Exhibit 99.1

Condensed interim consolidated financial statements as of June 30, 2020

Consolidated balance sheet as of June 30, 2020

Equity and liabilities

Consolidated statement of comprehensive income for the first six months of the fiscal years 2020 and 2019

Both the result after income taxes and the total result are fully attributable to the shareholders of Biofrontera AG.

Consolidated statement of changes in equity for the first six months of the fiscal year 2020 and fiscal year 2019

Consolidated cash flow statements for the first six months of the fiscal years 2020 and 2019

Select explanatory notes to the interim consolidated financial statements as of June 30, 2020

Information about the company

Biofrontera AG (www.biofrontera.com), registered in the commercial register of Cologne District Court, Department B under No. 49717, together with its wholly owned subsidiaries Biofrontera Bioscience GmbH, Biofrontera Pharma GmbH, Biofrontera Development GmbH, Biofrontera Neuroscience GmbH, all with head office at Hemmelrather Weg 201, 51377 Leverkusen, Germany, as well as the Spanish branch operation Biofrontera Pharma GmbH sucursal en España based in Cornellá de Llobregat, and Biofrontera Inc., which is based in Woburn, Massachusetts, U.S., research, develop and market dermatological products.

Summary of significant accounting policies

Basis for preparation of the consolidated interim financial statements

The interim consolidated financial statements are prepared on a going concern basis. If the improvement of the COVID-19 pandemic - particularly in the USA - and the associated sales recovery fail to materialize or are even less pronounced, the financing requirement would increase and would have to be implemented sooner, even taking into account the expected lower cost burden. However, if coverage of this further financing requirement is not possible in a timely manner, this would result in a threat to the going concern status of the Biofrontera Group. For further details regarding this significant uncertainty in connection with the going concern, we refer to the risk report of the interim group management report.

The condensed consolidated interim financial statements of Biofrontera AG as of June 30, 2020 were prepared in accordance with the International Financial Reporting Standards (IFRS) of the International Accounting Standards Board (IASB) and the interpretations of the International Financial Reporting Standards Interpretations Committee (IFRS IC) for “Interim Financial Reporting” according to IAS 34, as they are adopted by the IASB. Accordingly, they do not contain all the information and disclosures required for consolidated financial statements and should therefore be read in conjunction with the consolidated financial statements for the year ended December 31, 2019.

On August 26, 2020, the Management Board approved the half-year financial report of Biofrontera AG for publication.

Due to commercial rounding, rounding differences in the tables can arise.

The interim report as of June 30, 2020 does not contain separate segment reporting, as the activities of the Biofrontera Group are limited to one business segment as defined by IFRS 8. The entire operating activity is focused on the sale of dermatological products, in particular Ameluz^® including the complementary products BF-RhodoLED^® (PDT-lamp) and Belixos^® as well as Xepi^®, and is therefore uniformly monitored and controlled internally.

Changes in accounting standards

For the preparation of the condensed consolidated interim financial statements, the same accounting policies have been applied as for the consolidated financial statements as of December 31, 2019. The new IFRS rules to be applied for the first time as of January 1, 2020 have no material effect on the interim consolidated financial statements.

The preparation of the interim consolidated financial statements requires the Management Board to make estimates and assumptions that affect the application of accounting policies in the Group and the presentation of assets and liabilities, income and expenses. The actual amounts may differ from these estimates.

Changes to previous estimates due to the impact of the COVID-19 pandemic have occurred with respect to the valuation of the Xepi^®license, the purchase price payment from the Maruho earn-out agreement and the EIB loan.

The expected proceeds from the sale of Xepi^® and the related expected annual purchase price payments were reestimated as of March 30, 2020 due to the current market situation influenced by the COVID-19 pandemic and the resulting delays in the market penetration of Xepi^®. This resulted in an impairment of the Xepi^® license and a reduction of the nominal amount of the expected purchase price payment. As a result of the significant decline in market capitalization in the first half of 2019, there was a reduction in the performance component of the EIB loan in the first half of 2020 which was recognized in income.

Basis of consolidation

The financial statements as of June 30, 2020 include the financial statements of the parent company, Biofrontera AG, and the subsidiaries in which the parent company holds a direct majority of the voting rights. The companies listed below were included in the consolidated financial statements:

The basis for the consolidation of the companies included in the consolidated financial statements were the interim financial statements of these companies as of June 30, 2020, prepared in accordance with uniform principles (or “Handelsbilanz II” according to IFRS). The financial statements as of June 30, 2020 were prepared on the basis of uniform accounting and valuation principles (IFRS).

The subsidiaries are fully consolidated from the date of acquisition. The date of acquisition is the date on which the parent company gained control of these subsidiaries. Subsidiaries are included in the consolidated financial statements until such time as the parent company no longer controls these companies.

All intercompany receivables and liabilities as well as income and expenses were eliminated in the course of consolidation. Interim results were eliminated.

Significant events in the first six months of 2020

The performance of Biofrontera AG in the first half of 2020 was mixed. At the beginning of the year, we were initially able to record a good sales development as well as positive regulatory and clinical developments. We also successfully restructured the global sales and marketing structure. Since mid-March we have had to accept declining sales figures, particularly in the USA, due to the dynamic development of the COVID-19 pandemic. This forced us to implement company-wide cost reduction measures.

The Biofrontera Group achieved total sales of EUR 16.1 million for the period from January 1 to June 30, 2020, which represents an increase of 16% compared to sales of EUR 13.9 million in the same period of the previous year. Total revenues include a one-time payment of EUR 6.0 million, which the company received from Maruho Co., Ltd. under the license agreement signed on April 20, 2020. The Group generated revenues from product sales of EUR 9.7 million, a decrease of 30% compared to the first six months of 2019. Overall, revenues in the first half of 2020 and particularly in the second quarter were strongly affected by the effects of the global coronavirus crisis. However, a recovery in sales is expected for the second half of the year.

As already explained, the coronavirus crisis has led to a decreasing number of treatments and thus to a sharp drop in sales in our most important market, the USA. On March 20, 2020, the Company announced that it would take comprehensive measures to reduce and control costs during the COVID-19 pandemic.

Consequently, Biofrontera had introduced short-time work for all employees in Germany until the end of July 2020. Similar measures were implemented for the subsidiaries in Spain and the UK. Biofrontera Inc, the wholly owned subsidiary in the USA, has also initiated significant cost reduction measures. There, the number of employees was significantly reduced and a furlough program was implemented, under which all employees were obliged to take temporary unpaid leave. In addition, the members of the Management Board of Biofrontera AG and the management of Biofrontera Inc. voluntarily decided to forgo a substantial portion of their salaries.

While these cost reduction measures were in effect, the Company was able to ensure full compliance with all regulatory requirements in both medical and financial respects, and to meet all disclosure requirements at all times.

The continued uncertain business outlook due to the COVID-19 crisis has had an impact on the valuation of certain assets and liabilities of the Company. Reduced sales of Xepi^® have resulted in a different assessment of the medium-term business and profit outlook for Xepi^® and, consequently, in a re-evaluation of both the balance sheet value of the Xepi^®-license and the purchase price liability to Maruho in the first quarter of 2020.

Notes to the consolidated balance sheet and consolidated statement of comprehensive income

Sales revenue

Revenue from product revenues generated in the U.S. includes revenue from finance and operating lease agreements concerning the BF-RhodoLED^® lamps.

In the first six months of 2020, we generated EUR 31 thousand of income from operating leases (previous year period: EUR 41 thousand). We generated income of EUR 75 thousand from finance leases (previous year period: EUR 19 thousand).

Personnel costs

In the reporting period, Biofrontera Group received subsidies for short-time work in the amount of EUR 599 thousand.

Intangible assets

The value of the balance sheet recognition for the Xepi^® license was reviewed as of March 31, 2020 by means of an impairment test, which also takes the current market situation influenced by the COVID-19 pandemic and the resulting delays in the market penetration of Xepi™ into account. As a result, this led to a non-cash impairment of EUR 2,001 thousand, which is reported in sales costs.

In determining the utility value as of March 31, 2020, the expected cash flows within the remaining term of the license agreement of 10 years and 7 months were discounted. The cash flows were discounted on the basis of a market interest rate of 9% (previous year 9%).

Trade receivables

Trade receivables are mainly attributable to the sale of Ameluz^®, the PDT-lamp BF-RhodoLED^®, Xepi^® and the medical cosmetic product Belixos^®. It is expected that all trade receivables will be settled within twelve months of the balance sheet date.

Value adjustments for doubtful accounts were made in the amount of EUR 53 thousand (previous year: EUR 43 thousand). As in the previous year, there were no overdue, non-adjusted receivables in significant amounts on the reporting date.

Of the receivables, EUR 160 thousand (previous year: EUR 153 thousand) relate to finance leases for PDT-lamps.

During the reporting period, impairment losses on inventories were recognized in the amount of EUR 5 thousand (previous year: EUR 24 thousand).

Deferred taxes

As of June 30, 2020, the company reported deferred taxes on losses carried forward in the amount of EUR 7,475 thousand (previous year: EUR 7,794 thousand). These are capitalized to the extent that they are likely to be offset against future tax profits. This is based on a planning period of five years. These relate to the deferred tax assets to be recognized on loss carry-forwards for Biofrontera Pharma GmbH, which were reduced in the first half of the year due to the utilization of the positive tax result. For the entire year 2020 and also in the future, it can still be assumed that Biofrontera Pharma GmbH will generate positive results and thus use its tax loss carryforwards.

Financial liabilities

Other financial liabilities

Reporting on financial instruments

The financial instruments held by the Biofrontera Group on the balance sheet date primarily consist of cash and cash equivalents, trade payables and receivables, other non-current financial liabilities as well as financial debt. Biofrontera does not deploy any financial derivatives, apart from the derivative embedded within the EIB loan (so-called performance component).

Financial assets

Financial liabilities

The financial assets are still allocated to “financial assets at amortized cost”. The carrying amounts correspond to the fair values.

The performance component (financial instrument at level 3 of the fair value hierarchy) as a further variable interest component and embedded derivative requiring separation is subsequently measured at fair value on each balance sheet date and is allocated to the category “financial liabilities at fair value recognized in profit or loss”. To simplify matters, the market capitalization at the end of the term is initially determined on the basis of the market capitalization on the respective valuation date, which is based on the 90 trade days preceding the measurement cut-off date. The performance-based interest payment for the first tranche is calculated based on a notional 0.64% (EIB 2017 tranche) or 0.20% (EIB 2019 tranche) participation rate in the market capitalization (Notional Equity Proportion). This is discounted to the measurement cut-off date applying a market interest rate.

As of June 30, 2020, the discounted interest payment (carrying amount) or fair value of the performance component of the 2017 tranche of the EIB loan was EUR 744 thousand (previous year: EUR 1,148 thousand) and of the 2019 tranche of the EIB loan EUR 202 thousand (previous year: EUR 314 thousand). The net profits on the performance component amounted to EUR 516 thousand (previous year period: loss of EUR 252 thousand).

The purchase price liability of EUR 16,956 thousand (previous year: EUR 14,720 thousand) reported under non-current financial liabilities was discounted at a market interest rate of 9% based on the expected annual purchase price payments. The expected annual purchase price payments were re-estimated as of March 31, 2020 due to the current market situation influenced by the COVID-19 pandemic and the resulting delays in the market penetration of Xepi^®. Accordingly, the purchase price payments will be due from 2022 to 2030 depending on future profits generated from the sale of Xepi^®. The total purchase price in this period, excluding repayment of start-up costs, amounts to a nominal USD 26.8 million / EUR 23.3 million (previous year: USD 28.9 million / EUR 25.8 million). The start-up costs received to date in the amount of USD 5.4 million / EUR 4.8 million (previous year: USD 2.9 million / EUR 2.5 million) are repayable by 2022.

The net losses on the purchase price liability amounted to EUR 16 thousand (previous year: EUR 162 thousand) and are lower due to the re-evaluation, in particular the adjusted estimate of the purchase price liability.

The fair values of the performance component of the EIB loan would be EUR 95 thousand higher or lower in the event of a 10% increase or decrease respectively in market capitalization. The fair value of the purchase price liability would be EUR 655 thousand higher or lower in the event of an 5% increase or decrease in cash flows respectively and EUR 914 thousand lower or EUR 851 thousand higher in the event of 1% an increase or decrease respectively in the weighted average cost of capital.

Other financial liabilities continue to be allocated to the category “Financial liabilities at amortized cost”. The carrying amounts correspond to the fair values.

Provisions

The companies included in the consolidated financial statements of Biofrontera AG face several threatened or pending legal proceedings, the outcome of which is either not determinable or cannot be predicted due to the uncertainty associated with such legal proceedings. No provisions were made for the claims asserted against Biofrontera, as the Management Board does not believe that such claims are enforceable.

For pending proceedings in the USA and Germany, provisions for legal costs totalling EUR 2,051 thousand (previous year: EUR 2,183 thousand) exist. EUR 471 thousand were utilized in the first half of 2020. Based on a current estimate of the outstanding litigation costs, no further amounts were accrued.

Biofrontera assumes that the lawsuits are unjustified and will defend itself vigorously against the claims, but cannot guarantee that this will be successful.

Biofrontera may incur further significant costs in the future from the defense of its case, as in addition to internal resources, lawyers in the USA have been mandated to defend the case. The costs arising from this for Biofrontera would not be reimbursed by the plaintiff even in the event of a positive outcome of the proceedings, due to the practices of the US legal system.

Related party disclosures

Under the purchase agreement with Maruho, the company can still draw down funds from start-up costs of a nominal USD 1.9 million / EUR 1.7 million (previous year USD 4.4 million / EUR 3.9 million).

Subsequent events

Renewal of Management Board appointment

On July 23, 2020, the Supervisory Board of Biofrontera AG announced that the appointments as well as the service contracts of both Management Board members were each extended for another 2 years until December 31, 2022.

Mandatory convertible bond 2020/2021

On July 27, 2020, the Management Board resolved, with the approval of the Supervisory Board, to issue up to 2,638,150 bonds of a 1.0%-qualified subordinated mandatory convertible bond 2020/2021 with a nominal value of EUR 3.00 each and a total nominal value of up to EUR 7,914,450 to cover short-term liquidity requirements.

On August 18, 2020, the company announced that the mandatory convertible bond 2020/2021 had been placed in full. The gross proceeds from the issue amount to EUR 7,914 thousands.

Exhibit 99.2

BUSINESS DEVELOPMENTS

Clinical updates

Ameluz® for Treatment on Large or Multiple Surfaces

In October 2020, we completed the clinical phase of the pharmacokinetics study in the United States of Ameluz®. The study had been ongoing since the beginning of 2020 with a temporary interruption due to the effect of restrictions put in place by various state and local governmental authorities in the United States to combat the COVID-19 pandemic. The study evaluated the safety of photodynamic therapy for the treatment of actinic keratosis (AK) on large or multiple surfaces using up to three tubes of Ameluz® at a time. We expect to submit the final study report to the U.S. Food and Drug Administration, or FDA, during the first quarter of 2021.

BF-RhodoLED® XL Lamp

We have also been working diligently to complete the development and the application for approval of the new BF-RhodoLED^® XL lamp, which would enable the application of Ameluz^® on larger areas. Due to delays in getting supplies for the first manufacturing batch caused by the COVID-19 pandemic, we expect the dossier for marketing approval to be submitted to the FDA in the first quarter of 2021.

Label extension for AK on extremities and trunk/neck

In fall 2019, we submitted the application for label extension to the European Medicines Agency (EMA) to include the treatment of mild and moderate AK on the extremities and trunk/neck with conventional photodynamic therapy (PDT) using Ameluz^® and the BF-RhodoLED^®. Following the positive vote of the EMA in February 2020, the European Commission formally approved the label extension for Ameluz^® in March 2020.

Based on the data for the European label extension, we have also held discussions with the FDA about expanding the label for Ameluz® in the United States to include the treatment of AK in the extremities and trunk/neck. The FDA proposed an additional clinical trial before it would consider approving a label extension of Ameluz® to include additional body regions. We are currently developing the study protocol according to FDA guidelines, and expect patient recruitment to start in the second half of 2021, if funds are available.

Label extension for acne

With regard to the possible label extension of Ameluz® for acne in the United States, we prepared a corresponding development plan for the indication extension and early in 2020, received feedback from the FDA on the design of the necessary clinical trials, and plan to commence the study program in the second half of 2021 as soon as the funds are available to launch the study program.

Ameluz® for treatment of basal cell carcinoma

We are continuing to pursue patient recruitment in the phase III study for the treatment of basal cell carcinoma with Ameluz^® in the United States.

Patent updates

We submitted an international patent application regarding anti-migraine compounds to the World Intellectual Property Organization in 2013. A patent in the United States was granted in 2017, expiring in January 2034. The European Patent Office announced on May 13, 2020, that the examining division intends to grant a European patent. The European patent was issued on October 14, 2020.

We filed a U.S. patent application on October 15, 2020 regarding an illumination device for photodynamic therapy, a method for treating a skin disease and method for operating an illumination device.

License Agreement with Maruho

In April 2020, we signed a license agreement with Maruho Co. Ltd, Japan (“Maruho”), the parent of Maruho Deutschland GmbH, a major shareholder of ours, granting Maruho’s affiliate exclusive rights to use certain of our proprietary information, patents and trademarks for the purpose of further research and development, marketing and commercialization of Ameluz® for all indications in East Asia and Oceania. Maruho is entitled, with our consent, to conduct its own research and development under the terms and conditions of the license agreement. Maruho will grant us a free and unlimited license for all results of such research and development activities performed by Maruho for commercialization outside East Asia and Oceania.

Under the terms of the license agreement, we will supply Ameluz® to Maruho at cost plus 25%, while Maruho has the obligation to make commercially reasonable efforts to develop, register and market Ameluz® in all countries within East Asia and Oceania. We believe that this arrangement will give us the opportunity to generate long-term revenue in markets that we will not be able to serve with our own resources in the foreseeable future at a relatively low cost and with low business risk. We will continue to focus on the United States and Europe, which are the most significant and already established markets for us. The license agreement has an initial term of 15 years from the commencement of sales and includes milestone payments, royalties on sales and provides for the upfront payment of €6 million to us by Maruho, which we received and which, along with the mandatory convertible bond offering discussed below, helped us maintain a sufficient level of liquidity to sustain business operations during the COVID-19 pandemic. Future payments will be due upon achievement of certain regulatory and commercial milestones. Maruho will also pay royalties of initially 6% of net sales in the countries within East Asia and Oceania, which may increase to 12% depending on sales volume and will decrease in case of the introduction of generic products in these countries.

License Agreement with Galenica AB

In December 2020, Biofrontera Pharma GmbH and Galenica AB (Galenica) signed an exclusive license and supply agreement for the marketing of both Ameluz® and BF-RhodoLED® in Sweden, Norway, Denmark, Finland and Iceland. Galenica AB is entitled to exclusive distribution rights for the Nordic countries. We will supply Ameluz^® to Galenica at a transfer price of 50% of the expected net revenues. Furthermore, we will be responsible for the marketing authorization as well as manufacturing and quality control, while Galenica will handle all aspects of commercialization, local registration and reimbursement in the Nordic countries.

Galenica is now working towards the reintroduction of these products in Denmark, Sweden and Norway and their initial launch in Finland and Iceland by the middle of 2021. In addition, Galenica has a right of first refusal for commercialization in the Baltic States.

Mandatory Convertible Bond Offering

In August 2020, we issued the 1.0% qualified subordinated mandatory convertible bond 2020/21 to provide us with liquidity during the COVID-19 pandemic. The bond issue was fully subscribed generating gross proceeds of €7.9 million. Under the terms and conditions of the convertible bonds, each of the convertible bonds can be converted into our no-par ordinary registered shares with a notional interest in the share capital of €1.00 per share and a right to dividends from the year of the share issue. We had the right to convert the convertible bonds into ordinary shares at any time if the trigger price for our ordinary shares of €4.50 had been met.

In November 2020, the trigger price was met and we exercised our right to convert all the bonds that had been issued and 2,638,150 of our ordinary shares were issued from our Contingent Capital I. In December 2020, our share capital was increased by €2,638,150 to €47,747,515 as a result of the conversion of convertible bonds.

Litigation Update

The following information updates the disclosures in “Legal Proceedings” of Item 8.A of our annual report on Form 20-F for the fiscal year ended December 31, 2019.

DUSA Litigation

DUSA v. Biofrontera AG

In March 2018, DUSA Pharmaceuticals, Inc., or DUSA, brought a lawsuit against us and our subsidiaries before the District Court of Massachusetts due to alleged infringement of its patents No. 9,723,991 and No. 8,216,289 by sales of BF-RhodoLED® in the United States. In July 2018, DUSA amended its complaint to add claims of trade secret misappropriation, tortious interference with contractual relations, and deceptive and unfair trade practices. For these claims, DUSA has asserted damages for profits allegedly lost by DUSA or alleged unjust enrichment for profits gained by us from sales of the BF-RhodoLED® and Ameluz® in the United States.

Our responses to the patent claims include that it does not infringe the DUSA patents and that the patents are invalid. With regard to the non-patent claims, our responses include that the information does not constitute trade secrets and that our actions do not constitute any violation of trade practices. With regard to DUSA’s claims for damages, our responses include that DUSA has not proven it is entitled to lost profits or unjust enrichment. Submission of expert reports and related discovery regarding these claims finished in early December 2019. The parties filed motions for summary judgment and motions to exclude certain expert testimony closing on February 18, 2020. The Court issued decisions on the motions on October 9, 2020, sending most issues to trial.

The Court has tentatively scheduled a jury trial starting in late November 2021. We expect the trial to proceed through December 2021. We believe that these claims lack merit and intend to defend against them vigorously; however, we cannot guarantee that we will be successful. The Court largely denied a motion by DUSA for a preliminary injunction, but did order us not to use any documents, or documents derived from documents, that originated at DUSA.

In addition, we submitted petitions for inter partes review to the Patent Trial and Appeal Board (PTAB) seeking to have the patents declared invalid. The PTAB issued decisions on February 26, 2019, finding a reasonable likelihood of success on invalidity arguments for some claims, but nonetheless denying institution of the review petitions because the PTAB disagreed on the remainder of claims.

DUSA has asserted claims for damages in these proceedings. However, we consider these claims to be unfounded and unsubstantiated.

Biofrontera Inc. v. DUSA

In July 2018, Biofrontera Inc. brought a lawsuit against DUSA in California Superior Court. Our complaint alleged that DUSA engaged in unfair competition by providing excessive product samples to physicians and by using its distributor Foundation Care to inflate product prices. Our complaint also alleged that DUSA engaged in tortious interference by making statements to third parties regarding the off-label use of its products. Though the court has dismissed our claims related to DUSA’s sampling and pricing practices, the court allowed our tortious interference claims to proceed to discovery.

Given the unprecedented and unforeseen economic circumstances caused by the spread of COVID-19, we have reevaluated our litigation strategy. Given that DUSA has ceased using Foundation Care, we decided at this time to stop prosecuting the case against DUSA in California state court and dismissed those claims.

Deutsche Balaton Litigation

Biofrontera AG v. Deutsche Balaton AG et al.

On June 11, 2018, we filed a complaint in the United States District Court for the Southern District of New York against Deutsche Balaton AG, Wilhelm Konrad Thomas Zours, Delphi Unternehmensberatung AG, VV Beteiligungen AG, ABC Beteiligungen AG, Deutsche Balaton Biotech AG, and Axxion S.A., alleging violations of U.S. federal securities law and state common law in connection with actions taken by the defendants during a tender offer for our ordinary shares that were designed to defame us and negatively impact our share price. On October 1, 2018, Axxion was voluntarily dismissed from the litigation. On December 6, 2018, the remaining defendants filed a motion to dismiss. The motion to dismiss was fully briefed on February 11, 2019. On July 8, 2019, prior to the court issuing a decision on the motion to dismiss, we amended the complaint to include additional allegations regarding the defendants’ tender offer that was the subject of the original complaint and allegations regarding a subsequent tender offer made by certain of the defendants in 2019, including that defendants committed continuing and new violations of U.S. federal securities law. On August 19, 2019, defendants moved to dismiss the amended complaint. The motion was fully briefed on November 8, 2019. On March 27, 2020, the court issued a ruling granting in part and denying in part defendants’ motion to dismiss, permitting certain of our U.S. federal securities law claims to move forward. The court also ordered that the parties conduct jurisdictional discovery in connection with all of the remaining claims and submit supplemental briefing on our common law claims. On June 10, 2020, at the parties’ request, the court stayed the litigation until November 10, 2020, so that the parties could mediate the issues raised in the amended complaint as well as certain other disputes. In order to have sufficient time for the complex negotiations, the parties mutually agreed to extend the original deadline of the stay from November 10, 2020 until the end of February 2021.

Deutsche Balaton AG v. Biofrontera AG

In June 2017, our company was served with a claim for rescission and nullification by our company’s significant shareholder Deutsche Balaton AG, in which it sued for nullification of certain resolutions of our Annual General Meeting held on May 24, 2017. The lawsuit was dismissed by Cologne Regional Court in December 2017. On appeal by Deutsche Balaton AG, the Cologne Higher Regional Court granted the action in November 2018. The Cologne Higher Regional Court did not allow a review of the judgment by the Federal Supreme Court in its ruling. Since our company considered the judgment of the Cologne Higher Regional Court to be incorrect, we filed an appeal against the decision with the Federal Supreme Court, which was granted in May 2020. With regard to the creation of authorized capital approved at that meeting, we filed an application for release with the Cologne Higher Regional Court in 2020. The Higher Regional Court of Cologne dismissed the application for release on July 9, 2020.

In its reasons for the decision, the Cologne Higher Regional Court assumed that our management board had violated the requirement of equal treatment of shareholders in connection with a capital increase carried out in October/November 2016 in a severe and unequivocal manner. On September 22, 2020, the German Federal Supreme Court reversed that decision and determined that the violation of law assumed by the Cologne Higher Regional Court had not occurred.

ABC Beteiligungen Litigation

An action for rescission and nullification was brought by ABC Beteiligungen AG, Heidelberg, an affiliate of Deutsche Balaton AG, against resolutions of the Annual General Meeting of Biofrontera AG on May 28, 2020. The action for rescission and nullification is directed against the resolutions under agenda items 6 (resolution on the increase of share capital against cash contributions with the granting of an indirect subscription right), 9 (removal of a Supervisory Board member and election of a new Supervisory Board member), 11 (Resolution on the performance of a special audit on the circumstances of the lawsuit filed in the USA by the Company against Deutsche Balaton AG and other defendants), 12 (Resolution on the performance of a special audit on the circumstances of the withdrawal of the subscription offer for mandatory convertible bonds) and 13 (Resolution on the authorization to issue mandatory convertible bonds and the creation of conditional capital with a corresponding amendment to the Articles of Association). With regard to agenda items 9, 11, 12 and 13, Deutsche Balaton AG requested that the court recognize that the Annual General Meeting adopted the resolutions in the form proposed by Deutsche Balaton AG. The lawsuit is pending before the Cologne Regional Court under file number 82 O 53/20.

With regard to agenda item 6 (resolution on the increase of share capital against cash contributions with the granting of an indirect subscription right), an application for release was filed with the Cologne Higher Regional Court on October 20, 2020. The Higher Regional Court of Cologne granted the motion for release on January 7, 2021.

CFO Transition

On February 2, 2020, we announced that Thomas Schaffer’s last day as chief financial officer of Biofrontera will be February 28, 2021. He will be succeeded by Ludwig Lutter, whose appointment as our chief financial officer will be effective on March 1, 2021.

Ludwig Lutter, 54, is a German citizen, and has over 20 years of experience as chief financial officer at several technology companies. Before joining Biofrontera, he served as chief financial officer for brillen.de, Hotel Reservation Service, Intershop Communications AG, SOPHOS and Poet Holdings, Inc. Prior to that, he served in public accounting and tax consulting for KPMG and other public accounting firms. Mr. Lutter holds a degree in business administration from the University of Texas, and is qualified as a certified tax advisor in Germany. Mr. Lutter does not beneficially own any ordinary shares of Biofrontera.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion of our financial condition and results of operations is designed to provide you with a narrative explanation of our financial condition and results of operations. You should read such discussion in conjunction with our unaudited interim condensed financial information as of and for the six months ended June 30, 2020 included as Exhibit 99.1 to this Report on Form 6-K. You also should read the discussion of our financial condition and results of operations and our audited financial statements and the notes thereto, which appear in our Annual Report on Form 20-F for the year ended December 31, 2019 (the “2019 Form 20-F”) on file with the U.S. Securities and Exchange Commission (the “Commission”).

Unless otherwise indicated or the context otherwise requires, all references to “Biofrontera” or the “Company,” “we,” “our,” “ours,” “us” or similar terms refer to Biofrontera AG and its consolidated subsidiaries, Biofrontera Pharma GmbH, Biofrontera Bioscience GmbH, Biofrontera Neuroscience GmbH, Biofrontera Development GmbH and Biofrontera Inc. Our consolidated financial statements and related notes are presented in euros, or €, and have been prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. None of our consolidated financial statements in this Form 6-K of which this exhibit forms a part have been prepared in accordance with United States generally accepted accounting principles. For any of our subsidiaries that use a functional currency that is not euros, the assets and liabilities have been translated at the closing exchange rate as of June 30, 2020, which was 1.1237 U.S. dollars to 1 euro, while the income and expenses have been translated at the average exchange rate for the six-month period ended June 30, 2020, which was 1.1019____ U.S. dollars to 1 euro. The differences resulting from the valuation of equity at historical rates and applying the period-end exchange rates are reported as a change not affecting profit or loss and carried directly to equity within the other equity components. Transactions realized in currencies other than euros are reported using the exchange rate on the date of the transaction. Assets and liabilities are translated applying the closing exchange rate for each balance sheet date. Gains and losses arising from such currency translations are recognized in income. See “Summary of Significant Accounting Policies — Translation of Amounts in Foreign Currencies” in the notes to our consolidated financial statements included in our 2019 Form 20-F for more information. Unless otherwise indicated, all references to currency amounts in this discussion and analysis are in euros.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This discussion includes forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this annual report regarding our strategy, future operations, regulatory process, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements. The words “believe”, “anticipate”, “intend”, “expect”, “target”, “goal”, “estimate”, “plan”, “assume”, “may”, “will”, “predict”, “project”, “would”, “could” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

The forward-looking statements in this report include, but are not limited to, statements about:

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this discussion that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments that we may make.

You should read this discussion and the financial statements filed as an exhibit to the report on Form 6-K of which this discussion forms a part completely and with the understanding that our actual future results may be materially different from what we expect. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to risks, uncertainties and assumptions about us, including those listed in the sections of the 2019 Form 20-F entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Factors Affecting our Results of Operations

We believe that the following factors have influenced and will continue to influence the development of our business and our future financial performance:

Effects of the COVID-19 Pandemic

Since mid-March, we have been affected by the global COVID-19 pandemic as it has disrupted economic activity around the world. We experienced the most significant impact of the COVID-19 pandemic in the United States. While we were able to achieve product sales of around €16.6 million in the United States, our largest market, in the fiscal year 2020, this represents a decline in sales of 29% compared to 2019. In early 2020, sales were slightly lower than expected due to stockpiling of Ameluz® by doctors at the end of 2019 prior to the price increase that became effective on January 1, 2020. Between mid-February and mid-March 2020, we were then able to generate sales revenues in line with our original budget. However, in the second half of March 2020, revenue dropped close to zero as a result of the COVID-19 pandemic. The American Academy of Dermatology, the largest dermatology organization in the United States, in Spring 2020, issued official recommendations that physicians provide patients with remote diagnosis and treatment where possible during the COVID-19 pandemic. We believe that this resulted in a significant decline in the number of patients treated in dermatology practices as well as temporary practice closures.

In response to the COVID-19 pandemic, we introduced temporary short-time work for all employees in Germany until the end of July 2020. Similar measures were implemented for our subsidiaries in Spain and the United Kingdom. Biofrontera Inc., our wholly-owned U.S. subsidiary, responded by introducing significant cost-cutting measures, including a reduction of 17 employees. At the same time, a furlough program was introduced in which all employees were obligated to take temporary unpaid leave. In addition, the members of our Management Board and the management of Biofrontera Inc. voluntarily agreed to waive a substantial portion of their salaries.

After sales of our products had initially dropped to almost zero in April 2020, we were able to observe a slow recovery of our U.S. business in May and June 2020. In many parts of the United States, medical practices have reopened at least in part and we believe patients are increasingly willing to undergo treatment for actinic keratoses. However, due to the continuing dynamics of the COVID-19 pandemic in the United States, the delays in product shipments caused by the pandemic in many states and the possibility that federal, state and/or local governmental authorities may impose or re-impose restrictions on activity in response to an increase in infections, hospitalizations and deaths, the situation remains difficult to assess.

Sales of Ameluz^® in the United States

Increasing our sales of Ameluz^® in the United States is the most important growth driver for our overall business. Our ability to grow our revenues in line with our expectations and to become profitable depends on our ability to successfully meet our sales targets in the United States. As a result of the significant impact of the COVID-19 pandemic on the United States, we experienced an overall decrease in U.S. sales. As the number of COVID-19 cases continue to fluctuate in the United States, it remains very difficult to plan sales revenue growth, thereby leading to a considerable fluctuation range in achievable sales revenues. We believe that the success of our sales strategy in the United States will be influenced heavily by the U.S. response to the COVID-19 pandemic, our ability to obtain from the FDA approval for further label extensions for Ameluz^® and our ability to promote our products in the medical community.

Acquisition of Cutanea Life Sciences, Inc.

Overview

On March 25, 2019, we announced that we, through a U.S. subsidiary, had acquired Cutanea Life Sciences, Inc. (“Cutanea”) from Maruho, the parent company of our major shareholder Maruho Deutschland GmbH. For information relating to the acquisition, including a summary of the Share Purchase and Transfer Agreement dated March 25, 2019, by and among Biofrontera Newderm LLC, Biofrontera AG, Maruho and Cutanea Life Sciences, Inc. (the “Cutanea Purchase Agreement”), relating thereto, please refer to our annual report on Form 20-F for the fiscal year ended December 31, 2018 (the “2019 Form 20-F”), including the notes to our audited financial statements included therein. Descriptions of any portion or portions of the Cutanea Purchase Agreement contained herein are qualified in their entirety by reference to the Cutanea Purchase Agreement, a copy of which is filed as Exhibit 4.13 to our 2018 Form 20-F. As of December 31, 2019, Cutanea was merged with Biofrontera Inc.

At the time of the acquisition, Cutanea had two prescription drugs approved by the U.S. Food and Drug Administration: Xepi^®, a prescription antibiotic cream for the treatment of impetigo (a common bacterial skin infection) and Aktipak^®, a generic drug for the treatment of mild-to-moderate acne. Xepi^® is produced for Biofrontera by Ferrer Internacional S.A., the licensor of Xepi^®, which supplied Cutanea, and now supplies Biofrontera, with the finished product. At the time of the acquisition, Cutanea also had other operations, including significant research and development projects.

After our acquisition of Cutanea’s business, Cutanea was significantly restructured before it was merged into Biofrontera Inc. Due to technical challenges with the manufacturing process of Aktipak^®, which could not be remedied in the short term, Biofrontera ceased the production and sale of Aktipak^® in August 2019. Biofrontera incurred only de minimis expenses related to Aktipak^® before and in connection with discontinuing that product, and does not expect to incur going forward any expenses relating to Aktipak^® that will not be reimbursed by Maruho in connection with the Cutanea Purchase Agreement. As part of our acquisition of Cutanea, we returned to Maruho or discontinued all of Cutanea’s research and development projects. As of December 31, 2019, approximately 95% of Cutanea’s workforce as of the date of the acquisition had been terminated, and we had dissolved or eliminated through mergers or other internal restructuring all Cutanea legal entities. Thus, because of the discontinuance of Aktipak^® sales and the treatment in the transaction of research and development projects, Biofrontera’s acquisition of Cutanea represented, in substance, the acquisition of only the rights to market a single product, Xepi^®. Accordingly, except for the single Xepi^® product line (and de minimis impacts from Aktipak^®-related operations that have already been discontinued), none of the other historical business activities of Cutanea have impacted our results of operations, and we do not expect that they will impact our results of operations in the future. Xepi^® first became available on the market in November 2018.

Effects of Acquisition of Cutanea on Our Income Statement

Cutanea and its subsidiaries Dermarc LLC and Dermapex LLC were fully consolidated on March 25, 2019, the date we acquired Cutanea. Sales revenues for Xepi^® and Aktipak^® as well as cost of sales calculated applying the cost of sales method, are reported in the respective items of our consolidated income statement for the fiscal year ended December 31, 2019.

The following table sets forth the sales revenue, cost of sales, research and development costs, general administrative costs and sales and marketing costs attributable to Cutanea and its subsidiaries, as included in our consolidated statement of comprehensive income for the period from March 25, 2019 to December 31, 2019:

⁽¹⁾ Attributable to Xepi^® and Aktipak^® from and including acquisition date of March 25, 2019
⁽²⁾ Attributable to operations of Cutanea and its subsidiaries from and including acquisition date of March 25, 2019

Pursuant to the Cutanea Purchase Agreement, Maruho agreed to, among other things, assume all (1) ongoing costs that we may incur in connection with our operation of Cutanea’s business during the first three months after completion of the acquisition and (2) restructuring expenses incurred at Cutanea from any restructuring activities commenced or decided within three months from the acquisition date, including a substantial portion of the costs set forth in the table above. These costs will be paid using cash and cash equivalents acquired by Biofrontera upon the acquisition of Cutanea, or they will be passed on to Maruho in accordance with the Cutanea Purchase Agreement and reported under other income. Other income attributable to reimbursement from Maruho amounted to €6.2 million for the period from March 25, 2019 to December 31, 2019.

In addition, badwill in the amount of €14.8 million was included in our other income for the fiscal year ended December 31, 2019. Badwill results from the negative difference in asset and liability items measured at fair value resulting from the purchase price allocation in connection with our acquisition of Cutanea. No badwill was recorded after December 31, 2019.

Financing Needs

As of the date of this Report on Form 6-K, we believe that existing cash and cash equivalents will be sufficient to fund operations for the next 12 months from the date of this report at least. However, changing circumstances may cause us to consume capital significantly faster than currently anticipated, and we may need to spend more money than currently expected because of circumstances beyond the control of the Company. The report of the independent registered public accounting firm accompanying our December 31, 2019 and 2018 audited financial statements contained an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The prior financing requirement of at least €5 million to maintain business operations until the end of April 2021 was covered by the successful placement of a mandatory convertible bond generating gross proceeds of €7.9 million, leaving the Company with sufficient liquidity at present. We prioritize the use of our funds as follows: firstly, to pursue clinical studies; secondly, to fund the development of the larger BF-RhodoLED® lamp; and thirdly, to finance our general business operations, which includes improving the market positioning of our products.

Litigation Relating to Our Intellectual Property and Other Litigation

Despite lower legal costs incurred due to our litigation with DUSA Pharmaceuticals, Inc., in the first nine months of 2020, we expect the legal costs related to our intellectual property and other litigation may affect our operating results and financial condition in future periods.

Recent Developments

Set forth below is certain limited unaudited financial information as of and for the three months and nine months ended September 30, 2020. In connection with our listing on the Frankfurt Stock Exchange, we published substantially all of this financial information in an announcement issued on November 11, 2020. This financial information has been prepared under IFRS as adopted by the European Union (“EU”). No material differences are believed to exist between the presented financial information in accordance with IFRS as adopted by the EU and IFRS as issued by the IASB.

The information presented in this section is not a comprehensive statement of our financial results for the three months and nine months ended September 30, 2020 and should not be considered a substitute for full annual audited or interim unaudited financial statements. The information presented herein should be read in conjunction with the consolidated audited financial statements and related notes filed as part of our Annual Report on Form 20-F for the year ended December 31, 2019 and our interim unaudited financial statements for the six-month period ended June 30, 2020 which have been filed as an exhibit to the report on Form 6-K of which this section is a part.

The following is not intended to serve as a complete management’s discussion and analysis of our financial condition and results of operations for the period presented and does not include all the information that a domestic issuer in the United States whose securities are registered under the Securities and Exchange Act of 1934 would be required to disclose.

Results of Operations

Sales Revenue

Our sales revenue for the nine-month period ended September 30, 2020 increased by 9% to €20.8 million compared to €19.1 million in the nine-month period ended September 30, 2019, driven primarily by growth in Germany and a one-time payment of €6.0 million, which was received by the Company from Maruho Co., Ltd. under the Maruho license agreement. Revenues from product sales in the nine-month period ended September 30, 2020, amounted to €14.3 million, a decrease of 23% compared to the same period in 2019. In the United States, product sales of €9.1 million in the nine-month period ended September 30, 2020 were down 33% compared to €13.6 million in the same period of 2019. This includes €202,000 in sales generated by the sale of Xepi®. Sales in other European countries decreased by 26% to €1.3 million in the nine-month period ended September 30, 2020, compared to €1.8 million in the nine-month period ended September 30, 2019. Sales from other regions amounted to €6.5 million in the nine-month period ended September 30, 2020, compared to €367,000 in the nine-month period ended September 30, 2019 and included a one-time payment of €6.0 million under the Maruho license agreement. The decrease in revenues from product sales is primarily due to the effects of the COVID-19 pandemic and the response thereto, especially in the United States, which limited access to, and demand for, our products. The notable exception to this trend were sales in Germany which increased by 19% to €3.9 million in the nine-month period ended September 30, 2020 compared to €3.3 million in the same period of 2019.

Gross Profit on sales

Gross profit on sales for the nine months ended September 30, 2020 increased by €3.4 million to €18.3 million compared to €14.9 million in the same period in 2019. The gross margin increased from 78% in the first nine months of 2019 to 88% in the first nine months of 2020, mainly due to the revenue from the one-time payment received under the Maruho license agreement, which is not offset by any directly attributable sales costs

Research and Development Costs

Research and development costs for the nine months ended September 30, 2020 amounted to €3.4 million, which was slightly above the costs of €3.2 for the nine months ended September 30, 2019. Research and development costs include costs for clinical studies as well as regulatory expenses, i.e., the granting, maintenance and extension of our approvals.

General Administrative Costs

General administrative expenses amounted to €6.9 million in the nine months ended September 30, 2020, compared to €12.1 million in the nine months ended September 30, 2019, a decrease of €5.2 million. This was primarily due to the cost-saving measures we introduced as a result of the COVID-19 pandemic as well as lower legal costs. Additionally, the 2019 figure also included costs due to the first-time consolidation of Cutanea Life Sciences, Inc. (which we acquired in March 2019).

Sales Costs

Sales costs amounted to €16.3 million for the nine months ended September 30, 2020, a decrease of €4.3 million compared to €20.6 million for the nine months ended September 30, 2019. This decrease was mainly due to the cost-saving measures introduced as a result of the COVID-19 pandemic as well as the fact that the 2019 figure also included costs due to the first-time consolidation of Cutanea Life Sciences, Inc. (which we acquired in March 2019). Both these effects led to a total reduction in costs of €6.3 million, which was offset by a non-cash impairment of the Xepi® license in the amount of €2.0 million in the first quarter of 2020. This resulted in the total decrease of €4.3 million.

Loss on Operations

The loss from operations of €8.4 million for nine months ended September 30, 2020, compared to the loss of €21.1 million in the nine months ended September 30, 2019, improved due to the cost-saving measures implemented during the reporting period as well as due to the effects of the first-time consolidation of Cutanea Life Sciences, Inc. acquired in March 2019 included in the previous year’s figure.

Other Income and Expenses

Other income and expenses totaled €(1.6) million for the nine months ended September 30, 2020 compared to €20.8 million for the same period of 2019. The decrease is primarily due to the one-time effects of €19.3 million from the acquisition of Cutanea Life Sciences, Inc. This figure also includes expenses and income from currency translation.

Non-Current Assets

Non-current assets amounting to a total of €31.6 million include the recognized deferred tax assets on tax loss carryforwards for Biofrontera Pharma GmbH in the amount of €7.5 million and the acquired Xepi® license in the amount of €17.9 million. The value of the carrying amount was verified by an impairment test, which also includes the current market situation caused by the COVID-19 pandemic and the resulting delays in the market penetration of Xepi®. As a result, this led to a non-cash impairment in the amount of €2.0 million.

Current Financial Assets

Current financial assets as of September 30, 2020, totaled €19.3 million. This includes cash and cash equivalents of €16.7 million (December 31, 2019: €11.1 million) and trade receivables of €2.0 million (December 31, 2019: €5.0 million).

Other Current Assets

Other current assets mainly include inventories amounting to €4.7 million as of September 30, 2020 (December 31, 2019: €5.3 million).

Equity

The fully paid in share capital of the parent company, Biofrontera AG, amounted to €44.8 million as of September 30, 2020. It was divided into 44,849,365 registered shares with a nominal par value of €1.00 each. Total equity as of September 30, 2020 amounted to €(1.1) million compared to €9.6 million as of December 31, 2019. The decrease in equity can be attributed to the additional losses incurred in the first nine months of 2020.

Non-Current Liabilities

Non-current liabilities include financial liabilities (€30.4 million as of September 30, 2020; December 31, 2019: €22.1 million) and other non-current financial liabilities from the purchase price for Cutanea (€17.3 million as of September 30, 2020; December 31, 2019: €14.7 million). The increase in the purchase price liability, compared to December 31, 2019, is mainly due to the provision of further start-up costs from Maruho in the amount of €2.9 million. Also included in non-current liabilities are liabilities from the stock appreciation rights program in the amount of €90,000 (Dec 31, 2019: €0). The non-current financial liabilities include the loan from the under our credit facility with European Investment Bank, or EIB, including the performance participation interest payment in the amount of €17.6 million as September 30, 2020 (December 31, 2019: €17.1 million), the non-converted portion of the convertible bond 2017-22 in the amount of €2 million as of September 30, 2020, the non-converted portion of the convertible bond 2020-21 in the amount of €7.9 million as of September 30, 2020 and liabilities from leasing agreements in the amount of €2.9 million to be recognized under IFRS 16.

Current Financial Liabilities

Current financial liabilities mainly include trade payables of €1.6 million as of September 30, 2020 (December 31, 2019: €4.2 million) and liabilities from leases in the amount of €1.1 million (Dec 31, 2019: €1.0 million) to be recognized in accordance with IFRS 16.

Other Current Liabilities

Other current liabilities amounted to €6.1 million and primarily comprise provisions of €3.0 million (Dec 31, 2019: €3.5 million) and accrued liabilities of €1.6 million (Dec 31, 2019: €2.2 million). This item also includes liabilities towards employees for payments to the Company for exercising options for which shares were not transferred until the fourth quarter 2020 in the amount of €703 thousand.

Condensed consolidated balance sheet as of September 30, 2020

Equity and liabilities

Condensed consolidated statement of comprehensive income for the first nine months of the 2020 and 2019 fiscal years

Selected Consolidated Financial Data

The following tables set forth a summary of the consolidated historical financial information of, and for the periods ended on, the dates indicated for Biofrontera. We prepare our consolidated financial statements in accordance with IFRS as issued by the IASB. The selected consolidated statement of operations data for the fiscal years ended December 31, 2019, December 31, 2018 and December 31, 2017, and the selected consolidated balance sheet data as of December 31, 2019 and December 31, 2018 have been derived from our audited consolidated financial statements. Our selected consolidated statement of operations data for the six months ended June 30, 2020 and June 30, 2019 and the selected consolidated balance sheet data as of June 30, 2020 have been derived from our unaudited interim condensed consolidated financial statements included as an exhibit to the report on Form 6-K of which this exhibit forms a part. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements and include all normal recurring adjustments that we consider necessary for a fair statement of our financial position and operating results for the periods presented.

The following selected consolidated financial data for the periods and as of the dates indicated are qualified by reference to and should be read in conjunction with our consolidated financial statements and related notes included as an exhibit to the report on Form 6-K of which this discussion forms a part.

Our historical results for any prior period do not necessarily indicate our results to be expected for any future period.