Biofrontera Inc.

Biofrontera Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Organization and Business Overview

Biofrontera Inc., a Delaware corporation (the “Company,” “we,” “us,” “our,” or “Biofrontera”), is a United States based biopharmaceutical company engaging in the development, manufacturing, and commercialization of pharmaceutical products for the treatment of dermatological conditions with a focus on photodynamic therapy (“PDT”). The Company’s products, which include Ameluz® as well as the BF-RhodoLED® and RhodoLED® XL lamp series (together, the “RhodoLED® Lamps”), are used for the treatment of actinic keratosis (“AK”), a common skin condition characterized by the growth of pre-cancerous skin lesions (or “AKs”). With our national commercial team, we generate revenue by selling our products directly to dermatology offices and groups.

Effective June 1, 2024, we assumed control of all clinical trials relating to Ameluz in the United States through Biofrontera Discovery GmbH (“Discovery”), our wholly owned subsidiary organized under the laws of Germany and formed in February 2022. Our research and development (“R&D”) programs are focused on label expansion for Ameluz as well as supporting PDT growth by improving the capabilities of the RhodoLED Lamps to better fulfill the needs of dermatologists.

On October 20, 2025, the Company entered into (i) an Asset Purchase Agreement (the “Transfer Agreement”) and (ii) an Earnout Agreement (together with the Transfer Agreement, the “Agreements”) with Biofrontera AG and its consolidated subsidiaries (the “Biofrontera Group”), pursuant to which the Company acquired all rights in the United States (the “U.S. Rights”) to Ameluz and RhodoLED (the “Strategic Transaction”). In exchange for the U.S. Rights, and in addition to a monthly earnout payable to the Biofrontera Group and the Company’s assumption of all costs associated with the U.S. business, Biofrontera AG received 3,019 shares of Series D Convertible Preferred Stock, par value $0.001 per share (the “Series D Preferred Stock”). The Strategic Transaction was funded through an $11.0 million investment by existing investors. See Note 12. Related Party Transactions for additional information.

On November 6, 2025, the Company completed the sale of the long-lived intangible asset relating to its Xepi product line. The Company received fixed consideration in the amount of $3.0 million and may receive up to $7.0 million of variable consideration contingent upon the buyer’s future activities See Note 10. Asset Held for Sale in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 (the “2025 Form 10-K”) for additional information.

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 $0.1 million and $4.1 million for the three months ended March 31, 2026 and 2025, respectively. As of March 31, 2026, the Company’s accumulated deficit was $133 million. The Company’s primary sources of liquidity are its cash collected from the sales of its products and cash flows from financing transactions. As of March 31, 2026, we had cash and cash equivalents of $6.3 million, compared to $6.4 million as of December 31, 2025.

The Company cannot provide assurance that it will ultimately achieve profitable operations and become operating cash flow positive or raise additional debt or equity capital. Additionally, the current capital resources are not adequate to continue operating and maintaining the business strategy for a period of twelve months from the issuance date of this report. Management believes that these conditions raise substantial doubt about the Company’s ability to continue as a going concern for at least twelve months from the issuance date of this Quarterly Report on Form 10-Q.

The Company plans to address the conditions that raise substantial doubt regarding its ability to continue as a going concern by, among other things, continuing to expand the commercialization of Ameluz in the United States while controlling expenses, pursuing the realization of an additional $1.0 million in milestone payments from the sale of the Xepi intangible asset and, if necessary, securing additional capital through equity or debt financings. However, there can be no assurance that the Company will be successful in obtaining sufficient funding on acceptable terms, if at all. If the Company is unable to raise additional capital when needed, it will not have sufficient cash resources and liquidity to fund its business operations and may be forced to delay or reduce continued commercialization efforts or R&D programs which could have a material adverse effect on the Company and its financial statements.

The condensed consolidated financial statements do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if the Company were unable to continue as a going concern.

2. 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 (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. In the Company’s opinion, the unaudited condensed consolidated financial statements include all material adjustments, all of which are of a normal and recurring nature, necessary to present fairly the Company’s financial position as of March 31, 2026, the Company’s operating results for the three months ended March 31, 2026 and 2025, and the Company’s cash flows for the three months ended March 31, 2026 and 2025. The accompanying financial information as of December 31, 2025 is derived from audited financial statements. Interim results are not necessarily indicative of results for a full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s 2025 Form 10-K.

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 2025 Form 10-K.

Reclassification of Prior Year Presentation

Certain prior period amounts have been reclassified for consistency with the current period presentation. Depreciation expense and amortization expense previously presented separately in the condensed consolidated statements of cash flows have been combined into a single line item. The reclassification was limited to the condensed consolidated statements of cash flows and had no impact on the reported results of operations.

The Nasdaq Stock Market, LLC (“Nasdaq”) Compliance

On December 31, 2025, the Company received a letter from Nasdaq notifying the Company that the listing of the Common Stock was not in compliance with Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”) as the closing bid price of the Common Stock was less than $1.00 per share for the previous 34 consecutive business days.

The notice had no impact on the listing or trading of the Company’s securities on Nasdaq. Under Nasdaq Listing Rule 5810(c)(3)(A), the Company had a period of 180 calendar days, or until June 30, 2026, to regain compliance with the rule referred to in this paragraph. The Company has since then regained compliance with Listing Rule 5550(a)(2). SeeNote 18.Subsequent Events for additional information.

Use of Estimates

The preparation of the condensed consolidated financial statements in accordance with GAAP requires the use of estimates and assumptions by management that affect the reported amounts of assets and liabilities, as well as disclosure of contingent assets and liabilities, as reported on the balance sheet date, and the reported amounts of revenues and expenses arising during the reporting period. The main areas in which assumptions, estimates and the exercising of judgment are appropriate relate to realization and valuation of receivables and inventory, valuation of warrant liabilities, impairment assessment of intangibles and other long-lived assets, share-based payments, deferred tax asset valuations, and contingent liability recognition. Estimates are based on historical experience and other assumptions that are considered appropriate in the circumstances. They are continuously reviewed but may vary from the actual values.

Recently Adopted or Issued Accounting Pronouncements

We evaluate Accounting Standard Updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”). ASUs not included in our disclosures were assessed and determined to either be not applicable or are not expected to have a significant impact on our financial statements.

In November 2024, the FASB issued ASU 2024-04,*Debt with Conversion and Other Options (Subtopic 470-20); Induced Conversions of Convertible Debt.*This ASU clarifies requirements for determining whether certain settlements of convertible debt instruments, including convertible debt instruments with cash conversion features or convertible debt instruments that are not currently convertible, should be accounted for as an induced conversion. It is effective for all entities for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted. The Company adopted this ASU on January 1, 2026, and the adoption did not have a material impact on its condensed consolidated financial statements and related disclosures.

In July 2025, the FASB issued ASU 2025-05,Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which provides a practical expedient for estimating expected credit losses on current trade receivables and contract assets arising from revenue transactions. This ASU is effective for public business entities for annual reporting periods beginning after December 15, 2025, with early adoption permitted, and must be applied prospectively. The Company adopted this ASU on January 1, 2026, and the adoption did not have a material impact on its condensed consolidated financial statements and related disclosures.

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expense. The new guidance requires disaggregated information about certain income statement expense line items on an annual and interim basis. This ASU is effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. The new standard permits early adoption and can be applied prospectively or retrospectively. We are evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.

In September 2025, the FASB issued ASU 2025-07,Derivatives and Hedging (Topic 815) and Revenue from Contracts with Customers (Topic 606), which provides updates to refine the scope of the guidance on derivatives in Accounting Standards Codification (“ASC”) 815 and clarify the guidance on share-based noncash payments from customers in ASC 606. The derivative scope refinement excludes non-exchange-traded contracts with derivative accounting apart from variables based on market rates, prices and indices, variables based on the price or performance of a financial asset or liability of one of the parties to a contract, contracts involving the issuer’s own equity evaluated under ASC 815-40 and call or put options on debt instruments. The amendments in ASU 2025-07 are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods and should be applied either prospectively or on a modified retrospective basis. We are currently evaluating the effect of adopting ASU 2025-07 on our consolidated financial statements and related disclosures.

In November 2025, the FASB issued ASU 2025-11,Interim Reporting (Topic 270): Narrow-Scope Improvements, which clarifies interim disclosure requirements. The guidance is effective for the Company’s interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. We are evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.

In December 2025, the FASB issued ASU 2025-12,Codification Improvements, which addresses 33 issues, representing amendments to ASC topics that clarify, correct errors or make minor improvements. The amendments in ASU 2025-12 are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. Early adoption is permitted in both interim and annual periods in which financial statements have not yet been issued or made available for issuance. If an entity adopts the amendments in this ASU in an interim period, it must adopt them as of the beginning of the annual period that includes that interim period. An entity may elect to early adopt the amendments on an issue-by-issue basis. We are currently evaluating the effect of adopting ASU 2025-12 on our consolidated financial statements and related disclosures.

3. 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, 2026 and December 31, 2025 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:

Investment, related party

As of March 31, 2026 and December 31, 2025, the Company owned 3,019 common shares of Biofrontera AG. The fair value of this investment was determined with Level 1 inputs through references to quoted market prices.

Warrant Liabilities

The warrant liabilities are comprised of (i) outstanding warrants to purchase 170,950 shares of the common stock, originally issued in a private placement on May 16, 2022, as amended on November 2, 2023 to extend the expiration date until November 2, 2028 and revise the exercise price to $3.55 per share (the “2022 Purchase Warrants”); (ii) warrants to purchase 214,286 shares of common stock issued on July 26, 2022, as amended on November 2, 2023 to extend the expiration date until November 2, 2028 and revise the exercise price to $3.55 per share (the “2022 Inducement Warrants”) and (iii) warrants to purchase 1,807,500 shares of common stock issued on November 2, 2023 expiring five years following the date of issuance and with an exercise price of $3.55 per share (the “2023 Purchase Warrants”). See Note13. 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 condensed consolidated statement of operations. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within the condensed consolidated statement of operations.

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 condensed consolidated statement of operations.

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

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

4. Revenue

We generate revenue primarily through the sales of our 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.

5. Cash Balances and Statement of Cash Flows Reconciliation

The Company maintains its cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation, which at times may exceed federally insured limits. The Company has not experienced any losses on these accounts and management does not believe that the Company is exposed to any significant risks with respect to these accounts.

Restricted cash consists primarily of deposits of cash collateral held in accordance with the terms of our corporate credit cards. Long-term restricted cash was recorded in other assets in the 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:

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

6. Accounts Receivable, net

Accounts receivable are mainly attributable to the sale of Ameluz in the United States and are expected to be collected within twelve months of the balance sheet date. Trade accounts receivable are stated at their net realizable value. The allowance for credit losses reflects our best estimate of expected credit losses of the receivables determined on the basis of historical experience and current information. In developing the estimate for expected credit losses, trade accounts 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 as of March 31, 2026 and December 31, 2025.

7. Inventories

Inventories are comprised of the following:

Our long-term inventory balance relates to the RhodoLED Lamps. During the three months ended March 31, 2026, the Company recognized an inventory write-down of $0.1 million in connection with the U.S. International Trade Commission’s May 6, 2026 Notice of Final Determination (SeeNote 16. Commitments and Contingencies). The write-down was recognized to reduce the carrying value of the affected inventory to its net realizable value in accordance with ASC 330-10-35 and is presented within cost of revenue-other in the condensed consolidated statements of operations. No inventory write-downs or obsolescence reserves were recognized during the three months ended March 31, 2025 that were material to the condensed consolidated financial statements.

8. Property and Equipment, Net

Property and equipment, net consists of the following:

Depreciation expense wasnot material to the condensed consolidated statements of operations for the three months ended March 31, 2026 and 2025 and was recorded in the condensed consolidated statement of operations within cost of revenues or selling, general and administrative expense, depending on the nature and use of the underlying asset. As of March 31, 2026 and December 31, 2025, approximately $1.8 million of manufacturing equipment acquired in connection with the Strategic Transaction had not yet been placed in service and is therefore not being depreciated. The Company will commence depreciation of these assets over their estimated useful lives upon being placed in service.

9. Intangible Assets, Net

Intangible assets, net are comprised of the following:

Intangible assets consist primarily of intellectual property acquired in the Strategic Transaction, which was recorded at an acquisition-date fair value of $2.7 million and is being amortized on a straight-line basis over an estimated useful life of 18 years. Internal use software is amortized over three years.

Amortization expense was negligible for the three months ended March 31, 2026 and 2025. Amortization expense is recorded in the condensed consolidated statement of operations within cost of revenues or selling, general and administrative expense depending on the nature and use of the underlying intangible asset. No impairment losses were recognized for intangible assets during the three months ended March 31, 2026 and 2025.

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

10. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

11. Debt

Convertible Notes Payable

On November 22, 2024, the Company issued $4.2 million in an aggregate principal amount of the Company’s 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 Notes will be automatically converted to shares of common stock if the 10-day volume weighted average price of a share of the Company’s common stock on Nasdaq 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, 2026.

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.

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

During the three months ended March 31, 2026, the Company recognized interest expense of approximately $0.1 million and minimal discount amortization. As of March 31, 2026 and December 31, 2025, the outstanding balance of the Notes was $4.7 million and $4.6 million, respectively, which is shown net of the remaining unamortized issuance cost of $0.1 million.

12. Related Party Transactions

We consider Biofrontera Group to be a related party, as prior to the Strategic Transaction, we relied on the Biofrontera Group as the sole supplier of Ameluz and the RhodoLED Lamps and following the Strategic Transaction, it is a beneficial owner of more than five percent of our Series D Convertible Preferred Stock.

License and Supply Agreement

Under the Second Amended and Restated License and Supply Agreement (“Second A&R Ameluz LSA”), which was applicable for any tubes purchased through May 31, 2025, the Company had an exclusive, non-transferable license to market and sell its previously licensed products, Ameluz and RhodoLED Lamps, in the United States and was required to purchase the previously licensed products exclusively from Biofrontera Pharma GmbH (the “Former Ameluz Licensor”). Pursuant to the Second A&R Ameluz LSA, the price paid was set at twenty-five percent of the anticipated net selling price per unit through 2025 (the “Transfer Price”) that covered the cost of goods, royalties on sales, and services, including all regulatory efforts, agency fees, pharmacovigilance, and patent administration.

The Second A&R Ameluz LSA provided for the transfer of responsibilities for clinical trials relating to Ameluz in the US on June 1, 2024, including the Company assuming related contracts and transferring key personnel from the Former Ameluz Licensor to the Company.

The Company entered into a Release of Claims with the Former Ameluz Licensor, dated February 13, 2024, pursuant to which the Company agreed to release the Former Ameluz Licensor from all claims and liabilities arising out of or relating to any failure by the Former Ameluz Licensor to perform certain obligations under the Second A&R Ameluz LSA with respect to clinical trials for which the Company assumed responsibility.

Strategic Transaction with Biofrontera Group

The Company entered into the Strategic Transaction on October 20, 2025. SeeNote 1. Organization and Business Overview for more information.

Pursuant to the terms of the Agreements, retroactive to June 1, 2025, the Company will pay an earnout of 12% in years where Ameluz revenues in the United States are less than $65.0 million and an earnout of 15% in years when Ameluz revenues in the United States exceed $65.0 million, continuing until the expiration of patent protection on Ameluz. The earnout replaces a transfer pricing model under the now terminated Second A&R Ameluz LSA. At the acquisition date, the Company evaluated the terms of the earnout arrangement and concluded that the amount of contingent consideration was not reasonably estimable due to the significant uncertainty associated with the timing and magnitude of future net sales. Accordingly, no amount related to the earnout was included in the initial measurement of the cost of the acquired assets. The Company has elected to account for contingent consideration in an asset acquisition as the contingency is resolved (earned and payable). No contingent consideration liability is recognized for amounts not yet earned.

The Company also agreed to assume the defense of co-defendant Biofrontera Group and all costs associated therewith in connection with certain legal actions pending in the United States which will be paid directly to the legal advisors by the Company. Details of the legal claims are disclosed inNote 16. Commitments and Contingencies – Legal Claims.

Effective as of the date of the Strategic Transaction and for the following three years, as long as Biofrontera AG holds any shares of Series D Preferred Stock (or shares of common stock that were converted from Series D Preferred Stock), Biofrontera AG shall have the right to appoint (i) one individual to the Company’s board of directors if the board consists of seven or fewer members; or (ii) two individuals to the Company’s board of directors if the board consists of eight or more directors.

If the Company does not achieve the Minimum Order Amount as defined inNote 16. Commitments and Contingencies for two consecutive calendar years starting on January 1, 2026, then the Biofrontera Group will have the right to terminate the Agreements and recover all assets transferred to the Company.

Amounts Due and Payable

Amounts due and payable to Biofrontera Group as of March 31, 2026 and December 31, 2025 were $1.3 million and $4.8 million, respectively, and were recorded in accounts payable, related parties and when applicable, net of accounts receivable, in the condensed consolidated balance sheets. Amounts due from the Biofrontera Group as of March 31, 2026 and December 31, 2025 were $0.7 million and $0.7 million, respectively, and recorded as other assets, related party.

Inventory Purchases

Purchases from the Biofrontera Group of the previously licensed products (inclusive of estimated and actual purchase price adjustments) were $0.4 million and $3.0 million during the three months ended March 31, 2026 and 2025, respectively. These purchases were recorded in inventories in the condensed consolidated balance sheets, and, when sold, in cost of revenues, related party in the condensed consolidated statements of operations.

Earnout

For the three months ended March 31, 2026, the Company expensed $1.2 million in earnouts in connection with the Strategic Transaction related to the sales between the acquisition date and year end. The earnout was recorded in cost of revenues, related party in the condensed consolidated statements of operations. There were no earnout payments for the three months ended March 31, 2025.

Other

In November 2024, the Company issued $4.2 million in an aggregate principal amount of Notes to certain stockholders. SeeNote 11. Debt-Convertible Notes Payable. As of March 31, 2026 and December 31, 2025, the outstanding balance of the Notes was $4.7 million and $4.6 million, respectively.

13. Stockholders’ Equity

Under the Company’s Certificate of Third Amendment to the Amended and Restated Certificate of Incorporation, filed June 16, 2025, the Company is authorized to issue 70,000,000 shares of common stock, and 20,000,000 shares of preferred stock, par value $0.001 per share. The rights and preferences of the Company’s common stock and preferred stock are described in Note 17 of the Company’s 2025 Form 10-K and are unchanged as of March 31, 2026.

Common Stock:

The holders of common stock are entitled to one vote for each share held. The Company has not declared any dividends since inception. During the three months ended March 31, 2026, the Company issued 225,000 shares of common stock upon the vesting and release of restricted stock units (“RSUs”) under the 2021 Omnibus Incentive Plan (“2021 Plan”) (seeNote 14. Equity Incentive Plans and Share-Based Payments). No shares of common stock were issued during the three months ended March 31, 2026 upon the conversion of any series of preferred stock, the exercise of any warrants, or the conversion of any convertible debt.

Warrants

As of March 31, 2026, the Company had outstanding warrants to purchase an aggregate of 2,269,356 shares of common stock with an exercise price range of $3.55 to $100.00 per share and expiration dates ranging from November 2026 to November 2028. No warrants were issued, exercised, expired, forfeited or otherwise modified during the three months ended March 31, 2026. The Company’s outstanding warrants as of March 31, 2026 were as follows:

The liability-classified warrants are remeasured to fair value at each reporting date, with changes in fair value recognized in the condensed consolidated statement of operations. SeeNote 3. Fair Value Measurements for the change in fair value recognized during the three months ended March 31, 2026.

Preferred Stock:

There were no changes in any series of preferred stock during the three months ended March 31, 2026. Shares of preferred stock issued and outstanding at March 31, 2026 and December 31, 2025 were as follows:

All series of preferred stock outstanding as of March 31, 2026 are classified as permanent equity on the Company’s condensed consolidated balance sheets. The Series C Convertible Preferred Stock and Series D Preferred Stock were reclassified from mezzanine equity to permanent equity following the Company’s September 16, 2025 special meeting of stockholders, in accordance with the limited exception under ASC 480-10-S99-3A(3)(f).

Convertible Debt

The Notes issued in November 2024, which allow for up to 5,384,615 shares of common stock to be issued upon conversion of principal plus additional shares for PIK interest, remain outstanding as of March 31, 2026. No conversions occurred during the three months ended March 31, 2026. SeeNote 11. Debt - Convertible Notes Payable, for additional details.

14. Equity Incentive Plans and Share-Based Payments

2021 Omnibus Incentive Plan

In 2021, the Board adopted, and our stockholders approved, the 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, 2026, there were 159,951 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 either a binomial lattice pricing model, or the BSM model for ‘plain vanilla’ options, each of which requires the use of inputs and assumptions such as the fair value of the underlying stock, exercise price of the option, expected term, risk-free interest rate, expected volatility and dividend yield. The Company elects to account for forfeitures as they occur.

The assumptions and key inputs used in the BSM model for the stock options granted during the three months ended March 31, 2026 were as follows: exercise price of $0.78 to $0.90, risk-free rate of 3.7% to 3.8%, volatility of 100%, a dividend yield of 0.0% and expected term of 5.27 years to 6 years. There were no equity grants awarded during the three months ended March 31, 2025.

Share-based compensation expense of approximately $0.2 million and $0.1 million was recorded in selling, general and administrative expenses, with a negligible amount recorded as research and development on the accompanying condensed consolidated statement of operations, for the three months ended March 31, 2026 and 2025, respectively.

Options outstanding and exercisable under the employee share option plan as of March 31, 2026 and a summary of option activity during the three months then ended is presented below.

As of March 31, 2026, there was $1.1 million of unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of approximately 1.53 years.

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, 2026 and 2025, and was recorded in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

As of March 31, 2026, there was $0.3 million of unrecognized compensation related to unvested RSUs, which is expected to be recognized over a period of approximately 1.66 years.

15. 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):

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:

16. Commitments and Contingencies

Leases

The Company leases office space, warehouse space and vehicles. The Company has elected the short-term lease exemption under ASC 842-20-25-2 for leases with an initial term of twelve months or less. For its office, warehouse and vehicle leases, the Company has not elected the practical expedient in ASC 842-10-15-37 and therefore does not combine lease components with associated non-lease components.

The lease for our office space at 120 Presidential Way, Woburn, MA expired in November 2025. The Company elected to not renew the lease and has no remaining commitments under this agreement. Lease expense was recognized through the expiration date, and the ROU asset and related lease liability were derecognized.

The Company’s corporate headquarters is located at 660 Main Street, Woburn, MA, under a 63-month operating lease that commenced on December 1, 2025 and expires on February 28, 2031. Under the terms of the agreement, the Company was entitled to a rent-free period for the first three months of the lease and reduced rent payments for months four through nine, followed by periodic escalated payments thereafter. The Company provided the landlord with a security deposit in the amount of $0.2 million, which was recorded as other assets in the condensed consolidated balance sheets.

The Company also leases office and warehouse space at Hemmelrather Weg 201, 51377 Leverkusen, Germany under an operating lease agreement commencing on January 1, 2026, with a lease term of 10 years with automatic twelve-month renewal periods thereafter unless terminated by either party upon twelve months’ prior written notice. The new lease arrangement resulted in $1.3 million of right-of-use-assets obtained in exchange for new operating lease liabilities. The lease includes an initial rent-free period of three months, with the base rent subject to adjustment if the German consumer price index moves by ten percent or more from the lease commencement date or most recent adjustment. In connection with the lease, the Company is to provide a security deposit in the amount of $0.1 million.

The Company leases vehicles under a master agreement, pursuant to which each vehicle is leased for an initial non-cancelable term of twelve months, and thereafter on a month-to-month basis. Based on historical retention experience of approximately three years, the vehicles have varying expiration dates through July 2029.

Operating lease cost for the three months ended March 31, 2026 and 2025 was $0.2 million. The weighted-average remaining lease term and weighted-average discount rate for the Company’s operating leases at March 31, 2026 were 6.7 years and 9.9%, respectively.

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

Minimum Sales or Minimum Order

Until the earlier to occur of (i) the Company manufactures orders meeting one million tubes of Ameluz during the period from June 1, 2025 through May 31, 2031, or (ii) the expiration of patent protection, which is expected to occur in December 2043 (the “Asset Reversion Term”), starting January 1, 2026 and continuing until the end of the Asset Reversion Term, the Company shall be required to manufacture or order from suppliers at least 80,000 tubes of Ameluz per year (the “Minimum Order Amount”).

Supply Agreement

On December 12, 2025, Discovery entered into a Supply Agreement (“Supply Agreement”) with Midas Pharma GmbH (“Midas”). Among other things, the Supply Agreement provides that Midas will supply Discovery or its contract manufacturers, in the aggregate, 100 kg of the active pharmaceutical ingredient (“API”) 5-Aminolevulinic acid Hydrochloride through the second quarter of 2028. Under the terms of the Supply Agreement, Discovery will provide Midas with a twenty-four (24) month non-binding rolling forecast, which shall 1) indicate the anticipated quantity of API required by the company and 2) be updated every twelve (12) months during the term of the agreement.

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 “OT Agreement”). The OT Agreement allowed for the transfer of the assigned patents and trademarks, and upon notification by the Company to Optical Tools, the research and development of certain prototypes. 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 OT Agreement.

As part of the OT Agreement, Optical Tools will be eligible to receive regulatory and sales milestone payments totaling up to $1.0 million, and royalties of up to 3% of net revenue of certain products developed under the OT Agreement.

The Company did not make any milestone or royalty payments or accruals for such payments during the three months ended March 31, 2026 or 2025.

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 ASC Topic 450,Contingencies. The Company expenses as incurred the legal costs related to such legal proceedings.

Legal Claims

On September 13, 2023, Biofrontera was served with a complaint filed by DUSA Pharmaceuticals, Inc., Sun Pharmaceutical Industries, Inc., and Sun Pharmaceutical Industries LTD (collectively, “SUN”) in which SUN alleges (i) breach of contract, (ii) violation of the Lanham Act, and (iii) unfair trade practices under Massachusetts law. All claims stem from allegations that Biofrontera has promoted its Ameluz product in a manner that is inconsistent with its approved FDA labeling. Though this complaint was originally filed in the United States District Court for the District of Massachusetts, this matter has been transferred by agreement of the parties to the United States District Court for the District of New Jersey. In March 2024, Biofrontera filed a partial motion to dismiss the Lanham Act and Massachusetts statutory claims, which was denied on October 15, 2024. Biofrontera subsequently answered Sun’s complaint and filed counterclaims on October 30, 2024 alleging (i) violation of the Lanham Act, (ii) deceptive trade practices under Georgia law, and (iii) trade libel/product disparagement, which Sun answered on December 17, 2024. On March 11, 2025, Biofrontera received an additional 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. SUN has since amended its complaint to include the allegations contained therein with its existing claims.

Discovery is ongoing in the above-referenced matters. The Company denies the claims brought by SUN and intends to defend them vigorously. Based on the Company’s assessment of the facts underlying the above claims and the uncertainty of litigation, the Company cannot estimate the possibility of a material loss, nor the potential range of loss that may result from this action. If the final resolution of the matter is adverse to the Company, it could have a material impact on the Company’s financial position, results of operations, or 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 (the “Massachusetts District Court”) and the International Trade Commission (the “Commission”), both alleging that the RhodoLED-XL infringes either/both of two patents held by SUN (individually, the “‘028 Patent” and the “‘512 Patent”, and collectively the “SUN Patents”). The complaint filed in the United States District Court for the District of Massachusetts has been held in abeyance pending the completion of the investigation before the Commission and any subsequent appeals.

In the Commission proceeding, a hearing was held in front of an administrative law judge (“ALJ”) between June 30, 2025 and July 3, 2025, and on September 30, 2025, the ALJ issued an Initial Determination (“ID”) finding the Sun Patents to be valid and infringed, and that importation of Biofrontera’s RhodoLED XL violates Section 337 of the Tariff Act of 1930. Following review by the Commission (during which time the ID had no immediate effect), on May 6, 2026, the Commission adopted the ID in its Final Determination (“FD”) and issued a Limited Exclusion Order (“LEO”) and corresponding cease and desist order (“CDO”), prohibiting the Company from importing and/or selling the RhodoLED-XL in the United States and restricting the Company from selling Ameluz for use with the RhodoLED-XL. The LEO and CDO are both subject to a 60-day Presidential Review period (which concludes on July 6, 2026), during which time the Company may continue to import and sell the RhodoLED XL (and Ameluz for use with the RhodoLED-XL). Following the Presidential Review period, the Company may appeal the Commission’s determination to the U.S. Court of Appeals for the Federal Circuit.

The Company evaluated this matter in accordance with ASC 450-20, Loss Contingencies, and concluded that a loss is probable and reasonably estimable as of the balance sheet date. The FD was treated as a recognized subsequent event under ASC 855-10-25-1. The total estimated remediation cost of approximately $0.5 million, representing management’s best estimate within a range of approximately $0.4 million to $0.6 million, has been recognized as a $0.4 million charge to operating expenses within patent remediation expense and a $0.1 million charge to cost of revenues, other on the condensed consolidated statements of operations for the three months ended March 31, 2026, offset with an inventory write-down of approximately $0.1 million, presented as a reduction of inventories on the condensed consolidated balance sheets, in accordance with ASC 330-10-35; and an accrued remediation liability of approximately $0.4 million, presented within accrued expenses and other current liabilities on the condensed consolidated balance sheets.

Separately, Biofrontera has challenged the validity of the SUN Patents by filing separate petitions for inter partes review (“IPR”) at the United States Patent Trial and Appeal Board (“PTAB”) for each of the SUN Patents. The IPR filed in relation to the ‘512 Patent was discretionarily denied by the PTAB on July 2, 2025 on administrative reasons. However, the IPR filed in relation to the ‘028 Patent was instituted in February 2025, and the PTAB issued a final written decision on February 23, 2026 (the “FWD”) finding all challenged claims in the ‘028 Patent to be unpatentable. On March 25, 2026, SUN requested that the Director of the United States Patent and Trademark Office (“USPTO”) to review the FWD and either reverse and vacate the PTAB’s FWD, or vacate the PTAB’s FWD and de-institute the IPR. The Company has opposed Sun’s Director Review request, and maintains that the Director should affirm the PTAB’s decision. This request is currently pending before the USPTO Director.

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

Based on the Company’s assessment of the facts underlying the above-referenced patent matters, as well as the uncertainty of litigation, except as stated above, the Company cannot estimate the possibility of a material loss, nor the potential range of loss that may result from either action. Money damages are not available to Sun through the case before the Commission. If the final resolution of the case before the Massachusetts District Court is adverse to the Company, it could have a material impact on the Company’s financial position, results of operations, or cash flows.

17. Segment Reporting

The Company operates asone operating segment that derives revenue primarily from our principal product, Ameluz, which is a prescription drug approved for use in PDT using our RhodoLED Lamps, for the treatment of AKs. We are currently selling Ameluz for this indication in the United States. Ameluz (including the RhodoLED Lamps) accounts for substantially all of our revenue.

The Company’s chief operating decision maker (“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**:**

18. Subsequent Events

We have completed an evaluation of subsequent events after the balance sheet date of March 31, 2026 through the date this Quarterly Report on Form 10-Q was submitted to the Securities and Exchange Commission and determined that the following material subsequent event required disclosure.

On May 6, 2026, the Commission issued a Notice of Final Determination finding a violation of Section 337 with respect to certain of the Company’s PDT components. The Commission issued a LEO and CDO in connection with that determination. The Company has accounted for this matter as a recognized subsequent event under ASC 855-10-25 and has reflected an accrued liability and corresponding charge of approximately $0.5 million in its condensed consolidated balance sheet as of March 31, 2026 and its condensed consolidated statements of operations for the three months then ended, respectively. SeeNote 16. Commitments and Contingencies for additional information, including regarding the Company’s accounting analysis, the components of the estimated remediation cost, and the range of reasonably possible losses.

Nasdaq Compliance. On December 31, 2025, the Company received a letter from Nasdaq notifying the Company that the listing of the Common Stock was not in compliance with Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”) as the closing bid price of the Common Stock was less than $1.00 per share for the previous 34 consecutive business days. The notice had no impact on the listing or trading of the Company’s securities on Nasdaq. Under Nasdaq Listing Rule 5810(c)(3)(A), the Company had a period of 180 calendar days, or until June 30, 2026, to regain compliance with the rule referred to in this paragraph. On May 6, 2026, we received written notification from Nasdaq, with confirmation that for the last 10 consecutive business days, from April 22, 2026 to May 6, 2026, the closing bid price of the Company’s Common Stock had been at $1.00 per share or greater. Accordingly, the Company had regained compliance with the Minimum Bid Price Requirement and that the matter was closed. There can be no assurance that we will maintain compliance with the Minimum Bid Price Requirement or other continued listing standards in the future.

Common Share Conversions. Subsequent to March 31, 2026 and through the date these condensed consolidated financial statements were issued, the Company issued an aggregate of 930,021 shares of its common stock in connection with conversions of outstanding securities, consisting of(i)134,235 shares issued upon the conversion of 95 shares of Series B-3 Convertible Preferred Stock at a conversion ratio of 1,413-to-one, (ii)499,281 shares issued upon the conversion of 312 shares of Series C Convertible Preferred Stock at a conversion ratio of 1,600.26-to-one, and (iii)296,505 shares issued upon the conversion of $231,274 aggregate principal amount and accrued payment-in-kind interest of the Company’s Notes at a conversion price of $0.78 per share.