What changed in this filing

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Item 1. Financial Statements

2025-11-12 compared with 2025-08-13 · 518 added, 485 removed, 466 unchanged (68% of the section changed)

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thousands, except par value and share amounts )

September 30,

Current assets:

14 unchanged sentences

Accounts payable, related parties, net

Accounts payable

Operating lease liabilities

Advance from Stockholders

Accrued expenses and other current liabilities

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20,000,000 shares authorized

no Series B-1 issued;

2,641 and 3,366 Series B-2;

6,593 and 6,763 Series B-3 shares issued and outstanding as of June 30, 2025 and December 31, 2024, respectively

Series B-2 Convertible Preferred, 2,050 and 3,366 issued and outstanding as of September 30, 2025 and December 31, 2024, respectively

Series B-3 Convertible Preferred, 6,593 and 6,763 issued and outstanding as of September 30, 2025 and December 31, 2024, respectively

Series C Convertible Preferred, 8,219 and 0 shares issued and outstanding as of September 30, 2025 and December 31, 2024, respectively

Series D Convertible Preferred, 3,019 and 0 shares issued and outstanding as of September 30, 2025 and December 31, 2024, respectively

Preferred Stock

Common Stock $ 0.001 par value;

70,000,000 shares authorized;

10,138,567 and 8,873,932 shares issued and outstanding as of June 30, 2025 and December 31, 2024, respectively

11,648,323 and 8,873,932 shares issued and outstanding as of September 30, 2025 and December 31, 2024, respectively

Additional paid-in capital

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Product revenues, net

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Loss on debt extinguishment

Interest expense, net

Other income, net

Interest income (expense), net

Other income (expense), net

Total other income (expense)

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

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

thousands, except number of shares)

and Six Months Ended June 30, 2025

Balance, April 1, 2025

Conversion of Series B-2 Preferred

Conversion of Series B-3 Preferred

Stock based compensation

Three and Nine Months Ended September 30, 2025

Preferred Stock

Balance, June 30, 2025

Balance, January 1, 2025

Conversion of Series B-2 Preferred

Conversion of Series B-3 Preferred

Issuance of Series C Preferred

Issuance of Series D Preferred, net of receivable from shareholder

Conversion of Series B-2 Preferred into Common

Conversion of Series C Preferred into Common

Release of Restricted Stock Units

Stock based compensation

Balance, June 30, 2025

and Six Months Ended June 30, 2024

Balance, April 1, 2024

$ ( 110,087 )

Conversion of Series B-1 Preferred

into Series B-2 Preferred

Issuance of Series B-3 upon exercise of warrants

Issuance of RSUs

Balance, September 30, 2025

Balance, December 31, 2024

Issuance of Series C Preferred

Issuance of Series D Preferred, net of receivable from shareholder

Conversion of Series B-2 Preferred into Common

Conversion of Series B-3 Preferred into Common

Conversion of Series C Preferred into Common

Restricted Stock Units released

Stock based compensation

Balance, September 30, 2025

Three and Nine Months Ended September 30, 2024

Preferred Stock

Balance, June 30, 2024

$ ( 110,344 )

Balance, January 1, 2024

Conversion of Series B Preferred into Common

Stock based compensation

Balance, September 30, 2024

Balance, December 31, 2023

Exercise of pre-funded warrants

Conversion of Series B-1 Preferred

into Series B-2 Preferred and common stock

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

Issuance of Series B-3 upon exercise of warrants

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Stock based compensation

Balance, June 30, 2024

$ ( 110,344 )

Balance, September 30, 2024

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

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

Loss on settlement of lease liability

Change in fair value of warrant liabilities

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Cash flows from financing activities

Proceeds from stockholder advances

Proceeds from issuance of Series C preferred stock

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

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Cash flows provided by financing activities

Net increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

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

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

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 the Ameluz Licensor, both of which are related parties.

the closing of the Strategic Transaction on October 20, 2025, we were 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 the Ameluz Licensor,

both of which are related parties.

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

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Transaction with Biofrontera AG

June 30, 2025, the Company signed a binding agreement (the “Term Sheet”) with its former parent company Biofrontera AG,

Biofrontera Pharma, and Biofrontera Bioscience (together, the “Biofrontera Group”) pursuant to which the Company will

acquire all rights in the United States (the “U.S.

Rights”) to Ameluz ® and RhodoLED ® (the

“Strategic Transaction”).

In connection with the Strategic Transaction, additional agreements are to be executed, and

the transfer of the U.S.

Rights is expected to be completed by September 30, 2025.

Under the Term Sheet, and continuing once the

Rights are transferred, the Company will pay a royalty of 12 %

(and 15% in years where Ameluz ® revenue in the United States exceeds $65.0 million).

The royalty will replace the

transfer pricing model under the Company’s Second A&R Ameluz LSA effective as of February 13, 2024 by and among the

Company, and the Biofrontera Group.

Related Party Transactions for additional information.

June 30, 2025, the Company signed a binding agreement (the “Term Sheet”) with its former parent company Biofrontera AG and

its subsidiaries, Biofrontera Pharma and Biofrontera Bioscience (together, the “Biofrontera Group”) pursuant to which the

Company agreed to acquire all rights in the United States (the “U.S.

Rights”) to Ameluz ® and RhodoLED ®

(the “Strategic Transaction”).

In connection with the Strategic Transaction, additional agreements were executed, and the

transfer of the U.S.

Rights was completed on October 20, 2025.

As a result of these actions, the Company will pay a monthly earnout of

12 % in years where Ameluz ® revenue in the United States is at or below $65.0 million and 15% in years where Ameluz ®

revenue in the United States exceeds $65.0 million.

The earnout replaces the transfer pricing model under the Company’s Second

A&R Ameluz LSA effective as of February 13, 2024 by and among the Company, and the Biofrontera Group.

Related Party

Transactions and Note 17.

Subsequent Events for additional information.

exchange for the U.S.

Rights, in addition to the aforementioned royalty and an agreement to transfer all costs associated with the U.S.

business, Biofrontera AG will receive 3,019 shares of Series D Convertible Preferred Stock, par value $ 0.001 per share.

Note 12.Related Party Transactions, Note 18.

Commitments and Contingencies and N ote 20.

Subsequent Events for additional

to the Certificate of Designation of Preferences, Rights and Limitations of the Series D Convertible Preferred Stock (the “Series

D Certificate of Designation”), each share of Series D Convertible Preferred Stock is, subject to certain limitations specified

in the Series D Certification of Designation, immediately convertible at the option of the holders thereof into shares of the Company’s

common stock, par value $ 0.001 per share (the “Common Stock”) and has voting rights on an as-converted basis.

no shares of Series D Convertible Preferred Stock issued as of June 30, 2025.

Subsequent Events for additional

Placement of Series C Preferred Stock

June 27, 2025, as a condition to the Strategic Transaction, the Company entered into a securities purchase agreement (the “Purchase

Agreement”) with certain accredited investors to issue and sell, in a private placement, up to 11,000 shares of Series C Convertible

Preferred Stock, par value $ 0.001 per share (the “Series C Preferred Stock”) at a price of $ 1,000 per share for an aggregate

offering price of $ 11.0 million.

The Series C Preferred Stock offering consisted of two tranches with the first tranche closing on July

Gross proceeds of $ 8.5 million from the first tranche were received on June 30, 2025, in advance of the first tranche closing

(before deducting estimated offering expenses payable by the Company).

The second tranche is expected to close after the Company enters

into definitive documentation to consummate the Strategic Transaction, which is expected to occur on or before September 30, 2025.

gross proceeds from the second tranche are expected to be $ 2.5 million, before deducting estimated offering expenses payable by the Company.

The Company intends to use the net proceeds from the Series C Preferred Stock offering to fund the transfer of costs associated with

the Strategic Transaction and other general corporate purposes.

Advance from Stockholders for additional

Liquidity and

Going Concern

Rights, in addition to the aforementioned earnout and an agreement to transfer all costs associated with the U.S.

business, Biofrontera AG received 3,019 shares of Series D Convertible Preferred Stock, par value $ 0.001 per share (the “Series

D Preferred Stock”).

Related Party Transactions and N ote 17.

Subsequent Events for additional information.

transaction was funded through an $ 11

million investment by existing investors, $ 8.5

million of which was funded at the time the Term Sheet was executed and the remaining $ 2.5

million was funded on October 24, 2025, following the closing of the Strategic Transaction.

Stockholders’ Equity and Note 17.

Subsequent Events .

and Going Concern

consolidated financial statements have been prepared in accordance with U,S.

generally accepted accounting principles (“U.S.

GAAP”) assuming the Company will continue as a going concern.

The going concern assumption contemplates the realization of

assets and satisfaction of liabilities in the normal course of business.

assuming the Company will continue as a going concern.

The going concern assumption contemplates the realization of assets and satisfaction

of liabilities in the normal course of business.

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

The Company incurred net cash outflows from operations of $ 11.0

million and $ 8.0

million for the six months ended June 30, 2025 and 2024, respectively.

The Company had an accumulated deficit as of June 30, 2025 of $ 126.9

The Company’s primary sources of liquidity are

its cash collected from the sales of its products, and cash flows from financing transactions, including $ 8.5

million received in a private placement of Series C Preferred

Stock, with a second tranche to be received on or before September 30, 2025.

As of June 30, 2025, we had cash and cash equivalents of

$ 7.2 million,

compared to $ 5.9 million

as of December 31, 2024.

However, substantial doubt exists about the Company’s ability to continue as a going concern for a period

of at least twelve months from the issuance date of this report.

million and $ 9.3 million for the nine months ended September 30, 2025 and 2024, respectively.

The Company had an accumulated deficit

as of September 30, 2025 of $ 133.6 million.

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

its products, and cash flows from financing transactions, including $ 11.0 million received in a private placement of Series C Preferred

Stock (received in two separate tranches of $ 8.5 million in July 2025 and $ 2.5 million in October 2025).

As of September

30, 2025, we had cash and cash equivalents of $ 3.4 million, compared to $ 5.9 million as of December 31, 2024.

These factors raise substantial

doubt about the Company’s ability to continue as a going concern for a period of at least twelve months from the issuance date

of this report.

Company plans to address the conditions that raise substantial doubt regarding its ability to continue as a going concern by, among

other things, utilizing external financing options, including a short-term line of credit, as well as finalizing the sale of its

Xepi product line within the next one to three months.

However, there can be no assurance that the Company will be successful in

obtaining sufficient funding on acceptable terms, if at all, or close the Xepi disposition as intended.

If the Company is unable to

raise additional 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.

Xepi product line on November 6, 2025.

Subsequent Events .

However, there can be no assurance that the Company

will be successful in obtaining sufficient funding on acceptable terms, if at all.

If the Company is unable to raise additional

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.

consolidated financial statements do not include any adjustments to the carrying amounts and classification of assets, liabilities, and

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disclosures normally included in the annual financial statements prepared in accordance with U.S.

GAAP have been condensed or omitted pursuant to such rules and regulations.

In the Company’s opinion, the

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

necessary to present fairly the Company’s financial position as of June 30, 2025, the Company’s operating results for the

three and six months ended June 30, 2025 and 2024, and the Company’s cash flows for the six months ended June 30, 2025 and 2024.

The accompanying financial information as of December 31, 2024 is derived from audited financial statements.

Interim results are not

necessarily indicative of results for a full year.

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

with the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 20, 2025.

GAAP have been condensed or omitted

pursuant to such rules and regulations.

In the Company’s opinion, the unaudited condensed consolidated financial statements include

all material adjustments, all of which are of a normal and recurring nature, necessary to present fairly the Company’s financial

position as of September 30, 2025, the Company’s operating results for the three and nine months ended September 30, 2025 and 2024,

and the Company’s cash flows for the nine months ended September 30, 2025 and 2024.

The accompanying financial information as of

December 31, 2024 is derived from audited financial statements.

Interim results are not necessarily indicative of results for a full

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

on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 20, 2025.

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

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Nasdaq Stock Market, LLC (“Nasdaq”) Compliance

On May 8, 2025, the Company

received a letter from Nasdaq notifying the Company that the listing of the Common Stock was not in compliance with Nasdaq Listing Rule

5550(a)(2) as the closing bid price of the Common Stock was less than $ 1.00

per share for the previous 33 consecutive business days.

The notice has no present

impact on the listing or trading of the Company’s securities on The Nasdaq Capital Market.

Under Nasdaq Listing Rule 5810(c)(3)(A),

the Company has a period of 180 calendar days, or until November 5, 2025, to regain compliance with the rule referred to in this paragraph.

To regain compliance, during this 180-day compliance period, the closing bid price of the Company’s common stock must be at least

$ 1.00 per share for a minimum of 10 consecutive business days.

the event that the Company does not regain compliance with the Nasdaq Listing Rules prior to the expiration of the 180-day compliance

period ending on November 5, 2025, the Company may be eligible for additional time to regain compliance pursuant to Nasdaq Listing Rule

5810(c)(3)(A)(ii) by meeting the continued listing requirement for market value of publicly held shares and all other applicable standards

for initial listing on The Nasdaq Capital Market, with the exception of the minimum bid price requirement, and providing written notice

to Nasdaq of its intention to cure the deficiency during the second compliance period, by effecting a reverse stock split, if necessary.

Should the Nasdaq staff conclude that the Company will not be able to cure the deficiency, or if the Company does not meet other listing

standards, Nasdaq could provide notice that the Company’s securities will be subject to delisting.

At such time, the Company may

appeal the delisting determination to a Hearings Panel.

The Company intends to actively

monitor the closing bid price of its common stock and, as appropriate, will consider available options to resolve the deficiency and

regain compliance with the Nasdaq Listing Rules.

There can be no assurance that the Company will be able to regain compliance with

Rule 5550(a)(2) or maintain compliance with the other listing requirements of the Nasdaq Capital Market.

May 21, 2025, the Company received a letter (the “Notice”) from Nasdaq notifying the Company that, because the

Company’s stockholders’ equity as reported in its Quarterly Report on Form 10-Q for the period ended March 31, 2025 was $ 0.5

million, the Company is no longer in compliance with the continued listing requirement under Nasdaq Listing Rule 5550(b) (1), which requires

May 8, 2025, the Company received a letter from Nasdaq notifying the Company that the listing of the Common Stock was not in compliance

with Nasdaq Listing Rule 5550(a)(2) as the closing bid price of the Common Stock was less than $ 1.00 per share for the previous 33 consecutive

business days.

notice had no present impact on the listing or trading of the Company’s securities on Nasdaq.

Listing Rule 5810(c)(3)(A), the Company had a period of 180 calendar days, or until November 5, 2025, to regain compliance with the

rule referred to in this paragraph.

The Company has since then regained compliance with Listing Rule 5550(a)(2).

Subsequent Events for additional information.

May 21, 2025, the Company received a notice from Nasdaq notifying the Company that, because the Company’s

stockholders’ equity as reported in its Quarterly Report on Form 10-Q for the period ended March 31, 2025 was $ 0.5 million, the

Company was no longer in compliance with the continued listing requirement under Nasdaq Listing Rule 5550(b) (1), which requires

that a listed company’s stockholders’ equity be at least $2.5 million.

Additionally, as of the date of the Notice or as of

June 30, 2025, the Company did not meet either of the alternative requirements of maintaining a market value of listed securities of

$35 million or achieving a net income from continuing operations of $0.5 million in the most recently completed fiscal year or in two

of the last three most recently completed fiscal years.

As a result, as of the date of this Report, the Company does not satisfy Nasdaq

Marketplace Rule 5550(b).

Notice has no immediate effect on the listing or trading of the Company’s securities on the Nasdaq Capital Market.

submitted a plan to regain compliance with the Nasdaq Listing Rule 5550(b)(1) to Nasdaq and on July 24, 2025 was granted an

extension of time to regain compliance with this rule on or before October 10, 2025.

Additionally, as of the date of the notice and as of

September 30, 2025, the Company did not meet either of the alternative requirements of maintaining a market value of listed securities

of $35 million or achieving a net income from continuing operations of $0.5 million in the most recently completed fiscal year or in

two of the last three most recently completed fiscal years.

notice had no immediate effect on the listing or trading of the Company’s securities on Nasdaq.

The Company submitted a plan to

regain compliance with the Nasdaq Listing Rule 5550(b) (1)

to Nasdaq and on July 24, 2025 was subsequently granted an extension of time to regain compliance with this rule on or before October

As of the date of this Report, the Company believes its stockholders’ equity exceeds $5 million, which exceeds the amount

required for continued listing on Nasdaq under Nasdaq Listing Rule 5550(b)(1).

Nasdaq will continue to monitor the Company’s ongoing

compliance with the stockholders’ equity requirement and, if at the time of its next periodic report the Company does not evidence

compliance, it may be subject to delisting.

Subsequent Events for additional information .

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

GAAP requires the use of estimates and assumptions

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

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

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,

deferred tax asset valuations, and contingent liability recognition.

Estimates are based on historical experience and other assumptions

that are considered appropriate in the circumstances.

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, deferred tax

asset valuations, 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.

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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.

Early adoption is permitted and the amendments should be applied

on a prospective basis.

ASU 2023-09 did not have any impact on the interim disclosures in 2025.

We are evaluating the

effect that this guidance will have on our annual consolidated financial statements and related disclosures.

November 2024, the FASB issued ASU 2024-03, I ncome

Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement

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.

We are evaluating the effect

that this guidance will have on our annual consolidated financial statements and related disclosures.

November 2024, the FASB issued ASU 2024-03, Income 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.

November 2024, the FASB issued ASU 2024-04, Debt with Conversion and Other Options (Subtopic 470-20);

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guidance will have on our consolidated financial statements and related disclosures.

September 2025, the FASB issued ASU 2025-06, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40):

Improvements to the Accounting for Internal-Use Software, which updates accounting for internal-use software by eliminating the

concept of development stages.

Under the updated guidance, software costs are capitalized once management has authorized and

committed to funding the project, and it is probable that the project will be completed and the software will be used to perform

the function intended.

The provisions of ASU 2025-06 are effective for annual reporting periods beginning after December 15, 2027,

and interim reporting periods within those annual reporting periods.

Early adoption is permitted, and the guidance may be applied

prospectively, retrospectively, or via a modified prospective transition method.

We are currently evaluating the effect of adopting

ASU 2025-06 on our consolidated financial statements and related disclosures.

September 2025, the FASB issued ASU 2025-07 Derivatives and Hedging (Topic 815) and Revenue from Contracts with Customers (Topic 606) ,

which provides updates to refine the scope of the guidance on derivatives in ASC 815 and clarify the guidance on share-based noncash

payments from customers in ASC 606.

The derivative scope refinement excludes non-exchange-traded contracts with derivative accounting

apart from variables based on market rates, prices and indices, variables based on the price or performance of a financial asset or liability

of one of the parties to a contract, contracts involving the issuer’s own equity evaluated under ASC 815-40 and call or put options

on debt instruments.

The amendments in ASU 2025-07 are effective for annual reporting periods beginning after December 15, 2026, and

interim reporting periods within those annual reporting periods and should be applied either prospectively or on a modified retrospective

We are currently evaluating the effect of adopting ASU 2025-06 on our consolidated financial statements and related

Fair Value Measurements

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

2025 and December 31, 2024 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair

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

30, 2025 and December 31, 2024 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such

Schedule of Fair Value Hierarchy Valuation Inputs

(in thousands)

September 30,

Investment, related party

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related party

of June 30, 2025 and December 31, 2024, the Company owned 3,019 common shares of Biofrontera AG.

The fair value of this

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

warrant liabilities are comprised of (i) outstanding warrants to purchase 170,950 shares of the Company’s Common Stock originally

of September 30, 2025 and December 31, 2024, the Company owned 3,019 common shares of Biofrontera AG.

The fair value of this investment

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

warrant liabilities are comprised of outstanding (i) warrants to purchase 170,950 shares of the Company’s 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

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

Company utilizes a Black-Scholes-Merton (“BSM”) model to estimate the fair value of the warrant liabilities which is considered

a Level 3 fair value measurement.

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

outside of the Company’s control.

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

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

being reported in our consolidated statement of operations.

Company utilizes a Black-Scholes-Merton (“BSM”) model to estimate the fair value of the warrant liabilities which is

considered a Level 3 fair value measurement.

Certain inputs utilized in our BSM model may fluctuate in future periods based upon

factors which are outside of the Company’s control.

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

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

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

The fair value of these warrants was

determined using the BSM model based on the following range of assumptions for the three and six months ended June 30, 2025:

of the underlying common stock of $ 0.71 to $ 0.80 , expected volatility of 100 %, risk free rate of 3.66 % to 3.87 %, remaining contractual

term of 3.34 to 3.59 years and a dividend yield of 0 %.

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

contractual term.

determined using the BSM model based on the following range of assumptions for the three and nine months ended September 30, 2025:

fair value of the underlying common stock of $0.71 to $ 0.99 ,

expected volatility of 100 %,

risk free rate of 3.58 %

to 3.87%, remaining contractual term of 3.09

to 3.59 years and a dividend yield of 0 %.

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

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

of Changes in Fair Value Warrant Liabilities

Six Months Ended

Nine Months Ended

September 30,

Fair value at beginning of period

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

At June 30, 2025, approximately $ 6.9 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.

At September 30, 2025, approximately $ 2.7 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.

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

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(in thousands)

September 30,

Cash and cash equivalents

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

allowance for credit losses was $ 0.1 million and $ 0.2 million as of June 30, 2025 and December 31, 2024, respectively.

allowance for credit losses was $ 0.1 million and $ 0.2 million as of September 30, 2025 and December 31, 2024, respectively.

consist of finished goods of Ameluz ® and the RhodoLED ® lamps.

was no provision for obsolescence recorded for the six months ended June 30, 2025 and a negligible amount for the year ended December

was no provision for obsolescence recorded for the nine months ended September 30, 2025 and a negligible amount for the year ended December

Asset Held for Sale

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(in thousands)

September 30,

Xepi® license

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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 third quarter and, as such, has classified the asset as held for sale under current assets in the

condensed 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 Condensed Statement of Operations

upon classification as an asset held for sale and the related revenue and expenses associated with the asset were de-minimus.

been no subsequent changes to fair value as of June 30, 2025 and the date of this report.

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 Company has classified the asset as held for sale

under current assets in the condensed consolidated balance sheets, and finalized the sale on November 6, 2025 (See Note.

17 Subsequent

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 Condensed Statement of Operations upon classification

as an asset held for sale and the related revenue and expenses associated with the asset were de-minimus.

There have been no subsequent

changes to fair value as of September 30, 2025 and the date of this report.

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.

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.

Advance from Stockholders

June 27, 2025, the Company entered the Purchase Agreement with certain accredited investors to issue and sell, in a private placement

up to 11,000 shares of Series C Preferred Stock at a price of $ 1,000 per share for an aggregate offering price of $ 11.0 million.

first tranche closed on July 1, 2025, providing gross proceeds of $ 8.5 million, before deducting estimated offering expenses payable

by the Company.

The second tranche is expected to close after the Company enters into definitive documentation to consummate the Strategic

Transaction, which is expected to occur on or before September 30, 2025.

The gross proceeds from the second tranche are expected to be

$ 2.5 million, before deducting estimated offering expenses payable by the Company.

The Company intends to use the net proceeds to fund

the Company’s continued operations and satisfy certain financial obligations to Biofrontera AG which originated from the LSA and

survived under the terms of the Strategic Transaction.

Organization and Business Overview for additional information.

June 30, 2025, the proceeds of $ 8.5 million received for the Series C Preferred Stock were recorded as an advance from stockholders,

as the stock was not issued until July 1, 2025.

Stockholders’ Equity , for additional details.

Accrued Expenses and Other Current Liabilities

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(in thousands)

September 30,

Employee compensation and benefits

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There were no events

of default at June 30, 2025.

of default at September 30, 2025.

Notes are secured by substantially all property of the Company, including but not limited to the Company’s assets, inventory, intellectual

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Company’s evaluation, there were no embedded features that required bifurcation as a derivative liability.

the three and six months ended June 30, 2025 the Company recognized interest expense of approximately $ 0.1 million and $ 0.2 million,

the three and nine months ended September 30,2025 the Company recognized interest expense of approximately $ 0.1 million and $ 0.4 million,

respectively, and minimal discount amortization.

As of June 30, 2025 and December 31, 2024, the outstanding balance of the

Notes was $ 4.3 million and $ 4.1 million, respectively, which is shown net of the remaining unamortized issuance cost of $ 0.1 million.

As of September 30, 2025 and December 31, 2024, the outstanding balance of the Notes

was $ 4.5 million and $ 4.1 million, respectively, which is shown net of the remaining unamortized issuance cost of $ 0.1 million.

Related Party Transactions

consider Biofrontera AG and its consolidated subsidiaries to be a related party, as we rely on the Biofrontera Group as the sole supplier

of Ameluz ® and the RhodoLED ® Lamps.

consider Biofrontera AG and its consolidated subsidiaries to be a related party, as prior to the Strategic Transaction closing on

October 20, 2025, we relied on the Biofrontera Group as the sole supplier of Ameluz ® and the RhodoLED ® Lamps.

due and payable to Biofrontera Group as of September 30, 2025 and December 31, 2024 were $ 2.0 million and $ 5.3 million, respectively,

and were recorded in accounts payable, related parties net of applicable accounts receivable in the condensed consolidated balance sheets.

Transaction with Biofrontera Group

June 30, 2025, the Company signed a binding Term Sheet with the Biofrontera Group pursuant to which the Company will acquire all

rights in the United States to Ameluz ® and RhodoLED ® .

In connection with the Strategic Transaction,

additional agreements are to be executed, and the transfer of the U.S.

Rights is expected to be completed by September 30, 2025.

Under the Term Sheet, and continuing once the U.S.

Rights are transferred, the Company will pay a royalty of 12 %

(and 15% in years where Ameluz ® revenue in the United States exceeds $65.0 million).

The royalty will replace the

transfer pricing model under the Company’s Second A&R Ameluz LSA effective as of February 13, 2024 by and among the

Company, and the Biofrontera Group.

June 30, 2025, the Company signed a binding Term Sheet with the Biofrontera Group pursuant to which the Company agreed to acquire

all rights in the United States to Ameluz ® and RhodoLED ® .

In connection with the Strategic

Transaction, additional agreements were executed, and the transfer of the U.S.

Rights was completed on October 20, 2025.

of these actions, the Company will pay a monthly earnout of 12 %

in years where Ameluz ® revenue in the United States is at or below $65.0 million and 15% in years where

Ameluz ® revenue in the United States exceeds $65.0 million.

The earnout replaces the transfer pricing model under the

Company’s Second A&R Ameluz LSA effective as of February 13, 2024 by and among the Company, and the Biofrontera Group.

Subsequent Events.

exchange for the U.S.

Rights, in addition to the aforementioned royalty and an agreement to transfer all costs associated with the U.S.

business, the Biofrontera Group will receive 3,019 shares of Series D Convertible Preferred Stock, par value $ 0.001 per share, which

represents a 10% post-money equity stake in the Company.

See N ote 18.

Subsequent Events for additional information.

to the Series

D Certificate of Designation each share of Series D Convertible Preferred Stock is, subject to certain limitations specified

in the Series D Certification of Designation, convertible at the option of the holders thereof into shares of the Company’s common

stock, par value $0.001 per share (the “Common Stock”) and has voting rights on an as-converted basis.

There were no shares

of Series D Convertible Preferred Stock issued, purchases of inventory or sales of inventory under the new terms of the Strategic Transaction

as of June 30, 2025 .

Subsequent Events for additional information.

a condition precedent to the Strategic Transaction, the Company paid $ 3.1 million

for the settlement of costs which included the payment of all outstanding invoices due to the Biofrontera Group under the current

Second A&R Ameluz LSA as of June 16, 2025, payment of outstanding invoices due to component suppliers for the Lamps as of such date, and

payments for RhodoLED® lamps and the production cost of two batches of Ameluz produced prior to June 30, 2025

(which were delivered during the first week of July 2025).

As of June 30, 2025, the Company accrued approximately $ 0.4

million of expenses related to the Strategic Transaction, primarily for legal expenses and some salaries and wages, which were

recorded in accounts payable, related parties net of applicable accounts receivable in the condensed consolidated balance sheets.

of June 30, 2025, the Company also recorded $ 1.0

million in other assets, related party for prepaid amounts for inventory-related purchases in accordance with the Strategic

and Supply Agreement

the Second A&R Ameluz LSA (applicable for any tubes purchased through May 31, 2025), the Company had an exclusive, non-transferable

license to market and sell its licensed products, Ameluz ® and RhodoLED ® Lamps, in the United States and

was required to purchase the licensed products exclusively from Biofrontera Pharma, pursuant to which the price paid per unit was based

on certain percentages of the anticipated net selling price (the “Transfer Price”) that covered the cost of goods, royalties

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

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

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

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

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

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

anticipated net selling price per unit indefinitely.

The Second A&R Ameluz LSA also

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.

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.

were no purchases of the licensed products for the three months ended June 30, 2025.

Purchases of the licensed products (inclusive of

estimated and actual purchase price adjustments) were $ 0 and $ 3.0 million during the three and six months ended June 30,

2025, respectively, and $ 0.8 million and $ 1.1 million during the three and six months ended June 30, 2024, respectively.

These purchases were recorded in inventories in the condensed 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 June 30, 2025 and December 31,

2024 were $ 0.4 million and $ 5.3 million, respectively, and were recorded in accounts payable, related parties net of applicable accounts

receivable in the condensed consolidated balance sheets.

with Biofrontera Bioscience

expenses paid to Biofrontera Bioscience for clinical trial costs as well as rent expense for the three and six months ended June 30,

2025 were $ 0.1 million and $ 0.2 million, respectively.

There were no amounts due from or payable to Biofrontera Bioscience as of June

Rights, in addition to the aforementioned earnout and an agreement to transfer all costs associated with the U.S.

business, the Biofrontera Group received 3,019 shares of Series D Preferred Stock on July 2, 2025, par value

$ 0.001 per share, which represents a 10% post-money equity stake in the Company.

Stockholders Equity .

addition, the Company agreed to assume the defense of co-defendant Biofrontera Group and all costs associated therewith in connection

with certain legal actions pending in the United States which will be paid directly to the legal advisors by the Company.

the legal claims are disclosed in Note 15.

Commitments and Contingencies – Legal Claims.

as of the date of the Strategic Transaction and for the following three years, as long as Biofrontera AG holds any shares of Series D

Convertible Preferred Stock (or shares of Common Stock that were converted from Series D Convertible Preferred Stock), Biofrontera AG

shall have the right to appoint (i) if the board consists of seven or fewer members, one individual to the Company’s board of directors

or (ii) if the board consists of eight or more directors the right to appoint two individuals .

No appointments have been

made through the filing date.

Preferred Stock (or shares of Common Stock that were converted from Series D Preferred Stock), Biofrontera AG shall have the right to

appoint (i) one individual to the Company’s board of directors if the board consists of seven or fewer members;

or (ii) if the

board consists of eight or more directors the right to appoint two individuals.

No appointments have been made through the filing date.

of the licensed products (inclusive of estimated and actual purchase price adjustments) were $ 2.7 million and $ 7.7 million during the

three and nine months ended September 30, 2025, respectively, and $ 2.2 million and $ 3.3 million during the three and nine months ended

September 30, 2024, respectively.

These purchases were recorded in inventories in the condensed consolidated balance sheets, and, when

sold, in cost of revenues, related party in the consolidated statements of operations.

amounts paid to the Biofrontera Group for expenses related to sales of products in the US, including but not limited to product production,

quality control, pharmacovigilance, regulatory activities as well as rent for the three and nine months ended September 30, 2025 were

$ 0.3 million and $ 0.5 million, respectively.

Stockholders’ Equity

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and non-assessable.

As of June 30, 2025, there were 10,138,567 shares of Common Stock outstanding.

of June 30, 2025 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.

As of September 30, 2025, there were 11,648,323 shares of Common Stock outstanding.

of September 30, 2025 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 June 30, 2025 is presented below.

A summary of the

warrants outstanding as of September 30, 2025 is presented below.

of Warrants Outstanding

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Equity classified

B Preferred Stock:

B Convertible Preferred Stock

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)

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

per share (the “Series B-1 Preferred Stock”), and

(ii) warrants to purchase 8,000

shares of Series B-3 Convertible Preferred Stock, par value

per share (the “Series B-3 Preferred Stock”) for

an aggregate offering price of $ 8.0

million (the “2024 Preferred Warrants”).

The conversion

price of Series B-1 Preferred Stock and Series B-3 Preferred Stock is $ 0.7074

per share of Common Stock, such that each Series B share is

convertible into 1,413

shares of the Common Stock.

All of the 2024 Preferred Warrants

were exercised for Series B-3 Preferred Stock during the second quarter of 2024.

As of June 30, 2025, there were 2,641

of Series B-2 Preferred Stock and 6,593

of Series B-3 Preferred Stock issued and outstanding (convertible into 13,047,642

of Common Stock).

Pursuant to the Preferred Purchase Agreement, the Company may be compelled to appoint two independent directors designated

by Rosalind Advisors, Inc.

6,586 shares of Series B-1 Convertible Preferred Stock, par value $ 0.001 per share (the “Series B-1 Preferred Stock”), and

(ii) warrants 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 (the “2024 Preferred Warrants”).

The conversion price of Series

B-1 Preferred Stock and Series B-3 Preferred Stock is $ 0.7074 per share of Common Stock, such that each Series B share is convertible

into 1,413 shares of the Common Stock.

All of the 2024 Preferred Warrants were exercised for Series B-3 Preferred Stock during the second

quarter of 2024.

As of September 30, 2025, there were 2,050 shares of Series B-2 Preferred Stock and 6,593 shares of Series

B-3 Preferred Stock issued and outstanding (convertible into 12,212,599 shares of Common Stock).

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 June 30, 2025.

See rights and preferences

of the Series B Preferred Stock as previously disclosed in the Company’s Form 10-K for the year ended December 31, 2024.

C Preferred Stock

connection with entering into the Purchase Agreement, on June 30, 2025, the Company filed the Series C Certificate of Designation with

the Delaware Secretary of State designating 11,000 shares of its authorized and unissued preferred stock as Series C Preferred Stock,

each with a stated value of $ 1,000 per share.

The Series C Certificate of Designation sets forth the rights, preferences and limitations

of the shares of Series C Preferred Stock.

were no shares of Series C Preferred Stock issued and outstanding as of June 30, 2025.

D Preferred Stock

connection with the Strategic Transaction, on June 30, 2025, the Company filed the Series D Certificate of Designation with the Delaware

Secretary of State designating 3,019 shares of its authorized and unissued preferred stock as Series D Preferred Stock (the “Series

D Preferred Stock”), each with a stated value of $ 1,000 per share.

The Series D Certificate of Designation sets forth the rights,

preferences and limitations of the shares of Series D Preferred Stock.

were no shares of Series D Preferred Stock issued and outstanding as of June 30, 2025.

No such appointment has been made as of September 30, 2025.

See rights and preferences of the Series B Preferred Stock as previously

disclosed in the Company’s Form 10-K for the year ended December 31, 2024.

C Convertible Preferred Stock

a condition precedent for the Strategic Transaction, the Company entered into a securities purchase agreement with certain accredited

investors, pursuant to which the Company agreed to issue and sell, in a private placement up to 11,000 shares of Series C Convertible

Preferred Stock, par value $ 0.001 per share (the “Series C Preferred Stock”) at a price of $ 1,000 per Series C Preferred

Share for an aggregate offering price of $ 11.0 million.

The offering consisted of two tranches, of which the first tranche of 8,500 Series

C Preferred Shares closed on July 1, 2025.

Subsequent Events for additional information on the second tranche.

June 30, 2025, the Company filed a Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred

with the Delaware Secretary of State (the “Series C Certificate of Designation”) designating 11,000 shares of its authorized

and unissued preferred stock as Series C Preferred Stock each with a stated value of $ 1,000 per share.

As of September 30, 2025, there

were 8,219 shares of Series C Preferred Stock issued and outstanding with the following terms, pursuant to the Series C Certificate of

Holders of Series C Preferred Stock will be entitled to one vote for each whole share of Common Stock into which their

Series C Preferred Stock is then-convertible on all matters submitted to a vote of stockholders, subject to certain limitations.

Each share of Series C Preferred Stock is, subject to certain limitations, immediately convertible at the option of the holder thereof

into the number of shares of the Company’s Common Stock equal to the original share price of $ 1,000 divided by 0.6249 , rounded

down to the nearest whole share.

Liquidation .

Upon any liquidation, the assets of the Company available for distribution to its stockholders shall be distributed among the

holders of the shares of Series C Preferred Stock, Series D Preferred Stock, any other classes of capital stock with liquidation

rights and Common Stock, pro rata based on the number of shares of Common Stock held by each such holder, treating

for this purpose all shares of Series C Preferred Stock as if they had been converted to Common Stock immediately prior to such

liquidation, without regard to any limitations on conversion or otherwise.

D Convertible Preferred Stock

connection with the Strategic Transaction, on June 30, 2025, the Company filed the Certificate of Designation of Preferences, Rights

and Limitations of Series D Convertible Preferred Stock with the Delaware Secretary of State (the “Series D Certificate of

Designation”) designating 3,019 shares of its authorized and unissued preferred stock as Series D Preferred Stock each with a

stated value of $ 1,000 per share.

There were 3,019 shares of Series D Preferred Stock issued and outstanding as of September 30,

The Series D Preferred Stock was issued on July 2, 2025, however, the related

Strategic Transaction was not finalized until October 20, 2025, creating a receivable for the issuance of equity shares as of September

In accordance with ASC 505-10-45-2 Receivables for Issuance of Equity reporting the receivable as an asset is generally

not appropriate.

Therefore, the related receivable for the issuance of Series D Preferred Stock was recognized net of the issuance in

The Series D Preferred Stock was booked at par value and the fair value will be applied once the asset acquisition is

completed in October of 2025.

Subsequent Events.

following is a summary of the terms of the Series D Preferred Stock pursuant to the Series D Certificate of Designation:

Holders of Series D Preferred Stock will be entitled to one vote for each whole share of Common Stock into which their

Series D Preferred Stock is then-convertible on all matters submitted to a vote of stockholders, subject to certain limitations.

Each share of Series D Preferred Stock, subject to certain limitations, is immediately convertible at the option of the holder thereof

into the number of shares of the Company’s Common Stock equal to the original share price of $ 1,000 divided by 0.6249 , rounded

down to the nearest whole share.

Liquidation .

Upon any liquidation, the assets of the Company available for distribution to its stockholders shall be distributed among the holders

of the shares of Series D Preferred Stock, Series C Preferred Stock, any other classes of capital stock with liquidation rights and Common

Stock, pro rata based on the number of shares of Common Stock held by each such holder, treating for this purpose all shares of Series

D Preferred Stock as if they had been converted to Common Stock immediately prior to such liquidation, without regard to any limitations

on conversion or otherwise.

as of the date of the Strategic Transaction and for the following three years, as long as Biofrontera AG holds any shares of Series D

Preferred Stock (or shares of Common Stock that were converted from Series D Preferred Stock), Biofrontera AG shall have the right to

appoint (i) one individual to the Company’s board of directors if the board consists of seven or fewer members;

or (ii) if the

board consists of eight or more directors the right to appoint two individuals.

No appointments have been made through the filing date.

November 22, 2024, the Company issued $ 4.2 million in an aggregate principal amount of the Notes.

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shares of Common Stock to be issued upon conversion for principal plus additional shares for PIK interest.

Debt - Convertible

Notes Payable , for additional details.

for additional details.

Preferred Stock

issuance, the Series C Preferred and Series D Preferred Stock were redeemable in the event of a change in control that was not solely

within the control of the Company.

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

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.

The Series C Preferred and Series D Preferred Stock had preference in liquidation over common stock

upon deemed liquidation events that were not solely within the issuer’s control.

As such the limited scope exception for permanent

equity did not apply and the Series C Preferred and Series D Preferred Stock were classified as mezzanine equity at issuance.

the Special Shareholder Meeting on September 16, 2025, the Series C Preferred and Series D Preferred holders are entitled

to receive the same form of consideration upon a liquidation event.

Accordingly, the Series C Preferred and Series D Preferred stock

were reclassified as permanent equity on our consolidated balance sheets and consolidated statements of change in stockholders’

equity as of September 30, 2025, due to the limited exception under ASC 480-10-S99-3A(3)(f).

Equity Incentive Plans and Share-Based Payments

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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.

June 30, 2025, there were 1,983,641 shares available for future awards under the amended 2021 Plan.

September 30, 2025, there were 1,096,532 shares available for future awards under the amended 2021 Plan.

Non-qualified

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requisite service period.

The fair value of stock options is estimated at the time of grant using the BSM 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 fair value of stock options is estimated at the time of grant using either a binomial lattice pricing model

(“Lattice”) or the BSM model for “plain vanilla’ options, each of which requires the use of inputs and assumptions

such as the fair value of the underlying stock, exercise price of the option, expected term, risk-free interest rate, expected volatility

and dividend yield.

The Company elects to account for forfeitures as they occur.

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

There were no equity grants during

the three and six months ended June 30, 2025.

compensation expense related to stock options of approximately $ 0.1 million and $ 0.3 million was recorded in selling, general and administrative

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

the three and six months ended June 30, 2025, respectively.

Share-based compensation expense related to stock options of $ 0.2 million

and $ 0.3 million was recorded in selling, general and administrative expenses, with a negligible amount recorded as research and development,

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

outstanding and exercisable under the employee share option plan as of June 30, 2025, and a summary of option activity during the six

months then ended is presented below.

The assumptions and key inputs used in the Lattice model

for the stock options granted in the third quarter were:

valuation date stock price of $ 0.90 to $ 0.92 , exercise price of $ 1.00 , risk-free

rate of approx.

4.3 %, volatility of 95 %, a dividend yield of 0.0 %, and an option exercise multiple of 2.50 x.

compensation expense related to stock options of approximately $ 0.2 million and $ 0.5 million was recorded in selling,

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

of operations, for the three and nine months ended September 30, 2025, respectively.

Share-based compensation expense related to stock

options of $ 0.2 million and $ 0.3 million was recorded in selling, general and administrative expenses, with a negligible amount recorded

as research and development, for the three and nine months ended September 30, 2024, respectively.

outstanding and exercisable under the employee share option plan as of September 30, 2025, and a summary of option activity during the

nine months then ended is presented below.

of Stock Option Activity

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Canceled or forfeited

Outstanding at June 30, 2025

Exercisable at June 30, 2025

Outstanding at September 30, 2025

Exercisable at September 30, 2025

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

of the Common Stock for the options that were in the money at June 30, 2025 and December 31, 2024.

of June 30, 2025, there was $ 0.7 million of unrecognized compensation cost related to unvested stock options, which is expected to be

recognized over a weighted-average period of approximately 2.02 years.

of the Common Stock for the options that were in the money at September 30, 2025 and December 31, 2024.

of September 30, 2025, there was $ 0.9 million of unrecognized compensation cost related to unvested stock options, which is expected

to be recognized over a weighted-average period of approximately 1.5 years.

Compensation (RSUs)

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Common Stock on the grant date.

compensation expense for the RSUs was $ 0.1 million for both the three and six months ended June 30, 2025, and was negligible and $ 0.1

million for the three and six months ended June 30, 2024, respectively, and was recorded in selling, general and administrative expenses

in the accompanying consolidated statements of operations.

of June 30, 2025, there was $ 0.2 million of unrecognized compensation cost related to unvested RSUs, which is expected to be recognized

compensation expense for the RSUs was $ 0.1 million and $ 0.2 million for the three and nine months ended September 30, 2025, respectively

and was negligible and $ 0.1 million for the three and nine months ended September 30, 2024, respectively, and was recorded in selling,

general and administrative expenses in the accompanying consolidated statements of operations.

of September 30, 2025, there was $ 0.3 million of unrecognized compensation cost related to unvested RSUs, which is expected to be recognized

over a period of approximately 1.25 years.

The following table summarizes the activity for RSUs during the six months ended June 30, 2025:

following table summarizes the activity for RSUs during the nine months ended September 30, 2025:

of Restricted Stock Units

Weighted Average Remaining Contractual Term

Weighted Average Grant Date Fair Value

Weighted Average

Grant Date Fair

Outstanding at December 31, 2024

Canceled or forfeited

Outstanding at June 30, 2025

Outstanding at September 30, 2025

Net Loss per Share

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Weighted average common shares outstanding, basic and diluted

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

September 30,

Common stock warrants

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Shares related to Series B-3 convertible preferred stock

Shares related to Series C convertible preferred stock

Shares related to Series D convertible preferred stock

Convertible Notes

Anti-dilutive securities

Stock warrants include the 2022 Purchase Warrants, 2023 Purchase Warrants, 2022 Inducement Warrants and warrants issued in

the Company’s initial public offering.

Stock warrants include the 2022 Purchase Warrants, 2023 Purchase Warrants, 2022 Inducement Warrants and warrants issued in the Company’s

initial public offering.

Commitments and Contingencies

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 a 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

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.

July 30, 2025 the Company entered into an agreement to lease new office space at 660 Main Street, Woburn, MA.

The lease term

is for 63 months and is scheduled to commence on December 1, 2025.

Under the terms of the agreement, the Company is entitled to a rent-free

period for the first three months of the lease and reduced rent payments for months four through nine.

The lease has not been recognized

on the balance sheet as the commencement date has not occurred.

Total future rent payments not yet reflected on the balance sheet will

be approximately $ 1.6 million over the full term.

Company currently leases its corporate headquarters under an operating lease that expires in November 2025.

The Company opted not to

extend the term of the lease for a five (5)-year period .

The extension period was not included in the determination of the ROU asset

or the lease liability as the Company concluded that it was 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.

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

3 unchanged sentences

expiration dates through August 2028.

lease payments under non-cancellable leases as of June 30, 2025 were as follows (in thousands):

lease payments under non-cancellable leases as of September 30, 2025 were as follows (in thousands):

of Future Commitments and Sublease Income

7 unchanged sentences

Operating lease liability, non-current

A&R Ameluz LSA and Term Sheet Sales Commitments

Second A&R Ameluz LSA, as amended by the Term Sheet, shall be terminated, replaced, or amended (to the extent necessary)

in connection with the Strategic Transaction.

As it currently stands, t he

Second A&R Ameluz LSA, is to 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.

addition, effective 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.

If we fail to achieve the respective minimum for any calendar year, such

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

agreed to in connection with the Strategic Transaction and pursuant to the Term Sheet, until the earlier to occur of (i)

the total cumulative Royalty paid to Sellers from June 1, 2025 to May 31, 2031 exceeds $50 million, or (ii) the expiration of patent

protection on the Products allows for generic competition with the Products in the United States (collectively, the “Minimum

Royalty Term”), we are subject to a minimum annual Ameluz sales volume of 80,000 tubes.

If such minimum annual volume is not

met during the Minimum Royalty Term and the Company does not otherwise pay minimum annual royalties of 12% of the net revenues of

80,000 tubes of Ameluz, the Biofrontera Group shall be entitled to minimum annual royalties of 12% of the net revenues of 80,000

tubes of Ameluz plus annual interest of 4%.

Except in the case of certain limited exceptions, our failure to achieve this

sales volume during this timeframe for two consecutive years will constitute a termination event, unless waived by the Ameluz

Ameluz Minimum

Research and Development Costs

As it currently stands, the Second A&R Ameluz LSA provides that, 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.

It is anticipated that this requirement to fund minimum R&D costs will no longer apply once the Second A&R

Ameluz LSA is terminated, replaced, or amended (to the extent necessary) in connection with the Strategic Transaction.

Agreement with Optical Tools

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

Company did not make any milestone or royalty payments or accruals for such payments during the three and six months ended June 30, 2025

Company did not make any milestone or royalty payments or accruals for such payments during the three and nine months ended September

30, 2025 or 2024.

A&R Ameluz LSA and Term Sheet Sales Commitments

Second A&R Ameluz LSA, as amended by the Term Sheet, shall continue in full force and effect until the date of the Strategic Transaction

of October 20 2025, at which time it shall be terminated.

Second A&R Ameluz LSA, is to 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.

addition, effective 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.

If we fail to achieve the respective minimum for any calendar year, such

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

agreed to in connection with the Strategic Transaction and pursuant to the Term Sheet, until the earlier to occur of (i) the total cumulative

Royalty paid to Sellers from June 1, 2025 to May 31, 2031 exceeds $50 million, or (ii) the expiration of patent protection on the Products

allows for generic competition with the Products in the United States (collectively, the “Minimum Royalty Term”), we are

subject to a minimum annual Ameluz sales volume of 80,000 tubes.

If such minimum annual volume is not met during the Minimum Royalty

Term and the Company does not otherwise pay minimum annual royalties of 12% of the net revenues of 80,000 tubes of Ameluz, the Biofrontera

Group shall be entitled to minimum annual royalties of 12% of the net revenues of 80,000 tubes of Ameluz plus annual interest of 4%.

Except in the case of certain limited exceptions, our failure to achieve this sales volume during this timeframe for two consecutive

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

Minimum Research and Development Costs

Second A&R Ameluz LSA provides that, 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.

payments with Ferrer Internacional S.A.

6 unchanged sentences

No payments or accruals for such payments

were made during the three and six months ended June 30, 2025 or 2024 related to Xepi ® milestones.

were made during the three and nine months ended September 30, 2025 or 2024 related to Xepi ® milestones.

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

25 unchanged sentences

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 was held in front of an administrative law judge between June 30, 2025 and July 3, 2025.

ITC’s Initial Determination is expected by October 1, 2025 and a Final Determination is expected by February

Biofrontera Bioscience with the United States District Court for the District of Massachusetts (the “Massachusetts District

Court”) and the International Trade Commission (the “Commission”), both alleging that the RhodoLED-XL infringes

either/both of two patents held by Sun (the “Sun Patents”).

The complaint filed in the Massachusetts District Court has

been held in abeyance pending the completion of the investigation before the Commission.

A hearing was held in front of an administrative law

judge (“ALJ”) between June 30, 2025 and July 3, 2025, and on September 30, 2025, the ALJ issued an Initial Determination

(“ID”) finding the Sun Patents to be valid and that importation of Biofrontera’s RhodoLED® XL violates

Section 337 of the Tariff Act of 1930.

The ID may be reviewed by the Commission, following which the Commission may adopt, reverse ,

or remand the ID to the ALJ for further proceedings.

The ID has no immediate effect and will only become effective if adopted by

the Commission in its “Final Determination”.

The Final Determination is currently expected by February 2, 2026, though

the timing of the Commission’s decision may be impacted by the federal government shutdown that started on October 1,

Company denies Sun’s patent claims and intends to defend them vigorously in the above-referenced matters.

4 unchanged sentences

while the PTAB issued a discretionary denial of the other petition on July 2, 2025.

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.

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.

The PTAB’s final written decision on the instituted petition is expected on or before February 24, 2026.

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 an

adverse ruling by the Commission or at the Massachusetts District Court.

Money damages are not available to Sun through the case

before the Commission, and an adverse ruling could result in a limited exclusion order being imposed on the allegedly infringing product.

If the final resolution of the case before the Massachusetts District Court is adverse to the Company, it could have a material

impact on the Company’s financial position, results of operations, or cash flows.

Segment Reporting

7 unchanged sentences

following table presents selected financial information with respect to the Company’s single operating segment for the three and

six months ended June 30, 2025 and 2024 :

nine months ended September 30, 2025 and 2024 :

of Operating Segment

1 unchanged sentence

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands)

12 unchanged sentences

Subsequent Events

have completed an evaluation of subsequent events after the balance sheet date of June 30, 2025 through the date this Quarterly Report

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

C Preferred Stock

July 1, 2025, pursuant to Purchase Agreement, the Company issued 8,500

Shares of Series C Preferred Stock, par value $ 0.001

per share, each at a price of $ 1,000

per Series C Preferred.

The Series C Certificate of Designation

sets forth the rights, preferences and limitations of the shares of Series C Preferred Stock.

Organization and Business

Overview and Note 13.

Stockholders’ Equity for additional information .

The Company signed a binding Term Sheet with its

former parent company pursuant to which the Company will acquire all the U.S.

Rights to Ameluz® and RhodoLED® .

In connection

with the Strategic Transaction, additional agreements are to be executed, and the transfer of the U.S.

Rights is expected to be completed

by September 30, 2025.

In exchange for the U.S.

July 2, 2025, the Company issued 3,019

shares of Series D Preferred Stock, par value $ 0.001

per share, each at a price of $ 1,000

per Series D Preferred.

to the terms of the Term Sheet, for a period of twelve months

following the date of issuance of the Series D Preferred Stock, the Company shall not issue any additional equity securities or any debt

convertible into equity.

The Series D Certificate of Designation sets forth the rights, preferences and limitations of the shares of

Series D Preferred Stock.

Organization and Business Overview and Note 12.

Related Party Transactions for additional information .

July 30, 2025, the Company entered into a new lease for office space in Woburn, MA in place of the current office lease which terminates

November 2025.

The term of the new lease shall commence upon substantial completion of tenant improvements, but no later than December

The term of the lease is 63 months from the commencement date.

The monthly lease payments are initially $ 19,479 , with annual

rent increases culminating in monthly lease payments of $ 29,402 .

Appointment of Chief

Commercial Officer

The Company has entered into an employment agreement

with George Jones to serve as the Chief Commercial Officer, starting on August 25, 2025.

Jones is an experienced commercial executive

with more than 25 years of commercial leadership experience in the pharmaceutical and biotech sectors.

Prior to joining the Company, Mr.

Jones recently served as Chief Operating Officer at UpScriptHealth since 2021.

Prior to UpScriptHealth, Mr.

Jones held senior commercial

roles at Currax Pharmaceuticals since 2015.

have completed an evaluation of subsequent events after the balance sheet date of September 30, 2025 through the date this Quarterly

Report on Form 10-Q was submitted to the SEC and determined that the following material subsequent events required disclosure.

of Strategic Transaction with Biofrontera AG

October 20, 2025, the Company executed i) an Asset Purchase Agreement (the “Transfer Agreement”) and ii) an Earnout Agreement

(the “Earnout Agreement”, and collectively with the Transfer Agreement, the “Agreements”),

with the Biofrontera Group, pursuant to which the Company finalized the agreements to acquire the U.S.

Rights to Ameluz®

and RhodoLED®.

to the terms of the Agreements, the Company will pay an earnout of 12 % in years where Ameluz® revenues in the United States are less

than $ 65.0 million and an earnout of 15 % in years when Ameluz® revenues in the United States exceed $ 65.0 million.

The earnout replaces

a transfer pricing model under the Company’s Second A&R Ameluz LSA, which is now terminated pursuant to the Agreements.

October 24, 2025, following execution of the Agreements, the Company closed the second tranche of 2,500 Series C Preferred Shares (the

“Subsequent Closing”), the gross proceeds from which are $ 2.5 million before deducting estimated offering expenses

payable by the Company.

The Company intends to use the net proceeds from the Subsequent Closing to fund the acquisition and

transfer costs associated with the Strategic Transaction and other general corporate purposes.

As described further below, on each of November 4, 2025 and November 6, 2025, the Company received a notice (the

“November 4 Notice” and the “November 6 Notice,” respectively) from Nasdaq notifying the Company that it has regained

compliance with the continued listing requirements under Nasdaq Listing Rule 5550(b)(1) and Nasdaq Listing Rule 5550(a)(2).

Nasdaq Listing Rule 5550(b)(1)

In the November 4 Notice, Nasdaq notified the Company that, based on certain disclosures in the Current Report on

Form 8-K filed by the Company on October 24, the Company is in compliance with the continued listing requirement under Nasdaq Listing

Rule 5550(b)(1).

However, the Company may be subject to delisting if the Company fails to evidence compliance with Rule 5550(b)(1) upon

filing its next periodic report.

Nasdaq Listing Rule 5550(b)(2)

May 8, 2025, the Company received a letter from Nasdaq notifying the Company that the listing of the Common Stock was not in compliance

with Nasdaq Listing Rule 5550(a)(2) as the closing bid price of the Common Stock was less than $1.00 per share for the previous 33 consecutive

business days.

notice had no present impact on the listing or trading of the Company’s securities on Nasdaq.

Under Nasdaq Listing

Rule 5810(c)(3)(A), the Company had a period of 180 calendar days, or until November 5, 2025, to regain compliance with the rule referred

to in this paragraph.

In the November 6 Notice, Nasdaq notified the Company that, because the closing bid price of the Company’s

common stock was $ 1.00 per share or greater for the preceding 11 consecutive business days, the Company has regained compliance with Listing

Rule 5550(a)(2), and that this matter is now closed.

Closing of Asset Purchase Agreement

November 6, 2025 (the “Closing Date”), the Company entered into an Asset Purchase Agreement (the “ APA ”)

with Pelthos Therapeutics Inc., an unaffiliated party, providing for the sale of all of the assets relating to the Company’s product,

Xepi® (ozenoxacin) cream.

purchase price for the acquired assets is a maximum of $ 10.0 million, payable as follows:

million in cash, paid on the Closing Date;

to availability of certain commercial quantities of Xepi® and other terms and conditions of the APA, $ 1.0 million within thirty

(30) days following the availability of such commercial quantities;

right to receive certain earnout consideration upon the achievement of the milestone events, as further described below:

million upon the initial achievement of $ 10.0 million in annual net sales of Xepi®;

million upon the initial achievement of $ 15.0 million in annual net sales of Xepi®

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

What changed 10-Q

Item 1. Financial Statements