Biofrontera Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Management’s discussion and analysis (“MD&A”) provides supplemental information, which sets forth the major factors that have affected our financial condition and results of operations and should be read in conjunction with the Condensed Consolidated Financial Statements and related notes. The following information should provide a better understanding of the major factors and trends that affect our earnings performance and financial condition, and how our performance during the second quarter of 2026 compares with prior-year periods. Throughout this section, Biofrontera Inc., including its wholly owned subsidiary, Biofrontera Discovery GmbH (“Discovery” or “subsidiary”), is referred to as “Company,” “we,” “us,” or “our.” References to “Former Ameluz Licensor” refers to Biofrontera Pharma GmbH and references to the “Biofrontera Group” refer to Biofrontera AG and its consolidated subsidiaries. Trademarks, Trade Names, and Service Marks All trademarks, trade names, and service marks appearing in this Form 10-Q are the property of their respective owners. Solely for convenience, the trademarks and trade names in this Form 10-Q may be referred to without the symbols ® and ™, but such references should not be construed as any indication that their respective owners will not assert their rights thereto to the fullest extent under applicable law. We do not intend to use or display other companies’ trademarks, trade names, or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies. Forward-Looking Statements The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Certain statements in this Form 10-Q constitute “forward-looking statements.” Such statements include estimates of our expenses, future revenue, capital requirements, our need for additional financing, statements regarding the efficacy and intended use of our technologies under development, the timelines and strategy for bringing licensed products to market, the timeline for regulatory review and approval of our licensed products, and other statements that are not historical facts. The words “intends,” “may,” “will,” “plans,” “expects,” “anticipates,” “projects,” “predicts,” “estimates,” “aims,” “believes,” “hopes,” “potential,” “target,” “goal,” “assume,” “would,” “could” or similar words are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. You should read this Form 10-Q and the documents that we have filed as exhibits completely and with the understanding that our actual future results may be materially different from what we expect. While we have based these forward-looking statements on our current expectations and projections about future events, we may not actually achieve the plans, intentions or expectations disclosed in or implied by our forward-looking statements, and you should not place undue reliance on our forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions about us and accordingly, actual results or events could differ materially from the plans, intentions and expectations disclosed in or implied by the forward-looking statements we make. Factors that may cause such differences include, but are not limited to: ● our ability to achieve and sustain profitability; ● our ability to compete effectively in selling our products; ● our ability to expand, manage and maintain our direct sales and marketing efforts, including our ability to obtain the financing to develop our marketing strategy, if needed; ● changes in our relationship with our manufacturing partners and the possible impact of tariffs; ● our ability to manufacture our products; ● our ability to adequately protect our intellectual property and operate the business without infringing upon the intellectual property rights of others; ● our actual financial results may vary significantly from forecasts and from period to period; ● our estimates regarding anticipated operating losses, future revenues, capital requirements and our needs for additional financing; ● market risks regarding consolidation and group purchasing organizations (“GPOs”) in the healthcare industry; ● the willingness of healthcare providers to purchase our products if coverage, reimbursement and pricing from third-party payors for our products, or procedures using our products significantly declines; ● our ability to market, commercialize, achieve market acceptance for and sell our products; ● the fact that product quality issues or product defects may harm our business; ● any claims brought against the Company, including but not limited to product liability claims, claims of patent infringement, or claims challenging the validity of our intellectual property; 23 ● our ability to maintain compliance with The Nasdaq Stock Market, LLC (“Nasdaq”) continued listing standards; ● our ability to comply with the requirements of being a public company; ● the progress, timing and completion of research, development and preclinical studies and clinical trials for our products; ● our ability to obtain and maintain the regulatory approvals necessary for the marketing of our products in the United States; and ● those risks listed in the sections of our Annual Report on Form 10-K for the year ended December 31, 2025 (the “2025 Form 10-K”) entitled “Risk Factors.” More detailed information about us and the risk factors that may affect the realization of forward-looking statements, including the forward-looking statements in this Quarterly Report on Form 10-Q, is set forth in our filings with the Securities and Exchange Commission (“SEC”), including the 2025 Form 10-K. We urge investors and security holders to read those documents free of charge at the SEC’s web site at www.sec.gov. We do not undertake to publicly update or revise our forward-looking statements as a result of new information, future events or otherwise, except as required by law. Overview Biofrontera Inc. 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 (“AKs”). We generate revenue by selling our products, through our national commercial team, directly to dermatology offices and groups in the United States. We conduct our clinical development activities and hold certain manufacturing-related assets through Discovery, our wholly owned German subsidiary. Our research and development (“R&D”) programs are focused on label expansion for Ameluz ® and on enhancing the RhodoLED ® Lamps to support adoption of PDT in the United States. See Note 1. Organization and Business Overview in our Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for additional information about the Company and its subsidiary. Recent Key Developments Strategic Transaction with the Biofrontera Group. On October 20, 2025, we entered into (i) an Asset Purchase Agreement (the “Transfer Agreement”) and (ii) an Earnout Agreement (together with the Transfer Agreement, the “Agreements”), with the Biofrontera Group, pursuant to which the Company finalized the agreements to acquire all rights in the United States (the “U.S. Rights”) to Ameluz ® and the RhodoLED ® Lamps (the “Strategic Transaction”). Pursuant to the terms of the Agreements, retroactive to June 1, 2025, the Company will pay a monthly earnout of 12% of United States revenues of Ameluz ® in years when United States net sales are $65.0 million or less and an earnout of 15% on all revenue in years when United States net sales of Ameluz ® exceed $65.0 million, continuing until the expiration of patent protection on Ameluz ® allows for generic competition in the United States. The earnout replaces a transfer pricing model under the Company’s Second Amended and Restated License and Supply Agreement (“Second A&R Ameluz LSA”) by and among the Company and the Biofrontera Group, which has now been terminated pursuant to the Agreements. The new structure reduces overall cost for the Company and is expected to accelerate the Company’s timeframe to reach break-even. The results of operations for the three and six months ended June 30, 2026 reflect this revised cost structure, while the results of operations for the three and six months ended June 30, 2025 reflect the prior transfer-pricing model. Period-over-period comparisons of cost of revenues and related-party cost of revenues are therefore affected by this change, as discussed further under “Results of Operations” below. See Note 13. Related Party Transactions in our Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for additional information. Compliance with Nasdaq Listing Standards. On December 31, 2025, we received a letter from Nasdaq notifying us that the listing of our common stock was not in compliance with Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). On May 6, 2026, we received written notification from Nasdaq that we had regained compliance with the Minimum Bid Price Requirement and that the matter is 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. See Note 2. Summary of Significant Accounting Policies – The Nasdaq Stock Market, LLC Compliance in our Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for additional information. 24 ITC Matter. On May 6, 2026, the International Trade Commission issued a Notice of Final Determination finding a violation of Section 337 of the Tariff Act of 1930 with respect to two asserted patents involving certain components of our RhodoLED ® XL Lamps. The Commission issued a Limited Exclusion Order and Cease and Desist Orders, with the orders relating to the ‘028 patent suspended pending further proceedings before the U.S. Patent Trial and Appeal Board. See Note 17. Commitments and Contingencies for additional information regarding this matter, which is referred to herein as the “ITC Matter.” Geopolitical Uncertainty and Tariffs. Recent actions by the U.S., including the imposition of significant tariffs on imports from certain countries, have heightened uncertainty in the global trade environment. These tariffs, along with potential retaliatory measures by other countries, may increase inflationary pressure and raise the costs of our products, which are exclusively imported from Europe. While several tariff announcements have been followed by announcements of limited exemptions and temporary pauses, these actions have caused substantial uncertainty and volatility in financial markets, and may result in further retaliatory measures. We may be unable to fully offset the impacts of tariffs by adjusting the pricing of our products. We continue to monitor developments and assess the potential impact on our supply chain, product cost, and pricing strategy. Strategy Our principal objective is to improve patient outcomes through adoption and use of our products in the United States. The key elements of our strategy include the following: ● expanding our sales in the United States of Ameluz ® in combination with the RhodoLED ® Lamps for the treatment of minimally to moderately thick AKs of the face and scalp and positioning Ameluz ® to be the standard of care in the United States by focusing on acquisition of new customers and growth of the therapy in our current customer base; ● leveraging the potential for future approvals and label extensions of our portfolio products that are in the pipeline for the United States market with respect to Ameluz ® and furthering the clinical development of this product after taking over responsibility for certain ongoing clinical trials since June 1, 2024; and ● strategically managing our portfolio, including opportunistically adding complementary products or services to our portfolio by acquiring or licensing IP to further leverage our commercial infrastructure and customer relationships. We devote a substantial portion of our cash resources to the commercialization of Ameluz ® and the RhodoLED ® Lamps. We have financed our operating and capital expenditures through cash proceeds generated from our product sales, proceeds received from convertible notes and equity financings. We believe that important measures of our results of operations include product revenue, operating income (loss) and adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”; a non-GAAP measure). Our sole source of product revenue is sales of Ameluz ® and the RhodoLED ® Lamps. Our long-term financial objectives include consistent revenue growth and expanding operating margins. Accordingly, we are focused on product sales expansion to drive revenue growth and improve operating efficiencies, including effective resource utilization, information technology leverage, and overhead cost management. 25 Key Factor Affecting Our Performance Because traditional photodynamic therapy treatments using a lamp are performed more frequently during the winter, our revenue is subject to some seasonality and has historically been higher during the first and fourth quarters than during the second and third quarters. As a result, our historical results of operations may not be comparable to our results of operations in future periods, and our results of operations may not be directly comparable from period to period. Components of Our Results of Operations Product Revenues, Net We generate product revenues through the sale of our products Ameluz ® and RhodoLED ® Lamps . Revenues from product sales are recorded net of trade discounts and allowances and government rebates. The primary factors that determine our revenue derived from our products are: ● the level of orders generated by our sales force; ● the level of prescriptions and institutional demand for our products; and ● unit sales and average sales price. Cost of Revenues, Related Party Cost of revenues, related party, relating to inventory purchased from the Biofrontera Group is comprised of purchase costs of our products, Ameluz ® and RhodoLED ® Lamps, from Biofrontera Pharma GmbH and insignificant inventory adjustments due to scrapped, expiring and excess products. Cost of Revenues, Other Cost of revenues, other, is comprised of third-party logistics and distribution costs including packaging, freight, transportation, shipping and handling costs. 26 Selling, General and Administrative Expense Selling, general and administrative expenses consist principally of costs associated with our sales force, commercial support personnel, personnel in executive and other administrative functions, as well as medical affairs professionals. Other selling, general and administrative expenses include marketing, trade, and other commercial costs necessary to support the commercial and manufacturing operation of our products and professional fees for legal, consulting and accounting services, product regulation, quality management, as well as depreciation and amortization. Selling, General and Administrative Expenses, Related Party Selling, general and administrative expenses, related party, relate to the services provided by the Biofrontera Group, primarily for regulatory support and pharmacovigilance. These expenses were charged to us based on costs incurred plus 6% in accordance with the Amended and Restated Master Contract Services Agreement entered into in December 2021. Patent Remediation Expense The estimated remediation cost with respect to the ITC Matter of $0.5 million, representing management’s best estimate within a range of $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 six months ended June 30, 2026. See Note 17. Commitments and Contingencies for additional information regarding the ITC Matter. Research and Development We conduct all clinical trials for Ameluz ® in the United States through Biofrontera Discovery GmbH, allowing for more effective cost management and direct oversight of trial efficiency. Our R&D expenses include costs directly attributable to the clinical development of Ameluz ® , including personnel-related expenses, the cost of services provided by outside contractors, including services related to the Company’s clinical trial sites, facilities, depreciation, and other direct and allocated expenses. Along with our Ameluz ® clinical trials, our R&D program also aims to improve the capabilities of our RhodoLED ® Lamps to better fulfill the needs of dermatologists and improve the effectiveness of our commercial team by letting sales representatives carry approved devices with them, allowing for easier product demonstrations and evaluations. All costs associated with R&D are expensed as incurred. Change in Fair Value of Warrant Liabilities For warrants that are classified as liabilities, the Company records the fair value of the warrants at each balance sheet date and records changes in the estimated fair value as a non-cash gain or loss in the consolidated statements of operations until the warrants are exercised, expire or other facts and circumstances lead the warrant liabilities to be reclassified to stockholders’ equity or deficit. Interest Income (Expense), net Interest expense, net, primarily consists of interest on our convertible notes and short-term debt, including amortization of deferred costs. 27 Other Income (Expense), net Other income (expense), net primarily includes (i) gain on return of leased assets and (ii) gain (loss) on foreign currency transactions. Income Taxes As a result of the net losses we have incurred in each fiscal year since inception, we have recorded no provision for federal income taxes during such periods. Income tax expense incurred relates to state income taxes. Results of Operations Comparison of the Three Months Ended June 30, 2026 and 2025 The following table summarizes our results of operations for the three months ended June 30: ( in thousands) 2026 2025 Change Product revenues, net $ 12,003 $ 9,030 $ 2,973 Operating expenses: Cost of revenues, related party 2,185 2,380 (195 ) Cost of revenues, other 225 262 (37 ) Selling, general and administrative 9,628 10,528 (900 ) Selling, general and administrative, related party 41 69 (28 ) Research and development 448 870 (422 ) Total operating expenses 12,527 14,109 (1,582 ) Loss from operations (524 ) (5,079 ) 4,555 Other income (expense): Change in fair value of warrant liabilities 44 153 (109 ) Change in fair value of investment, related party (1 ) 2 (3 ) Interest expense, net (126 ) (115 ) (11 ) Other income (expense), net 26 (264 ) 290 Total other income (expense) (57 ) (224 ) 167 Loss before income taxes (581 ) (5,303 ) 4,722 Income tax expense 23 21 2 Net loss $ (604 ) $ (5,324 ) $ 4,720 Product Revenues, net Net product revenue for the three months ended June 30, 2026 was $12.0 million, an increase of $3.0 million, or 32.9%, compared to the three months ended June 30, 2025. The increase was primarily attributable to higher Ameluz ® net sales, reflecting $2.6 million or 30.0% growth in unit volume. Of the $2.6 million volume-driven revenue increase, approximately $1.9 million is attributable to accelerated order timing from certain customer accounts in anticipation of supply restrictions resulting from the ITC Matter, with the remainder reflecting improved sales execution and strategic sales team management. Additionally, a price increase implemented in the fourth quarter of 2025 contributed $0.3 million revenue increase. 28 Operating Expenses Cost of Revenues, Related Party Cost of revenues, related party for the three months ended June 30, 2026 was $2.2 million, a decrease of $0.2 million, or 8.2%, compared to the three months ended June 30, 2025. The decrease was primarily driven by a reduction in the purchase price of Ameluz ® resulting from the Strategic Transaction, which transitioned the Company from the transfer pricing model in place under the now-terminated Second A&R Ameluz LSA, which was 25% of net revenue, to a significantly lower cost structure comprised only of Ameluz ® direct cost and the 12% earnout applied to net revenue. Selling, General and Administrative Expenses Selling, general and administrative expenses for the three months ended June 30, 2026 were $9.6 million, compared to $10.5 million for the three months ended June 30, 2025. The decrease of $0.9 million was primarily driven by a $2.1 million reduction in general and administrative expenses, mainly from lower litigation-related legal fees as legal activity levels that peaked in the three months ended June 30, 2025 did not recur. This was partially offset by planned increases in direct sales of $0.4 million and sales support of $0.2 million, reflecting the Company’s continued investment in its commercial operations to support the 30% growth in Ameluz ® sales volume achieved in the three months ended June 30, 2026, compared to the three months ended June 30, 2025, as well as $0.5 million of costs from manufacturing, regulatory and product affairs, activities that were new in 2026. Research and Development Expense Research and development expenses for the three months ended June 30, 2026 were $0.4 million, a decrease of $0.4 million compared to the three months ended June 30, 2025. The decrease was primarily attributable to certain clinical trials reaching substantial completion ahead of their originally planned timelines, resulting in lower trial-related expenditures in the current year period. In connection with the winding-down of our moderate to severe acne clinical trial, we reversed previously recorded accruals during the three months ended June 30, 2026, reflecting actual costs incurred upon substantial completion of the trial that were lower than previously estimated. This reversal is reflected as a credit within the moderate to severe acne category in the table below. The following table summarizes the major categories of our R&D expenses for the three months ended June 30: (in thousands) 2026 2025 Actinic keratosis $ 82 $ 90 Moderate to severe acne (5 ) 91 Superficial basal cell carcinoma 17 279 Personnel-related costs 323 402 Other research and development 31 8 Total $ 448 $ 870 29 Comparison of the Six Months ended June 30, 2026 and 2025 The following table summarizes our results of operations for the six months ended June 30: ( in thousands) 2026 2025 Change Product revenues, net $ 22,087 $ 17,617 $ 4,470 Operating expenses: Cost of revenues, related party 4,016 5,455 (1,439 ) Cost of revenues, other 510 455 55 Selling, general and administrative 20,623 19,183 1,440 Selling, general and administrative, related party 42 76 (34 ) Patent remediation expense 392 - 392 Research and development 1,348 2,077 (729 ) Total operating expenses 26,931 27,246 (315 ) Loss from operations (4,844 ) (9,629 ) 4,785 Other income (expense): Change in fair value of warrant liabilities (175 ) 702 (877 ) Change in fair value of investment, related party (1 ) 2 (3 ) Interest expense, net (251 ) (220 ) (31 ) Other expense, net (62 ) (363 ) 301 Total other income (expense) (489 ) 121 (610 ) Loss before income taxes (5,333 ) (9,508 ) 4,175 Income tax expense 23 19 4 Net loss $ (5,356 ) $ (9,527 ) $ 4,171 Product Revenues, net Net product revenue for the six months ended June 30, 2026 was $22.1 million, an increase of $4.5 million, or 25.4%, compared to the six months ended June 30, 2025. The increase was primarily attributable to higher Ameluz ® net sales, driven by growth in unit volume reflecting improved sales execution and strategic sales team management contributing approximately $2.1 million to revenue growth, as well as accelerated order timing from certain customer accounts in anticipation of supply restrictions resulting from the ITC Matter contributing approximately $1.9 million to revenue growth. Additionally, a higher average effective selling price following a list price adjustment implemented in the fourth quarter of 2025 contributed $0.4 million to revenue growth. Operating Expenses Cost of Revenues, Related Party Cost of revenues, related party for the six months ended June 30, 2026 was $4.0 million, a decrease of $1.4 million, or 26.4%, compared to the six months ended June 30, 2025. The decrease was primarily driven by a reduction in the Ameluz ® unit cost of $3.8 million resulting from the Strategic Transaction, as explained above. This decrease was partially offset by $2.6 million of earnout expense recognized under the royalty arrangement effective in the second half of 2025, with no comparable charge in the prior year period. 30 Selling, General and Administrative Expenses Selling, general and administrative expenses for the six months ended June 30, 2026 were $20.6 million, an increase of $1.4 million, or 7.5%, compared to the six months ended June 30, 2025. The increase was primarily driven by $0.7 million of higher direct sales expenses and $0.6 million of higher sales support expenses, reflecting headcount growth and increased commercial activity in support of Ameluz ® sales volume growth, as well as $1.1 million of combined costs from manufacturing and regulatory and product affairs. These increases were partially offset by a $1.3 million decrease in general and administrative expenses, driven by lower litigation-related legal fees. Patent Remediation Expense During the six months ended June 30, 2026, we recognized a total charge of $0.5 million reflecting the estimated cost to remediate the affected units of our RhodoLED ® XL Lamps in response to the ITC Matter. The total charge comprises (i) an inventory write-down of $0.1 million to reduce the carrying value of affected finished goods inventory and obsolete components in raw materials to net realizable value in accordance with ASC 330-10-35, which were charged to cost of revenues, other, and (ii) an accrued remediation liability of $0.4 million for the future cost activities charged to patent remediation expense. We expect to incur the cash component of these costs over the twelve months following the 60-day Presidential Review period, which concluded on July 6, 2026, as remediation activities are executed. In addition, the remediation is expected to result in a small, recurring increase in our per-unit cost of revenues for affected products; this prospective impact is reflected in our cost of revenues as units implementing the remediation are produced and sold. We do not expect the recurring per-unit cost increase to be material to our overall cost of revenues. Research and Development Expense Research and development expenses for the six months ended June 30, 2026 were $1.3 million, a decrease of $0.7 million compared to the six months ended June 30, 2025. The decrease was primarily attributable to certain clinical trials reaching substantial completion ahead of their originally planned timelines, resulting in lower trial-related expenditures in the current year period. The following table summarizes the major categories of our R&D expenses for the six months ended June 30: (in thousands) 2026 2025 Actinic keratosis $ 348 $ 232 Moderate to severe acne 23 218 Superficial basal cell carcinoma 127 832 Lamp Development 35 - Personnel-related costs 784 781 Other research and development 31 14 Total $ 1,348 $ 2,077 Change in Fair Value of Warrant Liabilities The change in fair value of warrant liabilities resulted in a loss of $0.2 million for the six months ended June 30, 2026, compared to a gain of $0.7 million for the six months ended June 30, 2025. The loss recognized during the six months ended June 30, 2026 was primarily attributable to the increase in our stock price at June 30, 2026 as compared to the stock price on December 31, 2025, which increased the fair value of the warrant liabilities. The gain recognized during the six months ended June 30, 2025 was primarily attributable to the decrease in our stock price at June 30, 2025 as compared to the stock price on December 31, 2024, which decreased the fair value of the warrant liabilities. 31 Net Loss to Adjusted EBITDA Reconciliation for the Three and Six Months Ended June 30, 2026 and 2025 We define adjusted EBITDA as net income or loss before interest income and expense, income taxes, depreciation and amortization, and other non-operating items from our statements of operations as well as certain other items considered outside the normal course of our operations specifically described below. Adjusted EBITDA is not a presentation made in accordance with GAAP. Our definition of adjusted EBITDA may vary from the use of similarly titled measures by others in our industry due to the potential inconsistencies in the method of calculation and differences due to items subject to interpretation. Adjusted EBITDA should not be considered as an alternative to net income or loss, operating income/(loss), cash flows from operating activities or any other performance measures derived in accordance with GAAP as measures of operating performance or liquidity. Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Change in fair value of warrant liabilities : The warrants issued in conjunction with our private placement offerings and registered public offerings were accounted for as liabilities in accordance with ASC 815-40. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within the consolidated statements of operations. We exclude the impact of the change in fair value of warrant liabilities as this is non-cash. Change in fair value of investment, related party : The Company accounts for its investment, related party in accordance with ASC 321, Investments - Equity Securities. Equity securities, which are comprised of investments in common stock, are initially recorded at cost, plus transaction costs, and subsequently measured at fair value, based on quoted market prices, with the gains and losses reported in the Company’s consolidated statements of operations. For the investments held in foreign currencies, the change in fair value attributable to changes in foreign exchange rates is included in gains and losses in the consolidated statements of operations. We exclude the impact of the realized and unrealized change in fair value of investments as this is non-cash. Stock-Based Compensation : To measure operating performance, we exclude the impact of costs relating to share-based compensation. Due to the subjective assumptions and the variety of award types, we believe that the exclusion of share-based compensation expense, which is non-cash, allows for more meaningful comparisons of our operating results to peer companies. Share-based compensation expense can vary significantly based on the timing, size and nature of awards granted. Patent Remediation Expense : During the six months ended June 30, 2026, we recognized a total charge of $0.5 million reflecting the estimated cost to remediate the affected units of our RhodoLED ® XL Lamps in response to the ITC Matter. The total charge comprises (i) an inventory write-down of $0.1 million to reduce the carrying value of affected finished goods inventory and obsolete components in raw materials to net realizable value in accordance with ASC 330-10-35, and (ii) an accrued remediation liability of $0.4 million for the future cost activities required to complete the remediation. We exclude these charges because they relate to a discrete adverse legal and regulatory matter that is not indicative of the Company’s ongoing operating performance. 32 Adjusted EBITDA margin is adjusted EBITDA for a particular period expressed as a percentage of revenues for that period. We use adjusted EBITDA to measure our performance from period to period and to compare our results to those of our competitors. In addition to adjusted EBITDA being a significant measure of performance for management purposes, we also believe that this presentation provides useful information to investors regarding financial and business trends related to our results of operations and that when non-GAAP financial information is viewed with GAAP financial information, investors are provided with a more meaningful understanding of our ongoing operating performance. The below table presents a reconciliation from net loss to Adjusted EBITDA for the three and six months ended June 30, 2026 and 2025: Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 Net loss $ (604 ) $ (5,324 ) $ (5,356 ) $ (9,527 ) Interest expense, net 126 115 251 220 Income tax expense 23 21 23 19 Depreciation and amortization 65 22 120 46 EBITDA (390 ) (5,166 ) (4,962 ) (9,242 ) Change in fair value of warrant liabilities (44 ) (153 ) 175 (702 ) Change in fair value of investment, related party 1 (2 ) 1 (2 ) Patent remediation – inventory write-down - - 58 - Patent remediation expense - - 392 - Stock-based compensation 263 187 605 426 Adjusted EBITDA $ (170 ) $ (5,135 ) $ (3,731 ) $ (9,520 ) Adjusted EBITDA margin -1.4 % -56.9 % -16.9 % -54.0 % Adjusted EBITDA Adjusted EBITDA increased from ($5.1) million for the three months ended June 30, 2025 to ($0.2) million for the three months ended June 30, 2026, an improvement of $5.0 million. The improvement was primarily driven by a $3.2 million increase in gross profit, reflecting significantly higher Ameluz ® unit volume and a lower cost structure as described above. The decrease of $0.9 million in selling, general and administrative expenses and decrease of $0.4 million in research and development cost further increased adjusted EBITDA. Refer to the section above entitled “Selling, General and Administrative Expenses” for additional details. Adjusted EBITDA increased from ($9.5) million for the six months ended June 30, 2025 to ($3.7) million for the six months ended June 30, 2026, an improvement of $5.8 million. The improvement was primarily driven by a $5.9 million increase in gross profit, reflecting higher Ameluz ® unit volume and a lower cost structure as described above. Liquidity and Capital Resources The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. Since we commenced operations in 2015, we have generated significant losses. The Company incurred net cash outflows from operations of $1.7 million and $7.2 million for the six months ended June 30, 2026 and 2025, respectively. As of June 30, 2026, the Company’s accumulated deficit was $133.3 million. The Company’s primary sources of liquidity are its cash collected from the sales of its products and cash flows from financing transactions. As of June 30, 2026, we had cash and cash equivalents of $4.7 million, compared to $6.4 million as of December 31, 2025. As discussed in Note 17. Commitments and Contingencies, in connection with the ITC Matter the Company has recorded an estimated remediation cost of $0.5 million and expects related cash disbursements to occur over the twelve months following July 6, 2026; these disbursements are reflected in the Company's cash flow forecasts used in this assessment. Based on currently available information, management does not expect this matter to materially impair the Company's core Ameluz ® revenue base. The Company cannot provide assurance that it will ultimately achieve profitable operations and become operating cash flow positive or raise additional debt or equity capital. Additionally, the current capital resources are not adequate to continue operating and maintaining the business strategy for a period of twelve months from the issuance date of this report. Management believes that these conditions raise substantial doubt about the Company’s ability to continue as a going concern for at least twelve months from the issuance date of this Quarterly Report on Form 10-Q. The 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 expense; drawing on a working capital line of credit; pursuing the realization of an additional $1.0 million in milestone payments from the sale of the Xepi intangible asset expected in December 2026; and, if necessary, securing additional capital through equity or debt financings to support commercial expansion and R&D programs. 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. The 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. 33 Cash Flows The following table summarizes our cash provided by and (used in) operating, investing and financing activities: Six Months Ended June 30, (in thousands) 2026 2025 Net cash used in operating activities $ (1,728 ) $ (7,162 ) Net cash provided by (used) in investing activities (5 ) (4 ) Net cash provided by financing activities - 8,500 Net increase (decrease) in cash and restricted cash $ (1,733 ) $ 1,334 Operating Activities During the six months ended June 30, 2026, operating activities used $1.7 million of cash, primarily resulting from our loss from operations of $5.4 million, adjusted for net cash used by changes in our operating assets and liabilities of $2.2 million, non-cash expense of stock-based compensation of $0.6 million, reduction of right-of-use assets of $0.3 million, non-cash interest expense of $0.3 million, change in warrant valuation of $0.2 million, and depreciation and amortization in the aggregate of $0.1 million. During the six months ended June 30, 2025, operating activities used $7.2 million of cash, primarily resulting from our loss from operations of $9.5 million, adjusted for non-cash expense of stock-based compensation of $0.4 million, depreciation and amortization in the aggregate of $0.4 million, non-cash interest expense of $0.2 million, and net cash used by changes in our operating assets and liabilities of $2.0 million, partially offset by the change in fair value of warrant liabilities of $0.7 million. Investing Activities During the six months ended June 30, 2026 and 2025, net cash used in investing activities consisted of negligible fixed asset purchases. Financing Activities There were no financing activities during the six months ended June 30, 2026. During the six months ended June 30, 2025, net cash from financing activities consisted of an advance from certain stockholders in accordance with a securities purchase agreement dated June 27, 2025, for the issuance of Series C Preferred Stock, which was not issued until July 1, 2025. On July 1, 2025, upon issuance of the Series C Preferred Stock, the advance from stockholders was settled and reclassed to mezzanine equity. See Note 14. Stockholders’ Equity , for additional details. 34 Accounting Policies and Significant Judgments and Estimates Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with generally accepted accounting principles of the United States, or GAAP. The preparation of the financial statements in accordance with GAAP requires the use of estimates and assumptions by management that affect the value of assets and liabilities, as well as contingent assets and liabilities, as reported on the balance sheet date, and revenues and expenses arising during the reporting period. The main areas in which assumptions, estimates and the exercising of a degree of judgment are appropriate relate to contingent consideration, fair value measurements, valuation of intangible assets and impairment assessment, and stock compensation. 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. Our significant accounting policies are described in more detail in Note 2. Summary of Significant Accounting Policies , to our consolidated financial statements included in Item 8. Financial Statements and Supplementary Data in the 2025 Form 10-K. Critical Accounting Estimates A summary of our critical accounting estimates is discussed in the section entitled “Critical Accounting Estimates” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2025 Form 10-K. There were no material changes to our critical accounting estimates for the six months ended June 30, 2026, other than as noted below. Loss Contingency for ITC Matter With respect to the ITC Matter, our estimate of the loss is based on a bottom-up cost model encompassing component procurement, field service travel and labor, return-to-base rework, regulatory and quality activities, and other costs. The estimate is sensitive to a number of assumptions that may change as remediation activities progress, including, in particular, (a) the labor and the associated travel and lodging costs, (b) the unit cost of the remediation and the foreign exchange rate at which it is procured, (c) the regulatory pathway determined for the remediation and (d) the timing and outcome of the suspended limited exclusion order and cease and desist order as to the ‘028 patent. A change in any of these assumptions could result in a material change in the recorded accrual, which would be recognized prospectively as a change in estimate in accordance with ASC 250-10-45-17. Off-balance Sheet Arrangements Other than those items reflected in Note 17. Commitments and Contingencies , we did not have during the periods presented, and we do not currently have, any other off-balance sheet arrangements, as defined in the rules and regulations of the SEC. Emerging Growth Company Status The Jumpstart Our Business Startups Act of 2012 permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected to take advantage of such extended transition period, which means that when an accounting standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company. Item 3. Quantitative and Qualitative Disclosures About Market Risk As a “smaller reporting company,” we are not required to provide the information required by this Item.