Biofrontera Inc. 10-K

Item 8. Financial Statements and Supplementary Data INDEX TO FINANCIAL STATEMENTS Page Audited Financial Statements as of and for the Years Ended December 31, 2024 and 2023 Report of Independent Registered Public Accounting Firm (PCAOB ID No. 688 ) F-2 Consolidated Balance Sheets as of December 31, 2024 and 2023 F-3 Consolidated Statements of Operations for the years ended December 31, 2024 and 2023 F-4 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2024 and 2023 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2024 and 2023 F-6 Notes to the Consolidated Financial Statements F-7 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of Biofrontera Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Biofrontera Inc. (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, based on our audits, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. Explanatory Paragraph – Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1, the Company has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit s to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Marcum llp Marcum LLP We have served as the Company’s auditor since 2023. Morristown, New Jersey March 20, 2025 F- 2 Audited Consolidated Financial Statements as of and for the Years Ended December 31, 2024 and 2023 BIOFRONTERA INC. CONSOLIDATED BALANCE SHEETS ( In thousands, except par value and share amounts ) 2024 2023 December 31, 2024 2023 ASSETS Current assets: Cash and cash equivalents $ 5,905 $ 1,343 Investment, related party 7 78 Accounts receivable, net 5,315 5,162 Inventories, net 6,646 10,908 Prepaid expenses and other current assets 527 425 Asset held for sale 2,300 - Other assets, related party - 5,159 Total current assets 20,700 23,075 Property and equipment, net 80 134 Operating lease right-of-use assets 903 1,612 Intangible assets, net 35 2,629 Other assets 383 482 Total assets $ 22,101 $ 27,932 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable 1,856 3,308 Accounts payable, related parties, net 5,344 5,698 Operating lease liabilities 548 691 Accrued expenses and other current liabilities 4,273 4,487 Short term debt - 3,904 Total current liabilities 12,021 18,088 Long-term liabilities: Convertible notes payable 4,098 - Warrant liabilities 1,250 4,210 Operating lease liabilities, non-current 276 804 Other liabilities 23 37 Total liabilities 17,668 23,139 Commitments and contingencies (see Note 19) - - Stockholders’ equity: Preferred Stock, $ 0.001 par value, 20,000,000 shares authorized, no Series B-1, 3,366 Series B-2 and 6,763 Series B-3 shares issued and outstanding as of December 31, 2024 and no shares issued and outstanding as of December 31, 2023 - - Common Stock, $ 0.001 par value, 35,000,000 shares authorized; 8,873,932 and 1,517,628 shares issued and outstanding as of December 31, 2024 and 2023 9 2 Additional paid-in capital 121,833 104,441 Accumulated deficit ( 117,409 ) ( 99,650 ) Total stockholders’ equity 4,433 4,793 Total liabilities and stockholders’ equity $ 22,101 $ 27,932 The accompanying notes are an integral part of these consolidated financial statements. F- 3 Audited Consolidated Financial Statements as of and for the Years Ended December 31, 2024 and 2023 BIOFRONTERA INC. CONSOLIDATED STATEMENTS OF OPERATIONS ( In thousands, except per share amounts and number of shares ) 2024 2023 December 31, 2024 2023 Product revenues, net $ 37,303 $ 34,005 Revenues, related party 18 66 Total revenues, net 37,321 34,071 Operating expenses Cost of revenues, related party 17,855 16,789 Cost of revenues, other 752 655 Cost of revenues, other 752 655 Selling, general and administrative 33,793 38,975 Selling, general and administrative, related party 42 152 Selling, general and administrative 42 152 Research and development 2,089 77 Change in fair value of contingent consideration - 100 Total operating expenses 54,531 56,748 Loss from operations ( 17,210 ) ( 22,677 ) Other income (expense) Change in fair value of warrant liabilities 1,680 6,456 Warrant inducement expense - ( 1,045 ) Excess of warrant fair value over offering proceeds - ( 2,272 ) Change in fair value of investment, related party ( 14 ) ( 7,421 ) Gain on legal settlement - 7,385 Loss on debt extinguishment ( 316 ) - Interest expense, net ( 2,035 ) ( 468 ) Other income (expense), net 158 ( 75 ) Total other income (expense) ( 527 ) 2,560 Loss before income taxes ( 17,737 ) ( 20,117 ) Income tax expense 22 14 Net loss $ ( 17,759 ) $ ( 20,131 ) Loss per common share: Basic and diluted $ ( 3.22 ) $ ( 13.02 ) Weighted-average common shares outstanding: Basic and diluted 5,516,334 1,546,297 The accompanying notes are an integral part of these consolidated financial statements. F- 4 Audited Consolidated Financial Statements as of and for the Years Ended December 31, 2024 and 2023 BIOFRONTERA INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands, except number of shares) Shares Amount Shares Amount Capital Deficit Total Preferred Stock Common Stock Additional Paid-in Accumulated Shares Amount Shares Amount Capital Deficit Total Balance at December 31, 2022 - $ - 1,334,950 $ 1 $ 103,396 $ ( 79,519 ) $ 23,878 Issuance of shares for vested restricted stock units - - 8,588 - - - - Issuance of shares in reverse stock split (for fractional shares) - - 24,090 - - - - Issuance of common stock and warrants, under registered public offering - - 150,000 1 - - 1 Stock based compensation - - - - 1,045 1,045 Net loss - - - - - ( 20,131 ) ( 20,131 ) Balance at December 31, 2023 - $ - 1,517,628 $ 2 $ 104,441 $ ( 99,650 ) $ 4,793 Balance - $ - 1,517,628 $ 2 $ 104,441 $ ( 99,650 ) $ 4,793 Exercise of pre-funded warrants - - 1,055,000 1 ( 1 ) - - Conversion of Series B-1 Preferred (mezzanine) into Series B-2 Preferred and common stock 3,790 - 3,952,393 4 3,566 - 3,570 Issuance of Series B-3 Preferred upon exercise of warrants 7,998 - - - 12,810 - 12,810 Conversion of Series B-2 and B-3 Preferred into common stock ( 1,659 ) - 2,344,140 2 ( 2 ) - - Issuance of shares for restricted stock units - - 4,771 - - - - Stock based compensation - - - - 1,019 - 1,019 Net Loss - - - - - ( 17,759 ) ( 17,759 ) Balance, December 31, 2024 10,129 $ - 8,873,932 $ 9 $ 121,833 $ ( 117,409 ) $ 4,433 Balance 10,129 $ - 8,873,932 $ 9 $ 121,833 $ ( 117,409 ) $ 4,433 The accompanying notes are an integral part of these consolidated financial statements. F- 5 Audited Consolidated Financial Statements as of and for the Years Ended December 31, 2024 and 2023 BIOFRONTERA INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) 2024 2023 Years ended December 31, 2024 2023 Cash flows from operating activities: Net loss $ ( 17,759 ) $ ( 20,131 ) Adjustments to reconcile net loss to cash flows used in operations Gain on legal settlement - ( 7,385 ) Depreciation 92 86 Amortization of right-of-use assets 728 560 Amortization of acquired intangible assets 329 418 Realized/unrealized loss in investment, related party 14 7,421 Change in fair value of contingent consideration - 100 Change in fair value of warrant liabilities ( 1,680 ) ( 6,456 ) Warrant inducement expense - 1,045 Excess of warrant fair value over offering proceeds - 2,272 Stock-based compensation 1,019 1,045 Provision for inventory obsolescence - - Provision for doubtful accounts 162 122 Loss on debt extinguishment 316 - Non-cash interest expense 297 402 Changes in operating assets and liabilities: Accounts receivable ( 315 ) ( 1,536 ) Other receivables, related party 2 6,470 Prepaid expenses and other assets ( 141 ) 174 Other assets, related party 5,159 ( 5,159 ) Inventories 4,233 ( 3,750 ) Accounts payable ( 1,452 ) 2,029 Accounts payable, related parties, net ( 355 ) 4,386 Operating lease liabilities ( 689 ) ( 657 ) Accrued expenses and other liabilities ( 230 ) ( 6,351 ) Cash flows used in operating activities ( 10,270 ) ( 24,895 ) Cash flows from investing activities Sales of investment, related party 57 624 Purchase of intangible assets ( 50 ) - Purchases of property and equipment ( 10 ) ( 5 ) Cash flows provided by (used in) investing activities ( 3 ) 619 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 7,662 - Proceeds from issuance of Series B-3 preferred stock from exercise of warrants 7,438 - Proceeds from issuance of convertible notes, net of issuance costs 4,050 - Proceeds from line of credit - 21,448 Proceeds from issuance of common stock and warrants - 4,507 Proceeds from short term debt - 3,800 Payment of short-term debt ( 4,315 ) ( 21,344 ) Cash flows provided by financing activities 14,835 8,411 Net decrease in cash and cash equivalents 4,562 ( 15,865 ) Cash, cash equivalents and restricted cash, at the beginning of the year 1,543 17,408 Cash, cash equivalents and restricted cash, at the end of the year $ 6,105 $ 1,543 Supplemental disclosure of cash flow information Interest paid $ 1,728 $ 125 Interest paid, related party $ - $ 22 Income tax paid, net $ 24 $ 15 Supplemental non-cash investing and financing activities Release of start-up cost financing obligation as part of legal settlement $ - $ ( 7,300 ) Release of contingent consideration obligation as part of legal settlement $ - $ ( 2,500 ) Transfer of investment as part of legal settlement $ - $ 2,415 Addition of right-of-use assets in exchange for operating lease liabilities $ 55 $ 800 The accompanying notes are an integral part of these consolidated financial statements. F- 6 Notes to the Audited Consolidated Financial Statements as of and for the Years Ended December 31, 2024 and 2023 1. Organization and Business Overview Biofrontera Inc., a Delaware Corporation, (the “Company,” “we,” “us,” “our,” 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 (“PDT”). The Company’s primary licensed products are used for the treatment of actinic keratoses, which are pre-cancerous skin lesions. The Company includes its wholly owned subsidiary Biofrontera Discovery GmbH (“Discovery”), a limited liability company organized under the laws of Germany, formed on February 9, 2022, as a German presence to facilitate our relationship with the Ameluz Licensor and manage our clinical trial work. Our principal licensed product is Ameluz ® , which is a prescription drug approved for use in combination with the RhodoLED ® Lamps, 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 United States under an exclusive license and supply agreement (as amended, the “Second A&R Ameluz LSA”) with Biofrontera Pharma (“Pharma”) GmbH and Biofrontera Bioscience GmbH (“Biofrontera Bioscience,” and, together with Pharma, the “Ameluz Licensor”), both of which are related parties. Liquidity and Going Concern 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. Since we commenced operations in 2015, we have generated significant losses. 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. 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 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 Form 10-K. Management’s 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, it will not have sufficient cash resources and liquidity to fund its business operations and 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. 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, that might be necessary should the Company be unable to continue as a going concern. F- 7 2. Summary of Significant Accounting Policies Basis for Preparation of the Consolidated Financial Statements The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These consolidated financial statements include the accounts of our wholly owned subsidiary. All intercompany balances and transactions have been eliminated in consolidation. The information presented reflects the application of significant accounting policies described below. All 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. Segment Reporting The Company evaluates segment reporting in accordance with ASU 2023-07, Segment Reporting ( Accounting Standards Codification (“ASC”) Topic 280), Improvements to Reportable Segment Disclosures, each reporting period, including by evaluating the reporting package reviewed by the Company’s chief operating decision maker (“CODM”). In accordance with ASU 2023-07, the Company has determined that the Chief Executive Officer functions as the CODM. The CODM manages the Company’s business activities as a single operating segment at the consolidated level. Accordingly, the CODM uses consolidated net (loss) to measure segment profit or loss, allocate resources and assess performance. Further, the CODM reviews and utilizes functional expenses (cost of revenues, sales and marketing, research and development (“R&D”), and general and administrative) at the consolidated level to manage the Company’s operations. All of the Company’s revenues are derived from within the United States and, therefore, no geographical segments are presented. Reverse Stock Split On July 3, 2023, the Company effected a 1-for-20 reverse stock split (the “Reverse Stock Split”) of the issued and outstanding shares of the Company’s common stock, $ 0.001 par value (the “Common Stock”). The Common Stock began trading on the Nasdaq Capital Market (“Nasdaq”) on a post-split basis on July 5, 2023. All information included in these consolidated financial statements has been adjusted, on a retrospective basis, to reflect the Reverse Stock Split as if it had been effective from the beginning of the earliest period presented, unless otherwise stated. All outstanding securities entitling their holders to purchase shares of Common Stock or acquire shares of Common Stock, including stock options, restricted stock units, and warrants, were adjusted as a result of the Reverse Stock Split, as required by the terms of those securities. Use of Estimates The preparation of the consolidated financial statements in accordance with United States GAAP requires the use of estimates and assumptions by management that affect the reported amounts of assets and liabilities, as well as disclosure of contingent assets and liabilities, as reported on the balance sheet date, and the reported amounts of revenues and expenses arising during the reporting period. The main areas in which assumptions, estimates and the exercising of judgment are appropriate relate to realization and valuation of receivables and inventory, valuation of warrant liabilities, impairment assessment of intangibles and other long-lived assets, share-based payments, income taxes including deferred tax assets and liabilities and contingent liability recognition. Estimates are based on historical experience and other assumptions that are considered appropriate in the circumstances. They are continuously reviewed but may vary from the actual values. F- 8 Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less at the time of purchase to be cash equivalents. The Company maintains its cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”). Restricted Cash Restricted cash consists primarily of deposits of cash collateral held in accordance with the terms of our corporate credit cards (see Note 8. Cash Balances and Statement of Cash Flows Reconciliation) . Long-term restricted cash was recorded in other assets in the consolidated balance sheet. Accounts Receivable Accounts receivable are reported at their net realizable value. Any value adjustments are booked directly against the relevant receivable. We have standard payment terms that generally require payment within approximately 30 to 90 days. Management performs ongoing credit evaluations of its customers. The allowance for estimated credit losses represents management’s best estimate of probable credit losses. The allowance is based upon a number of factors, including the length of time accounts receivable are past due, the Company’s previous loss history, the specific customer’s ability to pay its obligation and any other forward-looking data regarding customers’ ability to pay which may be available. In addition, management considered other qualitative factors, particularly in relation to the greater actinic keratosis and dermatological market. Receivables are written off against the allowance when management believes that the amount receivable will not be recovered. The provision for credit losses is recorded in selling, general and administrative expenses in the accompanying statements of operations. Concentration of Credit Risk and Off-Balance Sheet Risk Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents, accounts receivable and other receivables, related party. The Company maintains all of its cash and cash equivalents at a single accredited financial institution, in amounts that exceed federally insured limits. The Company has no significant off-balance sheet risk such as foreign exchange contracts, option contracts, or other foreign hedging arrangements. Concentrations of credit risk with respect to receivables, which are typically unsecured, are somewhat mitigated due to the wide variety of customers using our products. We monitor the financial performance and creditworthiness of our customers so that we can properly assess and respond to changes in their credit profile. We continue to monitor these conditions and assess their possible impact on our business. We are dependent on Biofrontera Pharma to supply drug products, including all underlying components, for our commercial efforts. These efforts could be adversely affected by a significant interruption in the supply of our finished products. This licensor may have risks associated with limited source suppliers and contract manufacturers. If our licensor fails to maintain relationships with suppliers and manufacturers or they are unable to produce product, our business could be materially harmed. Inventories Finished goods consist of pharmaceutical products purchased for resale and are stated at the lower of cost or net realizable value. Cost is calculated by applying the first-in-first-out method, based on shipping location. Inventory costs include the purchase price of finished goods and freight-in costs. The Company regularly reviews inventory quantities on hand and writes down to its net realizable value any inventory that it believes to be impaired. Management considers forecast demand in relation to the inventory on hand, competitiveness of product offerings, market conditions and product life cycles when determining excess and obsolescence and net realizable value adjustments. Once inventory is written down and a new cost basis is established, it is not written back up if demand increases. F- 9 Property and Equipment Property and equipment are recorded at cost less accumulated depreciation. Depreciation is generally applied straight-line over the estimated useful life of assets. Leasehold improvements are amortized over the shorter of the asset’s estimated useful life or the lease term. The estimated useful lives of property and equipment are: Schedule of Estimated Useful Lives of Property, Plant and Equipment Estimated Useful Life in Years Computer equipment 3 years Computer software 3 years Furniture and fixtures 3 - 5 years Leasehold improvements Shorter of estimated useful lives or the term of the lease Machinery & equipment 3 - 4 years The cost and accumulated depreciation of assets retired or sold are removed from the respective asset category, and any gain or loss is recognized in our statements of operations. Accumulated depreciation was $ 0.6 million for each of the years ended December 31, 2024 and 2023. Intangible Assets Intangible assets with finite lives are amortized over their estimated useful lives. Intangible assets with indefinite lives are not amortized. Leases In February 2016, the Financial Accounting Standards Board (“ FASB”) issued ASU No. 2016-02, Leases (Topic 842), to enhance the transparency and comparability of financial reporting related to leasing arrangements. The Company adopted the standard effective January 1, 2023. The adoption of the new lease standard resulted in the addition of an operating lease right-of-use asset and an operating lease liability in the amount of $ 1.8 million to the consolidated balance sheet as of January 1, 2023. At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes its incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. No adjustments to the right-of-use asset were required for items such as initial direct costs paid, or incentives received. The Company has elected to adopt the practical expedient provided in ASC 842 and not reassess contracts and leases that existed prior to the commencement date (i) to determine whether any expired or existing contracts are or contain leases, (ii) for lease classification, or (iii) for initial indirect costs for any existing leases. The Company has elected to combine lease and non-lease components as a single component for certain asset classes, when applicable. Operating leases are recognized on the balance sheet as operating lease right-of-use assets, operating lease liabilities current and operating lease liabilities non-current. The Company also elected to utilize the short-term lease recognition exemption and for those leases that qualified, the Company did not recognize right-of-use assets or lease liabilities. These leases are recognized on a straight-line basis over the expected term. Impairment of Long-Lived Assets The Company considers whether events or changes in facts and circumstances, both internally and externally, may indicate that an impairment of long-lived assets held for use, including right-of-use assets, are present. To the extent indicators of impairment exist, the determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the asset, the assets are written down to their estimated fair values and the loss is recognized in the statements of operations. Assets Held for Sale The Company generally considers assets to be held for sale when the following criteria are met: (i) management commits to a plan to sell the assets, (ii) the assets are available for sale immediately, (iii) management has initiated an active program to locate a buyer or buyers and other actions required to complete the plan to sell the assets, (iv) the sale of the assets within one year is considered probable, (v) the assets are actively being marketed for sale at a price that is reasonable in relation to their current fair value and (vi) significant changes to the plan to sell are not expected. Assets classified as held for sale are no longer depreciated and are reported at the lower of their carrying value or fair value less estimated costs to sell in accordance with ASC 360, Property, Plant and Equipment-Impairment or Disposal of Long-Lived Assets. See Note 9. Assets Held for Sale. F- 10 Contingencies Loss contingency provisions are recorded if the potential loss from any claim, asserted or unasserted, or legal proceeding is considered probable, and the amount can be reasonably estimated, or a range of loss can be determined. These accruals represent management’s best estimate of probable loss. Disclosure is also provided when it is reasonably possible that a loss will be incurred or when it is reasonably possible that the amount of a loss will exceed the recorded provision. On a quarterly basis, we review the status of each significant matter and assess its potential financial exposure. Significant judgment is required in both the determination of probability and as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, accruals are based only on the best information available at the time. As additional information becomes available, we reassess the potential liability related to pending claims and litigation and may change our estimates. Legal costs associated with legal proceedings are expensed when incurred. See Note 19. Commitments and Contingencies. Derivative Instruments The Company accounts for Common Stock warrants as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the warrants and applicable authoritative guidance in FASB ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and Derivatives and Hedging (“ASC 815”). Warrants classified as equity are recorded at fair value as of the date of issuance on the Company’s consolidated balance sheets and no further adjustments to their valuation are made. Warrants classified as derivative liabilities that require separate accounting as liabilities are recorded on the Company’s consolidated balance sheets at their fair value on the date of issuance and are revalued on each subsequent balance sheet date until such instruments are exercised or expire, with any changes in the fair value between reporting periods recorded as other income or expense. Management estimates the fair value of these liabilities using the Black-Scholes-Merton (“BSM”) model and assumptions that are based on the individual characteristics of the warrants or instruments on the valuation date, as well as assumptions for future financings, expected volatility, expected life, yield, and risk-free interest rate. The Company evaluates its convertible instruments to determine if those contracts or embedded components of those contracts qualify as derivative financial instruments to be separately accounted for in accordance with ASC Topic 815: Derivatives and Hedging . The accounting treatment of derivative financial instruments requires that the Company record qualifying embedded conversion options and any related freestanding instruments at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. Embedded conversion options classified as derivative liabilities and any related equity classified freestanding instruments are recorded as a discount to the host instrument. The fair value for the warrants issued on February 22, 2024, to purchase shares of Series B-3 Convertible Preferred Stock, was estimated utilizing a probability weighted average approach, involving two scenarios; one based on the underlying value of the convertible preferred stock and the other based on the underlying value of the publicly traded common equity value. See Note 3. Fair Value Measurements for additional information. Debt Issuance Costs Debt issuance costs on debt financings are deferred and amortized over the term of the debt using the interest method or the straight-line method, (if results are not materially different than the interest method). If a conversion of the underlying debt occurs prior to maturity a proportionate share of the unamortized amount is expensed. Any unamortized debt issuance costs are presented net of the related debt on the consolidated balance sheets Fair Value Measurements The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. ASC 820, Fair Value Measurements and Disclosures , or ASC 820, establishes a hierarchy of inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. The three levels of the fair value hierarchy are described below: Level 1 – Quoted prices in active markets for identical assets or liabilities. Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 – Unobservable inputs using estimates or assumptions developed by the Company, which reflect those that a market participant would use in pricing the asset or liability. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. See additional information in Note 3. Fair Value Measurements. Fair Value of Financial Instruments The carrying amounts reflected in the consolidated balance sheets for accounts receivable, other receivables, and accounts payable approximate their fair values due to their short-term nature. F- 11 Revenue Recognition The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers . Under ASC Topic 606, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. We recognize revenue when the customer obtains control of our product, which occurs at a point in time, typically upon delivery to the customer. To determine revenue recognition, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. We only apply the five-step model to contracts when collectability of the consideration to which we are entitled in exchange for the goods or services we transfer to the customer is determined to be probable. The Company realizes its revenue primarily through the sale of its Ameluz ® product, which are made directly to physicians, hospitals or other qualified healthcare providers. Sales are recognized, net of sales deductions, when ownership and control are transferred to the customer, which is generally upon delivery. Sales deductions include expected trade discounts and allowances, product returns, and government rebates. These discounts and allowances are estimated at the time of sale based on the amounts incurred or expected to be received for the related sales. RhodoLED ® Lamps are also sold directly to physicians, hospitals or other qualified healthcare providers through (i) direct sales, (ii) rental agreements, or (iii) an evaluation period up to six-month for a fee, after which a customer can decide to purchase or return the lamp. For direct sales, revenue is recognized only after complete installation has taken place. As directed by the instruction manual, the lamp may only be used by the customer once it has been professionally installed. A final decision to purchase the lamps that are within the evaluation period does not need to be made until the end of the evaluation period. Lamps that are not returned at the end of the evaluation period are converted into sales in accordance with the contract terms. The Company generates immaterial revenues from the monthly fees during the evaluation or rental period and from the sale of lamps at the end of the evaluation period. Variable Consideration Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which sales reserves are established and which result from discounts, rebates and other incentives that are offered within contracts between the Company and its customers. Components of variable consideration include trade discounts and allowances and government rebates. Variable consideration is recorded on the balance sheet as either a reduction of accounts receivable, if expected to be claimed by a customer, or as a current liability, if expected to be payable to a third party other than a customer. Where appropriate, these estimates take into consideration relevant factors such as the Company’s historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. These reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the contract. Actual amounts of consideration ultimately received may differ from the Company’s 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. F- 12 Trade Discounts and Allowances – The Company provides customers with trade discounts, rebates, allowances and/or other incentives. The Company records estimates for these items as a reduction of revenue in the same period the revenue is recognized. Government and Payor Rebates – The Company contracts with, or is subject to arrangements with, certain third-party payors, including government agencies, for the payment of rebates with respect to utilization of its commercial products. The Company is also subject to discount and rebate obligations under state and federal Medicaid programs and Medicare. The Company records estimates for these discounts and rebates as a reduction of revenue in the same period the revenue is recognized. Product Warranty The Company generally provides a 36-month warranty for sales of RhodoLED ® Lamps for which estimated contractual warranty obligations are recorded as an expense at the time of installation. Customers do not have the option to purchase the warranty separately and the warranty does not provide the customer with a service beyond the assurance that BF-RhodoLED ® complies with agreed-upon specifications. Therefore, the warranty is not considered to be a performance obligation. The lamps are subject to regulatory and quality standards. Future warranty costs are estimated based on historical product performance rates and related costs to repair given products. The accounting estimate related to product warranty expense involves judgment in determining future estimated warranty costs. Should actual performance rates or repair costs differ from estimates, revisions to the estimated warranty liability would be required. Warranty expenses were negligible and $ 0.1 million for the years ended December 31, 2024 and 2023, respectively, and are recognized as selling, general and administrative expenses. Contract Costs Incremental costs of obtaining a contract with a customer may be recorded as an asset if the costs are expected to be recovered. As a practical expedient, we recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that we otherwise would have recognized is one year or less. Sales commissions earned by the Company’s sales force are considered incremental costs of obtaining a contract. To date, we have expensed sales commissions as these costs are generally attributed to periods shorter than one year. Sales commissions are included in selling, general and administrative expenses. Cost of Revenues Cost of revenues is comprised of purchase costs of our products, third party logistics and distribution costs including packaging, freight, transportation, shipping and handling costs, and inventory adjustment due to expiring products, as well as sales-based royalties. Logistics and distribution costs totaled $ 0.6 million and $ 0.5 million for the years ended December 31, 2024 and 2023, respectively. F- 13 Share-Based Compensation The Company measures and recognizes share-based compensation expense for equity awards based on fair value at the grant date. The Company uses the Black-Scholes-Merton option pricing model to calculate the fair value of its stock option grants. The compensation cost for restricted stock awards is based on the closing price of the Company’s Common Stock on the date of grant. Share-based compensation expense recognized in the statements of operations is based on the period the services are performed and recognized as compensation expense on a straight-line basis over the requisite service period. The Company accounts for forfeitures as they occur. The Black-Scholes-Merton option pricing model requires the input of subjective assumptions, including the risk-free interest rate, the expected volatility of the value of the Company’s Common Stock, and the expected term of the option. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, the share-based compensation expense could be materially different in the future. These assumptions are estimated as follows: Risk-Free Interest Rate. The risk-free rate is based on the interest rate payable on United States Treasury securities in effect at the time of grant for a period that is commensurate with the assumed expected term. Expected Volatility. The Company based the volatility assumption on a weighted average of the peer group re-levered equity volatility and the historical equity volatility of the Company. The peer group was developed based on companies in the biopharma industry whose shares are publicly traded. Due to our limited historical data and the long-term nature of the awards, the peer group volatility was more heavily weighted. Expected Term. The expected term represents the period of time that options are expected to be outstanding. Due to the lack of historical exercise data and given the plain vanilla nature of the options granted by the Company, the expected term is determined using the “simplified” method, as prescribed in SEC Staff Accounting Bulletin No. 107, whereby the expected life equals the average of the vesting term and the original contractual term. Dividend Yield. The dividend yield is 0 % as the Company has never declared or paid, and for the foreseeable future does not expect to declare or pay, a dividend on its Common Stock. Foreign Currency Transactions Transactions realized in currencies other than USD are reported using the exchange rate on the date of the transaction. Selling, General and Administrative Expense Selling, general and administrative expenses are primarily comprised of compensation and benefits associated with our sales force, commercial support personnel, personnel in executive and other administrative functions, as well as medical affairs professionals. Other selling, general and administrative expenses include marketing, advertising, and other commercial costs to support the commercial operation of our product and professional fees for legal, consulting, and other general and administrative costs. Advertising costs are expensed as incurred and were negligible for the year ended December 31, 2024 and totaled $ 0.2 million for the year ended December31, 2023. R&D Costs 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. All costs associated with research and development are expensed as incurred. Clinical trial costs are a significant component of our research and development expenses and include costs associated with third-party contractors. The Company outsources a substantial portion of its clinical trial activities, utilizing external entities such as Clinical Research Organizations, 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. When 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, 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. Payments made under these arrangements in advance of the receipt of the related services are recorded as prepaid expenses until the services are rendered. Income Taxes The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, Income Taxes , which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or in the Company’s tax returns. Deferred taxes are determined based on the difference between the financial reporting and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies. The Company accounts for uncertainty in income taxes recognized in the financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties. F- 14 Net Loss per Share Basic and diluted net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding. When the effects are not anti-dilutive, diluted earnings per share is computed by dividing the Company’s net income attributable to common stockholders by the weighted average number of common shares outstanding and the impact of all dilutive potential common shares outstanding during the period, including stock options, restricted stock units, and warrants, using the treasury stock method. Reclassification of Prior Year Presentation Certain prior period amounts have been reclassified for consistency with the current period presentation. The reclassification was limited to the condensed consolidated statements of cash flow and had no impact on the reported results of operations. Specifically, accounts payable-related parties of $ 4.4 million was reclassed from accounts payable and related party payables for prior year presentation. Recently Issued or Adopted Accounting Pronouncements In November 2023, FASB issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures to improve reportable segment disclosure requirements through enhanced disclosures about significant segment expenses on an interim and annual basis. All disclosure requirements of ASU 2023-07 are required for entities with a single reportable segment. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods for the fiscal years beginning after December 15, 2024, and should be applied on a retrospective basis to all periods presented. We adopted this ASU retrospectively on December 31, 2024. See Note 21. Segment Reporting . In August 2020, FASB issued ASU 2020-06 - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging and Contracts in Entity’s Own Equity (Subtopic 815-40) , aimed at simplifying the accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. Additionally, the new standard introduces enhanced disclosures for convertible debt and freestanding instruments indexed to and settled in an entity’s own equity. It also amends the diluted earnings per share guidance, mandating the use of the if-converted method for all convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, and must be applied on a full or modified retrospective basis. We adopted the ASU effective January 1, 2024, which did not have a material impact on the Company’s financial statements. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) – Improvements to Income Tax Disclosures . The ASU requires that an entity disclose specific categories in the effective tax rate reconciliation as well as provide additional information for reconciling items that meet a quantitative threshold. Further, the ASU requires certain disclosures of state versus federal income tax expense and taxes paid. The amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2024. Early adoption is permitted and the amendments should be applied on a prospective basis. We are evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures. In November 2024, the FASB issued ASU 2024-03, I ncome Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expense . The new guidance requires disaggregated information about certain income statement expense line items on an annual and interim basis. This ASU is effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. The new standard permits early adoption and can be applied prospectively or retrospectively. We are evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures. In November 2024, the FASB issued ASU 2024-04, Debt with Conversion and Other Options (Subtopic 470-20); Induced Conversions of Convertible Debt. This ASU clarifies requirements for determining whether certain settlements of convertible debt instruments, including convertible debt instruments with cash conversion features or convertible debt instruments that are not currently convertible, should be accounted for as an induced conversion. It is effective for all entities for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted. We are currently evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures. F- 15 3. Fair Value Measurements The following table presents information about the Company’s assets that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value: Schedule of Fair Value Hierarchy Valuation Inputs (in thousands) Level December 31, 2024 December 31, 2023 Assets: Investment, related party 1 $ 7 $ 78 Liabilities: Warrant liability – 2023 Purchase Warrants 3 $ 1,030 $ 3,470 Warrant liability – 2022 Purchase Warrants 3 $ 98 $ 328 Warrant liability – 2022 Inducement Warrants 3 $ 122 $ 412 Warrant liability 3 $ 122 $ 412 Total Liabilities $ 1,250 $ 4,210 Investment, related party As of December 31, 2024 and 2023, the Company owned 3,019 and 8,450 common shares of Biofrontera AG, respectively. The fair value of this investment was determined with Level 1 inputs through references to quoted market prices. See Note 6. Investment Related Party and Note 13. Related Party Transactions . Warrant Liabilities The warrant liabilities are comprised of (i) outstanding warrants to purchase 170,950 shares of Common Stock originally issued in a private placement on May 16, 2022, as amended on November 2, 2023 to extend the expiration date until November 2, 2028 and revise the exercise price to $ 3.55 per share (the “2022 Purchase Warrants”) (ii) warrants to purchase 214,286 shares of Common Stock issued on July 26, 2022, as amended on November 2, 2023 to extend the expiration date until November 2, 2028 and revise the exercise price to $ 3.55 per share (the “2022 Inducement Warrants”) and (iii) warrants to purchase 1,807,500 shares of Common Stock issued on November 2, 2023 expiring five years following the date of issuance and with an exercise price of $ 3.55 per share ( the “2023 Purchase Warrants”). See Note 14. Stockholders’ Equity for additional details. The 2023 Purchase Warrants, the 2022 Inducement Warrants and the 2022 Purchase Warrants were accounted for as liabilities as these warrants provide for a redemption right in the case of a fundamental transaction which fails the requirement of the indexation guidance under ASC 815-40. The resulting warrant liabilities are re-measured at each balance sheet date until their exercise or expiration, and any change in fair value is recognized in the Company’s consolidated statement of operations. 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. The Company utilizes a Black-Scholes option pricing model to estimate the fair value of the warrant liabilities which is considered a Level 3 fair value measurement. Certain inputs utilized in our Black-Scholes pricing model may fluctuate in future periods based upon factors which are outside of the Company’s control. A significant change in one or more of these inputs used in the calculation of the fair value may cause a significant change to the fair value of our warrant liabilities which could also result in material non-cash gain or loss being reported in our consolidated statement of operations. The fair value for the Level 3 warrants at December 31, 2024 and December 31, 2023 was estimated using Black-Scholes pricing model based on the following assumptions: Schedule of Fair Value Warrant by Using Black-Scholes Pricing Model Assumptions December 31, 2024 December 31, 2023 Stock price $ 1.09 $ 2.77 Expiration term (in years) 3.84 4.84 Volatility 105 % 95 % Risk-free Rate 4.27 % 3.82 % Dividend yield 0.0 % 0.0 % F- 16 The warrants issued on February 22, 2024 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 14. Stockholders’ Equity ) . The 2024 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 BSM model equation to determine the value of the Series B-3 convertible warrants. In scenario 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. The 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 % to 105 %; (ii) risk-free interest rate of 5.39 %; to 5.54 %; (iii) expected life of the warrants of 0.003 to 0.21 years; and (iv) dividend yield of 0.0 %. The fair value of the 2024 Preferred Warrants was $ 4.1 million at issuance and $ 5.4 million at the exercise date. See Note 14. Stockholders’ Equity for additional details. The following table presents the changes in the warrant liabilities measured at fair value (in thousands): Schedule of Changes in Fair Value Warrant Liabilities December 31, 2024 December 31, 2023 Fair value at beginning of year $ 4,210 $ 2,843 Issuance of new warrants 4,092 6,778 Exercise of warrants ( 5,372 ) - Change in fair value of warrant liability ( 1,680 ) ( 6,456 ) Warrant inducement expense - 1,045 Fair value at end of year $ 1,250 4,210 4. Revenue We generate revenue primarily through the sales of our licensed products, Ameluz ® and BF-RhodoLED ® lamps. Related party revenue relates to an arrangement with Biofrontera Bioscience for BF-RhodoLED ® leasing and installation service associated with the clinical lamps. This arrangement is no longer effective as of December 31, 2024. Refer to Note 13, Related Party Transactions . 5. Cash Balances and Statement of Cash Flows Reconciliation The Company maintains its cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”). At December 31, 2024, approximately $ 5.7 million of the Company’s cash balances were in excess of FDIC limits. The Company has not experienced any losses on these accounts and management does not believe that the Company is exposed to any significant risks with respect to these accounts. Restricted cash consists primarily of deposits of cash collateral held in accordance with the terms of our corporate credit cards. Long-term restricted cash was recorded in other assets in the consolidated balance sheet. The following table provides a reconciliation of cash, cash equivalents, and restricted cash that sum to the total shown in the statements of cash flows: Schedule of Reconciliation of Cash, Cash Equivalents, and Restricted Cash (in thousands) December 31, 2024 December 31, 2023 Cash and cash equivalents $ 5,905 $ 1,343 Long-term restricted cash 200 200 Total cash and cash equivalent, and restricted cash shown on the statements of cash flows $ 6,105 $ 1,543 Long-term restricted cash was recorded in other assets in the consolidated balance sheet. 6. Investment, Related Party As of December 31, 2024 and December 31, 2023, our investment in equity securities consisted solely of 3,019 and 8,450 , common shares of Biofrontera AG, respectively (See Note 13. 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 or transferred 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 $ 0.6 million during the year ended December 31, 2024 and 2023, respectively. Schedule of Related Party Investments in Equity Securities (in thousands): December 31, 2024 December 31, 2023 Net losses recognized during the period on equity securities $ ( 14 ) $ ( 7,421 ) Less: Net realized losses on equity securities sold or transferred 98 7,219 Unrealized losses recognized during the reporting period on equity securities still held at the reporting date ( 84 ) ( 202 ) 7. Accounts Receivable, net Accounts receivables are mainly attributable to the sale of Ameluz ® . It is expected that all trade receivables will be settled within twelve months of the balance sheet date. Trade accounts receivable are stated at their net realizable value. The allowance for credit losses reflects our best estimate of expected credit losses of the receivables determined on the basis of historical experience and current information. In developing the estimate for expected credit losses, trade accounts receivable are segmented into pools of assets depending primarily on delinquency status, and reserve percentages are established for each pool of trade accounts receivables. In determining the reserve percentages for each pool of trade accounts receivable, we considered our historical experience with certain customers, regulatory and legal environments and other relevant current and future forecasted macroeconomic factors. If we become aware of any customer-specific factors that impact credit risk, specific allowances for these known troubled accounts are recorded. The allowance for credit losses was $ 0.2 million as of December 31, 2024 and 2023. F- 17 8. Inventories Inventories are comprised of Ameluz ® and RhodoLED ® Lamps. There was a negligible adjustment to realizable value recorded for the years ended December 31, 2024 and 2023. As of December 31, 2023, in connection with a 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 Second A&R Ameluz LSA. As of July 23, 2024, we received the full amount of the replacement inventory for the recalled Ameluz ® . 9. Assets Held for Sale Assets held for sale consists of the following: Schedule of Assets Held for Sale (in thousands) December 31, 2024 December 31, 2023 Xepi ® license $ 4,600 $ - Less: Accumulated amortization $ ( 2,300 ) $ - Assets held for sale $ 2,300 $ - During the third quarter of 2024, the Company adopted a plan to sell its Xepi product line and determined that the intangible asset meets the criteria to be classified as held for sale in accordance with ASC 360-10-45-9. The Company is working with a potential purchaser and expects to complete a sale within the next three to six months and, as such, has classified the asset as held for sale under current assets in the Consolidated Balance Sheets. The carrying amount of the asset at the time of classification was $ 2.3 million, which was the lower of its carrying value or estimated fair value less cost to sell. No gain or loss was recognized in the Statement of Operations upon classification as an asset held for sale and the related revenue and expenses associated with the asset were de-minimus. This divestiture does not represent a strategic shift that will have a major effect on our consolidated results of operations and therefore is not being reported as discontinued operations. The Xepi ® license intangible asset was recorded at acquisition-date fair value of $ 4.6 million and was amortized on a straight-line basis over the useful life of 11 years. Prior to recording it as held for sale, amortization expense was $ 0.3 million and $ 0.4 million for the years ended December 31, 2024 and 2023, respectively. 10. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of the following: Schedule of Accrued Expenses and Other Current Liabilities (in thousands) December 31, 2024 December 31, 2023 Employee compensation and benefits $ 2,428 $ 2,185 Professional fees 632 1,064 Research and Development 542 - Product revenue allowances and reserves 58 149 Legal settlement - 403 Distribution and Storage - 118 Other 613 568 Total $ 4,273 $ 4,487 F- 18 11. Debt Line of Credit Effective 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 year ended December 31, 2024. Loan Facilities On 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 was evidenced by a Secured Promissory Note, effective as of December 21, 2023, and required the Company to make weekly payments of principal and interest in the amount of approximately $ 102,857 through July 5, 2024 , the maturity date. Interest expense was recognized using the effective interest method, such that a constant effective interest rate was applied to the carrying amount of the debt at the beginning of each period until maturity. There were approximately $ 0.3 million of related issuance costs, recognized as a debt discount (contra liability against the debt balance), that were amortized as interest expense over the life of the loan using the effective interest method, The Company recognized discount amortization and interest expense of $ 0.3 million and $ 1.7 million for the year ended December 31, 2024 and negligible amounts for the year ended December 31, 2023. As of December 31, 2024, the Company had repaid both Loans. Convertible Notes Payable On November 22, 2024, the Company issued $ 4.2 million in an aggregate principal amount of the Company’s 10.0 % Senior Secured Convertible Notes (the “Notes”) pursuant to a Securities Purchase Agreement entered into on November 21, 2024 with its principal stockholders. The Notes bear interest at 10.0 % per annum, payable in-kind (“PIK interest”) through the issuance of additional principal on a quarterly basis. In the Event of Default (as defined in the Notes), the interest will increase to 15 % per annum from the date of written notice from the holder. The Notes may be converted at any time into shares of the Company’s Common Stock at a conversion price of $ 0.78 per share subject to customary adjustments for stock splits, stock dividends and recapitalizations, as described in the Notes. The Notes mature on November 22, 2027, unless earlier converted or repurchased. The Company may not redeem the Notes at its option prior to maturity. Upon maturity, the Company will pay to the holders of the Notes an amount in cash representing all of the outstanding aggregate principal amount of the Notes, together with any accrued and unpaid interest. Alternatively, the entire amount of the note will be automatically converted to shares of Common Stock if the 10-day volume weighted average price of a share of the Company’s Common Stock on Nasdaq is greater than 250% of the conversion price, and certain other conditions are met. The Notes provide for customary events of default and contain conversion limitations, providing that no conversion may be made if the aggregate number of shares of Common Stock beneficially owned by the holder would exceed 9.99 % immediately after conversion. There were no events of default at December 31, 2024. The Notes are secured by substantially all property of the Company, including but not limited to the Company’s assets, inventory, intellectual property and accounts. The Notes were accounted for as a liability under ASC 470 and the embedded conversion option has been assessed under ASC 815. Based on the Company’s evaluation, there were no embedded features that required bifurcation as a derivative liability. As of December 31, 2024, the outstanding balance of the Notes was $ 4.1 million including PIK interest and net of unamortized issuance costs of $ 0.1 million. F- 19 12. Income Taxes The components of (loss) before income taxes are as follows (dollars in thousands): Schedule of components of (loss) 2024 2023 Year ended December 31, 2024 2023 Domestic $ ( 17,228 ) $ ( 20,117 ) Foreign ( 509 ) - (Loss) before income taxes $ ( 17,737 ) $ ( 20,117 ) As a result of the net losses, we have incurred in each fiscal year since inception, we have recorded no provision for federal income taxes for the years ended December 31, 2024 and December 31, 2023. Income tax expense incurred in 2024 and 2023 relates to state income taxes. At December 31, 2024 and December 31, 2023, the Company had no unrecognized tax benefits. A reconciliation of the expected income tax (benefit) computed using the federal statutory income tax rate to the Company’s effective income tax rate is as follows: Schedule of Effective Income Tax Rate Reconciliation 2024 2023 Year ended December 31, 2024 2023 Income tax computed at federal statutory tax rate 21.0 % 21.0 % State taxes 4.3 % 5.2 % Permanent differences – non-deductible expenses ( 1.0 )% ( 0.5 )% Change in fair value of contingent consideration - ( 0.1 )% Change in fair value of warrant liabilities 2.0 % 3.3 % Gain on legal settlement - 2.6 % True-ups ( 0.6 )% ( 0.1 )% Federal R&D Credits ( 0.0 )% 0.1 % Foreign rate differential 0.1 % - Change in valuation allowance ( 25.9 )% ( 31.6 )% Effective income tax rate ( 0.1 )% ( 0.1 )% The principal components of the Company’s deferred tax assets and liabilities consist of the following at December 31, 2024 and 2023: Schedule of Deferred Tax Assets and Liabilities (in thousands) December 31, 2024 December 31, 2023 Deferred tax assets (liabilities): Net operating loss carryforwards $ 41,154 $ 36,964 Credit Carryforward - 8 Intangible assets 3,794 4,270 Property and equipment 140 129 Accrued expenses and reserves 404 393 Stock based compensation 937 711 Lease liability 215 391 Other 705 40 ROU asset ( 235 ) ( 422 ) Investment revaluation - 43 Total deferred tax assets 47,114 42,527 Less valuation allowance ( 47,114 ) ( 42,527 ) Net deferred taxes $ - $ - The Company has had no federal income tax expense due to operating losses incurred since inception. The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Based on this, the Company has provided a valuation allowance for the full amount of the net deferred tax assets as the realization of the deferred tax assets is not determined to be more likely than not. During 2024, the valuation allowance increased by $ 4.5 million, primarily due to the increase in the Company’s net operating loss carryforwards during the period. As of December 31, 2024, the Company had approximately $ 164.5 million and $ 126.3 million of Federal and state net operating loss (“NOL”) carryforwards, respectively. $ 154.9 million of the federal NOLs are not subject to expiration and the remaining NOLs begin to expire in 2035. These loss carryforwards are available to reduce future federal taxable income, if any. These loss carryforwards are subject to review and possible adjustment by the appropriate taxing authorities. The amount of loss carryforwards that may be utilized in any future period may be limited based upon changes in the ownership of the Company’s shareholders. F- 20 The Company follows the provisions of ASC 740-10, “Accounting for Uncertainty in Income Taxes,” which specifies how tax benefits for uncertain tax positions are to be recognized, measured, and recorded in financial statements; requires certain disclosures of uncertain tax matters; specifies how reserves for uncertain tax positions should be classified on the balance sheet; and provides transition and interim period guidance, among other provisions. As of December 31, 2024, the Company has not recorded any amounts for uncertain tax positions. The Company’s policy is to recognize interest and penalties accrued on any uncertain tax positions as a component of income tax expense, if any, in its statements of operations. As of December 31, 2024, the Company had no reserves for uncertain tax positions. For the year ended December 31, 2024 no estimated interest or penalties were recognized on uncertain tax positions. The Company’s tax returns for 2021 through 2024 remain open and subject to examination by the Internal Revenue Service and state taxing authorities. Under the provisions of the Internal Revenue Code, the net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating loss and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50 percentage points, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to an ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has completed numerous financings since its inception, which may have resulted in a change in control as defined by Sections 382 and 383 of the Internal Revenue Code. As of December 31, 2024, we have not completed a formal Internal Revenue Code Section 382 analysis of our equity changes. 13. Related Party Transactions We consider Biofrontera AG and its consolidated subsidiaries, (“the Biofrontera Group”) to be a related party. The Biofrontera Group held more than 5 % of the outstanding shares of our common stock until December 10, 2024, and we continue to rely on the Biofrontera Group as the sole supplier of Ameluz ® and the RhodoLED ® Lamps. License and Supply Agreement Under the Second A&R Ameluz LSA, the Company has an exclusive, non-transferable license to market and sell the licensed products, Ameluz ® and RhodoLED ® Lamps, in the United States and must purchase the licensed products exclusively from Biofrontera Pharma. The Second A&R Ameluz LSA, among other things, amended the Ameluz LSA to: (i) updated 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 of the anticipated net selling price per unit through 2025; ● Thirty percent of the anticipated net selling price per unit for 2026 to 2028; ● Thirty-two percent of the anticipated net selling price per unit for 2029 to 2031; ● Thirty-five percent of the anticipated net selling price per unit for 2032 and beyond, subject to a minimum dollar amount per unit; and ● The 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. (ii) provided for the transfer of responsibilities for clinical trials relating to Ameluz ® in the US on June 1, 2024, including the Company assuming related contracts and transferring key personnel from the Ameluz Licensor to the Company. 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. On 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 Company did not bear any financial responsibility for the costs associated with this recall and it did not have 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. As of July 23, 2024, we received the full amount of the replacement inventory for the recalled Ameluz ® . Purchases of licensed products, inclusive of estimated and actual purchase price adjustments during the years ended December 31, 2024 and 2023 were $ 8.3 million and $ 23.4 million, respectively and recorded in inventories in the consolidated balance sheets, and, when sold, in cost of revenues, related party in the consolidated statements of operations. Amounts due and payable to Biofrontera Pharma as of December 31, 2024 and December 31, 2023 were $ 5.3 million and $ 8.5 million, respectively, and were recorded in accounts payable, related parties net of applicable accounts receivable in the consolidated balance sheets. F- 21 Service Agreements In 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. The 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, and medical affairs, 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. Expenses related to the Services Agreement were negligible and $ 0.2 million for the years ended December 31, 2024 and 2023, respectively, and 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 as of December 31, 2024 and 2023, respectively, and were recorded in accounts payable, related parties in the consolidated balance sheets. Clinical Lamp Lease Agreement On August 1, 2018, the Company executed a clinical lamp lease agreement with Biofrontera Bioscience to provide lamps and associated services. Total revenue related to the clinical lamp lease agreement was negligible and $ 0.1 million for the years ended December 31, 2024 and 2023 and recorded as revenues, related party. Amounts due from Biofrontera Bioscience for clinical lamp and other reimbursements were negligible and $ 0.2 million for the years ended December 31, 2024 and 2023, which were offset against accounts payable, related parties. Other The 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 were jointly and severally liable. There was no interest income recognized for the years ended December 31, 2024 and 2023, in connection with this receivable and the $ 2.8 million balance was net settled against payments for inventory in February 2024. The Company received 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 $ 0.3 million and $ 0.7 million for the years ended December 31, 2024 and 2023 respectively. As of December 31, 2024 and December 31, 2023, our investment, related party consisted solely of 3,019 and 8,450 common shares of Biofrontera AG, respectively. The total investment had minimal value as of December 31, 2024 and $ 0.1 million as of December 31, 2023. See Note 6. Investment, Related Party . F- 22 14. Stockholders’ Equity Under 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, par value $ 0.001 per share (“Common Stock”), and 20,000,000 shares of preferred stock, par value $ 0.001 per share (“Preferred Stock”). Common Stock: The holders of Common Stock are entitled to one vote for each share held. Holders of Common Stock are not entitled to receive dividends, unless declared by the Company’s board of directors (“Board”). 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. The outstanding shares of Common Stock are fully paid and non-assessable. As of December 31, 2024, there were 8,873,932 shares of Common Stock outstanding. On October 30, 2023, the Company entered into a securities purchase agreement (“2023 Purchase Agreement”) with an institutional investor for the purchase and sale, in a registered public offering (the “Public Offering”) by the Company of: (i) 150,000 shares of Common Stock at a combined offering price of $ 3.74 , (ii) 1,055,000 pre-funded warrants to purchase up to 1,055,000 shares of Common Stock (the “Pre-Funded Warrants”) at a combined offering price of $ 3.7399 and (iii) 1,205,000 warrants to purchase up to 1,807,500 shares of Common Stock (the “Common Warrants”), resulting in gross proceeds of approximately $ 4.5 million. The Public Offering closed on November 2, 2023. The Common Warrants are exercisable upon issuance, will expire five years following the date of issuance and have an exercise price of $ 3.55 per share. The Pre-Funded Warrants are exercisable upon issuance, will expire five years following the date of issuance and have an exercise price of $ 0.0001 per share. In connection with the 2023 Purchase Agreement, the Company amended the 2022 Purchase Warrant and the 2022 Inducement Warrant (together, the “Existing Warrants”) pursuant to which the Company agreed, effective November 2, 2023, to (i) revise the exercise price of the Existing Warrants to $ 3.55 and (ii) extend the date until which the Existing Warrants can be exercised until November 2, 2028. No other terms of the Existing Warrants were revised or changed. As a result of this amendment to the Existing Warrants, the Company recorded an inducement expense on modification of common stock warrants in the amount of $ 1.0 million. The loss represents the increase in fair value of the Existing Warrants, as amended. The increase in fair value was calculated as the difference in value immediately before and after modification using the Black-Scholes option pricing model. On January 8, 2024 and February 2, 2024, an investor exercised 167,000 and 888,000 , respectively, of the Pre-Funded Warrants, purchasing a total of 1,055,000 shares of Common Stock at an exercise price of $ .0001 per share, resulting in negligible net proceeds. As of December 31, 2024, we had outstanding warrants to purchase an aggregate of 2,269,356 shares of Common Stock with an exercise price range of $ 3.55 to $ 100.00 per share. These warrants have expiration dates ranging from November 2026 to November 2028. A summary of the warrants outstanding as of December 31, 2024 is presented below. Schedule of Warrants Outstanding Warrants Number of Shares Exercise Price Expiration Date Liability classified (See Note 3. Fair Value Measurements ) 2,192,736 $ 3.55 11/02/2028 Equity classified 76,620 100.00 11/02/2026 Series B Preferred Stock: On February 19, 2024, the Company entered into a securities purchase agreement (the “Preferred Purchase Agreement”), with certain accredited investors, 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 million. 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. Pursuant to the Preferred Purchase Agreement, the Company may be compelled to appoint two independent directors designated by Rosalind Advisors, Inc to the Company’s Board. No such appointment has been made as of December 31, 2024. 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”). On 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). During the third quarter of 2024, an additional 1,016 shares of Series B Preferred Stock were converted into Common Stock. As of December 31, 2024, there were 10,129 shares of Series B Preferred Stock issued and outstanding (convertible into 14,318,632 shares of Common Stock) and all of the 2024 Preferred Warrants had been exercised for Series B-3 Preferred Stock. On May 13 and 14, 2024, 7,998 of the 2024 Preferred Warrants were exercised to purchase 7,998 shares of 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. As of the exercise date, $ 12.8 million was applied to additional paid-in-capital, comprised of the $ 7.4 million of net proceeds and $ 5.4 of million warrant liability fair value. As of December 31, 2024, the 2024 Preferred Warrants issued in the Offering have been exercised or expired. Voting Rights . Subject to certain limitations described in the Certificate of Designation, the Series B Preferred Stock is voting stock. Holders of the Series B Preferred Stock are entitled to vote together with the Common Stock on an as-if-converted-to-Common-Stock basis. Holders of Common Stock are entitled to one vote for each share of Common Stock held on all matters submitted to a vote of stockholders. Accordingly, holders of Series B Preferred Stock will be entitled to one vote for each whole share of Common Stock into which their Series B Preferred Stock is then convertible on all matters submitted to a vote of stockholders. Conversion . Subject 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 . Following 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 holder, treating for this purpose all shares of Series B Preferred Stock as if they had been converted to Common Stock pursuant to the terms of the Certificate of Designation immediately prior to such Liquidation, without regard to any limitations on conversion set forth in the Certificate of Designation or otherwise. Participation Right . 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. F- 23 Mezzanine Classification Prior 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. 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 was redeemable at the option of the holder, Series B-2 Preferred Stock and Series B-3 Preferred Stock 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’s capital stock 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 redeemable. Upon 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 December 31, 2024, due to the limited exception under ASC 480-10-S99-3A(3)(f). Adoption of a stockholder rights plan. On October 13, 2022 the Board authorized and declared a dividend distribution of one Preferred Stock Purchase Right (a “Right”) for each outstanding share of Common Stock to stockholders of record as of the close of business on October 24, 2022 (the “Rights Plan”). In addition, one Right will automatically attach to each share of Common Stock issued between the record date of the distribution and the earlier of the distribution date and the expiration date of the Rights. Each Right entitles the registered holder to purchase from the Company a unit consisting of one ten-thousandth of a share (a “Unit”) of Series A Junior Participating Cumulative Preferred Stock, par value $ 0.001 per share, of the Company at a cash exercise price of $ 5.00 per Unit, subject to adjustment, under certain conditions. The complete terms of the Rights are set forth in the Stockholder Rights Agreement, dated October 13, 2022 (the “Rights Agreement”), as amended by Amendment No. 1 to the Stockholder Rights Agreement, dated as of April 26, 2023, between the Company and Computershare Trust Company, N.A, as Rights agent. While the Rights Plan became effective immediately, the Rights would become exercisable only if a person or group, or anyone acting in concert with such a person or group, acquires beneficial ownership, as defined in the Rights Agreement, of 20 % or more of the Company’s issued and outstanding Common Stock in a transaction not approved by the Board. The Rights Plan will expire on June 30, 2026 . Under the Rights Plan, a person or group who beneficially owned 20 % or more of the Company’s outstanding Common Stock prior to the first public announcement of the Rights Plan on October 14, 2022 will not trigger the Rights so long as they do not acquire beneficial ownership of any additional shares of Common Stock at a time when they still beneficially own 20% or more of such Common Stock. Series A Junior Participating Cumulative Preferred Stock. In connection with the adoption of the Rights Plan, the Board approved a Certificate of Designations of Series A Junior Participating Cumulative Preferred Stock which designates the rights, preferences and privileges of 5,000 shares of Preferred Stock. The Certificate of Designations was filed with the Secretary of State of Delaware and became effective on October 13, 2022. Convertible Debt On November 22, 2024, the Company issued $ 4.2 million in an aggregate principal amount of the Notes. The Notes allow for up to 5,384,615 shares of Common Stock to be issued upon conversion for principal plus additional shares for PIK interest. See Note 11. Debt - Convertible Notes Payable , for additional details. 15. Equity Incentive Plans and Share-Based Payments 2021 Omnibus Incentive Plan In 2021, the 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 2021 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 December 31, 2024, there were 1,915,602 shares available for future awards under the amended 2021 Plan. Non-qualified stock options We maintain the 2021 Plan for the benefit of our officers, directors and employees. Employee stock options granted under the 2021 Plan generally vest in equal annual installments over three years and are exercisable for a period of up to ten years from the grant date. Non-employee director options vest in equal monthly installments following the date of grant and will be fully vested on the one-year anniversary of the date of grant. All stock options are exercisable at a price equal to the market value of the common shares underlying the option on the grant date. The Company recognizes the grant-date fair value of share-based awards granted as compensation expense on a straight-line basis over the requisite service period. The fair value of stock options is estimated at the time of grant using the Black-Scholes option pricing model, which requires the use of inputs and assumptions such as the fair value of the underlying stock, exercise price of the option, expected term, risk-free interest rate, expected volatility and dividend yield. The Company elects to account for forfeitures as they occur. The fair value of each option was estimated on the date of the grant using the Black-Scholes option pricing model with the following assumptions: Schedule of Stock Options Assumptions 2024 2023 Expected volatility 100 % 70 % - 95 % Expected term (in years) 5.24 - 6 6.0 Risk-free interest rate 4.2 % - 4.3 % 3.5 4% - 4.66 % Expected dividend yield 0 % 0.0 % F- 24 The total grant-date fair value of options granted during the year ended December 31, 2024 was $ 1.1 million. The weighted average grant-date fair value of options granted during the years ended December 31, 2024 and 2023 was $ 0.82 and $ 6.40 , respectively. Share-based compensation expense related to stock options of approximately $ 0.8 million and $ 0.7 million was recorded in selling, general and administrative expenses on the accompanying consolidated statement of operations for the years ended December 31, 2024 and 2023, respectively. Options outstanding and exercisable under the employee share option plan as of December 31, 2024 and 2023, and a summary of option activity during the year then ended is presented below. Schedule of Stock Option Activity Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value (1) Outstanding at December 31, 2022 86,951 $ 62.16 9.27 $ 1 Granted 49,730 $ 9.35 Exercised - $ - Canceled or forfeited ( 37,195 ) $ 52.55 Outstanding at December 31, 2023 99,486 $ 39.36 8.79 $ - Granted 1,289,954 $ 1.37 Exercised - $ - Canceled or forfeited ( 30,722 ) $ 11.77 Outstanding at December 31, 2024 1,358,718 $ 3.88 9.36 $ 5 Exercisable at December 31, 2024 83,382 $ 34.45 8.14 $ - (1) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the fair value of the Common Stock for the options that were in the money at December 31, 2024 and December 31, 2023. As of December 31, 2024, there was $ 1.0 million of unrecognized compensation cost related to unvested stock options held by employees and directors, which is expected to be recognized over a weighted-average period of approximately 2.4 years. Share-Based Compensation (RSUs) Restricted Stock Units (“RSUs”) will vest annually over two years, subject to the recipient’s continued service with the Company through the applicable vesting dates. The fair value of each RSU is estimated based on the closing market price of the Company’s Common Stock on the grant date. Share-based compensation expense related to RSUs of $ 0.2 million and $ 0.3 million for the RSUs was recorded in selling, general and administrative expenses in the accompanying consolidated statement of operations for the years ended December 31, 2024 and 2023. As of December 31, 2024, there was $ 0.4 million of unrecognized compensation cost related to unvested RSUs, which is expected to be recognized over a weighted-average period of approximately 1.5 years. The following table summarizes the activity for RSUs during the year ended December 31, 2024 and December 31, 2023: Schedule of Restricted Stock Units Shares Weighted Average Grant Date Fair Value Outstanding balance at December 31, 2022 17,176 $ 52.20 Awarded - $ - Issued ( 8,588 ) $ 52.20 Forfeited ( 3,817 ) $ 52.20 Outstanding balance at December 31, 2023 4,771 $ 52.20 Awarded 450,000 $ 1.06 Issued ( 4,771 ) $ 52.20 Forfeited - $ - Outstanding balance at December 31, 2024 450,000 $ 1.06 F- 25 16. Interest Expense, net Interest expense, net consists of the following: Schedule of Interest Expense, Net For years ended December 31, (in thousands) 2024 2023 Interest expense ( 2,106 ) ( 220 ) Interest expense, related party - ( 22 ) Interest expense - ( 22 ) Contract asset interest expense - ( 358 ) Interest income 71 132 Interest expense, net $ ( 2,035 ) $ ( 468 ) Interest expense is comprised primarily of interest on our convertible notes, short-term loans and line of credit, including amortization of deferred costs. Interest income relates primarily to interest earned on funds deposited in our bank accounts. 17. Other Income, net Other income, net consists of the following: Schedule of Other Income, Net (in thousands) 2024 2023 For years ended December 31, (in thousands) 2024 2023 Gain on termination of operating leases 168 134 Foreign currency transactions 32 ( 114 ) Bank service charges ( 41 ) ( 92 ) Other expense ( 1 ) ( 3 ) Other income (expense), net $ 158 $ ( 75 ) 18. Net Loss per Share Basic net loss per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. As noted in ASC 260-10-45-13, shares issuable for little to no consideration should be included in the number of outstanding shares used for basic earnings per share (“EPS”). As such, the Pre-Funded Warrants were included in the outstanding shares for EPS purposes, until exercised in January 2024. Diluted net loss per common share is calculated by dividing net 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. The 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 2024 2023 For years ended December 31, 2024 2023 Net loss $ ( 17,759 ) $ ( 20,131 ) Weighted average common shares outstanding, basic and diluted 5,516,334 1,546,297 Net loss per share, basic and diluted $ ( 3.22 ) $ ( 13.02 ) The following table sets forth securities that were anti-dilutive for diluted EPS for the periods presented but which could potentially dilute EPS in the future: Schedule of Anti-dilutive Securities Excluded from Computation of Earnings per Share December 31, 2024 2023 Common stock warrants 2,269,356 2,269,356 Common stock options and RSUs 1,808,718 104,257 Unit Purchase Options 20,182 20,182 Series B convertible preferred stock 14,318,632 - Convertible notes 5,384,615 - Total 23,801,503 2,393,795 Anti-dilutive securities 23,801,503 2,393,795 19. Commitments and Contingencies Facility Leases The Company leases its corporate headquarters under an operating lease that expires in November 2025. The Company has the option to extend the term of the lease for one five (5) year period upon written notice to the landlord. The extension period has not been included in the determination of the ROU asset or the lease liability as the Company concluded that it is not reasonably certain that it would exercise this option. The Company provided the landlord with a security deposit in the amount of $ 0.1 million, which was recorded as other assets in the consolidated balance sheets. F- 26 The Company has also entered into a master lease agreement for its vehicles. After an initial non-cancelable twelve-month period, each vehicle is leased on a month-to-month basis. Based on historical retention experience of approximately three years, the vehicles have varying expiration dates through January 2028. The components of lease expense for the year ended December 31, 2024 were as follows (in thousands except lease term and discount rate): Schedule of Components of Lease Expense and Other Information Operating Lease expense December 31, 2024 December 31, 2023 Amortization of ROU assets (operating lease cost) $ 728 $ 560 Interest on lease liabilities 88 84 Total lease expense $ 816 $ 644 Other Information Operational cash flow used for operating leases $ 778 $ 733 ROU assets obtained in exchange for lease liabilities 55 800 Weighted -average remaining lease term (in years) 1.55 2.22 Weighted -average discount rate 8.22 % 7.76 % Future lease payments under non-cancelable leases as of December 31, 2024 were as follows (in thousands): Schedule of Future Commitments and Sublease Income Years ending December 31, Future lease commitments 2025 589 2026 246 2027 44 2028 1 Thereafter - Total future minimum lease payments $ 880 Less imputed interest $ ( 56 ) Total lease liability $ 824 Schedule of Operating Lease Liability Reported as: December 31, 2024 Operating lease liability, current $ 548 Operating lease liability, non-current 276 Total 824 Second A&R Ameluz LSA Sales Commitment The Second A&R Ameluz LSA will remain in effect for 15 years from its effective date and 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 $ 150 million in revenues from Ameluz ® and the RhodoLED ® Lamps over the preceding five (5) year period prior to the Second A&R Ameluz LSA’s termination date, Biofrontera Pharma has the right to terminate the Second A&R Ameluz LSA by providing one (1) year written notice. In addition, starting in 2025, under the Second A&R Ameluz LSA, we are to purchase the higher of (i) a minimum quantity of tubes of Ameluz ® per year as set forth in the Second A&R Ameluz LSA or (ii) 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 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 version of the license and supply agreement with the Ameluz Licensor, 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. F- 27 Licensing Agreement with Optical Tools On 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, and upon notification by the Company to Optical Tools, the research and development of certain prototypes. The Company paid a licensing fee of $ 0.2 million which was expensed during the year ended December 31, 2022. On 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. As 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. The Company did not make any milestone or royalty payments or accruals for such payments during the years ended December 31, 2024 or 2023. Milestone payments with Ferrer Internacional S.A. Under the Xepi license and supply agreement 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 years ended December 31, 2024 or 2023 related to Xepi ® milestones. Legal proceedings At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of FASB ASC Topic 450, Contingencies . The Company expenses as incurred the legal costs related to such legal proceedings. Legal Claims On 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 i) breach of contract, ii) violation of the Lanham Act, and iii) unfair trade practices under Massachusetts law. 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 United States District Court for the District of Massachusetts, this matter has been transferred by agreement of the parties to the United States District Court for the District of New Jersey. In March of 2024, Biofrontera Company filed a partial motion to dismiss the Lanham Act and Massachusetts statutory claims, which was denied on October 15, 2024. Biofrontera subsequently answered Sun’s complaint and filed counterclaims on October 30, 2024 alleging i) violation of the Lanham Act, ii) deceptive trade practices under Georgia law, and iii) trade libel/product disparagement, which Sun answered on December 17, 2024. On March 11, 2025, Biofrontera received an additional notice alleging breach of contract through unlawful marketing practices which makes reference to similar previous communications sent by Sun to Biofrontera on February 4, 2022 and September 9, 2022. Discovery is ongoing in the above-referenced matters. The Company denies the claims brought by Sun and intends to defend them vigorously. Based on the Company’s assessment of the facts underlying the above claims, the uncertainty of litigation and the preliminary stage of the case, the Company cannot estimate the possibility of a material loss, nor the potential range of loss that may result from this action. If the final resolution of the matter is adverse to the Company, it could have a material impact on the Company’s financial position, results of operations, or cash flows. Separately, on June 26, 2024 and June 27, 2024, Sun filed two 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 (“ITC”), both alleging infringement of two patents held by Sun (the “Sun Patents”). The complaint filed in the United States District Court for the District of Massachusetts has been held in abeyance pending the completion of the case before the ITC. A hearing is scheduled to be held in front of an administrative law judge on June 30, 2025, with an Initial Determination expected by October 1, 2025. The Commission’s Final Determination is expected by February 2, 2026. The Company denies Sun’s patent claims and intends to defend them vigorously in the above-referenced matters. In addition, Biofrontera has challenged the validity of the Sun Patents by filing separate petitions for inter partes review at the United States Patent Trial and Appeal Board (“PTAB”) for each of the Sun Patents. One such petition was instituted by the PTAB on February 24, 2025, and an institution decision on the other petition is anticipated to be received from the PTAB in June, 2025. F- 28 Based on the Company’s assessment of the facts underlying the above-referenced patent matters, as well as the uncertainty of litigation, the Company cannot estimate the possibility of a material loss, nor the potential range of loss that may result from either action. Money damages are not available to Sun through the case before the ITC, and an adverse ruling could result in an exclusion order being imposed on the allegedly infringing product. If the final resolution of the case before the United States District Court for the District of Massachusetts is adverse to the Company, it could have a material impact on the Company’s financial position, results of operations, or cash flows. 20. Retirement Plan The Company has a defined-contribution plan under Section 401(k) of Internal Revenue Code (the “401(k) Plan”). The 401(k) Plan covers all employees who meet defined minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. The Company matches 50% of employee contributions up to a maximum of 6% of employees’ salary. Matching contribution costs paid by the Company were $ 0.2 million and $ 0.3 million for the years ended December 31, 2024 and 2023, respectively. 21. Segment Reporting The Company operates as one operating segment, that derives revenue primarily from our principal licensed product, Ameluz ® , which is a prescription drug approved for use in PDT using our RhodoLED ® Lamps, for the treatment of actinic keratoses. We are currently selling Ameluz ® for this indication in the United States under an exclusive license and supply agreement. Ameluz ® (including the RhodoLED® Lamps) accounts for approximately 100% of our revenue. The Company’s CODM is its Chief Executive Officer, who reviews financial information presented on a consolidated basis. The CODM uses consolidated net income to allocate resources and assesses financial performance by comparing actual results to historical results and previously forecasted financial information. The following table presents selected financial information with respect to the Company’s single operating segment for the years ended December 31, 2024, and 2023 : Schedule of Operating Segment ( in thousands) December 31, 2024 December 31, 2023 Revenues, net 37,321 34,071 Operating expenses: Cost of revenues 18,607 17,444 Direct sales 9,058 10,940 Sales support 8,498 9,698 General and administrative 16,279 18,489 Research and development 2,089 77 Other operating expenses - 100 Total operating expenses 54,531 56,748 Loss from operations ( 17,210 ) ( 22,677 ) Other income (expense), net ( 527 ) 2,560 Loss before income taxes ( 17,737 ) ( 20,117 ) Income tax expenses 22 14 Net loss $ ( 17,759 ) $ ( 20,131 ) 22. Subsequent Events We have completed an evaluation of subsequent events after the balance sheet date of December 31, 2024 through the date this Annual Report on Form 10-K was filed with the SEC. There have been no subsequent events that occurred during such period that would require disclosure in or would be required to be recognized in the financial statements as of December 31, 2024. F- 29 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures None.