What changed in this filing

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Item 1. Financial Statements

2026-05-14 compared with 2025-11-12 · 616 added, 721 removed, 263 unchanged (84% of the section changed)

2 unchanged sentences

thousands, except par value and share amounts )

September 30,

Current assets:

2 unchanged sentences

Accounts receivable, net

Inventories, net

Prepaid expenses and other current assets

Asset held for sale

Other assets, related party

Total current assets

Inventories, long term

Property and equipment, net

5 unchanged sentences

Accounts payable, related parties, net

Accounts payable

Operating lease liabilities

8 unchanged sentences

Commitments and contingencies (see Note 16)

Stockholders’ (deficit) equity:

Preferred Stock $ 0.001 par value;

20,000,000 shares authorized

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;

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

Stockholders’ equity:

Convertible Preferred Stock, $ 0.001 par value, 20,000,000 shares authorized, no Series B-1;

2,050 Series B-2;

6,593 Series B-3;

10,719 Series C and 3,019 Series D shares issued and outstanding as of March 31, 2026 and December 31, 2025

Preferred stock, value

Common stock, $ 0.001 par value, 70,000,000 shares authorized;

11,873,323 and 11,648,323 shares issued and outstanding as of March 31, 2026 and December 31, 2025, respectively

Additional paid-in capital

Accumulated deficit

Total stockholders’ (deficit) equity

Total stockholders’ equity

Total liabilities and stockholders’ equity

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thousands, except per share amounts and number of shares )

Three Months Ended

September 30,

Nine Months Ended

September 30,

Three Months Ended March 31,

Product revenues, net

Revenues, related party

Total revenues, net

Operating expenses

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Selling, general and administrative, related party

Patent remediation expense

Research and development

2 unchanged sentences

Other income (expense)

Change in fair value of warrants

Change in fair value of investment, related party

Loss on debt extinguishment

Interest income (expense), net

Other income (expense), net

Change in fair value of warrant liabilities

Interest expense, net

Other expense, net

Total other income (expense)

Loss before income taxes

Income tax expense

Income tax benefit

Loss per common share:

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

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

thousands, except number of shares)

Three and Nine Months Ended September 30, 2025

Months Ended March 31, 2026 and 2025

Preferred Stock

Balance, June 30, 2025

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, 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

Additional Paid-

Balance, January 1, 2026

$ ( 127,945 )

Issuance of shares for restricted stock units

Stock-based compensation

Balance, September 30, 2025

Three and Nine Months Ended September 30, 2024

Balance, March 31, 2026

$ ( 132,697 )

Preferred Stock

Balance, June 30, 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

Issuance of Series B-3 upon exercise of warrants

Issuance of RSUs

Additional Paid-

Balance, January 1, 2025

$ ( 117,409 )

Stock-based compensation

Balance, September 30, 2024

Balance, March 31, 2025

$ ( 121,612 )

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

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

Amortization of right-of-use assets

Amortization of acquired intangible assets

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

Loss on settlement of lease liability

Change in fair value of warrant liabilities

Depreciation and amortization

Reduction in the carrying amount of right-of-use assets

Stock-based compensation

Allowance for credit losses

Loss on debt extinguishment

Non-cash interest expense

Allowance for credit losses

Change in fair value of warrant liabilities

Loss from termination of operating leases

Changes in operating assets and liabilities:

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Accounts payable

Accounts payable, related party , net

Accounts payable, related parties, net

Operating lease liabilities

2 unchanged sentences

Cash flows from investing activities

Sales of equity investment, related party

Purchase of intangible assets

Purchases of property and equipment

Cash flows used in investing activities

Cash flows from financing activities

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

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

Payment to extinguish line of credit

Payment of principal short-term debt

Cash flows provided by financing activities

Net increase (decrease) in cash and cash equivalents

Net decrease in cash and cash equivalents

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

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Supplemental disclosure of cash flow information

Interest paid

Income taxes paid, net

Supplemental non-cash financing activities

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

Conversion of warrant liability to equity

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

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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.

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 Biofrontera Pharma GmbH

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

Pharma, the “Ameluz Licensor”) and manage our clinical trial work.

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.

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

cost management and direct oversight of trial efficiency.

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

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

Lamps to better fulfill the needs of dermatologists.

Transaction with Biofrontera AG

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.

is a United States based biopharmaceutical company engaging in the development, manufacturing, and commercialization of pharmaceutical

products for the treatment of dermatological conditions with a focus on photodynamic therapy (“PDT”).

The Company’s

products, which include Ameluz ® as well as the BF-RhodoLED ® and RhodoLED ® XL lamp series

(together, the “RhodoLED ® Lamps”), are used for the treatment of actinic keratosis (“AK”), a common

skin condition characterized by the growth of pre-cancerous skin lesions (or “AKs”).

With our national commercial team, we

generate revenue by selling our products directly to dermatology offices and groups.

June 1, 2024, we assumed control of all clinical trials relating to Ameluz in the United States through Biofrontera Discovery GmbH (“Discovery”),

our wholly owned subsidiary organized under the laws of Germany and formed in February 2022.

Our research and development (“R&D”)

programs are focused on label expansion for Ameluz as well as supporting PDT growth by improving the capabilities of the RhodoLED Lamps

to better fulfill the needs of dermatologists.

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

(together with the Transfer Agreement, the “Agreements”) with Biofrontera AG and its consolidated subsidiaries (the “Biofrontera

Group”), pursuant to which the Company acquired 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 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 .

In exchange for the U.S.

Rights, and in addition to a monthly earnout payable to the Biofrontera

Group and the Company’s assumption of 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”).

The Strategic Transaction was funded through

an $ 11.0 million investment by existing investors.

Related Party Transactions for additional

November 6, 2025, the Company completed the sale of the long-lived intangible asset relating to its Xepi product line.

received fixed consideration in the amount of $ 3.0 million and may receive up to $ 7.0 million of variable consideration

contingent upon the buyer’s future activities See Note 10.

Asset Held for Sale in the Company’s Annual Report on Form

10-K for the year ended December 31, 2025 (the “2025 Form 10-K”) for additional information.

and Going Concern

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

generally accepted accounting principles (“U.S.

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 $ 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 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

reported expenses that may be necessary if the Company were unable to continue as a going concern.

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.

incurred net cash outflows from operations of $ 0.1

million and $ 4.1

million for the three months ended March 31, 2026 and 2025,

respectively.

As of March 31, 2026, the Company’s accumulated deficit was $133 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 March 31, 2026,

we had cash and cash equivalents of $ 6.3

million, compared to $ 6.4 million

as of December 31, 2025.

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 issuance

date of this Quarterly Report on Form 10-Q.

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

things, continuing to expand the commercialization of Ameluz in the United States while controlling expenses, pursuing the realization

of an additional $ 1.0 million in milestone payments from the sale of the Xepi intangible asset and, if necessary, securing additional

capital through equity or debt financings.

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.

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

and reported expenses that may be necessary if the Company were unable to continue as a going concern.

Summary of Significant Accounting Policies

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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 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.

generally accepted accounting principles

(“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 March 31, 2026, the Company’s operating results for the

three months ended March 31, 2026 and 2025, and the Company’s cash flows for the three months ended March 31, 2026 and 2025.

accompanying financial information as of December 31, 2025 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 2025 Form 10-K.

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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the exception of the accounting policies below, there have been no new or material changes to the significant accounting policies discussed

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

in the Company’s 2025 Form 10-K.

Reclassification

1 unchanged sentence

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, for prior year

presentation, accounts payable-related parties of $ 2.0 million was reclassed from accounts payable to accounts payable, related party,

Depreciation expense and

amortization expense previously presented separately in the condensed consolidated statements of cash flows have been combined into

a single line item.

The reclassification was limited to the condensed consolidated statements of cash flows and had no impact on the

reported results of operations.

Nasdaq Stock Market, LLC (“Nasdaq”) Compliance

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.

December 31, 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) (the “Minimum Bid Price Requirement”) as the closing bid price of the Common Stock was

less than $ 1.00 per share for the previous 34 consecutive business days.

notice had no 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 June 30, 2026, 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 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.

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.

Issued Accounting Pronouncements

December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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.

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, 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.

See Note 18 .

Subsequent Events for additional

preparation of the condensed consolidated financial statements in accordance with 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.

Adopted or Issued Accounting Pronouncements

evaluate Accounting Standard Updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”).

ASUs not included in our disclosures were assessed and determined to

either be not applicable or are not expected to have a significant impact on our financial statements.

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

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Early adoption is permitted.

We are currently evaluating the effect that this

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.

The Company adopted this ASU on January 1, 2026,

and the adoption did not have a material impact on its condensed consolidated financial statements and related disclosures.

July 2025, the FASB issued ASU 2025-05, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses for

Accounts Receivable and Contract Assets , which provides a practical expedient for estimating expected credit losses on

current trade receivables and contract assets arising from revenue transactions.

This ASU is effective for public business entities for

annual reporting periods beginning after December 15, 2025, with early adoption permitted, and must be applied prospectively.

Company adopted this ASU on January 1, 2026, and the adoption did not have a material impact on its condensed 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.

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

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.

606) , which provides updates to refine the scope of the guidance on derivatives in Accounting Standards Codification

(“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

4 unchanged sentences

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

We are currently evaluating the effect of adopting ASU 2025-07 on our consolidated financial statements and related disclosures.

November 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270):

Narrow-Scope Improvements , which clarifies interim

disclosure requirements.

The guidance is effective for the Company’s interim reporting periods within annual reporting periods

beginning after December 15, 2027.

Early adoption is permitted.

We are evaluating the effect that this guidance will have on our consolidated

financial statements and related disclosures.

December 2025, the FASB issued ASU 2025-12, Codification Improvements , which addresses 33 issues, representing amendments

to ASC topics that clarify, correct errors or make minor improvements.

The amendments in ASU 2025-12 are effective for annual reporting

periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods.

Early adoption is permitted

in both interim and annual periods in which financial statements have not yet been issued or made available for issuance.

adopts the amendments in this ASU in an interim period, it must adopt them as of the beginning of the annual period that includes that

interim period.

An entity may elect to early adopt the amendments on an issue-by-issue basis.

We are currently evaluating the effect

of adopting ASU 2025-12 on our consolidated financial statements and related disclosures.

Fair Value Measurements

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

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

2026 and December 31, 2025 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair

Schedule of Fair Value Hierarchy Valuation Inputs

(in thousands)

September 30,

Investment, related party

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related party

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

of March 31, 2026 and December 31, 2025, 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

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”).

warrant liabilities are comprised of (i) outstanding warrants to purchase 170,950 shares of the 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”).

Stockholders’ Equity for additional details.

2023 Purchase Warrants and 2022 Purchase Warrants, as well as the 2022 Inducement 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.

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 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.

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

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 condensed 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 condensed 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 condensed consolidated statement of operations.

fair value for the Level 3 warrants at March 31, 2026 was estimated using a BSM model based on the following assumptions

at each measurement date:

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

Expiration term (in years)

Risk-free Rate

Dividend yield

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

of Changes in Fair Value Warrant Liabilities

Nine Months Ended

September 30,

Schedule of Changes in Fair Value Warrant Liabilities

Three Months Ended

Fair value at beginning of period

Issuance of new warrants

Exercise of warrants

Change in fair value of warrant liabilities

Fair value at end of period

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

PDT treatments using a lamp are usually performed more frequently during the winter.

As such our revenue is subject to some seasonality

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

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

PDT treatments using a lamp are performed more frequently during the winter.

As such our revenue is subject to some seasonality and has

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

Cash Balances and Statement of Cash Flows Reconciliation

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

At 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.

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

times may exceed federally insured 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

3 unchanged sentences

Accounts Receivable, net

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.

receivable are mainly attributable to the sale of Ameluz in the United States and are expected to be collected 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 receivables are segmented into pools of

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

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

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 receivable.

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

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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 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 nine months ended September 30, 2025 and a negligible amount for the year ended December

Asset Held for Sale

held for sale consists of the following:

of Assets Held for Sale

allowance for credit losses was $ 0.1 million as of March 31, 2026 and December 31, 2025.

are comprised of the following:

Schedule of Inventories

(in thousands)

September 30,

Xepi® license

Inventory, short-term:

Finished product

Total inventory, short-term

Inventory, long term

Finished product

Work in process

Raw materials

Total inventory, long-term

Total inventories

long-term inventory balance relates to the RhodoLED Lamps.

During the three months ended March 31, 2026, the Company recognized an

inventory write-down of $ 0.1 million in connection with the U.S.

International Trade Commission’s May 6, 2026 Notice of Final

Determination (See Note 16.

Commitments and Contingencies ).

The write-down was recognized to reduce the carrying value of the

affected inventory to its net realizable value in accordance with ASC 330-10-35 and is presented within cost of revenue-other in the

condensed consolidated statements of operations.

inventory write-downs or obsolescence reserves were recognized during the three months ended March 31, 2025 that were material to

the condensed consolidated financial statements.

Property and Equipment, Net

and equipment, net consists of the following:

Schedule of Property and Equipment, Net

(in thousands)

Manufacturing equipment

Computer equipment

Furniture & fixtures

Machinery & equipment

Property and equipment, gross

Accumulated depreciation

Property and equipment, net

expense was no t

material to the condensed consolidated statements of operations for the three months ended March 31, 2026 and 2025 and was recorded

in the condensed consolidated statement of operations within cost of revenues or selling, general and administrative expense,

depending on the nature and use of the underlying asset.

As of March 31, 2026 and December 31, 2025, approximately $ 1.8 million of

manufacturing equipment acquired in connection with the Strategic Transaction had not yet been placed in service and is therefore

not being depreciated.

The Company will commence depreciation of these assets over their estimated useful lives upon being placed in

Intangible Assets, Net

assets, net are comprised of the following:

Schedule of Intangible Assets, Net

(in thousands)

Intellectual property

Intangible assets, gross

Accumulated amortization

Asset held for sale

Xepi product line has been held for sale since the third quarter of 2024, when the Company determined that the intangible asset met the

criteria to be classified as held for sale in accordance with ASC 360-10-45-9.

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.

Intangible assets, net

assets consist primarily of intellectual property acquired in the Strategic Transaction, which was recorded at an acquisition-date

fair value of $ 2.7

million and is being amortized on a straight-line

basis over an estimated useful life of 18

Internal use software is amortized over three years.

expense was negligible for the three months ended March 31, 2026 and 2025.

Amortization expense is recorded in the condensed

consolidated statement of operations within cost of revenues or selling, general and administrative expense depending on the nature

and use of the underlying intangible asset.

No impairment

losses were recognized for intangible assets during the three months ended March 31, 2026 and 2025.

future amortization expense as of March 31, 2026 is as follows:

Schedule of Estimated Future Amortization Expense

Year (in thousands)

Remainder of 2026

Accrued Expenses and Other Current Liabilities

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(in thousands)

September 30,

Employee compensation and benefits

Professional fees

Patent remediation expense

Research and Development

Product revenue allowances and reserves

Notes Payable

11 unchanged sentences

principal amount of the Notes, together with any accrued and unpaid interest.

Alternatively, the entire amount of the note will be automatically

Alternatively, the entire amount of the Notes 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

3 unchanged sentences

There were no events

of default at September 30, 2025.

of default at March 31, 2026.

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

2 unchanged sentences

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

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 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.

connection with the issuance of the Notes, the Company incurred $ 0.2 million of debt issuance costs, consisting of legal fees.

the three months ended March 31, 2026, the Company recognized interest expense of approximately $ 0.1

million and minimal discount amortization.

As of March 31, 2026 and December 31, 2025, the outstanding balance of the Notes was

million and $ 4.6 million,

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

Related Party Transactions

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.

consider Biofrontera Group to be a related party, as prior to the Strategic Transaction, we relied on the Biofrontera Group as the sole

supplier of Ameluz and the RhodoLED Lamps and following the Strategic Transaction, it is a beneficial owner of more than five percent

of our Series D Convertible Preferred Stock.

and Supply Agreement

the Second Amended and Restated License and Supply Agreement (“Second A&R Ameluz LSA”), which was applicable for any

tubes purchased through May 31, 2025, the Company had an exclusive, non-transferable license to market and sell its previously

licensed products, Ameluz and RhodoLED Lamps, in the United States and was required to purchase the previously

licensed products exclusively from Biofrontera Pharma GmbH (the “Former Ameluz Licensor”).

Pursuant to the Second

A&R Ameluz LSA, the price paid was set at twenty-five percent of the anticipated net selling price per unit through 2025 (the

“Transfer Price”) that covered the cost of goods, royalties on sales, and services, including all regulatory efforts,

agency fees, pharmacovigilance, and patent administration.

Second A&R Ameluz LSA 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 Former Ameluz Licensor to the Company.

Company entered into a Release of Claims with the Former Ameluz Licensor, dated February 13, 2024, pursuant to which the Company agreed

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

Licensor to perform certain obligations under the Second A&R Ameluz LSA with respect to clinical trials for which the Company assumed

responsibility.

Transaction with 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 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.

The Company entered into the Strategic Transaction

on October 20, 2025.

Organization and Business Overview for more information.

to the terms of the Agreements, retroactive to June 1, 2025, 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,

continuing until the expiration of patent protection on Ameluz.

The earnout replaces a transfer pricing model under the now terminated

Second A&R Ameluz LSA.

At the acquisition date, the Company evaluated the terms of the earnout arrangement and concluded that the

amount of contingent consideration was not reasonably estimable due to the significant uncertainty associated with the timing and magnitude

of future net sales.

Accordingly, no amount related to the earnout was included in the initial measurement of the cost of the acquired

The Company has elected to account for contingent consideration in an asset acquisition as the contingency is resolved (earned

and payable).

No contingent consideration liability is recognized for amounts not yet earned.

Company also 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.

Details of the legal claims

are disclosed in Note 16.

Commitments and Contingencies – Legal Claims.

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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.

or (ii) two individuals

to the Company’s board of directors if the board consists of eight or more directors.

the Company does not achieve the Minimum Order Amount as defined in Note 16.

Commitments and Contingencies for two consecutive

calendar years starting on January 1, 2026, then the Biofrontera Group will have the right to terminate the Agreements and recover all

assets transferred to the Company.

Due and Payable

due and payable to Biofrontera Group as of March 31, 2026 and December 31, 2025 were $ 1.3 million and $ 4.8 million, respectively, and

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

Amounts due from the Biofrontera Group as of March 31, 2026 and December 31, 2025 were $ 0.7 million and $ 0.7 million, respectively,

and recorded as other assets, related party.

from the Biofrontera Group of the previously licensed products (inclusive of estimated and actual purchase price adjustments) were $ 0.4

million and $ 3.0 million during the three months ended March 31, 2026 and 2025, respectively.

These purchases were recorded in inventories

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

of operations.

the three months ended March 31, 2026, the Company expensed $ 1.2 million in earnouts in connection with the Strategic Transaction related

to the sales between the acquisition date and year end.

The earnout was recorded in cost of revenues, related party in the condensed

consolidated statements of operations.

There were no earnout payments for the three months ended March 31, 2025.

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

Debt-Convertible

Notes Payable .

As of March 31, 2026 and December 31, 2025, the outstanding balance of the Notes was $ 4.7 million and $ 4.6 million,

respectively.

Stockholders’ Equity

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

filed June 16, 2025, the Company is authorized to issue 70,000,000 shares of Common Stock, and 20,000,000 shares of preferred stock,

par value $ 0.001 per share (“Preferred Stock”).

the Company’s Certificate of Third Amendment to the Amended and Restated Certificate of Incorporation, filed June 16, 2025, the

Company is authorized to issue 70,000,000 shares of common stock, and 20,000,000 shares of preferred stock, par value $ 0.001 per share.

The rights and preferences of the Company’s common stock and preferred stock are described in Note 17 of the Company’s 2025 Form 10-K and are unchanged as of March 31, 2026.

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 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 September 30, 2025 is presented below.

of Warrants Outstanding

The Company has not declared any dividends since inception.

During the three months ended March 31, 2026, the Company issued 225,000

shares of common stock upon the vesting and release of restricted stock units (“RSUs”) under the 2021 Omnibus Incentive

Plan (“2021 Plan”) (see Note 14.

Equity Incentive Plans and Share-Based Payments ).

No shares of common stock were

issued during the three months ended March 31, 2026 upon the conversion of any series of preferred stock, the exercise of any

warrants, or the conversion of any convertible debt.

of March 31, 2026, the Company 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 and expiration dates ranging from November 2026 to November 2028.

No warrants were issued,

exercised, expired, forfeited or otherwise modified during the three months ended March 31, 2026.

The Company’s outstanding warrants

as of March 31, 2026 were as follows:

Schedule of Warrants Outstanding

Exercise Price

2 unchanged sentences

Equity classified

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)

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 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.

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.

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).

liability-classified warrants are remeasured to fair value at each reporting date, with changes in fair value recognized in the condensed

consolidated statement of operations.

Fair Value Measurements for the change in fair value recognized during the three

months ended March 31, 2026.

There were no changes in any series of preferred stock during the three

months ended March 31, 2026.

Shares of preferred stock issued and outstanding at March 31, 2026 and December 31, 2025 were as follows:

Schedule of Preferred Stock Issued and Outstanding

December 31, 2025

Series B-2 Convertible Preferred Stock

Series B-3 Convertible Preferred Stock

Series C Convertible Preferred Stock

Series D Convertible Preferred Stock

series of preferred stock outstanding as of March 31, 2026 are classified as permanent equity on the Company’s condensed consolidated

balance sheets.

The Series C Convertible Preferred Stock and Series D Preferred Stock were reclassified from mezzanine equity to permanent

equity following the Company’s September 16, 2025 special meeting of stockholders, in accordance with the limited exception under ASC

480-10-S99-3A(3)(f).

Notes issued in November 2024, which allow for up to 5,384,615 shares of common stock to be issued upon conversion of principal

plus additional shares for PIK interest, remain outstanding as of March 31, 2026.

No conversions occurred during the three months ended

March 31, 2026.

Debt - Convertible Notes Payable , for additional details.

Equity Incentive Plans and Share-Based Payments

Omnibus Incentive Plan

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

2021, the Board adopted, and our stockholders approved, the 2021 Plan, under which the maximum

contractual term is 10 years for stock options issued.

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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.

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

March 31, 2026, there were 159,951 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 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.

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

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

elects to account for forfeitures as they occur.

assumptions and key inputs used in the BSM model for the stock options granted during the three months ended March 31, 2026 were as follows:

exercise price of $ 0.78 to $ 0.90 , risk-free rate of 3.7 % to 3.8 %, volatility of 100 %, a dividend yield of 0.0 % and expected term of 5.27

years to 6 years.

There were no equity grants awarded during the three months ended March 31, 2025.

compensation expense of approximately $ 0.2 million and $ 0.1 million was recorded in selling, general and administrative expenses,

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

the three months ended March 31, 2026 and 2025, respectively.

outstanding and exercisable under the employee share option plan as of March 31, 2026 and a summary of option activity during the three

months then ended is presented below.

Schedule of Stock Option Activity

Exercise Price

Contractual Term

Outstanding at December 31, 2025

Canceled or forfeited

Outstanding at September 30, 2025

Exercisable at September 30, 2025

Outstanding at March 31, 2026

Exercisable at March 31, 2026

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 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.

of the common stock for the options that were in the money at March 31, 2026.

of March 31, 2026, there was $ 1.1 million of unrecognized compensation cost related to unvested stock options, which is expected to be

recognized over a weighted-average period of approximately 1.53 years.

Compensation (RSUs)

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 determined based on the closing market price of the Company’s

Common Stock on the grant date.

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.

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

Outstanding at December 31, 2024

Canceled or forfeited

Outstanding at September 30, 2025

compensation expense was $ 0.1

million for the RSUs for each of the three-month periods ended March 31, 2026 and 2025, and was recorded in selling, general and

administrative expenses in the accompanying condensed consolidated statements of operations.

Schedule of Restricted Stock Units

Contractual Term

Unvested balance at December 31, 2025

Unvested balance at March 31, 2026

of March 31, 2026, there was $ 0.3 million of unrecognized compensation related to unvested RSUs, which is expected to be recognized over

a period of approximately 1.66 years.

Net Loss per Share

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(in thousands, except share and per share data):

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

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

Three Months Ended

Nine Months Ended

September 30,

Weighted average common shares outstanding, basic and diluted

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dilute EPS in the future:

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

September 30,

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

Three Months Ended

Common stock warrants

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Unit Purchase Options

Shares related to Series B-2 convertible preferred stock

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

Series B convertible preferred stock

Series C convertible preferred stock

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.

Commitments and Contingencies

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.

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 August 2028.

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

of Future Commitments and Sublease Income

Years ending December 31,

Remainder of 2025

Company leases office space, warehouse space and vehicles.

The Company has elected the short-term lease exemption under ASC 842-20-25-2

for leases with an initial term of twelve months or less.

For its office, warehouse and vehicle leases, the Company has not elected the

practical expedient in ASC 842-10-15-37 and therefore does not combine lease components with associated non-lease components.

lease for our office space at 120 Presidential Way, Woburn, MA expired in November 2025.

The Company elected to not renew the lease and

has no remaining commitments under this agreement.

Lease expense was recognized through the expiration date, and the ROU asset and related

lease liability were derecognized.

Company’s corporate headquarters is located at 660 Main Street, Woburn, MA, under a 63-month operating lease that commenced on

December 1, 2025 and expires on February 28, 2031.

Under the terms of the agreement, the Company was entitled to a rent-free period for

the first three months of the lease and reduced rent payments for months four through nine, followed by periodic escalated payments thereafter.

The Company provided the landlord with a security deposit in the amount of $ 0.2 million, which was recorded as other assets in the condensed

consolidated balance sheets.

Company also leases office and warehouse space at Hemmelrather Weg 201, 51377 Leverkusen, Germany under an operating lease agreement

commencing on January 1, 2026, with a lease term of 10 years with automatic twelve-month renewal periods thereafter unless

terminated by either party upon twelve months’ prior written notice.

The new lease arrangement resulted in $ 1.3 million of

right-of-use-assets obtained in exchange for new operating lease liabilities.

The lease includes an initial rent-free period of

three months, with the base rent subject to adjustment if the German consumer price index moves by ten percent or more from the

lease commencement date or most recent adjustment.

In connection with the lease, the Company is to provide a security deposit in

the amount of $ 0.1

Company leases vehicles under a master agreement, pursuant to which each vehicle is leased for an initial non-cancelable term of twelve months, and thereafter on a month-to-month

Based on historical retention experience of approximately three years, the vehicles have varying expiration dates through July

lease cost for the three months ended March 31, 2026 and 2025 was $ 0.2 million.

The weighted-average remaining lease term and weighted-average

discount rate for the Company’s operating leases at March 31, 2026 were 6.7 years and 9.9 %, respectively.

lease payments under non-cancelable leases as of March 31, 2026 were as follows (in thousands):

Schedule of Future Commitments and Sublease Income

Years ending March 31,

April – December 2026

Total future minimum lease payments

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Total lease liability

of Operating Lease Liability

Operating lease liability, current

Operating lease liability, non-current

Sales or Minimum Order

the earlier to occur of (i) the Company manufactures orders meeting one million tubes of Ameluz during the period from June 1, 2025 through

May 31, 2031, or (ii) the expiration of patent protection, which is expected to occur in December 2043 (the “Asset Reversion Term”),

starting January 1, 2026 and continuing until the end of the Asset Reversion Term, the Company shall be required to manufacture or order

from suppliers at least 80,000 tubes of Ameluz per year (the “Minimum Order Amount”).

December 12, 2025, Discovery entered into a Supply Agreement (“Supply Agreement”) with Midas Pharma GmbH

Among other things, the Supply Agreement provides that Midas will supply Discovery or its contract

manufacturers, in the aggregate, 100 kg of the active pharmaceutical ingredient (“API”) 5-Aminolevulinic acid

Hydrochloride through the second quarter of 2028.

Under the terms of the Supply Agreement, Discovery will provide Midas with a

twenty-four (24) month non-binding rolling forecast, which shall 1) indicate the anticipated quantity of API required by the company

and 2) be updated every twelve (12) months during the term of the agreement.

Agreement with Optical Tools

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

Tobin and Paul Sowyrda (the “Agreement”).

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.

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

Stephen Tobin and Paul Sowyrda (the “OT Agreement”).

The OT 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.

Company paid a licensing fee of $ 0.2

million which was expensed during the year ended December 31, 2022.

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

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The Company is to reimburse Optical Tools for all reasonable

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

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

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

Company did not make any milestone or royalty payments or accruals for such payments during the three 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.

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

(“Ferrer”), we are

obligated to make payments to Ferrer upon the occurrence of certain milestones.

Specifically, we must pay Ferrer (i) $ 2,000,000 upon

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

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

No payments or accruals for such payments

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

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

part of the OT 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 the OT Agreement.

Company did not make any milestone or royalty payments or accruals for such payments during the three months ended March 31, 2026 or

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 .

estimable under the provisions of ASC Topic 450, Contingencies .

The Company expenses as incurred the legal costs related

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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.

and Sun Pharmaceutical Industries LTD (collectively, “SUN”) in which SUN 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 2024, Biofrontera 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

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by Sun to Biofrontera on February 4, 2022 and September 9, 2022.

SUN has since amended its complaint to include the allegations contained

therein with its existing claims.

is ongoing in the above-referenced matters.

The Company denies the claims brought by SUN and intends to defend them vigorously.

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.

on the Company’s assessment of the facts underlying the above claims and the uncertainty of litigation, 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

on June 26, 2024 and June 27, 2024, SUN filed two complaints against Biofrontera, Biofrontera AG, Biofrontera Pharma, and

1 unchanged sentence

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.

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,

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

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.

either/both of two patents held by SUN (individually, the “‘028 Patent” and the “‘512 Patent”,

and collectively 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 investigation before the Commission and any subsequent appeals.

In the Commission proceeding, 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 infringed, and that importation of

Biofrontera’s RhodoLED XL violates Section 337 of the Tariff Act of 1930.

Following review by the Commission (during which

time the ID had no immediate effect), on May 6, 2026, the Commission adopted the ID in its Final Determination (“FD”)

and issued a Limited Exclusion Order (“LEO”) and corresponding cease and desist order (“CDO”), prohibiting

the Company from importing and/or selling the RhodoLED-XL in the United States and restricting the Company from selling Ameluz for

use with the RhodoLED-XL.

The LEO and CDO are both subject to a 60-day Presidential Review period (which concludes on

July 6, 2026), during which time the Company may continue to import and sell the RhodoLED XL (and Ameluz for use with the RhodoLED-XL).

Following the Presidential Review period, the Company may appeal the Commission’s determination to the U.S.

Court of Appeals

for the Federal Circuit.

The Company evaluated this matter

in accordance with ASC 450-20, Loss Contingencies, and concluded that a loss is probable and reasonably estimable as of the balance sheet

The FD was treated as a recognized subsequent event under ASC 855-10-25-1.

The total estimated remediation cost of approximately

$ 0.5 million, representing management’s best estimate within a range of approximately $ 0.4 million to $ 0.6 million, has been recognized

as a $ 0.4 million charge to operating expenses within patent remediation expense and a $ 0.1 million charge to cost of revenues, other

on the condensed consolidated statements of operations for the three months ended March 31, 2026, offset with an inventory write-down

of approximately $ 0.1 million, presented as a reduction of inventories on the condensed consolidated balance sheets, in accordance with

ASC 330-10-35;

and an accrued remediation liability of approximately $ 0.4 million, presented within accrued expenses and other current

liabilities on the condensed consolidated balance sheets.

Separately, Biofrontera has challenged the validity

of the SUN Patents by filing separate petitions for inter partes review (“IPR”) at the United States Patent Trial and Appeal

Board (“PTAB”) for each of the SUN Patents.

The IPR filed in relation to the ‘512 Patent was discretionarily denied

by the PTAB on July 2, 2025 on administrative reasons.

However, the IPR filed in relation to the ‘028 Patent was instituted in February

2025, and the PTAB issued a final written decision on February 23, 2026 (the “FWD”) finding all challenged claims in the ‘028

Patent to be unpatentable.

On March 25, 2026, SUN requested that the Director of the United States Patent and Trademark Office (“USPTO”)

to review the FWD and either reverse and vacate the PTAB’s FWD, or vacate the PTAB’s FWD and de-institute the IPR.

Company has opposed Sun’s Director Review request, and maintains that the Director should affirm the PTAB’s decision.

This request is currently pending before the USPTO Director.

The Company denies SUN’s patent claims and intends

to defend them vigorously in the above-referenced matters.

Based on the Company’s assessment of the facts underlying the above-referenced

patent matters, as well as the uncertainty of litigation, except as stated above, 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 Commission.

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

Company operates as one operating segment that derives revenue primarily from our principal licensed product, Ameluz ® .

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.

Company’s CODM is its Chief Executive Officer, who reviews financial information presented on a consolidated basis.

Company operates as one

operating segment that derives revenue primarily from our principal

product, Ameluz, which is a prescription drug approved for use in PDT using our RhodoLED Lamps, for the treatment of AKs.

currently selling Ameluz for this indication in the United States.

Ameluz (including the RhodoLED Lamps) accounts for substantially

all of our revenue .

Company’s chief operating decision maker (“CODM”) is its Chief Executive Officer, who reviews financial information presented on a consolidated basis.

The CODM uses

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previously forecasted financial information.

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

nine months ended September 30, 2025 and 2024 :

of Operating Segment

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

Schedule of Operating Segment

( in thousands)

Three Months Ended

September 30,

Nine Months Ended

September 30,

( in thousands)

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General and administrative

Manufacturing Related

Research and development

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Loss before income taxes

Income tax expense

Income tax benefit

Subsequent Events

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®

We have completed an evaluation of subsequent events after the balance sheet

date of March 31, 2026 through the date this Quarterly Report on Form 10-Q was submitted to the Securities and Exchange Commission and

determined that the following material subsequent event required disclosure.

On May 6, 2026, the Commission issued a Notice

of Final Determination finding a violation of Section 337 with respect to certain of the Company’s PDT components.

The Commission issued

a LEO and CDO in connection with that determination.

The Company has accounted for this matter as a recognized subsequent event under

ASC 855-10-25 and has reflected an accrued liability and corresponding charge of approximately $ 0.5 million in its condensed consolidated

balance sheet as of March 31, 2026 and its condensed consolidated statements of operations for the three months then ended, respectively.

Commitments and Contingencies for additional information, including regarding the Company’s accounting analysis, the components

of the estimated remediation cost, and the range of reasonably possible losses.

On December 31, 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) (the “Minimum Bid Price Requirement”) as the closing bid

price of the Common Stock was less than $ 1.00 per

share for the previous 34 consecutive business days.

The notice had no impact on the listing or trading of the Company’s securities

Under Nasdaq Listing Rule 5810(c)(3)(A), the Company had a period of 180 calendar days, or until June 30, 2026, to regain

compliance with the rule referred to in this paragraph.

On May 6, 2026, we received written notification from Nasdaq, with confirmation

that for the last 10 consecutive business days, from April 22, 2026 to May 6, 2026, the closing bid price of the Company’s Common

Stock had been at $ 1.00 per

share or greater.

Accordingly, the Company had regained compliance with the Minimum Bid Price Requirement and that the matter was closed.

There can be no assurance that we will maintain compliance with the Minimum Bid Price Requirement or other continued listing standards

in the future.

Common Share Conversions .

to March 31, 2026 and through the date these condensed consolidated financial statements were issued, the Company issued an aggregate

of 930,021 shares of its common stock in connection with conversions of outstanding securities, consisting of (i) 134,235 shares issued upon the conversion of 95 shares of Series B-3 Convertible Preferred Stock at a conversion ratio of 1,413-to-one, (ii) 499,281 shares

issued upon the conversion of 312 shares of Series C Convertible Preferred Stock at a conversion ratio of 1,600.26-to-one, and (iii) 296,505 shares issued upon the conversion of $ 231,274 aggregate principal amount and accrued payment-in-kind

interest of the Company’s Notes at a conversion price of $ 0.78 per share.

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