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

Our exclusive license

and supply agreement, as amended (“Xepi LSA”), with Ferrer Internacional S.A.

(“Ferrer”) that was assumed by

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

(“Cutanea”) enables us to market and sell this product in the United Sates.

principal objective is to increase the sales of our licensed products in the United States.

The key elements of our strategy include

the following:

our sales in the United States of Ameluz ® in combination with the BF-RhodoLED ® lamp for the treatment

of minimally to moderately thick actinic keratoses of the face and scalp and positioning Ameluz ® to be the standard

of care in the United States by growing our dedicated sales and marketing infrastructure in the United States;

the potential for future approvals and label extensions of our portfolio products that are in the pipeline for the U.S.

market through

the LSAs with our Licensors;

opportunistically

adding complementary products or services to our portfolio by acquiring or licensing IP to further leverage our commercial infrastructure

and customer relationships.

We do not undertake to publicly update

or revise our forward-looking statements as a result of new information, future events or otherwise, except as required by law.

(the “Company” or “Biofrontera”) is a United States based biopharmaceutical company commercializing a

portfolio of pharmaceutical products for the treatment of dermatological conditions with a focus on photodynamic therapy

The Company’s primary licensed products, which include Ameluz ® as well as the

BF-RhodoLED ® and RhodoLED ® XL lamps (the “RhodoLED ® Lamps”), are used for

the treatment of actinic keratoses, which are pre-cancerous skin lesions.

With our national commercial team, we generate revenue by

selling our licensed products directly to dermatology offices and groups.

We are currently selling

Ameluz ® in the United States under a n exclusive license and supply

agreement, the Second Amended and Restated License and Supply Agreement, effective as of February 13, 2024 with the Ameluz Licensor

(the “Second A&R Ameluz LSA”).

A&R Ameluz LSA reduced the Transfer Price of Ameluz ® from 50% to 25% which covers the cost of goods, royalties on

sales, and services including all regulatory efforts, agency fees, pharmacovigilance and patent administration for all purchases in

2024 and 2025.

Starting on January 1, 2026, until 2032 there will be stepwise increases in the Transfer Price from 25% to 35% for

sales related to actinic keratosis and, if approved by the FDA, basal cell carcinoma and squamous cell carcinoma.

The transfer price

for sales related to acne, another indication currently in development, will remain at 25% indefinitely.

June 1, 2024, we assumed control of all clinical trials relating to Ameluz ® in the United States, allowing for more effective cost

management and direct oversight of trial efficiency.

Our research and development (“R&D”) program is focused on label

expansion for Ameluz ® as well as supporting PDT growth by improving the capabilities of our RhodoLED ® Lamps

to better fulfill the needs of dermatologists.

The reduced LSA transfer price will allow the Company to finance such R&D activities

and continue our commercial growth trajectory.

October 2024, the FDA approved the Company’s Supplemental New Drug Application to increase the maximally approved dosage of Ameluz ®

from one to three tubes per treatment.

This approval allows healthcare professionals greater flexibility in addressing larger or

multiple treatment areas for patients undergoing PDT for AK on the face and scalp, leading to greater convenience for both healthcare

providers and their patients.

In combination with the RhodoLED ® XL Lamp, providers can now treat a patient’s face

more efficiently.

Additionally, the change to the label and the RhodoLED ® XL are both foundational to support trunk and

extremities which we expect to add to the label in the next couple years.

in October 2024, the Company received results in its Phase III trial evaluating its drug-device therapy, Ameluz ® with

the BF-RhodoLED lamp, as a treatment for superficial basal cell carcinoma (“sBCC”).

The primary endpoint was a composite

of complete clinical and histological clearance of one preselected “main target” BCC lesion per patient 12 weeks after the

start of the last PDT cycle.

According to the phase III ALA-BCC-CT013 study, Ameluz®-PDT achieved 65.5% success, compared to 4.8%

success achieved with placebo-PDT.

Complete histological clearance was seen in 75.9% of these lesions in the Ameluz® arm, compared

to 19.0% with placebo.

Complete clinical clearance was achieved in 83.4% of patients treated with Ameluz® compared to 21.4% with

the third quarter of 2024, the Company reached the decision to divest its Xepi product line and the related intangible asset is

currently held for sale.

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

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

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

Our exclusive

license and supply agreement, as amended (“Xepi LSA”), with Ferrer Internacional S.A.

(“Ferrer”) enables us

to market and sell this product in the United Sates.

However, the Company did not have any sales of Xepi ® during 2024

and generated limited revenue during 2023 from sales of Xepi due to third-party manufacturing delays that have impacted our

commercialization of the product.

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

If the new contract

manufacturer is qualified, we believe that it will be able to supply enough of the Xepi ® product line to meet market

demand for as long as we maintain it.

Nevertheless, the Company is working with a potential purchaser and expects to complete a sale

of the asset within the next three to six months.

The related intangible asset is presented as held for sale under current assets in

the Consolidated Balance Sheets.

Assets Held for Sale , for additional information.

principal objective is to improve patient outcomes through adoption and use of our licensed products in the United States.

elements of our strategy include the following:

our sales in the United States of Ameluz ® in combination with the RhodoLED ® Lamps for the

treatment of minimally to moderately thick actinic keratoses of the face and scalp and positioning Ameluz ® to be the

standard of care in the United States by focusing on acquisition of new customers and growth of the therapy in our

current customer base;

the potential for future approvals and label extensions of our licensed portfolio products that are in the pipeline for the United States

market with respect to Ameluz ® and

f urthering the clinical development of this product after taking

over responsibility for certain ongoing clinical trials since June 1, 2024, pursuant to the Second A&R Ameluz LSA ;

strategically

managing our licensed portfolio, including opportunistically adding complementary products or services to our portfolio by acquiring

or licensing IP to further leverage our commercial infrastructure and customer relationships.

By executing these strategic objectives, we will fuel

company growth, deepen our trusted relationships in the dermatology community, and above all, help patients live healthier, more fulfilling

devote a substantial portion of our cash resources to the commercialization of our licensed products, Ameluz ® and the

BF-RhodoLED ® lamp series.

BF-RhodoLED ® Lamps.

We have financed our operating and capital expenditures through cash proceeds generated from

our product sales, our line of credit, short term debt and proceeds received in equity financings.

believe that important measures of our results of operations include product revenue, operating income (loss) and adjusted EBITDA

(a non-GAAP measure as defined below).

our product sales, short term debt and proceeds received from convertible notes and equity financings.

believe that important measures of our results of operations include product revenue, operating income (loss) and adjusted EBITDA (a

non-GAAP measure as defined below).

Our sole source of product revenue is sales of products that we license from certain related and

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utilization, information technology leverage, and overhead cost management.

factors affecting our performance

a result of a number of factors, our historical results of operations may not be comparable to our results of operations in future periods,

and our results of operations may not be directly comparable from period to period.

Set forth below is a brief discussion of the key

factors impacting our results of operations.

RN, Stockfleth E, Connolly SM, et al.

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doi:10.1111/jdv.13180.

traditional PDT treatments using a lamp are performed more frequently during the winter, our revenue is subject to some

seasonality and has historically been higher during the first and fourth quarters than during the second and third quarters.

While our Licensors take reasonable precautions to ensure the successful

production of our commercially licensed products, their contract manufacturers may experience a myriad of business difficulties (i.e.,

workforce instability, supply chain issues, erosion of customer base, etc.) that could impact their financial solvency.

As previously

disclosed in 2021, the Xepi product has experienced manufacturing delays at Ferrer’s third-party manufacturer, which have not yet

been resolved.

We expect a delay in further shipments for an additional five to eight months.

We are expecting to launch the RhodoLED ®

XL in the second quarter 2024 and have begun production activities.

However, there have been historical delays due to supply chain issues, and there is

a possibility that there are additional supply chain challenges, or our orders are fulfilled at a slower rate than expected.

Despite these

historic and possible future delays, we expect total revenues will not be significantly impacted (i.e., we experience less growth than

declining sales) since the majority of our revenues are from sales of Ameluz ® and we have RhodeLED lamps on

hand and on order.

We continue to monitor the impacts of the supply chain on our business and are focused on ensuring the stability of

the supply chains for Ameluz ® and BF-RhodoLED ® lamp series.

of Our Results of Operations

generate product revenues through the third-party sales of our licensed products Ameluz ® , BF-RhodoLED ®

lamps and to a much lesser extent Xepi ® covered by our exclusive LSAs with our Licensors .

Revenues from

product sales are recorded net of discounts, rebates and other incentives, including trade discounts and allowances, product

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

Revenue from the sales of our

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

sales of Ameluz ® .

Revenues, net

generate product revenues through the third-party sales of our licensed products Ameluz ® and RhodoLED ®

Revenues from product sales are recorded net of trade discounts and allowances and government rebates.

primary factors that determine our revenue derived from our licensed products are:

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sales prices.

Party Revenues

also generate insignificant related party revenue in connection with an agreement with Biofrontera Bioscience GmbH to provide

BF-RhodoLED ® lamps and associated services for the clinical trials performed by Biofrontera Bioscience GmbH.

Related Party

to June 1, 2024, the date on which we took over clinical trials, we generated insignificant related party revenue in connection with

an agreement with Biofrontera Bioscience to provide RhodoLED ® Lamps and associated services for the clinical trials

performed by Biofrontera Bioscience.

In the future, we do not expect to receive related party revenue regarding RhodoLED ®

Lamps and associated services for clinical trials.

of Revenues, Related Party

of revenues, related party, is comprised of purchase costs of our licensed products, Ameluz ® and BF-RhodoLED ®

lamps from Biofrontera Pharma GmbH and insignificant inventory adjustments due to scrapped, expiring and excess products.

Under the Ameluz LSA

the price we pay per unit will be based upon our sales history.

The purchase price we pay the Ameluz Licensor for Ameluz ®

will be determined in the following manner:

percent of the anticipated net price per unit until we generate $30 million in revenue from sales of the products we license from

the Ameluz Licensor during a given Commercial Year (as defined in the Ameluz LSA);

percent of the anticipated net price per unit for all revenues we generate between $30 million and $50 million from sales of the

products we license from the Ameluz Licensor;

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

from the Ameluz Licensor.

On February 19, 2024, we entered into the Second

Amended and Restated License and Supply Agreement (the “Second A&R Ameluz LSA”), effective as of February 13, 2024,

by and among the Company, Pharma, and Bioscience.

Among other things, the Second A&R Ameluz

LSA has been amended to (i) change the Transfer Price to 25% through 2025 and then increasing over time pursuant to the schedule set

forth in the Second A&R Ameluz LSA to a maximum of 35% starting in 2032, subject to a minimum dollar amount per unit, from the previous

Transfer Price of 50% of annual revenue up to $30 million, and then decreasing on further sales until reaching 30% of annual revenue

at and above $50 million, (ii) provide for the transfer of responsibilities for Ongoing Trials (as defined in the Second A&R Ameluz LSA)

on or before June 1, 2024, including the Company assuming related contracts and transferring key personnel from Pharma and

Bioscience to the Company, and (iii) make the failure to achieve the applicable Annual Minimum Sales (as defined in the Second A&R Ameluz LSA) a termination event in certain circumstances, unless waived by Pharma and Bioscience.

In connection with the Second A&R Ameluz

LSA, we entered into a Release of Claims dated as of

February 13, 2024, by and among the Company, Biofrontera Pharma and Biofrontera Bioscience, pursuant to which the Company agreed to

release Biofrontera Pharma and Biofrontera Bioscience from all claims and liabilities arising out of or relating to any failure by

Biofrontera Pharma and Biofrontera Bioscience to perform certain obligations under the Second A&R Ameluz LSA with respect to clinical

trials that the Company will assume responsibility for under the Second A&R Ameluz LSA.

of revenues, related party, is comprised of purchase costs of our licensed products, Ameluz ® and RhodoLED ® Lamps

from Biofrontera Pharma GmbH and insignificant inventory adjustments due to scrapped, expiring and excess products.

February 12, 2024, the Second A&R Ameluz LSA, among other things, was amended to change the Transfer Price from 50% to 25% of the

anticipated net selling price per unit through 2025 and then increasing over time pursuant to the schedule set forth in the Second A&R

Ameluz LSA to a maximum of 35% of the anticipated net selling price starting in 2032, subject to a minimum dollar amount per unit.

of Revenues, Other

of revenues, other, is comprised of purchase costs of our licensed product, Xepi ® , third-party logistics and distribution

costs including packaging, freight, transportation, shipping and handling costs, and inventory adjustment due to expiring Xepi ®

of revenues, other, is comprised of third-party logistics and distribution costs including packaging, freight, transportation, shipping

and handling costs.

General and Administrative Expense

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Selling, general and administrative expenses also include the amortization

of our intangible asset and our legal settlement expenses.

of our intangible assets and our legal settlement expenses.

General and Administrative Expenses, Related Party

general and administrative expenses, related party, relate to the services provided by our significant stockholder, Biofrontera AG,

primarily for regulatory support and pharmacovigilance.

These expenses are charged to us based on costs incurred plus 6% in

accordance with the Amended and Restated Master Contact Services Agreement, (the “2021 Services Agreement”), entered

into in December 2021.

The 2021 Services Agreement enables us to continue relying on Biofrontera AG and its subsidiaries for various

services it has historically provided to us, including regulatory and pharmacovigilance support for as long as we deem necessary.

currently have statements of work in place regarding information technology, regulatory affairs, medical affairs, pharmacovigilance,

and investor relations services, and are continuously assessing the other services historically provided to us by Biofrontera AG to

determine 1) if they will be needed, and 2) whether they can or should be obtained from other third-party providers.

As of December

31, 2023, we have migrated most of our significant information technology services from Biofrontera AG to third-party

general and administrative expenses, related party, relate to the services provided by Biofrontera AG, primarily for regulatory support

and pharmacovigilance.

These expenses are charged to us based on costs incurred plus 6% in accordance with the Amended and Restated Master

Contact Services Agreement, (the “2021 Services Agreement”), entered into in December 2021.

The 2021 Services Agreement enables

us to continue relying on Biofrontera AG and its subsidiaries for various services it has historically provided to us, including regulatory

and pharmacovigilance support for as long as we deem necessary.

We currently have statements of work in place regarding regulatory affairs,

medical affairs, and pharmacovigilance, 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.

and Development

current R&D programs aim to improve the capabilities of our BF-RhodoLED ® lamps to better fulfill

the needs of dermatologists and improve the effectiveness of our commercial team by letting sales representatives carry approved devices with them allowing for easier product demonstrations and evaluations.

June 1, 2024, we took control of all clinical trials for Ameluz ® in the Unites States, allowing for more effective cost

management and direct oversight of trial efficiency.

Our R&D 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.

Along with our Ameluz ®

clinical trials, our R&D program also aims to improve the capabilities of our RhodoLED ® Lamps to better fulfill

the needs of dermatologists and improve the effectiveness of our commercial team by letting sales representatives carry approved devices

with them, allowing for easier product demonstrations and evaluations.

All costs associated with research and development are expensed

in Fair Value of Contingent Consideration

connection with the Cutanea acquisition, we recorded contingent consideration related to the estimated profits from the sale of Cutanea

products to be shared equally with Maruho.

The fair value of such contingent consideration was determined to be $6.5 million on the acquisition

date of March 25, 2019 and was re-measured at each reporting date until the contingency was resolved.

Under the Release, our obligation relating to contingent consideration was relieved as of December 31, 2023.

connection with our acquisition of Cutanea Life Sciences, Inc (“Cutanea”) from Maruho Co., Ltd (“Maruho”) on March 25, 2019,

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

The fair value of such contingent consideration was determined to be $6.5 million on the acquisition date and was re-measured

at each reporting date until the contingency was resolved.

Our obligation relating to contingent consideration was relieved under a Confidential

Settlement Agreement and Mutual Release (the “Release”) dated December 27, 2023.

in Fair Value of Warrant Liabilities

warrants that are classified as liabilities, the Company records the fair value of the warrants at each balance sheet date and records

changes in the estimated fair value as a non-cash gain or loss in the consolidated statements of operations until the warrants are exercised, expire or other facts and circumstances lead the warrant liabilities to be reclassified to stockholders’ equity or deficit.

changes in the estimated fair value as a non-cash gain or loss in the consolidated statements of operations until the warrants are exercised,

expire or other facts and circumstances lead the warrant liabilities to be reclassified to stockholders’ equity or deficit.

Inducement Expense

connection with the Securities Purchase Agreement (“Purchase Agreement”), dated as of October 30, 2023, entered into with an

institutional investor, the Company entered into the Amendment to Common Stock Purchase Warrants, dated as of October 30, 2023 to amend the common stock purchase

warrant dated May 16, 2022 and the common stock purchase warrant dated July 26, 2022 (“Existing Warrants”) to (i) revise

the exercise price to $3.55 and (ii) extend the date until which the warrants can be exercised until November 2, 2028.

result of the amendment to the existing warrants, the Company recognized inducement expense which was determined using the

Black-Scholes option pricing model before and after the warrant amendment (see Note 18 Stockholders’ Equity within our consolidated

financial statements for details).

2022 warrant inducement expense represents the accounting fair value of consideration issued to induce conversion of the common

stock purchase warrant dated December 1, 2021 (“2021 Purchase Warrant”).

On July 26, 2022, the Company entered into a

warrant exercise inducement offer letter (the “Inducement Letter”), in which the Company agreed to lower the exercise

price of the 2021 Purchase Warrant and issue a new warrant (the “2022 Inducement Warrant”) to purchase up to 4,285,715

shares of common stock in exchange for $4.6 million in proceeds (see Note 18 Stockholders’ Equity within our

consolidated financial statements for details).

warrant inducement expense was determined using the Black-Scholes option pricing model and was calculated as the difference between

the fair value of the 2021 Purchase Warrant prior to, and immediately after, the reduction in the exercise price on the date of repricing

in addition to the fair value of the 2022 Inducement Warrant issued.

connection with the Securities Purchase Agreement (“Purchase Agreement”), dated as of October 30, 2023, entered into with

an institutional investor, the Company entered into the Amendment to Common Stock Purchase Warrants, dated as of October 30, 2023 to

amend the common stock purchase warrant dated May 16, 2022 and the common stock purchase warrant dated July 26, 2022 (“Existing

Warrants”) to (i) revise the exercise price to $3.55 and (ii) extend the date until which the warrants can be exercised until November

As a result of the amendment to the existing warrants, the Company recognized inducement expense which was determined using

the Black-Scholes option pricing model before and after the warrant amendment.

of Warrant Fair Value Over Offering Proceeds

November 2, 2023, the Company issued common shares and warrants for common shares for net proceeds of $4.1 million (see Note 18 Stockholders’

Equity within our consolidated financial statements for details).

The excess of the fair value of the warrants at the issuance date

over the proceeds received was recognized as a loss on the statement of operations.

November 2, 2023, the Company issued common shares and warrants for common shares for net proceeds of $4.1 million.

The excess of the

fair value of the warrants at the issuance date over the proceeds received was recognized as a loss on the statement of operations.

in Fair Value of Investment, Related Party

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exchange rates is included in gains and losses in the consolidated statement of operations.

the Release, the Company agreed to transfer 5,451,016 shares of Biofrontera AG to Maruho in exchange for the release of our

obligations relating to the Cutanea acquisition.

Gain on Legal Settlement

Under a Confidential Settlement Agreement and Mutual Release (the “Release”) dated as of December 27,

2023, entered into with Maruho, the Company was released from its obligations to 1) repay $7.3 million in start-up cost financing to Maruho

for Cutanea’s redesigned business activities (“start-up cost financing”), and 2) make certain profit-sharing payments

pursuant to the Share Purchase and Transfer Agreement dated March 25, 2019 entered into with Maruho (as amended, the “Share Purchase

Agreement” or “SPA”).

the Release, the Company agreed to transfer 5,451,016 shares of Biofrontera AG to Maruho in exchange for the release of our obligations

relating to the Cutanea acquisition.

on Legal Settlement

the Release, the Company was released from its obligations to (i) repay $7.3 million in start-up cost financing to Maruho for Cutanea’s

redesigned business activities (“start-up cost financing”), and (ii) make certain profit-sharing payments pursuant to the Share

Purchase and Transfer Agreement, dated March 25, 2019, entered into with Maruho (as amended, the “Share Purchase Agreement”

In exchange, the Company agreed to transfer 5,451,016 shares of Biofrontera AG to Maruho.

exchange of the shares of Biofrontera AG for the release of the obligations mentioned above, resulted in a gain.

expense, net, primarily consists of amortization of the contract asset related to the start-up cost financing from Maruho under the

Share Purchase Agreement, as well as interest on our debt instruments, offset by interest income of 6% per annum for each day that

any reimbursement is past due related to the Amended Settlement Allocation Agreement with Biofrontera AG, and immaterial amounts of

interest income earned on our financing of customer purchases of BF-RhodoLED ® lamps.

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

transactions.

The exchange of the

shares of Biofrontera AG for the release of the obligations mentioned above, resulted in a gain.

on Debt Extinguishment

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

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

Effective as of January 4, 2024,

we voluntarily terminated the Loan Agreement and recognized a $0.3 million loss on debt extinguishment upon the early termination related

to prepayment fees and the write-off of deferred financing costs.

Income (Expense), net

expense, net, primarily consists of interest on our convertible notes, and short-term debt including amortization of deferred costs.

Income (Expense), net

income, net primarily includes (i) gain on return of leased assets, and (ii) gain (loss) on foreign currency transactions.

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

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following table summarizes our results of operations for the years ended December 31, 2024 and December 31, 2023:

For the Year Ended December 31,

( in thousands)

Product revenues, net

Related party revenues

Revenues, related party

Revenues, net

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Change in fair value of investment, related party

Loss on debt extinguishment

Gain on legal settlement

Interest expense, net

Other income, net

Other income (expense), net

Loss before income taxes

Income tax expenses

Revenues, net

product revenue for 2024 increased $3.3 million, or 9.7% compared to 2023.

The increase was primarily driven by the expansion of our

salesforce in 2023, which resulted in a higher volume of Ameluz ® orders and, therefore, an increase in Ameluz ®

revenue of $5.2 million.

The remaining increase was attributed to an increase in the price of Ameluz ® .

The increase was primarily driven by organic growth of Ameluz ®

sales volume of $0.5 million, a $1.7 million increase due to an increased Ameluz ® unit price, and the launch of

our RhodoLED ® XL Lamp, which resulted in sales of RhodoLED ® XL Lamps of $1.1 million.

of Revenues, Related Party

of revenues, related party increased $2.2 million, or 14.9% compared to 2022.

The increase was primarily driven by the increase in

Ameluz ® product revenue.

For the revenues in 2023 exceeding $30 million, the related cost of revenues decreased from

50% to 40% of net selling price tier pursuant to the Ameluz LSA, which offset the increase of cost due to the increase of sales

of revenues, related party increased $1.1 million, or 6.3% compared to 2023, driven by the increase in revenue.

Cost of revenues, increased

at a slower pace as compared to the sales increase of 9.7% due to cost savings under the Second A&R Ameluz LSA and volume discounts

under the original license and supply agreement with the Ameluz Licensors.

General and Administrative Expenses

general and administrative expenses for 2023 increased $3.8 million, or 10.9% compared to 2022.

This increase was primarily driven

by an increase in personnel-related expenses of $2.4 million, reflecting a realignment of our workforce strategy to reduce general

and administrative costs and deploy some of these costs to revenue generating related functions.

The increase was further driven by

sales-related travel of $0.3 million, auto lease expense of $0.2 million, clinical grant expenses of $0.5 million, franchise fee and

sales tax of $0.2 million and external legal

expenses related to a legal settlement of $1.2 million and other legal costs of $0.8 million related to a variety of non-routine

matters including legal claims as disclosed in Note 23.

and Contingencies – Legal Proceedings .

These increases are partially offset by a decrease in issuance costs of $0.6 million related to liability classified equity financings, a decrease of $0.5 million in business insurance, and a decrease in stock compensation

of $0.8 million in 2023 due to a decline in the Company’s award of executive’s restricted stock units.

on Legal Settlement

Under the Release, the Company was released from its obligations to repay $7.3 million in start-up cost financing

to Maruho for Cutanea’s redesigned business activities and released from having to make certain profit-sharing payments pursuant

In exchange, the Company agreed to transfer 5,451,016 shares of Biofrontera AG to Maruho.

exchange pursuant to the Release resulted in a gain of $7.4 million, recorded in December 2023.

in Fair Value of Contingent Consideration

change in fair value of contingent consideration was an increase of $0.1 million and a decrease of $3.8 million for 2023 and 2022,

respectively.

The change in contingent consideration was driven by the estimated profit share the Company is required to pay under

the Share Purchase Agreement.

There weren’t any material changes in 2023.

However, during 2022, the estimated profit share was

reduced by approximately $3.8 million after receiving

notification of third-party manufacturing delays that impacted the timing of sales expansion and improved market positioning of the

Xepi ® product.

general and administrative expenses for 2024 decreased $5.2 million, or 13.3% compared to 2023.

This decrease was primarily driven

by a $3.0 million decrease in general and administrative expenses, primarily attributable to a decrease in external legal expenses

and expenses relating to financing activities.

The decrease was further driven by a decrease in general sales and marketing expenses

of $1.8 million, primarily attributable to more targeted trade shows and conference spending and close management of promotional

spend, including a $0.8 million reduction in direct sales personnel expenses due to reduction

in sales force and a $0.3 million reduction in direct sales travel and lodging.

and Development Expense

expenses for the year ended December 31, 2024 increased $2.0 million as compared to the year ended December 31, 2023.

was attributed to our assumption of all clinical trial activities for Ameluz ® in the United States effective June 1,

2024, allowing for more effective cost management and direct oversight of trial efficiency.

This increase in R&D expense was and

will continue to be offset in 2024 and 2025 by a reduction in the Transfer Price of Ameluz ® from 50% to 25% for

inventory purchases.

As of December 31, 2024, we generated savings of approximately $0.8 million from

inventory purchased in 2024 due to the reduced Transfer Price.

following table summarizes the major categories of our R&D expenses for the years ended December

31, 2024 and 2023:

Actinic keratosis

Moderate to severe acne

Superficial basal cell carcinoma

Portable devices

Personnel-related costs

Other research and development

in Fair Value of Warrant Liabilities

change in fair value of warrant liabilities was a decrease of $12.6 million from 2022, driven primarily by changes in the underlying

value of the Company’s common stock.

Inducement Expense

warrant inducement expense was $1.0 million and $2.6 million for the years ended December 31, 2023 and 2022, respectively.

inducement expense was driven by a lower exercise price and extended term to exercise for the 2022 Purchase Warrant and 2022

Inducement Warrant, pursuant to the Amendment to Common Stock Purchase Warrants entered into on October 30, 2023.

The 2022 inducement expense was driven by changes in fair value due to the repricing of the 2021 Purchase Warrant,

pursuant to the Inducement Letter.

of Warrant Fair Value Over Offering Proceeds

excess of the fair value of the November 2023 warrants at the issuance date over the proceeds received was recognized as a loss on the

statement of operations.

change in fair value of warrant liabilities was driven primarily by a greater decrease in the underlying value of the Company’s

common stock during 2023 as compared to 2024.

in Fair Value of Investment, Related Party

change in fair value of investment, related party was a decrease of $7.4million and an increase of $1.7 million for the years ended

December31, 2023 and 2022, driven by changes in the quoted market price of the common stock of Biofrontera AG and losses on securities we sold during the period.

of December 31, 2023, the Company had transferred substantially all of its investment in Biofrontera AG to Maruho in exchange for

the release of certain obligations, in accordance with the Release.

As a result, for the year ended December 31, 2024, the net

balance of our investment in Biofrontera AG and the related change in fair value was minimal.

on Legal Settlement

the Release, the Company was released from its obligations to repay $7.3 million in start-up cost financing to Maruho for Cutanea’s

redesigned business activities and released from having to make certain profit-sharing payments pursuant to the SPA.

In exchange, the

Company agreed to transfer 5,451,016 shares of Biofrontera AG to Maruho.

The exchange pursuant to the Release resulted in a gain of $7.4

million, recorded in December 2023.

There were no legal settlements that occurred in 2024.

increase of interest expense of $1.6 million was driven by the interest and debt discount recognized on the loans issued

on December 21, 2023, for an aggregate principal balance of $4.0 million.

The loans required the Company to make weekly payments of principal

and interest in the amount of approximately $0.2 million through July 5, 2024, the maturity date.

Income to Adjusted EBITDA Reconciliation for years ended December 31, 2024 and 2023

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As such, our future results of operations will not be impacted by the change in fair value.

on legal settlement :

Under the Release, we were relieved of our obligations relating to the start-up cost financing and profit

sharing under the Share Purchase Agreement in exchange for 5,451,016 shares of Biofrontera AG.

The exchange of the shares of Biofrontera AG for the release of the liabilities mentioned above, both of which were recorded at their

respective fair values at the exchange date, resulted in a gain.

We exclude the impact of the gain on legal

settlement as this is non-cash and non-recurring.

in fair value of warrant liabilities:

The Warrants issued in conjunction with our private placement offerings and registered

public offering were accounted for as liabilities in accordance with ASC 815-40.

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.

exclude the impact of the change in fair value of warrant liabilities as this is non-cash.

The Warrants issued in conjunction with our private placement offerings and registered public

offering were accounted for as liabilities in accordance with Accounting Standards Codification

(“ASC”) 815-40.

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.

We exclude the impact

of the change in fair value of warrant liabilities as this is non-cash.

inducement expense:

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We exclude the impact of the realized and unrealized change in fair value of investments as this is non-cash.

on legal settlement :

Under the Release, we were relieved of our obligations relating to the start-up cost financing and profit sharing

under the Share Purchase Agreement in exchange for 5,451,016 shares of Biofrontera AG.

The exchange of the shares of Biofrontera AG for

the release of the liabilities mentioned above, both of which were recorded at their respective fair values at the exchange date, resulted

We exclude the impact of the gain on legal settlement as this is non-cash and non-recurring.

on debt extinguishment :

Effective as of January 4, 2024, we voluntarily terminated the Loan Agreement and recognized a $0.3 million

loss on debt extinguishment upon the early termination of the loan.

We exclude the impact of this loss as it is attributed to the prepayment

fee, which is considered non-recurring and the write-off of deferred financing costs, which is considered non-cash.

settlement expenses :

To measure operating performance, we exclude legal settlement expenses.

We do not expect to incur

these types of legal expenses on a recurring basis and believe the exclusion of such amounts allows management and the users of the financial

statements to better understand our financial results.

We do not expect to incur these types

of legal expenses on a recurring basis and believe the exclusion of such amounts allows management and the users of the financial statements

to better understand our financial results.

Based Compensation :

To measure operating performance, we exclude the impact of costs relating to share-based compensation.

the subjective assumptions and a variety of award types, we believe that the exclusion of share-based compensation expense, which is non-cash, allows for more meaningful comparisons of our operating results to peer companies.

Share-based compensation expense

can vary significantly based on the timing, size and nature of awards granted.

the subjective assumptions and a variety of award types, we believe that the exclusion of share-based compensation expense, which is

non-cash, allows for more meaningful comparisons of our operating results to peer companies.

Share-based compensation expense can vary

significantly based on the timing, size and nature of awards granted.

issuance costs:

3 unchanged sentences

EBITDA margin is adjusted EBITDA for a particular period expressed as a percentage of revenues for that period.

use adjusted EBITDA to measure our performance from period to period and to compare our results to those of our competitors.

to adjusted EBITDA being a significant measure of performance for management purposes, we also believe that this presentation provides

useful information to investors regarding financial and business trends related to our results of operations and that when non-GAAP financial

information is viewed with GAAP financial information, investors are provided with a more meaningful understanding of our ongoing operating

management uses adjusted EBITDA to measure our performance from period to period and to compare our results to those of our

We believe that adjusted EBITDA provides useful information to investors regarding financial and business trends

related to our results of operations and that, when non-GAAP financial information is viewed with GAAP financial information,

investors are provided with a more meaningful understanding of our ongoing operating performance.

below table presents a reconciliation from net loss to Adjusted EBITDA for the years ended December 31, 2024 and 2023:

3 unchanged sentences

Depreciation and amortization

Gain on legal settlement

Change in fair value of contingent consideration

3 unchanged sentences

Change in fair value of investment, related party

Gain on legal settlement

Loss on debt extinguishment

Legal settlement expenses

3 unchanged sentences

Adjusted EBITDA margin

EBITDA decreased from ($18.1) million for the year ended December 31, 2022 to ($19.5) million for the year ended December 31, 2023.

The decrease was primarily driven by an increase in selling, general, and administrative expenses (excluding legal settlement

expenses) (“SG&A expenses”) due to increased headcount.

Our Adjusted EBITDA margin increased from (63.0%) for the

year ended December 31, 2022 to (57.1%) for the year ended December 31, 2023, as the increase in revenue outpaced the decline in our

Adjusted EBITDA.

EBITDA increased from ($19.5) million for the year ended December 31, 2023 to ($15.3) million for the year ended December 31, 2024.

The increase was primarily driven by an increase in gross profit due to the increase in sales and a reduction in purchase price for

sales of inventory purchased under the Second A&R Ameluz LSA, and a decrease in selling, general and administrative

expenses due to a reduction in financing related activities and legal expenses.

These decreases were partially offset

by an increase in R&D expenses.

Our Adjusted EBITDA margin increased from (57.1%) for the year ended December 31, 2023 to

(40.9%) for the year ended December 31, 2024, as the impact of the decrease in cost of revenue and the decrease in selling,

general and administrative expenses outweighed the impact of the increase in revenue.

and Capital Resources

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

million and $16.2 million for the years ended December 31, 2023 and 2022, respectively.

The Company had an accumulated deficit as of

December 31, 2023 of $99.7 million.

The Company’s primary sources of liquidity are its cash collected from the sales of its

products, and cash flows from financing transactions.

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

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

Stockholders’ Equity ).

December 31, 2023, we had cash and cash equivalents of $1.3 million, compared to $17.2 million as of December 31, 2022.

conditions raise substantial doubt about our ability to continue as a going concern for at least twelve months from the issuance

date of this report, which management believes has been alleviated through its plans to mitigate these conditions and obtain

additional liquidity.

Pursuant to the requirements of the Financial Accounting

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

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

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

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

This evaluation does not take into consideration the potential

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

date the financial statements are issued.

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

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

The mitigating

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

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

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

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

In an effort to alleviate these conditions, management

plans include execution on the 2024 budget approved by the Board, which includes significant discretionary sales and marketing, medical

affairs, and dermatology community outreach efforts as we seek to expand the commercialization of Ameluz® in the United States, however,

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

We have reduced spending at both the commercial and general

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

We also expect

to incur additional expenses in support of our product commercialization efforts.

In addition, we expect to continue to incur significant

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

Also, on February 20, 2024, the Company entered into

the 2024 LSA with Biofrontera AG which will significantly reduce our cost of inventory in the future.

The Company will begin to see gross

margins of its primary product, Ameluz®, of approximately 75% as opposed to the prior 50% beginning with inventory purchases after

the execution date.

This will reduce our cash needs for inventory which will be partially offset by R&D costs, resulting in expected

net savings of $0.7 million by March 2025 and continuing in subsequent years.

In addition, on February 19, 2024, the Company

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

million, which were received on February 22, 2024.

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

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

If these warrants are exercised in full, we will receive

additional net proceeds of $7.2 million.

To encourage the investors to exercise the warrants, they will expire within 21 days upon

the satisfaction of certain conditions (but if such conditions are not met, they will expire three years after issuance).

though we anticipate that we will satisfy the conditions to trigger the expiration of the warrants and receive additional financing

as a result of the exercise of the warrants, there can be no assurance that such conditions will be met or that the investors will choose to exercise the warrants prior to expiration.

Subsequent Events- Securities Purchase

Agreement for Series B Convertible Preferred .

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

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

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

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

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

our selling, general and administrative costs , and the

investors electing to exercise their warrants within the anticipated timeframe, among other possible challenges and unforeseen

circumstances.

A lack of execution or unforeseen circumstances may require the Company to raise additional capital or debt which may

not be available on acceptable terms, or at all which could result in a material adverse effect on the Company and its financial

The accompanying financial statements have been prepared

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

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

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

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

satisfaction of liabilities in the ordinary course of business.

Since we commenced operations in 2015, we have generated significant

The Company incurred net cash outflows from operations of $10.3 million and $24.9 million for the years ended December

31, 2024 and 2023, respectively.

As of December 31, 2024, the Company’s accumulated deficit was $117.4 million.

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

transactions.

As of December 31, 2024, we had cash and cash equivalents of $5.9 million.

The Company cannot provide assurance that

it will ultimately achieve profitable operations and become operating cash flow positive or raise additional debt or equity capital.

Additionally, the current capital resources are not adequate to continue operating and maintaining the business strategy for a

period of twelve months from the issuance date of this report.

Management believes that these conditions raise substantial doubt

about the Company’s ability to continue as a going concern for at least twelve months from the date of this Annual Report on

plans that are intended to mitigate the conditions that raise substantial doubt about the Company’s ability to continue as

a going concern include expanding the commercialization of Ameluz ® in the United States while

controlling expenses and limiting capital expenditures, as well as capitalizing on the reduced cost of inventory in line with the

terms of the Second A&R Ameluz LSA.

The Company also plans to secure additional capital through equity or debt financings, or

the sale of assets to carry out the Company’s planned commercial and development activities.

However, there can be no

assurance that the Company will be successful in executing the aforementioned commercial strategies and/or obtaining sufficient

funding on acceptable terms, if at all, and that the substantial doubt will be alleviated.

If the Company is unable to raise capital

when needed, the Company will not have sufficient cash resources and liquidity to fund its business

operations and the Company may

be forced to delay or reduce continued commercialization efforts or R&D programs which could have a material adverse effect on the Company and its financial statements.

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

amounts and classification of liabilities that might result from the outcome of the uncertainties described above, that might be necessary

should the Company be unable to continue as a going concern.

following table summarizes our cash provided by (and used in) operating, investing and financing activities:

5 unchanged sentences

Net increase (decrease) in cash and restricted cash

the year ended December 31, 2023, operating activities used $24.9 million of cash, primarily resulting from our net loss of $20.1

million, adjusted for the add back of non-cash income of $0.4 million and offset by net cash used by changes in our operating

assets and liabilities of $4.4 million.

Non-cash income includes a gain on legal settlement of $7.4 million and a change in fair

value of warrant liabilities of $6.5 million offset by a change in fair value of equity securities of $7.4 million, loss on warrant

fair value over offering proceeds of $2.3 million, warrant inducement expense of $1.1 million, stock-based compensation of $1.1

million, non-cash interest expense of $0.4 million, change in fair value of contingent consideration of $0.1 million, provision for

doubtful accounts of $0.1 million and depreciation and amortization in the aggregate of $1.1 million.

the year ended December 31, 2024, operating activities used $10.3 million of cash, primarily resulting from our net loss of $17.8 million,

adjusted for the add back of non-cash income of $18.3 million and offset by net cash provided by changes in our operating assets and

liabilities of $2.7 million.

Non-cash items include stock-based compensation of $1.9 million, non-cash interest expense of $0.4 million,

and depreciation and amortization in the aggregate of $1.2 million, netted against a change in fair value of investment of warrant liabilities

of $19.0 million, change in fair value of contingent consideration of $3.8 million, and change in fair value of equity securities of

$1.7 million.

adjusted for the add back of non-cash income of $1.3 million and offset by net cash used by changes in our operating assets and liabilities

of $6.2 million.

Non-cash income includes a change in fair value of warrant liabilities of $1.7 million offset by stock-based compensation

of $1.0 million, non-cash interest expense of $0.3 million, loss on debt extinguishment of $0.3 million, provision for doubtful accounts

of $0.2 million and depreciation and amortization in the aggregate of $1.1 million.

the year ended December 31, 2023, operating activities used $24.9 million of cash, primarily resulting from our net loss of $20.1 million,

adjusted for the add back of non-cash income of $0.4 million and offset by net cash used by changes in our operating assets and liabilities

of $4.4 million.

Non-cash income includes a gain on legal settlement of $7.4 million and a change in fair value of warrant liabilities

of $6.5 million offset by a change in fair value of equity securities of $7.4 million, loss on warrant fair value over offering proceeds

of $2.3 million, warrant inducement expense of $1.1 million, stock-based compensation of $1.1 million, non-cash interest expense of $0.4

million, change in fair value of contingent consideration of $0.1 million, provision for doubtful accounts of $0.1 million and depreciation

and amortization in the aggregate of $1.1 million.

the year ended December 31, 2024, the Company had minimal investing activities which consisted of proceeds from the sales of equity investments

which were partially offset by capitalized software and computer purchases.

the year ended December 31, 2023, investing activities provided $0.6 million, primarily resulting from the sale of shares of Biofrontera

the year ended December 31, 2022, investing activities used $5.2 million, primarily resulting from the purchase of shares of Biofrontera

AG (See Note 4.

Fair Value Measurements and Note 6.

Investment, related party within our consolidated financial statements )

the year ended December 31, 2023, net cash provided by financing activities was $8.4 million which consisted of net proceeds

received from our loan and line of credit of $3.9 million and net proceeds of $4.5 million from the issuance of common stock and

warrants in a public offering.

the year ended December 31, 2022, net cash provided by financing activities was $14.0 million which consisted of proceeds of $9.4

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

exercise of common stock warrants.

the year ended December 31, 2024, net cash provided by financing activities was $14.8 million which consisted of proceeds of $7.7 million,

net of capitalized issuance costs, from the issuance of preferred stock and warrants, $7.4 million from the exercise of warrants for

preferred stock, plus $4 million, net of issuance costs received from the issuance of convertible notes, offset by repayments of $4.2

million on our short-term debt, and prepayment fees of $0.2 million to extinguish our line of credit.

Debt, for additional information.

the year ended December 31, 2023, net cash provided by financing activities was $8.4 million which consisted of net proceeds received

from our loan and line of credit of $3.9 million and net proceeds of $4.5 million from the issuance of common stock and warrants in a

public offering.

Policies and Significant Judgments and Estimates

13 unchanged sentences

Accounting Estimates

believe that the following are the most critical estimates which required significant judgments in the

preparation of our financial statements.

Consideration

record contingent consideration resulting from a business combination at its fair value on the acquisition date.

Each reporting period

thereafter and until settlement, we revalue the remaining obligations and record increases or decreases in their fair value as an adjustment

to operating expense in our statements of operations.

We considered a number of factors, including information provided by an outside

valuation advisor in performing the valuation.

Contingent consideration is reported at the estimated fair values based on the probability-adjusted

present value of the consideration expected to be paid, using significant inputs and estimates.

Changes in the fair value of our contingent

consideration obligations can result from changes to one or multiple inputs, including forecasted product profit amounts, metric risk

premium and discount rates consistent with the level of risk of achievement as further discussed in Note 4, Fair Value Measurements

to the audited financial statements as of and for the years ended December 31, 2023 and 2022 as included in this Form 10-K.

fair value measurements represent Level 3 measurements as they are based on significant inputs not observable in the market.

judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period.

Accordingly, changes in assumptions described above, could have a material impact on the amount of contingent consideration expense we

record in any given period.

Assets and Impairment Assessment

Company regularly reviews the carrying amount of its long-lived assets to determine whether indicators of impairment may exist,

which warrant adjustments to carrying values or estimated useful lives.

In connection with this review, assets are grouped at the

lowest level at which identifiable cash flows are largely independent of other asset groupings.

If indications of impairment exist,

projected future undiscounted cash flows associated with the asset grouping are compared to the carrying amount to determine whether

the asset’s value is recoverable.

An impairment loss would be recognized when estimated undiscounted future cash flows

expected to result from the use of an asset group are less than its carrying amount and if the carrying value is also determined to be greater than its fair value.

The impairment loss would be based on the

excess of the carrying value of the impaired asset group over its fair value, determined based on discounted cash flows.

determining future cash flows, we take various factors into account, including the remaining useful life of each asset group, forecasted

growth rates, pricing, working capital, capital expenditures, and other cash needs specific to the asset group.

Additional considerations

when assessing impairment include changes in our strategic operational and financial decisions, economic conditions, demand for our product

and other corporate initiatives which may eliminate or significantly decrease the realization of future benefits from our long-lived

Since the determination of future cash flows is an estimate of future performance, future impairments may arise in the event

that future cash flows do not meet expectations.

perform an impairment assessment in accordance with FASB ASC Topic 360-10-S99, Impairment or Disposal of Long-Lived Assets .

Management’s review for the presence of indicators of impairment include events or changes in circumstances that indicate the

carrying amount of an asset may not be recoverable.

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

manufacturing delays that impacted the timing of sales expansion and improved market positioning of the Xepi ®

product, and again in December 2023, when we implemented a marketing hold in response to continued manufacturing delays experienced

by our Licensor and also entered the Release, relieving us of obligations that had previously reduced the carrying value of the

asset group, we deemed it necessary to assess the recoverability of our Xepi ® asset group.

As of the date of

notification in 2022 and the Release in 2023, future undiscounted cash flows were estimated over the expected remaining useful life

using revenue and operating expense growth rates.

The expected cash flows were based on the assumption that sales levels would grow

considerably after resolution of the manufacturing delays as a result of expanding the sales force and marketing efforts related to

relaunching the asset group.

Further, in 2023, due to the uncertainty relating to the timing of resolution of the previously

identified supply chain issues, the Company used a probability-weighted approach to estimate the future cash flows under several

While we believe these assumptions were reasonable, the level of future sales may vary significantly from the levels

Also, the timeframe over which activity levels grow is highly uncertain.

Potential events that could affect our assumptions

are affected by factors such as those described in “ Risks Related to Our Business and Strategy ”.

assessment we performed in 2023, we determined that, on an undiscounted basis, expected cash flows did not exceed the carrying

amount of the asset group, which had increased significantly as a result of the relief of obligations under the Release agreement.

As such, we determined that the carrying value was not recoverable as of December 29, 2023 and proceeded to determine whether the

carrying value exceeded the asset group’s fair value, indicating an impairment loss.

The valuation of the asset group required

that management use valuation techniques such as the income approach.

The income approach includes the use of a discounted cash flow

model, which includes discounted cash flow scenarios and requires significant estimates such as future expected revenue,

expenses and other costs, and discount rates.

The fair value calculated was in excess of the carrying value, indicating that

no impairment loss had been incurred.

For additional information on our impairment assessment, refer Note 12 , “Intangible

Assets, Net ”, to our financial statements included in this Form 10-K.

Value – Warrant Liability

Warrants issued in conjunction with our private placement offerings including warrants issued to induce conversion were accounted

for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities in the accompanying consolidated

balance sheet.

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

presented within the consolidated statement of operations.

Company utilizes a Black-Scholes option pricing model to estimate the fair value of the Warrants which is considered a Level 3 fair

value measurement.

The Black-Scholes option-pricing model considers several variables and assumptions in estimating the fair value

of financial instruments, including the per-share fair value of the underlying common stock, exercise price, expected term,

risk-free interest rate, expected stock price volatility over the expected term, and expected annual dividend yield.

Certain inputs

utilized in our Black-Scholes pricing model may fluctuate in future periods based upon factors which are outside of the

Company’s control.

Due to the relatively limited period during which our stock has been publicly traded, volatility is

based on a weighted average of our historical volatility and of a selected peer group of publicly traded companies within a similar

A significant change in one or more of these inputs used in the calculation of the fair value may cause a significant

change to the fair value of our warrant liability which could also result in material non-cash gain or loss being reported in our

consolidated statement of operations.

Contingencies and Litigation

In the ordinary course of our business, we are subject to various legal proceedings, claims and other regulatory

matters, the outcomes of which are subject to significant uncertainty.

In determining whether a loss should be accrued, we evaluate, among

other factors, the probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss.

As additional

information becomes available, we reassess the potential liability related to our pending litigation and other contingencies and revise

our estimates as applicable.

Revisions of our estimates of the potential liability could materially impact our results of operations.

Additionally, if the final outcome of such litigation and contingencies differs adversely from that currently expected, it would result

in a charge to operating results when determined.

Going Concern Estimates

We assume that the Company will continue as a

going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal

course of business.

This estimate requires us to consider various factors such as historical performance, expected performance, liquidity, debt

obligations, and potential sources of additional funding.

A different outcome in any of these assumptions could adversely affect our

financial condition and liquidity over the next twelve months.

believe that the following are the most critical estimates which required significant judgments in the preparation of our financial statements.

Value – Warrant Liabilities

warrants issued in conjunction with our private placement offerings, including warrants for common stock, preferred stock and

warrants issued to induce conversion, were accounted for as liabilities in accordance with ASC 815-40 and are presented within

warrant liabilities in the accompanying consolidated balance sheet.

The warrant liabilities are measured at fair value at inception

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

Company utilizes a Black-Scholes-Merton (“BSM”) option pricing model to estimate the fair value of the warrants for

common stock which is considered a Level 3 fair value measurement.

Due to the uncertainty of the how the convertible preferred

warrants would ultimately settle, the Company used a probability-weighted approach along with a BSM model equation to estimate the

fair value of the preferred warrants under different scenarios.

While we believe these assumptions were reasonable, the manner or

timeframe in which the warrants ultimately settle may differ.

The BSM option-pricing model considers several variables and

assumptions in estimating the fair value of financial instruments, including the per-share fair value of the underlying common

stock, exercise price, expected term, risk-free interest rate, expected stock price volatility over the expected term, and expected

annual dividend yield.

Certain inputs utilized in our BSM pricing model may fluctuate in future periods based upon factors which are

outside of the Company’s control.

Most significantly, due to the relatively limited period during which our stock has been

publicly traded, volatility is based on a weighted average of our historical volatility and of a selected peer group of publicly

traded companies within a similar industry.

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

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

loss being reported in our consolidated statement of operations.

Contingencies

and Litigation

the ordinary course of our business, we are subject to various legal proceedings, claims and other regulatory matters, the outcomes

of which are subject to significant uncertainty.

At least quarterly, we review the status of each significant matter and assess its

potential financial exposure considering all available information including, but not limited to, the impact of negotiations,

settlements, rulings, advice of internal and external legal counsel and other updated information and events pertaining to a

particular matter.

If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably

estimated, we accrue a liability for the estimated loss.

Significant judgment is required in assessing the likelihood of a loss

being incurred and in estimating the loss or range of loss in each matter.

Due to the uncertainty of litigation and the preliminary

stage of the claims, we cannot estimate the possibility of a material loss, nor the potential range of loss that may result from

the actions discussed in Note 19.

Commitments and Contingencies – Legal Claims .

As additional information becomes available, we reassess the potential liability related to our pending litigation and

other contingencies and revise our estimates as applicable.

Revisions of our estimates of the potential liability could materially

impact our results of operations.

Additionally, if the final outcome of such litigation and contingencies differs adversely from

that currently expected, it would result in a charge to operating results when determined.

Commitments and

Contingencies – Legal Claims for more details .

Impairment Assessment-Intangible Assets and Asset Held for Sale

In the third quarter of 2024, the Xepi intangible asset was classified

as held for sale.

Subsequent to the major asset being classified as held for sale, impairment assessment is no longer considered a critical

estimate, and the Company does not consider the accounting under ASC 360-10-35-37 to 43 for assets held for sale to be a critical accounting

estimate because of the simplistic nature of the basis of the fair value measurement.

Assets Held for Sale.

to the classification as held for sale, the Company regularly reviewed the carrying amount of its long-lived assets to determine

whether indicators of impairment may have existed that warranted adjustments to carrying values or estimated useful lives.

In connection

with this review, assets were grouped at the lowest level at which identifiable cash flows were largely independent of other asset

If indications of impairment existed, projected future undiscounted cash flows associated with the asset grouping were

compared to the carrying amount to determine whether the asset’s value was recoverable.

An impairment loss would be recognized

when estimated undiscounted future cash flows expected to result from the use of an asset group were less than its carrying amount

and if the carrying value was also determined to be greater than its fair value.

The impairment loss would be based on the excess of

the carrying value of the impaired asset group over its fair value, determined based on discounted cash flows.

determining future cash flows, various factors were taken into account, including the remaining useful life of each asset group,

forecasted growth rates, pricing, working capital, capital expenditures, and other cash needs specific to the asset group.

Additional considerations when assessing impairment included changes in our strategic, operational, and financial decisions,

economic conditions, demand for our product, and other corporate initiatives that may have eliminated or significantly decreased the

realization of future benefits from our long-lived assets.

Since the determination of future cash flows is an estimate of future

performance, future impairments may arise in the event that future cash flows do not meet expectations.

issued accounting pronouncements

description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations

is disclosed in Note 2, Summary of Significant Accounting Policies—Recently Issued Accounting Pronouncements .

is included in Note 2, Summary of Significant Accounting Policies—Recently Issued Accounting Pronouncements .

Sheet Arrangements

the contractual obligations and commitments as discussed in the Liquidity and Capital Resources , we did not have during the periods

presented, and we do not currently have, any other off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

the contractual obligations and commitments discussed in the section entitled “Liquidity and Capital Resources” above, we did not have

during the periods presented, and we do not currently have, any other off-balance sheet arrangements, as defined in the rules and regulations

Growth Company Status

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What changed 10-K

Item 7. Management’s Discussion and Analysis