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Item 1. Financial Statements

2025-08-13 compared with 2025-05-15 · 757 added, 656 removed, 194 unchanged (88% of the section changed)

Financial Statements

BIOFRONTERA INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

( In thousands, except par value and share amounts )

CONSOLIDATED BALANCE SHEETS

thousands, except par value and share amounts )

Current assets:

5 unchanged sentences

Asset held for sale

Other assets, related party

Total current assets

8 unchanged sentences

Operating lease liabilities

Advance from Stockholders

Accrued expenses and other current liabilities

7 unchanged sentences

Commitments and contingencies (see Note 16)

Stockholders’ equity:

Preferred Stock, $ 0.001 par value, 20,000,000 shares authorized, no Series B-1, 3,366 Series B-2 and 6,763 Series B-3 shares issued and outstanding as of March 31, 2025 and December 31, 2024

Common Stock, $ 0.001 par value, 35,000,000 shares authorized;

8,873,932 and 1,517,628 shares issued and outstanding as of March 31, 2025 and December 31, 2024

Stockholders’ (deficit) equity:

Preferred Stock $ 0.001 par value;

20,000,000 shares authorized;

no Series B-1 issued;

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

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

Common Stock $ 0.001 par value;

70,000,000 shares authorized;

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

Additional paid-in capital

Accumulated deficit

Total stockholders’ equity

Total stockholders’ (deficit) equity

Total liabilities and stockholders’ equity

The accompanying notes are an integral part of these

condensed consolidated financial statements.

BIOFRONTERA INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

( In thousands, except per share amounts and number

Three Months Ended March 31,

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

CONSOLIDATED STATEMENTS OF OPERATIONS

thousands, except per share amounts and number of shares )

Three Months Ended

Six Months Ended

Product revenues, net

11 unchanged sentences

Other income (expense)

Change in fair value of warrant liabilities

Change in fair value of warrants

Change in fair value of investment, related party

1 unchanged sentence

Interest expense, net

Other income (expense), net

Other income, net

Total other income (expense)

5 unchanged sentences

Basic and diluted

The accompanying notes are an integral part of these

consolidated financial statements.

BIOFRONTERA INC.

CONDENSED CONSOLIDATED STATEMENTS OF MEZZANINE AND

STOCKHOLDERS’ EQUITY

(In thousands, except number of shares)

Three Months Ended March 31, 2025 and 2024

Preferred Stock

Additional Paid-

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

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

thousands, except number of shares)

and Six Months Ended June 30, 2025

Balance, April 1, 2025

Conversion of Series B-2 Preferred

Conversion of Series B-3 Preferred

Stock based compensation

Balance, June 30, 2025

Balance, January 1, 2025

Conversion of Series B-2 Preferred

Conversion of Series B-3 Preferred

Stock based compensation

Balance, June 30, 2025

and Six Months Ended June 30, 2024

Balance, April 1, 2024

$ ( 110,087 )

Conversion of Series B-1 Preferred

into Series B-2 Preferred

Issuance of Series B-3 upon exercise of warrants

Issuance of RSUs

Stock based compensation

Balance, March 31, 2025

Balance, June 30, 2024

$ ( 110,344 )

Stockholders’ Equity

Preferred Stock

Additional Paid-

Balance, January 1, 2024

Exercise of pre-funded warrants

Issuance of Series B Preferred Stock and Warrants

Conversion of Series B-1 Preferred into common stock

Conversion of Series B-1 Preferred

into Series B-2 Preferred and common stock

Issuance of Series B-3 upon exercise of warrants

Issuance of RSUs

Stock based compensation

Balance, March 31, 2024

The accompanying notes are an integral part of these

condensed consolidated financial statements.

BIOFRONTERA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

Three Months Ended March 31,

Balance, June 30, 2024

$ ( 110,344 )

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30,

Cash flows from operating activities:

2 unchanged sentences

Amortization of acquired intangible assets

Realized/unrealized gain in investment, related party

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

Change in fair value of warrant liabilities

5 unchanged sentences

Accounts receivable

Other receivables, related party

Prepaid expenses and other assets

Other assets, related party

Accounts payable

Accounts payable, related parties, net

Accounts payable, related party, net

Operating lease liabilities

3 unchanged sentences

Sales of equity investment, related party

Purchase of intangible assets

Purchases of property and equipment

1 unchanged sentence

Cash flows from financing activities

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

Proceeds from stockholder advances

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

Payments to extinguish line of credit

Cash flows provided by financing activities

Net increase (decrease) in cash and cash equivalents

Net increase in cash and cash equivalents

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

2 unchanged sentences

Interest paid

The accompanying notes are an integral part of these

condensed consolidated financial statements.

Biofrontera Inc.

Notes to Condensed Consolidated Financial Statements

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.

to Condensed Consolidated Financial Statements

Organization and Business Overview

Biofrontera Inc., a Delaware Corporation (the “Company,”

“we,” “us,” “our,” or “Biofrontera”), is a United States-based biopharmaceutical company

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

The Company’s primary licensed products are used for the treatment of actinic keratoses,

which are pre-cancerous skin lesions.

The Company includes its wholly owned subsidiary Biofrontera

Discovery GmbH (“Discovery”), a limited liability company organized under the laws of Germany, formed on February 9, 2022,

as a German presence to facilitate our relationship with Biofrontera Pharma and Biofrontera Bioscience (the “Ameluz Licensor”) and manage our clinical trial work.

Our principal licensed product is Ameluz ® ,

which is a prescription drug approved for use in combination with the RhodoLED ® Lamps, for PDT (when used together, “Ameluz ®

In the United States, the PDT treatment is used for the lesion-directed and field-directed treatment of actinic keratoses

of mild-to-moderate severity on the face and scalp.

We are currently selling Ameluz ® for this indication in the United

States under an exclusive license and supply agreement (as amended, the “Second A&R Ameluz LSA”) with Biofrontera Pharma

(“Pharma”) GmbH and Biofrontera Bioscience GmbH (“Biofrontera Bioscience,” and, together with Pharma, the “Ameluz

Licensor”), both of which are related parties.

Liquidity and Going Concern

The accompanying financial statements have been

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

course of business.

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

The Company incurred net cash

outflows from operations of $ 4.1 million

and $ 3.3 million

for the three months ended March 31, 2025 and 2024, respectively.

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, 2025, we had cash and cash

equivalents of $ 1.8

million, compared to $ 5.9

million as of December 31, 2024.

The current cash and liquidity projections are not

adequate to continue operating and maintaining the business strategy for a period of twelve months from the issuance date of this

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 report.

Management’s plans to mitigate

the conditions that raise substantial doubt about the Company’s ability to continue as a going concern include expanding

the commercialization of Ameluz ® in the United States while controlling expenses and limiting capital expenditures,

as well as capitalizing on the reduced cost of inventory in line with the terms of the Second A&R Ameluz LSA.

The Company also plans

to secure additional capital through equity or debt financings, or the sale of assets to carry out the Company’s planned commercial

and development activities.

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

strategies and/or obtaining sufficient funding on acceptable terms, if at all, and that the substantial doubt will be alleviated.

Company is unable to raise capital when needed, it will not have sufficient cash resources and liquidity to fund its business operations

and may be forced to delay or reduce continued commercialization efforts or R&D programs which could have a material adverse effect

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.

currently selling Ameluz ® for this indication in the United States under an exclusive license and supply agreement (as

amended, the “Second A&R Ameluz LSA”) with the Ameluz Licensor, both of which are related parties.

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,

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

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

Rights”) to Ameluz ® and RhodoLED ® (the

“Strategic Transaction”).

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

the transfer of the U.S.

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

Under the Term Sheet, and continuing once the

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

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

The royalty will replace the

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

Company, and the Biofrontera Group.

Related Party Transactions for additional information.

exchange for the U.S.

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

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

Note 12.Related Party Transactions, Note 18.

Commitments and Contingencies and N ote 20.

Subsequent Events for additional

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

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

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

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

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

Subsequent Events for additional

Placement of Series C Preferred Stock

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

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

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

offering price of $ 11.0 million.

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

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

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

The second tranche is expected to close after the Company enters

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

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

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

the Strategic Transaction and other general corporate purposes.

Advance from Stockholders for additional

Liquidity and

Going Concern

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

generally accepted accounting principles (“U.S.

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

The going concern assumption contemplates the realization of

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

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

The Company incurred net cash outflows from operations of $ 7.2

million and $ 8.0

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

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

The Company’s primary sources of liquidity are

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

million received in a private placement of Series C Preferred

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

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

$ 7.2 million,

compared to $ 5.9 million

as of December 31, 2024.

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

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

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

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

Xepi product line within the next one to three months.

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

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

If the Company is unable to

raise additional capital when needed, it will not have sufficient cash resources and liquidity to fund its business operations and

may be forced to delay or reduce continued commercialization efforts or R&D programs which could have a material adverse effect

on the Company and its financial statements.

The accompanying financial statements have been

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

course of business.

The financial statements do not include any adjustments relating to the recoverability and classification of

recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties

described above.

Such adjustments may be necessary should the Company be unable to continue as a going concern.

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

Basis for Preparation of the Financial Statements

The accompanying unaudited interim condensed consolidated

financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission

(“SEC”) for interim financial reporting.

Certain information and footnote disclosures normally included in the annual financial

statements prepared in accordance with U.S.

generally accepted accounting principles (“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 March 31, 2025, the Company’s operating results for the three months ended March 31, 2025 and 2024, and the Company’s

cash flows for the three months ended March 31, 2025 and 2024.

The accompanying financial information as of December 31, 2024 is derived

from audited financial statements.

Interim results are not necessarily indicative of results for a full year.

The information included

in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended

December 31, 2024, filed with the SEC on March 20, 2024.

All amounts shown in these financial statements and

tables are in thousands and amounts in the notes are in millions, except percentages and per share and share amounts.

With 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.

Mezzanine equity

Where ordinary or preferred shares are determined

to be conditionally redeemable upon the occurrence of certain events that are not solely within the control of the issuer, and upon such

event, the shares would become redeemable at the option of the holders, they are classified as ‘mezzanine equity’ (temporary

The purpose of this classification is to convey that such a security may not be permanently part of equity and could result in

a demand for cash, securities or other assets of the entity in the future.

Reclassification of Prior Year Presentation

Certain prior period amounts have been reclassified

for consistency with the current period presentation.

The reclassification was limited to the condensed consolidated statements of cash

flow and had no impact on the reported results of operations.

Specifically, for prior year presentation, accounts payable-related parties

of $ 1.6 million was reclassed from accounts payable to accounts payable, related party, net along with other receivables, related party

of $ 0.2 million.

Nasdaq Compliance

Nasdaq requires issuers to comply with certain

standards in order to remain listed on its exchange.

The Company’s stockholders’ equity as reported in the accompanying

balance sheet for the period ended March 31, 2025 was $ 0.5

Therefore, the Company is 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 this Report, the Company did not meet either of the alternative requirements of maintaining a market

value of listed securities of $35 million or achieving a net income from continuing operations of $0.5 million in the most recently

completed fiscal year or in two of the last three most recently completed fiscal years.

As a result, as of the date of this Report,

the Company does not satisfy Nasdaq Listing Rule 5550(b).

Further, the Company is not in compliance with Nasdaq Listing Rule

5550(a)(2) for continued listing on The Nasdaq Capital Market, as further discussed in the Current Report on Form 8-K filed by the

Company with the SEC on May 14, 2025.

The Company is in the process of creating a plan to regain

compliance with the Nasdaq rules.

Use of Estimates

The preparation of the consolidated financial statements

in accordance with United States GAAP requires the use of estimates and assumptions by management that affect the reported amounts of

assets and liabilities, as well as disclosure of contingent assets and liabilities, as reported on the balance sheet date, and the reported

amounts of revenues and expenses arising during the reporting period.

The main areas in which assumptions, estimates and the exercising

of judgment are appropriate relate to realization and valuation of receivables and inventory, valuation of warrant liabilities, impairment

assessment of intangibles and other long-lived assets, share-based payments, deferred tax asset valuations,

and contingent liability recognition.

Estimates are based on historical experience and other assumptions that are considered appropriate

in the circumstances.

for Preparation of the Financial Statements

accompanying unaudited interim condensed consolidated financial statements of the Company have been prepared pursuant to the rules and

regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting.

Certain information and footnote

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

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

In the Company’s opinion, the

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

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

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

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

Interim results are not

necessarily indicative of results for a full year.

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

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

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

and per share and share amounts.

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.

Reclassification

of Prior Year Presentation

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 $ 3.4 million was reclassed from accounts payable to accounts payable, related party,

Nasdaq Stock Market, LLC (“Nasdaq”) Compliance

On May 8, 2025, the Company

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

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

per share for the previous 33 consecutive business days.

The notice has no present

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

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

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

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

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

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

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

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

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

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

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

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

At such time, the Company may

appeal the delisting determination to a Hearings Panel.

The Company intends to actively

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

regain compliance with the Nasdaq Listing Rules.

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

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

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

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

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

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

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

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

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

of the last three most recently completed fiscal years.

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

Marketplace Rule 5550(b).

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

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

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

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

GAAP requires the use of estimates and assumptions

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

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

areas in which assumptions, estimates and the exercising of judgment are appropriate relate to realization and valuation of receivables

and inventory, valuation of warrant liabilities, impairment assessment of intangibles and other long-lived assets, share-based payments,

deferred tax asset valuations, and contingent liability recognition.

Estimates are based on historical experience and other assumptions

that are considered appropriate in the circumstances.

They are continuously reviewed but may vary from the actual values.

Recently Issued Accounting Pronouncements

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income

Taxes (Topic 740) – Improvements to Income Tax Disclosures .

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

1 unchanged sentence

Further, the ASU requires certain disclosures of state versus federal income tax expense and taxes paid.

amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2024.

Early adoption is permitted and

the amendments should be applied on a prospective basis.

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

financial statements and related disclosures.

2024, the FASB issued ASU 2024-03, I ncome Statement—Reporting Comprehensive Income—Expense

Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expense .

The new guidance requires disaggregated information about certain income statement expense line items on an annual and interim basis.

This ASU is effective for public business entities for annual reporting periods beginning after

December 15, 2026, and interim reporting periods beginning after December 15, 2027.

The new standard permits early adoption and can be

applied prospectively or retrospectively.

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

and related disclosures.

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

Induced Conversions of Convertible Debt.

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 202-09 did not have any impact on the interim disclosures in 2025.

We are evaluating the

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

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

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

Disaggregation of Income Statement

The new guidance requires disaggregated information about certain income

statement expense line items on an annual and interim basis.

This ASU is effective for public business

entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027.

The new standard permits early adoption and can be applied prospectively or retrospectively.

We are evaluating the effect that this guidance

will have on our consolidated financial statements and related disclosures.

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

Induced Conversions of Convertible

This ASU clarifies requirements for determining whether certain settlements of convertible debt instruments, including convertible

7 unchanged sentences

Fair Value Measurements

The following

table presents information about the Company’s assets that are measured at fair value on a recurring basis at March 31, 2025 and

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

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

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

Schedule of Fair Value Hierarchy Valuation Inputs

5 unchanged sentences

Total Liabilities

Investment, related party

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

The fair value of this investment was

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

Warrant Liabilities

The warrant liabilities are comprised of (i) outstanding

warrants to purchase 170,950 shares of the Company’s common stock, $ 0.001 par value (“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”).

Mezzanine Equity and Stockholders’

Equity for additional details.

The 2023 Purchase Warrants, the 2022 Inducement Warrants

and the 2022 Purchase Warrants were accounted for as liabilities as these warrants provide for a redemption right in the case of a fundamental

transaction which fails the requirement of the indexation guidance under ASC 815-40.

The resulting warrant liabilities are re-measured

at each balance sheet date until their exercise or expiration, and any change in fair value is recognized in the Company’s consolidated

statement of operations.

The 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 for the Level 3 warrants at March 31,

2025 was estimated using a BSM model based on the following assumptions:

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

Expiration term (in years)

Risk-free Rate

Dividend yield

The following

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

related party

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

The fair value of this

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

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

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 six months ended June 30, 2025:

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

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

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

contractual term.

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

of Changes in Fair Value Warrant Liabilities

Three Months Ended

Six 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

The warrants issued on February 22, 2024 to purchase

shares of Series B-3 Convertible Preferred Stock, par value $ 0.001

per share (the “2024 Preferred Warrants”), were also accounted for as liabilities, as they were redeemable in the

event of a change in control, which was not solely within the control of the Company (see Note 1 2.

Mezzanine Equity and Stockholders’

The 2024 Preferred Warrants were issued in the first quarter of 2024 and exercised prior to the end of the second quarter

The fair value for the Level 3 2024 Preferred Warrants was estimated utilizing a probability weighted average approach, which

incorporated two scenarios.

In scenario one, the warrant value was based on the underlying value of the convertible preferred stock,

using an option-pricing model backsolve that solved for the value of our publicly traded equity on the valuation date to obtain the valuation

date fair value of the Series B-3 Convertible Preferred Stock, then applied the Series B-3 Convertible Preferred Stock value into the

BSM model equation to determine the value of the Series B-3 convertible warrants.

In scenario two, the warrant value was based on the

underlying value of the publicly traded common equity value.

Scenario two assumes the preferred stock will be converted into Common Stock

prior to a liquidity event.

A simple BSM model was utilized to value the warrant under scenario two, using the closing price of our Common

Stock as an input to the model.

The BSM model used the following range of inputs and assumptions for the 2024 Preferred Warrants at the

issuance date of February 22, 2024, for the three months ended March 31, 2024 and at the exercise date of May 13, 2024:

stock price volatility of 79.3 %

(ii) risk-free interest rate of 5.39 %;

(iii) expected life of the warrants of 0.003 to 0.21 years;

and (iv) dividend yield of 0.0 %.

The fair value of the 2024 Preferred Warrants was $ 4.1

million at issuance and $ 5.4

million at the exercise date.

We generate revenue primarily through the sales of

our licensed products, Ameluz ® and BF-RhodoLED ® lamps.

Traditional 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.

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.

Cash Balances and Statement of Cash Flows Reconciliation

The Company maintains its

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

2025, approximately $ 1.3 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 (“FDIC”).

At June 30, 2025, approximately $ 6.9 million of the Company’s cash balances were in excess of FDIC limits.

The Company has not

experienced any losses on these accounts and management does not believe that the Company is exposed to any significant risks with respect

to these accounts.

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

1 unchanged sentence

cash was recorded in other assets in the condensed consolidated balance sheet.

The following table provides a reconciliation of cash,

cash equivalents, and restricted cash that sum to the total shown in the statements of cash flows:

following table provides a reconciliation of cash, cash equivalents, and restricted cash that sum to the total shown in the statements

of cash flows:

Schedule of Reconciliation of Cash, Cash Equivalents, and Restricted Cash

3 unchanged sentences

Total cash, cash equivalents, and restricted cash shown on the consolidated statements of cash flows

Long-term restricted cash was recorded in other assets

in the condensed consolidated balance sheet.

restricted cash was recorded in other assets in the condensed consolidated balance sheet.

Accounts Receivable, net

Accounts receivables are mainly attributable to the

sale of Ameluz ® .

It is expected that all trade receivables will be settled within twelve months of the balance sheet date.

receivables are mainly attributable to the sale of Ameluz ® .

It is expected that all trade receivables will be settled

within twelve months of the balance sheet date.

Trade accounts receivable are stated at their net realizable value.

The allowance for credit losses reflects our best estimate of expected

credit losses of the receivables determined on the basis of historical experience and current information.

In developing the estimate

for expected credit losses, trade accounts receivable are segmented into pools of assets depending primarily on delinquency status, and

reserve percentages are established for each pool of trade accounts receivable.

In determining the reserve percentages for each pool

of trade accounts receivable, we considered our historical experience with certain customers, regulatory and legal environments and other

relevant current and future forecasted macroeconomic factors.

If we become aware of any customer-specific factors that impact credit risk,

specific allowances for these known troubled accounts are recorded.

The allowance for credit losses was $ 0.1 million and

$ 0.2 million as of March 31, 2025 and December 31, 2024, respectively.

Inventories are comprised of Ameluz ®

and the RhodoLED ® lamps.

provision for obsolescence recorded for the three months ended March 31, 2025 and a negligible amount for the year ended

December 31, 2024.

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.

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

customers, regulatory and legal environments and other relevant current and future forecasted macroeconomic factors.

If we become aware

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

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

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

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

Asset Held for Sale

Asset held for sale consists of the following:

held for sale consists of the following:

of Assets Held for Sale

2 unchanged sentences

Accumulated amortization

Intangible asset, net

The 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 is working with a potential purchaser and expects to complete a sale within the

next one to five months and, as such, has classified the asset as held for sale under current assets in the condensed consolidated

balance sheets.

The carrying amount of the asset at the time of classification was $ 2.3

million, which was the lower of its carrying value or estimated fair value less cost to sell.

No gain or loss was recognized in the Condensed

Statement of Operations upon classification as an asset held for sale and the related revenue and expenses associated with the asset

were de-minimus.

This divestiture does not represent a strategic shift that will have a major effect on our consolidated results of

operations and therefore is not being reported as discontinued operations.

The Xepi ® license intangible asset

was recorded at acquisition date fair value of $ 4.6

million and was amortized on a straight-line basis over the useful life of 11

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 is working with a potential purchaser and

expects to complete a sale within the third quarter and, as such, has classified the asset as held for sale under current assets in the

condensed consolidated balance sheets.

The carrying amount of the asset at the time of classification was $ 2.3 million, which was the

lower of its carrying value or estimated fair value less cost to sell.

No gain or loss was recognized in the Condensed Statement of Operations

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

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

This divestiture does not represent a strategic

shift that will have a major effect on our consolidated results of operations and therefore is not being reported as discontinued operations.

Xepi ® license intangible asset was recorded at acquisition date fair value of $ 4.6 million and was amortized on a straight-line

basis over the useful life of 11 years.

Advance from Stockholders

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

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

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

by the Company.

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

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

The gross proceeds from the second tranche are expected to be

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

The Company intends to use the net proceeds to fund

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

survived under the terms of the Strategic Transaction.

Organization and Business Overview for additional information.

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

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

Stockholders’ Equity , for additional details.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist

of the following:

expenses and other current liabilities consist of the following:

Schedule of Accrued Expenses and Other Current Liabilities

3 unchanged sentences

Research and development

Product revenue allowances and reserves

Convertible Notes Payable

On November 22, 2024, the Company issued $ 4.2 million

in an aggregate principal amount of the Company’s 10.0 % Senior Secured Convertible Notes (the “Notes”) pursuant to a

Securities Purchase Agreement entered into on November 21, 2024 with its principal stockholders.

The Notes bear interest at 10.0 % per annum, payable

in-kind (“PIK interest”) through the issuance of additional principal on a quarterly basis.

In the Event of Default (as defined

in the Notes), the interest will increase to 15 % per annum from the date of written notice from the holder.

The Notes may be converted

at any time into shares of the Company’s Common Stock at a conversion price of $ 0.78 per share subject to customary adjustments

for stock splits, stock dividends and recapitalizations, as described in the Notes.

The Notes mature on November 22, 2027, unless earlier

converted or repurchased.

The Company may not redeem the Notes at its option prior to maturity.

Upon maturity, the Company will pay to

the holders of the Notes an amount in cash representing all of the outstanding aggregate principal amount of the Notes, together with

any accrued and unpaid interest.

Alternatively, the entire amount of the note will be automatically converted to shares of Common Stock

if the 10-day volume weighted average price of a share of the Company’s Common Stock on Nasdaq is greater than 250% of the conversion

price, and certain other conditions are met.

The Notes provide for customary events of default

and contain conversion limitations, providing that no conversion may be made if the aggregate number of shares of Common Stock beneficially

owned by the holder would exceed 9.99 % immediately after conversion.

There were no events of default at March 31, 2025.

The Notes are secured by substantially all property

of the Company, including but not limited to the Company’s assets, inventory, intellectual property and accounts.

The Notes were accounted for as a liability under

ASC 470 and the embedded conversion option has been assessed under ASC 815.

Based on the Company’s evaluation, there were no embedded

features that required bifurcation as a derivative liability.

During the three months ended

March 31, 2025 the Company recognized interest expense of approximately $ 0.1 million and minimal discount amortization.

As of March 31,

2025, the outstanding balance of the Notes was $ 4.2 million, which is shown net of the remaining unamortized issuance cost of $ 0.1 million.

Notes Payable

November 22, 2024, the Company issued $ 4.2 million in an aggregate principal amount of the Company’s 10.0 % Senior Secured Convertible

Notes (the “Notes”) pursuant to a securities purchase agreement entered into on November 21, 2024 with its principal stockholders.

Notes bear interest at 10.0 % per annum, payable in-kind (“PIK interest”) through the issuance of additional principal on

a quarterly basis.

In the Event of Default (as defined in the Notes), the interest will increase to 15 % per annum from the date of written

notice from the holder.

The Notes may be converted at any time into shares of the Company’s Common Stock at a conversion price

of $ 0.78 per share subject to customary adjustments for stock splits, stock dividends and recapitalizations, as described in the Notes.

Notes mature on November 22, 2027, unless earlier converted or repurchased.

The Company may not redeem the Notes at its option prior

Upon maturity, the Company will pay to the holders of the Notes an amount in cash representing all of the outstanding aggregate

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

Alternatively, the entire amount of the note will be automatically

converted to shares of Common Stock if the 10-day volume weighted average price of a share of the Company’s Common Stock on Nasdaq

is greater than 250% of the conversion price, and certain other conditions are met.

Notes provide for customary events of default and contain conversion limitations, providing that no conversion may be made if the aggregate

number of shares of Common Stock beneficially owned by the holder would exceed 9.99 % immediately after conversion.

There were no events

of default at June 30, 2025.

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

property and accounts.

Notes were accounted for as a liability under ASC 470 and the embedded conversion option has been assessed under ASC 815.

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

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

respectively, and minimal discount amortization.

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

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

Related Party Transactions

We consider Biofrontera AG and its consolidated subsidiaries,

(the “Biofrontera Group”) to be a related party.

The Biofrontera Group held more than 5 % of the outstanding shares of our

common stock until December 10, 2024, and we continue to rely on the Biofrontera Group as the sole supplier of Ameluz ® and

the RhodoLED ® Lamps.

License and Supply Agreement

Under the Second A&R Ameluz LSA, the Company has

an exclusive, non-transferable license to market and sell its licensed products, Ameluz ® and RhodoLED ® Lamps,

in the United States and must purchase the licensed products exclusively from Biofrontera Pharma.

The Second A&R Ameluz LSA, among

other things, amended the original license and supply agreement with the Ameluz Licensor to:

(i) update the price we pay per unit, based on certain

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

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

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

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

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

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

The Transfer Price for sales related to acne, another indication currently in development, will remain at twenty-five percent of the anticipated net selling price per unit indefinitely.

(ii) provide for the transfer of responsibilities

for clinical trials relating to Ameluz ® in the US on June 1, 2024, including the Company assuming related contracts and

transferring key personnel from the Ameluz Licensor to the Company.

The Company entered into a Release of Claims with

the Ameluz Licensor, dated February 13, 2024, pursuant to which the Company agreed to release the Ameluz Licensor from all claims and

liabilities arising out of or relating to any failure by the Ameluz Licensor to perform certain obligations under the Second A&R Ameluz

LSA with respect to clinical trials for which the Company assumed responsibility.

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

of Ameluz ® and the RhodoLED ® Lamps.

Transaction with Biofrontera Group

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

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

In connection with the Strategic Transaction,

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

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

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

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

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

The royalty will replace the

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

Company, and the Biofrontera Group.

exchange for the U.S.

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

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

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

See N ote 18.

Subsequent Events for additional information.

to the Series

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

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

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

There were no shares

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

as of June 30, 2025 .

Subsequent Events for additional information.

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

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

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

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

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

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

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

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

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

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

and Supply Agreement

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

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

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

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

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

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

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

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

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

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

anticipated net selling price per unit indefinitely.

The Second A&R Ameluz LSA also

provided for the transfer of responsibilities for clinical trials relating to Ameluz ® in the US on June 1, 2024, including

the Company assuming related contracts and transferring key personnel from the Ameluz Licensor to the Company.

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

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

obligations under the Second A&R Ameluz LSA with respect to clinical trials for which the Company assumed responsibility.

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

Purchases of the licensed products (inclusive of

estimated and actual purchase price adjustments) during the three months ended March 31, 2025 and 2024 were $ 3.0

million and $ 0.3

million, respectively, and were recorded in inventories in the condensed consolidated balance sheets, and, when sold, in cost of

revenues, related party in the consolidated statements of operations.

Amounts due and payable to Biofrontera Pharma as of March 31,

2025 and December 31, 2024 were $ 2.6

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.

Mezzanine Equity and Stockholders’ Equity

Under the Company’s Certificate of Second Amendment

to the Amended and Restated Certificate of Incorporation (“Certificate”), effective April 25, 2024, the Company is authorized

to issue 35,000,000 shares of Common Stock, and 20,000,000 shares of preferred stock,

par value $ 0.001 per share (“Preferred

Common Stock:

The holders of Common Stock are entitled to one vote

for each share held.

Holders of Common Stock are not entitled to receive dividends, unless declared by the Company’s board of directors

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

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

These purchases were recorded in inventories in the condensed consolidated balance sheets, and, when sold, in cost of revenues, related

party in the consolidated statements of operations.

Amounts due and payable to Biofrontera Pharma as of June 30, 2025 and December 31,

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

receivable in the condensed consolidated balance sheets.

with Biofrontera Bioscience

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

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

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

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

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

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

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

No appointments have been

made through the filing date.

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”).

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.

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 March 31, 2025, there were 8,873,932

shares of Common Stock outstanding.

As of March 31, 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 March 31, 2025 is presented

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

of June 30, 2025 we had outstanding warrants to purchase an aggregate of 2,269,356 shares of Common Stock with an exercise price range

of $ 3.55 to $ 100.00 per share.

These warrants have expiration dates ranging from November 2026 to November 2028.

A summary of the warrants

outstanding as of June 30, 2025 is presented below.

of Warrants Outstanding

Number of Shares

Exercise Price

Expiration Date

Liability classified (See Note 3.

1 unchanged sentence

Equity classified

Series B Preferred Stock:

On February 19, 2024, the Company entered into a

securities purchase agreement (the “Preferred Purchase Agreement”), with certain accredited investors, pursuant to which

the Company agreed to issue and sell, in a private placement (the “Offering”), (i) 6,586

B Preferred Stock:

February 19, 2024, the Company entered into a securities purchase agreement (the “Preferred Purchase Agreement”), with certain

accredited investors, pursuant to which the Company agreed to issue and sell, in a private placement (the “Offering”), (i)

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

per share (the “Series B-1 Preferred Stock”), and (ii) the 2024 Preferred Warrants to purchase 8,000

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

(ii) warrants to purchase 8,000

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

per share (the “Series B-3 Preferred Stock”) for an aggregate offering price of $ 8.0

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 1,413.6

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 March 31, 2025, there were 3,366

shares of Series B-2 Preferred Stock issued and outstanding and 6,763 shares of Series B-3 (convertible into 14,318,632

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 March 31,

Mezzanine Classification

Prior to the May 2024 approval by the

Company’s stockholders of an increase in the authorized shares of Common Stock (the “Stockholder Approval”),

Series B-1 Preferred Stock was redeemable at the option of the holder and Series B-2 and B-3 Preferred Stock, (collectively the

(“Series B Preferred Stock”), were redeemable in the event of a change in control.

ASC 480-10-S99-3A(2) of the

SEC’s Accounting Series Release No.

268 (“ASR 268”) requires preferred securities that are redeemable for cash or

other assets to be classified outside of permanent equity if they are redeemable (i) at a fixed or determinable price on a fixed or

determinable date, (ii) at the option of the holder, or (iii) upon the occurrence of an event that is not solely within the control

of the issuer.

Preferred securities that are mandatorily redeemable are required to be classified by the issuer as liabilities

whereas under ASR 268, an issuer should classify a preferred security whose redemption is contingent on an event not entirely in

control of the issuer as mezzanine equity.

The Series B-1 Preferred Stock was redeemable at the option of the holder, Series B-2

Preferred Stock and Series B-3 Preferred Stock were redeemable, upon a change in control that was not solely within control of the

Prior to the Stockholder Approval, the Series B Preferred Stock was considered senior to the Common Stock and all other

series of the Company’s capital stock with respect to dividend rights and rights on the distribution of assets on any

voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company.

As such, the Company determined that

mezzanine treatment was appropriate for the Series B Preferred Stock at issuance in February 2024 and as of March 31, 2024, and the

Series B Preferred Stock was presented as such in our consolidated balance sheets and consolidated statements of changes in

stockholders’ equity and mezzanine equity for periods prior to the Stockholder Approval.

The Series B Preferred Stock was not

considered mandatorily redeemable.

Upon the Stockholder Approval, each share of Series

B-1 Preferred Stock automatically converted into either Common Stock or, to the extent the conversion would cause a holder to exceed its

beneficial ownership limitation, shares of Series B-2 Preferred Stock, thereby removing the redemption feature at the option of the holder

(which was only present for Series B-1) and eliminating one of the requirements for classification as mezzanine equity.

Following the Stockholder Approval, upon any liquidation,

the assets of the Corporation available for distribution to its stockholders will be distributed among the holders of the shares of Series

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

of Series B Preferred Stock as if they had been converted to Common Stock pursuant to the terms of the Certificate of Designation filed

on February 20, 2024.

Accordingly, the Series B Preferred stock is classified as permanent equity on our consolidated balance sheets and

consolidated statements of change in stockholders’ equity as of March 31, 2025, due to the limited exception under ASC 480-10-S99-3A(3)(f).

Convertible Debt

On November 22, 2024, the Company issued $ 4.2 million

in an aggregate principal amount of the Notes.

The Notes allow for up to 5,384,615 shares of Common Stock to be issued upon conversion

for principal plus additional shares for PIK interest.

Debt - Convertible Notes Payable , for additional details.

All of the 2024 Preferred Warrants

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

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

of Series B-2 Preferred Stock and 6,593

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

of Common Stock).

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

by Rosalind Advisors, Inc.

to the Company’s Board.

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

See rights and preferences

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

C Preferred Stock

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

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

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

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

of the shares of Series C Preferred Stock.

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

D Preferred Stock

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

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

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

The Series D Certificate of Designation sets forth the rights,

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

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

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.

Debt - Convertible

Notes Payable , for additional details.

Equity Incentive Plans and Share-Based Payments

Omnibus Incentive Plan

In 2021, the Board adopted, and our shareholders approved,

the 2021 Omnibus Incentive Plan (“2021 Plan”), under which the maximum contractual term is 10 years for stock options issued.

On June 12, 2024, the stockholders of the Company approved an amendment to the 2021 Plan to increase the number of shares authorized for

issuance by 3,483,010 shares, from 266,990 shares to 3,750,000 shares.

As of March 31, 2025, there were 1,937,489 shares available for

future awards under the amended 2021 Plan.

Non-qualified stock options

The Company recognizes the grant-date fair value of

share-based awards granted as compensation expense on a straight-line basis over the requisite service period.

The fair value of stock

options is estimated at the time of grant using the BSM model, which requires the use of inputs and assumptions such as

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

dividend yield.

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

contractual term is 10 years for stock options issued.

On June 12, 2024, the stockholders of the Company approved an amendment to the

2021 Plan to increase the number of shares authorized for issuance by 3,483,010 shares, from 266,990 shares to 3,750,000 shares.

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

Non-qualified

stock options

Company recognizes the grant-date fair value of share-based awards granted as compensation expense on a straight-line basis over the

requisite service period.

The fair value of stock options is estimated at the time of grant using the BSM model, which requires the use

of inputs and assumptions such as the fair value of the underlying stock, exercise price of the option, expected term, risk-free interest

rate, expected volatility and dividend yield.

The Company elects to account for forfeitures as they occur.

The fair value of each option is estimated on the

date of the grant using the BSM model.

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

Share-based compensation expense related to stock

options of approximately $ 0.1 million was recorded in selling, general and administrative expenses on the accompanying consolidated

statement of operations for each of the three months ended March 31, 2025 and 2024.

Options outstanding and exercisable under the employee

share option plan as of March 31, 2025 and a summary of option activity during the three months then ended is presented below.

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

There were no equity grants during

the three and six months ended June 30, 2025.

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

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

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

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

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

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

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

months then ended is presented below.

of Stock Option Activity

Contractual Term

Outstanding at December 31, 2024

Canceled or forfeited

Outstanding at March 31, 2025

Exercisable at March 31, 2025

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the fair value of the Common Stock for the options that were in the money at March 31, 2025.

As of March 31, 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

Share-Based Compensation (RSUs)

Share-based compensation expense was $ 0.1 million

for the RSUs for each of the three-month periods ended March 31, 2025 and 2024, and was recorded in selling, general and administrative

expenses in the accompanying consolidated statements of operations.

Outstanding at June 30, 2025

Exercisable at June 30, 2025

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

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

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

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

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

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

in the accompanying consolidated statements of operations.

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

over a period of approximately 1.03 years.

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

of Restricted Stock Units

Contractual Term

Weighted Average Remaining Contractual Term

Weighted Average Grant Date Fair Value

Outstanding at December 31, 2024

Canceled or forfeited

Outstanding at March 31, 2025

As of March 31, 2025, there was $ 0.3 million of unrecognized

compensation related to unvested RSUs, which is expected to be recognized over a period of approximately 1.28 years.

Interest Expense, net

Interest expense, net consists of the following:

of Interest Expense, Net

(in thousands)

Three Months Ended

(in thousands)

Interest expense

Interest income

Interest expense, net

Interest expense is comprised primarily of interest

on our convertible notes, short-term loans and line of credit, including amortization of deferred costs.

Interest income relates primarily to interest earned

on funds deposited in our bank accounts.

Outstanding at June 30, 2025

Net Loss per Share

Basic net loss per common share is calculated by dividing

net loss by the weighted average number of common shares outstanding during the period.

Diluted net loss per common share is calculated

by dividing net loss by the diluted weighted average number of common shares outstanding during the period.

The diluted shares include

the dilutive effect of stock-based awards based on the treasury stock method.

In periods where a net loss is recorded, no effect is given

to potentially dilutive securities, since the effect would be anti-dilutive.

The following table sets

forth the computation of the Company’s basic and diluted net loss per share attributable to common stockholders (in thousands, except

share and per share data):

net loss per common share is calculated by dividing net loss by the weighted average number of common shares outstanding during the period.

Diluted net loss per common share is calculated by dividing net loss by the diluted weighted average number of common shares outstanding

during the period.

The diluted shares include the dilutive effect of stock-based awards based on the treasury stock method.

where a net loss is recorded, no effect is given to potentially dilutive securities, since the effect would be anti-dilutive.

following table sets forth the computation of the Company’s basic and diluted net loss per share attributable to common stockholders

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

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

Three Months Ended

Six Months Ended

Weighted average common shares outstanding, basic and diluted

Net loss per share, basic and diluted

The following table sets forth the securities that

were anti-dilutive for diluted EPS for the periods presented but which could potentially dilute EPS in the future:

following table sets forth the securities that were anti-dilutive for diluted EPS for the periods presented but which could potentially

dilute EPS in the future:

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

2 unchanged sentences

Unit Purchase Options

Series B convertible preferred stock

Shares related to Series B-2 convertible preferred stock

Shares related to Series B-3 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

The Company leases its corporate headquarters under

an operating lease that expires in November 2025.

The Company has the option to extend the term of the lease for a five (5)-year period

upon written notice to the landlord.

The extension period has not been included in the determination of the ROU asset or the lease liability

as the Company concluded that it is not reasonably certain that it would exercise 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.

The Company has also entered into a master lease agreement

for its vehicles.

After an initial non-cancelable twelve-month period, each vehicle is leased on a month-to-month basis.

Based on historical

retention experience of approximately three years, the vehicles have varying expiration dates through January 2028.

Future lease payments under non-cancelable leases

as of March 31, 2025 were as follows (in thousands):

Schedule of Future Commitments and Sublease Income

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

The Company has the option to extend

the term of the lease for a five (5)-year period upon written notice to the landlord.

The extension period has not been included in the

determination of the ROU asset or the lease liability as the Company concluded that it is not reasonably certain that it would exercise

The Company provided the landlord with a security deposit in the amount of $ 0.1 million, which was recorded as other assets

in the consolidated balance sheets.

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 June 30, 2025 were as follows (in thousands):

of Future Commitments and Sublease Income

Years ending December 31,

Future lease commitments

Remainder of 2025

5 unchanged sentences

Operating lease liability, non-current

Ameluz LSA Sales Commitment

Second A&R Ameluz LSA Sales Commitment

The Second A&R Ameluz LSA will remain in effect

for 15 years from its effective date and shall renew automatically for a period of five years, in perpetuity, so long as we have earned

revenues from Ameluz product and lamps equal to or greater than $ 150 million over the preceding five years.

If we fail to earn $ 150 million

in revenues from Ameluz ® and the RhodoLED ® Lamps over the preceding five (5) year period prior to the Second

A&R Ameluz LSA’s termination date, Biofrontera Pharma has the right to terminate the Second A&R Ameluz LSA by providing

one (1) year written notice.

In addition, 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.

Ameluz Minimum Research and Development Costs

During the years 2025 through 2030, we will be required

to fund minimum R&D Costs in an amount that is at least 85% of the difference between (i) the Transfer Price for product,

effective February 13, 2024 and (ii) the Transfer Price for product as it would have been determined under the previous version of the

license and supply agreement with the Ameluz Licensor, dated October 8, 2021.

If we fail to meet the minimum requirement, the difference

shall be paid to Biofrontera Pharma on February 15, 2031, in either cash or our Common Stock, at our discretion.

Licensing Agreement with Optical Tools

On December 2, 2022, the Company entered into the

technology transfer agreement with Optical Tools LLC (“Optical Tools”), Stephen Tobin and Paul Sowyrda (the “Agreement”).

The Agreement allowed for the transfer of the assigned patents and trademarks, and upon notification by the Company to Optical Tools,

the research and development of certain prototypes.

The Company paid a licensing fee of $ 0.2 million which was expensed during the year

ended December 31, 2022.

On May 28, 2023, the Company authorized Optical Tools

to design, develop, manufacture, and deliver at least two portable photodynamic therapy lamp prototypes (“PDT Device”) using

the technology in the assigned patents.

The PDT Device provides illumination, based on different light profiles, to the external skin

surface of the human body.

The Company is to reimburse Optical Tools for all reasonable out-of-pocket, material and labor costs per the

As part of the Agreement, Optical Tools will be eligible

to receive regulatory and sales milestone payments totaling up to $ 1.0 million, and royalties of up to 3 % of net revenue of certain products

developed under this Agreement.

The Company did not make any milestone or royalty

payments or accruals for such payments during the three months ended March 31, 2025 or 2024.

Milestone payments with Ferrer Internacional S.A.

Under the Xepi license and supply agreement, we are

A&R Ameluz LSA and Term Sheet Sales Commitments

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

in connection with the Strategic Transaction.

As it currently stands, t he

Second A&R Ameluz LSA, is to remain in effect for 15 years

from its effective date and shall renew automatically for a period of five years, in perpetuity, so long as we have earned revenues from

Ameluz product and lamps equal to or greater than $ 150

million over the preceding five years.

If we fail to earn $ 150

million in revenues from Ameluz ® and the RhodoLED ®

Lamps over the preceding five (5) year period prior to the Second A&R Ameluz LSA’s termination date, Biofrontera Pharma has

the right to terminate the Second A&R Ameluz LSA by providing one (1) year written notice.

addition, effective in 2025, under the Second A&R Ameluz LSA, we are to purchase the higher of (i) a minimum quantity of tubes of

Ameluz ® per year as set forth in the Second A&R Ameluz LSA or (ii) 75% of the annual average of audited Ameluz ®

tubes sold during the preceding four (4) full calendar years.

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

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

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

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

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

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

If such minimum annual volume is not

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

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

tubes of Ameluz plus annual interest of 4%.

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

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

Ameluz Minimum

Research and Development Costs

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

the years 2025 through 2030, we will be required to fund minimum R&D costs in an amount that is at least 85% of the difference between

(i) the Transfer Price for product, effective February 13, 2024 and (ii) the Transfer Price for product as it would have been determined

under the previous version of the license and supply agreement with the Ameluz Licensor, dated October 8, 2021.

If we fail to meet the

minimum requirement, the difference shall be paid to Biofrontera Pharma on February 15, 2031, in either cash or our Common Stock, at

our discretion.

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

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

Agreement with Optical Tools

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.

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

lamp prototypes (“PDT Device”) using the technology in the assigned patents.

The PDT Device provides illumination, based

on different light profiles, to the external skin surface of the human body.

The Company is to reimburse Optical Tools for all reasonable

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

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 six months ended June 30, 2025

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 were made during the

three months ended March 31, 2025 or 2024 related to Xepi ® milestones.

Legal proceedings

At each reporting date, the Company evaluates whether

or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of FASB ASC Topic

450, Contingencies .

The Company expenses as incurred the legal costs related to such legal proceedings.

On September 13, 2023, Biofrontera was served with

a complaint filed by DUSA Pharmaceuticals, Inc., Sun Pharmaceutical Industries, Inc.

(“Sun”), and Sun Pharmaceutical Industries

LTD in which DUSA alleges i) breach of contract, ii) violation of the Lanham Act, and iii) unfair trade practices under Massachusetts

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.

of 2024, Biofrontera Company filed a partial motion to dismiss the Lanham Act and Massachusetts statutory claims, which was denied on

October 15, 2024.

Biofrontera subsequently answered Sun’s complaint and filed counterclaims on October 30, 2024 alleging i) violation

of the Lanham Act, ii) deceptive trade practices under Georgia law, and iii) trade libel/product disparagement, which Sun answered on

December 17, 2024.

On March 11, 2025, Biofrontera received an additional notice alleging breach of contract through unlawful marketing

practices which makes reference to similar previous communications sent by Sun to Biofrontera on February 4, 2022 and September 9, 2022.

Discovery is ongoing in the above-referenced matters.

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 six months ended June 30, 2025 or 2024 related to Xepi ® milestones.

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

estimable under the provisions of FASB ASC Topic 450, Contingencies .

The Company expenses as incurred the legal costs related

to such legal proceedings.

September 13, 2023, Biofrontera was served with a complaint filed by DUSA Pharmaceuticals, Inc., Sun Pharmaceutical Industries, Inc.

(“Sun”), and Sun Pharmaceutical Industries LTD in which DUSA alleges i) breach of contract, ii) violation of the Lanham Act,

and iii) unfair trade practices under Massachusetts law.

All claims stem from allegations that Biofrontera has promoted its Ameluz ®

product in a manner that is inconsistent with its approved FDA labeling.

Though this complaint was originally filed in the United

States District Court for the District of Massachusetts, this matter has been transferred by agreement of the parties to the United States

District Court for the District of New Jersey.

In March of 2024, Biofrontera Company filed a partial motion to dismiss the Lanham Act

and Massachusetts statutory claims, which was denied on October 15, 2024.

Biofrontera subsequently answered Sun’s complaint and

filed counterclaims on October 30, 2024 alleging i) violation of the Lanham Act, ii) deceptive trade practices under Georgia law, and

iii) trade libel/product disparagement, which Sun answered on December 17, 2024.

On March 11, 2025, Biofrontera received an additional

notice alleging breach of contract through unlawful marketing practices which makes reference to similar previous communications sent

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

is ongoing in the above-referenced matters.

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

Based on the Company’s assessment of the facts

underlying the above claims, the uncertainty of litigation and the preliminary stage of the case, the Company cannot estimate the possibility

of a material loss, nor the potential range of loss that may result from this action.

If the final resolution of the matter is adverse

to the Company, it could have a material impact on the Company’s financial position, results of operations, or cash flows.

Separately, on June 26, 2024 and June 27, 2024, Sun

filed two complaints against Biofrontera, Biofrontera AG, Biofrontera Pharma, and Biofrontera Bioscience with the United States District

Court for the District of Massachusetts and the International Trade Commission (“ITC”), both alleging infringement of two

patents held by Sun (the “Sun Patents”).

The complaint filed in the United States District Court for the District of Massachusetts

has been held in abeyance pending the completion of the case before the ITC.

A hearing is scheduled to be held in front of an administrative

law judge on June 30, 2025, with an Initial Determination expected by October 1, 2025.

The Commission’s Final Determination is expected

by February 2, 2026.

The Company denies Sun’s patent claims and intends

to defend them vigorously in the above-referenced matters.

In addition, Biofrontera has challenged the validity of the Sun Patents by

filing separate petitions for inter partes review at the United States Patent Trial and Appeal Board (“PTAB”) for each of

the Sun Patents.

One such petition was instituted by the PTAB on February 24, 2025, and an institution decision on the other petition

is anticipated to be received from the PTAB in June, 2025.

Based on the Company’s assessment of the facts

underlying the above-referenced patent matters, as well as the uncertainty of litigation, the Company cannot estimate the possibility

of a material loss, nor the potential range of loss that may result from either action.

Money damages are not available to Sun through

the case before the ITC, and an adverse ruling could result in an exclusion order being imposed on the allegedly infringing product.

the final resolution of the case before the United States District Court for the District of Massachusetts is adverse to the Company,

it could have a material impact on the Company’s financial position, results of operations, or cash flows.

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

Biofrontera Bioscience with the United States District Court for the District of Massachusetts and the International Trade

Commission (“ITC”), both alleging infringement of two patents held by Sun (the “Sun Patents”).

The complaint

filed in the United States District Court for the District of Massachusetts has been held in abeyance pending the completion of the

case before the ITC.

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

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

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.

on the Company’s assessment of the facts underlying the above-referenced patent matters, as well as the uncertainty of litigation,

the Company cannot estimate the possibility of a material loss, nor the potential range of loss that may result from either action.

damages are not available to Sun through the case before the ITC, and an adverse ruling could result in an exclusion order being imposed

on the allegedly infringing product.

If the final resolution of the case before the United States District Court for the District of

Massachusetts is adverse to the Company, it could have a material impact on the Company’s financial position, results of operations,

or cash flows.

Segment Reporting

The 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.

(including the RhodoLED® Lamps) accounts for approximately 100% of our revenue.

The Company’s CODM is its Chief Executive Officer,

who reviews financial information presented on a consolidated basis.

The CODM uses consolidated net income to allocate resources and assesses

financial performance by comparing actual results to historical results and previously forecasted financial information.

The following table presents selected financial information

with respect to the Company’s single operating segment for the three months ended March 31, 2025 and 2024 :

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.

The CODM uses

consolidated net income to allocate resources and assesses financial performance by comparing actual results to historical results and

previously forecasted financial information.

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

six months ended June 30, 2025 and 2024 :

of Operating Segment

(in thousands)

Three Months Ended

Six Months Ended

(in thousands)

Revenues, net

9 unchanged sentences

Loss before income taxes

Income tax expenses

Income tax expense

Subsequent Events

We have completed an evaluation of subsequent events

after the balance sheet date of March 31, 2025 through the date this Quarterly Report on Form 10-Q was submitted to the SEC and determined that the following material subsequent event required disclosure.

On May 8, 2025, the Company received a notice from the Listing Qualifications Department of Nasdaq notifying the

Company that the listing of its common stock was not in compliance with Nasdaq Listing Rule 5550(a)(2) for continued listing on The Nasdaq

Capital Market, as the closing bid price of the Company’s common stock was less than $1.00 per share for the previous 33 consecutive

business days.

The Company is in the process of creating a plan

to regain compliance with the Nasdaq rules.

Summary of Significant Accounting Policies – Nasdaq Compliance for

additional information and the Current Report on Form 8-K filed by the Company with the SEC on May 14, 2025.

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

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

C Preferred Stock

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

Shares of Series C Preferred Stock, par value $ 0.001

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

per Series C Preferred.

The Series C Certificate of Designation

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

Organization and Business

Overview and Note 13.

Stockholders’ Equity for additional information .

The Company signed a binding Term Sheet with its

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

Rights to Ameluz® and RhodoLED® .

In connection

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

Rights is expected to be completed

by September 30, 2025.

In exchange for the U.S.

July 2, 2025, the Company issued 3,019

shares of Series D Preferred Stock, par value $ 0.001

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

per Series D Preferred.

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

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

convertible into equity.

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

Series D Preferred Stock.

Organization and Business Overview and Note 12.

Related Party Transactions for additional information .

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

November 2025.

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

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

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

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

Appointment of Chief

Commercial Officer

The Company has entered into an employment agreement

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

Jones is an experienced commercial executive

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

Prior to joining the Company, Mr.

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

Prior to UpScriptHealth, Mr.

Jones held senior commercial

roles at Currax Pharmaceuticals since 2015.

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